Feds Bail Out, Install New Course of Shingles to Prevent Trickle-Down
A recent spin around the blog-o-sphere landed me this unpleasant fact, courtesy of Stacy Meyers at Boston.com: apparently 684,000 people over 50 are in trouble with their mortgage, and over 50,000 already lost their homes. Now, those seniors and near-seniors paid taxes their entire lives, they are still paying taxes, and they will even pay some taxes after they shuffled off their mortal coils — I think it’s safe to say that they’re paying for the recent bailout of Fannie Mae and Freddie Mac just like the rest of us.
So what are our new government-owned mortgage behemoths going to do for those taxpayers?
Is it bubkiss or budkiss? Anyway, I know how to spell zilch.
It’s lucky Social Security is in such good shape after all of the hoopla over that issue in the last — is it 2 or 3 presidential elections? What happened with that again?
According to Toni Straka at The Prudent Investor, the bailout doubled the public debt of this country. But now we — the taxpayers — own all of those mortgages, and so the power to change the terms of the bad loans that are at the heart of this whole mess is in our hands, right? This is going to be good for the average citizen in the long run, right? I mean, we’re going to see some real benefit from this weird and scary (and probably necessary — Greenspan thinks so, anyway) corporate welfare — right? Right? Um…guys?
We should have had regulation of the mortgage mammoths just as Greenspan warned in 2004, but now we have control. So what are we going to do?
By “we” I guess I’m talking about the assorted clowns, goons, and evil, greedy X-Files types who got us into this mess, and that keeps me up at night.
But let’s assume “we” really want to put the real estate market — and the country — back on the rails. What should we expect to get out of this?
The answer is simple: we need to stop the foreclosure process and provide debt relief to the people who need it most. We desperately need to keep that inventory off the market, and we need to keep those homeowners in the market. Demand for houses isn’t really low — it’s just stupid to think people don’t want to own their own homes — but the supply of qualified buyers is being gutted in 6 different ways by the worst fiscal mismanagement most of us have seen in our lifetimes.
Now, you hold your breath until January…or January 2013 if we elect more-of-the-same….
Here are a few things we should see right @$#%*&! now:
- Forgiveness of any and all punitive debt attached to first mortgages. By “punitive debt” I mean default interest rates, late charges, and any other little treats the credit and collections folks have written into these ailing notes. It isn’t real money, and now there are no investors to crow and peddle influence against doing the right thing for everyone. So do it — give these people a reasonable chance to keep their homes, and welcome them back into the fold.
- Curb the collections industry. Nobody likes those guys anyway. We need legislation that defines a lot of the industry’s practices for what they are: harassment and fraud.
- Re-reform bankruptcy laws. The bankruptcy “reform” laws signed by president Bush early in his tenure look pretty sinister in retrospect. I don’t pretend to know all of the ins and outs, but we need to make it easier for people to shed bad debt and get a second start — we depend on the ability of individual consumers to recover, and writing off non-mortgage debt is going to hurt — holy cow! — the very same financial institutions that created this crisis in the first place. Call it a free-market simulation….
- Refinance ailing mortgages. If you offer people another poke in the eye, they’ll just lose all hope and resign themselves to losing their homes. But if you offer to refinance their ARM (or whatever) at a decent rate and payment — even if it’s over 40 years — you create incentive for them to keep their homes.
- Put a leash on the credit reporting bureaus. Say Mr. and Mrs. Gunderson are 2 months behind on their mortgage, and desperately trying to refinance an ARM. The lender is going to use their tanking credit score to raise the interest rate on the new loan — effectively offering them another deal with the devil. Again, if there’s no incentive to avoiding foreclosure, people are going to let it happen.
And You Were Worried ABout Risk In Real Estate? (Arrrrrr…)
Where's My Bailout? said:
I don’t want people who over-extended themselves with mortgages they couldn’t afford to be rewarded for their stupidity.
I’ve been working my ass off to pay my mortgage on schedule without missing a payment ever. What do *I* get out of this deal? The joy of having money taken from me and given to people who should never have been in this market to begin with??
That’s an absolute OUTRAGE.
The only way the real estate market is ever going to recover is if homes are allowed to revert to their natural price level. Having the government support prices with handouts like this is only going to prolong the pain.
Can’t afford the house? Well too bad. Get out. You should be renting. Let someone who truly can afford it live there.
September 23, 2008 12:21 PM
max said:
I agree with the previous commenter. Why do so many people consider “home ownership” to be a holy cow that needs to be fed at all costs? Why do _I_ need to pay for people who have no brains?
In retrospect, it seems that it is me who has no brains. Evidently, I should have gotten neg-am option ARM loan with 0% down and 60% LTI years ago. And then rake a hundred grand worth of credit card debt on top of that. They would have to bail me out, there wouldn’t be any choice — otherwise the homeownership rate would go down, and we can’t have that in this country, oh, no, no way…
Words fail me.
September 23, 2008 1:13 PM
mercator said:
It’s bubkes.
