Renae Merle at the Washington Post writes her story on those opposed to a "homeowner bailout" . . .
Those Who Avoided Risk Call Plan A Raw Deal
"The resentment is apparent on blogs that chronicle the mortgage crisis."
Friday, December 7, 2007
The Washington Post Interviews Bubble Bloggers
Posted by Harriet at 9:09 AM
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16 comments:
Meh... repeat after me folks.
It's not a bail out!
It's not a bail out!
It's not a bail out!
When the mortgage company voluntarily offers to freeze the homeowners interest rate, it's not a bailout! It's just postponing the ineviteble.
Essentially now the home-buyeer gets to rent his home for another 5years, before he gives it back to the bank. (Except he's also on the hook for repairs and stuff.)
I couldn't get myself worked up about this or give the author the quote she desired. This was my response, FWIW:
Renae,
Thank you so much for contacting me about this. I passed your request along at the Housing Bubble Blog and of course it was on my blog yesterday and today.
Calculated Risk has an interesting (and long) synopsis out on the New Hope Plan, and has the opinion that contracts aren't being invalidated. I think that was one of the concerns of people when they first heard about it.
The plan's full details weren't available until today, so I've personally reserved judgment. At first it sounded like government meddling, and it probably still is. I personally don't think this plan will affect housing prices that much. Those who clenched their teeth and sat out the last few years might be feeling some frustration, but house prices are still falling and no one believes the New Hope Plan will affect the market a lot. A study came out a few days ago from the Federal Reserve Bank of Boston saying that people are choosing foreclosure because they don't want to keep paying on a depreciating asset.
"The recent spike in home foreclosures in Massachusetts is caused primarily by falling housing prices, and not by rising mortgage payments, according to research released yesterday by the Federal Reserve Bank of Boston. . . . “But the research also suggests that troubled borrowers tried harder to make the necessary payments, in the expectation they would profit eventually.”
I think "savers" are still feeling pretty good about their decisions to wait out the housing market over the last few years. Here in Northern Virginia, especially in the outer suburbs, house prices are still falling.
Regards,
Harriet
Does anyone have an idea how the bailout applies to those payment option loans? You know, the ones where you can bay based on a 1.25% rate but the loan is actually at 6.00%?
Also, the rate freeze won't do anything for people who need to start paying prinicipal. Back when 2BR condos in Rosslyn could be had for $105K, I used to have a bunch of interest only Libor loans that adjusted monthly. Paying off 30 years of principal in 10 years has got to be expensive when paying back $300K +.
Finally, I have one of those 7/1 loans at 4% on my house. Do I get my rate frozen? That would be awesome! Government bailouts for big firm lawyers! Woo-hoo!
bill,
Sure! Just call 1-888-995-HOPE.
Hint: practice crying. Peel an onion or something.
Hey Bill, it wont help many of those loans because you need 3% equity in your home. Almost all of those option ARM people pay the minimum payment ( banks say 80% ), so they surely have negative equity. In fact the big problem with the plan is it wont help people with negative equity.
As far as your 7/1 ARM, it will only help if you were given subprime rates. If you were given prime rates you do not qualify.
But I wouldent worry anyhow, treasuries are in the garbage so your reset shouldent be too painful. Unless your ARM is based on LIBOR, which is abnormally high because its a true average of lending rates and most banks are lending only at a huge premium right now.
After studying what teh government has revealed on this and talking with a couple of government people "in the know," it is apparent this will not help the vast majority of people in this mess. In fact it actually will speed up foreclosures for many. There is nothing that can be done for those who truly over-bought for themselves and the dwellings were way over-priced.
Sadly that was most of the buyers in 2005 and much of 2006. They have negative equity in mopst of those cases. Many of the those who bought even earlier now have market values way below their mortgage. Sad really, but it the price one pays unsound monetary decisions. They will recover.
Doug said:
"As far as your 7/1 ARM, it will only help if you were given subprime rates. If you were given prime rates you do not qualify."
You make a good point ... and raise an interesting question ...
The only people being "bailed out" are people who were credit-impaired to begin with and who consequently only qualified for special loans at much-higher-than-normal rates (i.e., "subprime loans"). I.e., NOT your average borrowers.
How is it the average borrower "avoided risk" by not taking out thse same loans ... since the average person wouldn't have been eligible for these credit-impaired-individual loans anyway?
To cry foul that these borrowers who'd be given teaser rates of 8% or higher are now being allowed to keep these 8% rates seems more than a little uncaring .... or perhaps suggests that the BHs don't really understand who the subprime borrowers are.
@Harriet
Why do I need to cry when I bought in 2003? It looks like I don't get my rate extended as the freeze affects only about 600,000 sub-prime mortgages. I can afford a regular mortgage but I want a discount too!
@Lance
I'm uncaring!
