Another solution is to give the bailout directly to the homeowner. I haven’t done the math, but three trillion divided by say 100 million households should come up with a half million per household. That pays the mortgage, leaves the house unencumbered with something left over to buy a new car.

What’s wrong with also leasing homes like they (used to) lease cars, especially since homes seldom wear out or blow a gasket?

A few of the right things are starting to set the definitions, such as
* Is the home a primary residence?
Means testing should be an added ingredient. The trouble is that “caring” takes time, and cuts into the profit margin.

Bob in HI

What mortgages fail to take into account is that life changes– and income changes– but the mortgage is supposed to stay the same so the bank can get its money, come hexx or high water.

The basic problem is that mortgages are rigid, but life isn’t. Precious Profits are exalted as Holy and Sacred, but the solvency of homeowners is considered a minor trifle, and let the consequences be damxed. At least insolvent homeowners are no longer thrown into Debtor’s Prison. And to their credit, local banks can be flexible and accommodating with their local customers. But things get creepy when local banks sell their mortgages to out of towners, who then sell their mortgages to 4th parties, and so on, until the mortgage is “owned” by people who don’t give a damx about the mortgage holders, they just want their money.

Bob in HI

http://calculatedrisk.blogspot…..-debt.html

So these liars took loan after loan and lied about their income. Do they get to have their house for 30% of their $65,000 income? They bought for $220,000 twenty years ago. Their house was worth $450,000 in bankruptcy sale but before that the “value” got as high as $856,000.

At 65,000 of income doing the 3x rule of thumb they should only be able to get a loan for….ta da $195,000. Less than what they bought the house for twenty years ago.

I am sorry people are going to lose thier houses but there is no rule that says you have to lie on your mortgage loans and buy ten times the house you can reasonably afford.

The 30% rule works well at time of purchase to keep people from committing themselves to more house than they can afford, but I dont see how it can work as a financing method.

What is needed is a kind of homeowners insurance for DINKs (Double Income, No Kids) who buy based on their combined income, to cover for what happens if the couple divorces, or one of them loses his/her job, or retires. In normal times, this would not be difficult: you sell the house, and move into something you can afford.

But in today’s upside down market, many people can’t do that, because the sale price won’t even cover the balance of the original house loan. This is what you need the new kind of homeowner’s insurance for.

Bob in HI

Doing these workouts takes a long time and careful analysis to be fair.

I think the 30% number is high. Articles I read say 28% DTI or debt to income. The idea that you can have 30% of your debt be your house and the rest of the debt stays on top of that is unsustainable. What they are doing it putting off further into the future the day of reckoning by doing these workouts.

Calculated Risk has been covering this extensively. The folks getting workouts are getting back into trouble as well fairly quickly. Can’t find the linky’s quickly.

It is not pretty but people have to lose their houses and the prices have to drop substantially. I know Ian is not arguing against this but lowering payments to 30% of income is tons different from 30% total Debt to income or 28% which is the figure I have read about in the past.

Also realize that if these folks get a new mortgage that they can’t really afford long term that is problematic but it is also problematic that prices still have to fall in many locations.

NOLA still has a bubble with the median home exceeding 3 times the median income by $20,000 and on top of that rents are reasonably cheap and homeowner’s insurance is five times the cost in other places. New Orleans was never considered a bubble in any study or article I have read but the fundamentals do not lie. There is a slight bubble here.

Some places have to drop 50%. Some places have to go back further than 2002. I would argue New Orleans is one of those, maybe closer to 1999 or 2000.

While the securitizations were accompanied by several hundred pages of fine print in actual fact there is no settled law on who holds title and control of the property. Just because a bunch of lawyers make up a contract doesn’t make it legal. This whole issue is huge and like so many other things in this mess it goes unmentioned. Nobody wants to bring it up but you can be sure every time one of these plans gets floated as general thing some lawyers are looking into them in horror.

To restate. Securitizations many not be legal contracts. Ad hoc necessity and inertia continue to effect forclosures and perhaps some reworks but you can bet in a few years this is going to work it’s way up to the supreme court. If the court is stll run by the Robert’s majority then of course it will be settled in favor of the largest corporations because that is the foundation of Robert’s jurisprudence.