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Housing bailout and foreclosure problem, Obama’s housing plan qualifications, incentives to pay mortgage, silver lining in the future for homeowners, lenders, regulators and policy makers
U.S.News & World Report
[SIZE=5]I Pay My Mortgage: What's in the Housing Bailout For Me?
[/SIZE]Friday March 6, 11:00 am ET
By Luke Mullins
As Uncle Sam issued check after to check to keep Wall Street bankers afloat, American taxpayers--who were picking up the tab--grew increasingly resentful of paying for others' mistakes. But when President Barack Obama announced a $75 billion plan to lower monthly mortgage payments for up to four million distressed homeowners in mid-February, frustration turned to rage. Just ask Rick Santelli, whose now-infamous rant against government subsidization of "the losers' mortgages" turned the obscure CNBC analyst into a household name, while underscoring the nation's growing distaste for bailouts. But the Obama administration has pitched its housing fix as one that would help all homeowners--not just troubled ones. So after fresh details of the plan were released Wednesday, it's time to ask: I'm a responsible homeowner; what's in it for me? 1. How big is the foreclosure problem? Foreclosure filings were reported on more than 2.3 million American properties last year, according to RealtyTrac. That's one for every 54 housing units and an 81 percent jump from 2007. In a recent address, President Obama said nearly six million American homes are either in--or at risk of--foreclosure. And on Thursday, the Mortgage Bankers Association reported that more than 11 percent of mortgages outstanding were either past due or in foreclosure during the fourth quarter of 2008.That's a record high. 2. Who qualifies for Obama's housing plan? The $75 billion goes toward reducing mortgage payments for as many as four million "at-risk" homeowners. The program is only available for owner-occupied, principal residences with mortgages that originated before Jan. 1, 2009. To qualify, the borrower's monthly mortgage payments must exceed 31 percent of their gross monthly income. In addition, they must also have undergone some type of financial hardship--such as a loss of income--that puts them at risk of default. While you don't need to be delinquent on your mortgage to qualify, borrowers who are comfortably making their mortgage payments won't be eligible. 3. I don't qualify. How does this help me? Many Americans who purchased homes they could reasonably afford and made their payments on time are understandably upset at seeing neighbors who made reckless decisions bailed out on their dime. But the Obama administration argues that keeping people in their homes is in the best interest of all homeowners, since foreclosures--which can blight communities and nurture crime--can drive down property values for everyone. "One study in Chicago found that a foreclosed home reduces the price of nearby homes by as much as 9 percent," the president recently said. Although he considers the 9 percent figure too high, Richard Moody, the chief economist at Mission Residential, says Obama's argument is sound. "If you were to go sell your house, the first thing the realtor is going to do when they try to figure out a listing price is to look at [comparable homes in your neighborhood]," Moody says. "And if you've got all these depressed property values, that is going to definitely harm the sales value of your home." As such, if Obama's housing plan succeeds in reducing foreclosures for troubled borrowers--and that's a huge if--it may help to bolster the values of other homes as well. 4. What incentive do I have to keep paying my mortgage? A home foreclosure is an ugly stain on a credit report, and it can remain there for as long as seven years. "It's right up there with a bankruptcy," says Gail Cunningham, the spokeswoman for the National Foundation for Credit Counseling. With banks tightening their lending standards in the face of higher delinquencies, it's a particularly bad time to ruin your credit. If you have a home foreclosure on your credit report, you're likely to have a difficult time getting any type of new credit these days--from a credit card to a new mortgage. 5. I'm not in trouble now, but how can I protect myself from the threat of foreclosure? Factors that can lead to foreclosure include unemployment, exploding-rate mortgages, and reckless discretionary spending. Although homeowners may have less control over their employment situation, by addressing these other factors, they can put themselves in a better position to avoid foreclosure should they suffer job loss. Julia Rodgers, a mortgage advisor with the National Community Reinvestment Coalition, says homeowners should make sure they have sufficient savings set aside to pay their mortgage in the event of the unexpected. "Fallback savings is critical," Rodgers says. "At least have three months of your mortgage payments saved." In setting aside such savings, families should institute a household budget and review their online bank statements regularly to ensure they aren't spending wastefully. "A lot of my clients have $300 to $400 in bank fees alone," Rodgers says. "In this climate, we have to be extremely aware of where our money is going."
