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Source of Title Blog

Main Street Bailout: Will the Government Forgive Mortgage Debt?
by Robert Franco | 2010/08/09 |

There are rumors floating around that the Obama Administration will order Fannie Mae and Freddie Mac to forgive a portion of homeowners' mortgage debt - at least those that are currently underwater.  If true, it could happen as soon as this month.  It is difficult to tell how well such a move will received.  On one hand, Wall Street got its bailout and many are wondering what good that did for the average homeowner.  On the other, the many people who did not borrow more than they could afford may not like seeing irresponsible borrowers getting let off the hook for their poor decisions. 

Source of Title Blog ::

Could the rumor be true?  In a letter to Barney Frank, House Rep. Spencer Bachus wrote:

...it is being reported that the Administration might order the government-controlled mortgage finance company [Fannie Mae] to forgive many Americans' mortgage debts later this month.

This comes just weeks after a lawsuit was filed against Fannie Mae alleging that it "grossly wasted public funds."   I suppose if the government is going to allow such waste, it might as well waste it helping homeowners. 

It is estimated that 15 million American homeowners owe more on their mortgages than their homes are worth.  That is approximately 1-in-5 with a combined negative equity of about $800 billion! 

But is it fair to just forgive debt in such a manner?  Many of those who are upside down on their mortgages just happened to buy, or refinance, their home at the wrong time. According to Zillow.com, the Zillow Home Value Index has dropped from $240,000 to $185,000 in less than four years.  That is a drop of nearly 24%.

No doubt, part of the reason for the declining values in homes has been the foreclosure crisis.  When homes are foreclosed on, they sell for well below the market value.  A flood of foreclosures in a neighborhood adds many lower value comparable homes that factor into appraised values. 

Certainly it can be argued that poor governmental policy caused the collapse of the housing market.  Shouldn't the government bear some of the responsibility for all of the underwater mortgages?  Maybe they do have some obligation to help.

But, what about all of the homeowners who are not underwater, and who are keeping up with their mortgage payments.  As taxpayers, they will certainly be asked to pay for this Main Street bailout.  Is it fair to them to be required to pay for this massive undertaking? 

According to a blog on RedState.com, this is a "blatant political strategy:"

The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

In general, most Americans are opposed to government bailouts.  Taxpayers were forced to bailout AIG, GM, Chrysler, the banks, etc... They are sick of seeing their taxes going to companies that caused this mess and not getting anything for it.  Will they be any more receptive to a bailout of ordinary people, or will they simply become more irate at the idea of paying for someone else's troubles?

With this move likely to come just before a mid-term election (if at all), we may soon find out.  Republicans are expected to pick up some seats in the House and Senate - possibly even regaining control of one or both.  This bailout could send a loud message to our elected officials - but what that message is remains to be seen.

Robert A. Franco
SOURCE OF TITLE




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Categories: Foreclosures, Legislation, Mortgage Industry

828 words | 3923 views | 15 comments | log in or register to post a comment


I'm on the fence

First of all, thanks for the great, well thought out post, Robert. 

Second, I'm on the fence with this "new" strategy.  As a taxpayer, I'm sick of bailouts.  But, I know people who have lost their homes due to their own misjudgment and, while I don't want to pay for their mistakes, I understand the impulse to help them out.  This new bailout seems to be a much more personal one than the one that was given to corporations - which honestly makes me a bit suspicious.  If there is no vested interest group in on this, then it does seem to be blatant political strategy.  But, that doesn't mean it's a bad idea.  I guess we'll have to see if it happens and how it pans out. 

In general, I feel throwing money at the overall issue of our country's poor financial choices seems a little ridiculous.  A true, in depth survey of the current scene needs to be taken, then compared to what would be ideal.  Only then can endeavors really be made to solve the problem. 

Thanks again, Robert!

-Julia, COO at Timely Documents

 
by Kristine Bjorge | 2010/08/10 | log in or register to post a reply

I feel the same way...

