Helping Homeowners For The Common Good

By Big Tent Democrat, Section Other Politics
Posted on Thu Oct 09, 2008 at 08:35:39 AM EST
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I think the biggest thing that's missing in the Democratic Party is that we have lost the idea of the common good. That's what Franklin Delano Roosevelt was going with social security, he's saying look, this is the worst that's ever been in this country but we would get together and we will find the way to help our old people in this country get back on their feet . . . President [Bush] says "we have to get rid of that, we want to put you in the ownership society." What he means is that we want to put you out on your own and that's splitting again the idea of the common good.

-Rep. Jim McDermott, May 2005

Exhibiting the the typical Beltway view of helping ordinary Americans, Fred Hiatt and the WaPo Editorial Board misstate what a HOLC-type solution could do: [More....]

The McCain plan raises the serious concerns that plague all such ideas: It would benefit borrowers and lenders who made bad decisions . . . Though Mr. McCain preached against moral hazard earlier in this campaign, his team now says that the crisis has overtaken such concerns and that it's appropriate for government to pick up the tab for selected homeowners' lost equity. But unless Mr. McCain can demonstrate that this concession to borrowers is needed to alleviate the crisis and would be more effective than other measures already adopted by the Bush administration, the cost will be hard to justify.

It is axiomatic that the federal government is the one entity that can grant time to homeowners to repay their debts and keep their homes. Because the federal government does not have share prices or difficulty in raising capital, it does not have to demand high mortgage payments and fast repayment. It is these very facts that make the federal government the proper entity for purchasing distressed mortgages and negotiating new payment terms that can keep ordinary Americans in their homes. The federal government does not need balloon repayments, does not need short term appreciation of home prices, does not need high monthly mortgage payments. It can take a 5 year ARM mortgage loan with a balloon and exchange it for an affordable 30 year fixed term mortgage that keeps American families in their homes.

None of this requires a handout to the homeowner in the sense of forgiving debt. This is providing the refinancing that these homeowners were told would be available because of appreciating home prices. This is what HOLC was in the FDR Administration (HOLC ended up making a profit for the government) and it is what a modern day HOLC should be.

Earlier, I posted on how the federal government is going to inject capital into financial institutions by taking equity stakes in them. This is a good plan for the financial institutions and for the country. It brings needed liquidity to these institutions and the credit market without being a corporate giveaway. Indeed, for diluted shareholders, it is a bitter pill. But better a smaller piece of something of value than a larger piece of a worthless bankrupt company (ask Lehman Brothers shareholders if they would have like the feds to buy stock in Lehman. Ask AIG shareholders if they are happy about the government stake in AIG.)

But homeowners are ordinary Americans trying to pay their bills and keep a roof over their heads. A HOLC pan is not a handout in the sense that debt would be forgiven. The debt is being refinanced, by the last institution that can. This is a classic situation for why we need government - when all else has failed - and it has - then the government must step in. Not doing a HOLC will leave the country in a terrible mess.

I have written about the Common Good many times in the past. HOLC is a classic example of what the Democrat vision of the Common Good should be - helping ordinary Americans in a way that helps the country as a whole. It is a classic act of progressivism and what the Democratic Party must be about.

By Big Tent Democrat, speaking for me only

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Helping Homeowners For The Common Good | 139 comments (139 topical)

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Thanks, BTD (5.00 / 4) (#2)
by Demi Moaned on Thu Oct 09, 2008 at 08:50:32 AM EST

This is one of the best things you've written in a while-- clear and to the point; urgent without showing exasperation.

You know what (5.00 / 3) (#3)
by Big Tent Democrat on Thu Oct 09, 2008 at 08:53:40 AM EST

I thought so too as I was writing it. I've sucked pretty bad because I've become a horse race blogger.

Well the horse race is pretty much over now.

Time for issues again.


: I agree w/the last two sentences. (5.00 / 2) (#54)
by oculus on Thu Oct 09, 2008 at 10:43:30 AM EST

I agree (5.00 / 1) (#8)
by Jlvngstn on Thu Oct 09, 2008 at 09:09:52 AM EST

I had almost given up on reading BTD's posts and this post is reminiscent of the writings that made me think as opposed to rolling my eyes...


Homestead clause (5.00 / 2) (#7)
by mmc9431 on Thu Oct 09, 2008 at 09:05:11 AM EST

I would go along with some sort of homestead clause that addressed the primary residence, not spec property or 2nd or 3rd vacation home. But something has to be done. Maybe we need to give this crisis some phoney name like "Operation Soaring Dollar". War funding seems to be an easier sell. A lot of the people that are screaming we don't have the money, were dead silent when we spent it in Iraq. At least with this funding we stand a chance of getting a return on our investment.

Agree (none / 0) (#9)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:10:21 AM EST

I dunno (none / 0) (#72)
by coigue on Thu Oct 09, 2008 at 11:53:57 AM EST

some people have their retirement locked up in an investment property. They weren't idle speculators. Is there any way to tease them out?


Putting your money in (5.00 / 1) (#88)
by Fabian on Thu Oct 09, 2008 at 12:54:18 PM EST

an investment property either makes you a speculator or a business owner. If you are a landlord, then you have income producing property and you are a business owner and are responsible for your business.

If you bought a property for investment purposes, then you essentially did what people who buy stocks do - you made a bet that your investment would increase in value. People lose money on investments all the time.

There are no sure winners when it comes to investing. Everyone takes their chances.


It just seems like there is (none / 0) (#96)
by coigue on Thu Oct 09, 2008 at 01:38:22 PM EST

no where to put your money without taking a chance, if you want to beat inflation. Since pensions are a thing of the past, what do you do?


What everyone else does. (none / 0) (#98)
by Fabian on Thu Oct 09, 2008 at 01:57:53 PM EST

Either do your own research and make your own decisions or pay someone to do it for you.

My mother probably hates work about now. She does IT and secretarial work for an investment company. The mood there has got to be pretty miserable. If it's bad for you, imagine taking calls from a lot of worried clients. ("worried" being a mild descriptor.)

The problem with a real estate bubble is that you can't avoid paying inflated prices, even for a two room shack. So you either buy at inflated prices or wait, wait, wait for the bubble to deflate - if it ever does.


It's all about timing (none / 0) (#100)
by coigue on Thu Oct 09, 2008 at 02:43:28 PM EST

you are lucky or you aren't.


Or just incredibly patient (5.00 / 1) (#102)
by Fabian on Thu Oct 09, 2008 at 03:15:48 PM EST

and deliberate.

If I was stuck in a bubble region, I'm not sure I could wait for five or ten years for the deflation to occur, especially if I was ready to buy, financially and otherwise. Renting can save money, but it has its disadvantages.

(Rental - no insulation, drafty single pane windows, worse doors, antique furnace. Now - full insulation including Tyvek wrap, high efficiency windows, tight insulated doors, modern furnace. When we were renting the furnace died on us. I was hoping the landlord would have to replace it since it was that old. Unfortunately, he just cannibalized the unoccupied half of the duplex's furnace for parts.)


yeah. (5.00 / 1) (#103)
by coigue on Thu Oct 09, 2008 at 03:30:30 PM EST

sometimes you cannot be patient, like if you are just about to retire.

Of course, Suze Ormann says take money out of the market 5 years before you need it.

That makes perfect sense to me after what I've watched my folks go through. They are patient and careful, but the also have made some costly mistakes.


Where should you put it when you take it out (none / 0) (#123)
by BrassTacks on Thu Oct 09, 2008 at 10:36:59 PM EST

of the market?

We had hoped to retire next year, but that dream flew out the window this last month, unless we can get this bailout for our mortgage. It's looking good.


