I read this in Time today. Finally there is at least one reporter that has it right.
The federal government is most likely to create a safety net for the falling housing market with a plan that will allow people to stay in their homes by reducing their monthly payments. The FDIC and some members of Congress assume that residential real estate prices will decline slower this way and eventually begin to increase in value if houses are kept out of foreclosure. That may be true, but the plan could be quickly flanked by rising unemployment and the realization by people who can stay in their homes with federal help that they will never have the equity to pay down their principle. The government will have pushed them into the equivalent of "interest only" loans.
Although it is counterintuitive, the best approach to reversing the falling prices of homes may be to push the housing market to a deep trough as quickly as possible. This would mean that the government would not provide any assistance for current homeowners and give no financial aid to people who might buy a residence using tax credits. The idea of a benefit of up to $15,000 for those purchasing a home has already been floated in the debates over the stimulus package. Bringing housing back to a period of "affordable" prices means the government needs to stay out the business of keeping homes from being sold or foreclosed and helping buyers buy homes.
It seems especially cruel to push foreclosures because no one wants people to lose their homes. But, at some point, the system must take into account the fact that many of these people cannot afford their houses. The irony of allowing current owners to stay where they are is that they will never really "own" a home. They will remain in houses where they are very unlikely to be able to pay off the principle. These residences will not be released into a market where prices continue to drop very rapidly because there are no government programs to keep the housing prices at or near current levels as people are pushed out of work. If enough people lose homes, some of them will at least have the opportunity to buy property that they can afford, property which has reached its economically "correct" level through the forces of the market and not through a system that manages prices.
18 comments:
1. Government, especially in these times, must be seen to be helping people. Whether they do or not is immaterial. The one thing they can't be seen doing is letting people crash, even if it's the best policy.
2. We're supposedly countering deflation with inflationary spending/money printing. Given double digit inflation, those underwater folks may well catch up in 30 years to owning the house they're in, assuming they're set up with a fixed interest loan.
Government - especially the administration - feel that they "have to show that they are doing something" to "fix" the problem. They don't realize that they ARE a part of the big problem.
I don't know - I see this kicking them in the ass in a few years...I don't care how much government thinks that they are helping - this market is an ugly lion and it will rear it's ugly head - no matter what they do - the only problem is - they are making it worst for when it does happen.
I gotta add one more thing....
A friend of mine lost her home - but before she did - she managed to buy a newer and bigger home for less than she had mortgaged on her other home.She says now she has a monthly mortgage that she can afford and it won't go up in a few years.
Look - I don't know how she did this and frankly - I will not ask - but hey - as stupid as this might sound - maybe this is what the government should do - let folks loose their homes - they can then buy another home (within reason - you should not be late on your other financial obligations - I mean - hell - if you are not paying your mortgage and you are still working - than you should have money)then someone will buy that home that you let go of....I mean, why not...it just may work - no more dumber than what the government is doing now.
O.K. quit laughing at me and saying you are going to "vote me off the island". LOL
Well, yeah. This seems obvious, but the point has been lost over the last several years. Most people probably can't afford to own (or own the debt to) a house. That's ok. That's what renting is for. Yes, it can be insecure, and you don't have total control over your destiny, but... do you really have control if you're in a loan that resets after two years to triple the current payment?
This 'Ownership Society' thing is nonsense. That isn't a slap at anyone -- you don't NEED to 'own' a house; you don't need to carry a 30 or 40 year mortgage. There are worse things than a foreclosure -- it doesn't mean you have to live in your car or in a tent city.
I hope this is a good time to buy, because I just pulled the triger on a nice single story yesterday and will be in escrow by tomorrow.
Hey X,
I would love to hear your opinion on the state budget and the effects of a 1% sales tax increase!
Thank you for your blog!
My opinions is the budget is another freakin disaster. They are under the mistaken impression this is a short term problem. They did not make the require cuts ins spending. They plan to "borrow" from the lottery. And the raised the wrong taxes.
I fully understand that we are in the schitt. Sacrifices must me made to correct what the idiots in the California government have done to the state. They were no better than the specuflippers that caused the housing crisis. They spent far more than they could afford. Assuming the bubble income would last forever.
They raised income taxes, great that makes me want to stay in California. I'm sure my employer is thrilled too. Another hit to business. They raised the sales tax. Actually I'm ok with that one. It more fair across the board. Every one pays a little more and its a tax you really don't notice much. The doubling of the car registration tax pisses me off. That's just sticking it to the working folks again. And it's a large lump sum tax which makes it hard on the pocket book for most families that are living paycheck to paycheck. The gas tax made far more sense. Another tax we would not notice because the price of gas fluctuates so much but they took it out. Plus they could have spun that one as a "green tax".
All the wrong taxes for all the wrong reasons.
