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New Mortgage Plan - Relief, Fix or Scam?

1000th Active Rain Blog I was asked my thoughts today on the 'New Mortgage relief plan.' Is it a real fix or or just some temporary relief? First of all I know for many homeowners that are up against mortgage payments they cannot make, and home values that are declining that this may very welcomed news. It will allow them to come up for air and alleviate the drowning feeling they have for being under water in their home equity. That is a good thing.

What concerns me more is that this relief is more for the banks and the lenders at the expense of the taxpayers. It allows mortgage payments of homes that are still upside down home sellers to continue coming into the banks coffers. Homeowners are basically just reaffirming bad debt. Yes they may get relief in monthly payments, but the value of the property may take a very long time to come back to just a break even position. So a home may appraise for a refinance, but I would bet money that if a home sold in the same neighborhood, it would not appraise. The question then arises is "Do the homeowner's realize this?" Home owners are not as stupid as government officials in believing this slight of hand trick is actually a fix. I think not. I believe the new mortgage plan it is like placing a band-aid on someone that's been cremated.

The same way sellers that walk away from their homes ('Jingle keys') because they view the situation as hopeless is the same way I believe most sellers will view this assistance in the long run. It is so lame it insults your intelligence. The reality hasn't changed at all. The fact is because they are in a 'no equity' or 'negative equity' position the sellers are still in a home that may be worth less than the market value of the home for some time to come. When they wake up the morning after they will feel like they are 'shackled' and under house arrest. They may still want to make a run for it. This mortgage plan at the tax payers expense (75 Billion Dollars) will keep monies coming into the banks for the short term and allow the Federal Government that does not really have any money, or a plan more time to scheme more trouble!

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Posted by Jim Crawford ~ Atlanta Real Estate-ABR E-PRO on 03/04/2009 11:23 PM

Comments (31)

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31 Comments on New Mortgage Plan - Relief, Fix or Scam?

MAR

A bandaid is not the solution to this problem and I'm afraid the government is getting us into a larger mess than we were in before. The reality is taxpayers are going to pay for all of this and the banks and those in default are not being held responsible. That doesn't make any sense to me.

Colorado Springs Realty Patricia Beck (Prudential Professional Realtors, GRI) Patricia you are not alone. I think this is starting to sink into everyones thoughts.

Jim, lets play devils advocate for a second. If home owners are allowed to refinance at 31% debt to income, and the home does not go into foreclosure. Won't that help stop the large inventory of homes and in turn help stabilize prices? ALso, this program will hurt Wall Street more than it will hurt main street, that is why Rick Santelli is screaming so loud.

I guess the other alternative is to let the whole housing industry collapse. Then we can start with all new programs and procedures. There is no easy fix to this situation, because it has many issues that need to be resolved. With jobs going overseas for so many years, no regulation, or deregulation in the housing industry, high deficits, goverment mis-spending, etc... Housing is not are only issue. This will take a long time to fix.

Jim, We have many owners in our area who have financial distress due to job loss, work downturn, etc. and their homes are not upside down in value, but they cannot traditionally refinance under new guidelines. The jury is out on whether the banks will actually assist...the funds promised to lenders MIGHT make them hire some staff who understand how to negotiate? One can hope.

MAR

John Palmisano (Keller Williams Properties) That fact is you are subsidizing the gap of a price htat should never have been. The estimated costs so far are astronomical. They will be your tax dollar that will be due to fix the mess that should never have happened in the first place by a congress that is a sleep at the wheel. So you have to ask yourself, are you "OK with paying the bill?" Because you don't have a choice anyway. Now when it does fail, it will compound the losses again! You may have missed the story in the last day or so... they are talking about another tax payer bail out of at least another 750 billion. When does stupidity on the part of government end? as long as we allow this to continue it will.

Loannetter The banks have been paid by your tax dollars to assist the market a along time ago. Everyone seems to forget the reason of the bailouts. It was to get money flowing again from the 'freeze in credit'. Time after time after time the banks have been injected with our tax monies to start lending again. They have not, and cannot. The reason being is the assets are not worth what anyone thinks they are worth. The government is trying to form a bottom. A firebreak where home prices will not fall further. I believe there were many better ways to do this, but the politicians have to pay back their special interests on our tax dollars. So the monies go directly to the banks instead of consumers. Why do you think the banks with all the government tax monies are playing games with credit cards? Higher rates?

Most persons in real estate do not get it. What this bailout means is that persons will be locked in homes and properties for much longer times waiting for the price to come back. In the meantime this wave of refinance if it takes off will kill the resale real estate business because so many buyers will be locked out of the market for many years to come until property values come back up. This is the nature of a bubble bursting.

Jim,

Congratulations on you 1000th Blog. Thank you for your great insight and information.

I wanted to share With you my latest post. Sometimes we need a little inspiration. The story of the 12 Medallion, Snakeye and Cookie will do just that. Hope you like it!

