Bush proposes homeowner aid

August 31st, 2007, 7:17 am · 27 Comments · posted by Mathew Padilla

President Bush is set to announce this morning plans to help homeowners facing foreclosure and those who already lost their homes to the bank, reports the Wall Street Journal.

Here are the key points as outlined in the Journal:

Among the moves will be an administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers. The change is intended to help borrowers who are at least 90 days behind in payments but still living in their homes avoid foreclosure; the guarantees help homeowners by allowing them to refinance at more favorable rates.

Mr. Bush also will ask Congress to suspend, for a limited period, an Internal Revenue Service provision that penalizes borrowers who refinance the terms of their mortgage to reduce the size of the loan or who lose their homes to foreclosure. And he will announce an initiative, to be led jointly by the Treasury and Housing and Urban Development departments, to identify people who are in danger of defaulting over the next two years and work with lenders, insurers and others to develop more favorable loan products for those borrowers.

I looked around for reaction to his proposals and saw an unimpressed commentary on the intelligent Naked Capitalism blog:

Now admittedly, the tax relief on canceled debt is a big item and will at least keep those who suffered the indignity and cost of giving up their home from carrying the further financial millstone of a big IRS bill. But this is aid to those who have already given up their house. It doesn’t salvage anyone.

The FHA move is largely cosmetic.

The Wall Street Journal seems to agree, saying the FHA change will help few folks in costly states like California, which, by the way, has seen a dramatic spike in foreclosures. Here’s more from the Journal:

FHA estimates it can help an additional 80,000 homeowners qualify for refinancing in 2008, bringing its total of refinancing guarantees to about 240,000, senior administration officials said. Mr. Bush also plans to announce that the FHA will begin charging “risk-based” premiums, a move that will enable the agency to help riskier borrowers since they can charge those individuals higher insurance rates. Right now, FHA premiums are a flat 1.5% of the loan, and the change would give the FHA flexibility to charge some borrowers as much as 2.2%.

Still, the move will help only a small portion of homeowners — and few in high-cost states such as California or New York — because the FHA faces constraints on the size of the loans it can back and strict rules that borrowers must meet. The Bush administration has been pushing Congress to enact overhauls that would eliminate the required 3% down payment and raise the size of the loans the FHA can insure to as much as $417,000 from $362,790. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said recently that FHA reform will be among his priorities when Congress returns from its August recess, and a bill is expected to head to the full House this fall.

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Byron says:

August 31, 2007 at 8:55 am

Bush and the GOP have no more credibly. And Ronald Reagan is spinning in his tomb.

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Travis says:

August 31, 2007 at 9:15 am

The tax relief on forgiven debt may INCREASE foreclosures and hasten a decline. Letting your house go back to the bank won’t be nearly as painful, so what have you got to lose?

caliguy2699 says:

August 31, 2007 at 9:33 am

Travis - that’s what I was wondering too. I know one of the bigger reasons to not just let the house go into foreclosure is the IRS penalty for the “income.” So that’s one less thing to think about before deciding to just walk away.

August 31, 2007 at 9:42 am

Travis and caliguy2699….

C’mon, boys. They’ll tweak that provision in the Internal Revenue Code to only allow the tax relief if you re-fi. I’ll bet the - er, farm - that if you walk away you’ll stick get hit with the tax.

BTD says:

August 31, 2007 at 9:56 am

Use the power of your vote to remove from office any politician that supports this bail out. This is only being done to protect financial institutions, this is not some benevolent measure to protect the poor struggling masses. The politicians are only trying to protect the sources of their political contributions. The market needs to correct itself and it seems to be doing fine without throwing taxpayer dollars at it. People need to learn from their foolish mistakes.

Sippn says:

August 31, 2007 at 10:15 am

Blame should be evenly spread across the IQ band, thank you.

From the mortgage brokers selling the no doc/no down to the incapable, to the wall streeters knowingly improperly modeling CDOs and “selling” this, to the Fed 1st encouraging consumers to “take advantage” of variable rate loans then jacking it up and pulling out the rug 17 quarters later.

It continues to be more rewarding to the consumer to be irresponsible, business is doling out the incentives. . . soon after foreclosure or bankrupsy, that consumer can get an auto loan or home loan and of course, credit cards. Easier than sticking it out with the old loan until values recover. Why should we protect these businesses?

I’ll watch the mortgage hack who walked away from his $1mil home nearby with the $2 mil in loans, but took the really nice car fleet - will he escape the IRS because of this?

yeah right says:

August 31, 2007 at 10:18 am

brought to you from the same government that tried to sneak in a bill making everyone that can fog a mirror an American.

the banks need to take back another 100,000 to 200,000 before someone knocks on Mr. Bernanke’s door. no real action will happen until the CORPORATIONS feel the pain.

it will be interesting to see how this plays out. let’s penalize all Americans who play by the rules and pay their bills and taxes on time.

