Hope NOW a pig with lipstick
Surprise, surprise now the Federal Government, “Fannie Mae and Freddie Mac,” has come out with a new rescue program to help home owners who are upside down in their properties. (Washingtonpost.com)
This program may “Temporarily reduce home loan balances.” This translates to we (the Bank) will reduce the principle balance until the value of your home goes up and then (the Bank) will move in and take any equity that you may gain by reinstating our deferred principle. It means no loss or penalty to the banks that obliterated all solid underwriting guidelines and caused this housing bubble in the first place. No penalty for the most guilty parties. Instead they get access to government money at reduced rates and can borrow freely at the Fed. window. Wow, what a punishment! That’s like inviting your teenager to throw another party as punishment for just having a party and trashing your house!
The new program may “Reduce interest rates to as low as 3% temporarily but may be increased the rates at a later date. This means that if the lender determines that they can get more from the borrower or the market improves and they can get more by driving the borrower into foreclosure by increasing the interest rate, they are free to do so.
The new program may “Extend the term of the loan from 30 to 40 years.” This would result in a much higher total interest charge to the banks advantage. Once again, no penalty to the bank, only the borrower.
About the only good thing about this program is that it attempts to rewrite your mortgage to a 38% payment of your gross income. But if you can’t meet that criteria you can’t get into the program and foreclosure is your next stop. The Bank now knows you can’t afford the home so they now immediately move to foreclose.
Perhaps the most interesting thing about this program is that anyone applying for this new program through “Hope Now,” or Hope NOT as most who have used the program will tell you, is that if you pay your bills on time you can’t qualify. You have to stop making your mortgage payment for at least 90 days and damage your credit or they won’t consider you.
So let us recap this program from the perspective of the Lender:
a) Don’t pay your mortgage for at least 90 days. (We the Banks are encouraging you to be a dead beat).
b) Even if you had been making your payments before, if you can’t meet the 38% debt to loan ratio, we will now know to go ahead and foreclose against you.
c) We (the Banks) will extend your loan to 40 years so that we can make an additional 10 years interest on you while only slightly reducing your monthly payment.
d) We (the Banks) may differ a part of the principle you owe us in the hope that your property value will go up so that we can then take the appreciated value. This is much better for us (the Banks) as we won’t loose anything even though we used poor guidelines in writing the loan in the first place.
e) We (the Banks) may drop your interest rate to as low as 3% temporarily because we are paying less than 1% currently for our money at the Fed. window. This will save us from repossessing your home and help us lower our losses until the market gets better so that we can then increase your interest rate without re-guard for your ability to pay and foreclose to get our money if we determine that is in our (the Banks) best interest.
Let’s now recap from the Borrowers view point:
a) Thank you for making me go 90 days late on my mortgage, to be considered for your loan, so now all my credit card interest rates have now substantially increased. My debt on my charge cards have now increase to the point that I no longer qualify for your program. By the way, my car insurance has also increased and the part time job I just interviewed for ran my credit and determined I could not be trusted to handle money as my credit is too poor.
b) Thank you for allowing me to pay 40 years on this mortgage (an extra 10 years) so that I can pay you much more interest and minimize any equity that could be gained by a 30 year loan. I appreciate that I will pay you more than 25% more interest than on a 30 year mortgage resulting in you making much more money on me.
c) Thank you for differing principle on my loan so that when I go to sell my home and you reinstate your claim I will either have to “Short Sell” it and damage my credit all over again or if I have held my home long enough for its value to have re-apreciated I will have the distinct privilege of receiving nothing for all my time and effort in keeping my home. I will be worse off than if I had let you have my home and taken out bankruptcy, rented for 7 years rebuilding my credit while saving a down payment for a home. But now I get nothing. I have no future in trading up to a nicer home because I have no equity in this home. And if I am forced to sell due to a move in the next 7 years it is worse. If I am forced to short sell after the end of 2009 then I will no longer be able to waive the Federal income taxes on the loss that you will send me on a 1099 form. Therefor I will owe taxes on the entire loss.
This program should be name the “PIG” program. It smells, oinks and is bloated in favor of the Mortgage Companies.
Gee, this program sounds like a real winner where do I sucker up?
If the American people were to fall for this scam it will lengthen the price adjustments period for property and slow down the depreciation cycle. It will not stop the falling real estate market. For most Americans this is not a program that will help them but a band-aid temporarily stopping the bleeding when what is needed is surgery to cure the problem.
The authors of this so called program “Fannie Mae” and “Freddie Mac” have now shown us all that the government bail out and their pledge to Americans to help put a bottom to this problem is not what they are interested in. Their interests only include their own selfish interests and to the detriment of the economy and the man on “Main Street.” Nothing has changed.
Sec. Paulson has also show us his colors. Remember the little $700 Billion bail out program to buy bad mortgages? It seems Paulson has decided not to use a drop of the money for that purpose. Instead he’s going to give more money to the Banks. In a very quiet move he changed the tax code saving the banks perhaps $107 billion in taxes when they acquire other Banks. That’s why the fight between Wells Fargo and J.P. Morgan over Wachovia. Mr. Paulson by that tricky move made the Bail out into an $807 Billion dollar program. Sec. Paulson or should I say Santa Clause, could you make me into a Banker one day so I could get all this free and near free money to lend to main street? I want a license to steel also.
Do you think Paulson knows he can join his friends (the Bankers) after January 20th as the new administration takes over. That’s when he will make the big bucks for screwing American main street and giving the Bankers all our money.
The only fair solution is to have a Bankruptcy Judge determine what is equitable. The Banks don’t want this and would rather put forth programs like the above that will further victimize the public and not treat them fairly and lengthen the depreciation and economic recovery cycle! Weather or not the Bankruptcy courts want this job is not the question. The question is where this problem could best be handled in a fair and balanced manor. If the courts don’t want this then have the Judicial Branch over see and select Arbitrators with the Congress requiring all parties to submit to this binding mortgage arbitration. This would eliminate the need for bankruptcy and provide experts in the field to stand in the middle and make equitable judgements in the balanced interests of all parties.
Different organizations have reported recently that home prices are down in Las Vegas and on average about 30% from a year ago. Most of the experts feel we could drop in prices another 10%.
