L.A. Times sees the big bailout coming

The L.A. Times finally warms to the "big bailout is coming" story this morning, reporting in a front-page story, "Housing bailout gains backers."   The story by business ace Michael Hiltzik summarizes recent developments nicely and concludes the Barney Frank plan is "perhaps the one with the most political clout behind it."

Agreed: When Congress is through with it, the Frank plan will become a Christmas Tree in July bearing all manner of goodies for the homebuilding industry (tax incentives to buy now!), local governments (money to create new bureaucracies to buy and manage foreclosed properties!) and on and on.  The biggest giveaway will likely be to the biggest industry, financial services, which will unload bad mortgages at subsidized prices and probably get massive tax breaks on past income.

The story repeats one of those Washington half-truths ("border security!") that politicians seem to believe will somehow become true if only repeated again and again: "Any relief program will have to be carefully fashioned to focus only on deserving homeowners whose financial ills are no fault of their own."

A worthy but unrealistic goal; anybody in need of government help at the moment -- borrowers, lenders, builders, investors -- is there at least in part due to their own financial mistakes and miscalculations.  No one's in this sinking boat through "no fault of their own."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[amir]

Once more, seething with anger...

No matter. Guess what, it won't work. They'll spend all this tax payer money and it won't do a darn thing. It will be as successful as other government bureaucracies, not at all. It will however create unintended consequences and a whole new level of corruption in who gets to suck of the government tit.

[LA-renter]

Without knowing the details, I think that Representative Frank's big picture is practical. Let's face it, we just want the housing market to deflate sooner rather than later.

Then again, let's be cynical --which, for government legislation, is being rational-- about what is "debated" and becomes law.

Importantly, the lenders are the most culpable and must feel the most pain. The lost money was their money. Loans were their risk. A buyer could only dream about overpaying for a house if not for the lenders and lax standards.

Those involved, in their own minds, are victims. You'll turn yourself blue trying to assign fault.

[andree]

Just remember that there were lot of us who didn't get into this madness.We chose to save more for down payment,not be speculators and decided not to buy into homes we were sure we can never pay.
What did we do wrong? Why we can not get a tax break??? Why not congress help renters also ? If they plan to bail out with my tax money , I will appreciate that I be given a piece of it.
This is free market and people bet on making money and of course living free when I paid my rent and they were speculating on making cool few hundred grands.
Why do I , me and you have to stand to lose, may be should be making ourselves heard too.

[SJ]

This is total BS and a slap in the face of responsible people who did not participate in the housing hyper inflation.

Many of the home buyers in the last 5 years who are whining for a bailout either

a) lied on their loan to get a mortgage
b) bought a home well beyond their means of paying off the debt
c) used up their equity and refinanced vacations, flat screen TVs, new cars
d) gambled that their home would increase in value thus allowing them to refinance

This irresonsibility led to an over priced housing market and the current bubble we are in.

If we bail these people out, how will they learn their lesson???

The price of homes is simply going through a much needed price deflation. The market should be allowed to correct itself.

Keep your Tax payer money away from bailing out irresponsible people. Let the free market work!

Contact the following and let them know your displeasure:

Barney Franks - 202-225-5931
Chris Dodd - 202-224-2823
Jane Harman - (310) 643-3636
The Fed - 202-974-7008

[bulwark]

Exactly right. This "bailout" is for banks and speculators (and maybe LA Times advertisers). More people would be able to afford housing through rent control than a government-subsidized mortgage payment.

[yourkillingmelarry]

Well IMO the next decade or so is going to suck. There will be some kind of bailout, and as we have seen with the FED slashing rates the net result will be that of pushing on a string. They are going to inflate there way out of this mess. Bill Gross might as well just say as much......Inflation is Our Friend. If you are sitting on the sidelines renting as I am don't read too much into this. Home prices both real and nominal are falling and will continue to fall. The best outcome of the bailout is to manage how much home prices overshoot the mean to the downside. We are going to be dealing with the effects of this debacle for many years not many months.

[John]

Peter,

When is our government going to accept the basic fact that the home price correction is not going to stop until home prices come back into line with household incomes?

How can you bail out a completely rational economic phenomenon?

Why should responsible people have to pay higher taxes because their greedy neighbors made some bad decisions?

Luckily, our government is terrible at getting things done, so by the time they get their act together, the idiot homeowners will have become renters again, and the frugal renters will be able to buy fairly priced homes.

[Ann]

Before your readers throw thier ususal fits, some very important limitations on the Frank Bill were omitted from the LA TIme - and then again from your commentary:

(1) It would be a separate progam run by the FHA - distinct from its usual loans. (That means these loans would be identifiably in the deed registry by the name of the loan program. and that means it would be a comp for an appraisal.)

