Who is Althouse? * View only LAW posts * Contribute * Use my Amazon Portal
What comes to mind...Isn't there a scene in Gangs of New York where the 1860s (volunterr) NYFD shows up too late to save a burning house from fire, but early enough for the firemen to loot its contents?
Yes - and who is disagreeing with that?Obama's plan is trying to prevent foreclosures. He's doing that by allowing people who have been paying their mortgage payments on time, but whose home is now underwater, to keep paying on time by allowing them to refinance.That has nothing to do with propping up housing prices to an artificially high level. It's about preventing them from going to an artificially low level (through firesale prices by bank trying to get rid of foreclosed properties).
I've said this elsewhere. I am so fucking pissed at bailing people out who don't deserve it. And what really rubs salt in the would are the poles pushing this are doing it in the furtherance of their damn political careers. Selfishness all around. And we're the ones getting screwed.
The government is very unhappy that those damnable awful working class whites can begin to afford houses again and the government will do anything anything anything to prevent such a horrible thing happening.
Obama's plan is trying to prevent foreclosures. He's doing that by allowing people who have been paying their mortgage payments on time, but whose home is now underwater, to keep paying on time by allowing them to refinance.Nice try at obsufcation, DTL, but it doesn't wash. Underwater does not equal foreclosure. NOBODY deserves to get bailed out because their home went down in value.
This guy is a moron.He hasn't read Obama's housing plan. Has Ann read it?Suppose you bought a house worth $400,000 and put $80,000 down, leaving $320,000 principal. Now you've paid of another $120,000 in principal, leaving just $200,000 left. But because of the housing crash, your house is now worth $230,000. Well, you haven't paid down 20% of the equity yet. Obama's plan will let you refinance at today's current rate as long as you've been up to date on paying your mortgage.Santelli thinks the person above is a LOSER. Why?
Original Mike thinks that people who refinance at a lower rate are LOSERS too.Telling.
downtownlad said...He's doing that by allowing people who have been paying their mortgage payments on time, but whose home is now underwater, to keep paying on time by allowing them to refinance.That doesn't make any sense. My mortgage payment doesn't change based on the value of my house. If my home value dropped to 0 today, I would still continue paying the same mortgage payment. And, since I still have a job, I would still continue to pay on time. How does refinancing help someone who is underwater?
re: EDHIn the 19th century one didn't buy fire insurance for one's building, one contracted with a local fire company to come and put a fire out. The fire company would hang a plaque (a "fire mark") on the building to mark their territory.If you didn't pay off a local fire company then they'd come to watch your place burn. Or even loot it. Or jealous competitors would start a fire to make everyone's life more difficult.It was local city politics at its best, just like Chicago. The practice is of a piece with the Obama administration: never let a crisis go to waste. If need be, add gasoline.Rahm Emanuel would have made a great fireman.
Original Mike thinks that people who refinance at a lower rate are LOSERS too.What?
Justin - Rates are at a record low right now. If you refinance, you can get lower rates. BUT - you have to have paid down 20% of equity.Read my example. That is someone who would have paid down 50% of equity had his home price stayed flat. But since the price of the home dropped, his percentage of equity paid is below 20%. Obama's plan let's that guy refinance on today's market rates.What is wrong with that?
DTL knows this, Justin, but he has to defend his man. Too bad for him, in this case his argument is transparent bullshit.
DTL is correct about Pres. Obama's refinance program to lower some mortgage's interest. However the loss of jobs will still eliminate most borrowers whose payments will still be unmakeable at any payment level without an income. The only way out is to find work for those people, since most of their jobs have been sent overseas for 20 years while masked by the Dot Com Bubble and the Housing Bubble. The first real help will be to lower the Minimum Wage. The only other real help would be a massive tax cut. The world awaits to see when any such really helpfull actions will be taken by the Democrats.
What is wrong with that?What's wrong with that is it's done on the backs of people who were responsible enough not to buy too much house.
downtownlad said...Justin - Rates are at a record low right now. If you refinance, you can get lower rates. BUT - you have to have paid down 20% of equity.Yes, but that's not what you said. You said Obama wanted to prevent foreclosures by allowing people to refinance so they can keep making their payments on time. I'm trying to figure out how refinancing helps people keep making their payments on time.
