Sunday, March 4, 2012

Obama Vs. Romney on Loan Modifications

Mitt Romney gets knocked out in the first round!

We already know what Mitt Romney would do. "Don’t try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them."

Obama's "new and improved" mortgage plan would make it a little easier for some home owners to service their debt by liberalizing rules on refinancing for people who are current on their loans. That could save eligible borrowers an average of $3,000 a year, and help curtail the downward spiral of foreclosures.

The president’s latest proposal was aimed at two groups of eligible homeowners: about 11 million whose loans are backed by Fannie Mae and Freddie Mac, and about 3.5 million whose loans are privately held. Those estimates include:

  • only homeowners who are current on their loan payments
  • have a credit score above 580
  • are paying interest rates high enough to make refinancing attractive

The Federal Housing Finance Agency announced that it would begin the pilot phase of a program to sell pools of foreclosed properties to investors, in hopes of increasing the number of rental units available, and reducing the stream of foreclosures weighing down home prices.

Personally, I don't think Obama's plan goes near far enough. I would force the banks to:

  • forgive all principle over and beyond the current market value of the homes
  • rewrite the mortgages for same remaining years of their mortgages at the current fixed rate of interest.

Home prices have fallen by one-third since their July 2006 peak, according to the latest S&P/Case-Shiller report. About 11 million homes are worth less than their mortgages, and about one in eight homes with a mortgage is either delinquent or in foreclosure.

But some argue, "If you were underwater before, you’ll be underwater by just as much afterward. You’re trapped in your house, which isn’t a recipe for a robust recovery." (But with my plan, that would no longer be true.)

Obama's revised Home Affordable Modification Program will pay Fannie Mae and Freddie Mac to forgive debt on homes that have lost value. In other words, even though Fannie and Freddie are effectively owned by the government, the Obama Administration finds it necessary to give them financial inducements to reduce the principal on certain loans.

What's wrong with that? With the exception of those who are still employed, and/or have other assets, and deliberately defaulted to lower their principal to refinance, why couldn't this be a "good thing"?

Of course, many will complain, "That's not fair! I'm still working and I've always paid my mortgage on time!"

I'd say to hell with them, and tell them to count themselves lucky that they don't need the help. The idea is to stop foreclosures for those who might otherwise lose their homes (ARM loans and for the unemployed). By allowing for more foreclosures only lowers the property values on the homes of people who are still working and can still afford to make their payments on time.

The majority of layoffs have already occurred - - unemployment has hit its high mark and employment is slowly rising again; so set a cut-off date and assume normal foreclosure proceedings from that time going forward.

As it is now, auction houses have been busy thriving with bargain hunters on foreclosed homes. People from around the world have scooped up houses that are often sold for less than half of the value of the mortgage. Compare that to a "loan modification" for current homeowners.

If the banks are willing to accept these losses, why couldn't they have just renegotiated the original homeowners' mortgages by 50%, instead of evicting whole families - - those who already have payment histories (including their portion of principal) and any home improvements they may have made? Especially now, with the current historically low interest rates?

With a loan modification, many, if not most Americans, might have been able to keep their homes...which in turn, might have helped prop up the surrounding property values in those neighborhoods. But instead, there's been an influx of foreigners who have been eager for the cut-rate prices on houses that they can easily resell or rent out.

Home prices continue to slip, but unlike home prices, rents have been rising. And with few rental buildings erected over the last few years, available units are going fast. Nationwide, the apartment vacancy rate is down to 5.2 percent, its lowest level in more than a decade. People evicted from homes began moving into more affordable apartments.

Families who might previously have bought homes are also staying in rentals longer. They may be waiting for the housing market to hit bottom, or finding it difficult to qualify for a mortgage. Many others remain uncertain about their job prospects.

At this time 2.8 million home borrowers haven’t made a mortgage payment in over a year, and have been living in their homes for free (the banks calls them "squatters"). If the banks had immediately foreclosed on those home and they were suddenly dumped onto the market, prices would have plunged further. That’s why the banks have slowed the flow of foreclosures, to keep home prices higher as they liquidate the current inventory. If they had not, the housing market would have taken a 57% fall in housing prices. In another study, it would have taken a 68% drop. So, if you bought a house in 2005 for $400,000. That house would currently be worth $128,000.

But wouldn't holding unsold homes (or those underwater) off the market be a "good thing", compared to flooding the market all at once and devaluing property values further? What am I missing? And if not, what would be a better alternative?

Mitt Romney's economic plan is patriotically named "Believe in America: Mitt Romney’s plan for Jobs and Economic Growth" - - but it has only passing mentions of the housing sector. Instead, his economic plan emphasizes low tax rates (which mostly benefit the very rich), reduced regulations for businesses (which mostly benefit large corporations that outsource jobs and dodge taxes), creates initiatives for the energy sector (which is only more Republican favoritism for BIG OIL), and advocates measures that would reduce the influence of organized labor (union-busting, to further drive "living wages" into "poverty wages").

And Mitt Romney just wants more of the same for the big banks by repealing the Dodd–Frank Wall Street Reform and Consumer Protection Act (READ: Private-Equity Rallies Around Mitt Romney’s Dodd-Frank Cure

While yes, Romney's plan WOULD be good for investors and first-time homebuyers (by letting home prices fall even more to bargain basement prices), but millions more would lose their homes that they have already invested their life's savings into.

