Monday Feb. 23
Posted 8 a.m. Eastern
Readers sound off on housing
Since the last blog entry, I have received a number of great reader responses and President Barack Obama has announced the new Homeowner Affordability and Stability Plan. A couple of the highlights, as I see them, are things we've discussed among ourselves in this blog lately: refinancing for underwater and low-equity homeowners that are current on their payments; assistance to renters displaced by foreclosure; and promoting low mortgage rates and liquidity in the mortgage market.
One glaring omission is the lack of a formal National Forbearance Program for the Unemployed. (Check out my Feb. 2nd blog post where I discussed the need for an approach to this problem). The primary catalyst for foreclosures in 2009 will be unemployment -- and the plan devotes vague language that leaves the window open to helping borrowers in this situation, but something more formal would have been well received.
And of course, the whole notion of principal reduction gets my blood into a boil, but I already vented about this in the previous blog entry. Speaking of the previous blog entry, here are some of the responses I received from you, the readers. I have interspersed some of my own comments as well. My thanks to all who took the time to write, and yes, that even includes those I don't agree with.
From Carol: "I think the people who are being foreclosed are too much maligned in your scenario. You are demonizing them. They are taxpayers, too, you know? The greedy banks and mortgage lenders get off unscathed in this fiasco."
I'm not demonizing anyone nor am I defending anyone. I'm a big believer in "you made the bed, now sleep in it." Lenders that made poor loans should suffer the consequences. And the facts clearly don't support your assertion that "greedy banks and mortgage lenders get off unscathed." Check out this site that tallies the 330+ mortgage companies that have gone belly up since late 2006. Have you noticed the 13 banks that have failed year-to-date? How about the 25 that failed last year? How about the number of layoffs throughout the financial sector? Did the employees of Bear Stearns or Lehman Brothers get off unscathed?
Borrowers that bought more house than they can afford shouldn't get off unscathed either. And judging by the e-mails that follow, I've got plenty of company in that feeling. So what if they are taxpayers? O.J. Simpson is a taxpayer. I can't make fun of him? How about Britney Spears? By your logic, the only people I can make fun of are those that don't pay taxes. Hmm, I guess that limits me to prison inmates, Tim Geithner and Tom Daschle.
From Joe: "I am so sick and tired of me playing by the rules and living within my means...only to subsidize those who don't. And what REALLY frosts my cap is then being told by the same people that I'm subsidizing...that I DON'T PAY ENOUGH TAXES.GAARRRHHH!!!
From James: "As an investor and landlord, the assertion that a prompt paying tenant is an asset to a distressed property is correct. A homeowner that did not responsibly handle their finances has not earned the right to not pay the mortgage because they lost their job. If they are so honorable, vacate the property and allow the asset to be sold for the market value. This will strengthen the market for all properties."
From Anonymous: "In November 2008, I suggested to my state representative by e-mail to congress.org to allow the homeowner to stay put in the home while employed rather than be evicted. I also suggested that the bank/lender refinance with a flat 4% interest rate. As time passed thousands of homeowner continued to foreclose. It was very frustrating to see it continue when primarily the first step to keeping the economy going was to withhold from forcing the homeowner to vacate the home.
"This is the first article I have read in 4 months that provides the human touch. Everything else is BS. Yes, give back the homes to the homeowners and let them start anew. I viewed 10 foreclosed homes, which were vandalized by the homeowner in rebellion to being evicted. Some may or may not return because giving them the option to reclaim their home is a day late and a dollar short. Irregardless of Fannie/Freddie's effort of taking back the evictions, the public is too outraged to trust any lender. They're defeated. It will take a complete forgiveness of debt for even one person to trust a crooked company.
"A flat 4% rate across the table will stabilize the nation. Give each homeowner a 4% interest rate and you'll have them eating out of your hand. Place the refinance fees on the refi loan with no cash up front for ALL valid American citizens who qualify including small businesses.
"No bailouts for no one. None. Why? CEO's will pocket the money."
The reality is that even at an interest rate of 4 percent, there are still millions of borrowers that have too much house and not enough income.
