Obama’s Latest Housing Plan: Pay People to Move
Tags: Obama Depression.
Getting desperate out there:
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.
More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.
For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
Short sale, though, doesn’t work all that easily. I know people who have been in short sale for months and still nothing. The real problem kicks in when you have a second on your house. Given home values, if there is a foreclosure, the second note holder will get nothing – but there’s also no requirement in a short sale to give the second anything…but, of course, the second can spike the deal unless something is forthcoming. From what I understand, its usually about $3,000.00 to $5,000.00 sent to the second note holder.
What this latest Obama plan amounts to is a means of keeping people in their homes without having to pay their mortgage (if the house is in short sale, there is absolutely zero reason to keep making payments) and for those who do actually manage to get a sale, there’s $1,500.00 to help move (though if you had a mortgage payment of $1,500.00 per month and you’ve been in short sale for 9 months you should have $13,500.00 saved up – if you’re responsible). This is a “tide the housing market over until November 3rd plan”.
As long time readers know, I was yammering on and on about how the best means of curing the situation was to “cram down” the mortgages to the collapsed current value. Now, I’m not so sure – it would have taken some government money and all that has been blown in TARP and Spendulus. And if we do “cram down”, a lot of banks will fail because they are only “solvent” as long as the loans on the books are considered valid. Of course, if nothing is done these loans will still go bad – either in foreclosure because someone lost a job, or in the act known as “strategic default” – the banks will still fail, just not right now.
Its a mess, my fellow Americans. Welcome to national bankruptcy. The sooner we admit it, balance our budget and let the chips fall where they may, the quicker we’ll stark working our way out of it (and don’t let anyone crow over our financial corpse – the rest of the world is just as economically dead as we are…yes, even China).
HAT TIP: Mish’s Global Economic Trend Analysis
Mark Noonan is co-author (with Matt Margolis) of Caucus of Corruption: The Truth About The New Democratic Majority. He also blogs at Nevada News and Views. Follow Mark on Twitter.
25 Responses to “Obama’s Latest Housing Plan: Pay People to Move”
Caucus of Corruption
Good article Mark, but my office has been doing short sales for 3 years now, obviously in more volume the last year and a half. For the most part, banks are cooperative and now have departments and processes in place. Countrywide/Bank of America is still a mess, but Wells, GMAC (the government), Ocwen, Citi, etc., are all real agreeable to doing short sales, provided a hardship on the sellers part can be demonstrated, which isn’t too difficult in this economy.
.
Here’s the irony, and idiocy. The banks are willing to short sale thsese homes to third parties, for current market values, but are unwilling to consider any principle reduction for the current home owner. It makes no sense, but that’s a bureaucracy for you.
Cluster,
Indeed – and while there are bureaucratic systems in place for short sale making it easier, I still have friends who are 9 months or more in to short sale and still not done. Even cash offers from investors are held up – as I said, usually by the second note holder. Also, I think, because banks are deliberately going slow on the process so that they only write down mortgages bit by bit…sorta hoping the economy actually recovers before the whole mess has to be exposed.
Trouble is, the “underwater” houses will remain that way – even if we start getting 3% annual growth in home values (which I understand is the historic norm), it’d be decades before the underwater houses even reach parity with purchase price. In the end, I don’t see a way out of this – “cram down” was my plan and it still may end up being the least-bad process, but a lot of very bad things are going to happen over the next year…and if the tales of insider selling among the corporate elite are true, it could come in a few weeks.
“The banks are willing to short sale thsese homes to third parties, for current market values, but are unwilling to consider any principle reduction for the current home owner.”
_
most likely there’s a write-off available for the short sale.
If your house is foreclosed on in my state you can stay in your home for over a year. When you finally get that eviction notice you have up to 6 months to move. The mortgage holder will pay you to move if you are evicted. The payment is usually one thousand dollars.
Obama’s Home Affordable loan modification was a dismal failure as mortgage holders sat on that 75 billion. The new regulations from the Obama admin has made loan modifications a wait and see process. You might qualify, but that doesn’t mean you will get the Home Affordable modification. For people who wanted to save their homes, but faced thousands of dollars of attorney fees, late charges, etc, the wait and see process was so stressful they left their homes.
