I'd still argue for legislation authorizing the government to take over mortgages at market value using eminent domain.

Just a while ago I heard Limbaugh on the radio tearing into the plan -- so it must be good.

Kevin Drum seems to have a good take-down of this -- what indications are there that it would work?

Why not set up a new bank with the rest of the TARP money and offer low-interest mortgage refis?

I'd like to echo low-yech cyclist, and expand a bit. I've proposed before and still support:

1) Providing funds for the government to purchase distressed mortgages using eminent domain.
2) Establishing that the criteria for the use of such funds is that the government will purchase those mortgages for which the fair market value of the mortgage is less than the current principal balance on the mortgage, preferring those mortgages where the ratio of principal balance to market price is the highest.
3) Establish that both property owners and mortgage holders may nominate a mortgage for purchase by the government (subject to the criteria above).
4) Establish that, when the government purchases a mortgage, the principal balance will be reduced by one-half the difference between the original principal balance and one-half the purchase price paid by the government, with a fixed interest rate not greater than the current interest rate at the time of purchase, and with no change to the term.

In my 1:34pm comment, the second "one-half" in point #4 should be deleted, it should read:

4) Establish that, when the government purchases a mortgage, the principal balance will be reduced by one-half the difference between the original principal balance and the purchase price paid by the government, with a fixed interest rate not greater than the current interest rate at the time of purchase, and with no change to the term.

Limbaugh was on a jag about how this plan "rewards the people who least deserve it," i.e., folks who took out mortgages that they didn't understand and couldn't really afford.

That may be largely true, but (as always) Limbaugh makes a category error. The purpose of the bill is to prevent foreclosures and keep people from defaulting on their mortgages. For that purpose, this bill would appear to be targeted exactly right.

Limbaugh was on a jag about how this plan "rewards the people who least deserve it"

Could he have been talking about banks that issued risky loans, knowing they would just resell them and collect a fee? Or bundlers who put together MBS and sold them to unsuspecting investors? Or perhaps rating agencies that vouched for these MBS, knowing they were risky?

Yeah, I didn't think so.

Limbaugh is right that this rewards the people who least deserve it, who made bad choices and now are being bailed out.

That may be largely true, but (as always) Limbaugh makes a category error. The purpose of the bill is to prevent foreclosures and keep people from defaulting on their mortgages. For that purpose, this bill would appear to be targeted exactly right.
Posted by: Andy

Then the government should just buy the house and rent it to the previous owner until a new buyer can be found.

Could he have been talking about banks that issued risky loans, knowing they would just resell them and collect a fee? Or bundlers who put together MBS and sold them to unsuspecting investors? Or perhaps rating agencies that vouched for these MBS, knowing they were risky?
Posted by: Danp

That's Geithner's job, to bail them out. Everybody who made stupid decisions gets bailed out by the people who paid their bills, took out fixed rate mortgages, lived within means. Nice.

I love it that he's unveiling the plan in Phoenix, which has the largest decline in housing values in the country. Not to mention, of course that it is McCain territory...a small dish served cold.

This is President Obama's plan so we must praise it. I constantly hear that the man is a genius so I'm confident that this is the best plan possible.

What really matters to the mortgageholders is that last paragraph -
Support for bankruptcy court cramdowns.
(If Obama can make that stick in the congress.)

Before, there was no stick, and surprise, no voluntary reductions is mortgages.

That would be why Rush doesn't like it.

Everybody who made stupid decisions gets bailed out by the people who paid their bills, took out fixed rate mortgages, lived within means.

And yet you continue to defend the ones who made this all possible.

administration officials believe the plan can stop the slide in home prices by up to $6,000.

Great. I've held a 20 year fixed rate, paid my mortgage, worked 1.5 jobs, built up a cushion of cash, and anticipated investing in property as the prices return to reality. And I'm not the only one. Why should I be glad the government is going to artificially buoy up the house prices?

The plan not only rewards irresponsible homeowners, it artificially props up housing prices, which will further dampen the housing market and penalize responsible people who've been saving up money hoping to buy homes.

I think it's hypocritical for the same people who decried the bailout of irresponsible banks to be applauding the bailout of reckless homebuyers. The taxpayers shouldn't be footing the bill for either group.

I'm with red state mike on this one. Also, home prices should drop another 20% to where they would be if the houseing bouble wasn't created by giving morgages to every tom dick and harry that wanted a house but couldn't really afford one.

So my husband and I bought a small, affordable home that we could afford, and now we have to bail out people who didn't give a sh#t about responsibility, and who bought either way more hosue than they could afford or who bought a house when they had no business buying one in the first place.

Where do I get in line for my "Sucker" tattoo?

red state mike and gradysu you are fucking idiots. The idea here isn't to reward anyone for bad decisions. I really can't see how anyone that's done well in the housing market and decision area would be penalized. Maybe just jealous thinking that someone's getting something for nothing. But the real problem here is that you just don't get it.
What Obama's trying to do is keep an economic catastrophe from happening. If you think that you'd be immune to the effects of that happening then your sadly mistaken.