She said put it somewhere (none / 0) (#127)
by coigue on Fri Oct 10, 2008 at 11:02:45 AM EST

very safe and that means low interest.

Truely sorry about your troubles.


Thank you (5.00 / 1) (#130)
by BrassTacks on Fri Oct 10, 2008 at 12:54:59 PM EST

I mean that. Hubby is pretty bummed at this point. We're just hoping that he lives long enough to retire and enjoy all his very hard work for a year or two. Right now, we doubt that will happen. Since the market crash our 26 year old's business is kaput. So I guess he'll have to move back in with us but heaven knows there are no jobs where we live. I guess he'll have to do like his dad and commute 3 or 4 hours every day. This is all so awful and getting worse by the minute.

I am praying constantly that Obama knows what he's doing when he takes over and that Congress will finally grow some brains and some other parts.


Yeah, we are all hoping that (none / 0) (#134)
by coigue on Fri Oct 10, 2008 at 01:55:34 PM EST

it isn't too far gone at this point. It's scary and I am counting my blessings at every turn.

The Democratic Congress coupled with a Democrat as president will have the power to go back to our values and lead us out of this to a better way. I am really hopeful now.

It's all there is.

Anyhow, I know we are fighting in other threads, but I really am sorry that you lost your business.

I am a "soft money" scientist and I just lost a grant with the State of California (or at least it is delayed pending them finding the money for the project...which is to determine pollution sources for a federally impacted waterway). Anyway, right now there is no other guaranteed source of money after late November. I am grateful that dH's work is thriving and that he has a good job with benefits. But we were just now in a position to start saving for the kids' college, and now we are back to treading water. A common problem these days, and I am lucky we are not sinking.


Well, we do have some luck (5.00 / 1) (#139)
by BrassTacks on Sat Oct 11, 2008 at 01:46:43 AM EST

We have ridiculously big house, on quite a few acres, where both boys could live comfortably with us, but we know that they want to be on their own. Of course. DH has a very good job, but he was so hoping he could retire and enjoy our new country life. No such luck. We've lost a few hundred thousand over the last week, so there is no way he can retire now. What makes me feel even worse, we can't help our son's business or prevent him from losing it. That really hurts. Six months ago we could easily have loaned him as much money as he needed. I shouldn't whine, I know that many people have lost far more than we have.


Still. That really stinks. (none / 0) (#140)
by coigue on Sat Oct 11, 2008 at 10:51:17 AM EST

Thank you, dear (none / 0) (#141)
by BrassTacks on Sat Oct 11, 2008 at 10:22:59 PM EST

It does stink, but as parents, we worry much more about our children's future than our own. I hate to see their dreams go down the tubes because of the economy. But that is the reality. I tell them that they can live with us and everyone will be able to get government jobs when Obama is President.


: Why do you say stuff like this??? (none / 0) (#142)
by coigue on Sun Oct 12, 2008 at 10:18:33 PM EST

I tell them that they can live with us and everyone will be able to get government jobs when Obama is President
When you do,(and you do a lot) you sound like a Republican. I will continue to call it out.

Well shoot, (none / 0) (#107)
by BrassTacks on Thu Oct 09, 2008 at 09:35:39 PM EST

I thought being smart mattered too. I thought being frugal mattered too. I thought staying in school and getting a good job helped too. I thought hard work mattered too.

Now you say it's all just luck! Oh well. who knew? Have you told all those poor suckers paying hundreds of thousands to go to college? They shouldn't bother. It's all just luck. what a bummer. They'd do just as well consulting their Magic 8-Ball.


: You need smarts and frugality (none / 0) (#128)
by coigue on Fri Oct 10, 2008 at 11:05:57 AM EST

no doubt.
But if the market crashes right before you need your money, that is something you cannot control.
Sorry I had to spell it out for you, but I am glad to do so.

It won't burst (none / 0) (#122)
by BrassTacks on Thu Oct 09, 2008 at 10:34:58 PM EST

As long as the government is willing to keep it propped up.


We can agree on this one (none / 0) (#104)
by BrassTacks on Thu Oct 09, 2008 at 09:23:34 PM EST

My big brother is 67 and his only income is from 2 small rental houses and social security. I hope he doesn't get punished because he's an "evil landlord".

On the other hand, I sure hope that the government reduces, or pays for, my mortgage. We're pretty excited about that idea.


you really can't read can you? (none / 0) (#129)
by coigue on Fri Oct 10, 2008 at 11:08:41 AM EST

You really really don't get it. People were paying their rent and getting evicted due to the status of the home thery were renting.


Yes dear, I get it (none / 0) (#131)
by BrassTacks on Fri Oct 10, 2008 at 12:57:54 PM EST

But my brother's rental properties are worth less and less and he still has to pay the mortgages. Under the new rules, he can't evict those who don't pay. He's stuck because he's an ''evil landlord", by some definitions. I guess he can move back here with us too, pitch a tent in our backyard, if worse comes to worse. OR, he could move into one of his little houses and just stop paying the mortgage. No eviction, so he'll be ok for now.

Get it now?


: No you don't get it. (none / 0) (#133)
by coigue on Fri Oct 10, 2008 at 01:43:39 PM EST

He's stuck because he's an ''evil landlord", by some definitions.
You created a strawman, and are hanging on for dear life.
Like I said before, you are no Democrat.

We can agree on this one (none / 0) (#136)
by Julianne on Fri Oct 10, 2008 at 11:05:19 PM EST

I bet you are. People like you are what is sucking the life out of our country.


Homestead Claus (none / 0) (#135)
by Julianne on Fri Oct 10, 2008 at 11:03:39 PM EST

Well frankly, it irritates me to have my tax dollars paying for other people's lack of judgement. A lot of those people knew they were taking on more debt than they could afford. So now they have these expensive homes they can't afford & we're supposed to pay for them? I know something has to be done about the housing crisis, but letting these people refinance these houses for what they are worth at today's price & have taxpayers pick up the loss is just WRONG. I would agree with letting them refinance them at a fixed for a longer period of time so their payments would be lower but they would still pay the full price they originally agreed to buy the house for. Our tax bills are going to be high enough for this mess as it is.


2 apparent goals . . . (5.00 / 1) (#42)
by wurman on Thu Oct 09, 2008 at 10:11:07 AM EST

The home-owners need a lower payments. Three things affect monthlies: a) amount loaned, b) the term, & c) the interest rate. It is very simple to fix b & c. If the mortgage becomes some standardized loan form such as 40 years at 2.5 percent (or any other low fixed rate) then lower payments result.
The lending institutions want to avoid total losses on the values of the houses, & they won't have to if the government takes over the loans at some pre-determined percentage of the original value--for example, 75 percent. Because the federal lending entity assumes the mortgage, both the actual & arbitrary values of the house become meaningless.

It appears to me as if the recipients of the corporate welfare bail-out want to make their companies "whole" & avoid financial harm. A pro-rata, across-the-board loss on these mortgages would seem to be a fitting & suitable outcome for the "irrational exuberance" of these real estate skam artists.

As an aside, here, & slightly off topic--a very thorough & immediate "usury" law would be useful for the next century. When my lending institutions could borrow money from Allen Greenspan at rates between 1.0 & 5.25 percent & then charge me primes of 8 to 12 percent, some aspect of the financial system is terribly screwed up.

As it turned out, my business was more credit-worthy than my bank.

A much needed perspective (5.00 / 1) (#47)
by Manuel on Thu Oct 09, 2008 at 10:29:43 AM EST

Though I am not optimistic I am hopeful that a "common good" perspective will make its way into the policy of an Obama administration. It isn't a far leap from rescuing the financial institutions for the common good to providing broad economic security for the common good. This will result in a more stable, more sustainable, less volatile economy. This book by Ellen Frank presents a case for progressive economics.