(2) Only those whose Debt To Income (DTI) ratio for their mortgage was currently more than 40% of gross income could refinance.

Please note the minimum for the current DTI of 40%.

(3) The refinance would have to result in substantial change in the afforability of the mortage.

Please note the word substantial.

(4) The usual lending criteria of the FHA apply - 31/41 on DTI. (31% of gross to mortgage, 41% of income to all fixed debts)

(5) Where the new loan would be marginal (say slightly more than 31% DTI but less than 40% DTI), the borrower has to make 6 months of timely payments or there original lender has to take it back. (Consider it a trial period)

(6) There are 2 scenarios when the borrower sells:

(a) If the borrower sells for 5 years have passed and sells for more than the loan amount, out of the profit, the FHA gets:

Year 1 - 100%
Year 2 - 80%
Year 3 - 60%
Year 4 - 40%
Year 5 - 50%

OR

an amount equal to 3% of the loan - which ever is greater

(b) borrower sells after 5 years. FHA gets and maount equal to 3% of the original amount of the loan

(7) The new loan is based upon a CURRENT appraisal.

(8) Old lender gets 85% of that amount, and the new loan is for ONLY 90% of current value. (Basically, old lender is 'paying' 5% to the FHA for them to do a new loan.)

So LTV cap will be 90% of current appraisal.

(8) It ONLY applies to loan made after Jan. 1, 2005 through July 2007.

So, taking that $500000 house purchased in 2005 where the buyer has a $60,000 income and it is southern CA with that 14% drop to date. The loan was an interest-only and they have been making the minimum payment.

Current value = $500,000 x .86 = $430,000

Loan = $430,000 x .9 = $387,000

Payment on $387,000 (6%, 30 year taxes, insuraance) = $2906

$2906 = 63.47% of income. They don't get the refi and the house goes to foreclosure.

Same house at $500,000, borrower's income is $112,500. Current loan has a higher interest rate that makes the current payments $3937 (42% of gross.) They can refi if it only appraises for $430,000, and the loan is $387,000. That takes a 14% drop in value.

__________

Okay, the result is the lenders eats some huge losses.

Some, but not many, borrowers can refi into a loan with a lower primcipal and lower payments. Prices haven't fallen far enough to substantially lower the payments for those who have mortgages that are 5, 6 or more times incomes. Bascially this only works for those who are "little" in over their heads (like maybe 4.4 times income) and not a "lot" over their heads (5, 6, or 8 times income.)

Now the more values fall, the more people will qualify for the special refi with the lender right off. But values have to fall a pretty long ways for the household with a mortgage that is 7 or 8 times income to be able to get down to a mortgage where the payment is not more than 31% + of income.

Since it is a special loan program, it is easily identifiable in the land records y the name of the program and can be used as a comp. Just take the loan amount and divide by .9. There is the value.

[Andy Eppink]

Awfully honest for the latimes. Have the eds. been replacer w Martians?

[sunsetbeachguy]

Timely, orderly liquidation facilitated by the government. OK

Bailout that benefits Wall Street, get out the pitchforks.

[anon1137]

Where does all the money come from? Schools are failing, health care is unaffordable for most citizens, the social security system is going to run out of money, but we spend tens and hundreds of billions to make rich guys richer and to allow middle-aged adolescents to play war games in Iraq.

I remember the old days when the federal deficit was at least discussed in the news occasionally. Sooner or later the bill for all this stuff is going to come due.

[liz]

I just read the entire article on latimes.com...speechless...

I can't believe what is going on...I'm in the business and I saw all these "borrowers" take out loans knowing they could afford it. There is not one single borrower that was a victim in all of this, not one.

Let them walk away and go RENT, what's the big deal. They aren't entitled to real property.

SOOOOOOOOOO ANGRY!!!!

I don't care if the big banks fail, so what....the loss is there, all the feds are doing is transferring loss, you can't get rid of it.

[Michael Snyder]

"If Washington gets off its high 'moral hazard' horse and moves to support housing prices, investors will return in a rush" to prudent government- and agency-backed securities, wrote Bill Gross, chief investment officer of the Newport Beach-based bond investment firm Pacific Investment Management Co., or Pimco, in a recent note to clients.

Translation: We need Washington to continue to blow smoke into our bubble. Our over leveraged positions cannot be unwound without uncovering the corruption rife within the real estate finance market. Let's face it, if our clients knew who we were really giving loans to for the past four years nobody in their right mind would give us ten cents on the dollar for these bonds. But thanks to the creativity of Wall St. we've been able to pawn this junk off as AAA rated investments.
We have absolutely no intention of allowing any resemblance of transparency and accountability to return to the financial marketplace. After all, there's really no money behind these instruments we're peddling but I can leverage what funds there are up to over thirty to one so I can collect my commission as I click my mouse. As long as I can find another sucker, I mean investor It'll all be good.

