Should Taxpayers Subsidize McMansion Purchases?

Retire Soon · 09-28-2008, 02:27 PM

It's not certain, but probable that the Paulson Bail out Plan will become law. A key provision from the Bail out Summary is this:

"The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year."

Do you think Taxpayers should pay for "reduced principal" on mortgages of Americans who have purchased McMansions ?

**Martha** · 09-28-2008, 02:49 PM

What I would prefer is to do it through the bankruptcy system, allowing people to do reorganization plans that may involve restructuring their home debt and other debt, while living off of a court approved budget.

Otherwise, we might have even more defaults on upside down mortgages.

**ziggy29** · 09-28-2008, 03:08 PM

They already do and have for years, through the tax deductions for mortgage interest and property taxes.

mb · 09-28-2008, 03:15 PM

I think that you have stated the question in such as manner that very few will reply with a "yes." That is of course what pollsters do when they are trying to manipulate the answer.

Retire Soon · 09-28-2008, 03:25 PM

That's exactly the point I'm trying to make. When government officials begin reducing the principal on these mortgages, are they going to take the mortgage amount into consideration? That is, will a 100k mortgage have a better chance for subsidy than a 300k mortgage?

brewer12345 · 09-28-2008, 03:40 PM

Quote:

Originally Posted by Martha

What I would prefer is to do it through the bankruptcy system, allowing people to do reorganization plans that may involve restructuring their home debt and other debt, while living off of a court approved budget.

Otherwise, we might have even more defaults on upside down mortgages.

But that would require a BK system that was not recreated exactly according to the credit card companies' specific wishes. Good luck with that.

Retire Soon · 09-28-2008, 03:45 PM

Quote:

Originally Posted by brewer12345

But that would require a BK system that was not recreated exactly according to the credit card companies' specific wishes. Good luck with that.

You've raised a very important issue:

Banks love bailout, hate credit card curbs - Los Angeles Times

brewer12345 · 09-28-2008, 03:50 PM

Quote:

Originally Posted by Retire Soon

You've raised a very important issue:

Banks love bailout, hate credit card curbs - Los Angeles Times

Actually, the restrictions imposed in the bill are stupid and ill-timed. What needs to be changed is how credit card debt is treated in bankruptcy, not how credit is priced. You restrict the ability of banks to price credit on a flexible basis and you shut off the flow of credit to some proportion of the population.

cute fuzzy bunny · 09-28-2008, 04:52 PM

That raises an interesting question: what happens when everyone stops making their credit card payments?

Oldbabe · 09-28-2008, 04:56 PM

Everyone who's interested in this whole shebang really should watch the documentary "Maxed Out." It's available for instant viewing on Netflix. Very enlightening on how we got to this point. I learned a lot about how the banks lobby congress and how they use credit card interest rates and fees to trap people

laurence · 09-28-2008, 05:09 PM

Bailing out your neighbors sounds horrible until you face the alternative. As someone with an empty house behind me and neighbors on the verge of walking out, I can tell you it stinks. More houses in my neighborhood have renters now, and they could give a crap about how their front lawn or cars look. Who knows if it's related, but all of a sudden cars are getting egged, trees tp'ed, our car was broken into along with a dozen others...and from what I've heard we've had it easy compared to some neighborhoods.

chinaco · 09-28-2008, 05:47 PM

I don't think the principal should be reduce.. but if they have a sky high interest rates... That might need to be reduced. Nobody wants those houses back on the market.

cute fuzzy bunny · 09-28-2008, 05:49 PM

I'm fine with principal reduction as long as any capital gains on future sales are recouped, and people moving with a negative value have to pay at least part of that back over time, probably as part of their taxes...sort of like working off a capital loss...

FUEGO · 09-28-2008, 06:35 PM

I just finished skimming the 110 page bailout bill. It looks like the govt won't necessarily be losing money in all cases if it were to reduce the principal amount of a mortgage. Say it buys a mortgage for 60 cents on the dollar and then writes off 40% of the principal amount outstanding. Is it really losing that 40%? No. It is just making the outstanding principal amount equal to the purchase price of the mortgage. The goal of the govt would be to turn the mortgage from one almost guaranteed to go into default into one that has a significant likelihood of being repaid.

I do have concerns with the fact that these borrowers will never be required to pay any of the forgiven debt back, and further that they won't have to pay tax on debt forgiveness (BTW, this bailout bill extends the nontaxation of forgiven debt from 2010 to 2013). I wonder if the govt could agree to write off certain principal amounts and then agree with the homeowner to have a portion (20-50%) become debt they owe to the IRS and payable over time starting after a 5 year grace period or so. That way, the government gets a portion of their money back, the homeowner gets a break, and hopefully everyone/everything will be solvent and sane in 5 years. Make the debt IRS debt so they can't easily discharge it in BK and the govt has a number of sticks to hit them with to encourage payment.