I'm going to give you a link (5.00 / 1) (#50)
by Maryb2004 on Thu Oct 09, 2008 at 10:34:52 AM EST

Here to a post by Adam Levitin in which he discusses securitization issues, including those in a HOLC solution. He raises a constitutional issue toward the end. I thought you might noodle over it and eventually give your thoughts. Gold clause cases aren't up my alley and probably aren't up yours - but I know you like Lincoln.

: Thanks (none / 0) (#79)
by votermom on Thu Oct 09, 2008 at 12:05:16 PM EST

that's a cool link.

Not quite so simple (5.00 / 2) (#55)
by jarober on Thu Oct 09, 2008 at 10:44:22 AM EST

One of the problems with "keeping people in their homes" is the side effect: it will prop home values up. That's good for those homeowners, sure, and good for the banks that own the mortgages. It's not so good for people who have been priced out of home ownership completely.

The problem with the entire approach - from both parties - is that the root problem is the desire to have home values stay high. That's not really helpful.

Right now, in the community I live in, no teacher, fireman, or policeman could dream of buying unless they have a spouse who makes very good money. I'm not sure that's as good a thing as we've made it out to be.

I agree with you. (5.00 / 1) (#87)
by liminal on Thu Oct 09, 2008 at 12:52:41 PM EST

Re: home prices in bubble markets, but support some version of HOLC at the same time. In the worst-hit local housing markets (esp. in California, where first loans are non-rescourse loans), cascading foreclosures significantly threaten the ability of local governments to pay the salaries for the local teachers, firemen, or policemen.

That's why I think a HOLC program has to include:

1. Reduction of principle to present market value of the home, with a normal (not artificially low) 30-year fixed interest rate.

a. If you can't afford that, you can't afford the home. Can we buy back those homes and allow the owners

b. Lender and gov't can share the blow there, with the lender taking the biggest part of the loss.

c. Limit participation for those who extracted "equity" from their homes somehow to those who can prove that those funds were used for health care and/or education expenses (maybe home improvement?), not BMWs and vacation palaces in Costa Rica.

d. Extra tax on HGTV and all "house flipping" shows (I'm just sayin'!) goes directly into program. /snark. /kinda.

e. There has to be some sort of means test. If you have a bazillion dollars in the bank, we are not subsidizing your mortgage.

The new loan is a recourse loan. The gov't guarantees the new loan, and can come after you for the total loss if you walk away and/or the new loan is foreclosed because you didn't pay. Gov't can attach things like your tax refund, et cetera, if you aren't repaying.
No windfall provision. All your appreciation are belong to us. If your home appreciates again above current fair market value and you sell and/or attempt to refinance based on the new value, we the people get paid back first, up to the original value of your forgiven loan.

I think that is has to be possible to do this in a way that helps stabilize local communities and underwater homeowners without artificially propping up house values and/or rewarding lenders and speculators and greedy SOBs.


Thanks for writing that (5.00 / 1) (#95)
by ruffian on Thu Oct 09, 2008 at 01:31:13 PM EST

Sums up what I would like to see too. Your point 1.a to me ameliorates the effect of falsely propping up the market from dropping further. If this individual homeowner can't afford this particular home at the current market value, it goes back on the market and the market takes over.


: Well shoot, (none / 0) (#106)
by BrassTacks on Thu Oct 09, 2008 at 09:29:50 PM EST

that completely makes sense but it won't help reduce my mortgage. I am kinda counting on getting a reduction now that Obama and McCain are promising big bucks to people with big mortgages.

True, it won't help low income people (none / 0) (#105)
by BrassTacks on Thu Oct 09, 2008 at 09:28:29 PM EST

to afford homes. If we let the market work, let home prices continue to decline, then lots more people will be able to afford homes. That's already happening in some parts of the country. Home sales went up 7 and 1/2% last month because house prices have finally come down to where more people can afford to buy.

On the other hand, I have a big, fat, ol' mortgage that I would love to have Obama bail me out on, or at least reduce it. I am thrilled with McCain's bailout idea for people like me and Obama's plan to bailout everyone, including me! Both are awesome. I am feeling more and more confident that under either one of them, I am going to get a break on my mortgage.


Common Good (5.00 / 2) (#82)
by mmc9431 on Thu Oct 09, 2008 at 12:28:56 PM EST

I'm amazed at the amount of comments I've read lately where they seem to feel that a total economic clapse wouldn't adversely affect them. Unless they have a mattress stuffed with cash (and no friends or relatives that they worry about), the ripples could be disasterous.

Sure there will be some that get that shouldn't but there's always that element. The overall program would benefit everyone.

And this is a Democratic blog (5.00 / 2) (#85)
by ruffian on Thu Oct 09, 2008 at 12:46:52 PM EST

I'm not going near the rightie sites.

I think people know it would affect them, but I see a lot of resistance to actually giving government money away in the form of lowering mortgage principals. Common good in this case means stabilizing the bottom, and that would take really helping people who made bad decisions. In a lot of cases lowering their interest rates won't be enough. I guess we could let them slip through the cracks.


: Or let them learn the lesson (none / 0) (#108)
by BrassTacks on Thu Oct 09, 2008 at 09:53:46 PM EST

To not buy things that they can't afford. But heck, that's no fun. Everyone wants things they can't afford. Now the government will let people continue to buy things they can't afford, knowing the government will bail them out.
But I think lots of us will benefit from this, the taxpayers will be bailing out lots of home owners.
Here's a scenario. An older couple, within a few years of retirement, bought a big house 3 years ago. They have a hefty mortgage. All their money is in trust funds for their kids or retirement accounts. Neither of those can be touched by the courts. They retire and decide that their mortgage is much too big and their house is worth $200,000+ less than they paid for it. Bingo! The government takes over, pays their mortgage, or at least reduces it. Pretty sweet deal. I live in a whole neighborhood of people like that. They are dancing a jig this week, with these bailout plans by Obama and McCain. Their only question, which one will give us more money back on our house? I guess I don't need to tell you that these folks aren't poor, but they do live in big ass houses. And they sure as heck will take advantage of these bailouts. Their attitude is that they paid plenty in taxes, and a free mortgage is too good a deal to pass up. I suspect lots of people, from rich to poor, will be feeling the same way. All of them will also be wondering, who's gonna give us the most money on this mortgage? Or, how long can we stay in this place without paying any rent? Heck, the people down the street stayed in their house for a year and a half without paying a dime. Not a bad deal. They saved over $35,000! And that's happening all over the country. Of course the downside to that is, their bank, the one who lent them the money, Wachovia, went out of business and lots of people are losing their jobs. Not good. There are upsides and downsides for everyone. Some get free rent or free mortgage and some don't. Some lose their jobs and homes, and some don't. Like coique said, it's all a matter of luck. But shouldn't these retirees take advantage of all this free mortgage money that will be coming from the government?

: Isn't lowering principal negating (none / 0) (#109)
by BrassTacks on Thu Oct 09, 2008 at 09:58:57 PM EST

A contract? Is that legal for a judge to do?
I guess it is now! Of course no one in their right mind today would ever lend mortgage money to anyone. I do feel sorry for people like the young couple I know who got transferred out west but know now they will never be able to sell their house here. They've got 3 kids and will have to live in an apartment in out west. They kids are bummed. But the banks that are still in business won't touch mortgage loans so they're stuck with a house they can't sell so no way to buy another house. What a shame.

