Smart Borrower Blog

What Will Washington Do?

Feb 22nd, 2008 @ 5:48 PM by Alden Smith

Today, we are looking at what we did during the Great Depression, with home owners owing much more than the property is worth.  If you think the sub prime debacle is just a bubble, then guess again.  I have never been much for “looking at the big picture” but the more I research this situation, they more I see how things all tie in together.

The government has come up with several proposals – Project Help is the latest in their lineup – and the eligibility requirements are such that few people in dire straits would be helped. At present, nearly 8.8 million people are in trouble.

Now, several large banks are pushing the government to buy up billions of dollars in mortgages and replace them with fixed-rate federally guaranteed loans.  All at deep discount, of course.

Many of these homeowners are people who have good jobs, have kids in school, but are victims of serial refinancing.  Now, they find that they owe much more on the home than it is worth, and are unable to either sell or refi.

The problem seems to be affecting the whole country, instead of as traditionally on the east and west coast.  Cleveland is especially hard hit, as is Memphis.  Many of these people have very good jobs, yet have probably refinanced to maintain a lifestyle, and now find themselves in deep trouble.  One of the biggest fears is that people will walk away from these mortgages, and we are seeing that happening a great deal today, as never in recent times.  It has always been that you could do what you had to, and end up keeping your home and bailing yourself out.  This is no longer the case.

Repubs and Dems are not happy abut going along with anything that says “bailout” yet fear that their constituency is going to heap some hot coals on their heads if something isn’t done.  Yet mortgage lenders are screaming that the tight restrictions on the FHA proposal, along with much stricter credit scoring, is making it next to impossible to find any bottom to this.

Some feel that anyone who has made their last six payments should be given a break.  Old mortgages could be replaced by cheaper mortgages insured through the F.H.A.

Homes right now are not selling.  People are stuck with them regardless of whether they can make the payments or not.  They cannot leave a job to move to a better one because of the house.  And as the prices continue to drop, more and more people will be out of luck.  It will be interesting to see where this goes.

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