No, the headline isn’t a typo. From today’s Wall Street Journal- Bailout ideas just keep getting dumber. Here’s a gem from Fannie Mae: [Thanks John!]
Normally, it is impossible for underwater borrowers to qualify for refinancing because the collateral isn’t worth enough to support new loans that would let them fully pay off the old ones. But Fannie officials say in some cases it can make sense to refinance such people if the new loan will reduce their interest rate or let them lock into a fixed rate rather than risking future upward adjustments.
"We’re saying to the consumer, ‘You’re not trapped any more,’" said Jeff Hayward, a senior vice president at Fannie.
The program will allow refinancing loans of as much as 120% of the property value. Fannie officials project that 150,000 households could qualify for such refinancings.
Rather than reducing the principal due on the loan and taking an immediate loss, Fannie is betting that these people will be able to keep up on their new loans and prices will recover.
Underwater borrowers would still be underwater, but won’t be "trapped"? It looks more like a plan to keep borrowers chained to an excessive mortgage than a way to "liberate" them to me.
This shows desperation on part of the loan companies / fannie mae to keep people in their homes. Why in the world would anyone want to borrow 120% for? It would make more sense to walk away.
What I don’t understand is why a program like this is needed. Didn’t Henry Paulson just finish saying that the subprime problem is now over with? Well, I guess you can’t believe everything you hear. Especially if it’s from Paulson.
http://news.yahoo.com/s/nm/20080507/bs_nm/usa_economy_paulson_dc_1
That’s exactly what they want. They want borrowers to keep paying (make the economy doesn’t look that bad), rather than liberate them them by walking away. These Democrats are not on my side. They’re trying to slow down the housing correction process. I want to buy a house. Let’s the free market correct itself. Let’s be a fair game. This is a no brainer. Why don’t Democrats get it??? They need a brain surgery???
This “bailout” seems like an “anti-stimulus package” to me.
If borrowers are spending their last dime to make a house payment, they aren’t spending money on anything else. An existing home isn’t much of an economic generator. Homeowners with small house payments however, have more money to spend on things like auto and retail purchases- sectors that have also been hurting.
Another policy aimed at helping the balance sheets of lenders, and nothing about helping homeowners.
davelw,
Maybe the market isn’t as free as you thought. Perhaps there is more at play. Maybe the Chosen Few want more income distribution directed their way. As far as liberation, that’s also only for the Few.
This product has been around for some time, just not advertised much. The product is ONLY for existing FNMA loans with variable rates. They are looking at who can make payments and giving them a much better fixed rate. It can help “up to” 150,000 borrowers which are those that FNMA thinks might qualify. More likely 20-30,000 borrowers will qualify for it in the end. A bandaid for a gaping wound.
If it is only for existing FNMA loans, then it actually makes sense to me. The loan is ALREADY at 120% LTV anyway. If the borrower is truly stuck with outrageous terms and could now otherwise qualify for better terms, then why not? FNMA is just trading one risky loan for a slightly less risky (only because it’s a little cheaper to pay back) loan. I doubt it will apply to many people, and probably will actually help very few, but I see little harm in it.
If it extends to allow FNMA to take over debts still held privately by other companies, well, then that’s a different story…
That plan won’t come close to helping many people in Queen Creek, AZ. Check out this horror story:
http://www.foreclosureexpert.info/2008/05/a-tale-of-two-c.html
I don’t think this is a republican or democrat issue. Both parties have the wrong idea. The democrats want a bailout of the homeowner, while the Bush administration, feds, and secretary want to bail out the bank. Both are bad for the middle class. Our dollar is now worthless. What’s even worse is the problem is not fixed. The feds will sooner or later have to bite the bullet. 1/2 trillion dollars of stimulus / bailout has done what? NOTHING! Alt A loans are just getting started. WAIT! We aren’t even finished with the subprime mess yet. Wait until the 5 year adjustables hit next year.
It’s going to be real ugly.
If you were in your dream house in your dream neighborhood and planned on raising and schooling your children in that home, I could see a use for this program. Most homes are generally turned over in five to seven years in a “normally” functioning market. I think it would take longer than that to make up the difference in home value appreciation. Easier to walk IMO. Looking at some of the default rates in tranches of alt-A and even prime borrowers does not bode well for the coming year. I think the common thread is starting to emerge that is – “I’m not going eat it when everyone else is walking” This is a tough problem and consumer confidence must be maintained at all costs or headed for economic collapse. I remember my parents talking about “Hoover pockets”. Bush may inherit that dubious slogan.
Yes. Dream house you might want to stay, but as you said, the perception of leaving is in vogue. Many well to do people are leaving. Jose Canseco is just one of many, who can pay, but figures that it just doesn’t make sense. But even in your dream home, it eventually if the economy continues to sour, many of those people will come to the point of letting go.
My suspicion is that people who bought SUVs, boats, businesses and other expenditures and maxed out their line will also default if prices continue to fall. Countrywide figured this out and abruptly kicked people off their equity line. Still, there are many people who tapped in too deeply long ago. Nobody is talking about those loans, but they are there.
Did anyone run this plan by Fannie Mae’s shareholders?
As for the shareholders, they are institutions. If the price of the stock goes down, well…just bail out the institutions. How do you like living in a police state?
But hey, you’re hooked into it too….
By the way, and on an entirely different subject (?), make sure you check out opednews.com during the next couple of days. Evelyn Pringle is about to publish a bombshell report on Obama’s connections with the Rezko/Auchi/General Mediterranean criminal enterprise.
It will give names, dates, places, amounts, schemes. I think that by the time you finish reading it, your conclusion about Obama will be to lip-sync Amy Winehouse: “No no no.”
Well yeah duh, they want to keep the interest payments coming, they’ve got plenty, er I mean a backlog of foreclosures to deal with so they don’t need any more of those for right now.
Whole country is underwater anyways, may as well do what you can to keep things afloat.
Perhaps we can call these “scuba loans”?
“Scuba Loans” are a great name. The deeper you dive, the more dirt you find.
I gotta admit, I can see why some people might use this.
Yes, walking away is probably financially better, but you ruin your credit. If you can make the payments, you’ve got a decision to make – pay more for the home, or destroy your credit. I can see why some might choose to keep their credit intact.
Of course, this does absolutely nothing to help either home prices or the economy. People that take up the offer have less disposable income than those that foreclose!
jryskmpr: this is not a political blog. I see you posting the same drivel about Obama in every post of yours.
I’m sure I’m not alone in wishing you’d take your agenda elsewhere.
On topic: I agree its just to keep people paying their overpriced mortgages a little longer. Why be a sucker and pay when everyone else is getting out?
I don’t agree with it, but wow I don’t know what I’d do if I was in that spot.
Morals vs Survival…
Josiphos,
at the end of the day we all choose survival