“The Obama administration on Friday announced a major reworking of its troubled $75 billion plan to prevent foreclosures. The revamped program is now designed to aid jobless homeowners and people who owe more on their mortgages than their homes are worth.”
“Borrowers will get help in three ways: Jobless homeowners can get a three-to-six-month break on their mortgage payments. Banks will get financial incentives to reduce mortgage balances for under-water borrowers. And lenders can offer refinanced loans backed by the Federal Housing Administration to these borrowers.”
∙ Answers to questions about new mortgage aid plan [Associated Press]
the same moral hazard that has applied to all of these programs still applies– you must show ‘financial difficulty’ before you qualify.
So, even if I am 30% underwater on my house, as long as I can afford it I get nothing, whereas someone who bought more house than they could afford and is now underwater can have their mortgage modified such that they effectively bought a cheaper house.
job-loss forebearance is a good idea, I think, but if we are going to modify mortgages based on underwater status, everyone who is underwater should be equally qualified for a modification. Otherwise, you are essentially encouraging those who are barely hanging on now to give up so they can get their payments reduced.
@rr: Rewarding failure or irresponsible behaviour. Punishing responsibility. It should be the other way around, but we do not live in that kind of society anymore.
Agree with rr and Mr. Jones. All of these programs are a joke and are just designed to bailout banks and limit housing price declines to politically acceptable levels. We’re just wasting money at this point. What would really help people is allowing foreclosures to happen (and likely speeding up the foreclosure process), so we can redeploy housing more efficiently instead of helping the same old deadbeats.
Imagine this: You and your neighbor buy a place at the same time, in the same development. You, being responsible, save money, foregoing the BMW and buying a Honda or eat in as opposed to eat out. Your neighbor indulges in his consumption and buys the BMW and eats out every night, and ends up saving little. Your neighbor loses his job, collects unemployment, is picky about the job he gets, gets the government to pay his mortgage, gets a reduced mortgage going forward. You get nothing, and in fact you are going to work everyday to pay taxes to bail him out.
after more thought, I am reconsidering my opinion:
I believe that, should you unexpectedly lose your job, your mortgage can go into forebearance. However, once you regain your job, you have to make up the interest you avoided by making slightly larger payments. This would be for a short term, and perhaps lengthened by congress in extreme circumstances (like unemployment checks)
If you simply cannot afford your house or you happen to be underwater, well, then you can make two choices: keep paying long enough for it to recover, or walk away in foreclosure. Yes, your credit rating will suffer, but after all, when the going got hard, you walked away.
To do anything else is to encourage impulse over thinking, ignorance over education, begging over self-responsibility.
From elementary school where we are all taught we are special, to programs like this, we are raised to believe that no one should ever fail. We need to re-think things and realize that the most spectacular successes were born from the most catastrophic failures. To teach otherwise is to doom us to mediocrity.