What Price Salvation?

Economy

The House of Representatives passed a plan, that will cost about 300 Billion Dollars, to provide aid to the millions facing foreclosures. An actual aid package that doesn’t seem to include the same old bullshit, of Tax Cuts or Tax Rebates, but actual help. However, the math seems a bit fuzzy to me, as does the whole issue.

WASHINGTON — The House Financial Services Committee on Thursday pushed forward with an aggressive effort to help troubled homeowners, approving a package of legislation that would make up to $300 billion in federally insured loans available to refinance the mortgages of borrowers in danger of foreclosure. (source)

First off, the idea of providing guaranteed loans to homeowners that have been swindled, is I think the proper way to go. Now, I am no economist, but if this amount of money is simply a guarantee, how does it cost the taxpayer 300 Billion Dollars? I suppose, that if EVERY SINGLE LOAN DEFAULTED, that is the price tag, but uh, that isn’t quite what it says, now does it?

I guess it is that they pay off the banks, and the homeowner pays the government back, so the start up cost would then make sense, but I question, why in hell should the banks get their money? They caused this mess, surely they should have to bear some of the expense?

What I find interesting, is that these guaranteed loans will only be for up to 90% of the Appraised Value, and that this valuation will be at TODAYS MARKET PRICE.  Uh, excuse me, but with housing values down by as much as 50% in some areas, generally about a third, who is gonna pick up the financing for the unaccounted cost? Will there be some special legislation to deal with that, or will there perhaps be a simple FREEZE?

If the Government will guarantee 90% of the new value, let’s say the house was bought for 300 Thousand, and is now worth 200 thousand, it means that the guarantee will be for financing about 180 thousand of the home. The homeowner is in default because they have a 300 thousand dollar mortgage, given how BANKS & MORTGAGE BROKERS PUSHED NO MONEY DOWN MORTGAGES THAT STARTED ALL THIS SHIT, so what happens to the portion not covered by this guarantee?

The home owner is still on the hook for it, and I can see that, but at what rate? So this measure, of providing aid that is supposed to help up to 1.5 million people, does so how? It in fact provides new financing, but for 2/3 of the existing mortgage only. It doesn’t address the fees and penalties that have been assessed, nor does it address how these people are supposed to pay back the money not covered by this guarantee.

Course it does have a nice little clause about making money off the deal.

The new loans would be limited to no more than 90 percent of the current value of a property, based on an updated appraisal. In addition, the government would retain a stake in any future sale of the property, worth 3 percent of the initial loan balance or 50 percent of the net profit from a sale, whichever is greater. (source)

So let us say, you get a mortgage guarantee for 200 grand valuation, and manage to survive this crisis. The money or mortgage for the difference you manage to handle, and in oh, five years property values rise, and you can sell your home for what you paid for it originally, 300 thousand. Now after figuring out the balance on the mortgages, you get to make fifty grand, let’s say.  The blood sucking bank is paid off, the government guaranteed loan is repaid, and you have fifty grand left, or do you? According to how I read this part of the legislation, half that money if gonna go to the Government for helping you out, because they get half of the net profit if its greater than 3% of the loan amount.  6 Grand, roughly, would be 3% of the loan, so yep they gonna get a cut of that fifty grand, half actually.

So to begin with, it is taxpayer money that was used to bail out Bear Sterns, and taxpayer money used to guarantee your loan. In return the Government didn’t get any cuts of future profits from Bears Sterns, but they do from you, so isn’t that rather nice? Oh wait, funny thing is, YOU ARE THE TAXPAYER THEY BORROWED THE CASH FROM TO BEGIN WITH!

Hmm, see, this is what happens when you rush ahead with plans, and don’t allow for calm, cool, collected, minds to look it all over. This just sounds hokey, like a way for the government to actually soak the home owner, while under the guise of helping them. This is why I believe NO ACTION or PLAN should be taken for at least ONE FULL YEAR. Instead, FREEZE MORTGAGE RATES, FREE FORECLOSURES & PENALTIES ACCRUED, while there is a proper investigation into the mess.

Then come up with a plan, that protects the Home Owner, and insures that they aren’t being further RIPPED OFF by their OWN GOVERNMENT.

Ian @ May 3, 2008