Treasury, FDIC Considering Plan To Guarantee Millions Of Mortgages

The Washington Post says that the Treasury Department and the FDIC are considering a plan to guarantee millions of mortgages. According to the WaPo, the plan under consideration would encourage lenders to reduce borrowers monthly payments based on the homeowner’s ability to pay. To attract lenders into the program, the government would guarantee to repay the lender for a portion of its loss if the borrower defaulted on the reconfigured loan.

It would cost between $40 billion and $50 billion, sources said.
The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.

While Treasury and FDIC officials have reached an agreement on the principles of the program, the White House is resisting, according to the sources, who declined to be identified because the negotiations are ongoing.

Treasury, FDIC Crafting Plan to Rework Millions of Mortgages [Washington Post]

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  1. Franklin Comes Alive! says:

    As long as my responsible fixed-rate mortgage gets lowered…

    Yeah, right.

    • Bladefist says:

      @Franklin Comes Alive!: lol. Ready to bend over? I am.

    • howie_in_az says:

      @Franklin Comes Alive!: Us fixed-raters have every incentive to stop paying our mortgages now in the hopes that the gubment will lower the principle and interest rates on them. Why should irresponsible people get all the breaks?

      • Beerad says:

        @howie_in_az: “Us fixed-raters have every incentive to stop paying our mortgages now…”

        Really? Every incentive? Like, the thought that this plan might not even take shape and your house might be foreclosed on and you’d be kicked out on the street doesn’t occur to you? Isn’t at least a little reason you might think twice about it?

  2. Japheaux says:

    I know, I know…..let Joe Taxpayer foot the bill. Somehow we elected people to make these decisions.

  3. Despiridius says:

    I would like to see a cap on the value of loan that could be reconfigured. We’ve all seen the stories of people “losing” their $350,000 McMansion outside Sacremento or wherever. If you thought you finally scraped it together to get into your first home at $150,000 and are now in a pinch, maybe we could consider the above proposal. But using tax payer dollars to help out people who thought zero down interest only was a good idea just seems to be a waste.

    • ideagirl says:

      @Despiridius: You can’t buy a McMansion for $350,000 in Sacramento or any where north. They start around $600,000 in these arts. $350,000 gets you a 40 year old ranch style home. And that’s AFTER the prices started dropping.

      • Yokai Monsters Spook Warfare says:

        @ideagirl: Same with Dallas, which has one of the best housing markets in the country. You want a 25-30 year old 3/2 house on 1/4 of an acre in a “decent” part of town – $300-$400K. A nice condo or townhouse as a starter? $250-$400K depending on the building. And if you want to live in an “upscale” area, you are looking at 750,000 just for the zero lot line land it sits on.

    • Tmoney02 says:

      @Despiridius: They dont make 150,000 starter homes anymore. Hard to blame buyers when there is no choice in whether to play it safe or stretch themselves.

      • Despiridius says:

        @Tmoney02:
        3 bed, 2.5 bath, finished basement, 8 minutes from downtown Columbus OH, $149,000 – at the peak of the market. I guess I forgot how ridiculous it is to live on the coasts.

  4. 1SQ says:

    “the plan under consideration would encourage lenders to reduce borrowers monthly payments based on the homeowner’s ability to pay.”

    There’s the problem– it’s impossible to determine one’s ability to pay. How much someone wants to pay– that’s easy. But as soon as you start handing out free money to anyone who “needs” it, everyone is going to need it.

    • ideagirl says:

      @1SQ: Handing out houses based on ability to pay just doesn’t sound right to me. I RTFA, but it strikes me as wrong. I want a bigger, cooler house, yet nobody is going to give me one based on what I am able to pay.

    • Tank says:

      @1SQ: How did you come up with that? You take the person’s income, and use a multiplier. It’s called payment to income ratio. THEN – you compare the person’s total debt (including the new payment) divided by their total income – that’s called debt to income ratio. It’s not a new process, and in a conforming loan, where the customer actually has to prove their income, it works. The problem is when you get into the stated income loans, where the mortgage broker writes whatever number he needs to make both ratios work.

    • ironchef says:

      @1SQ: they do that everyday in Bankruptcy court.
      Judges make that determination ALL THE TIME.

    • FLEB says:

      @1SQ: Household income, minus a class of considered “necessary” expenditures, and perhaps work savings in there as well.

