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The government's "bail out"

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c w d

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Senior Member
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Florida
As we all know FHA is being used to refinance qualifying persons' loans. The other part of the bail out is freezing ARM reset rates to current levels. If I remember correctly the freeze term is 5 years. Thinking about this I've questioned who is this really helping? The homeowners, the mortgage companies, the real estate market? While it is advertised to help the homeowners lets look at a key trend. The average wage and salary is not currently keeping up with cost of living increases. The dollar is suppressed and continuing to decline. While there isn't any real inflations things strangely continue to get more expensive at a noticeable pace to everyone that has to make a decision to prioritize their purchases. So is it really for the home owners? I don't believe it is. When the freeze period is over what is going to happen? Are the same homeowners who qualified for the freeze going to suddenly be able to deal with the new increased rates? I don't believe they will. So who is really benefitting from the freeze? I would have to say it's the lending industry who is the winner. Instead of bailing out the homeowners this move to freeze rates, as I see it, will be used to control the foreclosure rate over time. Those that don't qualify for the freeze are going to be foreclosed now and over the next 5 years. Those that do qualify are going to be foreclosed after the next 5 years and beyond. Or am I looking at this incorrectly? And wouldn't that indicate a market trend of relatively moderate foreclosure rates over the next 10+ years. Seems to me all they're doing with the freeze is slowing down the pace of the inevitable rather than allowing it to come crashing down all at once. And is that going to present us with a downward real estate market over the long term rather than an improving market as is currently being reported for possibly 2009? Whats you're opinion of it?
 

Ted Martin

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Certified General Appraiser
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Kansas
First off, with the exception of the limited number of borrowers who quality for the FHA program (probably less than 100,000 out of 5,000,000) there is no government bailout. The rate freeze was the lenders idea for which the current administration got to claim a little credit for getting the lenders into the same room to cook this scheme up. As with the FHA the total number of potential borrowers who will qualify is well under 100,000. The only way out of this mess is to raise interest rates so the dollar will stop it's free fall.
 

Mike Boyd

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Jan 18, 2002
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Retired Appraiser
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We discussed this very issue 2-3 weeks ago under my thread, "Bush's Plan."

His plan leaves out so many homeowners it's not even a joke. The sub-prime market almost required fraud, mostly from the lenders that carried it out but endorsed by the Federal Regulators.
 
Joined
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Certified Residential Appraiser
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Connecticut
Question, All I have read so far about this rate freeze plan is the plan itself, who will qualify, number of people who may qualify, does anyone know what the plan details are. Is the borrower lock into the plan for 5 years, what if say 2 years from now the value of the house increase and the borrower whats to refi, can they do it. Can the borrower sale their house or are they locked into it for 5 years. What happens after the 5 years are up, does the rate reset and if so to what?
 

Marcia Langley

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Aug 26, 2005
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Certified Residential Appraiser
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Missouri
Robert,

I don't know the details of the plan, either, but I doubt if there was a prepayment penalty. That practice is high on everyone's list as a predetory practice right now.
 
Joined
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Professional Status
Certified Residential Appraiser
State
Connecticut
Robert,

I don't know the details of the plan, either, but I doubt if there was a prepayment penalty. That practice is high on everyone's list as a predetory practice right now.


Got to love that warm fuzzy feeling our Goverment gives us, don't you. :Emoticon_hug:
 

c w d

Thread Starter
Senior Member
Joined
Oct 2, 2006
Professional Status
General Public
State
Florida
But given that the plan is for a 5 year freeze what is that going to do to the overall real estate market? Is it a controlled foreclosure rate? Does anyone see it as an indication of how long the softened, slow, sluggish market is going to last. Again, we have the folks that are going to default now.....then there are the folks who are going to default in 5 years when the freeze is over and their rates reset higher. Depending on the numbers and I'm sure we're talking hundreds of thousands, if it's a controlled foreclosure rate that this plan is for then will it not add to the foreclosure rate on top of the foreclosure rate of a typical market? Thereby effectively suppressing values over the long term. Or am I reading too much into it?
 
Joined
Jul 15, 2003
Professional Status
Certified Residential Appraiser
State
Connecticut
Maybe this is some government top-secret test to see how many people did not care what they sign the first time when making a loan, this test will confirm that these borrowers had no idea what they got into because we (government) are not telling anyone what they are going to get this time with a rate freeze. This test will be used in the courts when they default in 5 years from now, and are foreclosed on.

Prosecutor: Mr. Dumbo, we have information on record from our double secret test, we had suspicions that you had no clue what you were doing when you signed your loan documents, and you scrammed bloody murder that the loan officer double-crossed you. Well Mr. Dumbo, you signed up to put a freeze on your rate, BUT, you had no clue what you signed this time ether as we did not tell anyone. I have proof your Honorable Judge this man is clueless, I SAY OFF WITH HIS HEAD!!!!

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Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
But given that the plan is for a 5 year freeze what is that going to do to the overall real estate market?


It does 4 things that I see:

#1 Reduces the foreclosure rates slightly by artificially holding the interest rates and therefore the payments to lower levels, allowing for folks with financial problems more time to get things squared away.

#2 Reduces the pressure on the major lenders and investors who made these loans and would feel a severe financial crunch if all of these loans went belly up.

#3 Keeping these lenders in the picture by reducing the foreclosure rates also keeps them in the lending business and keeps the real estate market going.

#4 Artificially postpones a market correction in housing values by interfering with the normal processes resulting in unnaturally high housing values and thereby further reducing the ability of buyers to afford housing.

There are some good things in the plan and some not so good things. On the whole, I think that the lenders would be in better condition in the long run if they would allow refinancing of the housing at real market values, forgiving by writing off the differences in the note and the refinance value rather than go the foreclosure route with all of the legal fees and loss of investment due to short sales.

Who's to blame? To start with there are 3 that come immediately to mind: #1 The home owners who financed to the maximum and many times over their means. #2 The lenders who aggressively pushed variable rates and high LTV loans as well as some really dumb sub-prime lending procedures. #3 The investors market who forgot that real estate is generally considered a long term investment and let their desire for high, quick returns get ahead of any caution they might have.
 
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