How does it cost you anything to have someone refinance at today's low rates? The person I described was extremely responsible and has been making their payments on time. This is a large part of Obama's plan. Before dismissing it willy nilly, perhaps you should study it.it's a $75 billion plan. If that prevents $1 trillion in losses for the banks that we are bailing out, then it seems like a good plan to me. Here are some good summaries of the plan:http://economistsview.typepad.com/economistsview/2009/02/obamas-housing-plan.htmlYes - there is some moral hazard risk in the plan, but it seems to be targeted at lowering people's interest rates, and giving incentives to people to not default or walk away from their homes if they are underwater. High default rates hurt ME, because I own a home and defaults by my neightbor lower housing prices by 9% more than they would otherwise be.
"It's getting better."Mmm.Well, you know.Say, you've lived in a house for 20 years, built up a ton of equity. Now its value falls by 30 percent.Suddenly, your retirement plans have changed. Or, suddenly, your ability to pay for your children's college education is more difficultSuddenly, you'll get less when the house sells. If you can sell it at all.Maybe you can't sell because one or two houses on your block are in foreclosure and that's dragging down your property value.Mmm."It's getting better."As for foreclosures, faster, faster, faster. Rip the Band-Aid off.
Justin - Refinancing allows you to payer a lower monthly payment, because the interest portion of your payment is lower.
Yes - there is some moral hazard risk in the planYa think?
DTL has a point about the refinance provision, but it is based on a sympathetic example.But what if I put down $20,000 on a $200,000 house, and had a balloon payment plan that only paid off interest and PMI. Now my house is still worth $200,000 (I'm lucky -- the house held its value) and I've still only paid off $20,000 principle. Do I get to refinance?I don't know housing law, but if it is in the banks interest to allow people to refinance underwater loans, does something prevent them?Let's remember that the plan has a price ticket. It isn't just about letting unlucky Californians refinance.
Henry - You get to refinance in your example.Remember - the bank doesn't own your loan. They packaged it into a mortgage backed security long ago, and it's now owned by random banks who own pieces of it. They also call them toxic assets.Fannie and Freddie do the refinancing.
He's doing that by allowing people who have been paying their mortgage payments on time, but whose home is now underwater, to keep paying on time by allowing them to refinanceIf you are paying on time and were able to afford your home in the first place, the current market value has no bearing on the subject. Unless you plan to sell your home, there is no problem, emergency or need for help.You bought an overpriced house and now the current value is less. So? You bought an overpriced house with little to no down payment and you are still making your payments? You made a bad decision. It's about preventing them from going to an artificially low level (through firesale prices by bank trying to get rid of foreclosed properties).First of all the Bank is going to try to get the best price that it can from the property and they can hold the houses for a very long time if need be. There is no such thing as 'artificially low' housing market pricing. The price is what the market will bear based on location, condition and size of the home. It is what it is. The market works it we would keep our stupid politicians from sticking their greedy fingers in the pot.Is Obama going to waive his magic wand and make my 401K whole again? Is that his function as President? I don't think so.The price of houses, especially in the overly inflated areas of California, Florida etc. needs to come down. The only way that can happen is if the houses are put back on the market and people buy them at increasingly lower prices. By propping up these inflated prices, we are never going to get out of this crisis.Some people WILL lose their homes through a poor economy and that is very sad. Some people were tricked into unsustainable mortgages by greedy brokers and that is criminal. I have zero sympathy for the house flippers and people who foolishly spent their equity on toys and gewgaws. If it came to that point for myself (lost my job, couldn't keep up with the payments, needed to move), I would sell my house and walk away with several hundred thousand dollars of equity even in this depressed housing market. Why? Because we put a lot of money down, built less of a house than we could have spent at the time (no expensive granite counters, whirlpool baths, just a modest 1600 square ft house with a killer view on a large lot), refused an adjustable rate mortgage (I know better than that) and have never ever taken out any additional equity loans. Why should I have my taxes appropriated for the rest of my life and the next generations to pay for the greed and poor judgement of others?
