Perhaps I’m not really understanding the “big picture” – but the recent announcements from Washington seem to continue a path of subsidizing and rescuing financial institutions with little or no direct relief to the victims of predatory lending practices who are currently at risk of losing their homes.
In a recent article from Inman News, Jack Guttentag, who is a professor of finance emeritus at the Wharton School, goes into more depth about the disastrous impact of the Federal Plan announced this past week.
At CNN.com, you can find a series of articles on “America’s Money Crisis“. What has me a bit cynical is the proposals are from Federal Reserve Chief Ben Bernanke, who was CEO of Goldman Sachs. It seems logical then, that his $700 Billion dollar solution is targeted at saving Mortgage Backed Securities – not homeowners. I haven’t seen any clear answers as to how this would impact homeowners with bad mortgages, or how it might change lending guidelines to allow well qualified people to go ahead and secure a mortgage.
On a local level, I had clients on island this past week who are all cash serious buyers who made a “short sale” offer on a home where the sellers have a negative amortized loan. In the midst of our offer, the sellers pulled their house off the market because they felt the Federal announcement would help them renegotiate with their lender. I certainly wish them the best, but I’m afraid I don’t see how the recent Federal announcements will directly impact Kauai homeowners who need to renegotiate “bad” loans (balloon payments, ARMs, Negative Amortization Loans, etc).
Of course I am probaly naive to even wish for a simple solution that benefits the average American. Many homeowners whose loan is worth more than the house are in that situation because of the loan’s aggressive interest rate adjustments. If one looked at the original balance vs. today’s market value – you might find many of these “upside down” situations aren’t truly. If there was a Federal program that worked with lenders to ask them to write-off or forgive some of their aggressive interest based profit, rather than force a foreclosure – both the lending institute and the home owner would benefit. But then, that’s probably too simple, and too inexpensive to be considered for Federal policy.
It’s painful to watch these dual realities unfolding. With daily Federal announcements focused on major institutions being “bailed out”, our friends and neighbors who are responsible citizens (veterans, teachers, civic workers, etc.) are continuing to lose their homes.
As a postscript (as in forgive me for ranting..) – I remember cover page articles on Forbes and Fortune magazines in 2005 talking about the “Housing Bubble” and at the same time recommending investments in Mortgage Backed Securities. The irony hit me then, discouraging people from making sound investments in real estate, and redirecting their money into securities. As Americans, we tend to have short-term memory loss. I think it was a mistake then, and it’s a mistake now – to treat real estate as a security-based commodity vs. a long-term asset. Does anyone see the irony now – rather than solve problems for homeowners, we’re solving problems for mortgage backed securities!
If you have any insights as to how the $700 Billion solution would positively impact homeowners, please add your comments! Mahalo nui loa.