Another help for those mortgages underwater.

[atlcomedy]

Originally Posted by discreetgent

In theory then B should simply make a business decision and hand in the keys to the mortgage holder. Of course the mortgage holder will scream about the morality of reneging on an obligation but if its all about money then I can't see what they are complaining about. Make sense PJ?

I hate to play WTF and link

http://www.marketwatch.com/story/pri...k=MW_news_stmp

but BoA announced a new plan this week that would forgive up to 30% in principal on certain mortgages....I'm not sure what the terms of the program are...hell I'm not sure BoA knows what they are....

In this case "B" may come out a winner (or at least not a loser) & not have to hand back his keys..."A" is out of luck

[WTF]

Originally Posted by atlcomedy

I hate to play WTF and link

Come on now atl........a link is worth a thousans words. just like a picture! Saves me from reading a pile of posts on what people think instead of actual facts!


For a different reason, I will tell ya just what your ladies friends tell ya..."You keep that link acoming atlcomedy!"

[Rudyard K]

First one needs to determine what is the question they are asking. What is the appraised value of my house? What is it worth? How much can I sell it for? There are those that think those are the same question, but they are not.

The general definition of "value" in an appraisal process is "the transaction price between a willing buyer and a willing seller, when neither is under undue influence to act". Those type tranactions are occuring today...but generally more in the new home sale market. Pre-Owned homes have a lot more influences and other motivations attached to them.

It is very difficult in today's environment to achive the "not under undue influence" part in a pre-owned home. As such, the price people are achieving on house sales is, a lot of times, "just all they can get for it". That diamond ring SB has might not be worth much at all if she is needing to sell it to someone tonight to put some food on the table.

This is the argument (or maybe it is simply a discussion) that banks (and lots of businesses) are in regarding a lot of their assets. If they own a $10,000 bond that matures 20 years from now and yields 3% each year over that 20 years...what is its value? There is an argument that if the bank holds it on its books for the enitre 20 years the bank will recieve its 3% yield and its $10,000 at the 20 year point. But if it needs cash today, to pay down other debt or for whatever reason, and it must go sell that bond to third parties, you can bet that the bank will take quite a haircut on the value. So, what is its value today? The full $10,000 or the haircut value? GAAP is trying to figure out how to answer that question too. Because, in theory, the banks books are supposed to reflect that bond at its value today.

If you own a piece of land that three years ago you had an offer on for $100,000. And today you can only generate offers of $50,000. And you, as the owner, say "screw it, I'm not gonna sell it for that. I'll just wait for it to be worth $100,000 again." What is the value of that piece of land? $100,000? $50,000? Something inbetween? "Depends" is not an acceptable answer. The reporting requirements don't have a place for that.

IMHO, if you have something you want to sell, and you want to sell it just because you are ready to sell it, and you get offers and agree to a price, then that was its value today...appraised or otherwise. But if there are other things going on...it may not be...it may be just all you could get for it.

[Marcus Aurelius]

Fair or deserve has nothing to do with it.
Who's most likely to foreclose and how can the government stop some of them from doing it. (The one's that have income)

[atlcomedy]

Originally Posted by Marcus Aurelius

Fair or deserve has nothing to do with it.
Who's most likely to foreclose and how can the government stop some of them from doing it. (The one's that have income)

You are right. Nothing about government programs is "fair." (or just, etc.)

& I agree that slowing/minimizing forecloseures will help to stabilize prices (at least for a time)...the question is at what cost?

Remember Cash for Clunkers? The car dealers had a great month. Ate steak again . Then like a junior high school economics student could have predicted, sales stalled after the program as they pulled demand forward instead of creating new demand. & the question is at what cost?

[Sydneyb]

Originally Posted by atlcomedy

Remember Cash for Clunkers? The car dealers had a great month. Ate steak again . Then like a junior high school economics student could have predicted, sales stalled after the program as they pulled demand forward instead of creating new demand. & the question is at what cost?

I know I already drive you crazy - this certainly won't help ;-)! I bought a car (that I wouldn't have purchased) with the cash for clunkers program. I replaced a secondary vehicle 'the big yellow bus' because the program gave me more than I'd have ever gotten without the rebate. But I was happy with that silly thing, so I'd have kept it, if not for the $6500 (including chevy's) incentives I ended up getting for it.

From Newsweek:

Cash For Clunkers' Lasting Impact

It was great for car dealers. But was it good for the economy?



