New housing rescue bill - anyone figured it out?

[ziggy29]

Quote:

Originally Posted by tryan I can't see why a lender would allow a +20% write-off on a performing asset. Unless there is pressure to bundle performing with non-performing assets ... the new goverment backed CDO (yikes!).

I'm sure this was much of the impetus for focusing on the breaks for the non-performing loans; a lender isn't likely to accept (say) 75 cents on the dollar on a mortgage that is current. But unfortunately, it does have the side effect of rewarding those who default on payments.

[UncleHoney]

I was reading one provision of the housing bill that provides $4 billion dollars for cities to buy foreclosed homes, fix them up and resell them to the low income.

Looks like a trap to me. The cities buy the homes from the mortgage guys which gets them off the hook for maintaining the properties and paying taxes. Now the cities fix up and try to sell them. If they can sell them they get new taxpayers and all live happily ever after.

But if the properties don't sell quickly the cities lose out on tax revenue and they are probably sitting on a depreciating asset which will be worth less than they paid the mortgage lenders.

Looks like the cities (taxpayers) will end up holding an empty bag if home values continue to fall and if mortgage rates go up as some are predicting. Plus, potential buyers are probably the people that got foreclosed on that now have a subzero credit score.

Anyway you slice it, it's a win win deal for the mortgage brokers.

[ziggy29]

Quote:

Originally Posted by UncleHoney I was reading one provision of the housing bill that provides $4 billion dollars for cities to buy foreclosed homes, fix them up and resell them to the low income. Looks like a trap to me. The cities buy the homes from the mortgage guys which gets them off the hook for maintaining the properties and paying taxes. Now the cities fix up and try to sell them. If they can sell them they get new taxpayers and all live happily ever after. But if the properties don't sell quickly the cities lose out on tax revenue and they are probably sitting on a depreciating asset which will be worth less than they paid the mortgage lenders.

It was this provision that led the president to originally threaten a veto. But in the end, he blinked.

[brewer12345]

Quote:

Originally Posted by tryan I can't see why a lender would allow a +20% write-off on a performing asset. Unless there is pressure to bundle performing with non-performing assets ... the new goverment backed CDO (yikes!).

Nah, this will directly refi the loans that are in trouble/delinquent where the lender would rather take the hit up front instead of going through the long, costly foreclosure process.

The potential wrinkle I see is the prohibition on HELOCs. These borrowers won't have the cash to pay the HELOCs off, so the only way out is to get the HELOC lender to agree to get nothing. Dunno how tough that will be, although HELOC defaults already approach 100% loss to the lender.

Laurence, tell your neighbor to contact her lender(s) and start asking for help. Pretty much every lender would rather do a work-out of some sort thatn just have a loan go bad and proceed to foreclosure.

[laurence]

Quote:

Originally Posted by brewer12345 Nah, this will directly refi the loans that are in trouble/delinquent where the lender would rather take the hit up front instead of going through the long, costly foreclosure process. The potential wrinkle I see is the prohibition on HELOCs. These borrowers won't have the cash to pay the HELOCs off, so the only way out is to get the HELOC lender to agree to get nothing. Dunno how tough that will be, although HELOC defaults already approach 100% loss to the lender. Laurence, tell your neighbor to contact her lender(s) and start asking for help. Pretty much every lender would rather do a work-out of some sort thatn just have a loan go bad and proceed to foreclosure.

Thanks Brew. I'll talk to them.

[GLM]

Quote:

Originally Posted by ladelfina I have also seen talk of a $7500 "credit" to stimulate new home purchases.. but it turns out that's actually a loan also. I'm not sure if that's part of this bill; just saw reference to it in passing.

Yes there is this provision in the bill. It is, as I understand it, essentially an interest free loan paid back over several years (10 I think ) . There is an income limit , and you must not have owned a home for at least the last 2 years. You deduct the $7500 max from your income taxes , and pay it back slowly - or when you sell the home.

Our son has been saving up a down payment for a couple of years and is getting ready to buy his first home . While an interest free loan is nice for him, It seems like a shortsighted idea to try and jump start getting new blood into the housing market. Anyone who buys a home because they can get a tax break in one year - and then have to pay it back slowly - probably does not plan too well. Then in a few years we will find they too can't afford all those nasty tax repayments....

