Stupid Senate Tricks
Both Scorpio at Pacific Views and Chuck Dupree at Bad Attitudes have written about the new Senate mortgage bill as reported in the Wall Street Journal.
For me this is the money quote:
In addition, the Senate passed a package of measures including a tax credit for buyers of foreclosed properties, funds to state and local governments to buy and rehabilitate foreclosed homes, and tax breaks for home builders. The bill’s prospects in the House and the White House are uncertain.
If the state and local governments are going to use the money to provide low cost housing, I can probably go along with this provision, but experience says that isn’t going to happen, because that’s not what they want to do. While some of the McMansions on the chopping block could become group homes, I really doubt that anyone will go along with that program.
The home builders got themselves into trouble building the wrong houses in the wrong places. There is plenty of work for them in the area ravaged by the 2005 hurricane season, but no one seems interested in building in that area, because the houses needed aren’t big money makers.
The tax credits for people who buy foreclosed properties is really, truly, annoying. As Badtux has pointed out on multiple occasions, most of these people are buying these properties to rent back to the people who lost them.
The only sensible plan I’ve heard of is to restructure the mortgages into something the owners can afford to pay, based on current value of the homes. Yes, the banks will take a loss, but it will be less of a loss than foreclosing and trying to sell the properties on an overstocked market. The other benefit is that the banks will start to see some cash flow, and local communities will start to receive some property taxes again.
The banks and builders did this to themselves and should feel the pain. They profited from this Ponzi scheme for years, and now the bill has come due. I see no reason for taxpayers to pick up the tab.
2 comments
But the banks don’t own the loans in foreclosure, they only service them. To re-negotiate the terms would require buying back the loan from the securitization pool that currently owns it, which would be way too much hassle since it would require permission from the investors in the securitization pool. So the bank forecloses, and the investors get the shaft, but what the hey, it’s not the bank’s money. Or at least that’s the plan.
Note that not *all* banks turned around and sold off those toxic loans to securitization pools, e.g. Wells Fargo is in trouble right now because they actually held on to most of their toxic loans, and for other banks there’s clauses in the sales contracts where the banks have to buy back the loan if it fails to perform within a certain period, which killed several of the sub-prime lendors when the investors forced them to take back worthless loans. But the the banks in general have the leverage and know-how to drag things out to the point where it’s no longer the banks’ problem if the loan goes to foreclosure. Heck, they even get to take service fees out of the foreclosure proceeds for their services in foreclosing the home on behalf of the investors!
— Badtux the Mortgage Penguin
Oh, more and more people have discovered that the banks don’t have the loans, and, in Florida, they can’t foreclose unless they have the loans and the original paperwork, so a lot of people with really expensive mortgages have just stopped paying anything. As long as people demand the paperwork, foreclosure is a nightmare for banks in Florida. Once the issue is brought up, everything grinds to a halt waiting for the bank to prove standing for foreclosure.
It may work that way in other states too, but most people don’t challenge the banks. The investors would have to seek foreclosure in Florida, if anyone can figure out where the original mortgage is.