Rick, Mike and Eparker: I agree with all of you. And I've gotta believe there are a lot of people out there -- including a lot like me, who voted for Obama -- who aren't going to be thrilled with this plan either. Like, for instance, every responsible homeowner struggling to make the mortgage every month.

Oh I'm sorry redstate and gradysu I should have realized that you both have answers and didn't just want to see millions of families and their children out on the street.

Gandalf, sorry, but you're sadly mistaken, and man, do you not get it. It doesn't matter whether or not the "idea" is to reward anyone for bad decisions. That is what it DOES, no matter what the IDEA is. If a drunk jumps off a bridge, it doesn't much matter that his "idea" was just to cool off; he'll still drown.

Part of the economic problem we're in is that the housing market has fallen off a cliff. And artificially propping up prices will only exacerbate that. The second part of the mortgage bailout is the moral hazard involved. If you're not familiar with that term, Google it.

Finally, no, I am not jealous of people who are total financial f*ck-ups. But I don't want to bail them out, either.

Consumer spending has also dried up, as people have gotten eyebrow-deep in credit card debt. Maybe we can bail them out next, to restart the economic engine.

To the crowd of people blaming 'irresponsible' homeowners, I'd like to remind you gently that many of the people losing their homes lived within their means, but weren't expecting to lose their incomes.

I'd also like to remind you that the banks bear as much responsibility as the home buyers, if not more. It's their responsibility to limit the amount of high risk loans given out, as much as it's a potential buyer's responsibility to make sure they can afford something.

Take a moment to have a little compassion. Many people assumed that a bank would not give them a loan they could not afford. Granted, that's obviously not the case, and people need to take responsibility for themselves, but a lot of people trusted their lender and feel betrayed.

The banks took on the risk purposefully to leverage credit default swaps for profit. The people just wanted to live the American dream of owning a home for their family.

So fuck all of you who can't spare an ounce of compassion for your fellow countrymen. You make me sick.

Obama really screwed the pooch with this plan. It's grossly unfair, backwards looking, alienates the "rational" fiscal conservatives who were most likely to work with Democrats, alienates people like me who is sick and tired of bailing out the "too big to fails", wastes money that could otherwise go towards productive areas like innovation or national healthcare, and it will not work.

Mark my word, the vast majority of people eligible under this plan will eventually lose their homes because they bought way more house than they can afford. It would be better to throw them into foreclosure and bankruptcy to start anew, rather than years of slowly bleeding them out in houses that they can't afford.

So my husband and I bought a small, affordable home that we could afford, and now we have to bail out people who didn't give a sh#t about responsibility,[...] -- eparker, @14:19

Would you prefer it if your -- irresponsible, according to you -- neighbours up and down the street were foreclosed? So that the houses stood empty for months (because nobody's buying them from the banks, even at vulture prices)?

Eventually, the town decides it's too expensive to run the garbage truck down your street, even once a week -- afterall, we're in the middle of an economic crunch and you're the only one there... Ditto for the police patrols and all other services. What happens then, if your husband looses his job or simply wants to relocate? There's no way you'll be able to sell your nice little house at anywhere near what you'd paid for, if at all, so you'll be screwed even more.

But, hey... If you'd rather bitch than help your neighbours a bit, in *well understood self interest*... That's your privilege.

This is to gandalf - What makes you think that the only alternative to having to sell your house, even at a steep loss, is to be "out on the street"? People face this problem all the time and always have. It happened to my family when I was a kid. The bank foreclosed. We moved into a rental my parents could afford. People don't have a Godgiven right to home ownership, and lots of people never own homes.

To the crowd of people blaming 'irresponsible' homeowners, I'd like to remind you gently that many of the people losing their homes lived within their means, but weren't expecting to lose their incomes.

That is a different group of people than what this bill is attacking, and they get helped in a different way.

I'd also like to remind you that the banks bear as much responsibility as the home buyers, if not more.

Each signed on the dotted line. Each bears ultimate responsibility for their own actions. It is called being an adult. You should meet one and ask him or her what it is like making decisions for yourself.

Everybody who made stupid decisions gets bailed out by the people who paid their bills, took out fixed rate mortgages, lived within means. Nice.

This is a misleading and inaccurate representation of the current situation.

The truth is simply this: home values have dropped dramatically enough in most markets since 2005 that even individuals who took out fixed rate mortgages with 20% down now owe more than their house is worth. That includes refinances, which was about the only thing propping up the Bush economy.

So let's say in 2005 you bought a house or refinanced and you had 20% equity and a 28% DTI ratio. You had more than enough money to make your house payment. But you and/or your spouse/partner have since lost a job and can no longer afford the payment, so you need to sell your home. But you can't sell your home, because you owe more than it's worth and don't have the difference of tens of thousands of dollars lying around to bring to the closing table.

