Florida Mortgage | Subprime Bailout ~ Preliminary views of the plan
By David A. Podgursky • Dec 9th, 2007 • Category: 100% Financing, ARM, Residential Mortgages
I had to at least make a mention of the new plan to bail out the Subprime Mess and I was in a Clint Eastwood Western sort of mentality. So, I will relate my feelings to the Good the Bad and The Ugly.
I think that in all, it will help some people… but I just don’t believe the way that things are being carried out are in the best interest of the masses for more than one reason.
The Good - There are a lot of loans that are about to jump, some even double. This Congressional Bailout of these borrowers will help those people who are about to get a shock… a BIG shock.
There are many people who owe more than their houses are worth. There are many who came into the market with a purchase or refinance well after the market peaked. Now they’re in a position to take a real tough blow if their rates do explode.
This, honestly, is just an issue of how many people got caught up with bad credit or poor job history or any other reason that wouldn’t get them into a Prime loan… one that would only adjust a small amount.
The Bad - OK… so these borrowers have some relief.
Now the big test is will they learn their lesson from the scare and start a financial plan to get themselves on track for the big three issues for a loan application so that they can refinance in the future.
They need to work on:
- Credit - sit down and really devote some time to cleaning up the messes. This isn’t a free pass. Pay down your credit cards and reduce your debt.
- Income - if your income was stated higher than it should have been, then that just means you need to budget better for the future. You should not have more mortgage payment than you can afford… but you have it so you’re going to have to learn to deal with it. Don’t think that you’re going to get to bite off more than you can chew in the upcoming market and survive to tell about it.
- Assets - start putting money away. Get a plan of saving in place.
- Also - Equity - if you owe more than your house is worth… then you need to focus on regaining a positive equity position. In other words… pay down your mortgage!! You don’t hear that from me often but if you owe $20K more than your house is worth, don’t count on appreciation to bring you back even. Get yourself to 80% loan to value so when you can refinance, you’ll get the best rate.
The Ugly - now this is where I’m going to be bordering on ranting.
Congressman Barney Frank - are you reading this??
This plan is by far one of the most dangerous pieces of legislation in US History. This was bred from ignorance and arrogance.
I do not care how bad this problem is or will become…
The Mortgage Industry is built upon the freely moving, market driven Mortgage Backed Securities Market. Rates, programs, etc are all based on this FREE market that is without government interference!
The US Government has NO business regulating this market and industry in anyway.
YES! The Homeowners are hurting… but they have been in this position for at least a year and have heard enough news that this storm was coming. Ohh… now I’m unpopular…
But… there are investors around the world who bought into these investments. They made the decision to back risky mortgages and who’s right is it to tell them that they do not deserve the returns that they signed up for??
No ones! Especially not the Federal Government of the United States.
Look… I’m no Libertarian in the broadest sense… but in the narrowest sense, this is how Fascist States and Monarchies operated.
Just look at The Merchant of Venice… the story is based upon true history of the time in Italy. The Jews of Venice were often money lenders. People needed loans and the banks did not fill the needs the way the Jewish Merchants could. But when an Italian noble would borrow too much money or get in trouble, he could just go to the Prince and they would just say to the Lender that they had to forgive the debt or die.
This is similar… The US Government is telling the (Chinese and other Foreign) Investors in Mortgage Backed Securities that their money won’t appreciate the way that it is contracted to!
CONTRACTED… US Law is based on Contracts and Precedence.
Contracts… … is the US government above its own laws and contracts? Are our congressmen and senators forgetting our own laws??
I fear that there is going to be a LOT of mess created by this…
Let’s see some Constitutional Experts weigh in on this point!
In Summary - I really hope people that get this help are better off for it. I don’t like seeing people getting foreclosed on for many many reasons. It doesn’t help a thing.
I also hope that this does not destroy the ability for the mortgage industry to be guided by a free market economy without threat of future governmental interference.
Eventually, the market will be restored… but now we just have to sit back and let history weigh the costs of what we have done to cause and fix this mess.
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David A. Podgursky, MBA
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David A. Podgursky is a Broker Associate for Boca Executive Realty - www.bocaexecutiverealty.com. As a resident of Lake Worth Florida, David succeeds in assisting Buyers and Sellers with their Residential and Commercial Real Estate needs in Boynton Beach, Lake Worth, Greenacres, Delray Beach and Boca Raton Florida.
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Just a quick note.
The sanctity of a binding contract has, once again, been shattered by government interference. This practice has been prevalent in other areas of real estate.
The example you analyze is an important one.
Another has to do with what may be perceive as “equity theft”. (See the Home Equity Prevention Act http://www.banking.state.ny.us/hetpyrul.pdf )
No question, there are many unscrupulous operators in the real estate world. However, there are times when it is in the best interest of everyone, including the poor homeowner, to quit claim their home to an investor for some “walk away” money. At least they won’t be foreclosed on. Noone wins when that happens.
Even without that specific law, in an environment when activist judges rewrite the terms of the transaction (i.e. Florida), it makes no investor sense to even offer to rescue someone. They can come back and claim they were cheated, and the investor ends up in court. It also is dangerous to buy from wholesalers and take on assigned contracts as all the problems won’t be evident until after the closing.
There is a blog ( http://homeequitytheft.blogspot.com/ ) which takes a strong, in my opinion indiscriminate stance, against all forms of investor interference with homeowners in trouble. There are examples given when courts have changed the terms of the contracts.
The law of unintended consequence is always part of government “good intension” efforts. They may help some homeowners but end up hurting many more, over the long run. Beside all the market risk factors associated with real estate, we now have clear evidence that government interference risks have to be price into transactions. For homeowners at large, the costs just went up.
Your ending statement is great.
Eventually the market will be restored… but now we just have to sit back and let history weigh the costs of what we have done to cause and fix this mess.
“Thank You For Writing This Article David. I feel it will provoke thought in a great many people on a number of levels. The Good Bad And Ugly is well written.
I think history will say some of the sub prime loan money was taken for good reason for homeowners to do good things. This time in history was a time of very high hope and we felt invincible and able to complete our dreams. I know a great story of someone who purchased a business with the equity and that takes a great strength and belief in yourself. That is awesome. 2005 Was A Very Happy Time In History. By Anyones measure this really should not have happened. Our property values should have stayed stable and rising. Real Estate is cyclical and the values will return. There are probably countless stories out there for why homeowners chose to use their equity to do what they felt inspired to do at the time. Florida just because it is Florida makes it very difficult to see how such a valuable place on the planet could have anything but property value growth and an equitable high standard of living for every resident. That is my truth and I am sticking to it. We live in Paradise but we need stable property values and income to live our lifestyle. ” Eve Nash Broker.