And another: "I am a homeowner who even through a maternity leave, being out of work myself and having a spouse out of work now, has always made sure my mortgage payment is made. I made a down payment (although a small one) so that I could purchase a home when I became pregnant with my first child. Now baby #2 is on the way and my day care expenses will be higher than my mortgage payment!! However, I can't not work because then who pays the health coverage for my family of four with 2 kids under 2??? My mortgage has a rate of 6.25% (in year 2 of 10 year interest only) and a home equity loan fixed at 9.25% for the other 15% I needed. All I wanted to do was refinance the home equity loan to reflect a better rate of interest when rates were down to 5%. Value on my property has gone down so much that the bank refused to help me! They'd rather help people who can't (or won't) pay the bill than someone who has never missed a payment, pays on a weekly basis, and is actually a month ahead on the payment! It's a sick world. I could stop paying and then get the help I need but at what cost to my credit and my future ability to better my family's living arrangements!! If the government insists on sticking their noses in to "help" homeowners then they need to refocus their attention to those who did not take advantage!"
From Alexandra: "I completely agree with you on the subject. I am myself trying to refinance my mortgage. Unfortunately, I have a hard time finding the lender willing to refinance it. Nowadays, lenders usually require at least 15% equity, which in case of my home is partially lost as a result of decreasing home values. I have an excellent credit, never been late on my mortgage. Is there anything homeowners like myself could do to affect the Congress on this matter? I think if the requirement of appraisal is waived at least for some time, many responsible homeowners would be able to refinance. What do you think?"
As you may now be aware, the new Housing Affordability and Stability Plan permits homeowners such as yourself with loan-to-value ratios up to 105 percent that are held or guaranteed by Fannie Mae or Freddie Mac to refinance. Check out this Holden Lewis article for further information. Also, more details on eligibility will be released on March 4.
From Terry: "OK how's this...Limited time offer for ALL these poor souls-have the SAME banks rewrite these mortgages for 40 or 50 yrs...BAM Lower payments for these home(owners), these same banks that are having to take the loss no longer have to and actually will make out even better due to longer term and more interest collected on mortgage stabilizing THEM, and stock market can return to something less mortifying as all those cdo's can be rewritten(or not) and considered good debt again.
"Gov't keeps way more money and can charge (added on to rewrite) to help the new loans, banks don't fail, upside down owners stop worrying about walking away or total loss and can afford to not just live in home but may have cash to stimulate economy properly. Limited time offer and being selective on who it goes to will stabilize home prices and keep them realistic for a long time.
"No renters, no bank bail out, no stock market doldrums for 4 or 5 yrs, and how many untold 401k's not devastated?
"My snapshot....single earner family man, doing cashout refi at 4.5 %, so no I don't like your cashout no-go idea, paying off some bills and getting a double wide short driveway (my simple little dream) so I can write off points on 2009 taxes yet keep same monthly payment.
"And YES..I resent the hell out of what ALL these people have done in this mess and I dont want the Gov't making it even worse for my family now and down the road."
Stretching loan terms from 30 years to 40 or 50 years instead doesn't reduce the payments as much as most people think. In fact, it has a diminishing effect the further the term is extended. For example, a $200,000 loan at 6 percent would have a monthly payment of $1,199 at 30 years; $1,100 at 40 years; and $1,053 at 50 years. That might help some borrowers but not enough to stabilize the market, which is why interest rate reductions and the dreaded principal reduction (ugggh!) are also part of the HASP.
From Mary: "comment on last paragraph 2/12/09...why would you exclude interest only, option arm, or other loans if the consumer is current on paying, good credit, etc....why should they not be given the same opportunity to get out of a loan they may have been deceived into taking out??? ie; told they would have no problem refinancing at a later time??? they too are only not able to refi because of upside down loans, due to others around them foreclosing."
You make a good point that requires me to elaborate further. I would exclude interest-only, option ARM and other loans if the borrower had been taking the shortcut of lower payments and if their fully amortized payment exceeded 38 percent of monthly income at the time the loan was initiated. In such cases, they were using the exotic loan as an affordability crutch and the taxpayers shouldn't subsidize a refinance without sharing in future appreciation in the home.
My thanks again to all those who wrote in as well as to those of you who read this far.