Housing bailout being extended to people who never intended to pay back the money

I can see the wisdom in setting up a program to help out people who got scammed and suckered into mortgage's they couldn't afford.
But there is no way we should be bailing out speculators and irresponsible people who simply wanted to live large off the boom.

The Obama administration sought to expand its $50 billion plan to reduce home foreclosures, announcing a new program on Tuesday to help troubled homeowners modify second mortgages or piggyback loans.

Under the new plan, the Treasury Department will offer cash incentives and subsidies to lenders who agree to substantially reduce the monthly payments on second mortgages or forgive those loans entirely.
...
Under the new plan, which will be financed out of the same $50 billion set aside in March from the Troubled Asset Relief Program for homeowner bailouts, mortgage lenders that sign up for the program will agree to an automatic formula for sharply reducing payments on the second mortgage for any customers who have modified their first mortgage.

Under the original program, the Treasury offers cash incentives to lenders to reduce a borrower’s monthly payments to 38 percent of monthly income. The Treasury then shares half the cost of further reducing the payments to as low as 31 percent of the borrower’s monthly income.

I don't want to sound like a Republican, but this is criminal.

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What is criminal

is that most of the mortgage servicers: JP Morgan Chase, BofA, Citi and Wells Fargo are also the second lien holders. They will benefit the most from this plan.

With 20% of home mortgages underwater, I would guess that most of these second mortgages are worthless. So, why provide an incentative/more money to a mortgage servicer and second lien holder for something that is worthless.

If there is a "distressed mortgage" the second should be wiped out. I don't have any stats but my guess is that most speculators are out of the property at this point. They took their losses and got out to minimize carrying costs. The people who are left are those who anticipated staying in their homes.

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Won't take the bait

To induce mortgage lenders to participate, the Treasury is offering lenders a $500 cash incentive for each second loan they modify and additional payments of $250 a year for three years if the borrower stays current. The Treasury will also share the lenders’ cost of reducing the monthly payments.

It remains unclear whether mortgage companies will be attracted to the new offer.

Banks are whores ... but they are not cheap whores. The people can be bought with a few shiny bobbles and trinkets and celebrate their new found wealth .... The banks, after TARP, are going to be reluctant to go into a joint venture with Big Brother.
Sell your soul for a lousy $1250.00 MAX? They will turn their nose up at this paltry offering.

It has always been about class warfare.

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bait

let's say they modify something so they lose say $250/yr in interest from the previous loan. With this they get $1k in profit for term modification.

So, let's multiple that times as many home equity loans that are out there...what is that, 1 million, 20 million?

Potential profits are $1 billion, $20 Billion?

Turns the chump change into yet another wealth transfer if my calculations are correct.

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Only one side of the ledger

You forgot the other side of the calculation.

In order to give these borrowers some equity ... lets throw out some raw numbers.
The bank has to forgive $200,000.00 in mortgage loans to keep these borrowers in their home. Let's see ... $200K vs. $1.25K.

I think they'll take the asset over the payout.

It has always been about class warfare.

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thx joesh

I didn't see that these were seriously distressed, so better to kick 'em to the curb as motivator but is this really true considering the foreclosed inventory?

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Chum in the water

Certainly there is no hard and fast number that fits everybody. And I know of people personally that are nearing the $200K upside down.... with property values still in decline.

So lets take some more realistic numbers. To qualify for an conventional FHA you had to be $417K or less. So lets work right on the margin ... and in CA that was easy to do.
At $417,000 x .20 ..... if somebody was only 20% underwater (and not 50%) they would be down by $83,400.

That would be the break even point for the bank ... to give these borrowers equity it would have to be more ... $100K? Who knows ...

Right now we are pricing homes based, not on the value of the property, but on the mortgage hanging over that property, or the income to debt ratio of the borrower.

Would a bank be interested in $1,250 max.... and write off $83,400 to get it? Regardless of the inventory sitting on their books the numbers don't add up for them to change their behavior.

It has always been about class warfare.

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RebelCapitalist

Caught this also and wrote it up. Another Gift to Financial Conglomerates.

I know over at Open left, Obamamania has left the stage. I just wonder what is going to happen to all of those crazed to the point of insanity Obamamaniacs as reality continues to kick in.

Boy, if this is ever an argument against sales, marketing, imaging, etc. tactics in political campaigns I don't know what is.

I'm not saying McCain was better, assuredly he was worse, but I am referring to the primary season.

Although we didn't have a single candidate running who truly had good policies across the board either from the get go.

Still....it assuredly was the primary season where people should have been demanding real policy change in my view.

Sorry I just am kind of pissed that so many didn't read the policy details or believe the evidence instead of the hype.

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