downtownlad said...Justin - Refinancing allows you to payer a lower monthly payment, because the interest portion of your payment is lower.Thank you for the elementary math refresher.You seem to be implying that there are a lot of homeowners out there who were doing just fine paying the mortgages on time, but now that their home value has dropped, they can't pay on time anymore. My question is, why can these people no longer pay on time? It's not because of the current value of their home? Is it because they lost their job in the bad economy? If so, I doubt a refinance is going to help. My refinance saved me $200/month. If I lost my job (or my wife lost hers), that $200 wouldn't help us pay on time.
DTL said...Santelli thinks the person above is a LOSER. Why?DTL picks one sympathetic scenario to make his point, which is fair. And I think making refinancing out of variable into lower fixed rate mortgages more available is a positive, especially while those rates are low because of government policy. But is the Obama plan so limited? What about the write-down of principal, and why shouldn't everyone get a "subsidy" or writedown whether or not they "need" to refi?Nevermind the "losers". What about the winners? The person who repeatedly refinanced and pulled hundreds of thousands of "equity" out of the property? Is Obama's program limited to refinancing no more than the original purchase price of the property? Not to my knowledge, but correct me if I'm wrong. Another thing DTL doesn't address is the effect of the "cramdown" provision on future mortgage rates.
How is Obama's plan "propping up inflated prices"?It sounds like you'd rather have your neighbor default than refinance at today's low rates and thus still be able to afford the home. Why?
Citing individual anecdotes on either extreme is not a useful exercise. The basic point is that the housing market got out of whack and 5 and perhaps even 10 percent of homeowners got themselves into a bad deal. The best thing that can happen is that the bad mortgages get foreclosed and the house goes back on the market. People who make the bad deal lose and someone gets a good deal. It would be one thing if this plan actually fixed the problem, but it seems likely that O's plan only puts the inevitable foreclosure on hold. The best way out is to get rid of the rot in the market and let housing find its floor as soon as possible so it can regain its footing. Drawing the issue out forever does nothing but hurt those who purchased within their means and got a responsible mortgage.Also, this "crisis" is not industry wide. It is targeted in specific geographical areas and in particular types of housing.
Suppose you bought a house worth $400,000 and put $80,000 down, leaving $320,000 principal. Now you've paid of another $120,000 in principal, leaving just $200,000 left. But because of the housing crash, your house is now worth $230,000. Well, you haven't paid down 20% of the equity yet. Obama's plan will let you refinance at today's current rate as long as you've been up to date on paying your mortgageOK...let's try this. You sold me a collectible car a few years ago ...a Ford GT 500 Mustang for the then market price of $400,000. I gave you $50,000 and you are carrying a note for the remaining $350,000 at 6% over 10 years. I'm paying you $3885.72 a month. However, due to current market drop in collectible cars and the fact that I parked at WalMart once and now have big ding in the rear quarter, the value of the car is only $150,000 and current rates are now 4%. This is soooooo unfair. I demand that you refinance my car loan with you at the current market value so I can maintain my equity position in the car. I will now be paying you $1518.68. No problem right?Just who in the world do you think is going to be absorbing the difference in the amount owed, the purchase price of the houses and the lowered amount of the loans? Hmmmmm......???? Look in the mirror.
Henry - You get to refinance in your exampleDTL, in your example your responsible homeowners owe $200,000 on a $230,000 house. In my example, my feckless speculators owe $180,000 on a $200,000 house. What's the difference?Now consider that the thoughtless speculators have seen their house drop in value. They owe $180,000 on a $150,000 house.Is this when the government steps in? Slop some money into the deal so that the underwater speculators can refinance?Otherwise, if it is in the interest of banks to refinance responsible homeowners, why do we need Obama's plan? (Note that my point in using terms ike "responsible homeowners" and "feckless speculators" is not about shifting the terms of the debate. It is to point out that it's not that easy for the government to tell one from the other.)