I think that the 5 million home foreclosures statistic is way too low.
uffy,
Others do, as well. Personally, I don’t see a bottom to the market – or, indeed, to the whole economy. Vast amounts of money were printed last year and unless actual wealth-creation starts up soon, all that money will have to be taken out of our hides. And as there are now some unemployed who will get benefits for 99 weeks – an unprecedented amount of time – I think we can predict that wealth-creation won’t be going on in large amounts for at least the next year or two…and that’s if things go well.
We could be looking at 20 years of recession like Japan – except worse as there’s no one out there to sell our goods to, as Japan has been able to sell to us.
Well I really don’t know what solution could be that is painless. There is probably none. What it all boils down to is that people got themselves into this mess by gambling on real estate prices rising and using their houses as ATM machines to live the high life. I say let the chips fall where they may and maybe future buyers will be more sensible.
There was a lot of that canuck, but there were also some good, sensible people that just bought at the wrong time, and now because of irresponsibility from other people, and from the banks, they are left with an “asset” worth 40%-50% of what they paid for it. I am telling you, they will recover the hit to their credit a lot quicker than they will recover the value of their home.
Lots of things caused it – not least of which was various land-use restrictions which artificially inflated home prices, especially in California, which was the main source for Nevada’s skyrocketing home prices (you could sell a shack in San Diego for enough money to buy a McMansion for cash out here in Las Vegas).
You are exactly right Mark. Historic appreciation is 3-5%, so the recovery is quite a ways off, considering approx 50% of the homes in AZ are underwater. If the second lien is a heloc or a refi, they will come after you even if you foreclose. The first lien holder can not pursue deficiency in most states, and we are seeing approvals in 60-120 days, regardless of the bank.
.
You are right about banks pushing things off until the “next quarter”, etc. but these banks are also overwhelmed with this. I spoke with one sr negotiator who said he had over 250 files, just on his desk, and there are many of him.
Doesn’t surprise me, at all. Even with the best of intentions, this would all take a while.
Here in NV, you can get it written in to the short sale contract that the first can’t pursue a deficiency – it does have to be put in there, and early on a lot of people weren’t getting it in there. Its pretty well known, now.
As for the seconds, it must be a bit different here in Nevada because they are just a huge stumbling block, from what I understand. Maybe they can’t recover out here? Or maybe recovery is just too hard? Or maybe the word is out that judges aren’t being cooperative? Who knows? I’ll be most people who are in that situation can file for bankruptcy, at any rate…though I guess there are ways around that: one broker I know had a client who agreed to pay the bank 10k over 10 years at zero interest as part of the total short sale deal. $83.00 a month isn’t bad – and if it just gets rid of a 20 or 50 or 100 grand liability, its a good move (though more expensive, in the long run, than a bankruptcy).
Meanwhile, I know other people who stopped paying a year ago, are not being foreclosed on and are not even getting collection calls any more…its a strange time.
It is a mess no doubt, banks are having difficulties getting their arms around it. Some short sales can not go through because the deed can not be found, literally. It had been bundled and sold so many times, that they’ve lost trace of it, so foreclosure is the only option.
.
Promissory notes are common with second liens, and a 10 year note at 0% interest is norm, and sometimes for as little as 25% of the original note.
Didn’t realize that was fairly common – to me, it does seem a worthwhile way to get out of it.
Of course, if there is complete financial collapse – which I do expect, if not now then soon – all bets are off.
I passed on buying capes proceeding the crash for exactly this reason.
>it defied common real-estate sense that 3 bdrm capes were selling for ~150k.
>>the agents said that’s what they sell for noadays. I said “not to me they dont”.