I have an amazing story to share with you and I need your help. The 12th Medallion is calling!

Gee, I think there's a "big why" that so many modified loans end up in default within the next 12 months. Need I say more?

Jim... I am tired and I really didn't get to read the comments or your rebuttals... but here is my thought. Upside down or not, if people are in trouble, throwing money and or programs to help them now, to get by for 4 to 6 more months isn't going to help. Is the gov't looking at the figures of those that got some kind of modification, that over 54% of them went right back into foreclosure. I don't have a true answer, but I think we need this market to ride itself out. Sure, help a little here and there... but 700 billion here and 700 billion there? Holy shitola.... not only are our kids going to be paying for this, but their kids. FDR did some of the same thing during the great depression, which made things worse, before they got better. World War II helped give some relief with new jobs and income. Just putting money in a pot is not going to make jobs. We need to create them in other areas and with other methods. Now, I am just trying to avoid news like this, because those officials in office are already elected and they will do what they want. Do they even think? Do they have common sense? The AIG issue and crisis? Gee, the gov't bailed then out and you wonder how many in the gov't actually had monies tied up in AIG. Is that called protecting your assets and worrying about America second? I just had to comment, because you make some great points and I don't understand some of those that comment, and what they are thinking and or looking at. I am just trying to keep my head on straight.

Jeff Belonger

I agree with you. The borrowers need help, but is the only way to help the lender? It is akin to all the top execs paying themselves bonuses and going on vacations with the $$. Must we help the "bad guy" in jail for the greater good? The whole situation is painful, not simply because of lost homes and such, but because the greed and crime persist within it all. It is painful to think about at times. Congrats on your 1000th post - very, very cool.

Alice Linahan (Keller Williams) Alice thanks. That is some post! Wow! You were right, very inspiring!

Vickie Nagy, Realtor (925)407-7987 San Ramon, Danville, Walnut Creek & more (Keller Williams Realty in Danville CA) Perhaps they are telling us something.

Jeff Belonger -- The FHA Expert.com -- FHA Loans -- FHA mortgages - USDA loans (Infinity Home Mortgage Company, Inc) Jeff you made some great points. I think it is important that we try to understand what is going on even if the politicians don't...otherwise we will repeat this over and over and over again for decades to come.

Steve Kappre, Gloucester County, NJ Loan Officer/Mortgage Planner - 856.419.3561 (Treasury Mortgage) Thanks Steve. No one is comfortable with any of this. I feel the home owner is being screwed because it is the bank that gains because that is who the politicians are really bailing out. Political donors.

Jim Congrats on you 100th blog. Sometime do share how you manage to keep ideas flowing and fresh. Looking at your past posts you have managed to stay current, relevant and unique. That is quite impressive in the midst of so many others.

Vanessa V. Simmons~Realtor (Real Living HER) Thanks so much. I try to read an awful lot, and I consider myself a student of life. It is always interesting to be an observer in life taking notes, and sharing those insights.

The 1000th blog is quite a mileston ! I would agree Jim that the plan is more of a band-aid. In reality all of the plans have been band-aids to a certain extent... as well as frightening. It is a scary world out there. I still believe though that market forces will ultimately be the cure of the problem... the simple laws of supply and demand. Also, I am sure there will be a rise of new superpowers and banks at the same time others fail... if we just let them fail !!! Is a tough one. Great post.

I must say that I personally welcome the relief, however I dont even know if my home will qualify. Being In Tampa Florida we were hit hard. My home lost 25% of its value in just one year! I am now upside down in my home by more than 30%. Will this program help me? who knows I am still waiting for that letter that will never come.

Jim,

Looking at some of the available details you can see the banking industry's influence all over it. It'll help some homeowners, but overall it's not what many had hoped for.

Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate (RE/MAX Affiliates) Thanks. IMHO the Government interferred too much...that is spooking Wall Street.

Jesse Vasquez (REMAX- First In Real Estate) It will be interesting to see if there is any relief in it for you...

Esko Kiuru - Las Vegas NV Mortgage Consultant (Sinifox Financial) I agree. It is for the banks. Just look at all the taxpayer money this government threw at Citigroup, AIG, GM now look back on it and they are back for more and it did not work. Even if they gave the houses to the persons defaulting, it would not have cost a fraction of the amount spent.

MAR

Congrats on the 1000th post, Jim. Do you feel any smarter? The sad thing is that all these monies are public funds, raised on the backs of the taxpayers who are current on their mortgages, etc. etc. As McCain calls it - "generational theft".

Jim,

Congratulations on your 1000th post! You do manage to keep them coming and your posts are always insightful. Thanks for being so eloquent!!

Dorie Dillard: Canyon Creek & NW Austin Living (Coldwell Banker United) Thanks so much! Ilove Active Rain!

MAR

Jim - interesting post. The bandaid analogy may be a good one for some individual homeowners. Overall, we need the government to put in a few stitches to help the economy recover.