Tuesday, November 17, 2009

Another crazy bailout plan

I guess the government is coming around to the realization that even loan mods will not help a lot of these people. There's just no way to get the payment on a $600k note down to 31% DTI when the people have to use their real income. And it's even harder when they are unemployed like 15% of the IE is. That only leaves a few options. The lenders can foreclose, do a short sale or hope the government pays off the loan.

The least expensive option is the short sale. So the gubment's new idea is to offer incentives to the banks in order to get them to streamline the short sale process. Under this plan they will get another check from the government for every short sale they do. Ain't it grand, our tax dollars thrown away again.

Now, Even The Treasury Is Pushing Short Sales
Treasury is set to announce a new program to help troubled borrowers whose mortgages are deemed ineligible for modification. Speaking at the Mortgage Bankers Association’s annual convention, Ms. Maggiano said Treasury would set out the parameters under which servicers can earn financial incentives if they offer borrowers the option of participating in a short sale and deed in lieu of foreclosure. “There’s really no magic. We haven’t reinvented the wheel,” Ms. Maggiano told industry executives in San Diego. To cut down on the paperwork, the program will provide a standardized set of forms. It will also cap the amount of money that can be paid to subordinate lien holders who agree to waive their interest in a property. The government expects that some second mortgage investors will “walk away” from the program because the compensation being offered will be too little. But Ms. Maggiano, who is director of policy in the preservation office, told a standing room only session that by setting a limit, the White House is hoping to eliminate time consuming back-and-forth negotiations between servicers, borrowers and investors. “We are hoping to set an industry standard so investors will know exactly what they can expect,” she said.

The only incentive I see is one where the banks don't do anything until this gets passed. Why foreclose or approve a short sale now. Wait a month or two and get paid for it!


Sigma said...

Another way to bail out deadbeat homedebtors! The whole point of not allowing a short sale is because these dead beats got away with robbing the bank on their HELOCs and 2nd line of mortgage to buy Hummers, exotic vacations and splurge on hundreds of thousands of dollars. Now after robbing us they want to get away with a simple ding on their credit for only TWO years so that they can get back in the game quicker?! I don't think so! Let the foreclosures happen so that it keeps these pieces of shit out of the game 10 years! Moral hazard or lack thereof is going to destroy this country.

Martin Burtin said...

Why stop with dinging the credit for 2 or more years, how about branding them with red hot poker: "Forclosed" on their forehead? That should shame them appropriately. Or not.

Sigma said...

Martin, I think you're missing the point. The system is in place for a reason - it is there as a balance proven over time that there needs to be a negative consequence yet something that allows a person to have a second chance. Correct me if I'm wrong, but branding someone's forehead is irreversible. Either way, these dead beats need to learn their lesson otherwise it will just manifest another moral hazard. Let's see.. ruin credit for 2 years yet be able to buy Hummers, vacations, live luxuriously for 5+ years and let taxpayers foot the bill... or be responsible and be able to do none of that and watch other dead beats get to live it up. Not a hard choice.