Your lender won't modify your loan because they'd rather double down and try to make money off the sale of your foreclosed home, so you end up homeless and the ridiculous lender gambles and loses for the umpteenth time. Because by the time they pay for the foreclosure filing (roughly $50,000) and eighteenth months of no payments ($18,000?) carrying costs ($6000?) and another 15% reduction in value as the market has dropped and the home stigmatized they've lost their ass.

This scenario is even affecting people who've been in their homes for years and had built up considerable equity. Home values have been dropping for a few years in Ft. Myers, Florida -- but they have plummeted 50% just from December 2007 to December 2008. So if you are a retiree living off your savings and all of a sudden your accounts have lost 40% of their value in the past year you can no longer afford your mortgage. What do you do? How were you wrong?

Employment is keeping the foreclosure rate artificially low in the sense that while many people are underwater in their mortgages, they can keep paying the note because they have an income. As the unemployment rate rises into double digits -- and it will -- the foreclosure problem is going to spiral even further out of control and few will be immune, as the foreclosures cause a drop in surrounding home values in a vicious cycle.

Yes, many people took out risky loans and many banks lent them. But we're far past that now. It might feel good to blame "stupid people" and it may even be politically expedient depending on your tribe, but the truth is that this issue cuts across all income ranges and demographics, had had a number of contributing factors which at the time seemed like good things, and is indeed a worldwide crisis at this point.

exlibra: Wow, that's quite a little hyperbole factory you've got going there. If Obama's plan doesn't go through, everyone "up and down my block" will be foreclosed on?

doubtful: You set up a cute little construct too. Anybody who doesn't want to bail out irresponsible people has no compassion. Yikes. Did the people who got us into this mess, with the help of reckless lenders, think about the effect they could have on the community at large when they signed mortgages they didn't even bother to read?

Obama's plan wasn't one of compassion, it's to try to prop up a housing bubble in the hopes that it'll deflate slowly in real dollars terms(anyone with savings in USD will soon be robbed by high inflation).

@doubtful: if someone partially or completely lost their income, they won't qualify under the plan because they can't make any payment. And what's wrong with losing your house (often bought with next to no down payment) when you no longer have the means to support it? Should I be allowed to lease a Porsche and then ask for a cram down when I can't afford it? Should I go to Tahiti and then ask for a cram down on my credit card bill because I can't afford it? This plan maybe small in the grand scheme of things, but it's so viscerally unfair that it turns off the vast majority of people (excluding those who bought too much housing expecting 20% year appreciation forever). You would realize that if you went outside of your bubble every so often.

Well, I just took the time to read the details of the program on the White House Q&A site and found this:

Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

Unless provisions are supplied for a reduction in principal this program will probably be virtually useless. What percentage of at-risk homeowners owe as little as 105% of their note? Statistically, not many, I would imagine.

As written, this program doesn't address the highest risk mortgages which are churning out the foreclosures which are keeping the housing crisis boiling. It is reminiscent of the toothless and crippled "Hope for Homeowners" legislation, which was targeted to assist 400,000 people and since October 2008 has helped 25 homeowners. Yes, you read that right: 25.

Being such a weak tea, I can't imagine how this particular program is offensive to anybody.

You should meet one and ask him or her what it is like making decisions for yourself. -red state mike

I'm advocating having compassion for our fellow citizens and extending a helping hand, and you're admittedly selfishly worried about how you won't be able to make a few extra thousand on investment properties, and yet you imply I'm the child? As Steve is fond of saying, the mind reels.

I never absolved home buyers of their responsibility, but as I said before, when one is motivated by profit and purposefully gives high risk loans with the hopes they will default so lucrative and unregulated insurance policies can be cashed it's downright evil, especially when the other party just wants their kids to have a bedroom.

Did the people who got us into this mess, with the help of reckless lenders, think about the effect they could have on the community at large when they signed mortgages they didn't even bother to read? -eparker

Those 'reckless lenders' got theirs to the tune of $800 billion, sans regulation. This is chump change compared to that and it's not going to be spent on Las Vegas tables. It's spent on American families. Real people trying to put food on their tables.

This plan maybe small in the grand scheme of things, but it's so viscerally unfair that it turns off the vast majority of people... -astrid

That remains to be seen.

I happen to think the polls will be surprising to you if you believe that will be the outcome. As cynical as I am, right now I don't think America is full of selfish halfwits, even though this comment thread seems plagued by them.

Let me ask a simple question to all of the naysayers: what should we do? If all you've got is nothing, save it. No one in this country wants to hear that.

trex: What about people who want to declare bankruptcy and get their loans written down? Would they also have to meet the "105%" provision?

doubtful: I didn't support the bankers' bailout either. I think they should have gone with the Swedish model, or the S&L model of the 1980s.

astrid: I hear you. And I think you're right that most people's basic sense of fairness will be offended by this plan, just as most people have been angry watching reckless bankers get bailed out.

As for doubtful's reference to "selfish halfwits," that term very aptly applies to the bankers and homeowners who got the country into this mess in the first place. And to anyone who blindly defends them.

vans: trex: What about people who want to declare bankruptcy and get their loans written down? Would they also have to meet the "105%" provision?

