The Homeowner Bailout
Who are the people needing foreclosure relief? Here’s an example.
JIM ACOSTA, CNN CORRESPONDENT (voice-over): School bus driver and mother of two, Minta Garcia got the letter every homeowner dreads, your mortgage is in jeopardy of going into foreclosure.
MINTA GARCIA, DISTRESSED HOMEOWNER: We’re going to be losing the house. We’re going to lose everything.
ACOSTA (on camera): You think you’re going to lose everything?
GARCIA: Yes.
ACOSTA (voice-over): Her message to the president…
GARCIA: Stop with the foreclosure.
ACOSTA (on camera): Stop the foreclosures?
GARCIA: Yes. Right now, because if people are losing houses, losing jobs, what are we going to do?
ACOSTA (voice-over): The White House says its housing plan will be one leg of a multi-legged stool that includes the stimulus and fixing the banks, with more legs to come to prop up the ailing economy.
TIMOTHY GEITHNER, TREASURY SECRETARY: This crisis in housing has had devastating consequences, and our government should have moved more forcefully to help contain the damage.
ACOSTA: Expected to cost $50 billion to $100 billion, the housing plan targets foreclosures by modifying loans for troubled borrowers. Some economists question whether the plan is big enough.
PETER MORICI, ECONOMIST, UNIVERSITY OF MARYLAND: We are likely looking at a trillion dollars in mortgage losses before this is all over, and putting $50 billion or $100 billion in is not going to solve the problem.
ACOSTA: Like countless other Americans, Garcia admits she and her husband bought more house than they could afford, but she says the lender made the purchase all too easy. Now her mortgage is worth more than her house.
(on camera): How much was the house when you bought it?
GARCIA: Eight hundred.
ACOSTA: Eight hundred thousand dollars?. And how much is the house worth?
GARCIA: Right now, it’s like $675,000 on the market.
Hot Air fills in the details on Garcia’s story.
What has happened in too many cases is that homeowners took a speculative risk on their house, either buying a home they couldn’t afford or emptying the equity in their existing home in anticipation of above-inflation value growth. Once the market reinflated the equity, the owners could refinance with better terms on a fixed-rate mortgage and have a payment they could (barely) afford. Unfortunately, this Ponzi scheme imploded when housing at first failed to increase in value and then began to drop.
In other words, the homeowners took a risk based on market appreciation. Those who completed their refinancing before 2007 managed to avoid losses. Others took a risk and lost out. Let’s remember that Garcia’s home value only matters if she tries to sell the property. Lenders do not foreclose just because the valuation drops; they foreclose when borrowers can’t make the payments. Being under water on a mortgage doesn’t mean one can’t make payments as long as the owner bought a home and a mortgage he or she could afford.
These are the mortgage holders that are resented, unlike the irrational envy described by certain liberals. Conservatives understand losing one’s job or having medical expenses. But buying a house on speculation–also known as gambling–shouldn’t be supported by taxpayer money.
mike g:
Nor should gambling on mortgage backed securities.
23 February 2009, 7:06 pmDana Pico:
But those of us who didn’t over-buy, who weren’t looking at buying a house as a get-rich-quick scheme, those of us who put 20% down and who pay their mortgages on time, every month, will have the exquisite pleasure of subsidizing the people who bought and financed irresponsibly. I am so happy.
23 February 2009, 8:07 pmSharon:
Ever seen that show “Flip This House” (or something like that)? That mindset is what caused much of the mortgage crisis. Mortgage backed securities? Sure, that was a terrible thing for investors, since they didn’t know which mortgages were good and which were bad. But the bottom line is that if people weren’t buying outrageously expensive homes with the theory that the house would continue increasing in value exponentially, there wouldn’t be so many painful problems now. But we created a system which started and encouraged the worst behaviors in both borrowers and lenders. Who gives an $800,000 mortgage to a bus driver? Someone who expected to make a quick profit and pass the risk on to someone else. And what bus driver buys an $800,000 house? One who is willing to gamble that the house will continue to increase in value.
23 February 2009, 9:58 pmDana:
I can tell you in So. Cal. where salaries tend to be a bit higher than the rest of the nation, bus drivers at the local school district earn approximately $16 per hour. She absolutely had no business in an $800,000 house. And this is just priceless, “but she says the lender made the purchase all too easy.”. Always have someone to lay the blame on while simultaneously garnering sympathy (and money). I would have far less resentment if someone just ponied up and honestly said they were irresponsible, their eyes were bigger than their stomachs and they were loath to ask for help. Convenient for them though that our own government expects no assumption of responsibility and is all too willing to assume it…with our money.
