Biden's comment about adjusting mortgage principle

[Denny Crane]

Posted in the debate game thread

reviewed on Tivo'd it. Holy FUCK. They want to take money to adjust how much people OWE on their house, not just the percentage.

OK, so later we'll talk about this issue. It's not a bad idea.

 

[AgentDrazenPetrovic]

People shouldn't be rewarded for their stupidity.

 

[Denny Crane]

If they're going to spend $700B to bail out the banks, how about splitting that in $350B chunks and paying down mortgage balances at the same time?

 

[AgentDrazenPetrovic]

If they're going to spend $700B to bail out the banks, how about splitting that in $350B chunks and paying down mortgage balances at the same time?

You're targeting a population (home owners) who made a bad investment. If a stock goes down, should the government take taxpayer money and give it to the investor?

Again, its more government protectionism in places it shouldn't be.

 

[DennisRodman]

People shouldn't be rewarded for their stupidity.

Wiat, are you talking about the bailout that the companies will be getting?

but, yes the principle sucks.

 

[AgentDrazenPetrovic]

Wiat, are you talking about the bailout that the companies will be getting?

but, yes the principle sucks.

No. Biden/Obama are in favor of the government stepping in and having the government pay a portion of people's mortgage down. Mortgages they got into and signed into.

 

[CelticKing]

People that shouldn't have gotten those mortgages in the first place. Now why should my taxes go to helping them?

 

[AgentDrazenPetrovic]

People that shouldn't have gotten those mortgages in the first place. Now why should my taxes go to helping them?

Not only that, YOU are paying for their house.

 

[Dumpy]

No. Biden/Obama are in favor of the government stepping in and having the government pay a portion of people's mortgage down. Mortgages they got into and signed into.

no. they appear to be in favor of giving bankruptcy judges the authority to adjust the remaining principal on a debtor's home. Bankruptcy judges have the power to adjust other debts, as well. In order to be "eligible" for this benefit, you first have to declare bankruptcy. Now, I'm not a bankruptcy lawyer, but the whole process doesn't sound like too much fun to me.

 

[44Thrilla]

Did he say they were for paying them or for reducing them? I thought he said reduce.

 

[AgentDrazenPetrovic]

no. they appear to be in favor of giving bankruptcy judges the authority to adjust the remaining principal on a debtor's home. Bankruptcy judges have the power to adjust other debts, as well. In order to be "eligible" for this benefit, you first have to declare bankruptcy. Now, I'm not a bankruptcy lawyer, but the whole process doesn't sound like too much fun to me.

they should lose their house if they can't pay for it. a house is an investment.

 

[blazerboy30]

If they're going to spend $700B to bail out the banks, how about splitting that in $350B chunks and paying down mortgage balances at the same time?

I don't know any details about "paying down mortgage balances" but this seems like a terrible idea in general.

To me, the biggest, and most important difference between the bailout plan, and paying down mortgage balances is that, as I understand it, we are buy assets with the bailout plan. They aren't great assets, but they are at least something.

With the bailout plan, the government is getting something in return, with the possibility to get the money back, and actually MAKE money. Paying down mortgages seems to be a blantant give-away and hand-out. That seems way too socialist for me.

 

[DennisRodman]

No. Biden/Obama are in favor of the government stepping in and having the government pay a portion of people's mortgage down. Mortgages they got into and signed into.

Yea, I know you were implying that. I was just showing the similarity of the situation that the bailout plan presents.

People shouldn't be rewarded for their stupidity.

Similarily: Companies shouldn't be rewarded for their stupidity.

ie. 700 Billion going to companies who made stupid choices in giving out credit.

 

[Denny Crane]

Dumpy and others,

If a judge adjusts the remaining principle, the bank doesn't get paid back the full principle it's owed.

If govt. is going to spend $700B buying foreclosed homes outright, you may as well use a bunch of that money to make people more whole so they're not foreclosed on - AND - the banks get paid their full principle.