Consumers with adjustable-rate mortgages should see if they are eligible to refinance into a fixed-rate home loan, while those who already have fixed-rate loans should see if they can refinance into a lower rate. In doing so, consumers should first obtain their credit report and see if their mortgage is owned or guaranteed by Fannie Mae or Freddie Mac, Rodgers says. Those with Fannie or Freddie loans may be eligible to refinance into a lower rate through a second component of Obama's housing plan. "If you can, refinance," says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School. "The rates are low." Thirty-year fixed-mortgage rates averaged an attractive 5.15 percent for the week ending March 5, according to Freddie Mac. 6. Is there a silver lining in this mess? It's nearly impossible to spot any sort of silver lining in the current housing mess. But if there's anything good to come out of this, it's the hope that homeowners, lenders, regulators, and policymakers will learn from their mistakes and ensure that mortgages going forward will be properly underwritten and affordable. By overlooking the lessons of the crisis, we risk going through this devastating cycle again in the future.
U.S.News & World Report
[SIZE=5]I Pay My Mortgage: What's in the Housing Bailout For Me?
[/SIZE]Friday March 6, 11:00 am ET
By Luke Mullins
As Uncle Sam issued check after to check to keep Wall Street bankers afloat, American taxpayers--who were picking up the tab--grew increasingly resentful of paying for others' mistakes. But when President Barack Obama announced a $75 billion plan to lower monthly mortgage payments for up to four million distressed homeowners in mid-February, frustration turned to rage. Just ask Rick Santelli, whose now-infamous rant against government subsidization of "the losers' mortgages" turned the obscure CNBC analyst into a household name, while underscoring the nation's growing distaste for bailouts. But the Obama administration has pitched its housing fix as one that would help all homeowners--not just troubled ones. So after fresh details of the plan were released Wednesday, it's time to ask: I'm a responsible homeowner; what's in it for me? 1. How big is the foreclosure problem? Foreclosure filings were reported on more than 2.3 million American properties last year, according to RealtyTrac. That's one for every 54 housing units and an 81 percent jump from 2007. In a recent address, President Obama said nearly six million American homes are either in--or at risk of--foreclosure. And on Thursday, the Mortgage Bankers Association reported that more than 11 percent of mortgages outstanding were either past due or in foreclosure during the fourth quarter of 2008.That's a record high. 2. Who qualifies for Obama's housing plan? The $75 billion goes toward reducing mortgage payments for as many as four million "at-risk" homeowners. The program is only available for owner-occupied, principal residences with mortgages that originated before Jan. 1, 2009. To qualify, the borrower's monthly mortgage payments must exceed 31 percent of their gross monthly income. In addition, they must also have undergone some type of financial hardship--such as a loss of income--that puts them at risk of default. While you don't need to be delinquent on your mortgage to qualify, borrowers who are comfortably making their mortgage payments won't be eligible. 3. I don't qualify. How does this help me? Many Americans who purchased homes they could reasonably afford and made their payments on time are understandably upset at seeing neighbors who made reckless decisions bailed out on their dime. But the Obama administration argues that keeping people in their homes is in the best interest of all homeowners, since foreclosures--which can blight communities and nurture crime--can drive down property values for everyone. "One study in Chicago found that a foreclosed home reduces the price of nearby homes by as much as 9 percent," the president recently said. Although he considers the 9 percent figure too high, Richard Moody, the chief economist at Mission Residential, says Obama's argument is sound. "If you were to go sell your house, the first thing the realtor is going to do when they try to figure out a listing price is to look at [comparable homes in your neighborhood]," Moody says. "And if you've got all these depressed property values, that is going to definitely harm the sales value of your home." As such, if Obama's housing plan succeeds in reducing foreclosures for troubled borrowers--and that's a huge if--it may help to bolster the values of other homes as well. 4. What incentive do I have to keep paying my mortgage? A home foreclosure is an ugly stain on a credit report, and it can remain there for as long as seven years. "It's right up there with a bankruptcy," says Gail Cunningham, the spokeswoman for the National Foundation for Credit Counseling. With banks tightening their lending standards in the face of higher delinquencies, it's a particularly bad time to ruin your credit. If you have a home foreclosure on your credit report, you're likely to have a difficult time getting any type of new credit these days--from a credit card to a new mortgage. 5. I'm not in trouble now, but how can I protect myself from the threat of foreclosure? Factors that can lead to foreclosure include unemployment, exploding-rate mortgages, and reckless discretionary spending. Although homeowners may have less control over their employment situation, by addressing these other factors, they can put themselves in a better position to avoid foreclosure should they suffer job loss. Julia Rodgers, a mortgage advisor with the National Community Reinvestment Coalition, says homeowners should make sure they have sufficient savings set aside to pay their mortgage in the event of the unexpected. "Fallback savings is critical," Rodgers says. "At least have three months of your mortgage payments saved." In setting aside such savings, families should institute a household budget and review their online bank statements regularly to ensure they aren't spending wastefully. "A lot of my clients have $300 to $400 in bank fees alone," Rodgers says. "In this climate, we have to be extremely aware of where our money is going."