So now Barney "spend along with me" Frank competing with Billary "just give the tab to your children" Clinton in a competition to see who can throw more money we don't have at a problem they were instrumental in creating. Let's face it, if even a modicum of oversight and common sense had been applied to the financial sector for the past decade we wouldn't be in this mess. Sadly the only lessons learned out of the Lincoln Savings debacle were, don't use e-mail & if derivatives are good then
derivatives of derivatives are even better. After all who needs money when you have leverage?

It's frustrating to not only know a bunch of bloggers have a better handle on the economy than most of the "experts", but in their arrogance these experts don't want to hear what any of us has to say. It's patently apparent that our "representatives" at the federal level are completely indifferent to the plight of the average citizen and only interested in propagating their "legacy", what ever that is.

Right now I'm placing my hopes in folks like Warren Buffet who's entering the bond insurance market with a vengeance. Warren's reputation for personal integrity and common sense may just preserve a safe haven for investors who share those virtues. After all, what ever credibility was left in Treasury backed securities was given away last week and the Fed has rendered most savings vehicles worthless. Mr. Buffet will make a lot of money as municipalities and blue chip corporations rush to buy his product, and he deserves it. Somebody has to restore credibility to the bond market & he's one of maybe half a dozen folks on the planet with the track record and wherewithal to do it.

[David Raether]

Two things:

1. Hillary's argument that if the US can give $30 billion to bail out a bank, it can give $30 billion to bail out homeowners is valid... to a point. And then you realize the mortgage industry is worth trillions and former Labor Secretary Robert Reich estimates that the banks have at least another $100 billion to write off. So, whatever... if this dupes people into believing that the goverment gives a crap about "the family home" then go ahead. It's not as if the government hasn't wasted $30 billion in the last month or so on Iraq.

2. These big banks richly deserve every piece of bad news coming to them. All these years we've been hearing about the "genius" of the markets and about the "geniuses" devising new and better securities.

Turns out they're all idiots! Complete and utter morons. These investment bankers with all their Ivy League degrees are total screw-ups who just blew hundreds and hundreds and hundreds of billions of dollars. Next time one of your kids tells you they want to go to Harvard or Princeton or Stanford, warn them off the idea. They're cranking out knuckleheads.

The one thing this disaster has proven is the emperor has no clothes. So the next time one of your libertarian friends in the banking industry starts going on and on about getting the government out of our lives (and their pockets): two words for him "Bear Stearns".

That oughta shut them all up.

[sfvrealestate]

Andree, just to clarify on your question about tax breaks, although I'm sure this is beside the point: homeowners do get a substantial mortgage interest tax break. It roughtly amounts to $1 back for every $3 in interest paid.

And not to make any of you out there feel worse than you already do, but: If the government doesn't take your anger about the Iraq war seriously, presuming you were angry in the first place (about no-bid contracts, a cost that will grow to a trillion dollars, almost 4,000 soldiers dead and hundreds of thousands of civilians dead, etc., etc), what makes you think they'll take your anger seriously about anything else?

[CD]

I keep checking on foreclosure.com and it does not let up, it keeps coming and coming, more and more foreclosure and NOD every day, it's mind boggling the scope of this disaster....People just want out ...The problem is that people do not want help, they want out...
They want help with inflation and price of gas...

[NationalBubble.com]

There is an online petition to try to stop the bailout.
I encourage everybody to use it.

http://tinyurl.com/ywkfvj

[CD]

Republicans know already they will not get elected, so it is now or never for them to help themselves with the tax payers money. Now until the elections we are going to see much more "bail outs" for Wall Street and friends. The Governor of New York should have known: when you oppose the big boys down on Wall Street and ask too many questions, you better keep your pants zipped up...

[Hula Girl]

Ann--"Before your readers throw thier ususal fits, some very important limitations on the Frank Bill were omitted from the LA TIme - and then again from your commentary":

Jeezus, Ann. Say it, don't spray it. Readers throwing usual fits? Umm. You must be speaking of yourself. At least you're consistent. Please, buy yourself a clue and an editor.

And check those spelling errors of yours - not unlike the ones you gleefully point out in other blogger's posts.

Get off yer F'n high horse before it throws you into black lagoon from which you emerged.

