Dems push foreclosure aid

Housing blogs have been aflame with "no bailout" comments for months, but now that the housing slump has turned into a crisis, Washington is alive with ... yes, talk about the best way to help troubled homeowners.

"The question is, how can we keep people in their homes?" asked Sen. Christopher J. Dodd (D-Conn.), left, who chairs the Senate Banking Committee. CNBC reports that Dodd will meet Tuesday with Fed Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr. to "discuss steps that might help stabilize mortgage and financial markets and aid U.S. homeowners."

The New York Times reports "Democrats are seeking more aggressive, interventionist moves to protect homeowners." Would that be a "bailout"? The Times thinks so -- it uses the "b" word: "Senator Hillary Rodham Clinton, the Democratic front-runner, recently proposed a $1 billion fund to help distressed families catch up on their mortgage payments ... John Edwards, the former senator from North Carolina, is proposing a similar bailout fund... "

Our take: Watch out for the language police on this one. Just as they tried to take the word "amnesty" out of the immigration debate, they'll try to take "bailout" out of this debate, saying it's a loaded, inflammatory word. Our feeling is that if you think the government should offer special financial aid to homeowners who can't pay their mortgages, that is a kind of bailout and you should stick to your guns and explain why you think this particular bailout is necessary and appropriate.

Comments? Insights? Email story tips to lalandblog@yahoo.com.
Photo Credit: Dodd.senate.gov.

Comments

[Keith]

Sure, it's election cycling, this stuff will be a trial balloon to see how it sells, but no matter, it'll never come to pass for real, not for the average homeowner. Maybe some token bailouts for the most disadvantaged, but middle class in over their heads, nada.

[anon]

Unless it's at least $100 Billion, it's no bailout, just chump change.

Iraq at $1 Trillion is the new "bailout" standard.

[Todd in WeHo]

I'm one of those Libertarian voters that the Democrats are gunning for in the upcoming Presidential election and nothing will get me to fall to the Republican side of the fence faster than seeing the Dems use my tax dollars to bail out people who were too ignorant, greedy--or both--to understand the mortgage mess they were getting into. I've been sitting on the sideline of buying a home for the past several years because of my belief that the market was due for a correction; and now I'm being slapped in the face with the "I'm from the government and I'm here to help" mentality that makes an increasing number of Americans throw caution to the wind because our elected (or, more accurately, our hoping-to-be-elected) officials will never let bad things happen. Wake up, America, the party's over and most will have one helluva hangover.

[brett]

I'm not a big fan of many Libertarian positions, but when it comes to bailing out homeowners I'm totally with Todd. There is no way those who worked their asses off and have lived within their means should bail out those who did not.

As anon says, if it's only $1 billion of aid who cares? That's just political window dressing that will only help a handful of people. On the other hand, $1 billion may just be a jumping off point that could eventually grow to much higher numbers.

[Ray]

I don't like bail outs either. But my hunch is the Dems are right - there have got to be people worth helping. And by doing so we may help ourselves!

The bigger goal is to hold off recession which will harm everyone. Massive foreclosures will damage virtually every sector of the economy and hurt big time. Even Todd who has held off on buying a house may find that once prices drop to where he feels comfortable, mortgages have become too expensive! Hope you get one soon Todd!

Truth is, no one wants sections of California to become ghost towns (of renters). Before too much drama occurs, what's needed now is a moderating force - perhaps a little more price support (or at worst moderate measured decline).

That said, let the flippers and highly leveraged pay the price for creating such froth by going down in flames (and my gut says that today that's a small % of properties). Yet the outrageous swings in interest rates should not eject productive wage earning owners/families from their primary residences.

The feds could offer banks low cost access to liquidity or other tax incentives to either: a. extend the favorable terms found in many ARMs before they reset in a wildly swinging rate environment or b. convert borderline ARMs to 30 year fixed rate at a favorable % rate. ARM reset delay could be for 12, 24 or 36 months. Either strategy might have some downstream "fee" paid to the government by the home owner for repayment of lost income over time.

This would be for qualifying home owners only. It would only be worth doing for families which have a financial chance carrying thru the deal vs. delaying the inevitable - thus making the investment worthwhile for the public. Homeowners would have to document income (and citizenship) and it would be limited to their primary residence.

Again, there is no reason to protect those in WAY over their heads (neg amort loans), speculators, highly leveraged investors or people's vacation homes. Or we could just let it all crash. Dunno. Doesn't sound too good to me.

[CaliforniaDreaming]

The market should be allowed to correct itself, and this will mean that a lot of people who overleveraged themselves to buy houses that they couldn't afford will be renters again. I don't believe in any sort of bailout or aid for people who were greedy and bought a house they couldn't really afford, thinking it would go nowhere but up, up, up.

