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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Comments:
I know, I know.....let Joe Taxpayer foot the bill. Somehow we elected people to make these decisions.
@Japheaux: I saw your comment and thought speech time. But then I realized, Obama/McCain are pretty much the same on this bail out stuff - your screwed and how you vote wont really matter (on this issue).
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.
"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.
This stuff makes me so mad. Yup, we're going to tax you more to make up for the irresponible decisions of your neighbors.
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.
@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.
@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.
@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.
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.
@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!
What exactly does it mean to "guarantee" a loan? Anyone have a quick, dummy answer?
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?
@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.
@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...
Sounds like socialism to me.. Oh wait...
I cry socialism! The neutral menace is back in spades.
Now what about those ghost towns?
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.
@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?
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.
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.
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?
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.
@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?
@jeffgentry: So We the Taxpayers Bailed out the Wall Street Banks because the CEOs were the NEEDIEST.
Now I get it.
@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.
@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.
@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.
@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.
@midwestkel: And you'll still lose the house. The government guarantee just gets the loan into affordable terms. It doesn't remove the lien.
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.
WHERE IS TYLER DURDEN!?
@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.
I lose sleep at night over stuff like this. This is turning into socialism. Fantastic.
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?
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.
@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.
@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.
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.
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.
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.
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.
"If you erase the debt record, we all go back to zero..."
In Tyler I trust. I am Jack's pessimism.
@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.
@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.
As long as my responsible fixed-rate mortgage gets lowered...
Yeah, right.