Update: Bush to help some homeowners, jawbone lenders

Update: You can read the President's comments here, and see the entire proposal here. Here's the soundbite I've seen on cable news a couple of times: "A federal bailout of lenders would only encourage a recurrence of the problem. It's not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford. Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders, or a little help from their government."

Old post: Here's breaking news from the New York Times tonight: "President Bush, in his first response to families hit by the subprime mortgage crisis, plans to announce several steps Friday to help Americans who have credit problems meet the rising cost of their housing loans, administration officials said Thursday." The L.A. Times coverage is here.

Highlights of the N.Y. Times report: Bush will call for the Federal Housing Administration to expand mortgage insurance for homeowners with spotty credit, will "jawbone" lenders, urging them not to foreclose on some borrowers, will focus his efforts on low-income homeowners, and will support legislation to provide tax breaks to homeowners whose mortgage debt is forgiven by lenders.

The Wall Street Journal has more on the FHA expansion: "Among the most tangible moves will be an administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers. The change is intended to help borrowers who are at least 90 days behind in payments but still living in their homes avoid foreclosure; the guarantees help homeowners by allowing them to refinance at more favorable rates."

The L.A. Times points out that even government-backed insurance won't save some borrowers who simply can't afford the homes they're living in: "Many people who took out adjustable-rate loans in recent years at low "teaser" rates and now face sharp jumps in their payments, may be unable to afford any new market-rate loan, even with government insurance, experts say."

Friday figures to be a newsy day -- Fed Chairman Ben S. Bernanke will also speak about housing issues, a speech closely anticipated on Wall Street, where traders will be looking -- and for the most part hoping -- for signs that the Fed intends to cut interest rates in September.

Comments? Thoughts? Insights?

Comments

[joe]

so the stock market lost 7 trillion in value from the 2000 peak to the 2002 low and we didn't go into a depression did we...

yet we are so concerned about 500 billion out of 10 trillion in mortgages...worse case the proerties backing this 500 billion is worth say 375 billion (or a 25% decrease)...so a 125 billion loss vs 7 trillion...give me a break about this bailout talk...

[srla]

I do think the issue is much greater than just the subprime losses, as the real estate bubble arguably trumps the tech bubble, not only in value but also in reach - there are far more homeowners than there were tech stockholders.

This still does not warrant a bailout, of course, and your point, joe, about the comparative scope of the tech bubble burst is valid - the loss of value in the housing sector, like that in the tech sector, need not be the end of the world.

But, due to the broader reach, involving 2/3 of households, I do believe this bubble's collapse will have a somewhat more profound impact on the greater economy.

Of course, we could always segue into the next bubble. Renewable energy, anyone?

[are they crazy]

No surprise to me - I've been trying to tell everyone that the administration is not going to let the economy tank this close to the coming elections - not going to happen. They'll use magic *, smoke & mirrors and talking heads to convince the public all will be will - soft landing and all that. Keep spending folks otherwise the terrorists win.

[Todd in WeHo]

I feel like a broken record when repeating my disdain for anyone espousing to bail out homeowners, brokers, mortgage companies and anyone else caught up in the real estate debacle. I want to shout from the roof "What about those of us who've been waiting on the sideline because we knew this was going to happen?" The lesson I'm learning from this is that I should throw caution and due diligence to the wind; and even if I'm naively caught up in a barrel going over the waterfall of declining home values my government will be there to bail me out. What happened to capitalism?

[J]

They are only moving in to help because they know what will happen if they don' - it will have a significant impact on the economy. I am in California, I already see it happening. For the past few years, realtors went and bought fancy cars and giant houses they could ony afford because of the never-ending money supply coming in from houses flying off the market at ridiculously high housing prices, the car salesmen were also blessed with money, as they had record high sales in the years past. Furniture store workers who worked on commission also had their paychecks inflated by all this equity. People around here were refinancing their houses left and right, buying new cars, shopping, new furniture. Even waitresses were making more, more people went out to eat, and the bigger tips they got. Everyone was making more, spending more, and living a lifestyle of the income at that moment in time. And this isn't the minority - this is the majority who were doing this. I owned a home and I saw it happening. My neighbors would refinance take the cash, buy a new car, pay off credit cards, take trips, and literally boom, a year later, your house has risen yet another $100,000 in equity, people refinanced and took money out, paid off their credit cards once again, took more shopping tirps, more vacations. I even know some working moms who quit and stayed home, not because they could afford it, but because they thought the equity would keep flowing. Everyone is happy - the car dealers are making more money, the salesmen, the waitress gets bigger tips, the travel agency is planning more vacations, the sales workers are getting commissions like never before...... Once your house increases $100,000 a year each year, your head gets big, you are living the life now, thiking it will keep coming. Then the market starts to turn, people are upside down on their loans, commissions are dried up, people stop shopping, no more new cars, and they can't pay their bills because they took out the crazy loan thinking they for sure would refinance or sell in a year or two and upgrade thier house, or just refinance to cash out once again, and it won't be happening. A lot of people start taking their equity out of state and paying cash for large homes with large yards. Tons of people are still moving in, but a lot of those people are the low-income people who can't buy at these prices. So of course this will effect the greater economy. Why bailout these people though, let the economy work, and then we will recover. Bailouts will only have a temporary solution. Giving bailouts won't teach us anything, and we all need to learn from this. If bailouts are given, lets review the past 5 years of credit reports, credit cards, spending habits, and see what it is that got these people into this mess. Most of the people I know could of afforded their original home, however, they kept refinancing pulling cash out to finance their exotic trips, fancy shopping trips, and their nice new cars - it had nothing to do with getting scammed or tricked.