LOVELY IDEA.

calvin says:

August 31, 2007 at 10:36 am

if people are taking out loans they cant pay, they should pay the consequences. You dont buy what you cant pay for. sad people dont understand this principle.

MST says:

August 31, 2007 at 10:48 am

Bush said the Federal Housing Administration, a government agency that provides mortgage insurance to borrowers through lenders in the private sector, would launch in coming days a program called FHA Secure. The program would let homeowners who have good credit histories but can’t afford their current mortgage payments to refinance into mortgages insured by the FHA.

……And what exactly does this have to do with subprime??????

tommy j says:

August 31, 2007 at 11:05 am

wow, what a fantastic proposal!

a very ambitious guy embellishes ever so slightly on his loan applicatoin to get a cruel and unusually high mortgage of say $500k he can’t pay. he refi’s and is forgiven of $100,000 and gets the money he lost spinning the housing millionaire wheel of fortune tax free. what a deal! where do i sign up?

i think we should just get this over with and nationalize everything so we are all working for the big govenment and have supreme security.

big government was smart enought to get us into this mess so why not have big government get us out. right?

no one should ever lose money and everything should be government guaranteed!

let’s end homelessness, end unemployment, give everyone on our soil free healthcare and provide guaranteed free pensions for all. after all this is America and we are the greatest nation on earth and our central planning big government knows what to do.

and shut up about freedom to suceed or fail. who wants to be free to fail?

just cheer them on - go big government go!!!!!!!

travanx says:

August 31, 2007 at 11:17 am

Looks like I will never be able to afford a house. Oh well, that starts to make me wonder how much longer I will live in California for. Someone must realize that there are plenty of younger people who are going to totally get screwed from every single way they try to keep house prices high.

August 31, 2007 at 11:19 am

oh, and i forgot to mention you must support BILL GROSS for BIG GOVERNMENT president, czar, commissar or whatever we will call it!

go BILL (er, Forest) go!!

not buying it says:

August 31, 2007 at 2:28 pm

That’s great. Our tax dollars being used to help those that do not even live in CA- or at least SoCal. The restrictions on these provisions won’t assist many folks in OC. That’s the funny part. (I’m not even going into the fact that these people don’t deserve any handouts not available to anyone else that foreclosed before them - and usually due to unexpected job loss - a reason out of their control)

So, the idea of helping people to refi is unreachable to most OC folks, due to those restrictions. Moreover, the tax relief will remove one of the biggest consequences to foreclosing, thereby encouraging more to do exactly that.

Yeah - real smart.

sunsetbeachguy says:

August 31, 2007 at 3:06 pm

Hey Matt:

I get my news from the LA Times. Mortgage shop in OC closes for an orderly shutdown.

Ameriquest is closing its doors.

August 31, 2007 at 4:56 pm

Matt:

Hey, I am just a little punchy.

We are all busy but Ameriquest finally giving up the ghost is another body blow to OC and pretty historic.

Yes, I do read your blog regularly.

Bill says:

August 31, 2007 at 5:19 pm

Wow! Almost everyone on this blog is right. Bailout, tax relief, more foreclosures, helping hand to the big lenders, OC won’t benefit, taxpayers will foot the bill, No 1099’s for people giving up their homes…..it goes on and on. And we thought invading Iraq was Bush’s biggest blunder.

Chris says:

August 31, 2007 at 6:33 pm

You guys got it right! I’m not sure ‘they’ considered this - If you can only sell your home for say, $50k less than you owe the bank, and the bank allows that as a ’short sale’, then the bank writes off the loss and 1099s you. The IRS then comes after you for that $50k that they now consider as INCOME to you since you didn’t have to pay it back. Thanks guys!

I bet, as many caught here, that that was a BIG reason for homes not falling below current levels of around $650 to $700k. Why? Because many owe around that who’ve bought in the last few years on nearly 0% down deals. If they didn’t have the money in the first place, they surely aren’t going to have 30% of that estimated loss to pay in taxes.

Then they get caught up in penalties and interest with the IRS for years to come.

However, NOW, if this passes, they remove that threat and no longer have to worry about that tax liability and now have no reason to just dump the home at whatever they can get away for or just foreclose because since they have no way of profiting anyway on the sale, any price means nothing to them. Only the bank gets hurt, which they end up writing off as a loss anyway.

So, $650k price levels may very well become $550k levels faster than many expect. The banks still have so much money they will only have to write off these losses for a few quarters and it will all be a bad memory. Home prices will fall to where they are affordable and everyone will be better off. Keep the lending standards tight and responsible and the market will be better off.

Private investors will never have an appetite for this crap in the foreseeable future, so you are going to have to have 20% and actually make enough to meet that 40% back end ratio - just like the ‘good old days’.

What a concept!

Funny how politicians create these disasters and then trip all over themselves to look like heros to fix it! A-holes.