Giving away more tax dollars doesn't thrill me.  But, at least this one would help ordinary people.  I am not convinced it is fair, however, to all of those, including myself, that are not upside down on their mortgages and have managed to keep their payments current.  But as we all well know... life is not fair.

 

 
by Robert Franco | 2010/08/10 | log in or register to post a reply

I Know How I'll Be Voting...

This administration has done (and is doing) everything in its power to wreck the economy, so I'm not at all surprised that they would try this.  I for one am sick and tired of the American taxpayer being forced to bear the financial brunt of bad business decisions by others, whether they be corporations or individuals.

Regards,
Scott Perry

 
by Scott Perry | 2010/08/11 | log in or register to post a reply

I know how I'll be voting

I agree with you Scott.

When I lived in NJ I gave serious thought about buying a house, thern realized I really couldn't afford it, with prices going up and  up and up, and the extremely high property taxes, I wasn't willing to take the risk.

Dumping money into people who bought homes they couldn't afford to begin with shouldn't be rewarded.

Why doesn't the government spend some money on making new jobs so people have to actually produce something instead of putting this country into more debt that results in basically nothing, bailing out companies, who as far as I am concerned should have been allowed to sink or swim.

To my knowledge most of these CEO's are still getting monstrous yearly bonuses.

Anyone ever heard of rewarding production and penalizing non production???

 

 

 
by Jessica Talley | 2010/08/11 | log in or register to post a reply

To me, it is not so simple...

I agree that when this mess started, it was hard to feel sorry for people who borrowed more than they could afford and chose financing options that they knew would mean even higher payments later down the road.  But I think we have moved beyond that. 

Now we have people who may have been able to afford their loans when they got them, but with the current economy and high unemployment rate they just can't do it anymore.  Many of these people didn't borrow more than their home was worth, but through no fault of their own, their home is worth 30% less now.  There are a lot of people suffering because of the crisis, which the lenders and the government helped create. 

It is easier to feel sorry for those in the latter category. 

 
by Robert Franco | 2010/08/12 | log in or register to post a reply

To me, its not so simple

I understand what you are saying Robert, however why should you and I have to pay more taxes or our country go into more debt to bail everyone out?

I would rather see money being poured into making more jobs, so people can work and pay their mortgages with what they earn. This is something which I would support.

The solution is always more production and not turning America into a welfare state, which as far as I am concerned  is leaning more in that direction.

 
by Jessica Talley | 2010/08/13 | log in or register to post a reply

Nobody Felt Sorry For Me

I was in that category of people who fell behind on their mortgage payments because of the recession.  I suppose that instead of doing the right thing, busting my tail and taking any kind of work I could find to make good on my obligation and bring my account current, I should have just sat back and waited for "hope and change" to declare my mortgage satisfied and then give me one of those 3 million new jobs they keep bragging about.  Or maybe they'd pay me to not work for up to 2 full years since Congress passed that unemployment extension.  We're simply encouraging bad behavior with such schemes.  Is it any wonder that so many people don't have jobs?  But I digress. 

There was a piece a few weeks back on 60 Minutes about the growing number of borrowers who are walking away from their mortgage, referring to it as a "strategic default".  These aren't folks who have fallen on hard times and can't make ends meet.  These are people who CAN pay, yet simply want to escape the consequences of their bad investment choices because their homes are worth a mere fraction of what's owed on them.  There's even a website devoted to helping people "unshackle themselves" from their negative-equity properties.  It is extremely difficult (read: impossible) for me to feel sorry for those in that category.

 
by Scott Perry | 2010/08/15 | log in or register to post a reply

I understand...

I don't think anyone wants to pay more in taxes, but you have to consider what will be best for the overall economy - and all of us.  If something isn't done, we will see more foreclosures, higher unemployment, and a deeper recession (or depression).  There are a lot of people struggling right now who didn't cause this mess - I don't have a problem helping those that need it.  At least ordinary people would be helped by this move, unlike the bailouts of the banks.

Of course, I'm not thrilled by the idea of forgiving debts that were voluntarily incurred.  I certainly won't qualify for any help because I didn't over-extend myself and I had a nice size downpayment when I purchased my home; so, I'm not underwater.

