San Diego Housing Bubble News and Analysis

If anyone's interested, here's full text of the bill

http://www.house.gov/apps/list/press/fin...

parts relevant to the bailout start at page 9

a few more notes:

- Owner occupied only.

- You must have current debt to income ratio above 35% to qualify.

- New payments "shall be in an amount that is substantially reduced from the debt service payments due under the existing mortgage or mortgages". This could be a problem for many people. If you're getting rewritten from a 5% IO ARM for 600k into 5.8+1.5% fixed 30-year for 450k, your payments go UP even though your balance is reduced by 25%. Those FHA premiums bite.

- Can't take out second mortgages or loans on the property for 5 years, unless explicitly permitted by "the Oversight Board" to maintain the property.

Any way you look at this ridiculous bill, it's a bunch of horse crap. Why in the world should the taxpayer's of the USA bail out people who bought a home and it didn't turn out the way they expected? There is no precedent for passing this bill. Other than bleeding-heart idiots like Barney Frank (who couldn't hit himself in the butt with both hands) and his socialist cohorts who are pushing this legislation, what kind of responsible politician would vote for this foolishness? I don't personally know one person who is for this bill. At least Bush (whom I have little regard for) has come out against it and says that he will veto the bill. Whether he will follow through with his threat is another matter. I don't think the bleeding-heart, giveaway artists in Congress can muster enough votes to override a Bush veto.......but who knows? It IS an election year and that can make politicians act dumber than they normally act.

If this passes, many of the people that get rescued will still default because their houses will continue to go down in value for several more years and probably not recover any appreciation for another 12-20 years. And thanks to Barney & Friends, the taxpayer will foot the bill because the Federal Govt is going to guarantee the loans. This is our government at it's worst and the poster child for irresponsibility.

"You must have current debt to income ratio above 35% to qualify."

does that mean what i think it means? who is this bailout aimed at?

ex-sd: every idiot in washington is a bleeding heart socialist. it just depends on which social circle they belong to.

The debt to income ratio of 35% is related to the loan being refinanced, not the new loan. Borrowers who have a smaller ratio typically don't need to refinance, and the bill is designed to aid borrowers that are already distressed, ergo, the requirement for more than 35% on the old loan.

One of the other key terms of the bill requires that the borrower could not have lied on the original loan application. Income and assets cannot have been overstated. This will exempt a significant percentage of sub-prime loans that might otherwise qualify. It renders the bill almost meaningless. Significant for those few that might qualify, but nowhere near the 500,000 estimated by the CBO.

One of the other key terms of the bill requires that the borrower could not have lied on the original loan application. Income and assets cannot have been overstated.

That is debatable. The exact phrase used in the bill is as follows

"The mortgagor shall provide a certification to the originator of the mortgage that the mortgagor has not knowingly, or willfully and with actual knowledge furnished material information known to be false for the purpose of obtaining the existing mortgage or mortgages"

so, for starters, there's no way for FHA to verify this certification, (maybe the borrower did earn $100,000 back in 2005 but he lost his job since, and now he makes $30,000?) and there's no requirement that anyone goes and digs up old tax returns as proof.

Furthermore, even if income/assets were overstated, there is a valid defense, that is "I didn't do it, I don't know how that $100,000 annual income figure got on the application, it must be that evil agent, all I did was sign on the dotted line, I wasn't really paying attention to the fine print".

If the FHA is providing insurance on the loan, I assure you they will demand old tax returns, specially if they're as recent as 2005 (That's still an open year for IRS audits), if current income couldn't have supported the original loan that is being refinanced. You're right on the "I didn't know" defense. But only if it's credible. (A handwritten preliminary loan app, in the borrowers handwriting, for instance might mke that defense not credible) The FHA has a long history of demanding stringent underwriting standards. The last 4 years have helped many in the industry to forget the headaches of getting an FHA loan funded. They have never made it easy. I don't suspect that will change.

I understand the explanation to mean that anyone who currently has an overinflated mortgage in a declining market could in theory get some of the loan forgiven.

It looks like it would all come down to a judgement by the bank as to who is likely to default without such debt forgiveness. It also appears it might encourage people to stop making payments in hopes of getting bailed out.

I'm thinking this incentive could make things more difficult for the banks. If I've been making payments on time, but am tired of the debt burden, why shouldn't I stop paying, get a NOD as leverage, and request my "bail out"? It seems this "cure" might cause more NODs and loan writedowns than would otherwise happen.

garysears

Isn't this exactly what people do to credit card companies. Run up a huge bill, threaten to declare BK and settle the tab in credit counseling at 30 cents on the dollar.

Raybyrnes, it seems like the same thing to me. It would be difficult to distinguish the difference between real financial problems and "buyer's remorse".

I didn't read the text of the bill, but where is the bank's incentive to write down the debt? Why not just foreclose and attempt to get full market value rather than writing down lower so the borrower is no longer underwater?

I didn't read the text of the bill, but where is the bank's incentive to write down the debt? Why not just foreclose and attempt to get full market value rather than writing down lower so the borrower is no longer underwater?

Foreclosing involves significant expenses (legal and otherwise), loss of income during 7+ months between the day the homedebtor stops paying and the day you can try to sell the house at a trustee sale, and the risk that the homedebtor trashes the property on the way out. It is not feasible to recover full market value through foreclosure. Getting 85% of FMV in cold hard cash today may be a better option.

Does anyone know specifically what the bill mentioned below is named?

"House lawmakers also passed a bill that would send $15 billion to states to buy and fix foreclosed homes."

From this article:
http://news.yahoo.com/s/ap/20080514/ap_o...

Thanks.