[Don]

The basic problem is that people are now looking at housing as a risk free investment rather than as a place to live. They were incentivized by a favorable tax structure and the availability of leverage (debt) that allowed for little or no personal investment (sometimes even getting money back) and pushed by greedy realtors looking for an exorbitant commission. The realtors would tell people how to work the system and had no downside risk themselves or their actual client, the seller looking for a windfall (both have now scooted away with the money). Now we are told that if people are upside down on their mortgage (as was inevitable) then we have to in essence “give” them equity (that most never put in) or they will walk away from the mortgage. What ever happened with living up to your agreement, even if your gamble may not pay off?
Several problems with these bailout proposals:
1. Gamblers are rewarded, whether they were flippers or intended to live in the home. Personal responsibility is thrown out the window.
2. Responsible parties are made to look like fools for not joining in on the house buying party.
3. All the responsibility is being put on the lenders. The borrowers shouldn’t get to keep any money on a sale until everyone is paid back.
4. What about the realtors and sellers? If a company received such ill-gotten gains they would have to pay them back. Why is this being ignored?
Perhaps a more equitable solution is to revise the home loan to a somewhat lower interest rate (reduce payments), lengthen the principal amortization to 40 years and have an equity kicker for the lender as a percentage of the sale proceeds up to the deferred or forgiven amount. Since these borrowers are looking at the lenders as equity partners they should no object to sharing the proceeds.
By the way, Bear Stearns was not bailed out. Their “counterparties” or customers were those guaranteed that their contracts would be fulfilled. The stockholders are only getting $2 a share (for stock that was selling for over $160 last year) likely to avoid the complexity of a bankruptcy filing with all the complexity and delay.

[Jason Hoppe]

%*&$@$#%@^(*&^&$#@$!$#!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Kiet]

Don: Bear Stearns WAS a bail-out. If it weren't for the FED, JP Morgan WOULD NOT buy it. WE, the tax payers guarantee the 3 billions that JP Morgan (or any other firms) would want to put up. Who cares about Bear Stearns stock holders? It happened to other stock holders of the like of Enron, AG Edwards, etc...Did the government put out any money to save those firms?

Kiet

[jb]

I dont get it - the bailout is so unpopular and the politicians are all jumping on board? They are all whores to rick investment bankers and we need to remove them from office. How about someone starting a list of politicians that do not back any bailout? Lets find em an support em (p.s. long time democrat ready to cross to the dark side over this...)

[LeavinLA]

You all gambled just as much in your own way by sitting it out. Now you want a "bailout" of some kind, too, to celebrate your self-restraint.

Have a good cry, then get a grip on reality. Pathetic.

[Herb]

This article makes me sick. It is really wrong to the people who did not participate in this housing mess. Why should they be punished? Any govenment bailout is totally wrong.

I am prepared to vote Republican if the Democrats sponsor a bailout.

For once, George Bush is right. Let the market correct itself. The government does not belong in this mess.

[IToldu2CashOut]

If this bill passes I will find every person who voted for it and vote against them for the rest of my life. This makes me want to vomit. I plan on leaving the democratic party and voting independant or green from now on. Ralph Nader you will have at least one vote this election.

[anon1137]

The Bear Stearns bailout was not a bailout for BS shareholders, IT WAS A GIFT TO JP MORGAN SHAREHOLDERS.

[SOAngry]

Some charge me with a hate crime right now because I'm so angry and full of hate after reading this crap that's being sprewed by Hilary Clinton and Dumbo Frank.

Why am I being held responsible to bail out speculator and home debtors that took out that Home Line of Equity to buy a SUV, Big Screen TV, luxury vacation, etc? I have to rent a crap load and save so I can buy a home in the future. Now I'm tol d I have to bail out the big spenders and speculators??

Someone kill me, please.

[ExComi]

I think the problem is so huge the "bailout" will only prolong the bleading, but not fix it. Just wait little longer for the prices to gome down if we still have any iconomy left becides the government.

[AJ]

I don't have the link but just heard Phil Vassar''s
This is my life... This should be the theme song for the whole debacle! If you haven't listened to it please do...

[Ann]

Jeezus, Ann. Say it, don't spray it. Readers throwing usual fits? Umm. You must be speaking of yourself. At least you're consistent. Please, buy yourself a clue and an editor.

And check those spelling errors of yours - not unlike the ones you gleefully point out in other blogger's posts.

Get off yer F'n high horse before it throws you into black lagoon from which you emerged.

Posted by: Hula Girl

_________

Peter: What ever happened to your "no personal attacks rule"?