My first example applies to 4 to 5 million homeowners - it is not tiny.The Obama plan also lays out the possibility of incentivising banks to write down some of the principal - but it could be just interest reductions. It also incentivizes homeowners to make their mortgage payments on time. If they don't - they lose out. This would help 3-4 million homeowners so it is a smaller part of the plan.But that can easily benefit a bank. A bank would much rather take a 10% hit on principal if they know the homeowner will make his payments on time, than to foreclose the property, which has many costs involved and the home prices end up selling for much lower than 90% of principal.If they banks don't like the deal - they don't have to go along.
If you owe more than 105% on your house - Obama's plan doesn't help you.
The writer, Joel Stein, descredits Santelli in every possible way and then goes on to explain how valid Santelli's points are. This is a rhetorical device that only professional writers should attempt.... Macroeconomics is as confusing as the content of dreams. In much the way that the left felt that Freud had the real skinny on dreams, they now feel that Keynes is the only valid authority on the effects of deficit financing. (Unless it's all a cover for their latent Marxism.) My instincts are to agree with Santelli. Apparently so does Stein. However, that would be wrong as Santelli is hostile to Obama and no sane person can be hostile to Obama. Stein's column is populism for confused leftists.
I will take a lower value on my home now rather than higher taxes to create a bailout program that will probably be at the most 50 percent effective and at the best only 50 percent fraud (bailing out flippers, people who way overbought, home equity loans for toys, zero down-interest payment only loans----the very people only a few years ago folks like DTL were disparaging for being excessive). The equity will come back, but the taxes are gone forever.
Henry - Without a million regulators, you are never going to create a perfect plan - one that ensures that only good people get helped and irresponsible people do not.But despite what DBQ thinks, massive foreclosures are NOT good for the economy. It is why we are in a Depression right now.And I don't want to have a massive deflationary spiral either. Deflation is bad. Very bad.
DTL said...It sounds like you'd rather have your neighbor default than refinance at today's low rates and thus still be able to afford the home. Why?No, it sounds like he's concerned that the neighbor will be handed a subsidy that he won't, the neighbor will default anyway, and that govt "assistance" will have to be paid for by him.
I never disparaged interest only loans. I bought a home I couldn't afford with an interest only mortgage. Best decision I ever made.
not true EDH - DBQ is allowed to refinance at today's low rates, but regulations prevent the neighbor from refinancing.
The question I have is why DBQ and EDH are opposed to spending $75 billion on a program that will probably save the government $1 trillion. Oh that's right - because they don't want their neighbors to get a benefit that they can't get. In other words - spite.
Without a million regulators, you are never going to create a perfect plan Hey!!! This is where all the new Obama promised jobs are going to be created.We are not in a Depression. I dare you to say that to anyone who really lived through the Depression or the chaos in Europe following WWII. They would muster all of their strength to slap the shit out of you.Recession yes. Teetering on the brink. Hell yes. Obama and the rest of his thugs along with the Democrat shills, are getting ready to push us over the edge so they can retain power. But we are NOT in a depression.
It sounds like you'd rather have your neighbor default than refinance at today's low rates and thus still be able to afford the home. Why?What was stopping him from refinancing under the status quo? Why do we need a $75B federal program for this hypothetical neighbor? Why should I, a renter, help prop up the price of someone's home, thus making it harder to own a home myself?
It is why we are in a Depression right now.As long as Starbucks exists as a national chain selling overpriced coffee, we're not anywhere close to a depression. Let me know when there are soup and bread lines.
Didn't you tell us in June that we weren't in a recession?We were.Trust me - We're in a Depression.
DTL wrote A bank would much rather take a 10% hit on principal if they know the homeowner will make his payments on time, than to foreclose the property, which has many costs involved and the home prices end up selling for much lower than 90% of principal.If it is in the interest of the bank, why do we need Obama's plan?
Oh that's right - because they don't want their neighbors to get a benefit that they can't get. In other words - spite.A.k.a. justice.