  5. Geekybiker says:

    This stuff makes me so mad. Yup, we’re going to tax you more to make up for the irresponible decisions of your neighbors.

  6. FatLynn says:

    Keep in mind that they are just changing the payment structure, NOT changing the principle owed or even the interest rate, necessarily. If you have a fixed rate you can afford, you will still be better off than these people.

    • CumaeanSibyl says:

      @FatLynn: Isn’t McCain talking about changing the principal based on the home’s current market value? I’m worried ideas like that are going to gain traction.

    • Geekybiker says:

      @FatLynn: The article suggests both princle and interest rates will be adjusted, with the government picking up the tab on defaults. I wish the bank would forgive part of my loan because I was responsible!

  7. oilburner says:

    Hooray for rewarding the most irresponsible group of homeowners! Un-friggin-believable. I swear politicians have no clue how things actually are in the real world.

  8. TecmoTech says:

    What exactly does it mean to “guarantee” a loan? Anyone have a quick, dummy answer?

    • Tux the Penguin says:

      @TecmoTech: In short: if you don’t pay, the government will refund the bank the principal you didn’t pay back.

      IE, it takes a LOT of the risk out of lending money. Or, in other words, we can get back to the “risky” lending that got us into this problem in the first place.

      • B says:

        @Tux the Penguin: Actually, in this case, the Government is only going to pay back part of the principal. Incidentally, if this happens, the borrowers still lose the house. They don’t specify just how much. Of course, if the borrowers don’t default, the government pays nothing.

        • humphrmi says:

          @B: And the theory, of course, is that the government can afford to take over the foreclosed homes (after they’ve paid the bank) and sit on them, until they can sell them for more. Assuming, of course, there is a recovery.

  9. midwestkel says:

    I’m going to go buy some house then default. This means that if the Government is paying the bank then I owe nothing right?

    • Tux the Penguin says:

      @midwestkel: Now, considering none of this is law yet or anything, and just judging by the current tax law…

      If the bank erased your debt, technically all of the relieved debt becomes taxable income, so you would still owe something to the federal government.

      Now, I doubt that would happen. But it would make sense having to pay 10/15% of the relieved balance back to the government. Not that you really could if you basically just lost your house…

    • humphrmi says:

      @midwestkel: And you’ll still lose the house. The government guarantee just gets the loan into affordable terms. It doesn’t remove the lien.

  10. Skankingmike says:

    Sounds like socialism to me.. Oh wait…

  11. Angryrider says:

    I cry socialism! The neutral menace is back in spades.
    Now what about those ghost towns?

  12. pal003 says:

    Hmmmm – a plan of $40 – $50 billion to keep home values from tanking more and stop foreclosures. Maybe not so bad. Peanuts actually compared to the $700 billion – $2 trillion Socialized No-Strings-Attached-Giveaway Bailout plan to greedy Wall Street banks and CEOs who gambled stupidly.

    I know which one I would pick.

  13. katieoh says:

    i am ambivalent about this plan. the banks duped these people into these mortgages, and they’ll lose their houses if the banks collapse. we have to bail them out twofold, and while it is sad, what other option do we have?

    we cannot win in this situation. and i, personally, am willing to hand over some cash to keep my next-door neighbors from becoming homeless.

  14. PølάrβǽЯ says:

    Remember folks, it wasn’t JUST the homeowners that were irresponsible, it was the shady lending companies who gave mortgages to people they KNEW couldn’t pay them.

    • katieoh says:

      @aaron8301: EXACTLY.

      we, as a society, need to be responsible for our least-intelligent citizens. so they couldn’t afford lawyers to look over paperwork and can’t do the math to figure out what kind of deals they were getting themselves into. that does not mean they are entirely at fault.

      people are being such jerks about this! and it’s especially ironic because this is the CONSUMERIST. who are those “irresponsible homeowners?” oh, yeah, consumers. gee, when did we start siding with corporations and banks?

      • humphrmi says:

        @katieoh: I don’t think they are necessarily “siding” with corporations and banks, they are siding against people who took on loans they had no hope of repaying. Many of these people would probably like to see the banks take their share of pain in this mess too.

      • wgrune says:

        @katieoh:

        I stopped siding with consumers when people who bring home $3000 a month got a mortgage for $2500. YOU ultimately are responsible for the contract you entered into, regardless of what the lender across the desk tells you you can qualify for.