In the boom-times.... (none / 0) (#90)
by kdog on Thu Oct 09, 2008 at 01:06:35 PM EST

there are people who fall through the cracks and few care. Now that banks are failing everybody cares all of a sudden.

We all know a collapse will effect every one of us, we just don't wanna be blackmailed over it....blackmailed into saving banks from failure "or else", while people keep on sliding through the cracks, same as ever, though at unfortunately larger numbers.


I admit, I'm selfish (none / 0) (#97)
by mmc9431 on Thu Oct 09, 2008 at 01:49:48 PM EST

This isn't just a case of being a bleeding heart liberal. It's selfish on my part. I don't have buckets of cash stuffed away and like most American's, my livelihood is based on a reasonably stable economy. The job market isn't too great right now and I don't see it improving much if we continue down this path. I've spent my whole life being self sufficient and at this stage I certainly don't want to become a burden to anyone.


: I'm in the same boat... (none / 0) (#99)
by kdog on Thu Oct 09, 2008 at 02:37:15 PM EST

basically check to check with a small knot of cash.
I'm willing to face the consequences of doing what is right and just....no bullsh*t. Though that may be easier for me than some, no wife and no kids I'm responsible for. Got my friends and family, we'll take care of each other one way or the other...same as it ever was. More than anything I don't want us all getting fooled again...still can't help but think its another snowjob.

: Tell me about it! (none / 0) (#111)
by BrassTacks on Thu Oct 09, 2008 at 10:04:30 PM EST

We've got our last two almost through college and we wanted to retire. Now our kids won't get jobs and there is no way we can retire, unless the government takes over our mortgage. (We're feeling pretty hopeful about that part.)
Most people I know think this is a depression and will last for at least 10 years. Obama will expand government, for sure, but even he can't figure out a way to give everyone a government job. As my economist friend says, we ain't gonna get rich taking in each other's laundry!
My kids will just have to move back in with us and we'll have to continue to work until our mid 70's if not longer. I just hope we can support everyone, and am thankful we have this big ass house with so many bathrooms! I'll like it even more when the government takes over the mortgage or at least reduces the principal and interest.

True, but (1.00 / 1) (#1)
by Abdul Abulbul Amir on Thu Oct 09, 2008 at 08:45:13 AM EST

It is axiomatic that the federal government is the one entity that can grant time to homeowners to repay their debts and keep their homes.

True, but why include speculators that bought houses with no prospect of paying the debt other than through a resale at a higher price?

Are you suggesting. . . (none / 0) (#4)
by LarryInNYC on Thu Oct 09, 2008 at 08:58:55 AM EST

that the HOLC not revalue the homes during refinancing but instead ensure savings simply by converting from ARM to fixed rate? That still won't bring mortgage payments down to the initial ARM rates the borrowers were banking on, since those were artificially low in many cases (to be made up by higher payments after adjustment).

I think that any reasonable HOLC is going to have to allow for revaluation of the loan principle -- which is a kind of loan forgiveness.

We'll see if that is necessary (none / 0) (#5)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:01:20 AM EST

In such cases, obviously a windfall protection mechanism will be necessary.


I say (none / 0) (#6)
by Steve M on Thu Oct 09, 2008 at 09:04:34 AM EST

the government should just take an equity stake.


And then securize the equity . . . (5.00 / 1) (#11)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:13:42 AM EST

Oh wait . . .


: Haha (none / 0) (#15)
by Steve M on Thu Oct 09, 2008 at 09:20:46 AM EST

I say a _wooden_ stake. . . (none / 0) (#18)
by LarryInNYC on Thu Oct 09, 2008 at 09:24:00 AM EST

If you're simply going to replace. . . (none / 0) (#14)
by LarryInNYC on Thu Oct 09, 2008 at 09:20:01 AM EST

existing loans with fixed rate 30s, why require the government to take over the mortgages? Why not simply pass a law saying that at date X all ARM mortgages will become fixed rate 30s covering the unpaid principal on the original loan?

Seems like that would be easier and not require a contentious huge expansion of the roll of government in housing.


Hmm (none / 0) (#16)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:22:49 AM EST

Command economy? Just pass a law? Weird.


Sure. (none / 0) (#19)
by LarryInNYC on Thu Oct 09, 2008 at 09:27:20 AM EST

Any solution is going to have to take a bite out of the banks (something you seemed all in favor of in your "make Wall Street, not Main Street pay" posts of a week or so ago).

And that will involve coercion of the banks. They're going to have to take a loss on their securities one way or another. The problem is that many of these loan products should not have been legal to begin with. Make them illegal now, provide a formula for converting them, and coerce banks to accept that by denying them any bailout money of any kind if they don't.


ARM's Are Perfectly Fine in an... (5.00 / 1) (#51)
by santarita on Thu Oct 09, 2008 at 10:39:46 AM EST

interest rate environment where interest rates are in decline.


: depends on (none / 0) (#71)
by coigue on Thu Oct 09, 2008 at 11:51:10 AM EST

the addition to the prime that they are based on.

How does that (none / 0) (#24)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:44:04 AM EST

help keep folks in their homes?


: I assume the formula for converting (none / 0) (#70)
by coigue on Thu Oct 09, 2008 at 11:50:09 AM EST

them will result in a lower mortgage payment.

Why not make it mandatory before any bailout (none / 0) (#69)
by coigue on Thu Oct 09, 2008 at 11:48:12 AM EST

once the govt is called in to rescue, they should have a say. That's the way it works in bankruptcy court, as I understand it.


It's the only way (none / 0) (#21)
by Fabian on Thu Oct 09, 2008 at 09:39:55 AM EST

to deal with the over inflated prices. A lot of properties will not need to be "corrected" but properties in the bubblicious areas will need to be adjusted downwards. Areas more dominated by predatory lending practices and less by speculators(the Rust Belt) should be adequately served by conversion to fixed rate mortgages.

The goal should always be to keep property in the hands of people who can afford them, if at all possible. Some people will find out that they simply can't afford the property. Some of the predatory lending practices resulted in real horror stories where working class families were qualified for loans by helpful loan agents. One local realtor lost his license because he was not only flipping properties, but he was also providing false information on loan applications in order to "help" qualify applicants. He ended up with a profit and the new homeowners ended up with homes they couldn't afford.


: Categories of Problems and Solutions (5.00 / 1) (#57)
by santarita on Thu Oct 09, 2008 at 10:46:49 AM EST

There are categories of problems and categories of solutions. I think Congress needs to come up with a formulaic approach and perhaps use the bankruptcy system to mediate between lender and borrower along the formula. But then again I think that Congress should have done this some time ago.

: isn't the market already doing that? (none / 0) (#112)
by BrassTacks on Thu Oct 09, 2008 at 10:10:41 PM EST

House prices in nearly all areas have been decreasing for over 2 years. Why does the government need to be involved if the market is correcting itself?
Not to put too fine a point on it, but how do we protect the stupid from themselves? How do we prevent people from buying things that they can't afford? It seems like the market is figuring that out, but what about lower income people who may never be able to afford a house? Those who can't ever seem to save a dime?

I agree with Larry (none / 0) (#10)
by Saul on Thu Oct 09, 2008 at 09:13:07 AM EST

Just changing the interest rate to a low fix rate does not motivate me to stay in that home. If the mortgage is still higher than than the value of the home and nothing could be done to change that then I personally would walk away from it. You could not even sell it because you are upside down on the loan. You would be paying all these years for nothing. Yeah your credit rating will go down because of that but if push came to shove you would have no choice but to walk away from it. Now if the loan company would reevaluate the home to current market values and refinance me at a fixed reasonable rate then yes. That motivates me to stay with the home. Looks like the bank or mortgage company would want to do everything possible to not have your home on the take back home list which now is already to long.