Consumers with adjustable-rate mortgages should see if they are eligible to refinance into a fixed-rate home loan, while those who already have fixed-rate loans should see if they can refinance into a lower rate. In doing so, consumers should first obtain their credit report and see if their mortgage is owned or guaranteed by Fannie Mae or Freddie Mac, Rodgers says. Those with Fannie or Freddie loans may be eligible to refinance into a lower rate through a second component of Obama's housing plan. "If you can, refinance," says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School. "The rates are low." Thirty-year fixed-mortgage rates averaged an attractive 5.15 percent for the week ending March 5, according to Freddie Mac. 6. Is there a silver lining in this mess? It's nearly impossible to spot any sort of silver lining in the current housing mess. But if there's anything good to come out of this, it's the hope that homeowners, lenders, regulators, and policymakers will learn from their mistakes and ensure that mortgages going forward will be properly underwritten and affordable. By overlooking the lessons of the crisis, we risk going through this devastating cycle again in the future.
Um...when you cut and paste like this it is considered a copyright violation, even when you quote the author. The internet correct way is to provide a link to the article.
To me the silver lining would be if they made those who bought above their means lose their homes and the prices fell far enough so that working people who are responsible could afford to buy them. Those responsible working folks would provide the stability that everyone is looking for. But instead the government is going to help the irresponsible owners who don't deserve to keep their homes.
One of the bright spots is that home affordability is at an all time high. So if someone does have a job, and good credit they can find an affordable home.
While it's comforting to some to decry the bad decisions some people made, many people simply found themselves in good economic times, making good money and believing that their ship had come in.
For example; imagine a young couple builds a business supporting the building industry, let's say a masonry company, hire 10 block layers. Buy trucks and equipment, seem to have an endless supply of work, decide to buy a home in a neighborhood they didn't think they could afford. In a school district everyone wants. Then all the sudden the building industry just stops....Were they irresponsible? or just unfortunate.
While there are stories of people that got in way over there head, I think there are more stories of people that just believed that through hard work they had accomplished their goals. Now they're fighting to stay a float.
Um...when you cut and paste like this it is considered a copyright violation, even when you quote the author. The internet correct way is to provide a link to the article.
Just FYI.
Here is the internet link to the article, just posted as easy access for people to read, not intended for a copyright violation
Yahoo! Personal Finance (http://biz.yahoo.com/usnews/090306/06_i_pay_my_mortgage_whats_in_the_housing_bailout_ for_me.html?.&.pf=loans - broken link)
One of the bright spots is that home affordability is at an all time high. So if someone does have a job, and good credit they can find an affordable home.
While it's comforting to some to decry the bad decisions some people made, many people simply found themselves in good economic times, making good money and believing that their ship had come in.
For example; imagine a young couple builds a business supporting the building industry, let's say a masonry company, hire 10 block layers. Buy trucks and equipment, seem to have an endless supply of work, decide to buy a home in a neighborhood they didn't think they could afford. In a school district everyone wants. Then all the sudden the building industry just stops....Were they irresponsible? or just unfortunate.
