Let's get one thing straight, you don't need to cry about the bailout because there isn't one. Let me re-phrase that, people aren't being bailed out. Look closely and you will see that the program implemented is solely to protect the lender from borrowers walking away from an upside down position. The plan will "help" the credit challenged homeowner who owes more on their house than it's worth. It will hopefully prevent them from walking away from a no equity deal. I like the concept of releasing the plan as a government bailout...pretty savvy. It provides the program needed credibility and motivates borrowers to actively inquire about their situation.
Here's the dummy version of the "bail-out" plan:
3 year ARM's (or less) originated between 1/05 and 7/31/07
Prove you can't afford adjustment
That's the meat of the plan. So where's the bailout? Who is being bailed out? It's still the lenders discretion whether they freeze the rate. In most of these cases the borrower already has a higher rate, they have no equity in their home, yet they continue to pay their mortgage. Freeze that rate! The rate is already above prime- limit the risk and freeze that rate! Buy time. Let the market firm...Pllllleeeease firm.
What's the alternative? Let the rate adjust and foreclose? Hope that they can pay the higher payment? The risk far outweighs the reward so it's only logical to keep the stream of payments coming in, wait for a better day. What is gained by foreclosure? Is the mortgage really a secured debt if the home is worth less than the mortgage? What are you securing it against, negative equity? Hope Now Alliance is a cooperative effort between consolers, investors, and lenders hoping the borrowers don't walk away from their homes now. If they do, we'll pay more than you can imagine.
Direct lender specializing in commercial and residential loans Nationwide
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
Powered by the ActiveRain Real Estate Network
© 2008 ActiveRain Corp. All Rights Reserved
What do you think of the rate cut today? Who did that help?
Ever get the feeling it's all being orchestrated?
PR
David, This a great breakdown of the plan for those who don't understand or are seething because of the so called "Bailout". No really a bailout, like you mentioned, but more of a way to protect all mortgagees.
Zen- what do people want? Sure it's not fair that someone isn't getting what they signed up for but who really cares at this point. Just pay your bills and keep the house off the market. Do we really need any more distressed sales? It's the first of many steps...baby steps.
Paige- I think the rate cut is one of many. We won't see a quick shock of .5% cuts one by one but rather a slow walk down. Clearly there are many factors that I'm not comfortable addressing since I'm not an economist, but I do think rates are headed down. It's important to remember that the cuts only address short term rates and long term rates are driven off of mortgage backed securities. Not really a good answer but it really is a tightrope we're walking right now....without a net.