The bailout and the housing market
Potential home buyers have been hovering, reluctant to buy until they feel prices have reached bottom and loan requirements have loosened. Does the bailout change the picture. Dan Grech reports.
Prospective home buyers Lars Kalnajs and Leah Fuchs talk to real estate broker John Skrabec of Live Urban Real Estate in the yard of a home that has been reduced in price in Denver, Colo. (Chris Hondros/Getty Images)
More on The Economy, Housing - Real Estate, America's Financial Crisis
TEXT OF STORY
Scott Jagow: Here's something else to ponder. Will this bailout do anything for the housing market? Dan Grech looks at that.
Dan Grech: Home prices have been in freefall around the country, but many potential buyers have stayed out of the market. Jack McCabe runs McCabe Research, a real estate tracking firm.
Jack McCabe: There's a lot of people that are anxious and have been waiting to buy, but they've wanted to buy at the bottom. And now, I think, they're gonna see that maybe we're getting close and maybe now is the time to get in.
McCabe says a federal bailout of the financial industry is likely to loosen tight credit markets. New buyers will be able to get loans, and current owners will be able to refinance their mortgages at better rates. But McCabe says a government rescue package will come at a hefty price.
McCabe: It doesn't just go away. We end up ultimately paying for it, and we're gonna pay for it to the tune of probably a trillion dollars over the next two to three generations, plus interest.
And, McCabe says, the housing crisis isn't over just yet. In the coming months, we're likely to see a new wave of foreclosures.
I'm Dan Grech for Marketplace.
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From mineola, NY, 09/25/2008
Assuming for a moment that we're being told the truth, and the problem is non-performing mortgages and NOT Credit Default Swaps...... and putting aside the transparent issue that the plan transfers direct control of $700 billion dollars to the president, (via the cabinet position), with absolute authority to use for ANYTHING.... Let's examine the needs and an alternative solution to 'the problems': PROPOSAL: Enact legislation to reduce the interest rate on ALL mortgages by 1%, and reset all ARM's to either the interest rate at origination or 1% below origination, the time at which they WERE deemed affordable by the originating banks.In addition, ARM's are converted to 30 yr. fixed. 1. mortgages are non-performing and foreclosing at an excessive rate. And banks are unable to value them. Most of this is due to the re-setting of ARM's to unaffordable levels. EFFECT: A. The vast majority of non-performing loans become 'performing'. B. The upward spiral of foreclosures stops. C. Decline in property values stabilizes and begins to rise thereby increasing the value of both performing AND non-perfoming loans. D.The rise in value reduces the 'reserve requirements' of the banks thereby freeing cash for investment. 2. Banks desperately need an influx of cash. EFFECT: A. As 'performing' mortgages they now introduce an IMMEDIATE influx of cash to the entire banking system. (in addition to D above) SUBSIDIARY EFFECT: A. The reduction of an individuals mortgage payment acts EXACTLY like the recently passed 'stimulus' package which created rebates. It does NOT cost the government OR the taxpayer one red cent. It provides this stimulus month after month for YEARS, and immediately increases the potential for 'discretionary spending' thereby injecting cash into, and boosting the economy. B.The reduction in the mortgage payment is treated as a 'taxable' item for income tax purposes. The tax generated by this is used to set up an FDIC type insurance program to protect future mortgages, creating an additional benefit to the banks in securitizing mortgages. (and has the effect of reducing the use of UNREGULATED credit default swaps) This proposal also eliminate what was stated as the MAJOR problem so many times during the hearing. No one can determine the value of, or the cost of 'buying', the non-performing loans. PERFORMING loans have an IMMEDIATELY determinable value. This proposal also addresses the issue raised as to 'who' should bear responsibility and places the responsibility upon the 'creator' of the problem; rather than the taxpayer. The objection of 'people who couldn't afford mortgages' is eliminated because the mortgage issuer made the determination that 'it was in fact affordable'(acceptable) at the time it was issued, (approved), and this proposal clearly makes it MORE acceptable by the reduction of the interest rate. This proposal also eliminates the need to address 'executive compensation'. Although it should be noted that in a normally accepted business model, indeed, in most corporate structures, a reduction in compensation, or 'cut expenses' (not only executive), is generally deemed MORE acceptable than a price increase. This proposal also creates a 'spread the risk' situation applying equally to all participants exactly equal to their participation; thereby not penalizing any financial institution more than another. (and allowing the 'free market' to operate as it was intended) While this proposal alone may not completely address the situation; it will clearly REDUCE the $700 billion figure. It also provides the time to institute EFFECTVE regulations. It also provides an IMMEDIATE effect as opposed to the statements by both the Secretary of Treasury and Federal Reserve chairman that the proposal before Congress WILL TAKE TIME to implement. We have in this proposal: 1. corrected the past problem 2. addressed the present problem 3. prevented the future problem
From Putney, VT, 09/24/2008
1. Congress will support the bailout once there is agreement on the central issue: has the Bush administration been the Boy who cried Wolf, or Chicken Little? (I think the Democrats suspect the Boy, where as the Republicans the Chicken). 2. In the often cited historic, and successful, Bail Out of Chrysler Corporation in the 1980's it's CEO Lee Iacocca offered to accept only $1 per year in compensation. (I'm unclear if that was until Chrysler was profitable again or until the Bail Out was repaid). Today, I hear nothing from Wall St CEO's, CFO's, COO's and so on, in the form of accepting responsibility, nor how they intend to put things right once their firms are rescued by the very public they compromised, much less a voluntary reduction in their compensation.