I don't have the details of the program yet. The way the program is described on the White House website it would seem that an individual in bankruptcy would have to meet the threshold like anyone else, which in my opinion is another argument for granting bankruptcy judges the power to modify loans.

But certainly inquire with your lender first as to what they are willing and able to do if you haven't already and if it would help you avoid bankruptcy. Some lenders have put moratoriums on foreclosures in the past few weeks in anticipation of this program. There are no hard and fast rules right now. Different lenders are approaching this issue in wildly different ways depending on any number of factors affecting their bottom line, and in my experience a "no" one day with one individual at a bank might be "yes" on another day with someone else. Right now there are no hard and fast rules.

trex: I'm not in that situation myself -- my folks were when I was a kid and we just moved into a rental -- but thanks for the information. I was just wondering what the rules were.

My take on the whole thing is, Nobody needs to own a house. If buying one was a mistake, and you can't afford it, then get out from under. Sell at a loss if you have to, go through foreclosure if necessary, and move on. We have 50 million people with no health insurance in this country and people going to sleep hungry. I would rather help them out than help out people who simply want to keep a house they can't afford. A house is a luxury, not a right.

As for doubtful's reference to "selfish halfwits," that term very aptly applies to the bankers and homeowners who got the country into this mess in the first place.

Yeah, and all of those people who had mortgage brokers forge their signatures? Fuck them, too. They should have known better than to get their mortgage from someone who would rip them off, right?

Anyone who's still convinced that this entire problem is because of the mortgage holders desperately needs to listen to "The Giant Pool of Money", which explains exactly how we got into this situation. And, no, it's not because irresponsible poor people forced innocent mortgage brokers and banks to give them mortgages. It's just slightly more complicated than that and has a lot more to do with changes in the way banks decided to hand out mortgages to increase their profits than it does with irresponsible people beating down the doors demanding no-money-down mortgages.

But, hey, it's not like your property values will go down if enough houses are in foreclosure in your neighborhood, right? And even if your home value goes down by $50,000 or $100,000, you've paid off enough of your mortgage that you won't end up owing more than the current value of your house, right? So why even think about other people at all?

@astrid: The debts for the Porsche and the Tahiti trip, not to mention the boat, can already be crammed down by the bankruptcy judge, just not the primary residence.

Bankruptcy is a salvage operation, nobody is going to come out of it whole. It's a matter of getting and fairly distributing whatever blood is left in the turnip.

Mnemosyne, everybody has talked about how it's not just homeowners buying houses they couldn't afford, but also bankers being reckless, so nobody needs a pompous lecture about how this is "complicated." Everybody knows that.

And if a broker forged your signature, you don't need mortgage relief, you need a prosecutor. Because that's a crime that should be punished to the full extent of the law. That has nothing to do with people who really did sign mortgage papers for houses they could not afford.

And thinking of other people also means thinking of how many other people could use up to $75 billion in government assistance, people who can't afford healthcare or heat or food. People who didn't do anything irresponsible. As I said before, homeownership is not a Godgiven right, it's a responsibility.

And housing prices are inflated. If they come back down to earth, that is a healthy thing for the market. And will allow a lot more people to afford homes.

And thinking of other people also means thinking of how many other people could use up to $75 billion in government assistance, people who can't afford healthcare or heat or food. -vans

You keep saying this as if a housing assistance bill precludes any plans Obama has for reforming or funding any other initiatives. It's not either/or, so please, stop using it as an excuse not to help struggling homeowners.

You're right, doubtful - there is an inexhaustible supply of money at the government's disposal, especially since the economy is booming and tax receipts are increasing. What was I thinking?!?

Governing is about priorities, and keeping people in homes they can't afford and shouldn't have bought shouldn't be one of the first priorities of the new administration.

Has anybody asked themselves why we fetishize home ownership so much in this country? A few people in this thread have touched on it, but now might be a good time to think about it.

We just bought our first house, after saving up to make a down payment and keeping our credit good. (What a concept, huh?) Before that, we rented. My wife lost her job last year and was out of work for several months, and we struggled. Luckily she got another job, but what if she hadn't, and we were in danger of being evicted? What government plan would help "struggling renters"? None. But if we'd bought a house before we were ready, if we'd been irresponsible (yes, that's the word even if some people have to fan themselves when they hear it), we'd be able to hit up the taxpayers, many of whom don't own homes, for a bailout. This seems blatantly unfair on a lot of levels.

I don't know if it is legal, but I would be happier if other banks were required to negotiate lower loans with their people who are having trouble. I also like the idea of mortgages being treated the same as any other debt in a bankruptcy case and that judges can modify the terms of the mortgage when it is obvious that the terms need adjusting. Too many lending agencies misrepresented the fine print in the loans and engaged in other illegal and/or dishonest behavior.

Percentage of renters in comment thread: 93%Percentage living in Uncle's cellar in NC: Trex

What was I thinking?!? -vans

Oh, you just probably weren't. Obama told us housing reform would come up quickly, immediately after a more general stimulus, as it's part of stabilizing the economy. Why are people constantly shocked when he does exactly what he said he'd do?