Kirra says:

August 31, 2007 at 6:52 pm

Remember all you people that don’t support a gov’t bailout….it’s your home values that will go down the toilet if your neighborhood is full of forclosures and reos….. oh and that will push the recession up a few quarters too….. read the WSJ, Bloomberg news for the US and global economy. This is not just affecting the poor guys on Camille St. in Santa Ana….. The talking heads that say and said the “sub-prime” problem is contained are full of it…… We as local residents need to be open to new ideas and ways of dealing with this future monstrousity. Open your eyes, read broker forums, ticker forum etc…. or do you get all your advice from the guy down your block?

August 31, 2007 at 8:07 pm

Yea Kirra, that poor guy on Camille St. in Santa Ana took over $250,000 in his equity in refinances and spent the money on cars, vacations, etc., and now has a 100% option arm loan on his property he can’t afford (surprise)and he’s crying the blues. This sh– is happening all over. People have to face the fact that life is not a bail out by the government. Life has its ups and downs, live with it. Of course values may go down, so what. It’s the process of what goes up will come down. It will go up again, this is not doomsday of the real estate market. Markets such as 1982, 1991 and today……things recover, and we don’t need a government bail out.

graphrix says:

August 31, 2007 at 9:58 pm

Wow the blogger takes sunsetbeachguy seriously. SBG has been posting on Lansner’s blog before the blog was even invented and I think maybe once Lansner has said something to him. I think that says something about the blogger here. I think the heat is making everyone punchy. No offence to either one of you, I respect you both.

FYI on the “bailout”:

1. The FHA exemptions will only apply to about 80,000 loans. That isn’t even enough for California. Plus with the FHA loan limits it won’t apply for OC.

2. The debt forgiveness tax is already eliminated for anyone one who can prove they are insolvent. Do you think that someone who has been spending 50-70% of their paycheck on their mortgage isn’t insolvent already?

The speech was all fluff. Ironically it was scheduled one hour after Bernanke’s speech. I highly recommend that everyone reads it in its entirety. He teaches a good lesson starting in the 20s about the history of the mortgage. I think he was reminding the politicians about the past and that it isn’t the Fed’s job to fix it. But hey who am I? Just a guy who actually reads and listens to the Fed. Something the politicians should at least make an attempt at.

meto says:

August 31, 2007 at 10:05 pm

OK, here is how to play a fair bailout game. Go after and collect money from all the flippers or whoever made profit on a foreclosure house from 2003 to now to help the current homeowner to get out of trouble. Those people were the ones who made profit on that house, not us – taxpayers. They drove the housing market to trouble, so they must take responsibility to fix it. On the same house if someone make money then definitely someone will lose it because the housing price cannot increase forever. Bailout is not just a bad idea, but it is also a stupid idea.

Republican Clowns says:

September 1, 2007 at 4:55 am

Graphix,
If you listen to the FED you are dumb. The Fed is a private company that is ALWAYS WRONG. Don’t believe me, go to Bill Fleckenstein’s website and read his papers on the Fed. Bernanke gets all his news from CNBC, who are all communication major that don’t know anything about economics, Rick Santelli exempted.

September 1, 2007 at 8:13 am

Ok, do the math. Let’s say for argument purposes that the people in question here average $30,000 per household in back payments, etc., to the lenders. Let’s use the number that Bush says his plan will help: 200,000 homeowners. Ok, 200,000 x $30,000 = $6,000,000,000.00 (thats billion, not million)…..where will this tax-free money eventually come from: 1, the lenders, 2, the government, or 3, you and me, the taxpayers who pay their bills…..If you answered #3, step to the front of the blog line.

September 1, 2007 at 2:23 pm

Graphrix:

Lansner has commented toward me a couple of times and a couple of times via email to chill out the Pat Veling battles.

Everyone needs a little good natured ribbing, including the bears & anti-bailout crowd.

Besides, the OCR blogs need a stalking horse type of poster to mix things up on occasion.

September 1, 2007 at 6:05 pm

SBG,

I know that Lansner has been commenting to you. But I had to give you and Matt some ribbing too. I have to say Matt is much more responsive and interactive on the blog.

Yeah you and Pat did go at it for awhile. It sounds though like you guys are on a more civil level these days. Pat never really responded to my questions about the trends of his numbers. I am tempted to send him an email. I want charts! But I can’t wait for his inventory numbers in the coming months. You and I will have egg Lansner on to make sure he doesn’t hide out. We will be at 10 months of inventory by October even with his seasonally adjusted annualized calculation. Oh but nobody saw this credit debacle coming. Um yes, yes we rebel rousing bears did.

I should have a good post up at IHB this week about the sales volume, housing stock and foreclosures this week. I’m sure you will enjoy it and your comments are always welcome even if you do give me a good ribbing.

SC says:

September 4, 2007 at 8:13 am

YESSSS! Reward the irresponsible… It’s the American way. Be an irresponsible illegal alien and everything in America is FREE!

Be a hard -working responsible family man and watch the government try to take everything you have.

I’m about ready to ditch this country for good.

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