The new bailout...
I have not read any "official" details on this new mortgage workout plan the Obama administration is touting. But there are some blogs reporting the supposed workings of it. This plan is the reason for the newest foreclosure freeze. The adminsitration has asked the banks to hold off until this new plan is announced. BTW this plan is not part of the stimulus package. That's more money the taxpayers will have to pay off.
Here's what I have read so far. The new plan is geared towards people on the edge of affordability. People that have been making payments but due to hardship are now having trouble. The plan is to have the lenders refi the people into low interest fix loans of 4 to 4.5%. If the home is worth less than the mortgage the excess amount will be held back from the loan. That money will be paid back when they sell the house. For example, if you have a house worth $200k and you loan is $300k. They will get you into a new loan for $200k at 4.5%. When you sell the house you pay that $100k back. Obviously there are a lot of details missing here. What happens if the house only sells for $200k in 5 years. Are they still on the hook for the hold back amount.
If the 4% interest thing happens it's really gonna piss off any new buyers. Why do these people get 4% and new buyers are getting stuck with 6%.
Compared to most of the bailout plans this one seems slightly more reasonable. Most people that bought after 2004 are still not likely to qualify for this (assuming it is structured this way). It's probably not going to be very effective in the super bubble areas like SoCal. It's obviously not going to help people that are losing homes due to unelmployment. Unfortunately that's the fastest growing reason people are losing homes.
The one sure effect that this will have is to slow the decine. It will slow the flood of foreclosed homes and slow the price declines. Obviuosly, it has already slowed the foreclosures since banks have frozen them until the details of this plan are announced.
8 comments:
apparently the new tax credit will be $8000, which is not a load but a credit. better than a kick in the pants...
loan...load...duh
The should have given all the tax payers in California a special "Octo-Credit"....since we are paying for Octo-mom's 8 babies - we should be able to take use the little boogers as dependents on our taxes...I could use a few more deuctions withut giving birth. LOL
golfer_x. why do you think it will not be effective for folks that bought after 2004? aren't all these plans just keeping the bubble going? as someone else said, the only solution to this crisis is foreclosure. so maybe i should ask for a pay cut at work to afford this
Basics. It always goes back to the basics. Supply and demand. Debt ratio. Simple stuff, easy to lose sight of when you think or are lead to believe that things are exasperatingly complex.
There is an oversupply of homes compared to the demand, and most of those who have the need, still do not have enough income to buy, when you consider their debt to income ratio.
Bailout. Hmmm, how does that help? If we spend trillions on crap that does not generate new jobs and industry, then we have just saddled every tax payer with new debt without raising their income. Everyone's debt to income ratio just gets worse, thanks gummint spending. Now you cannot afford the same house as you could before the bailout. Lovely.
As the saying goes, the scariest thing you can hear from an official is: "I'm from the government and I'm here to help".
We had a mortgage as recently as 2006 (we paid off that year) and were looking to buy a second house this year, but our tax lady told us this weekend that since we claimed mortage on our taxes within the last 3 years, we won't benefit from the tax credit????
That's right your only "a first time buyer" if you haven't had a mortgage in 3 years. Personally, I'm not sure how that makes you a first time buyer. But like everything else the gov touches, it's confusing as hell.
Golfer_X and Market,
First time buyer means that if your primary residence is the house you bought. For exmample, I bought in 2004 and lived year the past 5 years. So I don't qualify. However, had I rented out my house, and move to live at a rental for the last 3 years. Now i would qualify the 8k tax credit when i purchase another home.
Hope that helps. This is straight from may tax guy this weekend. Spending Valentine day with the tax guy.
I was disappointed with that knowing I won't get the tax credit now.
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