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Mortgage Upheaval…. A cure for all ‘troubled’ borrowers, deserving or not?

Updated on October 16, 2008
Is there a rescue for you...or is it only for your bank?
Is there a rescue for you...or is it only for your bank?

Big news today from Washington DC.



Finally some serious consideration of across the board rescue and revamping of mortgages for ordinary people....not just the corporations that are holding them hostage to predatory loans. and not just owner occupied homes! It remains to be seen if the reality is just more empty chatter from Congress.


So far the only relief, rescue or satisfaction for anyone involved in the mortgage meltdown has gone to lenders and banking interests. Much to the outrage of taxpayers on both sides of the fence.....those who feel the chips should fall where they may, and those who have fallen into the foreclosure pit and deeply resent their tax dollars going to bail out the very financial institutions who are about to wreak financial havoc on their families, while any help for them, the borrowers, is just so much smoke and mirrors. 




Who is worthy of a bail out?


The Federal Reserve has made drastic and expensive $30 billion fast-fading U.S. dollar moves to avert Wall Street giant, Bear Stearns' black hole implosion, and also thrown very near the same amount in loans at J.P. Morgan's serendipitous windfall purchase of Bear Stearns. We regular folk have to wonder, when the talk comes down to who deserves or is worthy of these failing investment banking enterprises really qualify? The learned consensus was that it is a moot point, as without a bail out intervention our whole economy would topple like dominoes. The cold hard truth is that the beneficiaries of the bail out were wealthy creditors and J.P. Morgan shareholders.


But all this has done nothing to stop the onslaught of individual borrowers' defaults and foreclosures. Which ultimately trickles uphill to Wall Street and further exacerbates the mortgage industry and investment banking debacle. If they expect borrowers to be responsible.....why aren't they?


All Loan Re-negotiation Policies have so far been voluntary on the part of a small handful of lenders, and they are overwhelmed, understaffed and often unwilling to offer any real relief to borrowers they deem undeserving....a vague term in light of the millions of borrowers they did approve for questionable and often predatory terms. I have written other hubs about the realities and ordeals that borrowers are suffering at the hands of negligent, uncaring, and untrained "negotiators'.





And so far Congress and the Bush administration have made only baby steps to relieve the source of the floodwaters rising at America's fiscal levies... low and middle America's inability to cover their newly increased home loan rates, budget for inflation and the rising cost of everything.


Saving "The farm"...your family home!


So now the U.S. House and Senate are reviewing and considering massive and sweeping interventions in the form of government-backed refinances for millions of borrowers, and they are taking the deservedness question out of the mix. The federal government would in fact take over the risks of borrowers, lenders and investors. The end goal is to shore up plunging home values.


The two stage plan would start with the Senate likely passing of a modest financial aid package for borrowers. In ensuing months Congress would legislate $300 billion or more to guarantee re-vamped loans.


Senators Frank and Dodd have proposed a bill for a New Deal type program. To participate, the lender would have to cut the principal of a troubled mortgage to 85% of a home's current, diminished market value. The FHA would take 5% of the new, lower amount as a fee. Homeowners would get the remaining 10% as equity to give them a stake in paying off the renegotiated mortgage.


Borrowers would have to prove that they had the financial wherewithal to keep up with the now-lower monthly mortgage payments. Those who couldn't prove they could pay would be ineligible for the program. If borrowers failed to pay the new, smaller mortgage, Washington would do so.


This plan presupposes that borrowers, who live now, in real time, trying to find any way they can to pay the now higher mortgages, have not run up bad credit in other areas. Like credit cards. Most have done just that.


This is not a move that investors in mortgage back securities, or mortgage industry lobbyists will sit quietly and accept without some howling. Now you've got to wonder why, if they don't want foreclosures, and don't want the house back....why would they fight these measures meant to shore up property values and keep American families in their homes and their jobs. Still many economist hold forth convincing arguments that the U.S. economy will not recover unless something is done to stabilize house values.


The dilemma for all would be rescuers and re-negotiators is the pressing question of who is deserving of help. That question is one that has stymied governments everywhere, through the ages.


But a widespread bail out for individual borrowers and those in financial distress is not a new concept or practice. In the late 1700's and again in the late 1900's congress legislated relief for citizens after financial panics. Again in the Great Depression, and in the 1980's Saving & Loan crisis...government came to the rescue. During the Great Depression a federal agency, Home Owners Loan Corporation helped over one million borrowers refinance their loans as part of FDR's New Deal. The program, when it shut down in the 1960's had paid of it's debts and expenses and shown a profit which it returned to the federal government.