How about getting rid of the unions so you can make the state more efficient. Nope, can't do that. In fact they made it harder to fire union employees. We have prison guards making $200k a year and we wonder why we're broke???
Hello,
I think Renee's story about the friend bailing for a bigger and cheaper house is the real story.
Aside from people trolling on the low end side, there must a whole lot of people buying and bailing.
Because in this economy, I would thought people would take caution in taking on more debt. But apparently, someone is buying these houses to take on less debt while leaving tax payers holding the bag with TARP.... The pattern repeats as more and more learn how to take advantage of this bail out system.
Plus, all the realtards and loan brokers I know are busy. Volume is up. They are doing and working some deals. They do admit that, comparing to 5-7 years ago, they are doing more work for lesser money but they are not starving.
buying and bailing is illegal. she can get into trouble. hope she can sleep at night
Probably sleeps great after ditching a few hundred thou of mortgage debt. Probably sleeps every bit as good as anyone who "stretched the truth" on a loan app. I think people's ethics change when it gets down to survival of their personal family, it becomes more of do what you have to do to keep a roof over the kids head and food on the table. Maybe that's unethical towards society as whole, but I can not say I'd be a whole lot more ethical in that situation. Glad I didn't jump on the housing express in the last few years is all I can say.
OSA a buy and bail isn't illegal. It's illegal to lie on a loan app, but buying a new home and letting the old one go back to the bank is legal. It may seem immoral and maybe in some respect it is. But when you buy a house you sign a contract. The contract says "make the payments or the lender will take you house back". That's the contract. So, not making the payments and letting the lender have the house back is a perfectly legal way out of the contract. Of course this will nuke your credit for a few years.
I know quite a few people who have done this already. I also know some that did it back on the early 90's. I was an idiot and stayed trapped in my house paying the note back then because I felt it was my obligation. You know what, 5 years later they were all FAR better off than I was and our credit ratings were about the same after those few years. When it comes to the quality of life for you and your family you DO WHAT IS BEST. Take the credit hit and live better.
The banks are getting wise to this scheme though and it is getting harder to pull off. Fannie and Freddie will not give a loan if you already have a house with less than 30% equity. Many other lenders are starting to put restrictions on if there is a current home. There are ways around this though. I know a couple that bought by getting the parents to buy the new place. I know another guy that is planning to have his wife buy a new place.
I used to think this was a terrible thing to do. But looking back at my personal experience in the 90's, my family ended up worse off than everyone I know that did it. Now, if I found myself in a similar situation I would have no problem doing it. It's just not worth it to stay in a situation like that.
thanks for the clarification. golfer_x do you have any details on how it affects my credit report? the house is jointly owned but i am the only one on the loan to the bank. if i foreclose do they come after both of us or just me?
golfer_x - if you can afford both mortgages and you are moving to be closer to work, will this be an issue with the banks? if you can show that you can pay for both homes?
OSA, in a foreclosure, they don't "come after you". If the loan is a non-recourse loan, the foreclosure is the end as far as the borrower is concerned. The lender has the property back and you will have a foreclosure on your credit report. That will drop you to around 500. It will remain on your credit report for 7 years.
If the loan is not a non-recourse loan, (usually only purchase loans are non-recourse) if you've refi'd or have HELOCs then they can pursue you for the difference of what they sell it for and what you owed.
Unless your loan is the original purchase loan I would seek legal advice before trying a buy and bail.
If you can afford both mortgages and your DTI is within their requirements for the loan I doubt there will be an issue. That's not the case 99% of the time. Very few borrowers can carry two mortgages and still have a DTI of 28%
what is 28% (of gross income) - what is dti? not familiar - is the t tax and the i insurance?
since i am the only person on the loan, i am assuming my credit is the one that will go to 500?
DTI is you debt to income ratio.
Typically banks want mortgage payments no higher than 28% of your gross income. You total debt load should be no higher than 36% of your gross income. Your total debt is mortgage plus cars, credit cards and any other loans you may have. So if the mortgage payment for both loans plus your other debt was more than 36% of your gross income there's little chance you will get a loan these days.
If you are the only one on your loan, only your credit takes the hit.
"X" states it true...
It's not illegal to buy and bail...
"OSA" - your credit will be marginally damaged - but if you keep up with your other obligations - making your payments on time - than within a year - your FICO will be up to about 550+. If you get a couple of secured credit cards as well - that will increase yur FICO another 30+.
Credit - Schmedit I say...look - people are buying homes that have credit scores less than 580 so don't get caught up into the media hype that unless you have perfect credit and a FICO of 900 that you can't buy anything - BS!
Oh - it might be true with the bigger banks - but after those bad boys got slammed in the stock market this last week - those bad boys are now looking at beng a part of a nationalized banking system - dumb asses.
Post a Comment