McCain’s debate night bombshell

October 8, 2008

Town-Hall Debate October 7th, 2008Did you see the debate last night?

During one of the questions about the economy and the financial crisis, McCain dropped a bombshell!

When Tom Brokaw asked about what needs to be done to help the housing market, McCain suggested that Government should buy back all these defaulted loans and then give these people new loans at the current market value of the home. Hmmmm. Will this work? I think not. Why?

Well, let’s see how this would work…

  1. Joe Homeowner has a house that he bought for $500,000 with a loan from Fly-By-Night Subprime Lending, Inc.
  2. The house is now worth $400,000
  3. Joe, like everyone else, has lost a lot of equity in his home
  4. Unlike other Americans who are responsible and ARE paying their mortgage, Joe qualifies for the Government to buy back his subprime mortgage, because he’s NOT paying his mortgage.
  5. The Feds buy his mortgage for $500,000 and immediately give him a new mortgage at $400,000, which he may or may not be able to afford
  6. So now Joe is happy, but only until he can’t make his payments again…
  7. Good ole’ taxpayers absorb a $100,000 loss
  8. Multiply by millions of upside-down loans.

So let me ask one simple question - Does this make sense to you??  I suspect there will be a lot of responsible homeowners who are diligently paying their mortgage who will be awfully pissed off that they won’t be getting THEIR mortgage bought by Uncle Sam and reset to current market value.

Don’t get me wrong - I am not against McCain, and this isn’t about one presidential candidate or another.  I’m simply saying that this plan does not make sense.  However, I haven’t heard either candidate or anyone in congress or the treasury or the federal reserve or the private sector suggest something that might actually work to solve this mortgage mess.  Although today, Barack Obama rejected McCain’s plan, and his economic adviser said that McCain’s plan would cause the U.S. Government “to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don’t recover. The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.”

Let’s hope that someone is smart enough to figure out how to use that $700,000,000,000 to get the housing market back on track.

In the meantime, I’m proceeding under the assumption that for the forseeable future, people will need to do a short sale and get their lender to take the loss.  So if you know of someone who is underwater and stuggling to keep up with their higher payments as their loan resets to a higher interest rate, tell them you know a foreclosure consultant who can help.  I’d be delighted to talk to them.

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Written by Bart Marchioni, Certified Foreclosure & Short Sale Specialist · Filed Under Consumer, Industry, Lenders, Mortgages, Real estate 

Comments

4 Responses to “McCain’s debate night bombshell”

  1. Armand Ramirez on October 9th, 2008 8:33 am

    Hey Kevin,

    I hear what you’re saying on the ‘bailout’. Perhaps I’m just a bit paranoid but here’s a scenario we may not have thought of…

    1) Bankruptcy courts would now have the capacity to negotiate loan amounts (and perhaps government buyouts of their loans)

    2) Should a property go to foreclosure, the bank could qualify for a government buyout anyway

    so…

    Why should banks even care about short-sales at all? Why should they train and pay for a short-sale department when bankruptcy judges are doing the job for them already, and if they property goes to foreclosure they could just pass on the debt to the feds! Am I just reading this wrong?

    However, I do agree that they should attempt to stop further foreclosures…in all price ranges. Maybe you haven’t seen it as much down there, but the overwhelming supply of foreclosures and short sales have killed our market in Sonoma County. I can’t help to think that if half of that supply was taken off due to loan modifications or even government owned rentals (foreclosures the feds would buy and then release for sale when supply drops) that the hemorrhaging would at least slow. Keep up the good work.

    -Armand Ramirez
    (Century 21, Petaluma)

  2. Bart on October 9th, 2008 10:23 am

    Hi Armand,
    Thanks for the comment on my article.
    I think you’re right - something needs to be done to stem the foreclosure rate. I don’t claim to have the answer, but wish someone would give us some clear idea of what will be done about it.
    Here in the San Jose / Silicon Valley area, foreclosures are generally bunched in the area to the east side of San Jose, but is spreading to other, more affluent parts as well. Unless drastic action is taken, I see that spreading over the entire area, especially as we see the “Option Adjustable” loans, i.e. 3/1 ARM, 5/1 ARM, 7/1 ARM and 10/1 ARMs start to reset next year…
    -Bart Marchioni

  3. Amir Shahkarami on October 9th, 2008 12:41 pm

    Thank you for the post.

  4. Marian Bennett on October 14th, 2008 7:32 am

    I agree with Armond. What is the incentive for banks, particularly the employees in the loss mitigation department, to push these short sales through? Even though our area has very few of these, I hear from my colleagues that unapproved short sales are practically a waste of time. And with the option arm resets comiing, our government should be working overtime to put a well thought out short term plan in place. Many agents do not show short sales any more. I wonder what would happen to inventory levels if those properties were off the market and worked into loan modification programs with their lenders? But the lender has to have their incentive to do that. I also agree that it is imperative that someone in leadership get this right. I also think the term “bailout” is confusing in this context. When I speak with my clients, most are past ready for someone to start talking straight with us. I could go on, but this is supposed to be a short comment.

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