[CitricAcid]

Quote:

Originally Posted by GLM Yes there is this provision in the bill. It is, as I understand it, essentially an interest free loan paid back over several years (10 I think ) . There is an income limit , and you must not have owned a home for at least the last 2 years. You deduct the $7500 max from your income taxes , and pay it back slowly - or when you sell the home. Our son has been saving up a down payment for a couple of years and is getting ready to buy his first home . While an interest free loan is nice for him, It seems like a shortsighted idea to try and jump start getting new blood into the housing market. Anyone who buys a home because they can get a tax break in one year - and then have to pay it back slowly - probably does not plan too well. Then in a few years we will find they too can't afford all those nasty tax repayments....

Money today is more valuable than money tomorrow both because of inflation and the return of the time value of money. In other words, maybe it is irresponsible for many, but if you can afford it... you should ABSOLUTELY take advantage of this. $7,500 0% 10 year loan should not be passed up for those who can take it. I think it is a very short-sighted and irresponsible provision in the bill, however.

[ladelfina]

Here is a partial analysis (with an interesting example applying the bill to a 'typical' CA home):

Crony Capitalism for Dummies: Housing and Economic Recovery Act of 2008. How the Bailout will not Help you and Cost you Money. A Deep Look at the 694 Pages of the Bill. » Dr. Housing Bubble Blog

[missionfinder]

Strange how the 800 lb gorilla about who the bad borrowers are and who is being bailed is rarely mentioned, especially by the Dems who love handouts. As is usually the case very little consideration is given to those of us who'll pay for this directly or indirectly. USA Today did some stories about it but it appears that overall the press is very quiet about the part race has played. Why are people so afraid of truth?

Close to half the housing market run-up in the past 10 years was due to new minority buyers and their default rate is several times higher, as well has nearly 4x more likely to take out a risky loan. This is all about buying votes....

[Htown Harry]

Quote:

Originally Posted by missionfinder Strange how the 800 lb gorilla about who the bad borrowers are and who is being bailed is rarely mentioned, especially by the Dems who love handouts. As is usually the case very little consideration is given to those of us who'll pay for this directly or indirectly. USA Today did some stories about it but it appears that overall the press is very quiet about the part race has played. Why are people so afraid of truth? Close to half the housing market run-up in the past 10 years was due to new minority buyers and their default rate is several times higher, as well has nearly 4x more likely to take out a risky loan. This is all about buying votes....

OK, I'm now an expert after 30 minutes of reading and I'll bite...

http://www.nytimes.com/2007/11/04/we...w/04bajaj.html

Race and the Housing Crisis - The Washington Independent - U.S. news and politics - washingtonindependent.com

A 'smoking gun' on race, subprime loans - The Boston Globe

Is Race a Factor in Atlanta Foreclosure Mess? - Black Voices Blogs

http://www.dallasfed.org/news/ca/2007/07home_yu.pdf


Yes, there is a numerical correlation between foreclosures and minority homeowners. So?

My take: Race per se isn't a root cause of any aspect of the foreclosure issue. There's a much stronger correlation between independent mortgage brokers (and complicit homebuilders) selling sub-prime products to less educated, less credit-worthy buyers.

I'm imagining a mortgage salesman at Mortgages-R-Us, sitting in a 2006 sales meeting...

[Sales Manager speaking] "OK, guys, I have great news. Wall Street just called the CFO to say they'll take any old note with a valid SSN and a signature. Marketing has created a new ARM product with a teaser rate that's just too good to be true. It squeezes the down payments to almost zip and the starting monthly payments down to just about 3/4 of prevailing rents here in Boomtown. And the new refi deals? Don't worry, those are just as sweet. Best of all, management has OK'd a bigger commission, up front and hidden in the fine print, for those of you who can get out there and sell, sell, sell. Now, I know closing the sale can be tough if they bring up that pesky "reset" issue. If the fish customer does, just tell them that incomes always go up and interest rates always go down."

Mr. Salesman's reaction: "I'm looking for prospects who are _______".

"Financially ignorant" is a much more likely as a primary answer than "minority", IMHO.

Following the same line of reasoning, I conclude that Washington politicians are buying the votes of the ignorant. So what's new about that "880-pound gorilla"?:

[CitricAcid]

Without delving into the SoapBox too much, reading those article posted by HTown Harry, I did not see any that separated minorities from class distinctions. They only claimed that minorities on average had a higher percentage who had subprime mortgages than whites on average. Does not control for class (for example, on average, many minorities make less than a typical whites) meaning it could be a factor of income or lack of assets, which leads to 100% financing, et cetera. So, I would agree with HTown Harry, I don't think it is a matter of race, it is more a matter of financials, which gets tied back to race.

[cute fuzzy bunny]

Its a matter of people who took out a loan and couldnt make the payments.

