Loan guarantees are guarantees of foreclosure, not against foreclosure.
On the heels of Dr. Warren's New York Times assertion that any fix to the economy needs to be a fix for households, (Thank you!) I would just like to clarify one point for the TPM readership who may not be following this issue closely.
When Paulson and his colleagues talk about issuing mortgage loan guarantees, they aren't talking about anything calculated to prevent homeowners from losing their homes. They are talking about ways for mortgage companies and investors to get paid even if (or more precisely, when) homeowners default on their loans and are foreclosed upon.
This is one reason banks aren't making significant loan modifications for homeowners, and why the much-touted "Hope for Homeowners" plan has only 42 applications to date. If you were a bank, would you make significant loan modifications for homeowners when you can foreclose on them and then get the entire amount of their loan plus interest from the government?
Unless we come up with a useful plan for keeping people in their houses, nearly every loan undertaken from 1998 forward will soon be underwater because of the huge amount of unsellable real estate on the market. (Since the number of people who now qualify for a mortgage is less than the number of people who qualified in previous years, those foreclosed-on houses aren't going to fill back up anytime soon.)
If you think this is crazy, please call your elected representatives and demand a plan that will keep people in their homes and neighborhoods.
I heartily agree.
Do the Feds fear that a proposal which might actually benefit individual homeowners would result in overwhelming participation?
That is the only reason I can imagine for this incomprehensible approach.
December 2, 2008 7:35 PM | Reply | Permalink
What is your approach which benefits individual property owners first, and MBS holders second if at all?
December 3, 2008 1:31 AM | Reply | Permalink
One approach that would be no more expensive, and at least as effective would be to provide these government loans directly to human beings with jobs and a need for a home.
Not a terrific idea for a lot of reasons, but significantly better than handing over stacks of cash to people who've already lost even bigger stacks and have already told you that they're just going to stick it in their paychecks and leave.
December 3, 2008 2:40 AM | Reply | Permalink
The Feds fear that a proposal which might actually benefit individual homeowners, would divert money away from their friends at Citibank.
What we have seen happen under Paulson is really nothing less than pure simple looting. These guys have zero pride, and unbounded greed.
December 3, 2008 2:36 AM | Reply | Permalink
For extensive comments related to what you've written, see this entire thread from a Sept 23 blog by Robert Reich. I think you'll see that most of us were pretty clear on what was happening from the start of this bail-out. And most of us (that early on) were concerned about people keeping their homes and having jobs.
http://tpmcafe.talkingpointsmemo.com/2008/09/23/the_bailout_to_end_all_bailout/#comments
It's clear that the "bail-out" thus far is just another money grab for friends and cronies before the bush cabal leaves office.
And yes, I completely understand that what's being protected is investments by bondholders and the insurers of those bonds, not the mortgage holders. Which is why I was so thrilled by Elizabeth Warren's clear thinking and compassion.
December 2, 2008 11:32 PM | Reply | Permalink
Hi TheraP,
I agree that most of the regular Cafe members were skeptical of the bailout from the beginning. (Can't remember if I commented in the Rubin thread or not.)
But I'm not so sure that everyone even yet understands the degree to which the consumer isn't just being left out of the fix but is actually being pushed farther down by it.
How do I say it--there is a key difference between talking about "helping people stay in their homes" (charitable) and understanding that people being in homes and able to turn their minds to other more productive things is crucial to getting this crisis turned around (economic/social). Maybe people do understand, but I still hear a lot of talk about not wanting to reward people who tried to "use" the system. (Like, how dare those people have tried to buy a house, or a couple of houses. There's a strange polarity, as if those who bought houses from 2001-7 can be divided into two groups--the unfortunates and the opportunists.)
Anyway, I'm just saying I think we have a ways to go on coming up with a coherent narrative of what's happened over the last few years or a workable plan about how to turn things around. Of course I like my plan but some people just aren't as jazzed about it as I am. :^)
I've missed having Elizabeth Warren as a regular commenter on housing over the past few months. And like you, I'm very glad that she has a chance to share her thinking with the entire country. If the idea that the economic fix has to start at the household level is seen as shocking in the financial community--they need her more than they know!
December 3, 2008 1:02 AM | Reply | Permalink
You're a valuable voice here, I think, because you're one of the people trying to integrate how problems interconnect as well as how solutions have to be based on the greater good of society, not leaving those who are trapped in situations beyond their ken to flounder or lose homes or "choose" to avoid medical care and so on. I've seen firsthand how a client lost a home. A home they were within years of paying off. But the wage earner became disabled - and the equity was tapped - and that led to a slide which resulted in foreclosure.
Thanks for the explanation, erica. And keep plugging away.
As for my sunny disposition at the moment, after 8 years of being dashed against the rocks, this transition to Obama feels like being washed up on a beach. Finally, terra firma - even if there's a huge bunch of tasks ahead. So I'm thrilled to be lying drenched on a beach - not shipwrecked and endlessly dashed into rocks.
I am well aware we cannot have all we need or want. But I am going to make damn sure that I put out there - over and over - the vision of what should happen if dump we Dr. Pangloss (or any nonsensical ideology) once and for all. Yes, much wisdom comes from suffering - but no... leaving people to suffer is not "all for the good" (or their fault).
Peace!
December 3, 2008 10:35 AM | Reply | Permalink
I hear ya sister! Thanks for the encouragement.
December 3, 2008 12:42 PM | Reply | Permalink
Thank you! Not enough people are calling attention to the fact that the banker's current plan essentially involves foreclosing on everyone, keeping the equity, and then reacquiring the properties for pennies on the dollar and selling them again.
Now we have even given them the ability to keep their companies out of bankruptcy long enough to carry out what has been their plan all along. The only thing that could be a bigger insult would be actually PAYING them the full balance out of the public coffers before letting them take the assets to resell.
The way it was presented to congress, the bailout made some sense. The fact that implementation looks nothing like what Paulson stated - or congress authorized - is nothing short of criminal.
December 3, 2008 5:04 PM | Reply | Permalink