23 February 2009, 10:22 pmYorkshire:
I paid my house off after having to put 25% down. I don’t feel compelled to pay off a house I won’t own.
23 February 2009, 10:28 pmPhoenician in a time of Romans:
But those of us who didn’t over-buy, who weren’t looking at buying a house as a get-rich-quick scheme, those of us who put 20% down and who pay their mortgages on time, every month, will have the exquisite pleasure of subsidizing the people who bought and financed irresponsibly. I am so happy.
Dana, have you had any savings in the past decade that paid interest to you?
Almost certainly, part of that interest derived from, as Mike G points out, gambling on mortgage backed securities.
If you invested expecting a return underwritten by the property bubble, you’re also responsible.
Have you had any savings in the past decade that paid interest to you?
24 February 2009, 4:11 amSharon:
Why are you so determined to excuse reckless behavior, Pho?
24 February 2009, 9:33 amOther Dana:
Phoenician in a time of Romans, bottom line: Do you believe it is the obligation of those who have paid their mortgages on time, through thick and thin, to then pay the mortgages for those who through their own irresponsibility are now in default? With that, do you believe that home ownership is a right?
24 February 2009, 11:10 ammike g:
I don’t know of anybody, myself included, that is willing to excuse the type of house-flip hysteria that you described. What most people find upsetting are the prevailing MSM attitudes that bailout money for banks should be limitless while bailout money for home owners, a comparitively paltry sum, deserves extreme scrutiny.
24 February 2009, 11:15 ammike g:
Just for fun we could count up the number of comments on this blog dedicated to excoriating greedy home owners versus comments deriding the shareholders of Shitibank or AIG for expecting the taxpayer to keep their stock portfolios profitable. Again, if people were serious about the actual dollar amounts they’d be a helluva lot more worried about the money being pumped into B of A.
24 February 2009, 11:19 amArt Downs:
There was a news item from Baltimore regarding an ACORN thug who broke into a house where there had been a foreclosure. This involved the criminal act of breaking and entry.
The former owner had allegedly suffered when her payments went up by $300 per month.
Her former home had been sold to a new owner and the invasion was clearly illegal and should be dealt with under criminal and civil law.
The previous owner paid ~$90k for the house but refinanced to over $200k. What did she do with the money?
After her bankruptcy, the owner was given a chance to ‘catch up’ and pay and additional $300 per month. She chose not to do do and lost the house.
The ACORN goon used the euphemism of ‘homesteading’ for ’squatting’.
How far will we go to reward stupidity? Obama knows his base.
24 February 2009, 12:09 pmDana Pico:
Most of the people here opposed the financial systems bailout, though I was not one of them. To me, it was very much of a hold-your-nose yes, because we have to do it. Even now, I’m not certain that I was right last fall.
24 February 2009, 12:59 pmmike g:
Art> I’m sure you’ve got a lot of anecdotes about dead beat home owners. So what’s your point besides demonstrating once again your hypocrisy and selective outrage?
24 February 2009, 1:01 pmDana Pico:
Phoe: yes, I have made money through interest over the last decade. More, I have made money supplying concrete for residential construction; that’s what I’ve been doing for a living since 1986. But when people sign a contract for a mortgage, they ought to be held to the terms of that contract: pay up, or lose your house.
24 February 2009, 1:04 pmSharon:
Mike,
I didn’t (and don’t) support bailing out the banks, the auto industry or any of the other institutions who are looking for government handouts. I think if you read my blog, I made that pretty plain.
But this woman’s $800k house puts a face on the mess most of us can identify. We all can feel sympathy for people losing their jobs and struggling to make the mortgage payment. But, by and large, we’re not talking about people living in modest-sized tract housing. We’re talking about huge homes with balloon notes that no one bothered thinking about before the day of reckoning.
24 February 2009, 1:07 pmSharon:
And here is another difference between, say Bank of America and the bus driver. B of A employs people, so the logic of bailing them out also concerns keeping those jobs going. I don’t know how the bus driver’s foreclosure will affect other employees.
24 February 2009, 1:09 pmJohn Hitchcock:
mike g, I would suggest using something to back up a claim of hypocrisy. Since it is well-known among the thinking class that ACORN is full of corrupt and has been indicted in multiple states for voter fraud, what is your position on the government providing an easy means for ACORN to get billions of tax-payer dollars? I have to wonder (not really) why liberals immediately accuse conservatives of being hypocritical every time conservatives take a stand against anything.