The RE market and the mortage situations for the last few years have been abnormal and it isn't sustainable. I don't deny that the correction will cause problems for people who have bought in the last few years and are able to keep their homes, as their homes will lose value. But if they are looking at the house as a place to live, vs a get rich investment -- this won't really be a bad outcome for them. It's only when people start to think about their house as a bank account or quick source of wealth that the problems start.

[investorguy]

Ray, you make a good point about renter ghettos. There are formerly solid neighborhoods in the Inland Empire that have become Section 8 rental neighborhoods -- which further depresses prices for those who still live in the homes they still own.

Like any other tenants, some Section 8 tenants are great, some are a disaster. But the label alone is damaging to a neighborhood's value. In Detroit, I'm thrilled to have Section 8 tenants -- the rent gets paid on time and they don't mess up the property for fear of being kicked out.

In San Bernardino County, I wouldn't be so happy.

[Rob]

Well, here we are again. I can think of a better use for the "B" word when you are talking about punishing those of us who work hard. I am going to take your money and spend it on someone who didn’t understand or made some mistakes? No you are not.

Just another one liner to add to my list of "Why I will not vote for the out-of-touch Democratic Party." These guys are somewhere in orbit around the Planet Reality.

[Monkey In Chief]

Democrats like to grab defeat from the jaws of the victory. I think this bailout is their latest tactic to lose. There are lot of people who are going to be mighty angry paying to bailout the irresponsible and that anger will help the Republican party from what would have been long spell of being lost in the wilderness.

[E.Soto]

Funds to "help people catch up on their mortgage payments"? Hell, most folks in foreclosure purchased way more home than they could afford via an interest only or standard ARM loan. They dont need help "catching up" they need a psychiatrist that can give them a reality check. Providing folks with financial workshops will provide more benefit in the long run than helping people keep their homes for a few more months.

[AnnS]

""Senator Hillary Rodham Clinton, the Democratic front-runner, recently proposed a $1 billion fund to help distressed families catch up on their mortgage payments .."

We are talking LESS than clueless here.

The vast majority of those in default are not failing to make their payments and "getting behind" because of job losses, death in the family or illness.

They are failing to make their payments because their income will not handle the mortgage payment.

They can't pay it now and they won't be able to pay it after they are given money to "catch up on their mortgage payments ."

Too many bought houses they couldn't afford on the hope and a prayer that valuse would go up, interest would stay low and/or their income would magically increase.

Just as many refied to get the $4000 motorcycle or the $40,000 kitchen added to a $140,000 house (while over 6 years they ran up $100,000 in credit cards while having an $85,000 income - the top 21% in the US. )

Others saddled themselves with 2 mortgages (story in LA Times) because they 'just couldn't pass up their deam house' so they went ahead and bought it before selling the house they had - which they had purchased at such an inflated price that they can't cover the mortgage, taxes and insurance by renting it until it sells at the inflated price they need to get out from under the first mortgage.

"Catching them upon their mortgage" is throwing good money after bad. It merely delays the foreclosure.

The least offensive proposal is to revamp the bankruptcy code so the court can alter the terms of the mortgage by lengthening it, reducing the interest or reducing the amount the lender will eventuallly receive as principal with the proviso that if the house is sold, the lender would receive the lesser of all the proceeds from the sale or an amount which would satisfy the original debt.

And Ray and investorguy - get off the pretense that all those who rent are low-income and on Section 8 and thus implicitly "unreliables" who will trash the property.

In CA, 83% of households can not buy the houses priced in the lowest 25%. It takes an income in the top 18% of the US to buy the even the 25th percentile of prices. Ergo, that household making $87,000 has to rent.

In my village, 33% of the households rent - and as there are less than 15 townhouses and 2 apartments, that means they rent houses. The median household income is $47,000 and median family is $51,000 but the current median price of homes for sale is $389,00 with only 3 priced so that they are affordaable for an income of $50,000. The renters include , among otherssimilarly siutated, members of council, over 1/2 the fire department, a pyschologist, 2 teachers, a retired banker and his wife who moved 'back home', a young couple where the husband is a master gardener and landscaper (and practices his craft on the 3 acres surrounding his long-term rental home, and 3 owners of small retail businesses.

Sounds like investorguy is a slumlord renting out housing just adequate enough to get it past the Sec. 8 approval process. He should try renting out property to those who have 35-110% of the median earned income in an area which makes a huge difference in the tenant. Buy cheap houses, get poor tenants who can't afford to do even the minimal maintence to keep it looking nice like by planting flowers.

