Makes sense to the bank. They have two choices:

1) Keep the homeowner paying at least a reasonable mortgage until the economy recovers, play the long game and maybe when the homeowner sells get back all the equity

2) Foreclose and attempt to sell and recover what they can if anything, likely well below outstanding equity

They better not be getting a lower rate than the fixed loan I have with Chase...

So as a responsible homeowner who picked a 30 year fixed mortgage in a house he can afford, I should expect a decrease in my interest rate...right?...right? Hello?

Please do not use the word "fix" to describe what they are doing. If you "fix" something, it indicates it was broken. The mortgage itself doesn't need to be fixed.

I feel like such an idiot for living within my means and renting.

@AlexTheSane: Sorry, Alex, the irrisponsible monkey are steering the car now. You know, the great big limousine funded by our tax dollars. You can honk the horn on your little self-funded low-impact, responsible scootermobile in self-rightous indignation all you want, but no amount of doing the right thing will get you any attention. Most likely, the next time you go to renew - and because you were able to pay your mortgage on time - they'll throw a HIGHER rate at you. I bow my head in shame.

I like to think that ARM-owning folks who cry "oh, woe is me, I had no idea this would happen to me" is evidence that either they are intentionally lying or must be low-intelligence idiots. Either way, the government should follow up these bail-outs with some serious repurcussion: i.e. anybody who was bailed-out must continue to live in that house and pay a mortgage for 5 years. If they must sell before the end of 5 years, they forfeit any acceptance for a mortgage for an additional 5 years (and must therefore rent from responsible people until the time is up).

I would further recommend that bailees must also be:
1) retested for their driver's license yearly for 5 years;
2) not be allowed to own a pet or have a child during that time; (oh, I'm cruel) and
3) wear a button at all times that says "Bless you, responsible taxpayers, for without you, I would be FUCKED".

etc.

@mariospants: should be "monkeys" (plural)

@AlexTheSane: This is an oft-heard argument these days.

And it's one that I agree with. At the time I got my mortgage companies were throwing money at me. One company offered my wife and I $1,000,000 (no joke. One million dollars).

I crunched the numbers at home and realized that after everything was said and done (mortgage, PMI, taxes) my wife and I would have had less than $1000 a month to spend on food, utilities, entertainment, etc..

Of course, we rejected the idea of getting a million dollar mortgage and I called the mortgage broker and told him that I didn't want to deal with him anymore because a) he was being irresponsible, and b) if he was going to make this type of mistake before we bought the house, what type of mistake would he make at the closing.

So we went with a much smaller mortgage (~$500,000) with reasonable payments that the wife-unit and I can afford.

And now it seems like I'm being punished because 400,000* idiots couldn't do simple math or were blinded by the idea of getting a house?

Why shouldn't I get a break for doing the right thing?

* Yes, I'm aware of the impact to our economy if 400,000 homes went into foreclosure. All I am saying is that if those families get a break for doing the wrong thing, I should get a break for doing the right thing.

GObama :)

That's my job! Please people, continue to stop paying your mortgages, so that Ms. GG can continue to have a job and buy shiny things.

I kid, of course. The amount of foreclosures that I am seeing is staggering. Especially when people are losing their homes when they have $15,000 left to pay. So sad.

And we get the REAL Culprit behind the Crisis;

"For one, hedge funds have threatened to sue banks if they modify the loans underlying their bonds."

The Greed right there is the reason for the bulk of the trouble. if banks could have converted or worked terms for the ARMs, this mess would be substantially less critical.

I mis-timed the reckless spending and poor credit decisions of my youth by about 15 years :(

Only now am I almost out of the crater I made for myself.

I should have waited til the last few years to wrecklessly spend every cent I had and a lot of them that I didn't have.

@DeltaTee: In this case "fixed" means it used to be variable or adjustable, not broken. Whether it needs to be or not, the mortgages are now fixed. Just like mine was fixed from the very start.

And yeah, I can see that it's galling when benefits accrue to people who made mistakes. But a country of wall-to-wall foreclosures will screw us over worse.

