I say bail neither out. Just because you practice a little socialism or give handouts to several people doesn't make it ok. The home should be sold on the open market, not giving the break to the original homeowner (who's stupidity is to blame for the situation we are in).
Yeah I know, it's too late. But really though that's not a good planning, I understand people will lose houses, but they shouldn't have gotten them in the first place. It all comes down to economics, and having free markets, but when you have the govt interfering with everything, then what the hell, why don't we call ourselves socialists.
Why not let the original homeowner buy the house on the open market? I'm suggesting just that. You can avoid the step and cost of selling the home on the open market if you're proactive about closing that sale to the original homeowner.
Free market. Sell the houses to the highest bidder (which wouldn't be the original homeowner getting a gift from a bankruptcy judge and the american taxpayer).
Yes, buy the house on the open market at the fair market price. The principle is non-negotiable. The original homeowner can obviously NOT afford the house if they are in bankruptcy court.
That would ultimately be up to the bankruptcy judge. I would guess that part of the issue is trying to figure out which creditors get priority in the case of bankruptcy. Remember, they probably have credit card debt, perhaps their small business owes money to creditors, they probably owe several months on their utility bills. Someone will get shafted, the question is who. Again, I'm no expert (and I refuse to pretend to be one), but it just sounds to me that the principle remaining on the home would just me one more liability that could be adjusted, if the judge believes that the available capital should go to pay other creditors first. Incidentally, in at least one state, your principal home is immune from bankruptcy.
Do the accounting. The govt. just bought that bad loan for $500K and is selling it to the original owner for $250K. Why not just buy down the guy's mortgage to $250K? Either way it costs $250K to the govt. Either way the guy gets to own his home for $250K.
In almost all states your home is immune from bankruptcy. It's called homestead exemption. In fact, before you go bankrupt, you sell everything and pay off as much of your mortgage as possible, since it's protected.
Agreed. It is a risk, and there is no guarantee that the government will make their money back. But, as I see it, at least they are getting something. I don't see what the government gets in return if they simply give the money to the bank to lower the principle for certtain people.
someone isn't going to be paid if someone is in bankruptcy. All the creditors will be getting ten cents on the dollar. That's one reason why interest rates on credit card debt is as high as it is. Again, I'm not going to pretend to be an expert on this, and I have no interest in doing the requisite research. However, the gov't could always just purchase the outstanding mortgages of debtors in bankruptcy form the bank-creditors at their full remaining value. Since debts to the government survive bankruptcy, eventually the government would have to get the money back. They would probably just renegotiate the terms of the mortgage--say, changing it from a 30 year fixed to a 50 year fixed, which would significantly lower the monthly payments, but keep the net value of the note the same.
They shouldn't sell it to the original owner. They take the house and keep it at its full market value (say 400k or so). If they take over the loan, they can foreclose the house and own the property to sell on the open market.
Okay, what do we get for helping people lower their current payments? We at the very least should get a slug of equity and for all the time they don't pay us back, they essentially have to add what the IO payment would be over the equity. Given where LIBOR is going, that's not appealing for everyone.
the loan companies should just go bankrupt too then, whats the difference? they invested in exactly the same way.
Your "bubble" is known as the "market", and it flucuates depending on where you live. Just admit that backing your plan means MY KIDS paying for the bad decisions of people who could never afford their homes outside of Fannie/Freddie buying up bad loans. The whole scam is a class argument based upon financial reparations, yet noboby will say this.
The "loan companies" were operating on an assumption that Fannie/Freddie would back the loan if it was written a certain way. The "loan companies" won't go bankrupt; they had no capital to begin with outside of the governement-backed Fannie/Freddie. I'm not in a Fannie/Freddie loan, nor should I be based on my own financial decisions.
if i understand denny crane correctly(and i'm pretty sure that i do), he isn't saying that this should happen or that the bailout should occur. but if we take it as a given that the bailout is going to occur instead of giving the money to the companies that made they loans, we should give the bailout money to the people to help them pay off their mortages and the money then obviously makes its way to the companies and people get to keep their houses. of course the bailout is a bad idea and it shouldn't occur but if it had to, this idea is at least interesting.
+1 The SAME amount of money makes its way to the companies, and the effect of the bubble bursting is mitigated for the entire market. IF we're going to spend $700B on some sort of bailout, why shouldn't as much of that money actually help the taxpayers vs. going directly to the companies leaving the taxpayer barely able to pay for their homes and upside down so they can't sell them or earn equity in them over the long haul?
