Saturday, May 10, 2008
Just $300 Billion? Are You Sure About That?
This past week, the House approved the much
talked about $300 Billion Mortgage Bailout Bill. Specifically, it plans to “will expand the FHA (Federal Housing Administration) program so that borrowers in danger of losing their homes can refinance into lower-cost, government-insured mortgages.”
DUNB DUMB Asses
How would this work? “For a homeowner to get a new FHA-backed loan, the holder of the current mortgage would have to accept a loss and take a payment totaling no more than 85 percent of the home’s [current] value.”
Let’s see how this would be applied in real life:
As you all remember, Horizon Court in San Elijo Hills currently has quite a bit of distressed inventory, 6 out of 22 homes on this street are either REOs, NODs, or delinquent in property tax. Some of the homes were purchased for nearly $1 million but now the REOs have pushed the value on the street down to the low $600,000 range.
For simplicity, I’m going to average out the purchase price of these homes to $950,000. And we’ll put the current value at $650,000.
Three of the distressed properties are currently pending, so I’ll take them out of the equation.
The Bailout Bill’s intent is to help with the three remaining homes in distress by making each of the mortgage holder on these properties eat $400,000, or $1.2 million for the three homes.
Then, the FHA-backed loans would kick in and each of these three lucky homeowners, two of them REALTORS, will end up with $550,000 loans. Costing the American taxpayers $1.65 million in loan guarantees. (two of the loans would probably bounce as the out of job REALTORS will remain underemployed even for $550,000 in loans).
Now here’s the unintended consequence of this bill:
There’s still 16 homes on the street that are underwater!
Assuming 50% of the remaining 16 homes have little or no money down, that means 8 additional homeowners jumping on the delinquency bandwagon! Suddenly mortgage holders now have to eat an additional $3.2 million to bring the value down to the current pricing.
As for the taxpayers, instead of guaranteeing $1.65 million, now we are looking at $6 million in loan guarantees on one single block! Assuming just 1/3 of the loans default, We The People are out $2 million on a single block!
Somehow I don’t think $300 billion is going to be enough if this plan really goes into effect.
Here’s how you can make a difference. According to the article, Bush says he will veto the Frank-Dodd bailout bill.
Let him hear your voice! Please call the White House to show him your support of a veto of the housing bailout bill:
Ph: 202-456-1414 or 202-456-1111
Just say, “I am calling to ask you to veto any housing bailout that comes out of Congress.” A live operator actually picks up and directs you to a comment line. Our democracy is counting on you!
Posted by ocrenter at 6:58 AM
9 comments:
ocrenter said…
just tried. phone lines only work Monday to Friday. let’s jam that thing starting Monday!
5/10/2008 7:59 AM
Anonymous said…
Thanks, OC. I called the first number and the person that answered said the comment office is open Monday through Friday.
5/10/2008 8:03 AM
Anonymous said…
If he does just one thing right in the 8 years of screw up, he better veto this bill
5/10/2008 8:04 AM
Sven said…
Man, if you think we have a lot of NOD’s floating around now, wait till people learn they can get a half off on their mortgage just by not paying it for a couple of months.
5/10/2008 9:13 AM
Anonymous said…
Bush plans to veto this bill. Finally, something this dipsh!t does that I acutally agree with.
Let the market fix itself. The pain will go away eventually, but a giant band-aid like this $300B bailout only makes things worse.
5/10/2008 9:14 AM
wawawa said…
Always government interventions produce the opposit unintended results.
5/10/2008 9:15 AM
Sven said…
Hah this is funny:
“Only homeowners who have a mortgage-debt-to-income ratio of 35 percent or higher”
Now it will be funny watching people under report their income to qualify for it. They should pull the docs they used before and use that income number.
I can’t wait to see all the realtors jump on this because their income is shot now.
5/10/2008 9:18 AM
Anonymous said…
That’s the problem with all these bailouts, they just encourage other homeowners to default to get their due now, and next time around people will be even more reckless investing in the next house bubble. Heck, as a renter with excellent credit, somedays I just want to go buy a house so I can default, live there for free, and then get my bailout. It’s all rather sickening.
5/10/2008 10:06 AM
Anonymous said…
All the government has ever accomplished is getting people conditioned to rely on the government – think welfare, social security, affirmative action, minority contracting, etc., etc. and it works great. Productivity is going down, we’re getting our asses kicked by the Asians and everyone competes only to see who can make the better case for who is more pitiful and deserving of a handout.