But let's not forget: It was these "investors" who helped create the mortgage crisis to begin with, even before the banks started bundling their mortgages and reselling them (derivatives - aka credit default swaps). I know, I was there.

I witnessed a huge influx of investors from California when they took out second mortgages to invest in second homes here in Las Vegas when the real estate market was booming during the 1990's. That's also when I also bought a home. They were a bargain compared to real estate prices in California (almost two for the price of one here).

A study done last year confirms this. These investors ("home flippers") bought homes and rented them out when people were moving here at a rate of over 4,000 people a month. Then after a short time, they sold them for a quick profit. Now Las Vegas has one of the highest foreclosure rates in the nation.

The Department of Justice had pressured state attorneys general to sign off on a deal that would likely put an end to the criminal prosecutions of the guys at the top in the banking industry, in exchange for a pile of money. The Wall Street banks will put up $25 billion to help homeowners who were destroyed by their recklessness ... in exchange for calling off the dogs. But this deal is yet another win for the banks.

And this is where I would disagree with Obama: Obama Administration Lets Banks Out Of Doghouse For Bad Mortgage Servicing

But still, Obama does want to help middle-class homeowners stay in their homes, whereas Romney's plan might start another housing bubble all over again.

Blame the big banks for underwater mortgages, not those who are drowning in them.

And no, poor or irresponsible people didn't cause the mortgage crisis. Turns out the housing meltdown was not just caused by government policies that encouraged home ownership by lower-income Americans (and what Newt Gingrich was paid to lobby for). Nor was it just caused by Freddie Mac or Fannie Mae, although those entities also displayed greed, ignorance and a lack of common sense.

Nope, the biggest reason we had a disastrous meltdown is because Wall Street banks went on a bit of a rampage. Banksters snorted mountains of cocaine, humped armies of high-priced hookers, paid themselves obscene amounts of money and gambled hundreds of billions of dollars on financial instruments that were simply make-believe pieces of worthless paper. Everyone knew it was risky. But everyone was making money hand over fist, so they pretended everything was A-O-K. (Now they're complaining.)

Do you really want to know what these bankers think of YOU? Read this very interesting article about one banker's admission, and realize how despised we are.

We didn't cause the housing meltdown, Wall Street caused it, with considerable assistance from their pals at the Federal Reserve and the SEC. The Financial Crisis Inquiry Commission estimated that the overall impact of the meltdown was in excess of $14 trillion. It easily ranks as the most destructive crime spree in the history of the world.

The Federal Reserve and other regulators who should have been on the job, protecting us, instead partied alongside their out-of-control, greed-meister homeys, accepting post-government jobs and looking the other way. Remember when SEC employees were looking at porn during the crisis?

How are the big banks getting off the hook: By blaming a third party (another bank), blaming the investors, claiming ignorance of the transactions, and blaming the law as it's currently written. The banks said they did no wrong. (READ: Analysis of a Meltdown - Why Everyone Should See Inside Job

The EU probed 16 large banks over alleged collusion of credit default swaps. The 16 firms targeted were JP Morgan, Bank of America, Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo, and the Credit Agricole & Societe Generale.

It should also be noted: Republican Senator William Philip "Phil" Gramm introduced the Gramm-Leach-Bliley Act to de-regulate the banks in 1999; then three years later after retiring from the Senate, Gramm joined the bank UBS as a vice-president. And like many other big banks who provide many Americans with off-shore bank accounts, UBS was also involved in tax evasion.

Also, regarding TARP: The multi-billion-dollar "bailout" for the big banks was also a scam. The Federal Reserve (our central bank) loaned the large commercial banks money at the very low rate federal rate (next to 0%) just so that they could turn around and loan it back to us at the much higher commercial rates (5% to 20%). All the banks did was pay us back the difference, hence their higher stock prices and huge bonuses. READ: FOIA Reveals $7.7 Trillion in Secret Guarantees to Banks

All the banks had to do was buy U.S. Treasury notes and they would have earned more interest on those then what they were obligated to pay back to the Fed on their "bail-out" loans! FREE MONEY! Unbelievable!


  1. UPDATE - New York Times

    Forced by the harsh realities of the real estate market, lenders are increasingly likely to allow defaulting owners to remain in their homes — a change in attitude and strategy that is helping to buoy some neighborhoods while further slowing the nation’s foreclosure process.

    Some lenders are now willing to make deals with owners to let them stay after defaulting, offering to pay home insurance, for example, while the resident pays for utilities. Other lenders simply look the other way, quietly putting off foreclosure sale dates, knowing that the costs of the ordeal probably exceed the diminishing value of the properties.

  2. The Obama loan modification program is designed to help about seven-nine million Americans who are facing financial difficulty and those who would wish to take a loan. This program was also driven by the fact that very many American homes were up for foreclosure in 2011, in line with this, the Obama loan modification program is expected to reach its peak this year.

    There however are some conditions that one must fulfill so as to be considered an eligible candidate for the loan.

    To know more on the Obama loan modification program visit

  3. The Obama loan modification program is designed to help about seven-nine million Americans who are facing financial difficulty and those who would wish to take a loan. This is great. Nice article.