Health care reform will obviously take more time, and, just maybe, an HHS secretary. And since we spend more on health care than any other country in the world per capita, I'm guessing there is a way to do it without dramatically increasing spending.

I simply don't think you're in tune with what the country wants. The country wants mortgage assistance right now. They're getting what they want, whether it lines up with the priorities of all the 'responsible' people or not.

Aggie, with all due respect, yes, there are a lot of real-estate scumbags out there, but no one can misrepresent the fine print if people actually read it, or hire someone who can. We didn't understand all the stuff in there so we hired a lawyer for four hours' work. It added $800 to the process, but will save us grief down the road.

Vans, I agree that the government is all about priorities. And I don't see what's wrong with helping people who need help through no fault of their own before you help people who frankly screwed up big time and who, with the help of a lot of sleazy bankers, have brought the economy down around everybody's ears. Also, people need food and other necessities more than they need to own a home. My wife and I both grew up in rentals and neither of us felt deprived. We're in our early 40s now and this is our first house. It's great, but not essential.

Obama populist rhetoric aside, his plan has no mechanism for distinguishing between preyed-on first-time buyers, vs. second-time buyers upgrading to McMansions or spec/investment buyers.

I'd give it a B-minus.

And, no Kool-Aid in the refinanced house!

===

Lcross... Homes as "investments/equity" has been a long-term line of BULLSHIT spouted by the National Assn of Realtors. I'm perfectly ready to phase out the mortgage interest tax deductions.

====

That gets me to Vans' points. Yeah, if you bought a house as an investment first, especially a McMansion, well, yes, fuck you.

SkepticalAnimist isn't here right now to point out how unsustainable, how global warming-producing, etc., your 3,500 square foot monster is.

====

Trex, a href="http://www.nytimes.com/2009/02/18/business/economy/18leonhardt.html?em">per Dave Leonhardt, it will likely be ineffectual whether inoffensive or not.

doubtful: Thanks for addressing NONE of the issues I brought up. Do we need an HHS secretary to deal with hunger as well? Or any of the other needs this country faces? Pretty sure not.

As for what the country wants, the country "wanted" George Bush for a number of years, judging by his approval ratings in the years immediately after 9/11. They also supported the Iraq War for several years. So, the country is always right?

SocraticGadfly: I'm with you -- The mortgage deduction is ludicrous. And I agree with your and Vans' point that you have to deal with real-world market forces when you buy a house. Also agree with Vans that doubtful's "the country wants it" is a completely bullshit argument, given some of the crap this country has wanted lately. And unfortunately, with the economic shitpile Bush left us, yes, doubtful, in the real world, the government does have to set financial priorities. Sorry if that bursts your real-estate bubble.

You're right, doubtful - there is an inexhaustible supply of money at the government's disposal, especially since the economy is booming and tax receipts are increasing.

No, there is a nearly inexhaustible supply of money at the government's disposal largely because the economy is tanking and private investments are unattractive due to risk, driving down the yields on federal government debt instruments like T-bills. (But this is a limited time phenomenon, as if the economy doesn't turn around in a reasonable time, people are going to stop seeing federal government debt as near risk free; so there is a limited window of opportunity for the federal government to use the resources at its disposal to turn the situation around.)

Do we need an HHS secretary to deal with hunger as well? -vans

Actually, it would help.

It would have also helped if the "centrists" hadn't removed the food stamp portion of the stimulus bill.

As for me not addressing your foolish concerns, that's all I've been doing. I responded directly to your concern about priorities, so why the silliness? Are you just getting frustrated? Maybe you should take a break.

Really, comparing the country's priority for housing assistance to George Bush and the Iraq War is just absurd.

SocraticGadfly is on the right track. This plan isn't perfect and I never argued it was. The only thing I argued against was the 'fuck 'em, it's their fault, we ain't doin' shit,' attitude I've seen so many old trolls and new commenters spouting in this thread.

Doing nothing isn't an option, though. Not for Obama, not for Congress, not for the country, so if doing nothing is all you've got, then please, extend the same principle to you blog commenting.

cmdicely, maybe you haven't heard, but people are already becoming less enamored of near-yield-free Treasury bills. But until they do, yes, the government should do the most good that it can. That doesn't make this program a good idea, or a good use of taxpayer resources, which, no matter how you slice it, is what they are.

That doesn't make this program a good idea

Did I argue it was? Or did I argue, in my first post in this thread, that even agreeing with the goal of providing homeowner assistance, this wasn't the right way to do it, laying out a different proposal.

