Fed bail out of troubled homeowners cautioned

 

An economic policy expert with the Heritage Foundation is warning against a federal government bailout of troubled homeowners who bought more than they could afford. 

 

 

Fed Chairman Ben Bernanke has recently suggested that the government should do more to prevent home foreclosures that threaten credit markets and the economy. And in a speech at Columbia School of Business in New York, he once again called for cutting the principal of some customers' loans to prevent foreclosure, but also stressed "the need to avoid programs that give borrowers who can make their payments an incentive to default."
 
J.D. Foster of the Heritage Foundation notes the federal government is already acting in concert with borrowers, lenders and servicers to the tune of 200,000 reworked mortgages a month. "The prominent bill moving through Congress now ..., according to the congressional budget office, ... would only contribute to the refinancing of 500,000 mortgages over the next four years," says Foster.
 
But he points out that the private sector has also managed to rework 500,000 mortgages, and the current legislation would rework the same amount – but it would take 16 times longer.
 
Foster contends that if the government gets directly involved in the mortgage bailout business, responsible homeowners and renters who resisted the temptations of the housing boom will be forced to pay for others' bad decisions -- something he calls a slap in the face of responsible Americans.
 
On Thursday, with the help of 39 Republicans, the U.S. House passed Democratic-sponsored legislation that would let the Federal Housing Administration (FHA) take on up to $300 billion in new mortgages so that borrowers facing foreclosure could refinance. The White House has threatened to veto that measure, which now moves forward for Senate action.
 
Foster argues that while passing such legislation may make Congress "feel better," it is ineffective.

I feel empathy for the people that are facing foreclosure on their homes.

However, and please correct me if I am wrong. The way I see it these people took on more that they could afford to begin with, opting for an introductroy "low"morgage rate with PAYMENTS they could afford, but also knowing that it was a "floating rate" and might increase/decrease their payments bases on prime rate's rise and fall. In other words a gamble.

Well if I am at a poker table and the stakes get too high and I don't have the anti..then I lose. Well they took that gamble and lost.

The Heritage Foundation is right. I do not feel they should be bailed out.

I was always taught that experience is the best teacher. These people can find a place to live, yes their credit will be ruined but they will make it.

As far as the builders, the financial institutions/backers that made the loans they should have to eat the homes they were so willing/conivingly lured these people to buy just to get them off their hands so they could build more. 

We know who will end up paying. 

 

 

In Arizona, we see all sides of the foreclosure issue.  Many of these loans were made by unscrupulous, unregulated loan originators containing thousands of dollars of unnecessary fees paid to the loan officer.  I see no reason to bail out the loan officer or bank that permitted such loans.  We had thousands of homes bought by investors and speculators who lied and claimed that they were owner occupied.  I see no reason to bail out those people.  They lied and they should get what is coming to them, plus prison.  We have homes that were bought by knowledgable persons betting on the come.  Again they bet wrong and let them pay the price.

However, we have people who bought these homes, needing a house for their family and the home has now lost 30% of its value and they are upside down.  These folks should be helped.  Unfortunately, the bill passed by Congress is the speculators relief act and why reward those who game the system 

 

Future,  Why should we have to bail out people just because the value of homes has dropped?  The value of my home has dropped also.  I don't have a mortgage so what am I going to get out of this?   Home values have nothing to do with this as far as a bail out.  Home values have dropped everywhere whether you have a mortgage or not.  Truthbeknown is right about those buying more house than they could afford.  People today want everything their neighbors have whether they can afford it or not.  And just because a bank or other lending institution says you can afford it does not mean that you can.  If you aren't smart enough to know what your other expenses are and what your income is then you should not have bought a home without a family member or friend going with you for advice.  I know there are those who've lost their jobs and can no longer afford their mortgages.  Those are the ones that I do feel sorry for.  But I know many of our childrens' friends bought houses way out of their price range and now are struggling.  But there again.  This was self-inflicted.  My tax dollars should not be used to bail out those who created their own problems.  We have always lived within our means and so should everyone else.  This government has got to stop these bailouts.  

There should be no bailout.  Less than half the foreclosures are subprime mortgages.

There is always a risk when buying a home and I do have compassion for people who are losing their homes whether they were irresponsible and bought more than they should or they have lost their jobs.

It's not the gov't's job to bail people or industry out of trouble.

And, just because housing prices have dropped and many people are upside down, that's just a risk you take, especially if you bought a home with very little money down.  Most people who are upside down don't need to sell right away and can wait for values to go back up and will not lose a lot of money.

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Oh, the fun is just beginning. Prime lenders gave out billions of dollars in 30 year fixed loans with the first 2 to 5 years with payments less than the interest (a flex loan that the monthly unpaid interest added to the principal). These loans have the monthly payment adjust to the increasing principal when the "flex " period expires (typically 2 to 5 years). The monthly payment could "adjust" by 2 to 4 times the original monthly payment.

Add to this payment nightmare the very real reality that the house you bought in Riverside, California for $350,000 (and for which your principal is now $380,000) is only worth $200,000 with foreclosures dotting your street (your house went DOWN in the comps $12,500 LAST MONTH !)

This is WHY people are WALKING AWAY from their houses ! It is the double whammy of all whammies. Read about it here: http://realestate.msn.com/Buying/Article_slate.aspx?cp-documentid=6914731

The future looks grim and no government bail out can address the problem. Here is the deal, folks: whether we like it or not, whether it is the moral thing to do, PEOPLE WILL WALK AWAY FROM THEIR HOUSES ! 

Good article.  Mr. Bernanke seems to be a wise man.  There are always circumstances where the feds can step in and help, but in this case must be done with caution.  I would suggest extremely low interest rates, somewhat along the lines given to the fed. reserve bank, and only to those that can show proof of being and retaining gainfull employment.  These could be set up so they are rolled over, i.e., bought out by the private sector and at such time the interest would increase slightly and or proportionately to the individuals income. Just an idea.

Unfortunately, this is a mess created in large part by the federal government and the banking industry in their promotion of home ownership.  Traditional standards of 10% down for conventional mortgages and 5% down for FHA/VA mortgages were replaced with all kinds of new"flexible financings" such as Flex Loans, Guaranteed issue loans, teaser rates and others.  The problem is that if we let credit contact too far, we will force the economy into another depression.  Remember those who owned their homes in the early 1930's still lost their jobs and were hungry.  I think Gerald is right, we need a limited program for those owner occupied home buyers who will commit to stay in their homes and we need to force the bank's to eat their losses on these homes, sell them for what ever they sell for with traditional financing and get them back on the tax rolls.  Many of the funds that bought these mortgages, did so with no underwriting standards and never analyzed the true risk of default.  Let them now pay the price.

Here's a petition to sign-- http://www.consumersrightsleague.org/...