And count me among those who were against all the “rescues” that occurred during the Bush administration. There was nothing conservative about those “rescues” and nothing fiscally responsible. And there is definitely nothing fiscally responsible about the government forcing financial institutions to grant mortgages to people who obviously cannot afford them in the name of the “right of everyone to own a house.”
24 February 2009, 1:31 pmDana:
Sharon, while all sympathize with anyone losing their home, I think while obviously the size of the house in this instance is pertinent but a person making minimum wage can be just as likely to have no business in that tract home. The city I commute to work has one of the highest rates of foreclosure in Cali. It is a bedroom community with virtually no industry other than minimum wage type jobs and when there were a glut of houses available and the buy low, and the juicy loans being dangled people bought like mad, and while they may have qualified on paper for a substantial loan, their direct earnings were not enough to keep afloat. But thousands of people took the bait. Whether on $150,000 homes or the whoppers. I have seen a bedroom community in a blue collar town become a ghost town in less than a year.
24 February 2009, 2:59 pmJohn Hitchcock:
Heh, in my neck of the woods, anyone who bought a 150k home was in mgmt.
24 February 2009, 3:04 pmmike g:
And there is definitely nothing fiscally responsible about the government forcing financial institutions to grant mortgages to people who obviously cannot afford them in the name of the “right of everyone to own a house.”
Is that what this is about? Your misplaced belief in the fantasy that Bill Clinton forced Countrywide to write $200K loans to burger flippers?
John, I call you a hypocrite because you have devoted next to zero time chastising Republicans, shareholders, mortgage lenders, securities traders. Instead you’ve chosen to spread lies about the current financial meltdown using race-baiting tactics, smears, and falsehoods. I think you need to start reading up on the Securities Modernization Act or actually read the report submitted to President Bush by Henry Paulson regarding the current crisis. The report states that “‘The turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for US. subprime mortgages, beginning in late 2004 and extending into early 2007.” Or this: “We see this in all the numbers. According to a survey by the New York Fed, about 77% of subprime mortgages and 85% of Alt-A mortgages were issued after 2004. What happened in 2004? Subprime mortgage securitizations were able to take off because, as Bloomberg reported, in August 2004 Moody’s and Standard and Poor’s loosened their standards for rating mortgage backed securities…”
The system was fine until free market fanatics like yourself chose ideology over common sense.
24 February 2009, 3:24 pmmike g:
And here is another difference between, say Bank of America and the bus driver. B of A employs people, so the logic of bailing them out also concerns keeping those jobs going. I don’t know how the bus driver’s foreclosure will affect other employees.
So the taxpayers should pay their wages while times are tough and pump billions into insolvent institutions to make sure that share holders don’t get exposed to risk?
24 February 2009, 3:26 pmSharon:
Mike,
The system wasn’t fine before 2004. Housing prices were spiralling up in an unsustainable way, which encouraged people to buy houses they couldn’t afford hoping to flip them to make more money. I’m not arguing that loosening standards for mortgage-backed securities wasn’t problematic, but there were plenty of stories out there already to the effect of “How high can they go?” “The prices can’t stay this high!” “People are being pushed farther and farther out of the city looking for affordable housing!” and so on.
Also, the only justification for saving institutions is that the harm caused by institutional failure is more devastating than individual losses. When an institution fails, it isn’t just the shareholders affected. It’s all the businesses that do business with that institution.
And while a bus driver losing her grossly overpriced home might be sad, she isn’t losing her job, so she can still go find another home. Just not one as grand in scale.
24 February 2009, 3:35 pmJohn Hitchcock:
I have to wonder how mike g knows so much of what I have said since I have been on this blog for an entire two months of my life. I have to wonder if mike g thinks this is hypocritical as well. I also have to wonder if mike g has ever publicly excoriated any Democrat leader for anything. I also have to wonder if mike g considers all conservatives hypocrites while considering all liberals above reproach. I also have to wonder why “hypocrite” is so fast to fly out of liberal mouths but conservative mouths, not so much.
As Arsenio Hall was wont to say, “things that make you go ‘hmmm.’”
24 February 2009, 4:44 pmArt Downs:
Was Countrywide making sweetheart loans to Democrat politicians while making sucker loans to the financially illiterate?
As far as CITIGroup (the nastier version may be more appropriate) goes, note that one of their directors is John Deutsch, the former DCIA who was rather stupid about some very basic rules re handling of classified material. He beat prosecution thanks to a last-minute Clinton pardon.
