I was listening to NPR last week. There were two really interesting articles. One was about the Government Plan to guarantee mortgages and Mortgage modifications won’t benefit everyone.
So the first interview talked about the Government helping people stay out of foreclosure. What that means is they will guarantee the mortgage with banks so then banks will lower the interest rates as low as 3% for borrowers in trouble. This will allow owners to stay in their for 5 years at a lower rate, after which the rates will go up. This will hopefully keep people in their homes, stop them from walking away, and prevent foreclosures. Both the banks and homeowners are hurt when homes go into foreclosure.
In the interview Chris Arnold said that yes many responsible homeowners will be upset. Because they won’t be helped. And the determining factor isn’t if you can really afford your mortgage, but rather if you are irresponsible and are behind, if it’s worth helping you. So some people making huge sacrifices will not benefit. But realize this, if these people aren’t helped, then property values will tank even more and cause more problems for banks.
In the second part, NPR discusses how to design a plan to save homeowners without creating a problem called “Moral Hazard”. Where people won’t deliberately stop paying their mortgage so they get into trouble, and then helped by the Government bailout.
I have to wonder a couple of things, yes the bailout of irresponsible homeowners will suck. But it will suck more if they all continue to go into foreclosure and even the responsible homeowners are dragged down because they wanted to sell and move but can’t because homes are worth 50% of what they bought it for. I suppose this is a preventative measure against complete fallout. And as for people not paying to get help, I wonder will people really allow themselves the stress of not paying for months and taking the risk they’ll get bailed out before foreclosure happens? What happens if the bank still refuses because they don’t meet the entire guidelines?
I wonder when this bailout package will pass?
7 responses so far ↓
1 Kristy // Nov 3, 2008 at 9:46 am
I don’t agree with any of the mortgage bailouts. They should let the homeowners fail, let the prices of houses decline and let everything get back to a normal level. I have already lost 20% of the value on my home and I don’t care if I lose more. Those people that can no longer afford those mortgages because of ARMS and such should not be helped. They couldn’t afford the home to begin with.
I am tired of the responsible people paying for irresponsible ones.
2 LivingAlmostLarge // Nov 3, 2008 at 12:11 pm
Didn’t you know John McCain wants to use $300B to bailout all homeowners? He wants to buy all subprime mortgages. It made a lot of Republicans pissed that he even suggested socializing mortgages. They were pissed because of the cost and the role the government would play in helping people out!
http://www.johnmccain.com/Informing/Issues/Read.aspx?guid=b9af0d4c-9c0e-4a97-b27f-19df8cfec83d
Barack Obama is suggesting we freeze mortgage and allow renegotiations of loans. He said no way to pay 100% for mortgages, when the homes aren’t valued that much, and I have to agree. His plan I heard will cost $50B, and is more palatable to many more people.
http://www.heraldtribune.com/article/20081103/COLUMNIST/811030321/2127?Title=Candidates_were_here_for_a_reason
We have to do something. I’m not sure what though. I need to hear more about the plan.
3 Kristy // Nov 3, 2008 at 12:16 pm
I know what McCain said and I was furious. I actually said that I wasn’t voting this year because there was no one to vote for. However, I still agree with more of his policies than Obama and I can’t not vote. (Sorry about the double negative).
I don’t think we should do anything at all, let them all fail. Let the housing prices decline to where they should be. Maybe people will learn from their mistakes.
4 LivingAlmostLarge // Nov 3, 2008 at 12:22 pm
I’m not sure either plan can really work to be honest. I was a bit flabbergasted John McCain would suggest something so over the top.
I am not sure I like Barack Obama’s plan, it needs more explanation. I might be willing too listen to other plans as well for a bailout.
I think if we don’t help homeowners we could find the crisis in worse shape is the problem. At least according to what I read. That even people who bought who could afford it, like myself, but we plan on selling in 7 years could be stuck. Sigh. 7 years is a reasonable time frame, but now it doesn’t look like it.
But I think we need to understand the economics of what it would cost and how it would impact if we don’t stabilize subprime mortgages.
Also we need to see can these people afford it if we do cap the interest at say 6%?
5 Mary@SimplyForties // Nov 3, 2008 at 11:55 pm
Incredibly tough call. There is no way this is going to sit well with those of us who have responsibly paid their mortgages. It reminds me of the furor over inmates getting to take college classes in prison. Presumably it makes them better members of society when they get out but what about all the law abiding members of society who can’t afford college? Unfortunately, I think all of us good mortgage payers are going to have to just suck it up.
6 MortgageSum // Nov 4, 2008 at 2:32 am
The Hillary ceiling fixed mortgage rate could have worked. I wonder if the credit card companies are going to need a bailout next.
7 LivingAlmostLarge // Nov 6, 2008 at 7:57 pm
I think the next will be health insurance. If we reform healthcare, insurance companies will no longer have record profits.
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