Repubs giving in on bailing out irresponsible homeowners?
Wtf? I had to pay a couple grand to get out of one of those arms, and have since moved and refinanced again, all at my own expense. Screw it, if I'm paying my own way + helping to pay for the irresponsible, I want a cut too..
[QUOTE]Congress Fast-Tracks Work on Homeowner Relief
By DAVID M. HERSZENHORN and VIKAS BAJAJ
WASHINGTON — Casting aside partisan differences, Senate Democratic and Republican leaders said on Tuesday that they would work urgently on a package of legislation to help millions of homeowners at risk of foreclosure, with the hope of bringing a bill to the floor as early as Wednesday afternoon.
The new pledge of cooperation was the latest sign of fast-growing consensus among Congress, the Bush administration and financial regulators that broader government action was needed to prevent a torrent of new foreclosures and further collapse of the housing and residential mortgage markets.
And it reflected the mounting pressure on Congressional Republicans and the White House to extend a helping hand to average Americans after the Federal Reserve’s intervention in the near collapse and proposed sale of Bear Stearns, the New York investment bank, to JPMorgan Chase.
As lawmakers worked Tuesday to refine details of the package, the new spirit of collaboration raised hopes of swift action on broader measures that some Democrats say could potentially help as many as 1.5 million homeowners by refinancing riskier adjustable-rate mortgages into traditional 30-year loans.
At a minimum, the bipartisan package was expected to include up to $200 million to expand counseling programs for homeowners at risk of foreclosure, $10 billion in tax-exempt bonds for local housing authorities to refinance subprime loans, $4 billion in grants for local governments to buy foreclosed properties and a $15,000 tax credit for purchasers of foreclosed homes or newly built homes that have been sitting vacant.
Roughly 4.2 million mortgages were either past due or in foreclosure at the end of last year, according to the Mortgage Bankers Association. An additional three million borrowers may default in the near future.
Both the Senate Banking Committee and the House Financial Services Committee have been working on bills that would allow the Federal Housing Administration to insure $300 billion to $400 billion in additional mortgages, with an upfront cost of $10 billion. The Bush administration has been developing a similar plan of its own that would expand an existing refinance program called F.H.A. Secure.
Banking trade groups, while eager to see further details, said on Tuesday that they were cautiously supportive of the plans. The proposals would call on lenders or loan-servicing firms to reduce loan balances voluntarily and take sizable losses. In return, the loans would be refinanced and given a government guarantee.
Senate Democrats and Republicans announced their plans at a joint news conference, an exercise so rare, given the partisan acrimony that has dominated Capitol Hill in recent months, that the majority leader, Senator Harry Reid of Nevada, felt compelled to offer a disclaimer: “This is not April Fool’s,” he said. “This is serious business.”
“We know that the smoke out there is a housing crisis, the fire is the economy,” Mr. Reid said. “This is a crisis that we have. The only way it’s going to be solved is working together.”
The White House said the Democrats were exaggerating how many people would get help. “The only way to achieve some of these estimates would be to abandon prudent underwriting standards, and that would only create more unsustainable risks,” said Tony Fratto, the deputy press secretary.
In fact, it is impossible to know exactly how many borrowers would be helped by any plan passed by Congress.
Analysts estimate that more than five million households, or about 10 percent of all homes with a mortgage, now owe more than their house is worth, and the number is expected to grow as home prices fall. It is unclear how many of those loans are already delinquent or in foreclosure.
Under all of the competing plans, homeowners would need to meet strict requirements and demonstrate the ability to pay their new loan. Critics warn that taxpayers could get stuck with a huge bill if large numbers of borrowers defaulted yet again.
That risk is especially great in places like Las Vegas and Phoenix, where home prices are falling fast, said Dean Baker, the co-director at the Center for Economic Policy Research.
“In the bubble-inflated markets, you still have a long way to go down,” he said. “That’s one of the things that I don’t think people have fully appreciated.”
A more contentious proposal by Democrats to allow bankruptcy judges to modify loans on primary homes, which is widely opposed by Republicans and the mortgage loan industry, was expected to cause heated debate.
The rare joint news conference followed a procedural vote in which the Senate agreed, 94 to 1, to open formal debate on a Democratic package of housing legislation, including the expansion of mortgage counseling and the bankruptcy change.
Republicans had blocked the measure in late February. Since then, the financial markets have experienced additional turmoil, including the near collapse of Bear Stearns and intervention by the Federal Reserve.
That prompted a barrage of criticism from Democrats, who accused the Bush administration and Republicans of rushing to help Wall Street while ignoring Main Street. And lawmakers then went home for a two-week recess where many said they had gotten an earful from constituents on the housing problems as well as rising gasoline prices.
