Bush's plan for aiding homeowners is less than it appears

[MidnightVoice]

http://www.mcclatchydc.com/homepage/story/19395.html

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What, then, does the Bush plan do? Here are some answers:

Q: How many borrowers with sub-prime loans — those given to homeowners with the weakest credit histories — will the plan reach?

A: The Federal Housing Administration expects to have refinanced 100,000 sub-prime homeowners with adjustable-rate loans in the current fiscal year, which ends Sept. 30. It expects to refinance another 140,000 next year through its FHASecure, a new name for the refinancing it's already doing.

Q: Does that cover most of the problem loans?

A: Not even close. The administration admits that it'll be able to reach, in a best-case scenario, 480,000 qualified sub-prime borrowers by the end of 2009. But it thinks that 600,000 or 700,000 will qualify for help.

Housing advocates expect 2.2 million or more foreclosures tied to the sub-prime meltdown. The administration thinks that two-thirds of the sub-prime loans that were issued in 2005 and 2006 — when lending standards weakened significantly — were exotic adjustable-rate loans with low teaser rates that will reset to much higher rates late this year and next year. Housing groups say 81 percent were. Whichever number is correct, the worst is still ahead on foreclosures............................

[Anonymous]

This ticks me off.

Why should there be a bailout? All bailing these folks out is going to do will be to keep housing prices artificially inflated.

Don't get me wrong, I hate to see people lose their homes. But what's going on it a healthy (in the long run) market correction. Homes that were worth $200,000 in 1998 should not have been priced at $429,000 in 2005. Sorry, but that price increase was illusory, propped up by these subprime loans.

If the government stays out, what's going to have to start happening is banks are going to have to start accepting less than full payment. This will hurt them, but only to the extent they were underwriting loans that should never have been underwritten in the first place.

[Anonymous]

So, if there is limited assistance for people in bad loan deals and it is evident that foreclosures will be on the rise, what is the purpose of this proposed help?  Who determines who will get the help> are they going in alphabetical order until the funding runs out?  What about all the people outside of the proposed 100,000 who are going to lose their homes because they can't afford the inflated mortgage costs? 

Where are all those people going to live now if they have the foreclosure blemish against them?  WIll they be able to get an apartment based on their credit?  Probably not.  Then what?  I do believe responsibility lies with all associated in the loan process, the lender, broker, and the customer.  It should be a mandate that consumers are required to be educated concerning loans, how they work, worst case scenarios so that they can see the entire package as opposed to right now you can afford it and something happens and now you can't.  Education is key to prevention.

[Anonymous]

Well, let's apply basic economics...supply and demand.

Banks are probably going to give a little to keep from a foreclosure. They may offer concessions, reduced interest, forbearance, and so on. As far as new mortgages, yes, there probably will be some retrenchment and mortgages will be harder to get. But at the end of the day, banks make money by loaning money and receiving interest. They're not going to stop. But they will scale back. This will reduce the amount of money available for people to buy homes with. This will reduce demand for houses, which will bring prices down over time.

Homeowners will have to get creative...some may choose to rent out rooms in their home to help make the mortgage payments. This will increase available rental property. Those who do get foreclosed on will suffer some credit score fallout, but in the next few years there'll be a lot more people with that black mark on their credit. When the supply of anything goes up--even black marks--the "value" (in this case, the impact) of the commodity (the foreclosure on a credit report) decreases.

[Anonymous]

Hard to call it a bailout when it's seeking to refi people into FHA loans.

http://ficoforums.myfico.com/fico/board/message?board.id=creditnews&thread.id=365