This plan is nothing more than rhetoric. Once again Mr. Obama has managed to come up with a speech or presentation that looks good on the surface and tastes sweet on the top but in reality there is absolutely nothing new with this plan. Banks have been working with people who are in the brink of foreclosure for the last year and a half and doing it without incentive from the govt. this is really a nifty way of rewarding banks' executive for doing something they've been doing for a while now. Why can't this supposedly inteligent economists with ivy league education figure out that the only way to fix this problem is to move forward. When is the solution found for any problem by dwelling on the problem. When you lose your job you dont hang around feeling sorry for yourself as that will not solve you dilema rather you need to go out and look for a new job or when someone is sick do we just lay around and wait for it to get worst or do we go see a doctor and get treated. Enough is enough campaign season is over let us start to get into action with no regards for personal gain. Why say things like "If things dont work out I will be out of job in 4 years" when we can start doing somethings without thinking about getting reelected. If your ivy league educated staff can't figure out the solution to this very simple problem call someone stupid like me and give us a shot at it, its quite obvious that the problem is to simple for their complicated minds.

Mnemosyne, everybody has talked about how it's not just homeowners buying houses they couldn't afford, but also bankers being reckless, so nobody needs a pompous lecture about how this is "complicated." Everybody knows that.

I'm not seeing that from too many of the "fuck 'em" crowd on this thread, but I'm sure seeing a lot of "I've got mine, everyone else can starve."

Are there still people out there who genuinely have no idea what it will do to the economy if foreclosures continue at this rate? Right now, we're in deep shit with foreclosures at a record 2.75% of mortgages. That's right. A two and three-quarters percent foreclosure rate has caused a global financial crisis.

What do you think will happen if we get to a 5% foreclosure rate? Or, God forbid, 10%?

We're not bailing people out because we feel sorry for them. We're bailing them out because otherwise they will drag the rest of us to the bottom with them. It's goddamned self-preservation, and I can't believe that after the events of the past year than anyone thinks they're magically insulated from the financial crisis because they can afford their mortgage.

Sorry, but I agree with Richard Florida's comments in the latest issue of the Atlantic
(http://www.theatlantic.com/doc/200903/meltdown-geography):
___________________

"So how do we move past the bubble, the crash, and an aging, obsolescent model of economic life? What’s the right spatial fix for the economy today, and how do we achieve it?

"The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy—the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.

"If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

"And while homeownership has some social benefits—a higher level of civic engagement is one—it is costly to the economy. The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities.

"As homeownership rates have risen, our society has become less nimble: in the 1950s and 1960s, Americans were nearly twice as likely to move in a given year as they are today. Last year fewer Americans moved, as a percentage of the population, than in any year since the Census Bureau started tracking address changes, in the late 1940s. This sort of creeping rigidity in the labor market is a bad sign for the economy, particularly in a time when businesses, industries, and regions are rising and falling quickly.

"The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive."
___________________

Trouble is, our mindset inherently dismisses rent, just as it does mass transit. How do we change things?

I don't blame Obama for not suggesting this right off the bat -- it would have been his "gays in the military" -- but down the road, I hope he does.

We're bailing them out because otherwise they will drag the rest of us to the bottom with them. It's goddamned self-preservation

That is precisely the case.

It is also a worthwhile and goal to mitigate human suffering, but the political reality is that those who are deficient in empathy may yet at last be convinced to act in their own selfish interests. And in the face of the potentially grave effects of this looming crisis, that is sufficient.

The devil is in the details and the assumptions about what the folks with mortgage troubles do down the road as well as whether banks grab the incentives. It seems like an opening gambit of bluster and balm rather than grounded in fiscal reality and honesty about the dollars needed because the dollars being potentially committed don't appear to add up to the numbers in the plan. I don't even think it's a close call that there is a major shortfall over time.

I think it's a statement in the right direction, but ad hoc and short sighted, not a very good one when options were available through extensions to the tax code that could be deployed as a matter of policy for dealing with the financial institutions, homeowners and renters alike, over time and varying circumstances, without new bureaucratic overhang.

It's possible for just one component with 4 million of the 9 million problematical mortgages to have grabbed up the $75 billion committed to the program...

The piece of the pie for 4 million of the 9 million troubled loans is in this range based on the plans description:
Banks get $1000 for restructuring the loan plus $1000 for each of three years. $4000 total.
Banks also get $1000 per year for each year the borrower remained current.
Maximum exposure: $34,000 * 4,000,000 is $136 billion.
Utilized for three years on average
$7,000 * 4,000,000 is $28 billion
Utilized for 9 years on average
$13,000 * 4,000,000 is $52 billion
Utilized for 15 years on average
$19,000 * 4,000,000 is $76 billion.

Since those numbers don't include the other 5 million with mortgage troubles and the funding implications required for helping them, I think it's clear more dollars will be needed to cover the long term commitments in this plan.

So it goes.

Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates -- which are typically lower than mortgage payments -- for some number of years.

So how does Richard Florida envision this happening? Does the bank open its own rental agency? Does it contract out to a real estate management company? If people think the rent is too high and move, can the bank resell the home or do they have to maintain it as a rental property? If it goes back onto the market for sale, didn't you just lose the benefits of having more rental properties available? And you have to have reasonable lease terms or else you lose the benefits that Florida is envisioning if you lock people into a long lease agreement -- being locked into a 15-year lease wouldn't be any different than a 15-year mortgage when it comes to changing employment.