[BottomFisher]

Solution...... from the 'Decision Maker'? Thank goodness.....did he get the idea from Greenspan?.......oh Sh@^&

[Cal]

NYT:"He is also expected to support legislation that would provide tax breaks to homeowners whose mortgage debt is forgiven, in whole or in part, by lenders. The federal government currently collects taxes on the amount of a loan that is forgiven. "

This makes it even easier for the homeowner to walk away from the loan. If you're in a negative equity situation and the look ahead appears to be high payments with no reward (appreciation) one of the only reason not to walk is the tax consequence. You could stop paying your mortgage and live mortgage free for 4 months and leave the house after foreclosure with a good chunk of change in your pocket and no downside outside of a ding to your credit report.

[Monkey In Chief]

I thought the bailout boondoggle was going to limited to Democrats but I shouldn't be surprised. President Bush is a big government conservative,though word has almost no meaning left.

Here's the part I really find shocking:
The Bush administration has been pushing Congress to enact overhauls that would eliminate the required 3% down payment

3 measly percent down is too much? Bush thinks a 100% is financing is fine. The only good news is that this proposal won't guarantee very many loans. Otherwise the taxpayer would be left holding very big bag.

[Dr. JwB]

From the NYT article: "But you had millions of people taking loans they should not have been taking, and investors lending money at too low interest rates,” Mr. Davidoff said. “Nothing is going to make those bad decisions go away.”

Thats riii-iiighhht! But as usual, in an election year (or unfortunately, now, the year before) everyone is trying to make it look like they are doing something to protect all these poor people who will lose their homes.

So lets have a reality check: How many homeless people are there in LA already? I'd guess it's a scary big number. Now, really, how many of these bad loan home "owners" are going to end up homeless? I bet it's not that many. They go back to being renters, for the most part, with dinged credit and hopefully also dinged pride. Let's stop talking about this like it is the trail of tears, because it is not. If you want something to sob over, how about the people on the street already? But nobody is lining up to help them with housing loan forgiveness. As the old Monty Python sketch goes, "We DREAMED of living in a corridor".

Here's the bottom line: People have financial crises all the time, and sometimes they are forced to move into smaller homes or apartments. I bet it has happened to some of you, blog readers. Funny, when my wife and I were faced with this (twice in our lives so far), we never thought, "who will come rescue me?".

[Cal]

Looks like Bush means for the tax leniency to give the bond holders another option (lowering the principcal amount) without burdening the borrower. I wonder if the foreclosure aspect will be forgiven as I think this would cause more foreclosures.

[AnnS]

"Of course, we could always segue into the next bubble. Renewable energy, anyone?

Posted by: srla "

Nah... it will be ethanol and corn farms (and it has already started.)

This 'help for homeowners' would affect about 80,000 households.

It would let them refi into an FHA loan if:

(1) The property appraises
(2) They can pay the 3% down or so reauired by the FHA (assuming no equity and the house does not appraise for 103% of the loan amount.)
(3) They had to be current on their payments before the existing loan reset
(4) And the only reason for being behind in their payments is that the loan reset
(5) They have to be able to make the FHA payment without the mortgage, insurance and taxes cost exceeding 28% of income
(6) And they have to meet the not-more-than 36% of gross income committed to all debts (mortgage, credit cards, car etc) standard.

Pretty limited. The only thing that is different is that they can refi with the FHA if they are deliquent on their current mortgage (subject to causation restrictions.)