Ah yes there speaks Hula Girl, our 'I'm smarter than people in a Chicago Trib story but can't get the facts right when I post them " as to what is a subpoena or what is an Attorney General and criminal charges even as she boasts about her poli sci degree. Rude, nasty and never addresses the issue. (Wouldn't even hire as a clerical dto do the typing for me - nerve damage to a hand and shoulder does make it difficult.) Perhaps she needs to go get a life and not discuss matters beyond her comprehension.

I am right - they are throwing a fit and I can nearly guarantee you that NO ONE of them has gone and read the entire bill. They are relying on LA Times misleading summaries. It is much much more complicated than that.

And most certainly the ever-so-rude trashy-mouthed Hula Girl hasn't - but then in a post a month or two ago she already demonstrated that reading comprehension is not her forte.

Before they start throwing these fits, they had better grasp that the financial services industry internationally is rapidly approaching a complete breakdown.

Try a concept called "liquidity trap." Try a concept called "run on banks" (and yes it is happening among the lenders) and "margin calls." Try "monetary policy tools are not working." Of course understanding the implications of the TED rate does require some thought.

The bill would force prices down. So what else do these people want?

Are lower prices the desired result or is the real goal punishment for stupid borrowers and stupid lenders? They are not going to get a stable financial system the way things are going. 1929 was not exactly a good year - and the mortgage mess is rapidly collapsing the financial systems worldwide exactly the way the devaluation of securities (stocks and bonds) collapsed it in 1929.

If lower prices back in line with historical result from forcing down prices through short refis work AND it stabilizes the financial services, then it should be done.

If all those having a cow because they want to see fools punished more than they want the economy to keep functioning and the financial industry not fail ala 1929, then they need to get their priorities straight. Their jobs will go right down the chute too if that happens.

Prices are falling and will keep falling and not all the short refis in the world will stop that.

Doing short refis will not cost the taxpayers one dime. The original lenders lose. It will provide a basis from which to analyze the value of mortgage securities if the short refis estalbish a valuation. Right now there is no basis upon which to ascertain the value of the mortage securities as the actual value is in free fall and unknown. (Do NOT confuse the value of the house with the value of the mortgage security. They are 2 different things in the market.)

These people need to move beyond their desire for venagance and punishment and look at the consequences of failure of the financial markets. The bill will NOT prop up housing prices but it may help stop the inter-bank runs, the margin calls and forestall the liquidity trap that is rapidly approaching. If the financial system falls into cmplete disarry, they will have trouble getting a loan to buy even with an 800 FICO and 50 % down and a DTI of 20%.

[david]

What likely effects will these proposed federal bailouts have on home prices? Will they stop them from dropping?

[Peter]

Armchair quarterbacks..the whole lot of ya. Yea. We're ALL stupid! Washington and everyone on this blog is stupid. We're all just a bunch of dumb monkeys trying to make our way. This whole debacle is a result of non-regulation of a very dynamic economy. The politicos will eventually realize this & put some regs in place. And no, the answer is not unbridled capitalism. We are the economic engine of the world. We're not going to stand by and see what happens. Everybody is doing the best they can with what they have.
Stop whining, save your money, buy a foreclosure and worry about your side of the street .......or move to Costa Rica.
OK folks, lets move along, the shows over. There's nothing more to see here. Go back to work.

[SJ]

Hey Leavin LA,

Sitting what out? Sitting out buying a home that was way overpriced? Sitting out taking out a loan I could not pay off, thus being responsible and saving money for a downpayment once the much needed price correction begins? Sitting out refinancing a home with Flat screen TV's and new cars thus burning up all the equity?

You have it wrong and you cannot leave LA quick enough in my opinion.

The people against this bailout do not want a bailout at all, let alone a bailout for themselves. Why should we have money taken out of our paychecks to subsidize the people who had no business buying a home in the first place? How does that make ANY SENSE?

Any bailout would only prop up artificially high home prices and makes a much needed correction take longer than it should. Deadbeats wont learn their lesson!

It was THEIR GAMBLE that got everyone into this mess. It was not the responsible people who felt it best to wait for prices to inevitably correct themselves.

If you are so for a bailout, why wait for Congress? Why not got to the IE and write a check to a random person who is walking away from his home and tell him irrresonsibility makes you proud and want to personally give him your money?

[William Jones]

The cheap money policy we are using to help finance this bail-out punishes people who live frugally and save or invest. Our govt. and central bank are driving down the value of the dollar so low that anyone who holds onto it is a FOOL. Yields on CD's or other savings devices are below the rate of inflation, and even worse when taxation is factored in.

There is a one-two combination punch in govt. policy that I find deplorable - reward irresponsible lending and borrowing, and punish prudent saving.

