During the latest debate McCain told Americans about his plan to help the tax paying homeowner during this housing crisis. The basic concept of this plan is for the government to buy up bad mortgages for people who would otherwise lose their home and re-structure these mortgages with a fixed rate that will enable the homeowner to make payments back to the government.
There are a few caveats that I saw. One is that it must be your primary residence and not investment property and the second is that you will have to prove your credit-worthiness at the time of the original loan.
I like the idea that this plan would not be a handout as the people would have to finish paying off their loans, albeit to the government. It would also help to stabilize the current housing market. I think their should be a provision that the money made by the government off of this deal should go back to the people who had to foot the initial cost, but this may already be covered in the Initial Stabilization Act since a lot of the money that would be used for this could come from the initial package.
It does make me wonder why these mortgage companies could not have done the exact same thing when they saw these problems coming. Interested to hear others thoughts.
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The plan John McCain is promoting is unlikely to solve the housing crisis that has pushed the economy into recession.
One big problem: The vast majority of the toxic home loans that are clogging financial markets have been repackaged into complex investments that the government would be hard-pressed buy.
Even if the government were able to buy these mortgages, it would have to pay far more than they would ever be worth. That would effectively bail out banks and lenders.
With foreclosures on the rise and many Americans seething about the huge rescue package for financial institutions, McCain argues his plan would provide direct help to struggling homeowners.
He stated in Tuesday night’s debate that he would order his Treasury secretary to buy up bad mortgages and let struggling homeowners refinance into more affordable loans.
To do so, the government would pay the full face-value of the distressed mortgages.
For example, the government could buy a $200,000 subprime mortgage on a home now worth just $100,000, give the homeowner a 30-year, $90,000 loan with a 5 percent interest rate, and essentially eat the $110,000 difference.
This is why the original lenders didn’t refinance the loans. The recalculation takes on the market value of the home, not the original loan amount. There will be no “money made” by the government. McCain positioned it as a “wash”, but those refinanced loans are calculated at the new market value. So do not think we(taxpayer) will recoup the money. It is lost for good.
I do not feel this home owner deserves to have his $200,000 mortgage more than cut in half, just because he is defaulting. I am not defaulting on my mortgage, but am still paying down an over priced asset. I see no logic in helping them out. I feel compassionate, but it is not logical. I feel if we are going to recalculate for this guy let’s recalculate for everyone. Isn’t that rediculous. Do you see my point tsc?
We pretty much feel the same way. I did my research and bought a house I could afford and got a smart fixed rate loan for it. Compassion, but not pity I guess you could say.
I am not sure about the value of the mortgage that the government would buy. I would have to assume that if the mortgage was purchased, it would be purchased at the value of the original loan. ie: if the loan was for 200,000 then the government would buy the remaining principle balance and restructure the loan from there. That way the banks just make the initial cost back with no profit. Over simplification for example purposes obviously.
Then of course there is the question of how do you restructure it so they can afford it since they probably bought too much house to begin with.
We would also have to put the profits under lock and key to keep congress from spending it on something else.
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