From Alejandro Laso at the latimes.com:
More than 100,000 struggling homeowners could get help from a $2-billion program that California is launching, including about 25,000 borrowers who owe more than their properties are worth and could see their mortgages shrink.
The Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system, has the potential to make a sizable dent in California’s foreclosure crisis and help the general housing market. State officials hope to fend off foreclosure for about 95,000 borrowers and provide moving assistance to about 6,500 people who do lose their homes.
Consumer advocates have criticized other attempts at foreclosure prevention as falling short, particularly the Obama administration’s $75-billion program to help troubled borrowers. They were heartened by the scope of California’s effort but concerned it would be hampered if the state can’t get major banks on board.
Out of the five major mortgage servicers — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Ally Financial and Citigroup Inc. — only Ally has formally signed on to a key part of the plan: reducing mortgage principal on homes that are “underwater,” or worth less than the size of the mortgage. A Bank of America spokesman said the bank intends to participate but hasn’t yet reached a formal agreement with the California Housing Finance Agency, which designed the program.
“If they can actually stave off foreclosures and the people stay in the homes, then that is a great thing for the market,” said Stan Humphries, chief economist at Zillow.com. “It would be great because the continuing flow of foreclosures on the marketplace exerts downward pressure on home prices, and it also creates more supply of inventory on the marketplace, so foreclosures are really a double whammy.”
The biggest of the plan’s four parts allocates $875 million as temporary financial help to people who have seen their paychecks cut or have lost their jobs, providing as much as $3,000 a month for six months to cover home payments and associated costs. The second-largest chunk of money, $790 million, is slated for a principal reduction program that would write down the value of an estimated 25,135 underwater mortgages.
Another piece would use $129 million to provide as much as $15,000 apiece to help homeowners get current on their mortgages, and another would take $32 million to provide moving assistance for people who can’t afford to remain in their homes.
The program is aimed at helping low- and moderate-income people who own only one property. To qualify in Los Angeles County, for instance, a family couldn’t earn more than $75,600 a year. The maximum benefit for any household participating in the program is $50,000. Homeowners who refinanced their homes to take cash out of their properties won’t be allowed to participate.
The principal-reduction component would pay lenders $1 for every dollar of mortgage debt forgiven. Many experts have said reducing principal on such underwater loans would go far toward reducing foreclosures because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.
But banks have been reluctant to significantly reduce principal on loans other than on certain kinds of risky mortgages that are now seen as having been highly imprudent.
Alejandro – if you are reading this, please challenge these jerks on their asssumptions about lower prices and more supply.
There are buyers for every one of these defaulted properties, and the constant measures by the government to try to save these people just extends the inevitable.
The defaulters aren’t going to start making payments again, just because they got free rent for another 6 months.
This is sickening. Since we can discriminate against everyone that doesn’t own a house now why stop there? Why not give everyone that owns a car $1000. Or maybe everyone that owns a gun gets $100. Maybe everyone that’s donated to a political campaign gets $5000.
My God I hate my government.
$875 million as temporary financial help to people who have seen their paychecks cut or have lost their jobs
Sounds like more kicking the can.
$129 million to provide as much as $15,000 apiece to help homeowners get current on their mortgage
So after they are current, then what? If they’re not working or still underwater, what guarantee is there that they will continue to make payments and be current?
$32 million to provide moving assistance for people who can’t afford to remain in their homes
You mean living for free for 2 years is not enough time to set aside some money to move?
What a colossal waste of money.
Homeowners who refinanced their homes to take cash out of their properties won’t be allowed to participate.
Thank God.
It will be interesting to see if Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Ally Financial and Citigroup Inc. get on board w/principle reductions.
Wait a damn minute. $2-billion program that California is launching
Don’t we have a budget deficit?! WTH!
Why not spend the same money on job creation, so they can go to work and earn their keep, like everyone else?
Exactly, Jim. Teach them to fish!
I vote for you. When are you running?
Glad the banks are getting some more of my money to make sure they don’t lose any on loans they shouldn’t have made in the first place. Maybe they’ll send a thank you this time.
No, Brian. Instead of a “thank you” they will raise fees on any accounts you have w/them.
Where is the part of the program for renters? My wife lost her job, so we get $50k to use towards the rent?
Oh wait, you mean we don’t get $50k? and we have to pay higher rent and a higher price if we decide to buy a house?
Sounds like a great program!!!
At least this time the banks are splitting the spoils with the FBs. Oh wait…
We already have an effective principal reduction program — it is called foreclosure, and it works great.
People who can’t afford their houses should be grateful to be released from their debts through foreclosure and should feel no shame in renting for a few years while they repair their credit and save up for a downpayment. What’s so hard to comprehend about that?
California is bankrupt and can’t afford this folly. This is bad policy in any economic climate, but it is suicide in the current one.