  15. jeffgentry says:

    From the article…”Under the program being discussed, the lender would agree to reduce borrowers’ monthly payments, for example by lowering the interest rate or principal of a mortgage loan, based on the homeowner’s ability to pay. These reconfigured loans could help homeowners avert foreclosure.”

    “From each, according to his ability; to each, according to his need.” – Karl Marx.

    The government of this nation, which I will no longer call OUR government, openly discusses taking from those of us who didn’t over extend ourselves and are ABLE to pay to cover for the immoral and the irresponsible based on how much they NEED it. It’s called Marxism and it’s our government. Why settle for socialism when you can go straight to communism?

    • pal003 says:

      @jeffgentry: So We the Taxpayers Bailed out the Wall Street Banks because the CEOs were the NEEDIEST.

      Now I get it.

    • smackswell says:

      @jeffgentry: Baby steps. Baby Steps.

    • floraposte says:

      @jeffgentry: Unless you’re a staunch libertarian, you’re accepting a government that engages in that to some extent, because that’s what taxes do. However, that’s not actually a socialist or Marxist economic system because it doesn’t change who owns the industries.

    • zonk7ate9 says:

      @jeffgentry: What people fail to realize is that doing nothing will just let things continue to get worse. Yea, you may not want to foot the bill for these irresponsible people, and it may be unfair to people who purchased homes with an affordable fixed-rate mortgage, but allowing the economy to crumble because you don’t want to help these people is irresponsible too. It may not be fair, but neither is life. I would much rather be stuck paying for these people’s mistakes with my tax-dollars than let our economy crumble.

  16. cf27 says:

    Consider the person who signs a sheet of paper, doesn’t put any money in up front, moves in and makes a monthly payment.

    Why should that person should be treated differently if the sheet of paper he signed had the word “MORTGAGE” and not “LEASE” at the top? If he doesn’t make that payment, then he should booted out of the home and let somebody else move in.

    • Despiridius says:

      @cf27:
      Well said. If you have nothing down and are just paying interest, what you have is a lease with a giant IOU security deposit.

    • LavernaXuthus says:

      @cf27:
      Perhaps that is the key. Instead of fixing the loans, buy the homes outright at their current value and convert them to leases.

      I would prefer the government as a landlord rather than rewarding mortgage companies and owners who believed a lot of nonsense. Then go after the mortgage companies that were predatory.

  17. GideonKoliha says:

    I’ll take this over the 700Billion in Corporatie Welfare as long as some of the restrictions from FHA are applied. The owner lives in and will continue to live in for the next 15 years. Meaning those dummies looking to flip a house for profit are on their own.

    I am heading to Vegas soon. Should the government bail me out of my loses there? Cause I know they will enjoy a percentage of my winnings.

  18. sephiroth_4 says:

    WHERE IS TYLER DURDEN!?

  19. Aaron_Anderson says:

    I lose sleep at night over stuff like this. This is turning into socialism. Fantastic.

    • Evil_Otto would rather pay taxes than make someone else rich says:

      @Aaron_Anderson: If that’s the thing that’s keeping you up at night, then you’ve got a pretty good life going. Can you even explain *why* you think socialism is a Bad Thing, or have you just adopted talking points in place of your own informed decisions?

  20. MightyCow says:

    When is the government going to guarantee the money I lost in the stock market because all these greedy a++holes wanted 10x the house they could afford?

    • Skankingmike says:

      @MightyCow: Actually many of the houses being foreclosed on was due to a mandate that minorities were being passed up on loans. Most of the major foreclosure areas are in minority areas.

      They were prayed on, even those who owned their own homes were prayed on. When they were told that it was “free” money to borrow from their equity and that not to worry homes never go down in value.

      But yes there are those that bought houses they can’t afford either. They are dumb.

      • ironchef says:

        @Skankingmike: You can’t put the blame on the CRA…it was more like the margins for crappy loans was too lucrative to pass up. All those mortgages were packaged up via wall street’s derivative Mortgage backed securities.

        You also have to blame all those idiots who bought houses as speculative flip properties. The majority of adjustable mortgages with no money down was made for speculators.

        • Skankingmike says:

          @ironchef: The subprime interest only was meant for Contractors who are professionally flip houses then TLC took over and made it into a damn game for people. Meanwhile most people only see a 10k or so profit for the time they spend at a house. Little do they say is that this needs to be your full time job.

          However, Look at a scatter map of the US and tell me that most foreclosures aren’t in minority areas.

          [www.usatoday.com]

          quoted from the article.

