Mortgage Renegotiations?

[FergieTCat]

I BELIEVE (and I may have misunderstood) McCain to say that he thinks homeowners should be able to renegotiate the value of their mortgages with their banks. Meaning (agan, to me) that if the price of the homes have dropped since they took out a mortgage, they should be able to have their mortgages readjusted to the lower price and the government would pay the banks the difference.

Does anyone else disagree with this? While, on the one hand, I have sympathy for anyone who bought their home before the bubble burst and now find themselves paying a mortgage in excess of their homes' value. And also finding it impossible to sell their home without losing money.

On the other hand, I have no sympathy for people who have owned their homes for years and continually refinanced their mortgage as their home value rose, only to find themselves now in a home worth less than their mortgage. Why is it fair that those people, who were given the money to do with as they wished (be it pay for college or pay for a cruise) every time the value of their homes increased, now have to repay less than that balance to the bank?

Am I alone in this logic?

 

[Tanuki]

I really hope not - what I am hoping for is that those homeowners who signed up for an ARM and are paying interest at a certain percentage and are (but not paying the initially low "teaser" rate but the rate once the teaser expires) and are able to make their payments would not have the rate adjusted upwards to a new higher payment which would put them into foreclosure.

If you can afford the payment at 5.5% you can just keep paying what you are paying even if you were in an ARM that would raise your rate to 6%. The bank is still making something on the interest you are paying - which they may prefer instead of being stuck trying to sell the house.

 

[FergieTCat]

I really hope not - what I am hoping for is that those homeowners who signed up for an ARM and are paying interest at a certain percentage and are (but not paying the initially low "teaser" rate but the rate once the teaser expires) and are able to make their payments would not have the rate adjusted upwards to a new higher payment which would put them into foreclosure.

If you can afford the payment at 5.5% you can just keep paying what you are paying even if you were in an ARM that would raise your rate to 6%. The bank is still making something on the interest you are paying - which they may prefer instead of being stuck trying to sell the house.

That I can agree with.

 

[akhenaten]

no, my dh and i did not buy a home when the prices were skyrocketing because we knew that we could not afford it..... ... too bad we did not...

the thing i don't understand is the statement that we have to keep home values from dropping...
if they were artificially inflated by the questionable lending...shouldn't they have to drop???

 

[akhenaten]

I really hope not - what I am hoping for is that those homeowners who signed up for an ARM and are paying interest at a certain percentage and are (but not paying the initially low "teaser" rate but the rate once the teaser expires) and are able to make their payments would not have the rate adjusted upwards to a new higher payment which would put them into foreclosure.

If you can afford the payment at 5.5% you can just keep paying what you are paying even if you were in an ARM that would raise your rate to 6%. The bank is still making something on the interest you are paying - which they may prefer instead of being stuck trying to sell the house.

that seems fair to me also....

 

[castleview]

Biden said the same thing about "readjusting principals" at the VP debate. I don't like it either. While I'm on a low fixed rate, I would love to lower my principal but that's not right. I have friends that stayed in the starter home and have nine years of a low monthly mortgage to go on their homes. How is it fair to them?

I wish I could find it, but I saw an interesting article saying the soaring costs of houses began with two-income families and not the subprime mortgages (although I'm certainly not defending subprime mortgages).

 

[okeydokey]

Didn't he say he wanted the government to buy all those mortgages?

 

[akhenaten]

Biden said the same thing about "readjusting principals" at the VP debate. I don't like it either. While I'm on a low fixed rate, I would love to lower my principal but that's not right. I have friends that stayed in the starter home and have nine years of a low monthly mortgage to go on their homes. How is it fair to them?

I wish I could find it, but I saw an interesting article saying the soaring costs of houses began with two-income families and not the subprime mortgages (although I'm certainly not defending subprime mortgages).

it did begin with 2 income families ...but it skyrocketed during the subprime years!!
I used to say to my dh ...what are theses people doing to be able to afford those prices...?? dealing drugs???