I agree Lance.
Most of the subprime loans were given to minorities, and lower income individuals who could probably use a bit of help from the lender.
In many cases their credit score qualified them for a better loan.
Instead they were given rates in the 7-9% range, where the majority of the bloggers on this site were given loans in the 4-6% range on their 30 year fixed.
Funny how these subprime buyers are trying harder to keep their home than the flippers and speculators who simply walked away from theirs.
But people here are so blood thirsty and hellbent on making somebody else pay for their decision not to buy in the last 5-7 years that they dont care who is affected.
I have no problem with this Bill, just as I have no problem with giving minorities and low income Americans any tax or loan break that doesent take money away from someone else.
Hey, I called 1-888-995-HOPE and all I got was heavy breathing. It must have been posters from Housing Panic!
I just sent the writer of the Post article on the "Raw Deal" the following email. It'd be interesting to see her do a piece on the real story out there!
I think you have unintentionally helped spread a common misunderstanding about subprime mortgages and the people who get them. Subprime mortgages are home loans with much-higher-than-normal interest rates made available for people who otherwise would not qualify for regular mortgages due to bad credit histories or no credit histories including minorities and recent immigrants for the most part. While most of us were out there a few years ago being offered fixed rate mortgages of between 4% and 6%, this class of borrowers was being offered subprime mortgages with “teaser” introductory rates of between 7% and 9% … with higher rates to follow when the mortgage adjusted 3 years later. The government proposal is to freeze the 7% to 9% rates and not let the rates escalate further for these borrowers for a period of 5 years.
The “average person on the street” you interviewed would most likely not have been one of these subprime borrowers slapped with a higher-than-normal interest rate to begin with. With their saved down payments in hand and good credit history, they’d have been eligible for the much lower 4% to 6% fixed rate loans. Hence their uninformed claim that they are getting a “raw deal” is disingenuous at best. What this legislation does is simply put a cap on how much “extra” the lending institutions were able to charge these non-average borrowers. Curbing the exploitation of one class of borrowers doesn’t mean giving a “raw deal” to another class of borrowers.
A much more interesting story would have been the extremes the would-be homeowners go for defending their life-choices to forever put off making the commitment which homeownership requires. The 48 year old renter in another Post story yesterday who this time is blaming high prices for his never-ending reasons for not buying would be an interesting place to start …
I have rented for two years since moving here. I sold my house in the midwest, before moving here, for a 7% profit per year. I intended to rent at first upon moving here, until I could make a educated decision on where i wanted to live. I am going to hold out a little longer, keep my eye open in Reston.
I'm for the current plan, mainly because it's roughly like the plan I myself conceived of a few weeks ago when I was developing my own idea of a fair solution:
For those who need3ed rate freezes, I decided that we should freeze their interest rates at 8%. That's a healthy premium above the market rate, adequately punishes those less responsible than us smart renters, and still lets people keep their homes if they're willing to pay the price. In addition, investors are better off than they would be with the resets and mass foreclosures. Essentially, that's roughly like the plan that's being proposed.
I still have two concerns:
1. Democrats will treat this as an opening offer, and will try to expand the freeze to people who really don't come close to deserving it, at lower rates.
2. This will place additional political pressure on the Fed in terms of setting interest rates. The entire viability of the plan depends on low interest rates. What if good monetary policy (i.e. avoiding inflation) dictates higher interest rates in the near future? Certainly, we know that the weaker dollar increases the price of imports, creating inflationary pressure. So will Bernanke raise rates if he should, even though it means screwing the investors who agreed to freeze these rates at 8%? So far, I haven't seen much sign that Bernanke will do what's best for the greater economy, even if it means hurting investors. I'm not even sure Bernanke knows the difference.
I might add another point: A steeper faster price drop and faster clearance of the excess inventory is better for recovery, because that would mean the construction and building industry would recover that much faster. Trying to reduce the pain for irresponsible homedebtors by stretching out and slowing the decline has bad consequence for the construction industry and economy as a whole.
You know who gave her your name right?
As for Morton, it might not be a BAIL OUT, but it is a SUBSIDY at least. If the homeowner was going to pay $1,500 but is now paying $1,000, either the government or the banks has to come up with the missing $500.
Frank
http://Blog.FranklyRealty.com
Frank,
Think of it as a re-pricing due to bank error. The banks did the qualifying and they erred in determining how much some of the people they lent some of their money to could actually afford to pay in terms of interest in excess of normal interest rates. They thought they could afford 12% interest when the going rate was 6% and they charged them 8% as a teaser rate. Now they realize they were wrong and are only going to charge these credit-impaired folks "only" 8% instead of the increased 12%. I don't see how that is a bail out of anyone other than perhaps the real estate agents who sold these people their houses and brought them to these overcharging banks. Were you one of these real estate agents?
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