From Gilroy, CA, 09/24/2008
It troubles me that my family members took on loans they knew, and I knew they could'nt afford. The problem was not the loan, because they could have taken out the same loan for a cheaper home but they got greedy and now they can't pay.
From Columbia, CA, 09/23/2008
A quick check on the web gives me a perhaps questionable estimate of $10.5 trillion in total household mortgage debt in 2007. $700 billion is about 7% of that total. Why not give the $700 billion to the homeowners to use in paying down their loans. Trickle-up economics? The bad debt is reduced along with the good, the taxpayers get a benefit without penalizing the prudent borrowers, and the investors and banks get the money quickly albeit at the expense of a reduction in the outstanding debt they can collect.
If this sounds absurd, you now understand the reaction of the average working slob to the proposal of the supply-siders in government to bail out the free market advocates in private enterprise.
From CA, 09/23/2008
Hello, I like your realistic points of view in crisis . I think, Paulson lost his marbles and is in with those banks and investment houses on rubbing the country blind! Paulson and others are putting pressure on the President and Congress like they did when they wanted to go to war with Iraq, fast, fast, quick, quick . Banks must resolve their own problems and solve their own mistakes. Economy is not going anywhere and will not fall anywhere. Lenders should deal with short sales, allowing the homeowners to buy their own home at the current market value and at the 3% interest rate, which government should secure. What will happen to the homes the government will take over? Will the homeowners be foreclosed and evicted from their homes? How long the government is going to hang on to these repossessed homes before they are going to start selling them off? What if the people rebel and do not leave their homes? Will they be able to stay and purchase them at the market value (not what they owe on them) at the 3% interest rate? I am a Realtor and have two listings with two different lenders. I have received short sale offers on each home and presented them to each lender 3 months ago. However, these lenders are not responsive. It appears that they want to foreclose and my clients fight that being afraid of ruining their credit and paying on a difference. They want to hold on to their dream! Until the situation of homeowners is not ironed out and resolved, there should be no deal with the Congress. They should repossess all homes and bank accounts of all banks managers and CEOs responsible for these crises, just as they are doing it to us. There should be no bail out whatsoever to them! As they are leaving the government posts, the thieves are rushing to get their hand on more money leaving the next President in charge of the pillaged and rubbed country. Do not do a thing with bailing thieves out before new election.
From Hollywood, FL, 09/23/2008
The mortgage backed securities are difficult to value because a portion of the underlying collateral (bad loans)are adversly affecting such value. If the bailout were targeted to restructuring the underlying bad loans (versus purchasing the securities) the bailout money would be going to assist the HOMEOWNERS at the same time it improves the value of the securities. This avoids giving all that money to the Wall Street firms that created this unbelievable mess and wouldn't we the taxpayers be in a better position? Restructure the loans to make them affordable thereby helping the homeowners and ensuring the cashflow for the taxpayers in the long run and saving the value of the bank's securities. It seems that the banks are much to anxious to get their mits on this money and that should be a red flag to taxpayers and Congress. Let's face it what has the Bush Administration done for us lately (or ever)?
From Portland, OR, 09/23/2008
Mr. Bush, Mr. Paulson & Congress,
This is your boss; I am giving you a directive to not rush into voting on the pending legislation for the Wall Street bailout. I will need to look over the full and complete documentation before it is voted on.
The decision made on this is too important to allow for hast on this matter, and it is in my and every other Americans interest to be certain of all the repercussions of this decision. The future of this Nation is more important than the matter at hand, and to rely on the acceptance of Americans to blindly allow for this to pass without being given the chance to evaluate all of the ramifications is unacceptable.
Therefore, this vote will not be taken at this time! If you need to postpone your legislative recess to accomplish our demands; so be it. We will not allow for another disaster to be piled onto another disaster.
Thank you for your cooperation.
Signed, The American Taxpayer
James Rinehart
5901 SW Huddleson St.
Portland Or.97219
(503)332-6523
From Corona, CA, 09/23/2008
How come "US citizens" weren't shocked when every dick & harry with no job or income was getting a "liars loan", paying thru the nose in real estate broker & mortgage broker commissions and all the other fees tacked on top ? Continuing to pump up the market !
Or all those home equity loans that were used to buy the latest gas guzzling SUVs that their owners can't afford to drive now or to take that once in a life time exotic vacation they could not really afford ?
Or all those fony "House Flipping" shows on TV. Attracting more suckers to the cuase!
I feel sorry for all those suckers who were too blind or too greedy or too dumb to see the punzy game for what it was ...The latest in a series of boom & bust cycles in the US economy. Have we forgotten the dot com era already ?
Hello Reality...Now the "US tax payer" is expected to pitch in and clean up the mess !!!
The sad part in all of this is, in couple of years we'll witness another crisis in some other sector of the economy...When are we going to learn...
From Overland Park, KS, 09/23/2008
In a few weeks U.S. citizens will be shocked and outraged to learn that the majority of the $700B Treasury bailout will go to foreign companies who bought the junk mortgage-backed securities. This payoff is a deal to keep them from pulling money out of the U.S. economy. Stay tuned for more outrage.
From union city, CA, 09/22/2008
i believe being a single mother of two, that the housing prices should be able to drop so that people like me can afford to purchase a home for the first time. $250,000 or $150,000 most people want homes they can afford especially being only one income. The government should listen to the people more often then so, its the little people who get nothing and the others that get everything. Especially imigrants that come, they get housing, food, medical care. What do we get?
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