The fundamental problem (5.00 / 1) (#13)
by Steve M on Thu Oct 09, 2008 at 09:19:54 AM EST

is that house prices are overvalued nationwide as a consequence of the housing bubble.

We need to let prices fall back to the level where they should be, not adopt a rescue strategy that artificially props them up.

Here is an explanation of why letting prices fall to their natural levels will not impair the value of mortgage-backed securities any farther and thus should not be a concern to the banks that hold them.

Refinancing the principal is the way to go about it.


BTD's HOLC would. . . (none / 0) (#17)
by LarryInNYC on Thu Oct 09, 2008 at 09:23:06 AM EST

not adopt a rescue strategy that artificially props them up.

do exactly that, if I understand it correctly. It would maintain the original loan amount as the actual value of the property.

The homeowner might (or might not) be able to keep the house with the new mortgage payments. But they couldn't afford to sell it, because they'd have to get the inflated price back to pay down the mortgage.


That does not (none / 0) (#22)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:40:11 AM EST

inflate prices.


I agree with Larry too (none / 0) (#23)
by ruffian on Thu Oct 09, 2008 at 09:41:07 AM EST

The new interest rate would have to be so low that they would be paying down principle almost immediately, to get back right-side-up on the loan. I don't see that happening.

If I know that whenever I sell my house in the foreseeable future, home prices will still be so low that I will still owe the bank money after I sell, then I have no financial incentive to stay.


In case you missed it (none / 0) (#27)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:46:24 AM EST

the Fed lowered the Fed Funds rate to 1.5%.

Why do you think a low 30 years is unworkable? Right now the interest the feds pay is approaching zero.

The Federal government's low borrowing costs makes the cost of giving this rate to homeowners is practically nothing.


If this program gives these homeowners (none / 0) (#31)
by ruffian on Thu Oct 09, 2008 at 09:51:44 AM EST

that interest rate, it would be in line with what I am saying. They could pay off principle faster and not owe as much if they sell their house in the next 10 years.

I hope that happens. I haven't seen any suggested interest rates for these homeowners yet.


What if it is 2.5% (none / 0) (#41)
by Big Tent Democrat on Thu Oct 09, 2008 at 10:11:04 AM EST

or 3%?

The government will not lose money. Its borrowing costs are lower than that.


: I think it will be a very individual decision (none / 0) (#52)
by ruffian on Thu Oct 09, 2008 at 10:40:59 AM EST

for each homeowner. I am for as much flexibility in the HOLC as possible, and of course the best administrators for the program.

Well then the common good will suffer (none / 0) (#58)
by ruffian on Thu Oct 09, 2008 at 10:53:48 AM EST

Tjose dumb borroewer will get foreclosed on, and we can bail out the banks again instead.


: Artificially low? (5.00 / 1) (#76)
by ruffian on Thu Oct 09, 2008 at 11:59:21 AM EST

They have not hit bottom yet in parts of California and Florida. I live in a small 5 yr old subdivision in Orlando, so we all bought at bubble prices. There are about 150 homes. There are at least 3 in foreclosure right now, that I see everyday while walking the dogs - they have been empty for months. There are many more empty and up for rent, again for months. If I didn't care about my credit and good name, I could walk away from my mortgage and rent the house across the street, still be in a nice neighborhood, and be better off financially, even losing the tax deduction.
I will not be able to break even on this house for at least another 5-10 years. I had not planned on living here that long. So I will either rent it out at a loss and rent in a new location, or sell it at a loss. Yes, I know it was my fault for making a bad investment. I am not in desperate financial straits, so will not ask for anyone's help, but I see every day the plight of those who are. They will do the most rational thing for themselves, which might be walking away from their home.
I think perhaps people who do not live at the epicenter of this crisis do not see how bad it is.

: foreclosed on or walk away, I should say (none / 0) (#61)
by ruffian on Thu Oct 09, 2008 at 10:56:08 AM EST

Even a dumb borrower knows when he he will never break even on an investment.

But They're Still Stuck In Those Homes (none / 0) (#89)
by BDB on Thu Oct 09, 2008 at 12:55:26 PM EST

as a practical matter, even with a low rate and better terms, these folks are going to be upside-down on their mortgages for quite a while and, as a result, stuck in more expensive homes than they would otherwise be in. That seems like a significant cost and should cover any moral hazard problem. Nobody likes paying on a $300,000 loan in a neighborhood where houses are now selling for $200,000, no matter how good the terms of the loan are.

So I don't think it's some grand giveaway to these borrowers, many of whom were ripped off in the mortgage process anyway or bought these over-priced homes because they wanted a way to try to make money given their stagnant wages. The poorer and less sophisticated folks were, the worse shape they're in (that's always the way these things work, the poor try to do what the rich get away with and then get screwed). Helping them on their mortgages isn't going to make everything fantastic, it's just about keeping people from losing their homes and being driven into some sort of debtor hell.


: It's a game of (5.00 / 1) (#92)
by ruffian on Thu Oct 09, 2008 at 01:20:20 PM EST

"What will it take to get you to stay in this hous and make payments?" Maybe if I were in trouble, even ideal terms on my mortgage would not get me to stay in a home worth 200,000 when I have a principle of 300,000. I would not make the bet that the market value of that house will increase. I would in that case turn down the help from the feds and let the house get foreclosed. Then the Feds or bank can try to sell it to someone else for 200,000. Maybe they can, maybe they can't but in the meantime that home is empty. On the other hand, maybe I would have been willing to get that new loan for 250,000, and let the feds keep any profit if I ever happen to sell for between 250 and 300k.
I think the feds under HOLC need the flexiblilty to make judgement calls like that.

I think you would be in the minority (none / 0) (#12)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:14:42 AM EST

no, he would be reading (5.00 / 1) (#25)
by cpinva on Thu Oct 09, 2008 at 09:45:02 AM EST

I think you would be in the minority

exactly what you posited.

there are significant issues with the HOLC, as you present it.

it maintains inflated historical costs of the properties. the buyer couldn't actually afford this house to begin with, the "interest only" ARM was used to address this. absent a significant change (upwards) in income, a 30 year, fixed-rate note, based on historical cost will not change the buyer's inability to afford the property.
conversely, using mark-to-market valuation of the securities has adverse affects for both owner and lender: the lender eats the lost value as a bad debt expense, the buyer must recognize the forgiven portion of the loan as income, and pay taxes on it. the basis of the house is reduced, and is ultimately used as the starting point, for determining gain or loss on disposal.
people who bought houses they could actually afford, based on their income, might get a tad annoyed. they would correctly perceive this program as a gift to their more profligate neighbors, and the banks that ennabled them.

i think the only way this would be politically palatable is if both the lenders and borrowers suffered some kind of "stupid & greedy" penalty, so they weren't seen as benefiting at the expense of their more thrifty fellow citizens.


Say it don't make it so (none / 0) (#29)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:48:23 AM EST

How does it maintain inflated prices? Keeping people in their homes doe snot establish a resale price?

2-4 do not seem relevant to HOLC at all to me. Maybe I am missing something. You are the CPA so I imagine you know more about it than I do. What am I missing?


yes i do. :) (none / 0) (#64)
by cpinva on Thu Oct 09, 2008 at 11:16:23 AM EST

You are the CPA so I imagine you know more about it than I do.

1. i didn't say anything about prices, i referred to historical cost, not the same thing.