Why should I, a renter, help prop up the price of someone's home, thus making it harder to own a home myself?How are you propping up the price of someone's home? You're preventing them from defaulting. If they sell the home - it's still going to be the price that the market bears.The reason you should want this is that it will help stabilize the mortgage backed security market. Which has bids and asks that are extremes - and thus banks can't properly value the assets. And they are forced to mark to market them at the lowest price, which means that it looks like they have billions in losses, losses which we have to subsidize when we shut the banks down. And we have to shut the banks down and unemploy tens of thousands of people - who then can't afford their homes - etc. It's a vicious cycle.That's why. The housing bubble is deflating. Obama's plan does nothing to stop that (nor should it). But it aims to keep people in their homes if they are responsible.
Let's use a hypothetical example. Assume the mortgage balance is $200,000, the interest rate is 7% and the monthly payment is $1,331.If the mortgage is no more than 105% of the home's fair market value, the Obama plan allows the person to re-finance via Freddie/ Fannie.Assume the NEW mortgage has a $200,000 balance, the interest rate is 4% so the NEW monthly payment is $955. That is a monthly savings of $376 and an annual savings of $4,512. I am not sure who (the current bank or the Guvmint) takes it in the shorts for the cost of refinancing this debt? But Obama certainly can not do this for 9 Million homeowners for the trifling sum of $75 Billion.
I would sell my house and walk away with several hundred thousand dollars of equity even in this depressed housing market. Why? Because we put a lot of money down, built less of a house than we could have spent at the time (no expensive granite counters, whirlpool baths, just a modest 1600 square ft house with a killer view on a large lot), refused an adjustable rate mortgage (I know better than that) and have never ever taken out any additional equity loans.There's a word for people like you and me, DBQ. Suckers.
AJ Lynch - You are allowed to prepay a mortgage.That's what happens with a refinance.If I loan you $100,000 at 10% interest rate and a 10 year- term, then I'm thinking "oh cool - I get $10,000 a year for 10 years, and then I get my $100K back". But I'm also thinking "I hope you agree to the terms, etc".If you pay me $10,000 after the first year and then say "I want to settle up early, here's your $100K back, because I found a guy down the street who will do the same loan for 5%", that doesn't mean I've lost any money. Nobody takes this in the shorts. Certainly not the government.Get it?That's how a refinance works. They close the loan out in full and pay back the principal, and then give you a new loan at lower interest rates.
DTL:There are always fees and extar costs to refinance. These include title search/ title insurance/ credit reports/ notary/ loan origination etc. Can we agree the fees will amount to 2-3 points per $100K of face value? If so, this program will cost about $4,000 to $6,000 per homeowner. Do the math- that means Obama's plan will cost the taxpayers way more than $75 Billion.Got it?
I want to settle up early, here's your $100K back, because I found a guy down the street who will do the same loan for 5%", that doesn't mean I've lost any money. Actually, you did lose money. You lost all of the interest that would have been paid to you over time.My monthly payment to you would have been $1321.51 or $15,858.09 for the year. Part of which was return of principle and part interest income. My early refinancing just cost you $58,580 over the life of the loan. Not to mention the lost investment potential to you of the $58,580 over the years. Time value of money and opportunity cost.Banks operate on the spread between assets (loans and interest income) and liabilities (deposits and interest paid). When the spread is too small...they can't lend money and they will not pay any decent rates to savers.
To take it a step further in DTLs example Suppose you take don't need the income or principal from the loan and you take it as $15,859.09 as a lump sum every year and deposit that into an interest bearing account. Lump sum to make the calculations easier. The future value of an annuity or income stream such as this at an assumed rate of 5% would be=====>$257,871.My early refinancing just cost you a LOT of money. Multiply this by the number of mortgages that are going to be subsidized and refinanced by the government. Think you want to own some bank stocks? I don't.
The irony is that these types of plans have been tried before and some are still going on. They don't work.That aside, what if values go up? Should banks/the government be allowed to adjust the mortgages to prevent profit taking and a flood of homes on the market, which would cause another deflationary cycle? Since tax dollars financed this refinancing, does the government get a cut of the profits?What is in the law to ensure that these programs aren't used by speculators and house flippers? Or by people who still wouldn't rationally qualify for their loan even at the new amount?A non-distorted system has answers for this. A heavily government subsidized system does not.One more thing; the suggestion that this program will save the government $1 trillion is just making shit up (especially since it's a completely nonsensical statement--at best it saves the government money only if you buy into the notion that its the government's responsibility to bail out lenders who aren't FDIC insured.)
