Obama Housing Plan Let's Home Equity Loans be "Forgiven"

Diana Olick of CNBC believes no one is going to notice what she did. Well, CNBC now that you brought this to our attention, I think we will amplify it!

In Second Liens Forgiven: Are You Kidding Me, Olick did her homework and discovered in the fine print of Obama's Home plan:

[CNBC}Deep deep in the pages of the plan, is paragraph vi. Second Liens: While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien.

Is this incredible or what? People used home equity loans as a glorified ATM card to stay afloat while their jobs disappeared as well as to continue a middle class lifestyle they could not afford. Seniors also did this in order to plain survive.

What a loophole! Can you imagine just getting $40,000, $80,000 dollars forgiven and you walk away Scot-free?

Someone takes out an absurd revolving credit loan, clearly could never afford it and wala, now to put their debt in line with their income ratio it is forgiven without even entering bankruptcy?

The original U.S. Treasury plan details document is here.

Subject Meta: 

Forum Categories: 

Moral Hazard.

I have my LOC check book out now. Whoopee! I don't really like my house anyway.

detailed plan if you find the original link it up please

if anyone can find the official white house or treasury document where she (CNBC) is reading this fine print, link it up would you?

I can't find it and we need to double check these terms.

From what I read and she found is what I just posted earlier but to make sure we need to see the surrounding paragraphs and clauses....

if it's just within bankruptcy court, not so bad because bankruptcy should, will take most of your assets and that's before that absurd bankruptcy bill passed. I'm assuming they are just trying to undo that 2004 bankruptcy law and bankruptcy was never "fun" or something that forgave debt with no consequence in anyway.

Not getting off scot-free

These people will have huge marks against their credit so there are consequences to even second mortgage forgiveness.

This not a sure thing because second lien holder may not agree especially if lien holders are different parties.

credit, marks

that's not how I'm reading it....it's not in bankruptcy or elsewhere but before any bankruptcy...
it's a means test before even missing a payment as I am reading in-between the lines. and that means test is basically does your debt surrounding owning a home > 31% of your total income?

If it was in bankruptcy it would be somewhat different I think.

Your reading is correct. It is a means test but

You don't need a bankruptcy to have marks against credit. Lenders and other creditors are constantly reporting to credit bureaus info such late payments, defaults and how loan is paid off.

Credit card companies are doing it now with debt settlements. Credit bureaus will indicate how a loan was settled: paid in full, release thru bankruptcy, negotiated/settled, etc. This will impact peoples' credit scores.
People will not get off scot-free.

doesn't imply that

we really need the original details at this point....but here goes:

1. they are allowing people to do this before even being late on one payment

2. they are paying off the loan holder, so there is no "write off" or bad discharge

So, those two things imply there would be no "bad mark" on the person's credit report. I've yet to see anything..even a lowering of 10 points (of course shopping at Walmart or using your credit card at bars will lower your score!)

I understand why you are assuming and saying what you are saying and obviously one would think you to be correct..
but so far in every analysis I have read, I see ways out so there would be nothing in the person's credit file to generate a negative report...
the fact their debt went down $40k, $80k just like that actually would raise their credit score.

Link to fact sheet is below. But

It will depend on how the lender reports to credit bureau. Let me modify my statement: people may not get-off scot-free because it will depend on how they report it.

If the first and second lien holder is the same there is a good chance that it will be a negative report to credit bureau on second. Lenders will get their pound of flesh.

If the lien holders are different who knows. Lender/investor gets its money and that is all they care about.

devil in details

as we know...even this gem found by CNBC went flying by...

so finding out exactly how this all is reported is yet another devil...

but shit, ya know, getting $40k, $80k or even $200k of debt wiped out with a "ding" on my credit report when you know that much reduction would raise a credit score a good 50 points....

uh, well, I'm quite pissed off at the moment that I did not sign up for a liar loan at the height of the bubble and get into something that was "interest only" for a good 5 years so I too could qualify for this new program!

Somehow I think they need just a wee bit more than a "income to debt ratio" means test!