How does it maintain inflated prices?

historical cost is what the property was initially purchased for, and has nothing to do with current market value, the two are mutually exclusive items. this is the issue addressed by devaluing (via mark-to-market) the basis of the property, and it's current loan principal.

under the current internal revenue code, forgiveness of debt is an item of gross income to the borrower, and a bad debt expense to the lender. if the borrower can't afford the loan to begin with, what do you suppose the odds are that they'll be able to afford the additional taxes due, on that portion of the loan that's forgiven?
this seems self-evident to me, and many other posters; it's a matter of simple equity. i am the child of depression-era parents. i was taught to only buy things i could afford. my professional training and experience, as an accountant, served to reinforce that concept. i don't owe more than i can pay, i don't live in a mansion that i could only afford by using artifice. rewarding those that didn't follow this basic fiscal precept just doesn't seem very fair to me.
absent some kind of penalty, to go along with the debt relief, i see HOLC, as currently envisioned, as a very difficult sell to the american public. i don't want the streets of our major cities turned into jr. calcuttas, but i do need to see what i, the taxpayer ultimately being asked to pay for this, am getting out of it.

How About Neighborhoods (5.00 / 2) (#91)
by BDB on Thu Oct 09, 2008 at 01:07:28 PM EST

where they aren't painting the grass green because nobody is caring for houses that have been foreclosed on? Do you think the people who live in this neighborhood and are able to pay the mortgages are better off or worse off because their neighbors lost their homes? I'd say they'd be better off if their neighbors were still there.

And, not surprisingly, Riverside County is where all the people who got priced out of LA and Orange County moved to. These aren't rich people trying to get theirs, these are working class and middle class people who just wanted a home for their family and the lenders put them in mortgages they couldn't afford (even though some qualified for standard mortgages) and told them that the price was always going to go up. Now, should they have known better? Yes. But it's hard to resist an opportunity to get ahead when lots of people around them were making (and did make) a fortune on real estate. Indeed, the Government wanted that because the created wealth hid the stagnant wages.

And I admit I'm sick of the idea that the only people who are ever held accountable in this country are the poor, the working class, and occasionally the middle class. Bush & Co can commit crimes, no worries. The telecoms get their immunity. The banks get their bailout. But these people did something wrong and they must pay!

Yeah, when Congress hauls Bush off in handcuffs and forfeits all those Lehmann Brothers bonuses, then I'll listen to lectures on moral hazards. But right now, the only people with moral hazard are poor people and their life is full of them. Meanwhile, the rich are protected from getting even a little bit poorer because they're too big to fail. If the rich go under, the poor will REALLY suffer.

Bah. I say help the people and let Merrill Lynch fend for itself.


: for the lenders to have done this, (none / 0) (#110)
by cpinva on Thu Oct 09, 2008 at 10:01:46 PM EST

These aren't rich people trying to get theirs, these are working class and middle class people who just wanted a home for their family and the lenders put them in mortgages they couldn't afford (even though some qualified for standard mortgages) and told them that the price was always going to go up.
they would had to have bought a house well out of their real price range to begin with. unless the lender graciously allowed them to borrow more than the actual price of the house to begin with.
as greedy and irresponsible as i think the mortgage companies were, even they had limits, beyond which they couldn't go, unless the buyer colluded with them in an illegal act. if that's the case, why should i help either of them?
when you move into a neighborhood, especially a new one, there are no guarantees that you will ever actually have neighbors, or that they'll stay. it is now, and always has been, a crap shoot.

Checks lottery tickets, rats! (none / 0) (#67)
by Wile ECoyote on Thu Oct 09, 2008 at 11:43:15 AM EST

For once we agree. Shocka.


A roof over my head (5.00 / 1) (#26)
by Fabian on Thu Oct 09, 2008 at 09:45:32 AM EST

is a valuable thing.

Walking away is what you do when you have nothing left to lose, when leaving is better than staying. In that case, you are probably flat broke and your credit rating is so bad that you are paying cash for everything.


You would not walk away (none / 0) (#73)
by coigue on Thu Oct 09, 2008 at 11:55:35 AM EST

if it was your only residence. That is the group of people we want to help.

Some people do not use their homes as a bank account, but just to live in.


People are walking away (none / 0) (#77)
by ruffian on Thu Oct 09, 2008 at 12:03:53 PM EST

from their residences every day, because they see that as a better deal. If you are desperate enough that you don't care about your credit score anymore, it could be the smartest thing you can do. Plenty of homes are up for rent at very cheap prices. You would not be homeless.


oh wow. (none / 0) (#78)
by coigue on Thu Oct 09, 2008 at 12:04:40 PM EST

that's terrible.


No argument there! (none / 0) (#83)
by ruffian on Thu Oct 09, 2008 at 12:35:10 PM EST

Read Housing Buggle blog if for some strange reason you are in need of some sleepless nights.


: no thanks (none / 0) (#94)
by coigue on Thu Oct 09, 2008 at 01:24:23 PM EST

I already have that problem :(

So the bank eats the difference? (none / 0) (#113)
by BrassTacks on Thu Oct 09, 2008 at 10:16:04 PM EST

Banks take forever to do anything. So people here just live in the house they can't afford for a year or two, paying nothing. It's like free rent, in a great house, while they wait for the bank to do something. These are not poor people, far from it, they're just people who are used to living well beyond their means. Some of them are smart enough to do short sales, stiff the bank, and then buy an even bigger house. It's wild what's people do. I know a guy, a pilot, who just did a short sale for $775,000, so that he could buy a house for over a million! He wanted a bigger house, with a pool, and he got it. The bank lost money, but he didn't.


Well Too Bad (none / 0) (#137)
by Julianne on Fri Oct 10, 2008 at 11:18:41 PM EST

Well all our homes are worth less than we paid for them at this point but we can't all get the goverenment to pay for them for us.


Is it fair.... (none / 0) (#20)
by kdog on Thu Oct 09, 2008 at 09:39:38 AM EST

to say that people who bought houses they could not afford, either by nefarious lenders cheating them, their own poor judgement, or just bad luck are ordinary Americans?

I'm inclined to think the ordinary Americans are the ones who didn't believe the hype of Bush and his ownership society crap, and lived within their means, or worked their tail off to make their payments.

The crooked bankers and brokers, the people who bought McMansions when they should be renting a two bedroom...they are the extraordinary, not ordinary. The ordinary are the ones being asked to pay for it all.

Now I don't pay a lot in federal income taxes because I don't make a lot...last year they got me for 3-4k if memory serves...chipping in towards "fixing" the economy has me as thrilled as chipping in towards the drug war and the Iraq occupation. Makes you wanna pull a H.D. Thoreau and reserve your seat in a cage.

I think it is fair to say that (5.00 / 1) (#28)
by ruffian on Thu Oct 09, 2008 at 09:46:56 AM EST

Plenty of ordinary Americans wanted the dream of homeownership very badly. During the bubble they were told that prices would always go up, and if they wanted a house they better buy it now before they were priced out of the market. And yes, they worked their tails off to make the payments. Now they are seeing that their only asset is not worth the amount tthat they still owe on the loan. If they never intend to buy a hosue again, and so don't care that much about hteir credit rating, they have no financal incentive to stay in that house and keep eorking their tail off to make payments.

People walking away from houses hurts us all. I believe it is in the common good to make a bailout that renogotiates their loan for something closer to the market value of their home.


The wuestion really is (5.00 / 1) (#30)
by Big Tent Democrat on Thu Oct 09, 2008 at 09:50:33 AM EST

who is going to walk away from their home? I think that is the fundamental flaw in the analysis against HOLC.

I think that is based on some economists' hypothetical world. Most people do not and will not want to do that.


Really! (5.00 / 1) (#60)
by gyrfalcon on Thu Oct 09, 2008 at 10:55:27 AM EST

The vast, vast majority of people will stay in their homes if they can afford to. A home is a home, it's not just some twinkly accessory.

