The lending business has worked this way for as long as humans have walked the Earth.Obama wants to flip that paradigm on its head.
In Obama's world, it is up to the lender to match the loan to your ability to pay.
Huh?
The first step is solely in the hands of the banks and other mortgage servicers. They have to somehow get the monthly mortgage payments down to 38 percent of the borrower's gross pay. The government will not assist in that part, leaving the banks and investors to take a loss as borrowers' monthly mortgage payments shrink.This move is as anti-capitalist as any move by Obama or any president.
In other words, if you bought "too much" house (a house that was too big, in a better neighborhood, had that 2-car garage) for you to afford, it is up to the mortgage lender to find a way to make sure you can afford it.
That's not the United States; that's Bizarro World!
We are entering an era where the U.S. government can establish the value of your house, not the housing market. But, only if you are in a preferred class that has not been established yet.
You asked for change; you got it.
2 comments:
Actually, it seems as if it's up to the lender to decide if it wants a piece of the government subsidy:
If the lender gets the monthly payments down to 38 percent of the borrower’s monthly income, the government would then match, dollar for dollar, additional reductions to bring the payment as low as 31 percent of monthly income....
But analysts noted that lenders, or the mortgage-servicing companies that administered the loan, would still have the last word on whether to make concessions. If a lender decides that the cost of the concessions is higher than the cost of foreclosing, even with the government subsidies, then a borrower would probably still lose the property.
Since most lenders would rather not foreclose, it seems like all Obama is asking them to do is to give a little to get a little. Otherwise, they're free to foreclose and become the owners of millions of over-valued properties that no one wants to buy. Freedom of choice - that's America, baby!
It's is a bit hazy how much leverage the lenders will have regarding this program. In Obama's own words:
My plan establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines -- which will be in place two weeks from today.
What does that mean "Any institution that wishes to receive financial assistance"? Is Obama implying that banks taking bailout funds will be required to meet these guidelines?
And lest we forget the public-pressure that will be applied by groups like ACORN and folks like Jesse Jackson if a lender dared not offer this program to a borrower.
Further, if the lender does not agree to re-negotiate, the courts may be allowed to mandate that they do.
I just feel a little uncomfortable with my government telling lenders to shred legal contracts in order to meet the borrower's ability to pay, rather than the cost of the item.
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