Frank Louis
Newest mortgage modification program dumb as ever: no cool acronym either
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By Frank Louis
February 3, 2012

So now we have it, yet another boondoggled scheme to solve the housing crisis. Our illustrious president is now suggesting another program that again misses the point. This latest loan modification program, yet to be approved by the House, and.... I guess yet to get a clever acronym, as I do not believe I have heard it yet, just purports to write down every Fannie and Freddie mortgage. But not the others, huh?

John Boehner, and rightfully so, says that government should stay out of housing. And he is correct. But John, just like when I was a child, if I messed up a place I was not supposed to be playing in the first place, I was told to get out and stay out but first, made to clean up the mess I had made. Government made this mess (or at minimum set the stage for it) so, before they walk away, they had better pick up the mess they left. Not the American public! No, the taxpayers cannot pick up the mess for the homeowners, you are correct.

You see, in my book, you cannot separate "homeowners" from "taxpayers." We are one in the same. So, when you talk about this weight being placed on the taxpayers, hey John, it already is on us, only that we are wearing our homeowner hats at this moment. Get it? Homeowners are taxpayers and taxpayers are homeowners. So either way, we loose... we lost! We lost money we worked for, saved, and used for 20–30% down payments on fraudulently valued real estate. We lost our invested money literally, the next day. We have lost our futures too as many of us will most likely die in the hole financially due to our property investments as this mess seems to be here to stay.

Now, the new plan is proposed to write down all underwater Fannie and Freddie mortgages so long as the payments are up to date. Only Fannie and Freddie. Well, let's do some math on this "solution" and see how it will work.

Let's say that two people bought properties in 2005 that were appraised by those professional appraisers at $500,000. The "professional realtors" agreed, the market is hot, buy now. So, based on comps (other sales), and the fact that you did your research, listened to Barney Frank, Vin Marzullo, Ben Bernanke, et al and knew the "real estate market is solid with very little exposure to sub prime" (as I outlined this lie in my last article) you bite. So, you, being one of these two buyers, actually invests. You go to the bank and make the 25% down payment on this second home that will be for retirement and to be passed down in the family. You owe $400,000. The other "buyer" takes out a no doc, no money down loan for $550,000 so as to pay off a couple of credit cards and roll the closing costs into the package as well.

Now, we learn that the properties have lost 25% of their value. The person who invested $100,000 (being you!) is actually not underwater. While you are in a tsunami so to speak, you are just not upside down in value because you made a down payment, and will not qualify for this Obama scheme. You have just lost $100,000. Property value $400,000, you owe $400,000. You're "okay," according to the Obama proposal. You are just out $100,000, which I have stipulated has never been brought up by anybody but me.

Never the less, the other person gets to rewrite the loan and just got to keep the $50,000 cash back at closing and has not lost a penny. Their "American Dream" has been saved! Even if the properties have lost 50% of their value, the person who made the down payment, despite the fact that he may get to have his mortgage looked at, is still out the $100,000 hard earned savings while the other person is still $50,000 ahead. In fact, I would be willing to bet that if you had been lucky enough to invest that 25% down payment of $100,000 you did not get a Fannie or Freddy loan in the first place and are not even eligible for this program. But you did loose your $100,000!

It is wealth redistribution folks. Plain and simple wealth redistribution. Why will no one ask this question aside from me? I surely get a lot of email thanking me for this perspective on the issue but, doesn't any one out there file a complaint, call their AG office, ask the candidates about this? I think maybe not. So, John Boehner, (and President Obama) let me again suggest the plan we need. Have government clean up this mess, then get out and stay out. Start with the mortgage backed securities, credit default swaps, the realtors and mortgage professionals who fed these securities with sub prime loans and straw buyers, have them return the money they made off of this fraud and let them go to jail. These were all faulty transactions, they need to be voided. Demand that the banks give the people who invested money their money back, and the banks can take the losses and go bankrupt, not us. It was they who were knowingly leveraged as much as 400%, not us.

Returning a faulty mortgage should be as simple as returning a faulty toaster or other damaged product. We bring in our closing documents and get a refund. It's simple. (There is a way to do this with upside down home equity loans and refis as well, I have written about it previously. Check the archived articles.) Most of us had thought that the TARP funds (our tax money) were intended to fix these problems from what I recall. No, these execs still make over $5 million a year at Fannie plus bonuses.

When I hear the politicians talk about restarting the economy and they talk about creating jobs as the solution, they are correctly identifying one piece of the solution. But there are tens of millions of Americans whose lives have been wiped out because they were clearly set up and robbed when they put their money down on property. Even if they are employed, their real estate is an albatross around their economic necks. Their credit is now destroyed. Many are around 60-years old or older. Even if jobs became abundant, these people will never be made whole again. How long will it take them to again save the $100,000 or more they lost when they made that down payment, how long to get their credit back, have their property in the black, if ever? No, this generation will pass with little to leave for the next.

© Frank Louis

 

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Frank Louis

Frank Louis is a print and on-air commentator who offers opinions and solutions on and for the economy, social issues, and the future of this nation. In the Old Testament, Nehemiah 4: 14 instructs us to fight for our houses; something we need to be doing now. Our future generations depend on it!... (more)

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