[Michael Snyder]

For those of you who are just plain angry, I'd suggest you check out an article in today's http://www.nytimes.com/. Titled, "What Created this Monster". This six page article details the evolution of the derivatives market and finally places some of the responsibility for this mess where it belongs. For those of you with broken keyboards, they're not talking about liar loans & flippers, so if you're about blaming your neighbor, you won't get much in the way of agreement from this posting.
If you believe as I do that real estate is simply a symptom of a systematic failure this one will send you to the store for tar & feathers.

[Jeffrey Allen Miller NY]

I see two possible answers here: 1) When I was laid off for bashing Bush in patriotic 2003, there was no hope or help for me at a time I needed it most. Lost everything, but didn't actually go into debt. So, yes, it sucks the gov't will bail out a bunch of stupid over-spenders, which seems likely only for political reasons in election year '08. But, 2) now that I'm back on my feet (five years later) I'm going to take advantage of this situation... and perhaps others should too. You work hard to manage expenses and keep debt free, so figure out a way to get yourself a house. This is my focus now rather than being angry about the stupid people our very liberal gov't is going to help.

[Bots]

"If Washington gets off its high 'moral hazard' horse and moves to support housing prices, investors will return in a rush." -Bill Gross

Hey Bill, I wish I could say what I think you are, but I'll tell ya this... my dog sure makes lots of it.

[Bleepin Mad]

I am so BLEEPING mad and insulted over this!

After sitting on the sidelines and patiently saving my downpayment to finally buy my first house at age 50, I'm now told that first I have to bail out those who were completely irresponsible and living way beyond their means?!

SCREW ALL OF THERSE PEOPLE IN THIS ORDER:

1. The irresponsible homeowners who thought they were getting a free ride through life.

2. The greedy banks that rolled out the red carpet for them.

3. Every single politician flapping his or her gums about a government bailout.

[whiteyward]

Again the rich continue to strip equity from the USA. The phony house crisis is like the phony 9/11 attack. This is the effort of the rockafeller neocons to reduce many more of us to poverty so we can be controled. Take our jobs, take our homes, take our health care, send our children to bleed for oil or send them to corporate prisons because of a phony drug war. It is time to think of a national strike.

[are they crazy]

Society has become obsessed with buying houses. And, once they buy they have to immediately set about changing them - nothing they buy is good enough as is. What is the big deal with owning a house? I'd rather have my pile of cash and my time available to take advantage of options. I don't want to spend every non-employment minute working on a house. I'd rather travel, have down time, or time to take part in social and cultural events. Never had a rental that didn't feel like home through my personal possessions and attitude. Kids never knew the difference and our home was where all the kids wanted to hang out. Never had a rental that I didn't leave in better shape than when I came. Never minded spending my own money to make my home better even though I didn't own it. I'm betting that now when houses aren't instant ATMs and investment vehicles to make a fast buck, people won't care so much about owning them. I also suspect the moniker of "bitter renter" will disappear. There's no shame in renting and it's really nobody's business whether you rent or own.

[waitingforgodot]

Michael Synder,

Thanks for the heads up on the article.

[Jack]

The biggest reason I think a big bailout won't happen is this: there's no money in the kitty to pay for it. Bush's ridiculous war has increased the national debt to nearly $10 trillion. This year's deficit will be about $500 billion after the "rebate" meant to goose the economy. Bush will veto anything that raises any tax on the wealthy or business. Ergo, there's simply no money to pay for a bailout program. So Congress might pass something, but there won't be enough votes to override a White House veto. It will be an exercise in posturing and counter-posturing.

[kyle]

Let me get this straight: Are we really going to bankrupt the US to prop up a deck of cards?
The $50 trillion (today's NYT) credit default swap market is comprised mainly of financial institutions that traded the default risk of various financial instruments back and forth among themselves. The institutions that took on the risk received substantial remuneration yet lacked any ability to cough up in the event of a default. Why are taxpayers being forced to float this fraud? Couldn't we at least have some show trials and frog marching for the cameras?

Regarding taxpayers being compensated via the home mortgage deduction, the law of unintended consequences negates any interest rate deduction benefit. While the taxpayer does benefit from the deduction, they/we more than make up for it via higher mortgage interest rates and home prices. Simple economics demand that any benefit will be reflected in higher price. Nothing in life is truly free.

[Tombstone Realty]

If there are all these regulations and stipulations on this bailout program, then there is no way that there will be enough homeowners "saved" to keep the housing market from collapsing and causing a recession. I know I spend half my income just renting a studio - so imagine how few people in LA this will help. And it's already far too late for Cleveland and Detroit.

This is just to make politicians look 'proactive', and trying to convince americans that it'll all be okay soon.

When it most certainly will not.

[Michael Snyder]

kyle,
Yup!