JtR,
Thanks for trying to call Alejandro Laso’s attention to the PREPOSTEROUS lie that is repeated ad infinitum by the mainstream media without being questioned.
The assumption that additional residential real estate inventory and (potentially) lower prices would be a bad thing is unjustified. I have tried to point this out to writers at the LAT and the WSJ, but apparently journalism majors don’t have to take basic economics OR it is just easier to be lazy and reprint the bullshit quotes from industry “experts” (chief economist at Zillow? WTF?).
As you say, there is sufficient demand in many markets to absorb a fair amount of additional, rationally priced inventory. And in some saturated or tipping point markets, introducing more rationally priced inventory will cause prices to fall. So what? (see below). Having someone living rent and mortgage free is only good for that person, but it is bad for everyone else and it encourages more people to default in hopes of free rent or free cheese or both. If they can’t or won’t pay now, they aren’t going to pay 6 or 12 months from now. Better to pay them to move out of housing they can’t afford and into housing they can afford, then sell the housing to someone who can afford it. Lenders take losses they have already reserved for and the life goes on.
Regarding lower prices, if they were to happen, it would be a good thing. Good for homebuyers, good for realtors and good for the economy as a whole. Econ 101 tells us that in any elastic market, moving down the price curve increases the demand for whatever is being sold. So if prices fall, demand will increase, until actual supply/demand/price equalibrium is reached. Also known as finding a true bottom. Increased sales transactions at lower prices would not only generate more commissions for realtors and mortgagte brokers, but would also lead to increased household formation and residential investment (remodeling, redecorating, etc.).
Keeping prices high by artificially constraining supply does NOT increase demand, it keeps it artificially low, and decreases the number of transactions and associated economic activity.
Please keep telling the truth Jim, and please Alejandro and other journalists, please start listening and trying to at least present both arguments, not just the easy, oft repeated and false arguments.
“California is bankrupt and can’t afford this folly. This is bad policy in any economic climate, but it is suicide in the current one.”
It’s just standard vote buying. Although I agree with you. It’s going to be a sad state of affairs down the road when everybody has their hand out and nobody productive left to pay.
Well said Sean. All this propping up of prices so current owners don’t lose their dream retirement does nothing but prevent the next generation from forming households and prevent natural economic growth.
This is the craziest thing i’ve read all day. bring on the foreclosures…please. some of us didn’t spend all our money on boats and hoes and we’ve got cash to help the banks solve their problem.
Thanks for the support Sean.
Having someone living rent and mortgage free is only good for that person, but it is bad for everyone else and it encourages more people to default in hopes of free rent or free cheese or both.
Every former owner I’ve talked to who still resides in an REO knows they have cash-for-keys coming, as icing on their free-rent cake. The word is on the street about how to take advantage of the system – which encourages people to default, and have taxpayers coddle them all the way to the bank.
The more billions we throw at them, the more free ride they’ll expect.
The government is the defaulter-drug pusher.
This reward-for-bad-behavior program needs to stop. I feel like I’m taking crazy pills.
Having someone living rent and mortgage free is only good for that person, but it is bad for everyone else and it encourages more people to default in hopes of free rent or free cheese or both.
Every former owner I’ve talked to who still resides in an REO knows they have cash-for-keys coming, as icing on their free-rent cake. The word is on the street about how to take advantage of the system – which encourages people to default, and have taxpayers coddle them all the way to the bank.
The more billions we throw at them, the more free ride they’ll expect.
The government is the defaulter-drug pusher.
Jim the Realtor | February 10th, 2011 at 11:17 am
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This is right on the money. It’s not the underwater loans that are making people default; it’s the free rent. Many of us were warning about this — the more “free” stuff you give away, the greater the number of people who will line up to take it.
If they think defaults are bad now, just wait until word gets out that the govt is giving money away to people who “can’t afford their mortgage.”
I have a hard time believing this is true. Maybe because I couldn’t sleep last night (so I watched old JTR videos instead! Ha)….but I had to read this twice. It’s sick, to be honest.
And I get to inherit this whole disaster! Maybe I’m just being selfish, but this bailout culture is, wihout question, going to harm me and my friends all into our adult lives. It’s the Halloween freak show that won’t end!
I get my degree in the fall, too. You old-folk don’t inspire much confidence in anyone my age with BS like this.
This is so frustrating and infuriating. And this kind of debt is not going to end well. I mean, are there any numbers out there of how many people own versus rent? Or the ones that own, how many own free and clear or almost paid off. Are those percentages so out of whack that the majority of the population is in favor of this? What can we do? I hate to be complacent about this. I feel like we should protest like Egypt.
What’s another $2 billion when you’re $25 in the hole? That’s California for ya.
Who is pushing this program? Is it Jerry Brown?