I'm not sure what the solution is, but I would prefer to see the people get help rather than big coroporations for a change.

 
by Robert Franco | 2010/08/15 | log in or register to post a reply

Either way we all lose.

Robert Franco - why do you feel it's ok for you to lose your downpayment as your home declines in value, but someone who has to continue to pay a loan worth more than their home value deserves help?  It's a loss of past income versus a loss of future income.  Either way we all lose.

The fact of the matter is, it doesn't matter how the problem is handled - either way we all lose.

Forgive debt - national debt goes up and we all have to pay it.  Don't forgive debt - more foreclosures, declining home values, higher unemployment.  This is nothing more than a political strategy.  On a grand scale, it won't solve the problem.  Home values are over inflated.  They must come down, and down will come, one way or another.

Our economy has lost 10 years worth growth in wage hikes, jobs, equity, wealth.  We may yet lose more.  Home values must come in line with that loss because that is what people can afford. 

My husband was laid off in January of 2009 at the same time I got pregnant.  All last year I ran my title company, my consulting company, closed loans for signing companies, babysat and worked for a software firm.  I earned enough money to offset the severe drop in business for my own title company.  We cut expenses anywhere we could to offset the reduction in wages represented by unemployment.  My husband searched for jobs every single day.  It was over a year before he got part time work, while working full time now - it is only because he is filling in for people on medical leave and vacation - he is still techinically a part time employee.  My title business has continued to dwindle and my ability to go out and do closings for other companies has disappeared because of his bizarre work hours and three children at home to care for.  We are a prime example of why extended unemployment benefits are a necessary evil.  Home values in our neighborhood have been steadily declining, any of my neighbors who purchased a home in the last 6 years with a small down payment is now upside down in their loan through no fault of their own.  The only reason we are not upside down is that we purchased 10 years ago.  All of this hits very close to home.  Unemployment benefits keeps people in their homes, keeps other people in their jobs because the money is spent on monthly living expenses.  It's been proven that the mortgage modification programs of the last two years are huge failures, I don't think debt forgiveness for some is going to do any more good.  People still won't have jobs, the banks will still be further hurt, and for some it will still make "good business sense" for a "strategic default" than it does to pay their debts.

If the politicians really wanted to help the economy and help people get jobs, they'd ship the millions of "employed" illegals out of the country instantly freeing up millions of jobs for tax paying, law biding citizens.

 
by Cheryl Hartzman | 2010/08/16 | log in or register to post a reply

I don't feel it is "okay"...

Believe me, I do not think it is "okay," but it is what it is at this point.  I am not in danger of losing my home (at least not right now), but millions of people are and I don't have a problem helping those who really need it. 

Several comments have suggested that Congress, instead of helping homeowners, "should create jobs" as a solution to this problem - as if it has to be one or the other.  Why not both?  Creating jobs is not something that can be done easily.  They can't just pass a law making unemployment illegal, or forcing employers to hire millions of people they don't need and can't afford.  I do agree it needs to focus its attention on rebuilding a stable economy where unemployment will be lower, but that takes time - time many families don't have.

Maybe debt forgiveness on such a massive scale is not the best idea, but I do believe in providing some immediate help to the many that need it.  That is why I have always been in favor of amending the bankruptcy laws to allow for the modification of mortgages of principal residences.  If a family needs help badly enough that they are willing to file bankruptcy to get it, I say they should be able to get it under the supervision of the bankruptcy courts.  But, those efforts have so far failed.

I guess my point is this... something needs to be done now to help the many families that have found themselves in danger of losing their homes due to no fault of their own - the government and the big banks wrecked the housing market and the broader economy.  I think that makes it the government's responsibility to help those they have harmed. 

The unfortunate side of that is that it means our tax dollars will be used to do it.  Not exactly fair to many of us, but that is how government works.  If we want to live in a civilized society, we must all pay the price. 

 
by Robert Franco | 2010/08/16 | log in or register to post a reply

I think we all have to take a hard look at ourselves, too.

