Should Taxpayers Subsidize McMansion Purchases?

[Retire Soon]

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]

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.

[brewer12345]

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]

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]

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.

[ziggy29]

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

[mb]

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]

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?

[cute fuzzy bunny]

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

[aaronc879]

Quote:

Originally Posted by cute fuzzy bunny That raises an interesting question: what happens when everyone stops making their credit card payments?

Apparently the fed will bail them out too like they do with all the other financially irresponsible people.

[Oldbabe]

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]

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]

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]

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...

[laurence]

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.

[Gardnr]

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...

Bingo. That shouldn't be so hard to do, and it makes it a lot more fair while giving the short term relief needed.

[haha]

And chain gangs. Haha living in a 500 sq ft apartment does not like to pay huge taxes for some a-hole's mcmansion.

Ha

[laurence]

It's starting to get real ugly in my neighborhood. One of the renters found out the owner stopped paying on the mortgage months ago (still cashed the rent checks, though) so he stopped sending the rent checks. They are going to move out in a week or two and let their Dad live there (squat) until someone comes by to kick him out. There is a sense from people in the 'hood that everbody "made out" except for themselves.

[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.

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!

[FIRE'd@51]

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%.