 

[AgentDrazenPetrovic]

Yea, I know you were implying that. I was just showing the similarity of the situation that the bailout plan presents.


Similarily: Companies shouldn't be rewarded for their stupidity.

ie. 700 Billion going to companies who made stupid choices in giving out credit.

I'm totally against the bailout.

 

[Denny Crane]

I don't know any details about "paying down mortgage balances" but this seems like a terrible idea in general.

To me, the biggest, and most important difference between the bailout plan, and paying down mortgage balances is that, as I understand it, we are buy assets with the bailout plan. They aren't great assets, but they are at least something.

With the bailout plan, the government is getting something in return, with the possibility to get the money back, and actually MAKE money. Paying down mortgages seems to be a blantant give-away and hand-out. That seems way too socialist for me.

The government is taking a huge risk. If the housing market doesn't go up 50%, they're not going to make their money back, and they're going to eat some of the principle anyway.

 

[AgentDrazenPetrovic]

The government is taking a huge risk. If the housing market doesn't go up 50%, they're not going to make their money back, and they're going to eat some of the principle anyway.

Oh, so lets just change the rules of home ownership for the hell of it.

 

[Denny Crane]

Oh, so lets just change the rules of home ownership for the hell of it.

No, I'm doing the accounting.

Here's how "bubble" math works. You buy a house for $100K. It goes up 50% to $150K because of the bubble. Bubble bursts and it goes down just 33% and you're where you started - $100K. This is the situation the banks and homeowners and now the government (fannie, freddie) are in.

If the RTC comes in and sells a home the bank loaned $500K on, but can only sell it for $250K, who eats the loss? Cha ching - comes out of the $700B.

So as it's laid out, the govt. is bailing out the banks on those $500K loans. Why not bail out the banks and the people equally? Why does the govt. need to go through the hassle of foreclosing on and then selling a home, when they can effectively sell it to the current owner for the exact same cost (to the govt., $250K)?

 

[CelticKing]

So then I should rush and buy a 500,000 house and hope that the govt bails me out? (since I really can't afford that price)

 

[Denny Crane]

So then I should rush and buy a 500,000 house and hope that the govt bails me out? (since I really can't afford that price)

You're not buying a $500K house inflated by the bubble at this point.

 

[AgentDrazenPetrovic]

No, I'm doing the accounting.

Here's how "bubble" math works. You buy a house for $100K. It goes up 50% to $150K because of the bubble. Bubble bursts and it goes down just 33% and you're where you started - $100K. This is the situation the banks and homeowners and now the government (fannie, freddie) are in.

If the RTC comes in and sells a home the bank loaned $500K on, but can only sell it for $250K, who eats the loss? Cha ching - comes out of the $700B.

So as it's laid out, the govt. is bailing out the banks on those $500K loans. Why not bail out the banks and the people equally? Why does the govt. need to go through the hassle of foreclosing on and then selling a home, when they can effectively sell it to the current owner for the exact same cost (to the govt., $250K)?

I say bail neither out. Just because you practice a little socialism or give handouts to several people doesn't make it ok. The home should be sold on the open market, not giving the break to the original homeowner (who's stupidity is to blame for the situation we are in).

 

[CelticKing]

You're not buying a $500K house inflated by the bubble at this point.

Yeah I know, it's too late.

But really though that's not a good planning, I understand people will lose houses, but they shouldn't have gotten them in the first place. It all comes down to economics, and having free markets, but when you have the govt interfering with everything, then what the hell, why don't we call ourselves socialists.

 

[Denny Crane]

I say bail neither out. Just because you practice a little socialism or give handouts to several people doesn't make it ok. The home should be sold on the open market, not giving the break to the original homeowner (who's stupidity is to blame for the situation we are in).

Why not let the original homeowner buy the house on the open market? I'm suggesting just that.

You can avoid the step and cost of selling the home on the open market if you're proactive about closing that sale to the original homeowner.