Our culture of anti-intellectualism has come back to bite us.  At least when I was growing up, it wasn't cool to be into math and science... If you had asked most parents I think if they'd rather their kid have a lot of friends and be socially popular in school or be a great student, they'd have wanted their kid to be popular.  Now we have a generation or two of workers who are socially plugged in but who can't cut the mustard when it comes to the type of detailed, complex work involved in a lot of highly technical, very important occupations such as engineering. 

Easy to blame government, but the fact is that the private sector economy in America has failed, and it is partly the failure of the work force to meet the needs of changing times.  I hope people are starting to realize that the paper-shuffling "service economy" was a myth and could never replace a strong manufacturing base.

 
by Slade Smith | 2010/08/16 | log in or register to post a reply

Good point, Slade...

To some degree, this economic problem will be more difficult to correct due to a workforce that isn't ready for the type of jobs that will be necessary to build a robust economy.  Those manufacturing jobs aren't coming back.

I think people thought jobs would remain like they were in our parents', or more likely, our grandparents' generations - they were able to get a good job out of high school and stay with the same company their entire lives. And... that job paid well enough to raise a solid middle class family.  You just don't see that anymore.

If the answer lies in a more educated workforce, this will take even longer to come to fruition.  Changing the education system in America will take many years - even longer before we see results.

 
by Robert Franco | 2010/08/16 | log in or register to post a reply

Controlling the Unwashed Adult Masses Too

We don't just dumb down education, but we dumb down our educated culture every day with expectations of instant gratification in an infotainment world. 

People who had good government classes, who passed civics lessons and who learned library science in better times still wander into county offices lost as to how government works, what it means to own property, or what an index does. 

The basic card-catalog reference system is lost on them when you clearly and concisely explain the nature of property ownership and how they can locate their lot. 

We don't just make our  kids stupid, we are robbing voters, tax payers and home owners of their faculties.  Give them pills, a boob tube and enough rope to hang themselves...

 
by William Pattison | 2010/08/19 | log in or register to post a reply

Production Over Charity

That's a really good point, Jessica.  I would be far more enthusiastic about government spending on necessary activities which create more jobs.  Thanks for the great suggestion!

- Julia Scott-Douglas, COO

 
by Kristine Bjorge | 2010/08/19 | log in or register to post a reply

Production over Charity

Its not that I do not feel for people who have owned their homes for 20 years, never lived above their means and suddenly cannot afford even their basic living expenses because they lost their jobs.

But at the same time I do not believe that turning America into  a welfare state is going to turn the economy around either.

In 2007 my business crashed badly and I had to make alot of decisions, I decided to persist and stay in business. I did a side gig so I could make enough money to advertise like crazy and leave NJ because I really couldn't afford to live there anymore. I went into debt to advertise and get more clients and left NJ for Florida because the cost of living is so much less here (even though I hate the weather).

I also decided no more negativity. In 2008 my company started turning around and last year I had my highest ever year since I started my company in 2003. This year is not quite as good as last but am not doing badly.

I have also paid off all the debt I incurred to keep everything running, with no help from anyone. I am a single woman and support myself. No one bailed me out except me.

Personally I don't think much of our government. It seems like there are few in our government who really care about American's or America, its more like what can we do for them?!!! How can they line their own pockets. And this needs to change in a big way.

If the government REALLY CARED they could come up with a REAL solution to turn the economy around, to be honest with you, I think there are people in our community, the title community, who could do a better job then what our government is doing.

Like this business of outsourcing, how about giving businesses incentives to keep jobs in America rather than sending them overseas? Or getting rid of the executives in these companies that were "bailed out" who were the ones responsible for crashing their companies in the first place and replacing them with people who understand that production gets rewarded and nonproduction doesn't? I mean we are talking basics here.

As far as I am concerned until our government is overhauled all we will see is continued failure to do something that will actually help the citizens of America, and this is truely a sad state of affairs.

 
by Jessica Talley | 2010/08/20 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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