[LA renter]

For a moment, I believed the bedrock of the Republican party, the working poor, was pressing class warfare on us:

“The main objective of the package, one senior official said, is not to affect the stock markets but to help low-income homeowner.”

Not to worry though:

“But secondarily, this official said, helping homeowners keep their homes and refinance or renegotiate the terms of the mortgages could have a stabilizing effect on the financial institutions that have these mortgages in their portfolios… As they put together the proposals, top administration officials consulted with financial institutions [and, for the appearance of balance, others]”

Whew. Still on firm ground.

[Republicans are Traitors]

Are you kidding me? I will vote against any person that is willing to bailout all the gamblers that lost on the housing roullette wheel. Republicans are the most fiscally irresponsible people in the history of our nation. Stop these theives and make the gamblers take personal responsiblity for their actions.

[Bill Yates]

It was all going so well until President Bozo decided to pipe up. This whole debacle revolves around trust. Remember when those banks said they had agreed not to mark-to-market thier securities that have no secondary markets? That's because the few holders of those securities agreed not to be the first to sell. Trust (no matter how illegal). The least trustworthy person in the country -- except maybe for Larry Craig -- is now saying he's going to help out. He's never cared about the little people before, and he isn't going to start now. People won't believe him, and it will hurt the market's attempt to make a short-term recovery. He should just keep his mouth shut and let the Fed handle it. By the way, I don't trust these investment bankers and hedge-fund managers any farther than I can throw them. I'm looking for a rally as a great opportunity to get short for next year, when the real debacle will start unfolding.

[carmel]

The Government has no business bailing out fraud and greed. The prices of houses inflated way beyond any sound basis. THe prices need to come down and they will only come down once people who lied on their loan applications finally walk away from their houses.

How about throwing this free cash towards rebuilding New Orleans.....surely a much more NOBEL cause.

[Sam]

It is sad, yet again here is a proven economic principal-you go in to debt you win, you save for the so callled down payment you loose. It is that simple.

[Mr. Ferguson]

As long as he can keep the bubble steady so I can sell my house in LA and move to Portland, I am pleased. One more year Mr. Bush, keep it going one more year.

[Semphris]

Cal said :"I wonder if the foreclosure aspect will be forgiven as I think this would cause more foreclosures."

You know, I've been thinking the same thing. With an election coming up I was afraid if both sides of the isle would take up the banner and start playing politics with this. If the foreclosures are forgiven there would be ALOT of folks, who are barely making it, that will walk away.

[Ryan]

If Bush is going to forgive the 1099 debt forgiveness tax, he needs to allow taxpayers take a capital loss on their home sale as well. I moved to LA for a job relocation and I recently sold my condo in Minneapolis for a little bit less than I owe on my mortgage. Overall my condo sold for 15% less than I bought it for 5 years ago, and that doesn't include Realtor commissions. (The MPLS condo market has tanked about 20-25% in the past 2 years) I had to pay the bank to close the sale. I was never late on my mortgage and was responsible about my loss- but I walk away from a bigger loss trying to avoid this falling knife. I get no bailout money but those who are gamblers or irresponsible just foreclose and get bailed out? Crap I say. NO BAILOUT unless it punishes the gamblers. If I could write off my capital loss, I could get back what I had to pay the bank.

[MyLessThanPrimeBeef]

I have a modest, but patriotic, proposal that will partially address the two biggest problems to have emergerd, in our country, ney in our world, in the last eight years - the housing bubble and the military manpower shortage as a result of the war in Iraq.

Here it is: the governement will bail out those homeonwers who volunteer to serve in Iraq, with regular army pay, but without any signing bonuses, thus saving the Pentagon a boatload of money, until the war is over.

The economy gets to be articifially and manipulatively propped up, preserving the obscene distortion of the housing market for the greater good of the nation, and the short-handed army gets more volunteers so it can rotate the current troops out of there to other hot spots, like the Korea penisula or possibly Iran.

That's kililng two birds with one stone.

Now, if the government can put unemployed, or soon to be unemployed, senators in charge of this upcoming bailout, that'd be killing three birds with one stone.

[JB]

Uhmmm... "Cal for president - our current one sucks"

[Raughle]

I take issue with the word "help." There's a flawed basic assumption in all these bailout ideas: it's the idea that keeping all these “homeowners” in homes they cannot afford is somehow helping them. These folks will not be on the street. They will simply move into a rented apartment or house at half the cost of their prior mortgage. They will stay there for three or four years while they build their credit and accumulate a down payment (as I have done), and then - if they wish - they can buy another home, at the new lower market price where they won't be indentured servants to a giant mortgage payment. And in the meantime they can afford to eat.