[sfvrealestate]

Along with the NY Times article that Michael Snyder cited, here's another in today's NYT that I think is a must read: (sorry, no tiny url's, just cut and paste.)http://www.nytimes.com/2008/03/23/opinion/
23kristof.html?_r=1&ref=opinion&oref=slogin. For those of you that are really angry about any proposed bailout, I hope you're angry about this as well.

[MyLessThanPrimeBeef]

Michael Snyder, a better opportunity for Mr. Buffet is for him to blaze a new trail and create a new market, an US Treasury Bond insurance market - the outstanding US treasury bond market (at about $3.8 trillion circa 2003) is bigger than the Muni Bond Market (at about $2.6 trillion dollars and shrinking as California, New York City and 300 issuers have recently sold bonds without insurance).

Yes, Mr. Buffet makes mistakes like the rest of us, just much less often, but you are right, no one doubts his integrity. I suggest a better place for this rare quaity is the political arena. I would vote for him as our president and let's forget about the muni bond insurance market for him. He's rich enough. If I am not mistaken, his father was a congressman.

[LeavinLA]

SJ: you're pissed that you didn't get in early, make a big paper profit and cash out in time -- like sooo many did in this run up. A lot more people made money in this boom than lost it, I guarantee you.

Now you want someone to pat you on the head, hand you a tax break, and say "here's your reward for not trying to make any money."

How's that workin' for you?

[Michael Snyder]

MyLessThanPrimeBeef
If you caught Warren Buffet's recent interview on CNBC, he politely declined the invitation. It's a cryin' shame, but given the state of the fourth estate I can't blame him. Ever since Gary Hart a candidate's sex life is more important than their views on the issues. It seems as if personal dirt and gossip are the political rule of the day & in the end a minority of religious fanatics choose our leaders. Frankly I rather have a "player" who can own it than this "acceptable, allegedly monogamous" pile of corrupt garbage we've got running the show right now. Actually I think he's been faithful because his momma would whoop his a*s if he screwed around on his wife.

waitingforgodot,
Thanks for following up.

[Hula Girl]

Who can't use a bail-out? No health insurance, skyrocketing gas and utilities - even the 99 Cent store is a luxury for most of my friends who have seen their jobs vanish and their savings depleted.

And why reward the stupid, the greedy, and the speculators - not to mention the lenders for their fiscal
irresponsibility and immorality.

Add my voice in the "mad as hell chorus".

Please check out http://money.cnn.com/galleries/2008/news/0803/
gallery.real_stories/index.
html.CNNs story and profile of Americans on the brink of personal disaster. I defy anyone to tell me that they are no less deserving of a helping hand from our bail-out happy "government".

[MyLessThanPrimeBeef]

Michael Snyder, I firmly believe Warren has no personal scandal we have to worry about.

[Benedict]

The credit problem is not really a problem but a continuation of big business/government collusion
fueled by an ignorant and greedy population. Many humans, especially Americans, are not content to live simply and responsibily within their means. It's obvious to some of us that lower interest rates ,which led to inflated home values ,fueled the economy for a while and was designed that way to artifically prevent a longer downturn after 9/11. The administration knew what people would do and they did it, they overextended themselves even more. Irresponsible lenders, borrowers, and other money changers need to take responsibilty for their actions. Unfortunately, the fox is in charge of the hen house, just like the trumpted up Iraq war.

[SJ]

Hey Leavin LA,

How many times are you going to get it wrong? I am NOT looking for a tax break. No where in my post did I make that statement.

All I want is what is fair:

1. Deadbeat homeowners who are not paying back their debt take responsibility for their reckless behavior and pay what they agreed to pay in the first place. Noboby forced them to buy a home.
2. The government does not spend MY money on bailing them out for their wrong way bets.
3. The government allows the market to work as it is supposed to - freely.

It sounds to me like the reason you are "Leavin LA" is because you are being foreclosed on. Sorry you were so irresponsible with your money.

That being said, I hope the next time you post a comment your name reads "Left LA"

[Michael Snyder]

MyLessThanPrimeBeef
I'm with you on that but WHY would he subject himself to the stupidity? Besides I don't think he can take the pay cut...

[Laker]

"Under the plan, the lender would be paid to surrender the mortgage -- but would get no more than 85% of the home's appraised value. The amount would be less than the value of the original mortgage, but presumably higher than what would be received if the bank were forced to reclaim and resell the property."