By Daniel Gross


Aug 25, 2009 | Updated: 9:39 a.m. ET Aug 25, 2009







The Cash for Clunkers program, in which the government is offering Americans up to $4,500 if they trade in gas guzzlers and purchase more-efficient new cars, wound down, with an 8 p.m. Monday deadline for filing applications.
.................
And, the most important question of all: How effective has it been as economic stimulus? Since the onset of the crisis, top White House economics adviser Larry Summers has argued that stimulus efforts should be "timely, targeted and temporary." As the crisis deepened, Summers went one letter earlier in the alphabet to alliterate that stimulus should be "speedy, substantial and sustained." Judging by the results so far, Cash for Clunkers meets five of Summers' six criteria--all but "sustained."
Through stimulus--tax cuts, government spending, gimmicks, rebates, etc.--the government attempts to purchase economic activity with borrowed money. But not every stimulus works quickly or spurs the same amount of private-sector activity. Many of the transportation-related projects in the stimulus package passed earlier this year, for example, are designed to be funded over a two-year period. They're neither timely nor speedy. Tax cuts and rebates can be implemented more quickly, but they're not always targeted. Scholars who have studied consumers' use of rebate checks in 2001 concluded that "households spent 20-40 percent of their rebates on non-durable goods during the three-month period in which their rebates were received and roughly another third of their rebates during the subsequent three-month period." If a similar formula were to hold in this environment, distributing $3 billion in tax rebates would lead to $1.9 billion in retail spending over a six-month period, or about $300 million per month.


Cash for Clunkers, by contrast, has had a much bigger impact. According to Paul Taylor, chief economist at the National Automobile Dealers Association, the average new car sold in the United States so far this year has cost $29,106. Those 625,000 cars sold through Cash for Clunkers, then, probably account for about $18.2 billion of retail sales. They've also spurred a lot of secondary economic activity--taxes paid, dealership advertising, overtime wages for dealership employees.
Of course, many of those auto purchasers were already in the market for a car. And it's possible that the incentives have just lured people who would have bought cars later this year into the showrooms earlier--thus stealing sales from future months. The real measure of the effectiveness of the program would be the degree to which it caused people who weren't even thinking about buying a car to take the plunge. Based on the types of cars being purchased and his assessment of purchasers, NADA economist Taylor believes that as many as 40 percent of the cars purchased under Cash for Clunkers were bought by people who would not have bought a new car in this calendar year. For a significant number of buyers, he argues, the rebates of $3,500 or $4,500--depending on the car purchased after the trade-in--changed the calculation of whether it made sense to purchase a new car.
If we use Taylor's estimate, about 250,000 extra cars were purchased (40 percent of 625,000). And if each cost $29,000, those sales generated about $7.3 billion in revenue in the space of a few weeks. That's a pretty good return on $2.6 billion in government spending. Let's be more conservative. Say only 20 percent of the clunker traders were extra demand, and the cars they bought cost $25,000 each. That's still an extra $3.125 billion in sales for dealers. What's more, the sales represent only a portion of the economic impact. Ford, for example, announced that it is increasing production of some models.
Of course, it's possible that car sales will simply revert to their pre-Cash for Clunkers numbers in September. But that won't mean the program was a failure. Fiscal stimulus is supposed to be a bridge between a period when people aren't spending to a more prosperous future, when, with a growing economy and (presumably) an improving job market, people will start spending more on their own, without special inducements.
Car purchasers are different from purchases of other types of goods. The timing of a purchase is almost entirely discretionary. People can keep a junker on the road for an extra year or two by repairing it, driving less, or simply putting up with a poor driving experience for the sake of saving money. It's very expensive to replace a car. Doing so requires the sort of big financial commitment--the assumption of a multiyear lease or car loan--that is not taken lightly in times of economic stress. In a climate where people are buying school supplies on layaway many consumers need some extra prodding to make large purchases. In August, the Cash for Clunkers program clearly provided the necessary encouragement for a large number of consumers.

[Sydneyb]

Below shows there would have been a significant reduction in cars purchased anyway, particularly when you throw in the 770,000 cars purchased under the clunkers program. It really does seem that more were purchased with more collateral value (satainability of taxe bases, wages, etc). Links to 2009 number are in the article below:

http://www.thetruthaboutcars.com/u-s...t-in-27-years/

2009 sales of light vehicles (cars and light trucks) in the United States came in at the bottom end of the estimates. Americans bought only 10.4m units, the lowest level in 27 years, Reuters reports.
America actually lost some 4 million cars. The United States scrapped 14m autos while buying only slightly over 10m last year. Cars on the road dropped to 246m from a record high of 250m in 2008, says a report to be released on Wednesday by the Earth Policy Institute (EPI), cited by Reuters.

