Feb

23

It may have been Stalin that said, “A million deaths is a statistic, a single death is a tragedy.” 

So this is not about death, but it still sucks. Each day we are faced with statistics and numbers concerning our collapsing economy. It is so easy for all of us to forget that behind each number are real people. This hit home for me today as friends and co-workers, many I have known for years lost their jobs.

As I have said before, people that are hard workers, that manage their money and affairs in a responsible way are going to get caught up in this fiasco. But that really does not matter. It always sucks when someone loses their job. It sucks even more to lose a job now.

To think that the crap going on was started by the greed of so few leaders in business. I guess we have seen the end game for “trickle down” economics. 

Did you know that 93% of mortgages are just fine. Of the 7% that are not so fine, you can guess that at least 3-4% of them were taken out by people responsible with their finances that were unlucky enough to buy a home at the wrong time.  Three percent, and a handful of greedy executives setting a foolish direction (okay, if not greed than certainly stupidity).

Anyway, today is not about statistics, at least for me. Tomorrow it may not be your day. No matter what the statistics, never forget that this is about good people, really good people that lost and are lsoing their jobs. It just totally sucks.

 

Feb

22

Okay,

I like you am a bit distrustful of my government and big business these days. I would like to look objectively with you at what just came out of the White House. I am not going to take things out of context.

You should look at the plan yourself (click here for pdf). Full excerpts from the plan are in quotes.
— Item #1 —

“Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable”

“Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.”

The following is their example scenario.

“Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.”

Opinion:

So, I don’t know what is wrong with this scenario. If our government is talking about reducing a conforming mortgage for responsible borrowers whose only crime is buying a house during the bubble I do not see the problem. We are talking about letting them refinance at a 1.5% lower rate. So what? As long as these folks meet all the other credit requirements and are paying their monthly payments I do not see a problem essentially redoing their loan at a lower rate. This deal is really a stimulus if you think about it. Assuming only 50% who qualify take advantage of this situation, with an average annual savings of $2300 a year, you could expect about 3.5 billion going back into the economy either through savings or spending.

In May of 2008, seeing the writing on the wall, my wife and I refinanced a 15 year mortgage we had 8 years left on to a 30 year mortgage so we would be in a better cash flow position. Given the present financial climate it would seem we made a good decision.

As long as there is no funny business or abuse and they are 100% transparent on item #1 I do not have a problem with this. Given that Fannie Mae and Freddie Mac were seized by the government we do not have nearly the mess we would have dealing with the banks.
 

— Item #2 —

“Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners”

“Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 t apercent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.”

Note: I will let you read the rest on your own.

Opinion:

I think this is the item that has everyone so up in arms. First, this part of the plan truly does reward risky behavior on both the part of the lender and the borrower for what the government sees as 3-4 million at-risk homeowners.

Not long ago I was for a program that allowed these people to be bailed out with the government owning a piece of the homeowners equity pie. I am not any more. There were many good, responsible people that sat on the sidelines and continued to rent during the period when just about anyone could qualify for a home. These people knew what was going on was too good to be true. To bail out the irresponsbile people would be a slap in the face. There are going to be extenuating circumstancses to what I am about to say but for the most part this group is going to need to default on their homes. I do believe, however, that the government should allow people in this group that were sold homes above their means that were required to put down good sized down payments should be allowed to lay claim against the financial institutions that put them into a mortgage they could not afford. Let our courts decide where the chips fall on this.

In closing

The plan does not address the borrowers that have ARM’s that are resetting higher, interest-only mortgages, ballon mortgages, and other poorly-written instruments. For people that have these type of mortgages and have been making payments I can see our government offer them a deal similar to the deal the folks in Item #1 are getting. But, they must surrender an equity stake in their house to acquire a new loan. Sorry, we cannot forgive risk-taking without a price. It is just not fair. The government becomes a lien holder on these type of refinances. They will be complicated to sort out all the rules.
 

Feb

13

These are for business leaders that claim to be conservatives.

How is taking depositors money, aggressively making questionable loans without doing proper credit checks, then bundling up the paper and selling it on Wall Street conservative business?

How is paying out millions in executive bonuses when your company is losing billions of dollars capitalism?

How is asking for government money to save you from the poor business decisions your made capitalism?

I think many of you owe us answers to these questions.

Feb

6

The solution to the mortgage crisis is so simple it is almost ridiculous no one has yet to propose it. We have 350 billion ear marked to be spent. This money is more than sufficient to deal with this problem and then some.

The current mortgage crisis really stems on two important facts:

1) Homeowners are upside down on their home and as such cannot qualify to refinance in todays market?

2) Mortages on ARM’s are adjusting to rate the homeowner cannot afford, or mortgages were written on a balloon that is coming due.

MOST of these homes are owned by people with the means to pay the mortgage at a refinanced rate. All the government needs to do is guarantee the upside-down portion of these peoples homes in order to qualify them for a refinance rate they can afford. In return the government would get an equity position in these peoples homes. Assuming a 30% stake in an average home, 350 billion would buy a stake in 6 or 7 million homes which is more than enough to solve this problem. 

 

 

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