CAPITAL GAINS
Jane Bryant Quinn
Maybe We Can Work It Out
If banks would modify the loan terms, the majority of at-risk borrowers could pay their mortgages and stay in their homes.
Some 2.2 million homeowners face foreclosure, thanks to the subprime-mortgage bust. Their losses will drag down the value of nearby homes whose owners are faithfully making monthly payments. That implies worse to come for the institutions—hedge funds, mutual funds, pension funds and banks—that invested in these high-risk loans. Everyone says that something must be done, but what?
Subprime borrowers have modest credit scores and little or no cash for a down payment. They took "exploding" loans, at 7 to 9 percent for the first two or three years, expecting to refinance at lower rates. But the market turned against them. Their rates are jumping to 10 or 15 percent, which they can't afford.
So far, most lenders are handling defaults one slow case at a time. If they offer any help at all, it's a stretched-out payment plan (including late charges and piles of mystery fees). Experience shows, however, that these plans rarely work.
Instead, borrowers need loan "modifications"—meaning changes in the terms. What would help most is holding the payments level. That way, a majority could cover their mortgages and keep their homes. So far, "mods" have been made to only 1 percent of the loans.
At this point, the holier-than-thous are sniffing, "Why let them off the hook? They made their bed, let them be thrown out of it." I agree, for borrowers who told the bank, falsely, that they were going to live in the house but actually bought it to flip. Owners who occupy their homes are another story. Often, they were seduced into buying or refinancing by a slick salesperson who misled them about the risks.
There are two sticking points, says Guy Cecala, publisher of Inside Mortgage Finance.
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Member Comments
Posted By: kenmoyes @ 05/01/2008 3:50:54 PM
Comment: I keep reading about how the housing slump worsens. I read about the plans to help those who are in trouble and may lose their homes. I keep hearing about those who were hood winked into the unaffordable mortgage. I see the moves made to save the financial institutions. No one in Washington or the media is getting it! The solution is to stabilize residential property values first, then push them back up. This helps financial institutions, those who may lose their homes, those who want to get out, those who were hood winked. The problem is that the usual mechanism to resolving an equity lending problem, the disposal of the equity to close out the equity based loan, does not apply when the equity is draining from the home faster than the owner or the financial institution can act.
The solution is a supply and demand solution and not selected bailouts. Our politicians proposing pandering type solutions are apparently economic illiterates. Rebuild the equity in the residential market and the equity resolution mechanism will take hold and move us out of this problem. Of course, some regulations will need to be in place to protect the consumer and the banks from overzealous managers seeking the big hit to get promoted. In fact most of those who pushed these programs have probably already been promoted to new positions, leaving the next manager to resolve the problem.
Stimulate the residential real estate market with demand to balance the supply side of the equation. In fact, stimulate demand so much that the supply starts to dry up and all those affected from the bewildered borrower, through the subprime habitual poor payers, to the good sound borrower who used to have equity and is also being hurt, will have a way out.
People can???t sell because they are locked into no equity positions, banks will not lend due to tightened criteria and a lack of a strong equity position for the borrower. The only way to break this cycle is to structure a favorable mortgage program for quality borrowers, but at an enticing rate. The rate plus the soft property values help make the purchase affordable and thus popular.
Instead of doling out money on a spot basis, set up a short term well funded broad based lending program offering extremely low rates to quality credits. http://brokengovernment.wordpress.com/wp-admin/post.php?action=edit&post=49
If we generate a buzz for resale homes with enticing rates, we will stimulate demand and stabilize property values. Once the trend to devaluation is reversed and the supply begins to diminish and demand stays strong, values will begin to rise. When values begin to rise, the sale of new homes under standard mortgage conditions will begin to pick up.
Why are we attacking this downwardly spiraling problem from the wrong end? All Congress and the candidates seem to know is throw money at the problem result. They do not know how to solve problems. http://brokengovernment.wordpress.com
Posted By: daro355 @ 04/17/2008 8:23:13 PM
Comment: I am in a similiar situation with a fixed subprimb loan of 7.25% for 30 years and a PMI of $225/month on $210,000 mortgage loan. But the Government will not help people who don't have an adjustable rate even though we were taken advantage of as well. I will be forced to walk away because Chase does not want to help and would rather I lose the house. If, chase owns the loan then adjust the APR and lower the PMI. They still make a ton of money in the end. I don't get it and I understand why people just lose it these days.
Posted By: twebster321 @ 02/10/2008 5:54:04 PM
Comment: Yet another casualty of the housing market here. I thought for sure I would have seen this coming. Now I'm just CHASE-ing my tail, so to speak!
I lost my job in May of 2007. After 6 months without any prospect of finding employment, our savings were near tapped. I was discouraged, under pressure and felt like it was only a matter of time before we were going to lose our home. Fortunately for us, God came through and my wife was able to secure employment here in town. We would now be able to start catching up on our mortgage payments!
We found out that Chase has a (barely mentioned) 'homeowners-assistance' program. It was set up to provide relief to purchasers under a new federal program and is supposed to help people like us who are having trouble making their mortgage payments. Luckily we heard about it ourselves because it certainly wasn't mentioned at all by our lender.
So in January of this year we contacted Chase and informed them that we needed to speak with someone in the 'homeowner-assistance' program. That was more than 4 weeks ago. Both my wife and I have placed calls and left messages for the 'homeowners-assistance' department. Time and time again we were told someone would contact us. It still hasn't happened.
We were fiscally conservative in our attempt to purchase a home which meant we did not attempt to purchase above our means. There was no intention on our part of 'flipping' the home like many others did. We didn't take an adjustable rate mortgage, we relied on an 'appraisal' and felt comfortable that the builders financing and closing company would streamline the process, save us money and in the end would protect us from overpaying for a new home - wrong!
BOTTOM LINE:
*A piece of legislation created by the federal government that was supposed to help folks like us who are at risk of losing their homes does absolutely nothing for me and my family because we didn't purchase our home on an adjustable rate mortgage.
*The representatives from Chase's homeowners (un)assistance have yet to get back in touch with us and it's been well over a month since we first initiated contact with them.
*Our clock is ticking and we are now further behind on our payments. How is it that in this day and age a company like Chase has no desire to call this homeowner to try and figure out a solution. I care about repaying my debt and I am not interested in walking away from my obligation. So what's the deal here?
I wonder how many other homeowners are waiting to hear back while they slip further behind on payments? Oh well, I'm sure they'll be able to write off the loss but our family is certainly going to have a tough time trying to even rent a place with a foreclosure on our credit history.
Thanks for all your help Chase... way to go!
Sincerely,
T A Webster
Unsatisfied Customer
Central FL
twebster321@hotmail.com