[T]

I'm certainly against a bailout but I'm with Keith and Anon - this is just catering to the voters for a popularity boost. I highly doubt that anything significant will really happen. 1bn is only a token amount in the grand scheme of RE in any case.

[Todd in WeHo]

To the idea of Dems pushing foreclosure aide, I just have to weigh in again. Like brett, Rob, E.Soto, AnnS and everyone has said in one form or another, what about those of us who have worked hard, been saving money, and doing everything you're supposed to do? Where's the support/bailout for us?

In her 'Money Talk' column on August 19 (www.latimes.com/business/la-fi-montalk19aug19,0,3505652.column), Liz Pulliam Weston responds to a person who said...

"We leased a BMW X-3 in March 2005. The monthly lease payment, with FICO scores of around 690, is $565 plus $100 for insurance. (Of the lease payment, $65 is because of the negative balance we rolled over from a previous car.) We need to decide next March whether to lease another Beemer, buy another one or go back to an Acura or something like that. Any suggestions?

Answer: Sure. Stop driving cars you can't afford.

I'm sorry, going "back to an Acura" is hardly a downgrade! To be fair, I don't know if this person is a homeowner or not but, if so, this is precisely the kind of homebuyer that I refuse to help bail out of foreclosure.

[sheila]

i think an "all or nothing" approach would be fairest. if we refuse to "bail out" "greedy" homebuyers, then i also refuse to "bail out"

1 greedy farmers (especially those who don't farm);

2 greedy oil companies (who, with record profits in the double-digit billions every quarter can certainly afford to fund their own R & D and can afford to clean up the toxic messes they make but don't);

3 greedy states like Alaska (who have a $40 billion state fund kicking every resident a wad of cash every year, but who demand more pork from the Feds than any other state);

4 greedy airlines who are incredibly inefficient and pay extortionate executive salaries;

5 greedy war profiteers like Halliburton who grossly overcharge for goods and services, many or which are never delivered;

6 greedy hedge fund managers who, although they earn into the billions, personally and annually, are exempted from income tax and instead only pay the 15% capital gains tax;

7 and greedy megachurches who are extremely political yet still don't pay taxes.

8 too late to stop bailing out the bush family, central figures in the S & L corruption, or to stop bailing out Osama Bin Ladin's family and our other good friends who are the primary financiers of terrorism in Saudi Arabia. better luck next war.

if we start with this crowd, i think we will see a slush fund of roughly $100 trillion annually that we can use however we like, even peeling off a billion to keep a few thousand folks in their homes. in other words, none of this exists in a vacuum, and if you are having "bailout outrage," best to know where to focus it first. probably not here...

[JamesW]

I disagree with Ray.

I think we do need a massive correction. If we keep things the way they are by "helping" people, then we keep the current cycle, where people have to overextend themselves to buy a starter home, going.

Having a median home prices that is ten times more than the median household income can't go on forever.

[investorguy]

AnnS: I did NOT say that all renters are Section 8 -- that would be ludicrous and you know it. Most are not, especially in SoCal. I would never say that most are. I have Section 8 rentals in other markets. I also have market rentals.

But there was coverage recently about a couple of subdivisions in Perris that have become heavily Section 8, leaving the few remaining homeowners in a bad way. Investors have bought at the courthouse, and pumped givernment subsidized tenants in.

[investorguy]

AnnS: re your inane slumlord accusation, it's just the opposite. In Detroit, Section 8 requires inspections that you don't need for regular rentals. Their rehab requirements are actually quite strict. Stick to subjects you know something about.

I rehab all my rentals to a standard that I would be willing to move my family into. Then I rent to the most qualified tenant -- whether that's a registered nurse, a Section 8 single mother, a teacher, etc.

[Mousebender]

From the CNBC article: "and aid U.S. homeowners"

Notice that the beneficiaries are homeowners, not all Americans. Dodd is focused on aiding only current homeowners. Never mind the potential future homeowners: young adults and young families. All the other pronouncements of the various pro-bailout candidates will have the same effect. The only differences are to what extent these bailouts will assist the borrowers, or the lenders.

There are many Americans who saved prudently and managed their finances wisely, in hopes of buying a home. They have been waiting for a return to sanity in the markets. Initiatives like Dodd's will aid only lenders and current homeowners, and cast potential future homeowners (young adults and young families) to the winds. These initiatives will privatize profits and socialize losses--except for the artificially high prices that will be preserved by such market interference. These high prices will land solely on the backs of young entry-level home buyers, who will end up paying for the privilege with their tax dollars.

Let's face facts: Stock speculators don't get their losses paid back. Gamblers don't get their losses paid back. Why should the lenders, traders, flippers, fraud perpetrators, and risk-taking refinancers be paid off by raiding the pockets of young families?