 

[Michelle67]

I don't think the government should be paying the difference. I think the banks should have to refinance at a stable interest rate and market value of the home, and EAT the rest. They are the ones that started the real estate feeding frenzy that drove housing prices through the roof with their lending practices. I know it wasn't necessarily their choice to do so, but I don't think the government (in other words US) should have to pay for bad business practices.

 

[ChrizJen]

It frustrates me because my DP and I were actually responsible about buying our home. (imagine that!)

We knew what we could afford, and we stuck to it. I really have very little sympathy for anyone who got in over their heads with more mortgage than they could afford.

I totally agree that there should be a move to place a cap on the interest rates for those stuck in an ARM. I have no problem with that. But premiums should not be lowered. These people knew what they were getting into when they bought $200,000 more house than they could afford. To reward them for their mistakes seems extremely unfair to those of us who are responsible homebuyers.

 

[H.E. Pennypacker]

I BELIEVE (and I may have misunderstood) McCain to say that he thinks homeowners should be able to renegotiate the value of their mortgages with their banks. Meaning (agan, to me) that if the price of the homes have dropped since they took out a mortgage, they should be able to have their mortgages readjusted to the lower price and the government would pay the banks the difference.

Does anyone else disagree with this? While, on the one hand, I have sympathy for anyone who bought their home before the bubble burst and now find themselves paying a mortgage in excess of their homes' value. And also finding it impossible to sell their home without losing money.

On the other hand, I have no sympathy for people who have owned their homes for years and continually refinanced their mortgage as their home value rose, only to find themselves now in a home worth less than their mortgage. Why is it fair that those people, who were given the money to do with as they wished (be it pay for college or pay for a cruise) every time the value of their homes increased, now have to repay less than that balance to the bank?

Am I alone in this logic?

You heard and understood correctly. I believe McCain's new plan would only apply to those with ARM's. And yes, he did say they "new" mortgage would be adjusted to coincide with the decreased value of the home. I have a big problem with that. I work hard and pay my mortgage on time. I didn't buy more house than I could afford and I didn't sign up for a risky ARM. So I have a BIG problem with similar houses in my neighborhood now being devalued and remortgaged for lower amounts while I continue to pay the same monthly payment I always have.

I agree with the OP and I'd take it a step further. It's not just those that refinanced so they could pull some cash out for whatever reason, it's all those who signed up for ARM's and interest only loans and bought way more house than they could afford. Now it sounds like they're going to be rewarded for their fiscal irresponsibility. That's just wrong. Meanwhile, my 30-year fixed keeps going up because my escrow keeps going up because nobody is willing to rein in property taxes.

 

[djm99]

I'd rather see these houses refinanced than foreclosed. In my starter house (now a rental) there is one just two houses over. It looks awful. My old neighbors were out there cutting the grass just so it would look normal over there. Foreclosures will devalue the homes worse than any refinancing ever could. We tried to sale that house in June. The value had dropped $35,000 from our last appraisal in 2004 (when we refinanced for a lower fixed rate). That's why we are renting it out now. Thank goodness we didn’t take any money out of that house, we’d be upside down.

Life isn't fair and this market sure isn't either. I don't care if whoever gets a breaks, just stabilize this market.

 

[NVDisMom]

Yes, home values should drop. They were artificially inflated by the subprime lending. Whenever you flood the market with a new group of buyers there will not be enough supply to feed the demand. That supply/demand ratio drives the prices up. Now that the subprime borrowers can no longer get underwritten, they are not in the market and the supply/demand ratio has reversed. More houses for sale, less buyers equals dropping home values. If the gov't were to buy these upside down loans, renegotiate them at a lower principle amount more people could potetially stay in their homes, avoiding foreclosure. While this will keep some homes from eventually being put up for sale, I do not believe it will stabilize home prices.

Home prices still need to return to affordable amounts for the average borrower. Traditionally that is considered to be 3x the average family income for any particular area. If your city's average family income is $60,000, then the average homeprice should hover around $180,000. That has not been the case in a long time in most markets. When we see this happen, then we will see home prices stabilize.