What about rent payments? Unless you get a very specific kind of mortgage, your mortgage payments stay the same from year to year, but most places allow landlords to raise your rent every year. Wouldn't it be a massive form of rent control to allow people to pay the same rent for 15 years or whatever term Florida is picturing? Wouldn't it lead to the same kinds of problems that New York has if you have a bunch of rent-controlled properties mixed in with owned and non-rent-controlled properties?

What's the point of having the banks keep the homes on their books? Under current laws, they can sell the properties to real estate speculators who would then rent them out. Why make a whole special subset of rentals run by banks?

Sorry, but I really don't see this working in most places in the US. Maybe in urban areas that are already pretty built up, but how does it work in the kind of sprawling suburbs and exurbs that are unique to the US? Don't forget that it's the suburbs and exurbs that are having most of the foreclosure and desertion problems -- you have entire blocks that are ghost towns now. How many people will you get to move into a suburb that's half-built and has no services, even as a rental?

While I don't absolve the buyers of blame,
I blame the bankers and lenders more than the home buyers for the mortgage problems.

If someone came to me to borrow a hundred dollars telling me that they would pay me back in a couple of months and I didn't bother to check to see if they could actually pay me back it's my loss if they skip off without giving my money back. I won't like it but I'd have to chalk that up to experience.

The point is if the bank didn't take income into account they screwed up and should make it right by re-negotiating the loan.

One thing I haven't seen addressed is that assistance with keeping people in their homes and paying their mortgages makes the shit pile a little less toxic, no? That works in the direction of stablizing the financial system and is a win for banks and families.

No doubt house prices need to fall farther in parts of the country. But, it doesn't need to happen all at once. The whole point of the stimulus, housing plan, and other measures are to keep the economy moving while we undertake the long term work of restructuring the economy.

Great. I've held a 20 year fixed rate, paid my mortgage, worked 1.5 jobs, built up a cushion of cash, and anticipated investing in property as the prices return to reality. And I'm not the only one. Why should I be glad the government is going to artificially buoy up the house prices? Posted by: red state mike on February 18, 2009

Are you in favor of letting the mortgage problem continue to drag down the economy? Do you want to pay all your personal savings to buy a loaf of bread?

If there is to be a future market for your house and goods on the shelves for you to buy there has to be an economy and Obama is going to fix it, even if you don't like him.

Ingrate!

So my husband and I bought a small, affordable home that we could afford, and now we have to bail out people who didn't give a sh#t about responsibility, ... Posted by: eparker on February 18, 2009

Does this mean you'll be first in line to push your representatives to punish all the real estate brokers, mortgage company execs, bankers and other wheeler dealers who set this up and used it to make millions?

It is also a worthwhile and goal to mitigate human suffering, but the political reality is that those who are deficient in empathy may yet at last be convinced to act in their own selfish interests.

First you have to teach them how to look six seconds down the road so they can fucking spot their own selfish interests. From the looks of this thread, there are way too many people whose outer visual limit is staring slack-jawed at the dashboard.

Wow... quite the heated arguments 'pro' and 'con'.

I heard a little bit on NPR today where people were calling in to find out what they were entitled to. I do not remember the name of one of the experts answering the questions... but I think he made a good point.

I hope that Obama can get it through Congress, over the objections from the banks; to include mortgages in bankruptcy proceedings, so that a judge can lower the amount owed.

The expert suggested that some people would actually be better off to file for bankruptcy, especially if they also have other major debts. He felt that asking your lender to lower the mortgage owed, but you end up still having trouble making the payments due to a variety of circumstances, you'll end up loosing the house in the long run.

I think that may very well be the reason why the banking industry is heavily lobbying to keep that part out of the package. They already know that a substantial number of the revised mortgages will default later.

This $75 billion may very well be just a band-aid to slow the process in the hopes of averting a catastrophe right now. Will it be worth the gamble? Whether you like the idea or not, it certainly is better than what Bush has offered.

I'd much rather pay $75 billion to our own countrymen, than sending that amount to Iraq.

On another note.

I also have lived within my means. I live in an affordable home, and at one time was offered (unsolicited) 4 times the amount of money we paid for our house.

We can still afford our mortgage, even though my business has taken a significant hit due to the economic downturn. Our IRA's, 401(k), student savings plans, etc.. all have taken a nose dive.

None of that makes me happy, but I am sure glad I am not one of the people who are currently upside down in their mortgage, or have lost a job, or living on a fix income that was reduced thanks to the lower returns on their 'conservative' savings.

I would like to think that is because I made wise choices. I do feel for all the people who will need help staying afloat. Many of my clients find themselves in this situation, so it is 'real' for me.

I don't consider any of the people I know to be 'stupid' or 'greedy' or 'whatever other names they've been called up-thread. Yes some people speculated, but I think the majority of people just bought their house, as their 'American' dream. Yes some people refinanced at 120% and then went on vacation or lived high on the hog, but again, that is not most people.

You can't use a few bad apples to generalize the plight of ordinary citizens doing what they think is the right thing for themselves and their family.