DBQ:Excellent argument. Even if you only took my $6,000 in closing costs, the 9 million homeowners Obama saves would cost $54 Billion. Then you have to add the losses you calculated and then you have to add the $1,000 per year Obama wants to pay the homeowners for just making their payments!
DTL said...The question I have is why DBQ and EDH are opposed to spending $75 billion on a program that will probably save the government $1 trillion. Oh that's right - because they don't want their neighbors to get a benefit that they can't get. In other words - spite.First of all, I said some refi assistance would be good, but I did questioned some details of the Obama plan about cost, abuse and fairness, and asked for correction if my impression was wrong.Now it's spiteful to question Obama policy, not just racist?Rather than address what I actually said, or answer the questions that I actually raised, DTL goes to the ad hominem. Nice.
I'm actually sympathetic to the refi provision that would relax the 80% equity standard. Obviously, someone who is making their payments on time and is not in danger of losing their job doesn't need to refi if their house is underwater. But doing so improves their cash flow which is either a source of savings (good for them) or spending (good for everyone else). It won't prevent them from becoming foreclosure risks if they lose their jobs but it it probably trims their risk somewhat due to inflation pressures, pay cuts, etc.Besides, if they're paying for the pizza they might as well get a slice.
Oops. Full disclosure. Just ran my calclulations at work using my software progrem and I made an error. Used a wrong assumed interest rate in my calculations. Should have been $199,472.80Still a significant loss of future income, however. That'll teach me. Don't do math before coffee.
My early refinancing just cost you a LOT of money. Multiply this by the number of mortgages that are going to be subsidized and refinanced by the government. Think you want to own some bank stocks? I don't.Is this not the origin of the CDO? By aggregating mortgage obligations (collaterized debt), bond traders created a vehicle that had predictable payoffs (in theory) and could thus be traded. The debt that can be paid off early is not predictable and not a good investment.Contra to DTL, a program that increases the rate of early debt payoffs does have a dollar impact on investors (you know, people).
Why are you people actually arguing with downtownlad? Do you think there's any chance of it accomplishing anything?Just curious.
Out of curiosity, aren't the banks recouping any foreclosure losses from the PMI? Last time I checked, PMI was a requirement when you had less than 20% down.
downtownlad said... How does it cost you anything to have someone refinance at today's low rates?...it's a $75 billion plan.If it's not going to cost me anything where is that $75 billion going to come from?
If it's not going to cost me anything where is that $75 billion going to come from?Barney Fwank's bag of magical pixie dust.
Downtownlad-Do you know how long it would take in your example to pay off $120,000 in principal? If you take a 30 year mortgage at 6%, it takes slightly less than 18 years. If you bought your house in 1991, odds are that it has appreciated substantially and no way you are underwater.Your example is absurd.
Out of curiosity, aren't the banks recouping any foreclosure losses from the PMI? Last time I checked, PMI was a requirement when you had less than 20% down.Who knows. Is AIG still paying out?
Do you know how long it would take in your example to pay off $120,000 in principal? If you take a 30 year mortgage at 6%, it takes slightly less than 18 years. If you bought your house in 1991, odds are that it has appreciated substantially and no way you are underwater.Mmmm. It's marginally possible here in So Cal. '91 was the height of the previous RE boom. Slightly more likely if the market is allowed to fix itself. (Prices went up 3-4x in the past 10 years.)It's also really, really ordinary here. Last time I went house shopping (in the late '90s) it was common to see a bunch of people who had built up their houses in the early '90s and were upside-down.One feels bad for them--especially if they were planning to live in the house and were fine with the payments--but not so bad as to overpay for the house.
I have to say I don't miss the sad spectacle of adults masturbating in public about their home values at all. AT. ALL.
Post a Comment