I don't like the idea of the gov't coming in and buying these loans. If a homeowner wants to renegotiate the loan with the bank, then they may do so. Banks are becoming more and more willing to modify loans, especially the pick a pay and option arms. They are well aware that these loans have little to no value on the open market, whether they are performing or not. If they switch these exotic loans to a 30 year fixed, then they are seen as having value. When a bank can control the value of a piece of paper by changing the terms in favor of the borrower its a win, win. The banks liquidity will improve, the borrower can rest easy knowing they can afford the mortgage and the tax payer won't be paying anybody anything. If the terms need to be adjusted even further than simply fixing the rate, then the borrower can convince a bank to do so. A bank will look at the profitability of modification versus the profitablity of foreclosure. Which ever one costs them the least will be the path they follow. The borrower, if they are dedicated to staying in their home may have to incent the bank with a percentage of the future equity in the house.

Or maybe not, a foreclosed property is a liability, especially when your bogged down by hundreds, if not thousands, of them. The bank is paying the taxes, HOA dues, utilities, maintenance costs. It adds up fast. And that is after the actual cost of the legal proceedings to foreclose and vacate the property of its tenants. In this market, it is frequently a better idea to allow the family to stay in the house paying all of those costs on their own. The more loans that get modified, the less the bank will have to put out in the short term. Yes, the bank may lose some of that investment in the long term, but the short term write off involved in a modification can far outweigh the potential short term costs of foreclosure.

Trubled homeowners should be seeking modification. You trully have everything to gain and nothing to lose other than the effort you put into researching how and the following through. It is a long process, will probably take 45-60 days for resolution and will take alot of phone time and back and forth documentation of your situation. Or, like in all things, you can pay a reputable company to do it for you.

 

[castleview]

it did begin with 2 income families ...but it skyrocketed during the subprime years!!
I used to say to my dh ...what are theses people doing to be able to afford those prices...?? dealing drugs???

I'm sure there is a study out there confirming drug dealers as upstanding tenants who pay the rent on time.

 

[LotsOfQuestions]

Didn't he say he wanted the government to buy all those mortgages?

Yes, McCain did say that. They were talking about it right after the debate, calling it a gutsy (and probably not so smart) move on his part to introduce a new plan.

He called for the government (another 300 billion) to buy up all the bad mortgage loans and then have the gov't renegotiate the terms of the loan so that it reflected the current appraisal of the house.

McCain offered one of his most significant proposals of the campaign, saying he would order the Treasury secretary to immediately "buy up the bad home loan mortgages in America and renegotiate ... at the diminished value of those homes, and let people be able to make those ... payments and stay in their homes."

 

[akhenaten]

I'm sure there is a study out there confirming drug dealers as upstanding tenants who pay the rent on time.

I wouldn't know personally but according to the MSM big time drug dealers have lots of cash....
and of course.... i was right ...those folks could not afford to buy those homes using ordinary means.... but it was the lenders who were the criminals....
who knew????

 

[RitaE]

so let me get this straight ---


All I have to do is stop paying on my mortgage for 5 or 6 months and then the bank will be forced to write $10 to $20k off the balance I owe?

SWWWEEEEEETTTTTTTTT! Who do I vote for to get that deal again?

I've really about had it with all politicians. I don't see all that much difference between any of them now.

 

[akhenaten]

thanks for the detailed response...
i will be happy to see home prices come back to a normal level....

 

[castleview]

so let me get this straight ---


All I have to do is stop paying on my mortgage for 5 or 6 months and then the bank will be forced to write $10 to $20k off the balance I owe?

SWWWEEEEEETTTTTTTTT! Who do I vote for to get that deal again?

.

 

[Shadeaux]

I BELIEVE (and I may have misunderstood) McCain to say that he thinks homeowners should be able to renegotiate the value of their mortgages with their banks. Meaning (agan, to me) that if the price of the homes have dropped since they took out a mortgage, they should be able to have their mortgages readjusted to the lower price and the government would pay the banks the difference.

After McCain talked about this, I asked my husband if I actually heard what I thought I heard. I honestly thought I had misunderstood what McCain was saying. Why should someone who purchased more of a house than they could afford be rewarded by a renegotiated loan on the current value of their home?