From today's Journal:
Mortgage Bailout to Aid 1 in 9 U.S. Homeowners
By MICHAEL M. PHILLIPS and RUTH SIMON
Don't misunderstand. I don't think we should do any of this, at all. But if Dear Leader is committed to throwing around my money with such abandon, it's instructive to note who he welcomes and who he excludes from the manna of his benificence.
The ability to service a mortgage is related to the cash flow in and the cash flow out, and some unrelated third-party's valuation of the asset pledged as security for the loan is a problem for the lender, not the borrower. If your house suddenly fell to half its current value but nothing else changed, the only thing going on is that the people entering the market now will be relatively better off than you since they'd buy comparable houses for much smaller loans. Your ability to service your loan has not changed a bit. Just keep making your regularly scheduled payments and everything will eventually work its way out. If you lose your job too, you have a serious problem, but note that that's a totally separate problem from the mere fact of your negative equity. Also, you wouldn't be able to use your home's equity as a credit card to buy Escalades and trips to Aruba, but that's pretty much dried up on its own anyway.
Even if a large swath of the country suddenly had negative equity, there's no reason this need trigger a wave of abandoned houses either. If your house fell to half its current value, you might not like to continue making the original payments, but in many ways it beats living in a cardboard box so in general there's a sort of inertia which mitigates in favor of continuing to make the payments.
I will point out that this whole negative-equity phenomenon isn't entirely new and previously unseen in our fair republic. Anyone who's bought a new car with zero down is underwater for the first 18 months they own it. The path out of this is well understood (make 18 monthly payments and your equity goes positive), widely implemented, and this negative equity has not sparked a rash of brand-new but abandoned vehicles littering the sidewalks merely because "it's cheaper to walk away than keep making payments if it's worth less than I owe on it."
Finally, if you want to really fix this whole economy and you want to do it John Drunkard Keynes style, the best move would be simply to bail out everyone's credit card debt, on which the country is most assuredly underwater, if by that you mean the related assets are worth less than the related debt. As an added bonus, you can bet the debt will be maxed out again in short order, thereby stimulating the economy. Brilliant!
Everyone unfortunate enough to be in the 49% who still has to pay income taxes should prepare to write a check to the government for 100% of what they earn, in order to ensure the permanent maintenance of this procession of various and sundry hand-picked constituencies, one after another, 8.3 million sheep at a time.
Mortgage Bailout to Aid 1 in 9 U.S. Homeowners
By MICHAEL M. PHILLIPS and RUTH SIMON
WASHINGTON -- The Obama administration announced details of a housing-rescue plan it said would help as many as many as one in nine homeowners, from low-income Americans struggling to avoid foreclosure to well-off borrowers who owe more than their homes are worth.Because if there's one thing more he can do to get on my nerves, it's make me pay the mortgage of people who make more money than I do and who live in a nicer house than I do. Honestly, does anyone proofread these things for simple sensibility before making these announcements?
The package represents an effort to tackle the political challenges inherent in any housing rescue. While the administration wants a sweeping program that would prevent millions of foreclosures, it doesn't want to be seen as rewarding the greedy or reckless.Am I being hypersensitive by noting that the administration doesn't want to be seen as rewarding the reckless, while proffering no comment on its preference toward actually rewarding the reckless? I swear, it was early 1994 before I got this cynical over Bill Clinton.
It remains uncertain how successful the administration will be in overcoming one of the biggest problems to forestall private efforts to fix troubled mortgages: the objections of investors who own mortgage-backed securities.I'm not sure when Dear Leader began caring about the investor class, except possibly if one means "caring about" in a malicious, possibly carnivorous sort of way.
Administration officials made a point of noting that the loan-modification program will not aid people who bought homes merely as investments[.]As I was saying.
