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If you haven't read the actual proposal itself and are just going by what has been posted in this forum, I encourage you to go here Resolving the Housing Crisis: A Proposal (http://www.onereallygoodagent.com/proposal.htm - broken link). Perhaps you can better understand it from the actual proposal.
I've looked at the website.
And whichever way I interpret it, I still see it primarily as a way for homeowners to effectively skip up to a bigger/better home whilst handing the "hot potato" of their negative equity to the bank and, at the same, time reducing their mortgages by (in the example posted in this forum) almost 94%!!!!!!!!!!!
Let's look at those figures again:
Borrower A+++ owes $375K on a home now worth $350K. $25K negative equity.
So, Borrower A moves into bank-owned house worth $375K, that bank has listed at $300K, gives the first house back to bank who accept that house A is actually worth $350K, takes $25K loan to cover difference between the unrealised "proceeds" of first house and "value" of new house.
Bank has now lost the interest income generated by a $375K loan which was being dutifully paid off each month by "good borrower" in accordance with the terms of their loan agreement.
Bank now has interest income from $25K loan.
And still has a house to sell.
I honestly don't see banks rushing to relieve their "good borrowers" of their losses, give them tiny mortgages and then be left holding onto property that still may or may not sell regardless of its condition.
In conclusion - I note that you still haven't actually refuted any of the comments I made in my posts - I'll let that speak for itself
And whichever way I interpret it, I still see it primarily as a way for homeowners to effectively skip up to a bigger/better home whilst handing the "hot potato" of their negative equity to the bank and, at the same, time reducing their mortgages by (in the example posted in this forum) almost 94%!!!!!!!!!!!
Let's look at those figures again:
Borrower A+++ owes $375K on a home now worth $350K. $25K negative equity.
So, Borrower A moves into bank-owned house worth $375K, that bank has listed at $300K, gives the first house back to bank who accept that house A is actually worth $350K, takes $25K loan to cover difference between the unrealised "proceeds" of first house and "value" of new house.
Bank has now lost the interest income generated by a $375K loan which was being dutifully paid off each month by "good borrower" in accordance with the terms of their loan agreement.
Bank now has interest income from $25K loan.
And still has a house to sell.
I honestly don't see banks rushing to relieve their "good borrowers" of their losses, give them tiny mortgages and then be left holding onto property that still may or may not sell regardless of its condition.
In conclusion - I note that you still haven't actually refuted any of the comments I made in my posts - I'll let that speak for itself
The comments you made are still based on misperceptions because you still don't get it. I guess it is just over your head. You are convinced that I am out to soak lenders, and your comments still don't make sense (i.e. tiny mortgages???) so it is very hard to respond to them, but so as not to be rude (as you have been, by the way) I will respond by saying, for the record, I don't agree with any of your comments at all. 'Nuff said.
The comments you made are still based on misperceptions because you still don't get it. I guess it is just over your head. You are convinced that I am out to soak lenders, and your comments still don't make sense (i.e. tiny mortgages???) so it is very hard to respond to them, but so as not to be rude (as you have been, by the way) I will respond by saying, for the record, I don't agree with any of your comments at all. 'Nuff said.
Calm down Mrs I don't see when I was "rude to you" - I was simply making observations on how I perceived your idea to work.
Nor am I convinced that you, personally, are "out to soak lenders". I just said that as I understood the process I couldn't see banks going for it.
I was under the impression that the process was effectively that of "swapping equity" ie: saying "Take my house that's now worth $350K and I'll take this other house that's worth $375K and I'll have a mortgage of $25K to cover the difference - hopefully you'll be able to shift my old place at the current market value. Otherwise I'm going to default on my loan"
So, what you envisage happening is that now the bank now continues to collect for the original $375K loan and the original borrower now lives in a house that's currently valued at $375K. So, no loss at that point to homeowner. But unless the bank has found a trader-upper for the previous house with a $350K loan they're still out $25K and have the property on their hands.
I do see the logic of your proposal in some ways - but, given human nature, I think it's going to be very difficult to persuade people to start moving to new homes merely based on the amount of debt they have in their mortgages -people are very picky about where they want to live, what type of house they want to live in. It also depends on an army of "good borrowers" all threatening to default on their loans, as those "defaults" make up the bulk of potential losses in the illustration.
Not to mention the other factors at play - current/future job losses etc etc - and the fact that, foreclosures or not, that $375K house might still be only worth $325K in 2 years time given the lousy economy. The scheme might get the market moving a little but without a steady influx of cash at the base of the market it's not going to grow. Banks, even if they have more cash to play with are going to be much tighter with their lending and this in turn will keep prices lower.
As I said before, if your idea works then great - all of us who own property want those properties to hold their value.
I still get the impression though that the main beneficiaries of this will be homeowners who bought at a bad time or over extended themselves and now want the banks to pick up their losses in the short term whilst grappling up to a bigger/better house.
You are asking he lender to give up the interest from a loan you are capable....and obviously willing...to pay for which I have to gather would be more than $25,000 plus the interest on that amount.