One Second please!!!!
Houses in foreclosure (REO) today are sold for about 30% discount on average. For example, if house was bought in 2006 for $1,000,000 and today the bank can foreclose, and sell it for $700,000.
Using the new plan, if the house indeed appraises for $700,000 (as this is a sale price), the bank could get from FHA 85% of that, and that is $595,000. If we assume it cost the bank about $50,000 to foreclose, than mean the bank still better foreclose and get $650,000 net than sell the loan to FHA and get $600,000....
I think there is a way that this thing can actually work and it involved government sponsored fraud. If Dodd and Frank create a new government bureaucracy that will be in charge of appraisals, then government could send such appraisers and for example appraise the example property to be worth $900,000 (even though it could only sell for $700,000 in the free market). Then using such fraud, the bank would get way more money from FHA and would be happy to unload the crap mortgage to the FHA, aka tax payers.

[jja_American]

When was the last time OUR government helped US?

[left of lefty]

one thing that all politicians understand is votes.

homeowners are voters. renters are not. why do you think there's a mortgage interest rate deduction, but no deduction for rents?

no amount of crying by people who rent is going to prevent a bailout of people who own.

[Geek Seek]

Paul Krugman at NY Times did a post on his blog a few days ago about the deregulation that led to our bail-out predicament.

http://krugman.blogs.nytimes.com/2008/03/22/
hiding-behind-the-invisible-hand/

(great title as well)

He talks about how there was a "coordinated effort to destroy effective [banking] regulation." And how "Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw." I thought he was just speaking figuratively, about the shears and chainsaw, but then he added a picture today actually showing the reps with stack of regulations, tree shears and a chainsaw.

One picture; millions of words. Now let's go find a photo of the president lighting his cigar with a t-bill.

[dave]

The people who are having a hard time with their home can simply sell their home, rent a new one or rent an apartment and regroup.

Then, perhaps, they won't make bad buying decisions in the future.

[Laker]

left of lefty,
Renters do vote. Renters will vote any bailout supported out of office. DO you know the ratio between renters and home owners in LA??? I'm not exact, buy i think it is something like 65% renters and 35% owner.

btw: I wonder out of the 35% how many are home owner and how many are loan owners....

[Brian]

One thing that I have not heard mentioned here is that the Barney Frank bailout plan will wipe out all seecond mortgages/HELOCs for qualifying loans. This is before the reduction in principle will take place.

I am really glad thatr Mr. Frank wants taxpayers to pay for all of the vacations, boob jobs and Hummers these "homeowners" bought during the boom years.

Great.

[Uncle Billy]

Nearly fell out of my car seat this morning. Listening to Hillary's proposal for a "foreclosure commission," made up of economists that is to get together and generate good solutions within 3 weeks. Her list of nominees for the commission began with, bum-da-da-dum... Alan Greenspan. This is a movie, right? This can't be real life. Ok, if it's a movie, then let's get Lawrence Yun in there too to really make things sizzle.

[left of lefty]

laker,

you are correct that there are more renters than homeowners in l.a. however, voter turnout has consistently being less than 50% of eligible voters, which is not the same as registered voters:

http://tinyurl.com/ypd26x

as for renter/owner breakdown of likely voters, here is a study:

http://tinyurl.com/2hcbhk

this is national data, which is relevant here because the bailout is from the federal government. go to page 5 for the breakdown of renter/owner, as well as the answer to your question of how many 'owners' have a mortgage.

later in the study, you'll also see a breakdown by renter/owner and income levels. it only makes sense that higher income families (i.e. owners) have the ability to contribute to political campaigns.

[Andrew Z]

Brian,

If that was the case there is no way the banks/lenders go for this.

If someone did a cash out refi and bought a car or paid off other debt or whatever, there is no way a bank is just going to let that money go.

I agree with the poster who said this whole thing is just politicians in an election year trying to make themselves look good by helping "the little guy". Something like that has no chance in hell of ever happening.

[NoWayinLA]

I'd like to know what Bill Gross is personally doing to support high prices other than riding his own high horse regarding Washington's responsibility to save his company from his bad debts and worthless assets. If PIMCO really feels so strongly about supporting home prices, let them put their money where Gross' smarmy mouth is.

For the low, low price of $1M, PIMCO can locate 10 houses in the cheaper outlying areas where prices have come down enough that they're ONLY $100k over-valued, pay the $100k, and let the buyer finance the rest in a loan that actually makes sense. That's ten shiny new comps for appraisers to oooh and ahhh over, and Lawrence Yun will shake his pom-poms with vigor.

High home values will be supported... in one neighborhood, anyway. Multiply by the number of neighborhoods in distress for national-scale effect.

Anyone think he'll step up to the plate and do his part?

[LeavinLA]

SJ: BZZZZZT.Wrong. But thank you for playing, whiner.

[TaxBreaK2]

Don't homeowners already receive significant tax breaks???