The second main component of the plan calls for Fannie Mae and Freddie Mac, the government-backed mortgage giants, to refinance loans for millions of borrowers who may owe more than their homes are worth, even if they are wealthy enough to afford their current payments. There is no income ceiling for beneficiaries. But they must have mortgages held or guaranteed by Fannie Mae or Freddie Mac, and they cannot owe more than 105% of the current value of their home.OK, this is an important distinction, leaving aside that the "official" in question has simply skipped all the hard parts about proving that this mess is something that just happened to "these borrowers," and simply assumed that was so and jumped to the end where the caring federal government solves "these borrowers'" problems with my money. What's interesting and perhaps less maddeningly predictable is that people who are merely rich can benefit from the program, as the donkeys believe helping some nickel-and-dime garden-variety fatcat is a small price to pay for the eventual nationalization of our entire mortgage system. The investor class--as distinct from the class who are merely reasonably wealthy--has a pernicious inclination to make money that hasn't been formally blessed by Nancy Pelosi, and gets whacked twice by this whole approach: once as the mortgage-backed securities are written down, and again by excluding investors in real estate.
That raises the possibility that homeowners considered well-off by national standards may qualify for public aid.
"It's not income-targeted," says a Freddie Mac official. "It's targeted to these borrowers who have been caught in the current environment."
Don't misunderstand. I don't think we should do any of this, at all. But if Dear Leader is committed to throwing around my money with such abandon, it's instructive to note who he welcomes and who he excludes from the manna of his benificence.
At the end of December, 8.3 million borrowers, representing one in five U.S. single-family homes with mortgage debt, owed more than their houses were worth, according to a report Wednesday by First American CoreLogic, a Santa Ana, Calif., real-estate research firm.Let me be the first to actually say, with regard to being underwater on a mortgage, so what? In general, especially if we're limiting our discussion (as above) to people who bought homes with the idea of living in them, going underwater on the loan just doesn't have much practical effect unless or until you need to sell it. So, yes, if in some trail-of-tears duress such a homeowner is forced to sell his house and move, being underwater would be really inconvenient. But otherwise, what's the big deal?
The ability to service a mortgage is related to the cash flow in and the cash flow out, and some unrelated third-party's valuation of the asset pledged as security for the loan is a problem for the lender, not the borrower. If your house suddenly fell to half its current value but nothing else changed, the only thing going on is that the people entering the market now will be relatively better off than you since they'd buy comparable houses for much smaller loans. Your ability to service your loan has not changed a bit. Just keep making your regularly scheduled payments and everything will eventually work its way out. If you lose your job too, you have a serious problem, but note that that's a totally separate problem from the mere fact of your negative equity. Also, you wouldn't be able to use your home's equity as a credit card to buy Escalades and trips to Aruba, but that's pretty much dried up on its own anyway.
Even if a large swath of the country suddenly had negative equity, there's no reason this need trigger a wave of abandoned houses either. If your house fell to half its current value, you might not like to continue making the original payments, but in many ways it beats living in a cardboard box so in general there's a sort of inertia which mitigates in favor of continuing to make the payments.
I will point out that this whole negative-equity phenomenon isn't entirely new and previously unseen in our fair republic. Anyone who's bought a new car with zero down is underwater for the first 18 months they own it. The path out of this is well understood (make 18 monthly payments and your equity goes positive), widely implemented, and this negative equity has not sparked a rash of brand-new but abandoned vehicles littering the sidewalks merely because "it's cheaper to walk away than keep making payments if it's worth less than I owe on it."
Finally, if you want to really fix this whole economy and you want to do it John Drunkard Keynes style, the best move would be simply to bail out everyone's credit card debt, on which the country is most assuredly underwater, if by that you mean the related assets are worth less than the related debt. As an added bonus, you can bet the debt will be maxed out again in short order, thereby stimulating the economy. Brilliant!
Everyone unfortunate enough to be in the 49% who still has to pay income taxes should prepare to write a check to the government for 100% of what they earn, in order to ensure the permanent maintenance of this procession of various and sundry hand-picked constituencies, one after another, 8.3 million sheep at a time.
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