You are asking the lender to assume what may well be a possibly depreciating asset which they may or may not be able to sell for the value you currently place on it as a "trade-in".
In real life, comparing this to your friendly neighborhood used car lot, you have to offer a paid for vehicle or include the unpaid portion in your new loan AND the dealer will put a substantially lower value on your trade-in to cover the risks of dumping it.
IF a lender decides your scenerio is a good one, bet you dollars to donuts that your house(trade-in) won't be valued at what you claim.
Hell, all of us would be moving up the way you propose it
The lender would be well be ahead by simply giving the current defaulter the option of a reduced interest loan....something they don't seem willing to do, do they? Why this isn't being done rather than foreclose is the crux of the matter.
What would be more equitable in your situation would be for the lender to allow you to transfer your current mortgage liabilty, increase the amount by $25,000, all for rock bottom closing costs.
old_cold, you say, "Hell, all of us would be moving up the way you propose it." That is precisely the point, and if everyone did move up, banks would lose less and would be able to quickly remove foreclosures from the books, while holding only foreclosures that would typically end up foreclosures anyhow. This would incite a chain effect of "trade-ups." They would be able to hold onto a preponderance of low-risk borrowers and mitigate their losses.
Calm down Mrs I don't see when I was "rude to you" - I was simply making observations on how I perceived your idea to work. I didn't see your comments as being objective, they were personal attacks on not only me but toward your perceived mindset of upside-down homeowners!
Nor am I convinced that you, personally, are "out to soak lenders". I just said that as I understood the process I couldn't see banks going for it. BS, you are backtracking.
I was under the impression that the process was effectively that of "swapping equity" ie: saying "Take my house that's now worth $350K and I'll take this other house that's worth $375K and I'll have a mortgage of $25K to cover the difference - hopefully you'll be able to shift my old place at the current market value. Otherwise I'm going to default on my loan" Wrong. I would still pay the $375,000 loan as promised. This program is not a threat to banks, it is an option for them that they can consider as a new lending product based on the economic predictions by the Federal Reserve that creditworthy upside-down homeowners are going to be the next round of defaults. The FRB predicted that when a property value falls below 80% of the original value, that is when homeowners should start considering defaulting from an economic standpoint, and likely will. Their words, not mine. This is a pro-active approach for the banks to mitigate their losses, not eliminate them, based on the predictions of the FRB. This is not something that I walk into a bank and say, do this or I will walk. This is a program that banks institute first that can offer to upside-down homeowners as an option, and frankly, who wouldn't do it if it is offered?? Is the situation better if banks do nothing and the next wave of foreclosures hits? They would be incurring tremendously huge losses, not to mention the sheer amount of homebuyers removed from the home buying market for up to a decade. Is that going to help the housing crisis and the economy?? If nothing is done, house liquidity is going to be further stymied. Gee, this would be a good thing. Get your head out of the box and look at the larger picture.
So, what you envisage happening is that now the bank now continues to collect for the original $375K loan and the original borrower now lives in a house that's currently valued at $375K. So, no loss at that point to homeowner. But unless the bank has found a trader-upper for the previous house with a $350K loan they're still out $25K and have the property on their hands. You conveniently forget that on the REO, the homeowner offers the bank a loan of $375,000 vs a loan on $300,000 (banks asking price). This nets the bank $75,000 on that deal, meanwhile, they have an A+ borrower whose loan they did not lose. Either way, they are stuck with a property, but they lose less with my proposal.
I do see the logic of your proposal in some ways - but, given human nature, I think it's going to be very difficult to persuade people to start moving to new homes merely based on the amount of debt they have in their mortgages -people are very picky about where they want to live, what type of house they want to live in. They would be idiots not to, and given the 2.5 million homes now in foreclosure, there is a lot to choose from. From an economic standpoint, why would a borrower want to continue paying on a house whose value is less than their loan when they can have a house whose value is equal to their loan?It also depends on an army of "good borrowers" all threatening to default on their loans, as those "defaults" make up the bulk of potential losses in the illustration.This is not about good borrowers making threats of any kind. The good borrowers who are thinking about defaulting are not doing it in order to "strong-arm" banks into giving them what they want, it is purely an economic objective decision to not keep paying for something they would never be able to recover, and for which there are currently no other options, unlike programs for those who have already defaulted. Banks right now will offer upside-down homeowners nothing until they default, which is also prompting people to default in order to get help. Somehow this seems like the wrong approach. This program, if adopted by the banks, would offer them an option to not default, but to at least bring their loan to water level. It all starts with the banks. It's their call. Based on the forecasts by the FRB, they need to do something because the next wave of defaults are around the corner right now.
