Foreclosure Plans Benefit Banks, but Do Little for Homeowners

[OKthatsIT]

Source: The Center for Economic and Policy Research

March 4, 2008

Foreclosure Plans Benefit Banks, But Do Little for Homeowners
Taxpayers foot the bill to finance bailout plans
For Immediate Release: March 4, 2008

Washington, DC—Many of the recent proposals to help homeowners facing foreclosure provide little relief for most of the families at risk of losing their home, according to a report from the Center of Economic and Policy Research. Under these rescues, taxpayers end up underwriting a bailout that could reap billions of dollars in profit for banks and mortgage holders.

The report, "Subprime Rescue Plans: Backdoor Bank Bailouts", examines the basic logic of these plans, focusing on the proposal offered by the Office of Thrift Supervision (OTS), to illustrate which parties stand to gain most if the government buys or guarantees bad mortgage debt.

“House prices have been falling at a 16 percent annual rate and will likely continue to fall. This means homeowners will build little or no equity throughout the duration of plans like this,“ said Dean Baker, author of the report.

This study shows that under these plans, homeowners will get to keep their house, but will be paying 85 percent more than if they rented a similar property. They will have little hope of accruing equity in a house that is falling in price and in which the initial terms of the mortgage have already put them underwater. Furthermore, depending on the rate of foreclosure, taxpayers could plausibly end up paying as much as $75,000 for each homeowner who stays in their home.

more...

Read more: http://www.cepr.net/index.php/press-releases/press-releases/foreclosure-plans-benefit-banks-but-do-little-for-homeowners/

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Bush, the GOP and the Banksters totally undermine the US. They knew these loans were bad. The USA wrecked by design. And the Democrat majority Congress sets the last nail to the coffin.

[natrat]

1. now theres a surprise-american politics benefitting the few at everyones expense

[Wednesdays]

12. "Let the market decide...let the market decide...let the market decide...

...I mean, uh...

Oops.

:banghead:

[Warpy]

2. "Inherently unfair" is how one court has ruled on most ARMs

and other funny paper that's been issued for the past few years. It said that any loan that was issued at or below 3% below the going rate for a prime 30 year loan or which reset at or less than the three year mark was inherently unfair to the borrower. That covers most of them.

As soon as an appellate court rules on that one, relief just could be on its way and loans converted to fixed, 30 year loans at whatever the going rate was when they were issued.

In any case, banks will be faced with the same decision they made in the Depression: do they kick homeowners out and end up with a worthless property damaged by vermin, vandals and vagrants and which pulls down all other area values, or do they keep the homeowners in it as renters, generating as much income as possible while keeping the place lived in and intact?

They ultimately made the latter decision in the Depression, but it took them a few years to make it.

[Lance_Boyle]

4. one court can't rule on "most ARMs"

This sounds like one judge's opinion. Not to mention that "inherently unfair" is hard to argue when the contract terms are spelled out in black and white. Abusive? Some are, to be sure. But the terms of the abuse are laid out in black and white for the borrower to accept or refuse. Small wonder contract law is often called "the law of regrets."

Those who borrowed beyond their means must surely now regret it. Doesn't mean squat as to the legitimacy of the contracts they signed.

[gratuitous]

7. The Gants opinion was pretty specific

There were several criteria the judge cited that made such ARMs "imprudent and unfair." I can't seem to get to the actual opinion (you might have better luck), but after ticking off several items, including the very real risk that a mortgage could not be repaid should housing prices fall at all, the judge concluded that it was incumbent on the mortgage companies to work with borrowers to find a solution.

[Lance_Boyle]

8. It was incumbent upon lenders to specify their terms up front

which they did. It then became incumbent upon borrowers to not do the imprudent thing. The very real risk that a mortgage could not be repaid should housing prices fall is what borrowers gambled (and LOST) on. When you play roulette, there's a very real risk that the chips you place on red will disappear if the ball lands on black.

[gratuitous]

9. Except . . .

This is presuming quite a bit, including that all parties were operating with the same level of information, that no one was engaged in deceptive lending practices, and that all parties to the transaction were at the negotiating table. When the loan "packager" is the only other party involved, and the packager's participation ends as soon as he collects his commission without regard to the borrower's economic status, the true value of the property in question, and full disclosure of all the terms of the transaction, the propensity for fraud, self-dealing, and deceptive trade practices rises exponentially.