          “The city of Baltimore filed a federal lawsuit against Wells Fargo Bank in January, alleging the bank intentionally sold high-interest mortgages more to blacks than to whites in violation of federal law and targeted black neighborhoods for high-risk and unfairly priced loans.

          Wells Fargo bank.. hmmm… sounds like a damn bank to me no? – Lannister80

      • lannister80 says:

        @Skankingmike: CRA has almost nothing to do with the subprime mess. Most of those loans were made by non-banks who weren’t bound by the CRA, like *cough* Countrywide *cough*.

  21. BeeBoo says:

    This is a giveaway of taxpayer money to corporations, not a homeowner rescue, just like the $700 billon “bailout”–$100 for every human on the planet (with billions left over) as a gift for corporations and their wealthy executives.

    I’m voting against all the crooked legislators giving away all this money even if I have to vote for Republicans.

  22. chuckv says:

    The whole reason we got into this mess was because of risky lending encouraged by The Fed increasing the money supply and making credit available at an artificially low rate. The government guaranteeing mortgages is only going to encourage more high risk lending and perpetuate the problem.

    • MrEvil says:

      @chuckv: Damn straight, too much credit has made money worth alot less. We’ve been facing quite a bit of inflation especially with hot commodities like oil, the dollar was tanking making it alot worse, and the Fed was nowhere to stop the spigot into the money sink.

  23. Parting says:

    Guys, I’m sick and tired of reading, you using the world ”socialist”, without any insight on its definition. Please stop.

    Incompetent spending, trying to save economy, is not socialism. That’s just a bribe for banks.

    • SOhp101 says:

      @Victo: AMEN!

    • crouton976 says:

      @Victo: Actually, to a certain degree it is. According to the Wikipedia site on socialism,

      “Socialism is not a discrete philosophy of fixed doctrine and program; its branches advocate a degree of social interventionism and economic rationalization, sometimes opposing each other. Another dividing feature of the socialist movement is the split on how a socialist economy should be established between the reformists and the revolutionaries. Some socialists advocate complete nationalization of the means of production, distribution, and exchange; while others advocate state control of capital within the framework of a market economy. Social democrats propose selective nationalization of key national industries in mixed economies combined with tax-funded welfare programs; Libertarian socialism (which includes Socialist Anarchism and Libertarian Marxism) rejects state control and ownership of the economy altogether and advocates direct collective ownership of the means of production via co-operative workers’ councils and workplace democracy.”

      The “Social Democrats”line pretty much sums it up. Personally, I’d like to live in a more Libertarian Socialist society.

  24. u1itn0w2day says:

    See,it’s not pc to have words like ‘foreclosure,foreclosed on or kicked out of their(the banks home) and you dare not say ‘it’s their fault,they signed it’ as part of the daily news or conversation.

    But it is their fault they did sign.And I am sick and tired of hearing ‘oh my home value will go down if they’re foreclosed on and the house is vacant’-YOUR house went to an artificially high value BECAUSE of the people who signed for something they had NO business getting into.

    This is akin to crying my 0% teaser rate went up on my credit card.The unmitigated gaul of these fracks to try and weasal out of their bad decision wether it be the borrower or banks/mortgage holder.

    Let’s get this over with NOW,this nothing but postphoning the envitable.This is nothing but political pandering.The mere fact they even mention a plan only shortly before an election is like throwing gas on THE fire.

    • floraposte says:

      @u1itn0w2day: People are saying it all over the place, so it doesn’t seem to involve too much daring.

      Some people did take crap loans out of greed. Some people, it’s pretty well documented, were lied to. Some operated in faith that the experts from Greenspan to financial industry leaders couldn’t be wrong in their expectation that the housing market was secure and that they’d be okay since the value of their home would continue to go up.

      Either way, it’s not like it’s child-rearing and the response is based on the teaching of a necessary lesson; the question is what impact will allowing the foreclosures and impoverishment have on the country. I’m not keen on my taxes going to bailing stuff out, but I’m also not keen on my job disappearing because nobody nationally has the money to put into my industry or internationally is investing in the U.S., or being unable to sell my house if I want to start anew someplace else because I can’t undersell the forty disclosures in the surrounding blocks.

      It affects the rest of us whether there’s a bailout or not. The question is which effect is least disadvantageous across the board.

    • crouton976 says:

      @u1itn0w2day: Actually, the values are down because the Fed kept interest rates low, creating an artificially high value on everyone’s homes, not because some idiot decided to get a loan they couldn’t afford.