I agree, those of us who were RESPONSIBLE and chose a mortgage within are means are the ones who should get a break, just because the lender wants to give you $1,000,000 doesn't mean you should take it. It's time to take some PERSONAL responsibility in this country. And I certainly agree if you get your variable rate loan that you couldn't afford refianced on my dime I expect an apology letter in the mail for each of us responsible taxpayers and a plan of action to repay us. Your budget should be overseen so that you don't get yourself BACK into this position

@Amy Alkon: You and me both.

My parents and grandparents before them shopped around, lived, and still live within their means. Where's their bailout for good behavior?

@Amy Alkon: But hey- you don't get that sense of smug superiority that comes with a house and car you can't afford, and $90k in credit card debt.

@thebluepill: How is that greed? The hedge funds bought these assets because they were promised a certain rate of return and a certain amount of risk. Now the banks are changing the deal.

@AlexTheSane: It may not be fair but I'd still prefer my neighbor be able to make his house payment as opposed to going into foreclosure and further hurting my house's value.

@thetango: Yea- imagine the impact- recent college grads who have been responsible could actually buy homes! OH NO!!!

In the mean time I'll continue to rent even though the NAR says it makes me two, three or five times more likely to beat my wife (I can't remember)...

@thetango: Exactly how are you being punished? Are you going to be paying more for your mortgage? No. Will your home value deteriorate because of this? In all likelihood, it will marginally rise. Are your tax dollars being used to fund this? No.

To everyone: how are you being screwed here? I have a 30-year, low fixed rate mortgage too, and I welcome this. The last thing I was is a glut of foreclosed homes destroying the market and the economy as a whole.

@BridgetPentheus: I totally agree with that. Kucinich had a bailout plan that included giving taxpayers shares of stock in the companies receiving bailout money. Unfortunately, that went absolutely nowhere. The stocks might not have been worth much (if anything), but at least it's something. With the current bailout, the taxpayers get the shaft, and the responsible ones get shafted twice.

@mariospants: I think we should re-test everyone for their drivers license yearly, and make the test a lot more stringent too. The fact that some first time drivers actually have to re-take a test that consists of: did you check your blindspot before changing lanes / turning, did you stop at the stop sign and do you have any sense whatsoever of where your car's front / back and sides are in relation to obstacles outside of the vehicle, is scary as hell.

@Segador: Weird...I get a sense of smug superiority by not having those things...

@Erwos: The hedge funds do not own the assets (i.e. the mortgages), Chase does. That's why they're able to adjust the rates. What the hedge funds are doing by threatening to sue is similar to if I was Circuit City (or Best Buy, Wal-Mart, whatever) and I sued you because you were selling XBox 360s at a lower than MSRP price. The reason I would give is that you're affecting my sales, so I'm not making as much money now.

@Erwos: I agree, it's really just incredible stupidity. If I had bought into one of those funds, I'd be suing the manager right now.

@ratnerstar:

I think people like myself feel screwed in two ways. First of all, all those people who bought way more house than they could afford drove up the prices of houses in the first place, meaning that I was able to buy a whole lot less house than I would have been able to buy if demand wasn't artificially inflated and drove up prices.

Secondly, people who were irresponsible in taking out mortgages are ending up with more house and a lower interest rate than I did by being responsible.

As far as the effect on propping up foreclosed houses near me, I don't care. I'm not planing on selling my house anytime soon, so I don't care if the houses near me go down for a while. I'd rather see them go down and come up naturally than be artificially inflated.

Oh shut up, all of you. MOST people in this situation weren't irresponsible; at worst they were naive, and they DON'T deserve to lose their homes because they were pushed into a bad mortgage by banks working a predatory system.

SERIOUSLY, everybody who's acting like jealous KINDERGARTNERS because the guy next door needs help and you don't, so now you're going to pout for a handout too? Screw off.

Also, I really wish people would stop giving out the HOPE NOW number. There's nothing there but a phone consultation that rarely produces any results...the whole nonprofit, if you look, is funded and administered by the financial industry -- it's basically there just to look good. Sad but true. At least if you call them, don't think that just because they don't help you, it's the end of the line -- keep trying, and try local people you trust FIRST.

@blackmage439: Your bailout is that you don't have to lower yourself to begging or praying someone will "save" you.