In any case, it's not possible or even necessarily desirable to save every home owner in the country from the consequences of their own faulty judgment or even plain bad luck.


: Who to save and who to let fail is going to (5.00 / 1) (#68)
by Christy1947 on Thu Oct 09, 2008 at 11:46:45 AM EST

be the problem of any mortgage bailout plan.
People who have kept up their payments, sure. People who do not and have never lived in the house, probably not. People who never paid, not.
But what about people who could afford the arm intro price but not the bumpup? And who cannot now refinance. What about people who aren't paying because the wage earner is out of work, or there was medical catastrophe or . . . .
Any plan is going to have to have multiple pathways since a lot of folk who have stayed on the straight and narrow and aren't in this are going to be resentful of those less cautious or thought to be so getting government help when the straight and narrow group struggled without it and are still hanging in there.
It will become rapidly a political issue that way, and the Rs will be singing the 'moral hazard' song, the one that McCain himself sang early in the campaign. His plan, predictably saves not the borrowers but the lenders.

It is happening a lot already (none / 0) (#34)
by ruffian on Thu Oct 09, 2008 at 09:55:00 AM EST

especially in California. I will look for statistics for you and post later.


Areas dominated by specualtion? (5.00 / 1) (#37)
by Fabian on Thu Oct 09, 2008 at 10:06:51 AM EST

Or not?

Real estate bubbles are dangerous things. The easy credit created an artificial demand for housing. When the credit dried up (when lenders stopped using bad lending practices) then the demand dropped. As the demand falls, so do the prices.

This housing/building bubble was always unsustainable, but it was what was keeping our economy growing so no one wanted to mess with it. That particular economic engine has broken down and we need a new one.

So the solution to the fiscal crisis is two fold: Deal with the housing/fiscal crisis and invest in a new economic engine to drive the economy. Green industry is our future because if it isn't, we haven't got a future.


That requires (none / 0) (#40)
by Big Tent Democrat on Thu Oct 09, 2008 at 10:10:09 AM EST

FDR-like boldness. Do we have a Democratic Party that has the necessary boldness?


: Bold, Fighting Democrats! (none / 0) (#43)
by Fabian on Thu Oct 09, 2008 at 10:14:21 AM EST

I'm all for that!

: The times make the man. (none / 0) (#75)
by coigue on Thu Oct 09, 2008 at 11:58:37 AM EST

And at least the man has a good Democratic foundation to support him

: Hmmmm....NO (none / 0) (#84)
by ruffian on Thu Oct 09, 2008 at 12:38:40 PM EST

But you say it yourself (5.00 / 1) (#39)
by Big Tent Democrat on Thu Oct 09, 2008 at 10:08:32 AM EST

Banks have been unwilling or unable to do it. That is the whole point of putting the mortgages in the government's hands - it can and will.

That is the whole point of HOLC.


I agree with you on HOLC (5.00 / 1) (#48)
by ruffian on Thu Oct 09, 2008 at 10:31:06 AM EST

and your whole post, actually. I should have said that up front. I just want to make sure whatever HOLC-like legislation we come up with allows for renogiating the principle of the loan. I don't think it goes without saying, given what we saw of how the bailout bill got done.

I do agree with the principle reductions only applying to the home the person lives in, and not 2nd or 3rd homes or investment properties.


: Well, I agree with almost all of your post (none / 0) (#56)
by ruffian on Thu Oct 09, 2008 at 10:45:50 AM EST

I forgot you wroite this:

None of this requires a handout to the homeowner in the sense of forgiving debt.
I think a little of the debt has to be forgiven in some cases.

Statistics are behind firewalls (none / 0) (#63)
by ruffian on Thu Oct 09, 2008 at 11:13:53 AM EST

If you have access to Fitch maye you can find them. But it is considered a big enough problem that the housing bill in May included specific steps to prevent it.


It's getting trendy, we're told (none / 0) (#35)
by andgarden on Thu Oct 09, 2008 at 09:55:35 AM EST

Seen "You walk away" on TV?


Why not walk away? (none / 0) (#114)
by BrassTacks on Thu Oct 09, 2008 at 10:18:33 PM EST

They have big mortgages on houses that are worth less than the mortgage. Why keep paying? Why not declare bankruptcy and start over someplace cheaper that they can afford?


i think you haven't the slightest (none / 0) (#125)
by cpinva on Fri Oct 10, 2008 at 12:24:18 AM EST

clue what you're talking about.

quitclaim deeds became very popular in the early 80's, the era of double-digit mortgages and high unemployment. they don't carry quite the same stench that foreclosure and bankruptcy do, as you voluntarily cede your home to the bank, absent all the nastiness of court proceedings, etc.

were i an attorney (i am not, nor do i play one on tv), and a client came to me for advice, given the proper circumstances, that's what i would suggest that client do, if they absolutely, positively were unable to reach some equitable resolution with the lender. it would keep their credit rating from going straight into the toilet.


A roof over your head... (none / 0) (#32)
by kdog on Thu Oct 09, 2008 at 09:53:18 AM EST

isn't incentive to stay and make the payments? Or at least stay and renegotiate with the lender without government intervention?

I keep hearing how the banks don't want the houses, and people don't wanna get foreclosed on or walk away from a property it was their dream to own...I don't understand why individuals can't sit down with the lenders and renegotiate in light of the market changes. Split the difference, each side taking a hit they likely deserve, and leaving all the innocent taxpayer victims the hell out of it.


Banks have not been willing (none / 0) (#36)
by ruffian on Thu Oct 09, 2008 at 09:58:06 AM EST

to negotiate the amount of principle. Maybe that will change now that the crisis has worsened.

Walking away from your mortgated house does not make you homeless. You can still pay monthly rent less than what your mortgage was on your home.


Maybe I should clean up the basement (none / 0) (#38)
by Fabian on Thu Oct 09, 2008 at 10:08:09 AM EST

and take on a boarder?


: I've thought about it (5.00 / 1) (#49)
by ruffian on Thu Oct 09, 2008 at 10:34:31 AM EST

It would be the only way I am ever going to break even on my house.
I can afford my mortgage just fine, and am not in need of HOLC for myself. But I an aware everyday that I'm pouring money into a bad investment.

If the government wasn't handing out.... (none / 0) (#59)
by kdog on Thu Oct 09, 2008 at 10:54:50 AM EST

cash like Halloween candy, I think the banks would be more than willing to renegotiate problem loans.

They definitely don't want a house they can't sell, or can only sell at a big loss...they wanna suck whatever interest they can out of people...half the interest you would have collected is better than taking a loss.

If the government would just get out of the way and stop enabling the leechery.


That's why Freddie and Fannie (none / 0) (#115)
by BrassTacks on Thu Oct 09, 2008 at 10:22:34 PM EST

Handed out money like candy. They knew that the government would bail them out! They knew that Congress wanted people in homes and would have their backs.

I have to agree with you, the government needs to get out of the way and let the markets work. But since they won't, since they insist on bailing out the banks, Freddie and Fannie, and now everyone who over extended themselves on their mortgage payments, let's all get in line! Free money is free money!

I think we are all going to be shocked at how many rich people will benefit from this bailout. But heck, my mama didn't raise no fools. I know when to take the money and run!


: FREE money (none / 0) (#138)
by Julianne on Fri Oct 10, 2008 at 11:22:33 PM EST

Hey I might go big house I can't afford since the govenment is handing out free money to dumb asses to buy houses.

I don't think ordinary Americans (none / 0) (#74)
by coigue on Thu Oct 09, 2008 at 11:56:43 AM EST

have been living within their means.

