Sheila Bair Stole My Homework!
November 15, 2008
Well, not really. But that headline might get you out of your feedreader.
Sheila Bair is way smarter than me by any measuring stick you can think of. But this week Bair endorsed a loan workout program that’s remarkably similar to a plan I proposed back in April.
Sheila: “The FDIC has initiated a systematic loan modification program at IndyMac Federal Bank to reduce first lien mortgage payments to as low as 31% of monthly income. Modifications are based on interest rate reductions, extension of terms, and principal forbearance. A loss share guarantee on redefaults of modified mortgages can provide the necessary incentive to modify mortgages on a sufficient scale, while leveraging available government funds to affect more mortgages than outright purchases of specific incentives for every modification.” (emphasis mine)
Me:
“…lenders [should] do the following: (1) write down principal, (2) lower interest rates and use fixed (not adjustable) rates, (3) lengthen loan terms, and (4) use the homeowners’ credit score from before they missed their first mortgage payment to calculate the refinance terms.”
and me in September 2007: Why is the 30 Year Mortgage Sacrosanct?
So Sheila, anytime you need to bounce some ideas around, gimme a call. ‘Kay?
November 15, 2008 at 1:25 pm
The Federal mortgage plan and Sheila Bair bailout would reward the reckless and punish the prudent. Please just look at the historical facts.
Consider the lesson and unintended consequences this imparts to promote bailouts to the reckless. City by city, neighborhood by neighborhood, people who live beneath their means and manage money carefully will see more careless neighbors supported by federal decree. What about the 30 percent of this nation who were smart enough to rent? Or how about the large percentage of us who gave plenty of warnings out to these same people the government now wants to redistribute my taxes to so they can stay in a house twice the size the home I live in. Those who are current on mortgage payments, but still squeezed will stop paying. Prudence in areas of life will be flushed down the toilet in 1 month’s time.
The backlash to the 700 B bailout package was not only because of the bailout of Wall Street but also the bailout of the reckless homeowners and their relentless ATM/HELOC spending. As it is now these people can live in their home for over a year rent free by just not paying their mortgage while they find a home they should have been living in from the start.
We are becoming a nation of people who feel it is not only okay but justified to cheat, lie, and swindle each other and the rest of the population. Personal responsibility is discouraged by the government and the mainstream media. White collar crimes are rarely prosecuted because FBI is so stretched. Our nation is eating ourselves from within just to keep a facade of prosperity. Hope is being replaced by anger and desperation. Welcome to the new dawn.
Unfortunately, in the Western states (and Florida) as well as elsewhere, there is the problem of the debtor/investor who claims multiple properties as a principal residence (like my sister-in-law, a nurse who just “returned” a pack of single family residences up and down the central valley of California).
This is a far greater problem than a rational thinker would imagine possible (many of her co-workers are in, or now out of, the same sinking boat). All of them would just love to take multiple fraudulent bites out of your apple, and return themselves to the imagined path to a real estate empire, off of which they all feel they have been unjustly ejected.
November 17, 2008 at 1:33 pm
I agree with you and disagree with cc. The FDIC plan does address a problem caused by the unreasonable lock up of mortgage rates. It allows those that could make a lower payment that does amortize over time. What it does not address is the other half of the pie, those that could not afford the house ever. We need to find graceful, ethical ways to get these people into affordable properties or rentals, while allowing others to come in and purchase the homes with the favorable financing from the former group.
November 17, 2008 at 6:26 pm
CC & Alexis, thanks for your comments. I’ve been trying for hours to write a coherent reply to you, CC. I’m actually going to turn it into a post, as soon as it “gels”.
In the meantime, I’ll just say that your anger is completely understandable. But I think the anger many Americans feel points to the crux of this mess: deep down they know they’re being hurt by this crisis too, even though they did everything they were “supposed to.”
The wave of foreclosures is so large at this point that we’ll all be affected (by losing value in our homes), whether the Feds step in to mop up the mess, or not.
Thanks for reading CC. I do hope you come back often.