Lester Brown, the president of the EPI, fetes this blip as the United States entering “a new era, evolving from a car-dominated transport system to one that is much more diversified.”
Not so fast. The U.S.A. still has some 800 cars per thousand pop, vastly more than the rest of the world. Car density in Western Europe hovers in the 500s. There are approximately 50m more cars than licensed drivers in the U.S.
The quickly aborted cash for clunkers program removed only 700,000 vehicles from American roads. By government decree, they were immediately replaced with new ones.
Update: Complete set of 2009 data here in handy Excel format Refer to TTAC’s roundup of 2009 sales data for a continuously updated roundup of 2009 sales data from around the world.

[Marcus Aurelius]

I didn't like the fact that the global warming religion had the trade ins crushed.

[Katy Alexander]

Originally Posted by pjorourke

Conceptually, how do we justify helping homeowners who "lost money" by over leveraging their property. Consider two people, with the same incomes, that bought a house for $400K. A put 40% down and has a mortgage of 240K. B took a 95% loan and has a mortgage of $380K. lets assume that the market value of both homes are now $300K.

Both homeowners have suffered a 100K hit to their net worth. One lost 100K of equity, the other lost 20K of equity and has 80K of mortgage in excess of their value. Same $100K hit. How is it fair to help B and not A? Suppose further that A&B each had $160 to put down, but while A but it all in his home, B left $140 in a money market account. What now?

When you start down this slippery slope, where do you stop? I'm dying to hear TTH's take on this question.

I am an A surrounded by B's.When I bought my condo I put 35% down, and that is the only reason why I am not under water at this point, although I may need a snorkel pretty soon.Many of my neighbors are now doing short sales because they refinanced , or took out heloc's a few years back when our property values were abnormally high .I do not believe in touching the equity in my home, so that is the other reason why I have not sunk yet.

I do agree that this has nothing to do with fairness, but I have to admit that it really does bother me that the people who tried to be responsible will be the ones who get little to no help even though I would loose most of my down payment if for some reason I had to sell at this time.I wish that my neighbors had realized that buying a home is a 15-30 year commitment.I do hope that they are still enjoying their new cars/long vacations etc etc that we are all paying for now.

[pjorourke]

Originally Posted by Sydneyb

While if I was person A, I agree that would be a tough nut to swallow.

The only way that I see that it can benefit the homeowner who put 40% down is that the homes in his neighborhood aren't in foreclosure thereby increasing the value of his home and neighborhood. My understanding that in Florida and AZ there are neighborhoods that are literally rotting; that can't help the folks that are still there due to their fiscal responsiblity either, can it?

But if you carry that argument to its absurd conclusion, we as a country borrow enough money to pay off all the mortgages -- then we would all be rich -- except that is for this massive public debt.

[pjorourke]

Originally Posted by Marcus Aurelius

Fair or deserve has nothing to do with it.
Who's most likely to foreclose and how can the government stop some of them from doing it. (The one's that have income)

Not exactly. The real answer, if you are robbing Peter to pay Paul, you can count on Paul's support in the next election.

[discreetgent]

Originally Posted by pjorourke

Not exactly. The real answer, if you are robbing Peter to pay Paul, you can count on Paul's support in the next election.

And you probably never had Peter's support to begin with

[atlcomedy]

Originally Posted by Sydneyb

I know I already drive you crazy - this certainly won't help ;-)! I bought a car (that I wouldn't have purchased) with the cash for clunkers program. .

I'm happy it worked for you. It was a good deal for many people. If I had a clunker that qualified (mpg) rest assured I'd have taken advantage of the program as well

[ms. julie]

True foreclosures are going to continue and in larger numbers reasons being banks do not have the support to service the so called assistance programs such as HAMP.
To modify a mortgage can take anywhere from 3 to 6 months and in that time most not all of the borrowers (in modification) cease in making payments.
If all the "underwater" borrowers actually attempted to begin a modification all 4 million, there would be a worse crisis than now. That being said the banks are now making it twice as difficult to modify.
More foreclosures = more displaced people = more renters. If you are in a position to add more real estate to your portfolio now would be a good time.

[ms. julie]

http://www.marketwatch.com/story/pri...k=MW_news_stmp

but BoA announced a new plan this week that would forgive up to 30% in principal on certain mortgages....I'm not sure what the terms of the program are...hell I'm not sure BoA knows what they are....


It's a fabulous way to market but until the banks actually properly place capable employees to handle this new process expect more chaos.