Not to mention the other factors at play - current/future job losses etc etc - and the fact that, foreclosures or not, that $375K house might still be only worth $325K in 2 years time given the lousy economy. The REO that they are trying to sell for $300,000 may only be worth $250,00 in 2 years time. This is a baseless arguement.The scheme might get the market moving a little but without a steady influx of cash at the base of the market it's not going to grow. Banks, even if they have more cash to play with are going to be much tighter with their lending and this in turn will keep prices lower. Agreed, but it is a start and it is a different issue...apples and oranges. This plan is just about banks mitigating their losses.
As I said before, if your idea works then great - all of us who own property want those properties to hold their value.
I still get the impression though that the main beneficiaries of this will be homeowners wrong who bought at a bad time or over extended themselves this is an arrogant assumption on your part. Should no-one have not bought homes during the 2000s? Gee, that would have been good for the economy!and now want the banks to pick up their losses in the short term whilst grappling up to a bigger/better house.
Wrong again. Depending on where one does the "trade-up" the house could be larger or the house could be smaller. The main objective here is to have equitable value between the loan and the collateral. Given the current climate of massive foreclosures and more to come, it is better for banks and it is better for homeowners. Do you really think banks want to have borrowers with loan values larger than a home value? This is called severe financial risk as these borrowers are more likely to default than those whose LTV are at least equal. They would not issue inflated loans in the first place for this precise reason.
If your proposal truly is viable then maybe we'll see it implemented.
I would just be very surprised if this is not something that has already been considered (and rejected) by the banks.
But hey, if you've engineered a watertight, foolproof method to get the housing market moving, save the banks money and help homeowners trade up to better properties then good for you.
Nobody wants to lose money on their property. But whether you like it or not, there ARE people who took equity withdrawals for luxuries that they couldn't really afford and effectively used their homes as a bank. There are also those who decided to borrow the maximum they could who obviously never considered the possibility that, yes, house prices can fall. Something that my husband and I were very conscious of when we bought our home here - had we wanted a $450K home we could have had it - but we wanted a more modest property that wouldn't make us "house poor" on a monthly basis. Nor do we see our home as a bank.
Yes it sucks that people are upside down on their property values but for heaven's sake, it's not a new phenomena as another poster stated. I don't recall many people walking away from their mortgages in the UK in the early 90's when interest rates were between 11.5-15% and house prices crashed. Interest Rate History - Money extra
Those that lost their jobs and had overextended walked away with no choice. Others grit their teeth and carried on paying. Eventually things turned around.
I would be interested to see a link to the data regarding the "next wave of foreclosures" that you mention - presumably these will mostly be people who bought at the peak, but are comfortably keeping up payments and now feel that walking away from their loans is better than simply riding out the current storm.
old_cold, you say, "Hell, all of us would be moving up the way you propose it." That is precisely the point, and if everyone did move up, banks would lose less and would be able to quickly remove foreclosures from the books, while holding only foreclosures that would typically end up foreclosures anyhow. This would incite a chain effect of "trade-ups." They would be able to hold onto a preponderance of low-risk borrowers and mitigate their losses.
I was being facetious....implying the deal is too good to be true..
If I was the lender I'd probably tell you to go sell your wonderful property , bring me that money plus $25,000 and buy one of my REOs.
If your proposal truly is viable then maybe we'll see it implemented.
I would just be very surprised if this is not something that has already been considered (and rejected) by the banks.
But hey, if you've engineered a watertight, foolproof method to get the housing market moving, save the banks money and help homeowners trade up to better properties then good for you.
Nobody wants to lose money on their property. But whether you like it or not, there ARE people who took equity withdrawals for luxuries that they couldn't really afford and effectively used their homes as a bank. There are also those who decided to borrow the maximum they could who obviously never considered the possibility that, yes, house prices can fall. Something that my husband and I were very conscious of when we bought our home here - had we wanted a $450K home we could have had it - but we wanted a more modest property that wouldn't make us "house poor" on a monthly basis. Nor do we see our home as a bank.
Yes it sucks that people are upside down on their property values but for heaven's sake, it's not a new phenomena as another poster stated. I don't recall many people walking away from their mortgages in the UK in the early 90's when interest rates were between 11.5-15% and house prices crashed. Interest Rate History - Money extra
Those that lost their jobs and had overextended walked away with no choice. Others grit their teeth and carried on paying. Eventually things turned around.
I would be interested to see a link to the data regarding the "next wave of foreclosures" that you mention - presumably these will mostly be people who bought at the peak, but are comfortably keeping up payments and now feel that walking away from their loans is better than simply riding out the current storm.
Old_Cold, I'm not going to go to the trouble to explain it again, especially to another inflexible, narrow-minded person that has it all figured out. If you are truely interested, you will go back and read through the thread. Your sarcasm is not appreciated and it appears that mostly in this forum, there is no room for meaningful discussion, there is only room for denegration of each other and/or any new ideas AND you absolutely don't know what you are talking about!
I'll just let you people turn your know-it-all attitudes toward each other as you have nothing else constructive to offer. Shame on you!
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but so as not to be rude (as you have been, by the way) I will respond by saying, for the record, I don't agree with any of your comments at all. 'Nuff said.