Once again we're taught the lesson regarding the difference between correlation and causation.

[Zoocat]

Quote:

Originally Posted by ladelfina Here is a partial analysis (with an interesting example applying the bill to a 'typical' CA home): Crony Capitalism for Dummies: Housing and Economic Recovery Act of 2008. How the Bailout will not Help you and Cost you Money. A Deep Look at the 694 Pages of the Bill. » Dr. Housing Bubble Blog

ladelfina, I'm glad you posted this. I think it's an intelligent analysis, albeit from a conservative point of view.

[ladelfina]

Oldbabe, get with the program.. I NEVER post "conservative" things according to this crowd.
I just got waled on for posting a link to the Great Orange Satan (Daily Kos).

[Texarkandy]

Quote:

Originally Posted by CitricAcid Without delving into the SoapBox too much, reading those article posted by HTown Harry, I did not see any that separated minorities from class distinctions. They only claimed that minorities on average had a higher percentage who had subprime mortgages than whites on average. Does not control for class (for example, on average, many minorities make less than a typical whites) meaning it could be a factor of income or lack of assets, which leads to 100% financing, et cetera. So, I would agree with HTown Harry, I don't think it is a matter of race, it is more a matter of financials, which gets tied back to race.

And it could also be partially that a not small percentage of them are, dare I say it?, .... Illegal Aliens (who really don't give a rats *** about their credit ratings or defaulting on their loans)

[stephenandrew]

From the 7/28 WSJ On-Line, by Brett Arends:

"The way the bill was written, Congress sought to make sure that the homeowners who benefited from this relief would not profit from it in due course. To that end, it stipulated that the FHA would claw back at least 50% of any profits that the homeowners made when they sold the home.
But in the fine print, there's a get-out clause. Homeowners should be able to escape most of this claw-back provision so long as they first refinance their FHA loan with a new private sector mortgage before they sell.
Obviously, if the market has rebounded enough for you to sell at a profit, it will probably have rebounded enough for you to be able to get a new mortgage without FHA help. And then you may get to keep most of your profits."

Remarkable

[Hamlet]

Hey, I wasn't complaining about it, just pointing out the slant. If you look at my posts to the thread, I pointed out the slant of my links as well.

I always try to keep the source in mind.

Quote:

Originally Posted by ladelfina Oldbabe, get with the program.. I NEVER post "conservative" things according to this crowd. I just got waled on for posting a link to the Great Orange Satan (Daily Kos).

[cute fuzzy bunny]

Quote:

Originally Posted by stephenandrew it will probably have rebounded enough for you to be able to get a new mortgage without FHA help. And then you may get to keep most of your profits

Hopefully the mortgage companies will be able to look at the applicants credit history and see that they had to be bailed out of the original loan by the FHA and decline to give them a new mortgage.

Unfortunately there'll always be someone who'll lend to anyone.

[clifp]

Wow our Congress at its brilliant best. When I first read about the clawback provision, I was think good for the law makers when the housing market recovers, at least the tax payers will get a partial refund on our bailout.

Assuming the WSJ report Brett Arends understood the provision correctly. I don't see why anybody would ever pay 1/2 there gains to the government.

A couple bought got a $450K loan a $500K house back in 2006, thanks to foreclosures in the neighborhood, the value had dropped to $300K. The wife loses her job and they are having a hard time making the payments. The get a FHA loan for 270K, 5 years latter prices have rebounded to 400K. With a 5 year history of making their (smaller) payments, and 30%+ equity in their house why wouldn't a private lender give them a loan, especially because they can get rid of the 1.5% insurance charge.

[laurence]

Quote:

Originally Posted by clifp Wow our Congress at its brilliant best. When I first read about the clawback provision, I was think good for the law makers when the housing market recovers, at least the tax payers will get a partial refund on our bailout. Assuming the WSJ report Brett Arends understood the provision correctly. I don't see why anybody would ever pay 1/2 there gains to the government. A couple bought got a $450K loan a $500K house back in 2006, thanks to foreclosures in the neighborhood, the value had dropped to $300K. The wife loses her job and they are having a hard time making the payments. The get a FHA loan for 270K, 5 years latter prices have rebounded to 400K. With a 5 year history of making their (smaller) payments, and 30%+ equity in their house why wouldn't a private lender give them a loan, especially because they can get rid of the 1.5% insurance charge.

I suspect they'll get more people to pay back than you might imagine. Not everybody is savvy like that - unless of course we start seeing commercials on t.v. in 5 years, "Unlock your profits - you've earned it!".