In the meantime, I'm off to figure out ways to get my hands on some sweeeeet government handouts!

laurence · 09-28-2008, 06:35 PM

Quote:

Originally Posted by cute fuzzy bunny

I'm fine with principal reduction as long as any capital gains on future sales are recouped, and people moving with a negative value have to pay at least part of that back over time, probably as part of their taxes...sort of like working off a capital loss...

+1. Some sort of "we get a cut of your profits from the sale down the road" plan.

cute fuzzy bunny · 09-28-2008, 07:02 PM

I'd sure at heck hate to see these folks get a principal chunk forgiven, and then sell the house 6 years from now for a 5 figure gain, tax free...that better not happen.

FIRE'd@51 · 09-28-2008, 07:23 PM

Quote:

Originally Posted by FUEGO

I just finished skimming the 110 page bailout bill. It looks like the govt won't necessarily be losing money in all cases if it were to reduce the principal amount of a mortgage. Say it buys a mortgage for 60 cents on the dollar and then writes off 40% of the principal amount outstanding. Is it really losing that 40%? No. It is just making the outstanding principal amount equal to the purchase price of the mortgage. The goal of the govt would be to turn the mortgage from one almost guaranteed to go into default into one that has a significant likelihood of being repaid.

In addition, as Warren Buffett and Bill Gross have pointed out, the government should make a few percentage points on the carry since it can raise the money to buy the mortgage at less than 4%.

jazz4cash · 09-28-2008, 09:03 PM

I'd prefer extending the term of the loan over a reduction in principal.

armor99 · 09-28-2008, 09:49 PM

My thoughts on this one are pretty simple. I believe that as an american citizen we NEED to pay SOME taxes. The govt has no money of it's own to purchase anything. The only money the govt has is what it collects from the citizens via our taxes. That being said, if that tax money is being collected from everyone, then morally it must only be used for things that can be utilized by everyone. The education system, roads, libraries, police, national defense, military hardware, etc. These are all things that I either have used, do use, or will at some in the future have some use for, or derive some benefit from. However, when my tax dollars are being put into the hands of another individual, or a privately held company, then I cannot derive any use of that money whatsoever!
I think by now I truly do understand if not agree with the other side of this arguement. And that objection is.. (so the other side will tell me) that the govt is responsible for the well being of EVERY american citizen, and the govt MUST help everyone responsible, and irresponsible alike, in adherance to that mandate. But the one point that always seems to get missed here, is on WHOS nickle is that being funded? Remember govt money is OUR money (the citizens...)

Gardnr · 09-28-2008, 11:01 PM

Quote:

Originally Posted by cute fuzzy bunny

View Poll Results: Should taxpayers subsidize McMansion purchases?
Yes, I think buyers in danger of default should have their mortgage principal reduced.	7	14.00%
No, I don't think buyers in danger of default should have their mortgage principal reduced.	36	72.00%
Not sure.	1	2.00%
I will need more information before expressing my opinion.	6	12.00%
Voters: 50. You may not vote on this poll

09-28-2008, 02:27 PM	#1
Retire Soon Full time employment: Posting here. Join Date: Nov 2005 Posts: 535	Should Taxpayers Subsidize McMansion Purchases? It's not certain, but probable that the Paulson Bail out Plan will become law. A key provision from the Bail out Summary is this: "The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year." Do you think Taxpayers should pay for "reduced principal" on mortgages of Americans who have purchased McMansions ? __________________ "I went to the woods because I wished to live deliberately... and not, when I came to die, discover that I had not lived." --Henry David Thoreau

09-28-2008, 02:49 PM	#2
Martha Administrator Join Date: Feb 2004 Location: minnesota Posts: 9,864	What I would prefer is to do it through the bankruptcy system, allowing people to do reorganization plans that may involve restructuring their home debt and other debt, while living off of a court approved budget. Otherwise, we might have even more defaults on upside down mortgages. __________________ . Do not rely on the information provided--my posts are not to be taken as legal advice. Needless to say you must consult with your legal representative. I am not responsible for errors. If I offended you with cya I apologize. If I did not, I tried.

09-28-2008, 03:08 PM	#3
ziggy29 Moderator Join Date: Oct 2005 Location: Texas Hill Country Posts: 2,428	They already do and have for years, through the tax deductions for mortgage interest and property taxes. __________________ FIRE Clock: 11:26 PM. FIREd at midnight but very subject to change.... waiting for the government to privatize the gains and socialize my losses in my 401K...

09-28-2008, 03:25 PM	#5
Retire Soon Full time employment: Posting here. Join Date: Nov 2005 Posts: 535	That's exactly the point I'm trying to make. When government officials begin reducing the principal on these mortgages, are they going to take the mortgage amount into consideration? That is, will a 100k mortgage have a better chance for subsidy than a 300k mortgage? __________________ "I went to the woods because I wished to live deliberately... and not, when I came to die, discover that I had not lived." --Henry David Thoreau

09-28-2008, 03:15 PM	#4
mb Full time employment: Posting here. Join Date: Jan 2006 Posts: 720	I think that you have stated the question in such as manner that very few will reply with a "yes." That is of course what pollsters do when they are trying to manipulate the answer.