Borrowers certainly have their share of culpability, but letting mortgage brokers off the hook for their manipulation of the markets is hardly a recipe for bringing balance back to the trade.

[Lance_Boyle]

11. If fraud or deceptive practices are proven, hit the lender hard.

I think we're in total agreement on that. But most of what I'm hearing is "we knew the rate would adjust, but we thought we'd refi first," or, "we didn't realize that such a small rise in percentage meant such a large jump in payment." That's not irresponsible lending, that's irresponsible borrowing. Gambling.

When I hear, "we signed a contract that said 30 year fixed but now the lender says it's an ARM," I hear fraud. When I hear "I thought it was fixed, but I didn't really read the papers at signing," I hear "I am an irresponsible person who is now learning that contracts are binding and you should understand them completely before signing them."

When all parties are given the same ink-on-paper contract at signing, all parties *are* operating with the same level of information.

[xchrom]

3. they need these people to accrue equity in their investment -- their home.

the faster some one figures out it isn't in anyone's best ''interest'' to race for the bottom -- the better.

[Hulk]

5. Gosh, am I surprised? Sort of like the S & L days of papa-reagan.

This is not news. This is what the repugs do so well. Cover the asses of their constituents. Don't you get it YET America? The top 1% get the tax breaks. The bankers get the coverage and protection (at the expense of the working class). The big corporations get the prosperity and loop holes to make record profits. The American worker is flipping hamburgers for a minimum wage the Democrats had to bleed for.

I'm so sick of this bullshit. "...of the people, by the people, for the people.."...= just more bullshit.

[superkia]

6. Hulk, if you dont think it is the elite that are buying off politicians...

from BOTH sides of the isle to further their agenda, that would make you part of the America that doesn't get it. This isn't WWE wrestling, they only make it look that way so the American people divide themselves in two. Together we stand, divided we fall!

The letter D doesn't tell us who supports us and the letter R doesn't tell us who the evil people are, life doesn't work that way.

I agree with the bread and butter of your post but it looked like you were pointing at a side when they are all on the same side that is against us. When America gets that, then we will have change.

[crimsonblue]

14. It does suck when the government doesn't help you

but that doesn't mean a homeowner is entitled to help. I just don't understand why the government should be obligated to intervene in contract agreements made between willing parties. If you got an ARM, knowing that it would go up a lot after 2 or 3 years, but did nothing to make sure you could afford that mortgage, then you shouldn't get relief. Life isn't fair,and it is your fault if you made a stupid contract agreement. Never sign something if you don't understand its terms. Now, the people that were duped (I've yet to meet one personally, but they are out there), then you do deserve compensation, specifically, the dissolution of the contract. A signed contract that was manipulatively or coercive obtained is not exactly legal, so there is recourse through that avenue. I hate that Americans are losing their homes. I'm not fully convinced that this problem lies solely with the Banks issuing ARMS. If you cannot afford it (and with something like a house, it may be good to crunch some numbers and see if you can afford it) don't buy it.

P.S. I hate being taken advantage of, so if there is substantial evidence (there very well might be some out there) that this was predominantly a predatory practice, then I will man up, apologize, and go after the bankers.

[Bozita]

10. This is exactly the kind of democracy Bush is trying to export to Iraq.

The Iraqis ain't buying it and I don't blame them.

[crimsonblue]

13. The Gov will choose monetary policy over human needs everytime

This is born out of a mixture of necessity, greed, and the isolation from mainstreet that being in Washington does. To the Government, ensuring the continuity of the machine is more important than an individual person, because people die but the machine will (at least hypothetically) be around. Most banks are not in danger of going bankrupt or defaulting on loans, but their credit ratings could be affected. A downgrade from AAA to AA is substantial, and severely affects banks and lenders' ability to create new loans, in addition to increasing existing interest rates on loans the bank itself takes out. If you recall the Great Depression, the Government failed to intervene and allowed thousands of banks across the nation to close up, and erasing the accounts of millions of Americans.

In summary, the Government has a more vested interest in the financial stability of banks than individual citizens. Without a strong financial sector, theres no hope of ending the recession. The bank plans help ensure long term economic stability, at the expense of Joe Schmo who is gonna lose his house. It sucks a whole lot, but thats' just the way it is.