September 23, 2008 2:11 PM
mike.martin said:
Thanks for your comments.
I wonder if anyone wants to focus on my first point, though — I think that the “made up” punitive/collections costs tacked onto mortgages should go away. It’s a first step. And it isn’t a “handout” as I see it — it’s just taking fake money out of the equation, which is kind-of what Max is advocating.
People did really dumb things to get into their homes, and credit cards are the devil’s handshake — but why isn’t there more anger directed at the top — why aren’t we looking to prosecute, or remove from office — the folks who lead us here?
Blaming the consumer never fixes the problem.
Anyway, thanks for the scuttle!
September 23, 2008 2:13 PM
mike.martin said:
Oh, and thanks Mercator. Any idea where “bubkes” comes from? I mean, besides Washington?
September 23, 2008 2:14 PM
Tom said:
It’s Yiddish for “beans”, i.e. “nothing, zilch, nada”.
And max… the government doesn’t bail out individuals. Unless they’re the heads of major corporations.
This is only going to get worse.
From a shareholder standpoint, the best thing that a corporation should do is to get really big (so big that failing would be “bad for the economy”), hand out as many loans as you possibly can, collect HARD on them (anything short of a baseball bat), then when the hit fits the shan, get the government to bail you out of what you weren’t able to collect on…
Brilliant.
September 23, 2008 2:31 PM
mike.martin said:
I do so love Yiddish! Thanks, Tom.
Anyone have an idea of how much a bank really loses on each foreclosure? In my experience it looks like they take a hit of about 30% on the property. Of course, that isn’t counting the 3 or 4 or more years of interest-only payments they’ve collected….
September 23, 2008 2:42 PM
Shorty said:
Amen, Mike. Reform, regulate and prosecute.
September 24, 2008 7:53 AM
mike.martin said:
That’s funny, Shorty — prosecute!
See, Enron was clearly illegal, but in this case the banks are guilty of influence peddling, which has been renamed “lobbying.” So by the time this scheme comes to light…it isn’t illegal. That’s the beauty of deregulation — do away with the laws and let the market take its course….
Now, my guess is that it would be the Justice Department’s job to look into that influence peddling…but that’s pretty much a social club these days, so probably no indictments to make us feel better about things.
But, yeah, in a perfect world, how about adding “impeach” to your list?
September 24, 2008 10:52 AM
david said:
This is a dumb post. People in ALL age brackets are having mortgage problems, and homeowners who are > 50 have no excuse. If you’re >50 you should have already be pretty far along into paying off a 30-yr fixed mortgage, and they probably bought their house back when real estate was cheap. Seniors w/ problems paying off their mortgage probably used their house as an ATM w/ stupid exotic loans that they couldn’t pay off.
I took out a safe, low-risk mortgage and live fairly modestly, and now you’re asking me for a bailout? I hear the Pine St Inn is quite nice in wintertime.
September 24, 2008 11:03 AM
Shorty said:
Nice David. So the fixed income thing doesn’t make you all sad and stuff? Oh well, we can’t all have a heart
. Also, the FBI is apparently looking into a lot of fraud cases where people were flat-out lied to about how much their payments would be.
September 24, 2008 11:07 AM
mike.martin said:
I think the blogger I’m referring to chose that statistic for exactly the reason David objects — we expect to see people over 50 getting their ducks in a row and getting ready to retire, and so the statistic is disturbing. Or, well, it should be, if you have any empathy at all.
I have to say again: this post is not in favor of a bailout — the bailout has already happened. I want to see lower inventory and I want to see prices hit a final bottom so we can start earning equity again. More and more foreclosures probably mean your house is losing value, too, David. At the very least, it would make it hard to sell if you lost your job, or if life through you another sort of curveball.
September 24, 2008 1:28 PM
Evan said:
I think that this whole mess has taught us a lot about people and the way the financial system works. We clearly need reform to prevent this kind of disaster again and to punish those who created it. It is important that those who are having trouble paying their mortgages be given some sort of agreement to help them pay it off and decrease their suffering (as Mike had said). Many people would want to pay off their homes and not just lose them, but I feel like they might not get that chance. Good blog, Mike.
September 24, 2008 1:30 PM
mike.martin said:
Thanks, Evan.
In Norway, 9 out of 10 American breakfast cereals would be required to be labeled and categorized as “candy.” Here, we say “Part of a healthy breakfast.” Mortgage ads say “You can own your dream home,” and people go “Where do I sign!” not “What’s the catch.”
People in trouble with credit are generally guilty of optimism
That’s how human being work, and that’s what these corporate con men have exploited.
September 24, 2008 1:36 PM
Cek said:
Excellent post, thoughtful suggestions. I would plotz if any are actually included in the legislation. We should have impeached when we had a chance; now there will be no accountability until the next Democratic sex scandal.
September 25, 2008 6:28 AM
mike.martin said:
Plotz! The linguist in me is tickled. Thanks Cek!
September 25, 2008 7:49 AM