WOW!!! The biggest news in housing market and nobody on ET notices...

Delinquencies will skyrocket in the coming months to 25% due to this bill. Those who are meeting their payments are incentivized to stop making payments to qualify for the bailout.

The bill is horrific. Home prices will simply trade based upon the valuation indicated by the new loan. It's analogous to a currency deval. This is catastrophic.
 
Quote from MushinSeeker:

First of all, Mr. Prudent buyer probably won't be privy to his neighbor's finances. 2nd. He also probably does not base financial moves on whatever neighbor does. 3rd. He also values having a good credit score which gets shattered with this "bailout deal".

IMo, the big part of this bill is the tax credit for 1st time homebuyers since this would prime the "pump" for the domino effect in real estate when people move up the price ladder when they have kids,need more room, etc.
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A) Why wouldn't anyone substantially underwater on their equity take advantage of this deal, neighbor bragging he got a real sweet deal notwithstanding? Walking away is probably still their best option especailly when they realize that they will now be living in a neighborhood of a substantially lower socio economic class of people than they were when they moved in but as you say they may be overly concerned about their credit score.

B) How willl it impact their credit if they do take the bail out deal?

C) $7500 is going to do what in what neighborhood?

This is possibly one of the worst peices of legislation to come down the pike in the last decade. It does not accomplish what it purports to and it does what it is supposed to do (stealth baliout of the banks) very inefficiently. This is what you end up with when the authors (Dodd,Frank,Paulson)are trying to accomplish a goal (to bail out the banks and the Fed) but have to sell it to the American people who would be none too happy to be reduced to being house poor for the next 5-10 years just to save the skin of the likes of Bill Gross and Dodd's cadre of well heeled and politically generous (to Dodd and Frank) CT hedggies.
 
Quote from MushinSeeker:

He also values having a good credit score which gets shattered with this "bailout deal".
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the value he places on good credit will be proportional to the amount of value he's lost in his property.
 
this actually causes a cascade in subprime, so that the pain is realized the quickest and doesn't drag out over multiyear spans.

the 'neighbor' model, actually precipitates pain to be realized sooner then later. Will ultimately benefit whoever has the biggest pockets to step up to the plate. ie FED.

:)
 
Quote from Mvic:


C) $7500 is going to do what in what neighborhood?
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Not to mention it's just a 0% interest loan. It just helps people (again) buy houses they can't afford.
 
Not to mention those who have already been foreclosed. Do they not have the right to bring civil action now that they have been delegated to reside in the ruins of landlords after being tossed from the McMansion? Should they not get thier slate washed clean and begin from afresh?

Quote from Bytehoven:

What happens to the neighbor of your example bailed out home owner?

He also bought one of the $300k houses, but he put down 20%. However, with the current market value of $150k on his property, as well as being down $150k in over all equity, what does this home owner think or do after he finds out his neighbor has been bailed out?

Does he ride it out? Even if he rides it out and his equity position improves, his bailed out neighbor begins building positive equity as soon as the house prices starts to rise, while Mr Prudent home buyer has $150k of property appreciation to go before seeing any positive equity.

What does the Bail Out Team have planned when Mr. Prudent Buyer thinks he would be better off starting fresh by walking away from his under water property.

Does Mr. Prudent Buyer have a right to civil action to modify his mortgage contract to achieve parody with the bailed out home owner?

What's to stop Mr. Prudent Buyer from falling behind on his mortgage and qualifying for his own bail out party?

There is a saying, when you find yourself in a hole, stop digging. However, the Bail Out Team appears to be handing out shovels.
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This bill rewards the shaddy characters out there that have bad credit for a reason and systematically game the system.


Poor fellow..... forced by an evil bank to take several hundred thousand K. to buy and live in a house even if he has a history of not paying people back and sticking it to every creditor. (perhaps the same fellow that slipped on a banana peel and is suing the local grocery store or is obese and it is all McDonalds fault) This and other not so exagerated cases are who your hard earned tax $ are rewarding.


Decent hard working people who would not default on any loan.... ever.... (within their power).... Are the ones who are left holding the bag.

This type of legislation rewards people to game the sytem.
 
Regarding credit scores...

... given such a large body of folks will have compromised credit, they may become a special "class" where their credit history will not be allowed to carry the typical weight in the credit worthiness decision making process.

Has anyone seen a limit to the range of principle reduction that can be negotiated under the pending bill?

Back in late '07 when the matter of principle reduction was touched upon, $50k seemed to the range.

I assume the financial reality would dictate just how far the lender was willing to modify.

I found it interesting how some of the US House folks discussing the bill, would have liked to see greater negotiating power for the borrower regarding the implementation of interest, term and finally principle reduction, suggesting even in this pro borrower bail out plan, borrowers should be given even greater priority over the lender.
 
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