Not if you go by the amount of debt we all have.


Got a point there.... (5.00 / 1) (#80)
by kdog on Thu Oct 09, 2008 at 12:11:48 PM EST

the ordinary American definitely has a pile o' debt...be it a mortgage, car loan, student loan, credit cards. Sometimes I forget I'm such an oddball:)

Though I think the ordinary American is managing it. I mean more people are still making payments than aren't...at least for today.


The upside is that (none / 0) (#81)
by coigue on Thu Oct 09, 2008 at 12:19:33 PM EST

people have plenty of room to tighten their belts. They can sell their gas guzzlers, buy used clothing, and consolidate their driving errands, eating less meant.

Heck I save about $80 bucks a month by carpooling with a neighbor to my kids' school.

None of this is bad for us.

It's those folks that were already doing that for financial reasons that I worry about.


I hope you didn't mean... (none / 0) (#86)
by kdog on Thu Oct 09, 2008 at 12:49:19 PM EST

eating less meat...this is a crisis!

Personally, I'm cutting out the veggies and grains before I mess with my precious meat intake. I'll even resort to hunting local small game, squirrel can't be that bad:)

Seriously though...even during the boom-times there were always people left behind living on next to nothing...the down times won't look all that different through those eyes. You find a way to get by...even if there is a massive increase in bank robberies like during the Depression, when Bonnie and Clyde became national heroes.

: Put your meat in stir fry (none / 0) (#93)
by coigue on Thu Oct 09, 2008 at 01:23:22 PM EST

it stretches it out more.

: We won't have that problem with this (none / 0) (#117)
by BrassTacks on Thu Oct 09, 2008 at 10:25:01 PM EST

Depression. All the banks will have already failed!

If worse comes to worse, (none / 0) (#118)
by BrassTacks on Thu Oct 09, 2008 at 10:26:27 PM EST

Your kids could take the bus to school. My kids had to do that some years.


BINGO!!!!! (none / 0) (#116)
by BrassTacks on Thu Oct 09, 2008 at 10:24:09 PM EST

Everyone gets credit, whether they deserve it, whether they can pay, or not. It wouldn't be fair to discriminate on the basis of ability to pay, or some crazy idea like that.


Pinko Armando! (none / 0) (#33)
by andgarden on Thu Oct 09, 2008 at 09:54:50 AM EST

No, seriously, this is obviously the right thing to do.

The devil is in the details, of course. I have a feeling that some of the states hardest hit (Nevada, Florida, etc.) have a lot of investment properties that are upside down. We don't want to be bailing out people who just made a bad bet in the housing market casino, we just want to enable people to stay in the homes they live in.

Refi's (none / 0) (#44)
by mmc9431 on Thu Oct 09, 2008 at 10:15:20 AM EST

The problem isn't just new home buyers. Millions of people refinanced during this period for various reasons.

I still believe that home prices will stabilize if the financing end is cleaned up. In any case my recent property tax bill sure didn't reflect any devaluation! It went up 65%.

: Ain't that sickening? (none / 0) (#119)
by BrassTacks on Thu Oct 09, 2008 at 10:28:17 PM EST

My tax bill keeps going up on a house that keeps going down in value! Doesn't seem right that taxes keep going up when we can least afford it.

It's the income inequality, sillies. (none / 0) (#45)
by Radix on Thu Oct 09, 2008 at 10:16:31 AM EST

The fact is that wealth is to concentrated at the top for efficient disbursement through out the system. Until this is addressed we are going to be seeing hard times.

Krugman, et. al., think housing is going to fall (none / 0) (#65)
by jerry on Thu Oct 09, 2008 at 11:26:28 AM EST

I think that Krugman, Baker, and other economists oppose stabilization plans because in their view, historically, housing is still way overpriced when compared to renting.

I can't find a specific column opposing HOLC endeavors, but here are some columns expressing what they think needs to happen to house prices:

Krugman, April 08

Krugman, July 08

If you look in PK's archives over the past couple of months, there are other columns in there about housing and about the case schiller index.

The basic thesis being that long term, housing prices and rental prices should track, and rental prices have been flat for a long time while housing increased, in some places, as much as 70% to 100% above rental.

I can't find it, but last week, Dean Baker was writing to the effect of throwing money at price stabilization would be tossing the money away and/or have a bad effect on interest rates for it it work.

: isn't that kinda econ 101? (none / 0) (#120)
by BrassTacks on Thu Oct 09, 2008 at 10:31:36 PM EST

Let the market work and the prices will equalize. Nothing wrong with letting house prices decline. It helps more people get into the market.
Investors have known for the last 2 or 3 years that housing is not a good investment. Of course it never has been great, over the long haul the stock market does better, with a few exceptions. But gotta live somewhere, so we invested in our house.

Great post BTD (none / 0) (#66)
by votermom on Thu Oct 09, 2008 at 11:41:52 AM EST

When it comes to the objections, what I don't understand about the idea of punishing the banks for lending is this, simplified so I can get my mind around it ...
What is really inflated about the home prices -- the land, right?
The materials and labor that went into building, either for the new homes or the existing ones, went into the local economies, which is good.
Who got the excess money for the land? -- the previous owner and/or the developer. The bank did not actually excessively profit from that loan since most ARM/balloon rates are still low at the point of making the loan.
The "bad" profit was from when the bank sold that profit to Wall Street, a profit that not just the bank but Wall Street got.
We, taxpayers, have already rewarded Wall Street & the banks for that "bad profit/greed".
Now what is the objection to having a side-effect of further rewarding banks if we help homeowners avoid foreclosure?
I'm sure there are ways of minimizing that side effect, but as a whole, bailing out home-owners WILL help the banks too -- but is that enough to kill the idea?
It's like objecting to the idea of opening a food bank because the suppliers are over-pricing the food -- yes, that's bad, but do we just let people starve? I guess I'm at my core a socialist, so it's really hard for me to understand the objection to HOLC.

Uhmmm, talk about making bad decisions (none / 0) (#101)
by of1000Kings on Thu Oct 09, 2008 at 02:52:35 PM EST

haven't the American people been paying out the arse for a bad decision made by this current administration...

but it's okay for the POTUS to make a bad decision, it was just a mistake...

Didn't those homeowners who (none / 0) (#121)
by BrassTacks on Thu Oct 09, 2008 at 10:33:14 PM EST

bought houses they couldn't afford, make a big mistake? Should we reward people who live beyond their means?

I'm not turning down the money, but......................


: maybe if we didn't have such a disparity (none / 0) (#132)
by of1000Kings on Fri Oct 10, 2008 at 01:39:18 PM EST

in income people wouldn't have to live beyond their means...
salaries have gone up about 36% over the past few years, cost of goods has gone up about 70%...
hmmm....
so then you have the top of the country spending 100,000 on a kids sweet sixteen party...and we're complaining about people living beyond their means...

What would be the requirements for eligibility? (none / 0) (#124)
by jar137 on Thu Oct 09, 2008 at 10:53:04 PM EST

For example, if someone buys a house with a standard mortgage at the inflated price, should this person be eligible for an interest or principle deduction? If not, why not? I think this is the issue that would make the program politically unpopular.

Bubble bubble (none / 0) (#126)
by DancingOpossum on Fri Oct 10, 2008 at 10:10:00 AM EST

"Read Housing Buggle blog if for some strange reason you are in need of some sleepless nights."

Ruffian, HousingBubble blog and Housing Panic! are two of my favorite blogs. The only thing I don't like (or buy) is the extraordinary number of super-smarties who stashed away so much cash they can retire tomorrow if they like.