The folks grabbing the bonus money on Wall Street seemed rather generous to the Obama campaign.
24 February 2009, 5:58 pmPhoenician in a time of Romans:
Phoe: yes, I have made money through interest over the last decade. More, I have made money supplying concrete for residential construction; that’s what I’ve been doing for a living since 1986. But when people sign a contract for a mortgage, they ought to be held to the terms of that contract: pay up, or lose your house.
Then, in fact, your income has derived from their stupidity in over-investing as much as any real estate broker?
24 February 2009, 6:58 pmDana Pico:
Mike wrote:
So, naturally you’d be interested in a story, printed in The New York Times, dated 11 September 2003:
And, as I’m certain you know, this plan was blocked by opposition primarily, though not exclusively, from the Democrats. President Bush was trying to avoid a repeat of the Savings & Loan problems which so badly hurt his father’s presidency.
But there’s plenty of blame to go around, to both Republicans and Democrats.
We had a recession in 2001, and, having lived through the 1991 recession and how badly the construction industry was hurt — I had a whole bunch of friends who lost their jobs in the ready-mixed concrete industry then — I was amazed: residential construction just seemed to skip the 2001 recession. People were losing their jobs, yet homebuilding continued at a pace seemingly unabated by the recession, and housing prices continued to soar, as though no recession was occurring.
I think that that is part of our problem today: the housing industry, having skipped the last recession, is having a doubled-up correction now.
Now, why did housing skip the 2001 recession? The newer forms of mortgages and the spreading around of the wealth probably had a lot to do with it. It loosened credit standards and allowed jumbo mortgages, which are a significant share of the problem today.
24 February 2009, 7:08 pmDana Pico:
Phoenician: Perhaps not quite “as much as any real estate broker,” but I’ve certainly made money due to the building of over-priced homes, somewhat less from interest. But I did not force people to buy too big, or builders to specialize in larger homes.
In New Castle County, Delaware, where I used to live and work, the local government, in what it claimed was an effort to reduce overcrowding, reduced the number of homes that could be built on a 100 acre parcel. This increased lot size, and for developers to make as much money as they had planned, they opted for bigger, more profitable houses over more numerous, smaller homes. Due to the county ordinance, the lot sizes were bigger, making larger homes “fit” on the lots better than they would have on the older, smaller tracts. Even the government pushed regulations which encouraged larger homes.
24 February 2009, 7:29 pmmike g:
John Hitchcock> Let me know when you have something of substance to say. You cry that you’re labeled a hypocrite because you’re standing up for something. I say BS. I’m calling you a hypocrite because I think that the premises by which you assign blame are weak and won’t stand up to scrutiny. And that Librul stereotype bunk doesn’t work with me so save that crap for the tourists. You have a choice here; either you can engage me about policy decisions that lead us into this scenario or you can go back to bitching about some ACORN dead-beats.
Sharon> So you’re saying that Henry Paulson’s assessment to the POTUS was wrong? And the fact that “77% of subprime mortgages and 85% of Alt-A mortgages were issued after 2004″ doesn’t put a dent in the widespread belief held by most of the online devoted that the financial crisis can be laid at the feet of Clinton because of his 1999 modifications to the Community Reinvestment Act?
I think that giving money to Shitibank and B of A is throwing good money after bad because the only way there were able to operate on such an enormous scale was because of the widespread assumption (promulgated by everyone except for those who were called crack pots at the time) that we could operate an economy based solely on the expansion and maintenance of suburbia because house values were judged by all to be the ultimate investment vehicle. The market cap that they used to flaunt in their yearly shareholder reports turned out not to be money at all but assumed “wealth”. People like Peter Schiff, Warren Buffet or George Soros who pointed this out were laughed at as viewing the “New Economy” through antiquated lenses and didn’t appreciate the “innovative” new investment products that could turn lead into gold. “How high can they go?” “The prices can’t stay this high!” “People are being pushed farther and farther out of the city looking for affordable housing!” and so on.” Agreed…but there was no shortage of Ben Stein’s out there telling people that any doubt or prudence was pathetic and uncalled for. Remember, it was only two years ago that Rush Limbaugh was saying that the Lirul Media was trying to convince the US there was going to be a recession when there wasn’t one. I’m not saying that you personally believed that but that there were plenty more folks out there cheer leading than there were doom and glooming. So with Bank of America we’re funding them to keep the dream alive for the shareholders and keep the tellers employed. Fine. But I think a lot of you are missing out on why Wall Street loves the mortgage bailout and Senate Republicans think that Obama’s plan is too small in scope. Paying the valuation difference on idiotic loans for homeowners means that the banks can avoid having to devalue their portfolios. If some sucker is paying a $1K note on a house that should realistically only have an $800 note the true market value doesn’t matter because the subsidy makes the house “worth” $1K a month. The bank then gets to go to the shareholders and say “Hey! We got $XXXXXXXXX.XX in market cap!!” Again, it’s just another way to keep home prices inflated and I think that it’s wrong because I’m being forced to maintain an unfair representation of the actual value of these properties. Just like I’m expected to pay an unfair representation of AIG stock or Citigroup stock.