I was furious at the time that I had to jump through tons of hoops because I had a mortgage broker that played by the rules...but now I still have my house.

@ratnerstar: It is entirely possible that some idiot out there ends up with a lower rate than I do because _they could not afford their home when they bought it_.

I suspect (and hope) that there are penalties associated with this plan. I'd like to see some sort of required stay restriction (say for the next 10 years), and points and sale-percentage penalties added to their loans (IMO, 25% of any profit should be fair).

How does this hurt me? First of all, it was people like this who drove up the price of homes in the first place which directly impacted the price of the home I was able to buy. Secondly, do you really think these families are going to improve the neighborhoods they live in? Or do you think over the next few years their properties are going to fall into disrepair.

I'm betting on the latter...

@Erwos:

The Greed came in marking the sub-prime mortgage based funds as "AAA" grade investments to push them on un-whitting investors, ramping up industry in to a fever.

Now that the "truth" has been uncovered that these were junk to begin with , those that were ignorant enough to buy in to them by the billions, and those that sold them as gold are fighting to prevent taking the loss they deserve.

This is just like the price protection I get on my AMEX blue.

@thebluepill:

Incorrect. Hedge Funds are the owners of these mortgages. If servicers modify loans without confirming with the ultimate beneficiary, they're probably violating the terms of the servicing agreement created during securitization. Which is totally reasonable; it's up to the owners of the mortgage to decide whether or not the home"owners" get a break.

@Mary Marsala with Fries:

No, many of the people were irresponsible. They bought more house then they could afford on an adjustable rate mortage, and lo and behold when the rate adjusts, they can no longer make the payments. There are a percentage who were lied to or too naive to read the paperwork for the biggest purchase of their life.

@wgrune:

I also have sympathy for those in danger of losing their houses due to medical bills, loss of a job, etc. But for those with too much house, it's time to get an apartment baby!

@Mary Marsala with Fries: Where is the difference between irresponsible and naive. This is the consumer side of moral hazard. As madanthony stated, these idiots making $50k a year buying houses for $500k artificially drove up the cost of houses making it harder for those who were responsible to buy a house.

Where is the personal responsibility in signing your name to a mortgage that there was NO chance of repaying?

I agree, though, that it is better for them to stay in their houses but there better be some punative measures if they alluva sudden have 5% fixed 30-year loans. Perhaps any future increase in value of the house revert to the mortgage holder?

@BridgetPentheus:

A lot of people were pushed in to borrowing more to live near where they work. Housing prices went so high, that a typical $100K house was going for $300K. With the mortgage options they were offered, and with rising fuel prices, it was easy to justify living 25 miles closer to work for what was only $100-$200 more per month than living further out.

For others, money was so "cheap" in these deals that they could finally afford "sufficient" housing and took the oportunity to do so, and were truley "dooped" in to a bad mortgage.

Some were just victoms of bad circumstances, and there were some sucked in by the "get rich quick" game of house flipping. Others were lured in with the "free" money of the re-fi game.

Overall, I would say only 25% of those consumers in this mess are really "deserving" in any way..

@madanthony: Honestly I find it astonishing how someone can simultaneously whine about how home prices were artificially inflated and then whine about how someone is getting a break on the obscenely high interest on their loan when they still owe the PRINCIPLE.

Some of these people are upside down now and you're upset that they aren't going to have to pay 14-20% interest on a home loan? Good grief. I took out a variable rate loan on my house and refinanced before the lending market tanked and it worked out ok for me, but I'm not so self involved that I can't see how easily I could have ended up on the wrong side of a variable interest rate, even with buying a house I could afford

In my case it made sense because I didn't have enough credit history with large purchases, I'd had credit cards but I'd never taken out a loan for a car so it made sense to get a "sub-prime" loan that I could refinance after 3 years and use those 3 years of on time payments to bulk up my credit score and it worked perfectly, my credit score is a good bit higher because I now have large purchases that are paid on time, but if the mortgage crunch had happened a year or 18 months sooner and I could have ended up SOL because the market didn't just slightly adjust itself, it changed massively and some people really got caught out in the cold on that one.

@dragonvpm: And if it happened 18 months earlier, your gamble would have failed and you should have lost your house.