09-28-2008, 04:52 PM	#9
cute fuzzy bunny Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Dec 2003 Location: Losing my whump Posts: 22,527	That raises an interesting question: what happens when everyone stops making their credit card payments? __________________ Many an optimist has become rich by buying out a pessimist

09-28-2008, 04:56 PM	#10
Oldbabe Thinks s/he gets paid by the post Join Date: Oct 2005 Posts: 1,139	Everyone who's interested in this whole shebang really should watch the documentary "Maxed Out." It's available for instant viewing on Netflix. Very enlightening on how we got to this point. I learned a lot about how the banks lobby congress and how they use credit card interest rates and fees to trap people

09-28-2008, 05:09 PM	#11
laurence Moderator Emeritus Join Date: Feb 2005 Location: San Diego Posts: 4,788	Bailing out your neighbors sounds horrible until you face the alternative. As someone with an empty house behind me and neighbors on the verge of walking out, I can tell you it stinks. More houses in my neighborhood have renters now, and they could give a crap about how their front lawn or cars look. Who knows if it's related, but all of a sudden cars are getting egged, trees tp'ed, our car was broken into along with a dozen others...and from what I've heard we've had it easy compared to some neighborhoods.

09-28-2008, 05:47 PM	#12
chinaco Thinks s/he gets paid by the post Join Date: Feb 2007 Posts: 2,951	I don't think the principal should be reduce.. but if they have a sky high interest rates... That might need to be reduced. Nobody wants those houses back on the market. __________________ Disclaimer: I make no warranty or guarantee about the accuracy or completeness of this information. I am not a financial planner, my comments only represent my opinion.

09-28-2008, 05:49 PM	#13
cute fuzzy bunny Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Dec 2003 Location: Losing my whump Posts: 22,527	I'm fine with principal reduction as long as any capital gains on future sales are recouped, and people moving with a negative value have to pay at least part of that back over time, probably as part of their taxes...sort of like working off a capital loss... __________________ Many an optimist has become rich by buying out a pessimist

09-28-2008, 06:35 PM	#14
FUEGO Full time employment: Posting here. Join Date: Nov 2007 Posts: 683	I just finished skimming the 110 page bailout bill. It looks like the govt won't necessarily be losing money in all cases if it were to reduce the principal amount of a mortgage. Say it buys a mortgage for 60 cents on the dollar and then writes off 40% of the principal amount outstanding. Is it really losing that 40%? No. It is just making the outstanding principal amount equal to the purchase price of the mortgage. The goal of the govt would be to turn the mortgage from one almost guaranteed to go into default into one that has a significant likelihood of being repaid. I do have concerns with the fact that these borrowers will never be required to pay any of the forgiven debt back, and further that they won't have to pay tax on debt forgiveness (BTW, this bailout bill extends the nontaxation of forgiven debt from 2010 to 2013). I wonder if the govt could agree to write off certain principal amounts and then agree with the homeowner to have a portion (20-50%) become debt they owe to the IRS and payable over time starting after a 5 year grace period or so. That way, the government gets a portion of their money back, the homeowner gets a break, and hopefully everyone/everything will be solvent and sane in 5 years. Make the debt IRS debt so they can't easily discharge it in BK and the govt has a number of sticks to hit them with to encourage payment. In the meantime, I'm off to figure out ways to get my hands on some sweeeeet government handouts!

09-28-2008, 07:02 PM	#16
cute fuzzy bunny Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Dec 2003 Location: Losing my whump Posts: 22,527	I'd sure at heck hate to see these folks get a principal chunk forgiven, and then sell the house 6 years from now for a 5 figure gain, tax free...that better not happen. __________________ Many an optimist has become rich by buying out a pessimist

09-28-2008, 09:03 PM	#18
jazz4cash Thinks s/he gets paid by the post Join Date: Aug 2004 Location: Laurel, MD Posts: 1,081	I'd prefer extending the term of the loan over a reduction in principal.

09-28-2008, 09:49 PM	#19
armor99 Recycles dryer sheets Join Date: Feb 2007 Posts: 444	My thoughts on this one are pretty simple. I believe that as an american citizen we NEED to pay SOME taxes. The govt has no money of it's own to purchase anything. The only money the govt has is what it collects from the citizens via our taxes. That being said, if that tax money is being collected from everyone, then morally it must only be used for things that can be utilized by everyone. The education system, roads, libraries, police, national defense, military hardware, etc. These are all things that I either have used, do use, or will at some in the future have some use for, or derive some benefit from. However, when my tax dollars are being put into the hands of another individual, or a privately held company, then I cannot derive any use of that money whatsoever! I think by now I truly do understand if not agree with the other side of this arguement. And that objection is.. (so the other side will tell me) that the govt is responsible for the well being of EVERY american citizen, and the govt MUST help everyone responsible, and irresponsible alike, in adherance to that mandate. But the one point that always seems to get missed here, is on WHOS nickle is that being funded? Remember govt money is OUR money (the citizens...)