Treasury, FDIC plan mortgage guarantees to stem home foreclosures

We have been speaking about this on Myinvestorsplace.com and we feel this is the paramount issue... giving money to banks did not get them to lend... and house prices kept on falling...once the house prices stop falling this will stabalize the economy...possibly... Do you agree?

Andy
www.myinvestorsplace.com

Stemming home foreclosures is a great thing, but sadly, individuals have to find a way to make money to pay their monthly mortgages.

Jesse W.
http://www.subprimeblogger.com

The government should offer new mortgages at 3.5% directly to homeowners. These can then be sold to banks with a guarantee of principal. This program can be run for 1 year to allow housing prices to stabilize. This should have been done instead of giving $700 billion to banks.

My problem with this idea is if my neighbor fell behind on his payments while I keep up with mine, and he gets a modified loan that allows him to pay less I should be able to get the same loan. Otherwise what incentive is there for me to pay the bank thousands in interest.

Every part of this bailout plan rewards the irresponsible and punishes the responsible.

To stabilize the economy you need to have a balance between real wages and real prices. A real average wage of $45k and an average home price of $215k is not in balance. If you take people over 40 out of the wage equation you get an alarming statistic. You find real wages of those under 40 to be at a great disparity to the cost of living. Essentially the middle class will be long gone in 10-20 years.

The glut of unsold homes will continue to rise for the forseeable future because there will not be enough people in the market that can afford a house. The only way we grew the housing market was by selling homes to those who could not afford them. If the average price is still above the price before the housing bubble, that means prices are still too high.

Prices have to drop to the point where the people who could not afford to buy a house can afford to.

Thank you for this information. It's good to know as much as possible about the mortgage industry. It's so useful to know the ins and outs of mortgages so you can make good educated decisions.

I'm glad it appears that the FDIC at Indymac and perhaps the new FDIC/Treasury mortgage relief proposal
both do NOT promote a reduction in principal---lowering the interest rate and deferring interest and principal by extending the term of the loan may be what it takes to keep people in their homes, but I believe there should be no incentives or expectations offered to borrowers to hold out for principal reduction or to walk away from homes. Their unpaid debt should (in general) follow them, and sorry Obama, as much as I like your views generally, retroactive bankruptcy benefits should not be granted to home buyers when the loans were made undr the assumption that bankruptcy ws NOT an option.

The lender DID NOT guarantee the market value of the home, nor did the lender agree to a lower principal in a falling market. The lender is suffering enough by accepting these homes as collateral, and nobody (except McCain I guess) is saying the government should repair their collateral for them, but at least they should get to lick their wounds and decide for themselves what they can get from their collateral by foreclosing or offering reduced interest.

Now if the American people want to build an extra fund of some size to dole out to buyers to cover some of their loss for having bought homes at a peak price they regret, so be it, but again, there is no justification for asking or forcing lenders to pay for that.

A federal program to find and punish those specific lenders, real estate agents, appraisers, and mortgage brokers who abused the situation (such as the mortgage broker who supposedly put borroweres into ARMS while telling them it was a fixed rate loan) might be called for, but regardless of whether that could or would amount to anything, it's disgusting in my view to scapegoat all lenders and try to stick them en masse with the loss in real estate values. Borrowers who can afford to pay the full principal price they agreed to (with relaxed interest terms) should be obligated to do so or take a loss, whether they stay in their homes of move out.

If you tell lenders that what they are subject to lost principal based on whatever the home value ends up at aduring a 30 year loan, and that borrowers whose circumstances change, whether through poor decisions or no fault of their own (job loss, medical expenses) can just declare bankruptcy and pay whatever the bankruptcy courts thinks they can afford, then lenders may stop making loans to anyone who doesn't have a very secure job, substantial other assets, and a very large downpayment. That might be a good idea going forward, but retroactively punishing the banks now for not having thought to do that is bad policy

This plan "could place as many as three million homeowners in affordable mortgages?" Fox news says "Lenders appear to be on track to initiate 2.25 million foreclosurers this year" in the "Bernanke Calles for Action to Stem Home Foreclosures" article written on the 4th of December. So my internal calculator tells me, if we are losing 2.25 million homes per year and we try to propose a plan which saves 3 million homes, we will only save only a fraction of the home owners.
My question is, what about the people who lost their homes? How can we help them? The people who lose their homes will end up claiming bankruptcy and have horible credit for the rest of their lives.