You want to help people out? Find a way to help them rebuild their credit faster after foreclosure -- fine. Allow their kids to stay in the same school after the dislocation -- fine. Whatever you do, DO NOT use MY tax dollars to punish ME by propping up this ridiculous market. When I move into one of these REOs at a bargain price and the former "owner" moves into my nice and inexpensive apartment, we are both better off.

[Raughle]

Quotes of the week:

1) "I was duped by my mortgage broker. He told me I could afford a million dollar house on my waitressing tips."

2) "I am NOT GAY"

[investorguy]

If you hate Bush's idea, don'tworry too much about it. With both the Executive branch and Congress involved, the effort will grind to a gridlocked halt by mid-week. 8-)

[BailWail]

Bush said he won't provide assistance to speculators. :However, he will provide assistance to homeowners whose ARM's reset, because the availability of these loans "led some homeowners to take out loans larger than they could afford based on overly optimistic assumptions about the future performance of the housing market,"
What, then, is the definition of a "speculator" he won't suppport?

[Michael]

I love how shamelessly the administration lies to us by claiming that it's not a bailout for bankers - just a bailout for homeowners. Where is the additional money going? Every red cent of this bailout money is going to the lenders, and from there to the various financial interests that have operated off of the packaged mortgages. Every red cent of this bailout will end up in the hands of Wall Street. Who gets the money? Bankers, speculators, and greedy people who bought homes they could never afford. Who pays for this spectacle of greed? All of the rest of America.

[John Bard]

Excuse me, but I thought the USA was supposed to be the bastion of Capitalism in an uncertain world. So why are "market forces" - the bedrock of capitalism - not be allowed to work? Bailing out speculators who have made bad or stupid calls goes against every tenet of our much-vaunted system. Ya pays yer money, ya takes yer choice!

[Cal]

JB:Uhmmm... "Cal for president - our current one sucks"

The last thing we need is me with my finger on the nuclear button, I would push it just out of curiousity. Peter could be president, he has a snazzier selection of ties.

[Bart S]

It's all over folks, Big Gov'ment is stepping in, because this time the banks and the financiers on wall street are affected. They're going to let the ARM holders re-finance at government-guaranteed, fixed rates, with a break on the interest rate provided by the Fed.

You didn't buy and decided to wait the market out? Sorry, the Government isn't here to reward the cautious, you're supposed to do what everyone else is doing and play the bubbles. Don't try to be so smart, Gov'ment isn't there for you, it's there for the Public.

The bottom line is that now that bankers might hurt, the Republicans and the Fed are going to step in and make sure that home prices are "stabilized", i.e. no price drops. They will punish those who waited for one. Sure, prices aren't going up any time soon either, but they're going to be mightily held up. The readers of this blog will be disappointed, and the purpose of this blog subverted; time to shut it down, there's no bubble, says Gov'ment.

[Robert]

What Bush said was to boost the stock market. The idea will never be implemented. What's the point? If people are broke, they are broke. No FHA loan can fix that.

Bush and Bernanke are throwing up as many smokescreens as possible without addressing any of the real issues. Sound familiar?

Every facet of our economy has been maxed out with debt. We cannot, as a country and society, continue to live beyond our means indefinitely. Since we have no savings, the only place to borrow money in abroad. Eventually, foreigners will realize how broke we are and cut us off. We know this as the hedge funds, banks and CDOs floating around the world reset and lose value and investors get clobbered. The market for bad debt is, as it should be, dead.

Now Bush wants to push bad debt onto the FHA and ultimately you and me. Anyone pissed off yet? Take action; call your representatives to stop this insanity.

[CD]

It was a "have a nice labor day in the Hamptons ,"speech. Nothing has changed, just words... Everyone takes a big breath, we are going back to the same mess in September.

[Dan Moran]

The mess is too big, by an order of magnitude, for happy talk to make it better. And that's all this is.

The country's broke. The government is broke, the taxpayers are broke. We've had a great run on the credit cards, and the bill is due, and we can't walk away from it.

Peter -- I notice you managed to post this without taking any shots at Bush as an individual. Try it with the Dems, just for a change of pace, eh?

[JK]

I wonder if you will have to prove that you are in the country legally to benefit from this bailout.

[Sam]

Sign me up-Between the Republicans and Democrats trying desperatley to win the 08 election (both suck) it will be a contest who can give away more to buy votes. When this is over with it could be the greatest expansion in our economic history. We are and will always be broke it is the American way, but who cares just print more it is easy.