      Your heart is in the right place, but your facts are a little off.

  25. IamNotToddDavis says:

    What’s going to be hilarious to me is to wait for the inevitable ID theft mortgage fraud story of the government bailing out a homeowner who:

    A. Bought the house with a fake ID.

    B. Ran up credit card/refi debt to the point where he/she is unable to afford the one payment they actually pay for under said stolen ID.

    C. (You knew this was coming) Profit!

    Seriously, it’s happened several times under Fannie Mae, it’s inevitable under this proposal.

    And people think it’s a good idea to have the government run the health care system too?

    I don’t get it.

  26. Trencher93 says:

    Where do I sign up for this money? Oops… I have an affordable mortgage and pay ahead on it … I guess it’s too late to be irresponsible and get bailed out? Why didn’t they tell us about this in advance so I could position myself? At least they could reduce the principal I owe, right?

  27. htrodblder says:

    I’m still curious how hundreds, perhaps thousand of loan agents for mortgage companies and banks helped people into homes they knew were unaffordable, or worse forged documents to get loans approved.
    I thought that was still called fraud and you went to jail for it…..

  28. theblackdog says:

    I will only support this if it is used to bailout actual homeowners who legitimately fell behind due to things like medical bills or loss of a job. The ones who do not deserve it are those who were flipping houses or because they bought a McMansion and just had to have that SUV and gigantic flat screen TV.

  29. frodo_35 says:

    Plenty of greed to go around. Buyers ,sellers,lenders, and yes even the little old couple who bought a house in the 60’s for 30,000 and counted that 200,000 sale price as their retirement. How did people expect their kids to buy homes when wages stayed the same but housing kept going up. It was created wealth that never exsisted and when the market has a chance to correct itself what do we do. We inject more money to continue the illiusion. It will all come tumbling down again in a few years be forwarned. Wages just do not support the cost of housing, renting or buying. Who can afford a 200,000 home when the biggest employer in the country is Wall Mart and half of there employees are on food stamps and medicade. WTF

    • u1itn0w2day says:

      @frodo_35: ‘inject money to continue the illusion’ DEAD ON!

      Easy money or credit compensates for over pricing or low income buyers.It all goes back to the mortgage should be no more than 3 times your yearly salary.The government allowed THIS whole mess rather than admit stuff like we have to raise the minimum wage,stop exporting jobs,fight illegal immigration,increase training etc.

      What the heck are these same home buyers going to do if their is a tax increase,an insurance increase,unexpected repairs or just an unexpected expense period.Prices would actually drop for buyers if houses were forced to sell at an AFFORDABLE cash or low income value-little or no credit.It’s one thing to slap a 400$ TV on a credit card but another to buy a 400k house on credit/mortgage.

    • crouton976 says:

      @frodo_35: Austrian School of Economics, anyone? I think so… =)

  30. Yogambo says:

    So 300 million people must support 5m and their poor decisions? And how is that fair again? How about the 5% mortgage across the board plan — all mortgages 5%, current and new? I’ve heard it mentioned but then nothing until this crap. No doubt it’d kick start the economy.

  31. Erwos says:

    How do you fix problems arising from giving out bad loans? Well, the government’s solution is to encourage you to give out more of them. *facepalm*

  32. Wormfather is Wormfather says:

    YAY! We’re in the Credit Default Swap business!

  33. Anonymous says:

    I wouldn’t take these “plans” too seriously. Less than 15% of mortgage holders are in really serious trouble (but to put it in perspective that is 7-10 times the normal rate of default).

    Congress will never let it happen, because that means they will lose 6 votes for every one they buy. Even congressman can do that math.

  34. narq says:

    So how much further down the toilet do our leaders need to put us before people get up and demand change. Voting for president doesn’t count. Something like this demands a movement/revolution. We can stand in line for days to buy an iPhone or PS3 but we can’t possibly stand outside the gates of congress and demand life changing action like our grandparents did not long ago.

  35. Spiny Norman says:

    Look, as long as we are about to elect a dyed in the wool ‘tax and spend’ democrat president and support him with an unbreakable majority in the house and senate, all I can say is: My mortgage is under water through no fault of my own. Can you please reduce the principle and cut me a new loan with a marginally lower interest rate to replace the solid loan I have now? As long as we are going to throw billions at the great unwashed, I’d like my share too.