 

[AgentDrazenPetrovic]

Yeah I know, it's too late.

But really though that's not a good planning, I understand people will lose houses, but they shouldn't have gotten them in the first place. It all comes down to economics, and having free markets, but when you have the govt interfering with everything, then what the hell, why don't we call ourselves socialists.

Free market. Sell the houses to the highest bidder (which wouldn't be the original homeowner getting a gift from a bankruptcy judge and the american taxpayer).

 

[AgentDrazenPetrovic]

Why not let the original homeowner buy the house on the open market? I'm suggesting just that.

You can avoid the step and cost of selling the home on the open market if you're proactive about closing that sale to the original homeowner.

Yes, buy the house on the open market at the fair market price. The principle is non-negotiable.

The original homeowner can obviously NOT afford the house if they are in bankruptcy court.

 

[Dumpy]

they should lose their house if they can't pay for it. a house is an investment.

That would ultimately be up to the bankruptcy judge. I would guess that part of the issue is trying to figure out which creditors get priority in the case of bankruptcy. Remember, they probably have credit card debt, perhaps their small business owes money to creditors, they probably owe several months on their utility bills. Someone will get shafted, the question is who. Again, I'm no expert (and I refuse to pretend to be one), but it just sounds to me that the principle remaining on the home would just me one more liability that could be adjusted, if the judge believes that the available capital should go to pay other creditors first.

Incidentally, in at least one state, your principal home is immune from bankruptcy.

 

[Denny Crane]

Yes, buy the house on the open market at the fair market price. The principle is non-negotiable.

The original homeowner can obviously NOT afford the house if they are in bankruptcy court.

Do the accounting.

The govt. just bought that bad loan for $500K and is selling it to the original owner for $250K.

Why not just buy down the guy's mortgage to $250K?

Either way it costs $250K to the govt. Either way the guy gets to own his home for $250K.

 

[Denny Crane]

That would ultimately be up to the bankruptcy judge. I would guess that part of the issue is trying to figure out which creditors get priority in the case of bankruptcy. Remember, they probably have credit card debt, perhaps their small business owes money to creditors, they probably owe several months on their utility bills. Someone will get shafted, the question is who. Again, I'm no expert (and I refuse to pretend to be one), but it just sounds to me that the principle remaining on the home would just me one more liability that could be adjusted, if the judge believes that the available capital should go to pay other creditors first.

Incidentally, in at least one state, your principal home is immune from bankruptcy.

In almost all states your home is immune from bankruptcy. It's called homestead exemption.

In fact, before you go bankrupt, you sell everything and pay off as much of your mortgage as possible, since it's protected.

 

[blazerboy30]

The government is taking a huge risk. If the housing market doesn't go up 50%, they're not going to make their money back, and they're going to eat some of the principle anyway.

Agreed. It is a risk, and there is no guarantee that the government will make their money back. But, as I see it, at least they are getting something. I don't see what the government gets in return if they simply give the money to the bank to lower the principle for certtain people.

 

[Dumpy]

Dumpy and others,

If a judge adjusts the remaining principle, the bank doesn't get paid back the full principle it's owed.

If govt. is going to spend $700B buying foreclosed homes outright, you may as well use a bunch of that money to make people more whole so they're not foreclosed on - AND - the banks get paid their full principle.

someone isn't going to be paid if someone is in bankruptcy. All the creditors will be getting ten cents on the dollar. That's one reason why interest rates on credit card debt is as high as it is.

Again, I'm not going to pretend to be an expert on this, and I have no interest in doing the requisite research. However, the gov't could always just purchase the outstanding mortgages of debtors in bankruptcy form the bank-creditors at their full remaining value. Since debts to the government survive bankruptcy, eventually the government would have to get the money back. They would probably just renegotiate the terms of the mortgage--say, changing it from a 30 year fixed to a 50 year fixed, which would significantly lower the monthly payments, but keep the net value of the note the same.