Regardless of how deserving the defaulting or at risk of defaulting borrower is, Washington DC appears to realize they must treat individuals as they have treated big banking enterprises: don't bog down in who deserves and who doesn't, just get the ball rolling and save us from another Great Depression. There is plenty of evidence something even worse than the ‘30s could happen here in the U.S. and with a global economy we'd take the rest of the world down with us.


Published 4/07/08


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    • Mary Tinkler profile image

      Mary Tinkler 9 years ago from Gresham

      It's true it is a good time to buy but perhaps not buy a bank owned property....they refuse to bring the properties up to lend-able standards.... put your cash on the table, and plan on fixing. Best buys are from owners listing with a Realtor. Really. the sellers will work with you where banks won't

    • Research Analyst profile image

      Research Analyst 9 years ago

      Mary, that is what I heard that now is the time to buy real estate simply because the houses are banked owned and so real estate investors can clean up so to speak, because things will turn around due to economic cycles. Thanks for the hub.

    • Mary Tinkler profile image

      Mary Tinkler 9 years ago from Gresham

      Jason....Well I'd have to disagree about not buying real fact NOW is the time to buy if you have the wherewithal, and the numbers crunch for you. Real estate is a limited commodity. And I LOVE gold.....but it makes for a very poor roof, and is indigestible. Most Americans don't know how to handle money or save. If Madison Ave. convinces you through ad campaigns that you can and should have it all right now....well folks just buy into it...literaly. Unfortuantely we are now at a point of consumerism, that even if people DO save, a lot of jobs will go away...retail, food service, leisure & entertainment, and then all the industries that supply goods for those jobs....further exacerbating the problem with our consumer based economy. And we have a huge problem with wage scales and minimum wage in America. It's not working. Too much going to the shareholders and not enough to the workers who create the product or service...and who would ultimately also be buying that product or service, except their paychecks are not meeting the cost of living, let alone the cost of extras. The haves may look at the have-nots as less than bright and undeserving of consideration....but they NEED the have-nots.

    • Jason Stanley profile image

      Jason Stanley 9 years ago

      As Gadzooks says, "This is scary stuff"

      The fact is that it is not the greedy mavericks bringing the western economies to disaster, it is the generations long gradual shift from saving more and buying less to buying more while saving less so that we have accumulated astronomical debt, individually and collectively as a population, as a private and corporate economy and all governments from city to federal. Before 1930 people, average and wealthy alike, saved money then paid cash for their homes. In 1950 the average new house was around 900 square ft. Today the average is several thousand square ft. In the 50 when I grew up the average savings was almost 15%, today it is NEGATIVE. The average American spends more than they earn.

      Yes we are on the brink of disaster, and in time will go over the brink in a 1930 style depression. It will not be a recession like we have experienced in our lifetimes. I wish it wasn't so - I wish it with all my heart - but it is coming and probably sooner than later this time.

      The housing market? Probably bad for a number of years. Of course some exceptions - lower end apartments etc, but in general it will be bad. Where to invest? Get out of real estate. Get into gold and gold mines, short the market (especially those stocks that have to do with real estate or construction, avoid bonds.

      If you want to know more about why I say what I have, google "long wave analysis"

      Good luck.

    • Gadzooks profile image

      Gadzooks 9 years ago from United Kingdom

      This is scary stuff, its hard to believe that the US really has allowed a few greedy maverics to bring the western economies to the brink of dissaster...

    • robie2 profile image

      Roberta Kyle 9 years ago from Central New Jersey

      Don't I know that those sellers are not going to want to hear what you are telling them and are going to price their houses too high and then blame you when they don't get any offers<sigh> I wish you luck and may many first time buyers who currently rent, have lots of cash and good FICA scores come your way:-)

    • Mary Tinkler profile image

      Mary Tinkler 9 years ago from Gresham

      thank you robie2.....interesting twist to my on the ground experience. today I have had three calls from past clients telling me they want to sell now, before values fall further, and buy another home. One is downsizing and the others want more room and some land. Much as I value the business...I have to feed my family too....I hope this doesn't become too much of a trend. We already have 10 months inventory here....compared to less than two months inventory at any time during the 'boom'. And I am the one who has to carry the sad news: "your home is worth 10% less than it was 9 months ago. And if you don't set the price right at the beginning of the listing, you'll be paying expenses on it and watching values drop for another 9 months."

    • robie2 profile image

      Roberta Kyle 9 years ago from Central New Jersey

      Well done, Mary. God knows how it will all end, but one way or another we are all in for a bumpy ride.