Senate Moves Toward Easing Mortgage Terms

Source: Associated Press

Trying to curb home foreclosures, the Senate voted on Wednesday to make it easier for homeowners with risky credit to switch to a lower-cost mortgage backed by the government. The bill, passed 91-5, also would give banks a break by encouraging reduced fees they must pay for the government to insure deposits.

While both steps put taxpayer money on the line, lawmakers say the legislation is needed to prevent the economy from getting worse.

''Given the size and scope of the struggles too many Nevadans and Americans endure, it will take more time before housing normalizes again,'' said Senate Majority Leader Harry Reid, D-Nev. ''But with this bill, we are working to hasten that day so that no family will ever accept losing its home as the way it is.''

Absent from the measure was a bankruptcy provision that President Barack Obama had promised to push through Congress, but backed down amid stiff opposition from banks. The provision, rejected by the Senate last week in a 45-51 vote, would have allowed bankruptcy judges to lower a person's mortgage payment.

Read more: http://www.nytimes.com/aponline/2009/05/06/us/politics/AP-US-Congress-Foreclosures.html

for the homeowner with "risky" credit to get the new mortgage. This is just another way for people to get ripped off. The Senate let us down on this important bankruptcy provision.

loan from Countrywide for $400,000, interest only for 30 years. Now before you say they were just plain stupid (which I've said myself), they make good money and have had little problem making the payments, but their house went from being worth $400,000 down to $288,000. They have talked to Countrywide and they told them they could refinance the loan but they would have to pay the difference first. They don't want to do that and I don't blame them. their original plan (and it was a good one that I have done before)was to refinance in 3 years to a fixed loan and no interest only, of course. Now they are locked into the loan until house prices rise again and that may take 10 years. This was their 1st house and that was the only loan available to them at the time. I think they are the type of people the government is trying to help now, but I'm not sure. Since they make good money, nothing has helped them yet.

the first house they bought cost $ 400,000. Didn't that seem a bit excessive as a starter home.

And then the value of the home went down. That was one of the only three choices. It could have gone up, gone down or stayed the same.

Obviously if the value went way up they'd be big winners. If it went down they'd be big losers.

Did they not understand that?

that drastically, that fast. I tried to tell them they should start with a medium house, but they were renting a beautiful house at the time, and they, of course, didn't listen to me. I admit they were stupid; it's been over 3 years and I just found out it was an interest only loan for 30 years. I asked them "do you realize that in 30 years you will owe $400,000? Why in the world would you sign a mortgage contract like that?" But, I caught myself just before I called them both stupid assholes, and we don't talk about it anymore. LOL

I probably couldn't hold my tongue. :).

several years ago. I know this because of a popular money-saving site I go to has a finance forum and they have been calling it for years (since 2003). A lot of finance people they cited called the bubble and warned against it bursting, pin-pointed the bubble areas (CA, FL and Nevada) but of course not many people listened because they chose to trust realtors instead.

people were "calling the bubble." Besides, financial prophets are often wrong.

I remember when I bought my first serious home. A man who made a living as a financial consultant told me it was okay to buy a home to live in, but it was no time to buy one as an investment. So, I bought my home. Less than seven years later, I sold it for triple what I had paid for it and I had not put that much into it beyond a paint job.

So much for listening to the experts all the time.

interest only, though, there really is not much reason to buy a starter, though, unless pit totals signifiantly less than rent for a comparable place. Even then...

Oh well, they were young and in love with each other and probably with the place, too. And hindsight is 20 20.

I sincerely hope something works out for them.

I'm not totally disappointed in their decision. I've done some stupid stuff myself, but nothing that was as costly as these young people have found themselves in. I hope something works out for them too. For the time being, they are going to stay in the house and hope/pray that housing prices go up even a little in the next 4 or 5 years. He's a Marine and will retire in August; wanted to move to Arkansas to be closer to his daughter, but that will have to be put off for a long time.

Where I live in Mid WIlshire, houses are in the million dollar plus range. The best thing I've done is stay in my rent controlled apartment.

with good income.