That is exactly what a borrower is banking on with a sub-prime mortgage: either flipping the house before the interest rate jumps or to negotiate a re-finance. There was never a guarantee that you would be able to pull either off.

If I gambled $200k at a casino and lost, should they give me my money back?

@HIV 2 Elway Resurrected:

Your irresponsible neighbor artificially inflated your houses value. So you would rather give him a break than have a market correction. Weak.

@thetango:

It is entirely possible that some idiot out there ends up with a lower rate than I do because _they could not afford their home when they bought it_.

Yes, that is possible. Aside from jealousy, how does this affect you?

How does this hurt me? First of all, it was people like this who drove up the price of homes in the first place which directly impacted the price of the home I was able to buy.

Yes, but unfortunately Chase is unable to travel back in time and prevent the housing bubble. Given that the bubble happened and there's nothing we can do about it now, the question is: where do we go from here? My answer is: wherever we need to go to get the economy back on track. I couldn't care less about punishing the people responsible; the problem we have now is finding a solution.

Secondly, do you really think these families are going to improve the neighborhoods they live in? Or do you think over the next few years their properties are going to fall into disrepair.

Well, I'll grant you greater insight into the future actions of people who neither of us know. But I guarantee that, however negligent the owners are, the houses will be better taken care of with someone living in them than not.

For the record, I hope there are penalties associated with this plan as well, for moral hazard reasons.

@TecmoTech: Yes, I'd rather not live on a block full of foreclosed homes.

@HIV 2 Elway Resurrected: Not to mention, this is a much better alternative for the banks who should be allowed to opperate how they choose so long as its legal.

@sleze69: That's a stupid example and I never said I would have lost my house. I bought a house I could afford regardless of what my interest rate was. That doesn't mean I don't feel very grateful that I dodge that bullet.

WRT to you casino example, there is a difference between a calculated risk based on what's going on in the market and gambling all or nothing at a casino. If you don't realize what that is, then I hope, for your sake, someone else is taking care of your money for you.

Do you really think it was the buyers who caused this mess. Even now, banks and mortgage companies are STILL bombarding people with offers to refinance their homes. In this market, they still want to get people doing that, and why? Because they often make money off of closing and if they can reset the clock on a mortgage they'll often end up getting more money in the long run. Business as usual for them, they're just watching their backs a little more closely for the time being.

So feel free to look down your nose at people who got caught out in this mess, I just hope you never end up taking a risk that fails badly and leaves you in a terrible financial situation.

@AlexTheSane: Your only comfort may be that your neighbors who were risky are now not running away and leaving you isolated in an empty neighborhood. It might keep your resale value a little closer to normal at least.

@DeltaTee: ARM is Adjustable Rate Mortgage, different and riskier than Fixed Rate Mortgage. They changed to a Fixed Rate to keep people from being affected by the upwards Adjustment.

@thebluepill: The Hedge Funds don't rate the securities. Other companies do ratings.

@HIV 2 Elway Resurrected:

There are people like me who are waiting for those homes to become available at reasonable prices. I guarantee you I would be an awesome neighbor.

@Amy Alkon:
Amen, sister. But hey - they're talking about some sort of bailout for people with credit card debt. You've still got a chance to cash in.

@Erwos: How is it greed?

Servicer: Hey, guys, these loans we made to people are resetting and they can't afford the new payments, we're seeing a lot more missed payments leading to foreclosures, can re rework them and lower the interest rates?

Hedge Fund Manager: No, we based our earnings projections on those interest rates resetting and my bonus is tied in to meeting those projections. Touch those interest rates and we'll sue.

Servicer: Ummm... ok but this is all that came in this month. People are defaulting on their loans.

Hedge Fund Manager: Call up congress, we need a bailout and make sure my bonus and/or golden parachute is intact.

Looks like greed to me.

Something I've been wondering, that I've seen no one address is whether turning ARMs into fixed-rate mortgages is really going to help.

Didn't these people get ARMs because they could not afford the payments on a fixed-rate mortgage to begin with? If they couldn't afford a 30-year fixed 2 years ago, do we really think they're going to be able to afford one now when they're probably in even bigger financial trouble?