>>>now those capes r back down in the 75-95 range where they belong.
why does the government need to save anyones mortgage…or loan…or overfinanced house…it was irresponsible for the homeowners, the real estate brokers…and the morgage bankers…to ever…let the whole shebang happen to begin with…tax dollars are not the bandaid to cover the wounds these people experience…you cant take good money from working people who made good decisions and were responsible…good banks that were prudent…and give it to those who were stupid…its wrong…its against the constitution…and we cannot afford it…
…
the pie in the sky congress has to stop spending…stop raising taxes to cover the deficit…and cut the overhead…all the fat…out of the overpaid underworked government and get real…or this mess will go on and on…until america is bankrupt…that would literally thrill the commie bastards that are pushing these socialist entitlement programs…so they could justify taking over huge segments of the private market…bad laws…are bad laws…just like bad leadership…is bad leadership
After getting out of their “underwater” homes, these people can use the provisions and loan instrumentation created by the CRA to repeat the process all over again.
Amazing how two looting liberal presidents and two corrupt governmental loan organizations (protected by their looter liberal masters) can kill the housing market and an economy.
The looting liberal solution is more of the same.
Tired
you are correct about the corrupt dems and fanni and freddi led by barney frank.
However a lot of the people who are underwater are those 40(ish) and under.
they had no choice but to pay the inflated price, or move into a mediocre apt for $1200.00 per month a total waste of resources.
I sold by (big) house at the height and bought a handyman special 1/2 the sq ft. .
We totally gutted the place and installed everything new.
even In todays market I am $100K to the good.
Luckily I am in the construction industry and did 80% of the work my self and hired buddies to do the rest so I saved at least 50% and it still cost me 70K to do.
The house next door to me sold for $305K and the woman elderly let it go to heck, now is going for around 160K, I think she will be lucky to get 90K for it as it is a wreck on the inside.
Hey neocon, since you’re in the construction industry, maybe you could answer this question: what would you recommend for kitchen counter-top material? Is Corian or some other composite preferable to stone?
Also, though I’m confident I can build the cabinets myself, I’ve never done any sort of solid countertop before. So do you think it’s better to hire someone to do that part, or is it easy enough to learn?
Rico,
When we built our current house 13 years ago, we ran over budget, and one of the area’s we cut was on counter-tops. We went with inexpensive Formica in the kitchen (4′ x 6′ island, and 2 perimeter counters plus a desk, thinking we could always do some sort of solid-surface material later. Two years ago we started looking at solid surface materials in ernest. When we built, Corian and Wilsonart were the two solid-surface materials of choice in most new homes. Today I’d have to say that quartz and granite are the most popular, at least around where we live. We ended up going with granite, and the cost, compared to 1997 had dropped by nearly half. So far we’ve been delighted with the granite, which I think has more character and more randomness of pattern than quartz. Quartz has the advantage of being virtually maintenance-free, while granite has to be sealed every year or two.
Just my 2 cents.
rico
stone is best, spook pretty well summed it up.
Personally I would stay away from Corian, it never held up as expected.
I had a Corian topped vanity in one bathroom and found it was subject to staining and scratching through constant use.
Here is a pretty good site that will help you make an informed decision……
http://www.pmgranite.com/faq.php
Rico
build the cabinets your self if you can, but absolutely have a professional make and install the top.
If it breaks, cracks, or is wrong fitting THEY own it.
If you attempt to install it and (F) it up….OOH WELL !
Thanks guys.
whoa – where’s that free money line baby!
>u go obama!
chef
whoa – where’s that free money line baby!
>u go obama!
How “Ghetto”!
yet NO surprise.
I’m working on a kitchen project and have been dealing with many of the same questions. I found a picture in a magazine of a countertop/sink that was gorgeous, made of concrete, and when I found a source for concrete sinks and so on I found that ‘gorgeous’ goes for about $1000 a linear foot, so am back to the drawing board.
tired makes an excellent point. We are all talking about stopping the hemmorage, about slapping on bandaids, but as long as the original problems are allowed to continue to exist and function the housing market cannot be fixed. We need to go back to the Community Reinvestment Act and get rid of that and then every other legislation built on that act and its goals. We need to either get rid of Fannie and Freddie or severly limit their power and scope and audit them and regulate them, and we need to take steps to get and keep government out of business.
rico, in the wonderful magazine Fine Homebuilding there is an ad for a company that makes cabinet boxes, so you can buy them and make your own doors.