There is always the possiblity that home values will go down. And any time they go down, you might end up with negative equity So, what do you do? Never buy?

But the precipitous crash of housing prices in California AND the economy was not all that foreseeable by a young couple. A loss of that much that fast is not a normal fluctuation in housing prices by any means.

And, as far as I understood, this couple has no trouble making the payments, while Countrywide tops the list of the financial institutions that put the world into this mess.

So, why are we trying to find reasons to judge this couple?

Car values drop the instant you drive them off the lot. Why aren't more people clamoring for a car loan bailout? It amazes me that so many people think that every investment must go up in value. If that was the case, I'd be a very rich man. As it is, I have a house that is barely worth its mortgage(I put down 20%), but I'm content to live here for 5 years or more since I knew what I was getting into when I bought the place.

Maybe they couldn't make the payments on another, but even my friend who worked at frigging Wal-Mart managed to qualify for a regular 30 year fixed mortgage four years ago in California. With Countrywide, now that I think of it.

Part of the problem was perfectly qualified buyers (since you say these people make decent money I assume they had reasonable credit and maybe some kind of down payment) who either took on stupid loans to buy more house than they could afford or didn't have the good sense to talk when the loan officer tried to steer them to a stupid loan in order to get more fees than they would with a reasonable loan on more traditional terms. Four years ago my cat could have got a mortgage. If your relatives couldn't get a regular mortgage from Countrywide they could have done so through their bank, a local credit union, any number of freestanding mortgage companies, online outlets... Now I can see going with the loan you can get, but four years ago it was definitely a buyer's market on credit.

have four years ago. The poster conceded that from the jump and asked us not to rub it in. There is no point piling on.

First, CW is now BofA. Second, they should check their loan documents to see what, if any, prepayment penalties still apply.

They ought to be able to start making principal prepayments on this loan, thus effectively converting it into an amortizing loan. After 4 years, there should be no prepayment penalty.

If they are happy in the house, that's fine. But how many people don't have some sort of life disruption that translates into an income disruption in 14 years? If they don't want to lose the house they need to make a plan now to cut their risk. As it is, they are looking at a very long period of high risk, and it would sure be a pity if they paid this mortgage for 8 more years and lost the home then.

If the interest rate is variable, they ought to be getting a break about now in payments that will help them out with making principal payments.

Are you sure that they don't have two I/Os? Most of these types of loans were done that way.

I'm just being "devil's advocate" here. I mean, is the goal here to make sure that no one loses money in the housing market? The problem that I have is that I WANT prices to come down to their historical levels where I live in California, and policies that sustain prices keep me out of the market.

If they're happy living in the home and can afford the payments, who cares what the house is worth?

It's a place to live and hopefully someday they'll get a good price for it when they need to sell it. In the meantime, enjoy it.

recourse meaning that all Countrywide can do if they default is foreclose and take the home.) And how much was the down payment? (You don't have to say. It's just an issue to consider.)

Where I am going with this is: If the loan is interest only, I take it the ONLY equity they have in the home is the down payment. If that was a relatively small amount, AND the loan was non recourse, walking away from the home may be a decent option. Not in the ideal world, of course. but given the facts as they are. (I don't think that house is going to be worth the asking price again for years.)


Food for thought.

could elect someone more progressive

Hence, eg, Sen Nelson of Nebraska, is probably about as progressive a Senator as such a solid red state is likely to elect. But there are lots of blue nose Democrats from states that need not have them in office

With the makeup of Congress as it is, the Obama Administration may very well have a sense of when to hold em and when to fold em (for the time being)

Perhaps you should just rent. Consider renting from your local public housing commission. Owning a home has a tendency to turn people into little capitalists. They become greedy watching the price of their investment climb and their so-called "equity" grow. A house should just be seen as a place to live, not an investment. While there are problems with some public housing facilities, in many smaller towns they are quite nice and well managed. They are often required to have a local residents' council, which provides an opportunity for some aspects of self-management. This is the kind of socialism that we should be building....Not a nation of greedy and selfish homeowners.

Unsurprising in the extreme.

but you are probably right.