Inside Financial Services

Bailing Out the Speculators

The government's loan modification program gets a wrong-headed new twist

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Did you notice this little detail in the expansion of the HAMP loan modification program the Treasury Department announced last week?:

. . . Treasury will expand eligibility to include properties that are currently occupied by a tenant as well as vacant properties which the borrower intends to rent. This will provide critical relief to both homeowners that live in their homes and those who rent their homes, while further stabilizing communities from the blight of vacant and foreclosed properties. Single family homes are an important source of affordable rental housing, and foreclosure of investor-owned homes has disproportionate negative effects on low- and moderate-income renters. [Emph. added]

Seriously? So now the federal government proposes to provide relief not just to owner-occupiers, but to investors whose gambles have gone bad, too? As a taxpayer, why should their problems be any of my business? They took a risk-and they lost. These are the same people, remember, who helped provide the last few blasts of air into the housing bubble. And many of them, to even qualify for a residential mortgage, surely committed fraud in the application process. And they’re getting some of my money? That makes no sense.

It makes no sense in particular since there’s no shortage of private capital standing by that’s eager to buy these very properties from lenders and GSEs, invest in them, and turn around and rent them out. This is one part of the problem where the solution doesn’t call for any involvement by the feds. Why they’re getting involved anyway is idiotic-and outrageous.

What do you think? Let me know!

16 Responses to “Bailing Out the Speculators”

  1. FSDA

    This is all administration eyewash to make voters believe that they’re actually engaged in anything positive. This isn’t a solution to our mortgage problems, as you imply. This crowd seems to think that it’s doing its job by blocking the roadways, instead of pulling the wreckage out the way. The hallmark of this adminstration has been its ineffectiveness combined with many cynical attempts to thwart the market solutions that are so necessary.

    Hoping for change in 2012!

  2. Greg

    That’s not all Tom. The push to reduce mortgage principal has Treasury tripling the incentives to loan servicers that write down principal, plus initiating incentives to Fannie and Freddie on principal reduction. So they’re really pushing on the notion of reducing principal, which is quite simply a handout to people that borrowed too much, took all the equity out at the top of the market to buy toys, or paid peak prices. But there are no handouts for retirees dealing with near-zero interest rates and losing ground to inflation, a condition that will persist for another 3 years as Bernanke tells us. There are no handouts for those that have paid on time but suffered a loss of equity due to the neighbors who’ve walked away. There are no handouts for people that saw their 401ks, 529s and IRAs plunge in the financial crisis. And the govt is also strongarming $25B out of banks for “wrongful foreclosure practices.” So borrowers that defaulted, after having lied about their incomes to get the home and then stripped the house of all appliances, copper wiring, and punched holes in the wall on the way out the door, are positioned as “victims” who stand to be compensated because of robosigning or a shoddy paper trail. How about some arrest warrants for borrowers that stripped homes on the way out? Finally, in the State of the Union, Obama pledged to enable privately backed mortgages to be refinanced into FHA loans, loading even more risk onto the taxpayers’ shoulders.

  3. Angry Banker

    Will the government plan permit lenders to increase principal balances that are reduced in a modification once home values increase in the future? After all, wouldn’t it be fair to increase the mortgage balance back to its original status if the home’s value increases?

  4. barrydemo

    Tks for the update, I agree. The Feds are not rational!

  5. Dan B.

    “They took a risk–and they lost.” I believe this applies to Goldman Sachs, Bank of America, Citibank, AIG, Deutsche Bank … and the list goes on for trillions of dollars.

  6. Fraudster

    Who cares? Even with “modifications” defaults and foreclosure rates exceed 25% within 6 months. Capitalism er Crapitalism is on its last convulsive gasp.

  7. Red dog

    makes me see red; need big change at the top in washington, otherwise all we get is entitlement programs

  8. Donald

    I think is stinks. I wrote the L. A. times suggesting that one team from the 55 lawyers they recently hired to look into this develop software to match in incomes claimed on the applications to the IRS records, and go after anyone whose numbers were not close. Either they lied on the application or their tax return.
    I developed mortgage applications for 40 years and can tell you this would be easy to do. Once they weeded out all of the borrower / applicant fraud, let’s see who is left standing.

  9. Gmoney

    Your right, BUT didn’t we bail out all of Wall Street investors that took gambles too? Tis a fundamental problem with the bail-out idea…Where, oh where has accountability gone?!? From investor to broker to fund manager to regulator: If there was a “moral stockmarket”, I’d short it…and unfortunately would have substantial gaines!

  10. bosco

    It is quite obvious, if this administration allows the free market to work it will require the very finacial institutions that they (feds) (we taxpayers) have bailed out once to accept further write offs of their own bad investments decisions.

  11. nnafpw3

    The American Voter does not understand that “A democracy will continue to exist only up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship…
    “Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.”
    These words – the author is unknown –

  12. Bill

    Yes, this is a dumb idea. In Arizona, the level of property speculation and flipping were so bad, the idiot city planners in Phoenix calculated that–wait for it–over 1,000 people were moving to Phoenix every day! To show how shortsighted that was, a simple multiplication meant that–even more fanciful–365,000 people moved here in one single year. Do you know what the most profitable job would have been back then? Driving all those U-Haul vans back to their original location! Financiers use numbers like drunks use light poles–for support rather than illumination.

  13. DF

    Greg makes some prescient comments and I agree with his premise. What frustrates me, on the general sentiment front, is that this is somehow a dysfunctional aspect of the “current’ administration. This is a dysfunctional and systematized aspect of both parties in Washington. We keep electing them, and then we’re surprised when they enact legislation that is short-sighted and treats the illness, but never puts in preventative measures to prevent the illness from recurring.

    Bailing out people who speculated and borrowed above their means just frustrates all of us that try to live below our means and continue to make our mortgage payments despite the value of our home. A homeowner bought their home as a place to live in, where does it say in my mortgage documents that I was buying it to flip it for a profit or that it would always appreciate in value despite the surrounding economy? If certain homeowners/rental property owners what assurances that the value of their property would never dip below what they paid for it, then the banks should have put caveats in the contracts stipulating that the borrowers could not reap the rewards of appreciation. It would never happen, but that’s the logic some of these speculators.

  14. Frustrated in CA

    I think those in my situation should be helped first…before the investors. I bought my house in CA in 2004, put down more than 20%, have a 780 credit bureau risk score, am employed, and earn enough to pay my mortgage (on time every month.) The value of my house fell faster than the rates, so now I am under water (100% LTV), cannot refinance, and cannot sell. The mortgage was sold several times and now is at Webster Bank in CT, serviced by Aurora. Webster says they won’t help me because the property is out of their footprint and Aurora has the LTV issue. And the government programs are only for Fannie and Freddie. I would like to retire in a few years but am caught in this catch-22. Do you know of any programs that can help those of us who are current on their mortgage, but are underwater and would like/need to refinance or sell?

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