I'm pretty sure that this will be a lesson for people involved, including the ones who are lucky not to be affected at this moment.

I do hope that Obama gets' the bankruptcy legislation through. That way people can get a fresh start - with a bad credit history - and the banks get to take the loss as they should. The market is not artificially propped up but allows for a softer landing.

Hopefully the country can take up where it left off before the Bush Administration played its little experiment on all of us. Better 8 years later than never - can you imagine if we were to be talking about McCain as president? Shudder.

red state mike: Why should I be glad the government is going to artificially buoy up the house prices?

so...

america's attempt to deal with the worst financial crisis in 70-years...

is all about your ability to cash in..

rather than to help the country...

anyone surprised?

so...america's attempt to deal with the worst financial crisis in 70-years...is all about your ability to cash in...rather than to help the country...anyone surprised?
Posted by: mr. irony

People went out and bought $100K houses for $200K thinking they would be able to sell them or refinance them when their value reached $300K.. They substituted asset value growth for basic liquidity. Thanks to their bad decision making and relaxing of regulations they are now in houses that they should never have been in, houses that are valued well above what they should be. To set the universe to rights, policy needs to help them get out of those houses as pain-free as possible, while letting the housing prices go down to where they should be in the first place. Is that what this policy is doing? Or is it keeping people in homes who really don't belong there in the first place?

California is suffering a flight of wage earners which contributes to their tax woes. Think the insane prices of homes there isn't a piece of that?

In my town alone I count 5 close friends who moved from CA, and were able to buy MacMansions in our town when they sold their ranch in the LA basin.

I don't consider any of the people I know to be 'stupid' or 'greedy' or 'whatever other names they've been called up-thread. Yes some people speculated, but I think the majority of people just bought their house, as their 'American' dream. Yes some people refinanced at 120% and then went on vacation or lived high on the hog, but again, that is not most people.

You can't use a few bad apples to generalize the plight of ordinary citizens doing what they think is the right thing for themselves and their family.

Excellent comments.

People went out and bought $100K houses for $200K thinking they would be able to sell them or refinance them when their value reached $300K.

(1) They weren't $100K houses. Assets have no value other than present market value. If their present market value was $200K, they were $200K houses. Period.
(2) They may have bought them because rents were unstable, availability was dropping, and security in a particular unit was low because, due precisely to the housing boom, people in their area were buying up rental properties (including the one the new home buyer lived in) and splitting the units and flipping them (speaking from personal experience -- that's exactly why I bought at the top of the boom; OTOH, I also expected some drop in prices, and we were adamant about getting a fixed-rate loan despite mortgage brokers [and Alan Greenspan, for that matter] trying to push us into variable rate loans with slightly lower initial payments with the expectation that we'd be able to refinance.)
(3) They may have also bought them in the expectation that, even if they didn't resell them or refinance them, payment wouldn't be an issue since they'd still be at least as gainfully employed 5-10 years later as they were when they bought them. They didn't expect the Republican Party to drive the country into the deepest economic ditch in most Americans lifetime, and the massive layoffs, wage cuts, furloughs, etc. that that has spawned.

The reason this country is in the ditch is because we've pursued the kind of policies you advocate of catering to the already-successful, which has hollowed out the base of the economy.

People went out and bought $100K houses for $200K thinking they would be able to sell them or refinance them when their value reached $300K.

No, people bought their homes for the Fair Market Value of the time. It doesn't matter if those values were the upside of a bubble (which almost nobody seemed to understand or accept, particularly the wingnuts who were posting on this blog at the time) you simply cannot negotiate 50% less on the sale of a home in a sellers market because you believe one day that value may be less.

The market dictates what a home is worth. There is no other "abstract worth" beyond that either based on sentiment, resentment, or belief.

Had wages grown under Bush instead of stagnated, had sectors of the GDP other than the public sector grown instead of shrunk, had money been spent on jobs programs and infrastructure instead of pissed away on pet war projects -- then even without the loose lending standards encouraged by that administration housing prices likely would have continued to climb, as people would have had the money to afford payments.

Sadly, we got bad governance.

And I see cmdicely got their first and with more eloquence.

You're wasting your time. I read all your patient explanations of the numerous details I, in my minimally informed condition, haven't even thought of, and then I put my fingers in my ears and continue to yell out the thing I really need to believe despite all evidence to the contrary.

Let me be precise, since both cmdicely and trex are playing dumb to make a point. Housing costs were buoyed up (bubbled up?) by the Clinton and then Bush policies, which I believe both of you think was bad (allowing no money down loans, etc.) The policies flooded the market with buyers who didn't belong there, who then drove up costs. Houses that should have cost X under responsible policy instead cost Y which is more than X.

The reason this country is in the ditch is because we've pursued the kind of policies you advocate of catering to the already-successful, which has hollowed out the base of the economy.
Posted by: cmdicely

Bull-fucking-shit. My example has been to be conservative, take fixed rate loans for 80%, live within means by keeping mortgage as low percentage, long term savings and investment, steady wins the race.