And by the time they returned to Washington on Monday, it was clear that senators in both parties felt enormous pressure to make progress on a housing bill.
Senator Richard C. Shelby, the senior Republican on the Banking Committee, said that the action on Bear Stearns was a turning point.
“When the Fed intervened with Bear Stearns and so forth, then people said, ‘Well, gosh, the Fed has intervened, what has Congress done in terms of housing?’ And they are inextricably linked, financing and housing.”
Mr. Shelby said that lawmakers were also close to a final deal on a bill intended to modernize the Federal Housing Administration. The Senate and the House have each approved versions of that bill, and the one sticking point seemed to be a disagreement over whether to permanently increase the size of loans that the F.H.A. can insure.
That limit was increased temporarily in the economic stimulus bill approved by Congress in February, to $729,750 in the nation’s most expensive housing markets. The cap is a percentage of median home prices.
Senate leaders said they expected the Democrats’ original housing bill would be replaced by a bipartisan bill, which they said they hoped the Banking Committee would have ready by noon on Wednesday. More contentious provisions would then be offered as amendments to that measure, officials said.
Many of the initiatives under consideration by the Senate are also part of draft legislation in the House by Representative Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, making it likely that anything approved in the Senate would have relatively smooth sailing on the other side of the Capitol.
After weeks of often heated talk, including warnings from some Republicans that they did not want to commit taxpayer funds to what could be nothing more than a bailout for greedy lenders and irresponsible homeowners, there has been a more reasoned discussion in recent days about taking prudent steps to protect the wider economy.
David M. Herszenhorn reported from Washington and Vikas Bajaj from New York.b[/QUOTE]
[QUOTE=parafly;2460846]The Fed providing the necessary cash to make it happen doesn't count?[/QUOTE]
The Federal reserve lent 29 Billion which they secured with 30 Billion of mortage backed securities. In the end it may end up being a bailout but the Fed may also end up with a profit. If down the road there is a loss that will become an expense to the Fed and some money may not be transfered to Treasury that otherwise would have but the Fed may well make a profit on this deal which will also go to Treasury.
Bear Sterns went down the tube and it's share holders essentially got raped. If the US government bailed out home owners by kicking them out of their houses and turning them over to soemone else at a fraction of their value, no one would consider that a bailout.
[QUOTE=Winstonbiggs;2460885]The Federal reserve lent 29 Billion which they secured with 30 Billion of mortage backed securities. In the end it may end up being a bailout but the Fed may also end up with a profit. If down the road there is a loss that will become an expense to the Fed and some money may not be transfered to Treasury that otherwise would have but the Fed may well make a profit on this deal which will also go to Treasury.
Bear Sterns went down the tube and it's share holders essentially got raped. If the US government bailed out home owners by kicking them out of their houses and turning them over to soemone else at a fraction of their value, no one would consider that a bailout.[/QUOTE]
No matter how it gets sliced it's still B.S.
The same govt. that initially offered a whopping 300 mil to a destroyed US city can find room in it's black heart to finance investment blunders.
I don't think this is an altruistic measure by the government wanting to help irresponsible homeowners to keep their homes.
The biggest beneficiaries of this package are banks and lenders whose relying on mortgage-backed securities. Bear Stearns went under because of this mess and the government is trying to prevent more banks and lenders from doing the same.
Foreclosure is a horrible thing for a homeowner, but it's also really bad for the lender, especially if thousands of foreclosures are happening at the same time. Think about it. The lender is relying on 30 years of steady cash influx. They lend $350,000 and will get, guaranteed, $750,000 over 30 years. But with the foreclosure that 30 year cash flow is gone and what was a $350,000 loan (750,000/30) is now worth $100,000 ($250,000/30). On a single loan, the bank just lost half a billion dollars. Multiple it by the thousands of foreclosures and you see why the government is doing this.
Primarily, this measure is to help the banks and lenders.
[QUOTE=CTM;2461022]I'm sure the investors who owned shares at 80 or above felt like they were bailed out..:rolleyes:
The stock lost billions in value in 2 days, yet you think it was a bailout?[/QUOTE]
You're entirely correct. But still, the govt. is interfering in the workings of a free market.
If the "value" dropped that much in a few days, it might be safe to assume that the "value" was never really there. Keep in mind, I have no idea what I'm talking about...my idea of investing is using coupons to save money on groceries.
Where's my refund for my "irresponsible" purchase of AOL stock in 2000 that lost me thousands of dollars? The answer: I shouldn't get one. I took the risk, I deal with the consequences.