[Rob]

Dear Sheila,

We are sending up a rescue capsule for you. It will have all the essentials to help save you from the Democratic Spin Machine. Including some Gravity Boots, an Economics 101 book, and an MSNBC ratings survey.

[AnnS]

"AnnS: re your inane slumlord accusation, it's just the opposite. In Detroit, Section 8 requires inspections that you don't need for regular rentals. Their rehab requirements are actually quite strict. Stick to subjects you know something about.

I rehab all my rentals to a standard that I would be willing to move my family into. Then I rent to the most qualified tenant -- whether that's a registered nurse, a Section 8 single mother, a teacher, etc.

Posted by: investorguy "

I know all about Sec 8 landlords - had several as clients and told them the same thing.

We are not talking about housing that would qualify as middle class built with moderate quality materials but housing were the floors are cheap vinyl; the cabinets are pressed wood; carpet from some unidentifiable plastic substance that goes at the lowest posible price; the fixtures, while functioning, can often vote; and everything of the cheapest grade possible. A new double wide will have better quality materials, furnace and appliances. Yeah, you must have windows that work with screens, but they do not have to be energy efficent. The doors have to work and lock but they are cheap hollow core things. Typically the properties are located in definitely less-than desirable neighborhoods with respect to shopping and crime levels.

It is vitutally unlikely that you equipped these places with high-efficency Energy Star appliances or furnace; or high efficency windows (unless you pay the heating costs.)

[peter]

Who do you think will be paying for this bailout? I also sat on the sidelines, not believing 15-25% appreciation per year could not have a correction. Get a clue folks, what goes up must come down. No way will I pay increased taxes to bailout those who took out their 100-200k in appreciation every year to piss away on more toys, country club memberships, boats, cars, etc...

[jOHNMOX]

A bailout represents a redistribution of wealth that taxes the smart who stayed away from ludicrous high risk loans with suicidal terms while the stupid get rewarded for falling into the hole. Simple as that.

[investorguy]

AnnS: Landlords in Detroit generally don't provide appliances -- it's a weird thing. If I did, they would be basic model Energy Star. I do put in Energy Star furnaces and water heaters.

I use ceramic tile, not vinyl , in kitchen and bath. I do use commercial grade VCT in basements and on basement stairs if needed. My entry doors are all steel, and I put a security screen on main entry doors.

Cabinets are wood from Home Depot or Lowe's so I don't have to replace them as often -- particle board comes apart too easily. If the existing cabinets are in good shape, I'll paint the insides and reface them.

If the house has wood floors, I refinish them. Otherwise it's commercial-grade carpet. I replace all light fixtures, outlets and switches. If the windows are bad, I replace them to keep down tenant utility costs. And I almost always replace attic windows -- they're usually the leakiest.

My rehabs cost more up front, but they last longer, which saves me money in the long run.

Like I said, stick to what you know. Think beyond your "village" and stop painting all landlords and tenants with the same brush.

[sheila]

gee, Rob, thanks, but (a) I'm not a Democrat, (b) I don't have a TV, and (c) which of those people i listed are not getting massive and grossly unfair government benefits in the form of bailouts, huge tax breaks and/or cash in pocket?

my point was that it is almost always unfair to others for the government to bestow a benefit on certain parties. greedy, stupid and usually corrupt people with TONS of money get huge government handouts every single day in this country. where's the outrage for those handouts?

you think they don't effect your bottom line far more than a billion dollars for greedy, stupid homeowners? you feel fine about gas prices tripling over the past few years, record multi-billion dollar profits every quarter for oil companies, and then, shelling out more of your tax dollars to subsidize them?

of course none of us wants to bail anyone out, but as long as people are getting so vicious and vocal about it, let's go ahead and look at the whole system, not just this micro-system. my position is, actually (go get that economics book), fiscal conservatism, not "Democratic Spin," as I'm objecting to wasteful government spending on insanely rich companies who neither need it nor deserve it. where's their damn bootstraps?

let's just hold everyone to the same standard, is all i'm saying. if we're gonna vilify people for being greedy and stupid, and deny them guv'ment cheese, then let's start with ExxonMobile, Halliburton and our Hedge Fund guys, and move on down the list. we'll get to the greedy stupid homeowners in due course, don't worry.

[investorguy]

AnnS: By the way, Section 8 tenants live in all areas of Detroit, in and among market rate tenants. I don't buy properties in D neighborhoods or war zones. I focus on B and C areas, working class neighborhoods. All my investor friends do the same, and rehab at the same high level.

Gee, I hate to burst your fantasy bubble about all landlords being scum... wait, no I don't.