Art> Was Countrywide making sweetheart loans to Democrat politicians while making sucker loans to the financially illiterate?
Who cares. The point I was trying to make is that companies like Countrywide did not fall under the auspices of the CRA but continued to underwrite “sucker” loans because the SMA, along with rating agencies like S&P who were more than willing to grant their junk A+ status, allowed them to pass the garbage onto somebody else.
I’ll say the same thing to you as I essentially did to Hitchcock; if you want to talk policy, fine. But I’m not going to waste my time playing these Librul Clinton versus Good Republican games with you. You either understand the policy time line or you don’t and cherry-picking pardon factoids or providing ACORN anecdotes is no substitute.
Deutch was the former DCIA for two years. I fail to see how that is relevant. What’s your point? I mean, Richard Parsons campaigned for Rudy Giuliani. By your rationale we should start pointing blame at Rudy for the sub-prime crisis. Same goes for Wall Street giving money to Obama. Christ, I think I was posting about that back in ‘07. Of course they gave to Obama…they can smell a winner. Just like they gave overwhelmingly to W in 2000 and 2004. Again, I don’t see how this helps any of your banal Librul versus Conservative crusades.
24 February 2009, 8:03 pmPhoenician in a time of Romans:
Phoenician: Perhaps not quite “as much as any real estate broker,” but I’ve certainly made money due to the building of over-priced homes, somewhat less from interest. But I did not force people to buy too big, or builders to specialize in larger homes.
Indeed. But would you not agree, therefore, that you have a stake in ensuring that the system deflates back to a reasonable state as gently as possible without collapsing entirely? This applies as much to your savings - which are just promissary notes - as to your core business.
24 February 2009, 8:16 pmmike g:
Dana> you guys just keep posting the same information over and over and expect different results. Why? It doesn’t change the fact that in October 2005 the House, by a vote of 331-90, passed the bill that you’re tallking about to establish a new federal regulator created for Fannie, Freddie and the Federal Home Loan Banks. The new regulator was authorized to set capital standards and, if it deemed necessary, require reductions in mortgage portfolios. The White House opposed the proposed legislation and instead supported the pending Senate bill. But the Senate bill never came up for a vote, and the legislation died. In other words, the Republicans failed to negotiate a deal when they were in charge, and now place the blame on others. And once again, Fox News treats their distortions of history as reportable fact. One Republican has a different take on events. Rep. Michael Oxley claims his bill was opposed by White House ‘ideologues’ who wanted to privatize Fannie and Freddie and who opposed a bigger government role.
And speaking of ideologues…Dana, you can’t change history to your liking. I urge you to look at the official Congressional record on these matters instead of relying on other ill-informed bloggers who think that cherry picking stories and presenting them as “proof”.
25 February 2009, 10:53 amDocBaker69:
What I don’t understand is why she’s saying her house could only sell for $675,000 when the house right across the street from her at 1923 Dinwiddie St. just sold recently for $925,000!!!!
25 February 2009, 1:29 pmDana Pico:
Mr Baker: I don’t know anything about the respective houses, but one might simply be better than the other. You also have problems with “jumbo” mortgages and limits.
25 February 2009, 2:40 pmDana Pico:
The Phoenician wrote:
But would you not agree, therefore, that you have a stake in ensuring that the system deflates back to a reasonable state as gently as possible without collapsing entirely? This applies as much to your savings - which are just promissary notes - as to your core business.
Well, it’s President Obama’s claim that this will save the economy, but, since the porkulus plan passed, there’s no way to know that things wouldn’t have adjusted back to where they ought to be without a systemic collapse without this terrible bill. People can estimate, and they can speculate, but they can’t prove what would have happened if the bill hadn’t been passed.
25 February 2009, 2:44 pm