What if a bank made a loan to a homeowner and then THE BANK got into financial trouble and declared bankruptcy? Should the bankruptcy judge be allowed to raise each mortgagee's interest rate by 0.5% to help the bank out???
The government should not protect idiots from themselves. The government SHOULD intervene when predatory lending, unfair lending practices or fraud took place. That's it! The idea should be to help those who were defrauded or abused, not those who simply can't pay bills that they signed up to pay.
What next, the government steps in and lowers my Jets season ticket prices because I declare bankruptcy? Maybe I can argue that the Meadowlands in my primary residence for 3 hours per week, 10 weeks per year!!!!
Last edited by jetstream23; 04-02-2008 at 12:45 PM.
[QUOTE=PlumberKhan;2460814]It's OK to bail out dumbass investors...but not OK to bail out dumbass homeowners.[/QUOTE]
Where's the ;) or the :D ?
This is a joke, right?
How did an investor who saw his $115 per share stock go to $10 get bailed out??? Dumbest thing I've ever heard.
Tell the secretary who works at Bear and who is about to lose her job at the same time her 401(k) is tanking and her house value is declining that she is getting "bailed out" :rolleyes: Sheeeesh!
Do you even comprehend the ripple effect that a failure of Bear would have caused. Put it this way, the intervention by the Fed, in some small way, actually saved YOU money....even if you have never been anywhere near Wall Street and own zero stocks.
Last edited by jetstream23; 04-02-2008 at 12:33 PM.
[QUOTE=PlumberKhan;2461074]You're entirely correct. But still, the govt. is interfering in the workings of a free market.
If the "value" dropped that much in a few days, it might be safe to assume that the "value" was never really there. Keep in mind, I have no idea what I'm talking about...my idea of investing is using coupons to save money on groceries.[/QUOTE]
Plumber, I appreciate your last comment because none of us are true experts on this so you admit you're talking a little out of your area of expertise...and that's fine. This is just a messageboard afterall. :)
But the "value" was there at Bear Stearns, that's why the initial $2 takeover price was elevated by Jamie Dimon and JPM Chase to $10 and why, although this is harder to explain, the stock is actually trading around $11 today when the company's shares are going to be bought for $10. This implies that the value of the company is higher than thought.
The reason Bear was about to fail on March 14th was due to a liquidity problem. This means that they were not raising the cash to meet their obligations (required payments). What was happening was a crisis of confidence. People started fearing that Bear had a capital or liquidity problem and so Bear's counterparties (the other firms they buy and sell with) starting avoiding them. If Citi or Merrill or B of A thought that Bear was having problems they started to refrain from trading with them, refraining from buying financial instruments from them. Bear was unable to raise cash (liquidity) because their normal counterparty transactions were having problems. It's not that the value of their assets were much less than people thought or that they had no value. Bear was about to declare bankruptcy because, like a consumer/home owner, they didn't have cash to pay bills. A consumer may live in a house, have a Honda in the driveway, have furniture, etc. but then they get behind on credit card payments and then can't pay regular bills (mortgage, utilities, medical, etc.) so they declare bankruptcy....even though they still have things of value. The consumer has a car, has furniture but may not have things that are easy to sell (i.e. a house). My understanding is that this is a fair analogy to Bear Stearns....it was a liquidity problem, not a value problem. But it happened extremely rapidly.
The Fed's actions with Bear were unprecedented but they saved our collective asses.
Last edited by jetstream23; 04-02-2008 at 12:51 PM.
[QUOTE=jetstream23;2461127]The reason Bear was about to fail on March 14th was due to a liquidity problem. This means that they were not raising the cash to meet their obligations (required payments). [/QUOTE]
Just to clarify...whose fault was it that they weren't raising enough cash to pay their bills? Is this tied to the mortgage crisis?
I'm gonna venture that it is(if I'm wrong please disregard everything that follows). So...Bears Stearns misfigured as to how much cash would be rolling in because their cash flow depended on people who were loaned an amount of money they were unable to pay back on. Shouldn't the investment gurus have realized that borderline broke people have trouble paying their bills?
[QUOTE=jetstream23;2461088]Where's my refund for my "irresponsible" purchase of AOL stock in 2000 that lost me thousands of dollars? The answer: I shouldn't get one. I took the risk, I deal with the consequences.
If the failure of AOL stock had the potential to lead to the collapse of the economy then you bet you would have seen your refrund or subsidy.
This is not a common situation. Why do you think that the government has opened up a line of credit for banks and lenders in the wake of the Bear collapse? The government is trying to prevent other banks and lenders from going belly up.
That's what this mortgage bailout is all about. It's not about the homeowners, it's about the banks and lenders who are in financial peril if they have to right off the loses.