While there are stories of people that got in way over there head, I think there are more stories of people that just believed that through hard work they had accomplished their goals. Now they're fighting to stay a float.
Bob, why didn't they play it conservative instead of spending way beyond their means? If they saved a penny and put at least some of their profits away, they wouldn't be in this position.
Also, the building industry did not just "stop" as like w/a stop sign. There were many warning signs that were conveniently ignored by the NAHB and the NAR. Many today are trying to revise history.
You seem to excuse their bad financial behavior and blame it on being "unfortunate".
Bob, why didn't they play it conservative instead of spending way beyond their means? If they saved a penny and put at least some of their profits away, they wouldn't be in this position.
Also, the building industry did not just "stop" as like w/a stop sign. There were many warning signs that were conveniently ignored by the NAHB and the NAR. Many today are trying to revise history.
You seem to excuse their bad financial behavior and blame it on being "unfortunate".
Your wrong.
For a long time people always got raises and do better year after year, so they think if they lock themselves into a mortgage, that they will be fine because they'll make more money in the future. For some reason people don't prepare for the worst. (I have no idea why).
I also think our monetary system is designed for people to default. The Fed controls our money supply, so they can give easy money (like they did during the bubble) and then they can stop it and even drain money from the banking system. (They have authority to do this and you can read about in on the newyorkfed's website).
We can only continue our economy perpetually increasing our debt only. Since money=debt. That's why this is going on now, because lending has tightened and people aren't going into debt. So our money supply has contracted. Which leads to defaults/layoffs/companies shutting down.
One of the bright spots is that home affordability is at an all time high. So if someone does have a job, and good credit they can find an affordable home.
While it's comforting to some to decry the bad decisions some people made, many people simply found themselves in good economic times, making good money and believing that their ship had come in.
For example; imagine a young couple builds a business supporting the building industry, let's say a masonry company, hire 10 block layers. Buy trucks and equipment, seem to have an endless supply of work, decide to buy a home in a neighborhood they didn't think they could afford. In a school district everyone wants. Then all the sudden the building industry just stops....Were they irresponsible? or just unfortunate.
While there are stories of people that got in way over there head, I think there are more stories of people that just believed that through hard work they had accomplished their goals. Now they're fighting to stay a float.
They are fighting to stay afloat because they believed that their booming business would never end and spent accordingly. They paid no attention when orders started slowing down.
Sorry, but unfortunate things happen all the time. When they do, you do what you have to in order to deal with it. You don't get to have financial obligations-- that you contracted to meet-- evaporate because you lived in the moment.
I would be in favor of lenders extending loan terms by 10-15 years in order to lower the payments of those struggling but that's about it. You committed to pay when you signed the contract. If you can't pay it anymore you have to deal with that.
One of the bright spots is that home affordability is at an all time high.
Nope, houses are still less affordable than they were during the 90s. Don't let a fall from hugely inflated bubble prices to mildly inflated prices be confused with "historically low".
Quote:
For example; imagine a young couple builds a business supporting the building industry, let's say a masonry company, hire 10 block layers. Buy trucks and equipment, seem to have an endless supply of work, decide to buy a home in a neighborhood they didn't think they could afford. In a school district everyone wants. Then all the sudden the building industry just stops....Were they irresponsible? or just unfortunate.
It's a poor business decision - everyone knows that real estate is cyclical. Failing to plan for the inevitable downturn in these sorts of industries is a common mistake, but I'd hardly call people who make this mistake unfortunate victims.
It's a poor business decision - everyone knows that real estate is cyclical. Failing to plan for the inevitable downturn in these sorts of industries is a common mistake, but I'd hardly call people who make this mistake unfortunate victims.
And yet, it appears a heck of a lot of them either did not know, or forgot or assumed it would be different for them , even in areas that have had tremendous and relatively horrific historical cyclical booms and busts. Even in business models that operate in feast/famine mode.
This is mania and it fed the entire culture of entitlement and instant gratification. And now, most everyone seems to be a victim of something other than their own delusion.
On the other hand, if everyone did the prudent/ rational thing, the bulls would never run.
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