Is The New Mortgage Bailout Any Good?
I hate to be critical when the government seems to be trying its best but I just can’t help it. I am confused and frustrated by this goverment’s train of thought as well as policies some times and, natch, I want to let you, dear reader, know all about it.
The first bailout we had that was soooo popular (yes that was sarcasm) had mixed reviews, but over all could be deemed better then doing nothing at all. There was about 75% of pork fat in that bill, or else it would have remained stuck, and has been more or less burned through with more and more banks begging for more like baby birds who have just discovered that they are hungry. Or by using it to pay those last minute executive bonuses. Media was largely left out of that tid bit. Even American Express, as a newly formed bank, is whining about needing money. Really? A credit card agency turned bank is having money problems? No way!
(And don’t get me started on the government buying shares of banks [and auto industry too??]….brrr…gives me chills.) On a side note, since you got me started, if you run a business in this country and get greedy and you crash and burn, you should go ahead and fail. Thats called “risk” and you knew the drill when you made your first million. Very little intervention should be applied in my humble opinion. But I digress…
This bailout is geared less towards propping up badly leveraged financial decisions and more about the root of the problem: toxic mortgages. Mortgages were made left and right to people that had absolutely no business getting them. Families, that made barely enough for rent, were given hundreds of thousands more money to buy houses far too large and expensive to maintain in poorly structured contracts. The other side of the lack of diligence for the home owner who was responsible, was that the banks were greedy and it was just too easy to make zillions in interest even if only for a few years.
But we have heard this over and over. What are we looking at to stop the bleeding? This bailout sounds wonderful on paper but has some self deprecating terms. And not in a charming way. Here they are:
- First lien owner occupied residential adjustable rate loans (ARMS) with initial fixed rate for 36 months or less.
Not all malformed ARMS are less then 3 years until they reset. 5/25s can be just as poisonous. - Must be originated between 1/1/05 and 7/31/07 and included in securitized pools with reset date between 1/1/08 and 7/31/10.
Good start date, but again, shouldn’t the policy rule out any bad ARMS? - The loan must be current. Current means not more than 30 days delinquent and not more than one 60 days delinquent in last 12 months.
This is a big one. Wouldn’t it make more sense to set a threshold for debt to income ratio as opposed to helping those that are already underwater? SOLVE THE ISSUE, DON’t PATCH THE PROBLEM. Sorry didn’t mean to yell. - Loan to value must be LESS than 97%.
Seems awfully close to 100%… - FICO Score must be less than 660.
What if getting an inappropriate mortgage was your only mistake? This shouldn’t be a rule out. Not to mention, think of all the people that only need to drop their credit score to get assitance? More issues, of course. - FICO score cannot be more than 10% higher than origination.
Some poeples FICO goes up with a purchase of a new house because this debt can be considered “good” debt. - Servicer must determine that owner cannot afford higher payments.
Wow…right there at the end you give me hope. Of course this should be what the entire package centers around: Can the homeowners cope with what they are paying?
I don’t want to say that the federal government needs to have their hand held through this (because there isn’t anyone else available) but with all the intelligent people out there, this was the best they had? This was the final draft too. Imagine what the earlier drafts looked like. Fed, you’re needed to guide and set an example as well. In case you didn’t know.
Read Bush’s discussion here.
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Comments
I agree as well. Makes me mad. Mr Chiots and I are living in a small home that we bought well within our means. We run 2 businesses out of it, which we’ve spent 70 hrs a week working at for the last 6 years and saved like crazy so we never went into debt. It annoys me that so many people & companies fritter away their money and then whine about it. What happened to all that money they made several years ago?
It’s actually just the payment for the votes this last election. They’ll be paying up for quite a while. Of course to the detriment of all of us responsible people.
It’s essential that if a new stimulus package is passed during the lame duck session that it address relief to small business owners like the two of you. We need to stop ignoring the businesses that are the lifeblood to our economy. Small businesses need relief like the giant financial sector is receiving, our latest job loss report is evidence of this.
@Susy: I must commend your bravery for running your own business(es) and doubly appreciate your sense of responsibility within that.
I’m getting very angry about the way our ax dollars are being spent - the AIG/AmEx news yesterday about put me over the edge. I completely agree with you concerning business failure. My husband is a pizza chain franchisee, with one store. He works something like 60 hours a week, and I’m in there almost 40 hours. We have not taken a paycheck since May. While our house is too big, and we were approved on our mortgage based on our “potential”, we refused to get into the ARM trap. However, for the first time, we’re more than 60 days behind. Our world is falling apart right now, and that’s a risk we took by buying a franchise/house. OUR responsibility. Not that the government would care to help us anyway, as when we go under it’ll only be 5 jobs lost.
That’s the breaks. Big companies, take your medicine just like us small potatoes have to.