Here is a link

appears I'm reading this correctly

Reaching Homeowners Before They Have Missed Payments: Delinquency will not be a requirement for eligibility. Rather, because loan modifications are more likely to succeed if they are made before a borrower misses a payment, modifications for households at risk of imminent default despite being current on their mortgage payments are eligible to participate, in addition to those who have fallen behind.

that's on p. 3 of the details document...

So, this is looking pretty damn exploitable...i.e. "hey, I'm over my head, or my property is now way below what I owe"...
government - "is your income not equal to 31% of what you owe?"...you - "why yes that's true!" - Bammo, well, you qualify!

Someone point out in this document where I am wrong because so far I'd like to scream...I did not buy an overinflated house because I knew I could not afford it....silly me!

What's good for the goose.

I'm retired but my wife still works. I bought 5 years ago, (2 years before peak in my area) and put 60% down. I was immediately offered a LOC for the 60%, which I took. I hit that for $10k 3 years ago to pay for my wife's Master's degree but have paid most of it off. So, now I sit in a deteriorating housing market watching my equity vaporize. Why shouldn't I just take the original down payment back in cash and just pay rent and sit on the cash. Then, just before the program runs out I'll file for modification and get rid of the LOC debt. Sounds like a helluva plan to me. Beats any investment opportunities I might have, doesn't it? And like I said earlier, I don't like the house anyway, so once the modification happens, I'll just stop paying the mortgage and ride it out to eviction. I will still have the cash and will be free to go off and rent somewhere else. This bailout nonsense has to stop, there is always moral hazard.

Here are some more details


1) Borrower has to have sufficient income to support new debt and
2) First mortgage cannot exceed 105% of current market value of property

don't get me wrong

to me, #1 is to get everyone who is in a predatory loan, those ARMs, variable rates, interest only and so on, should be allowed to refinance, period.

And they should cap credit card rates and fees also.

But in this plan it appears irresponsible borrowers can get quite the deal and while it seems to me better to let people get away with financial recklessness than corporations I don't think that's the answer.

On basically reducing overall principle of the price of the home, I'm not totally sure on that, I mean they bought in a bubble and I don't think these various financial institutions should necessarily be reimbursed but instead should be forced to take the loss or the responsibility divided up to a degree.

So, in other words I believe in bottom up but I'm not quite sure these details are right.

Forgiveness of Credit Ratings

In order for this Home Equity Plan to work they should lower the credit rating requirements. Like if you miss or are late for one payment since the job market is dead right now in some areas like California. If they don't have this it will not really help the people that really needs salvation.

Fair Isaac?:-)

If Fair issac had been such a great predictor, would we be in this mess?

Moral Hazard...Dumb!

The Moral Hazard argument is sour grapes and just very out of touch, as though there's choice involved. This is a systemic, structural problem. All the folks complaining--the Rick Santelli's of the world--were benefitted by the bubble. No one wants to default or go into bankruptcy, but if they're underwater, let the investors take the hit. This is not about bailing out dead beat homeowners--it's about returning the bankruptcy code to a pre-Bush position so that it works and doesn't just bail out dead beat banks that screwed up.

Bail out should be with jobs, not cash

Why does the government keep doing things like this? People make bad purchases all of the time. They still have to pay for them, unless they go to court to fight them or declare bankruptcy. It's too bad that people purchased houses at the height of the real estate boom, but these things happen in a free market. People bought at the height of the stock boom, bond boom, and right now the gold boom. Should they also be bailed out when the value drops?

Instead of adjusting loans or offering forgiveness, the government should be figuring out ways to keep it's citizens employed. Don't protect people from their bad decisions, make it possible for them to survive, learn, and recover from them.

I've said it before, if a person qualified for the loan and has remained employed at the same wage they will be able to continue making their payments. If they lied on their application, then they are being caught now. The liars are punished by losing their houses, and the banks punished for not catching them.

On the other hand, if someone loses their job or has to get another job at a lower salary, they may lose their house because they can no longer afford it. This is where the government should be trying to help.

What's the first step they could do? Stop importing workers for cheap wages and cancel the renewal of current work visas. Offer tax incentives to educate citizen workers only. Cut back on the number of foreign students in our universities and charge them the actual costs of their education instead of the government-subsidized costs.

Next they could start enforcing the fair-trade aspects of international agreements. Charge tariffs on imported good from countries who don't comply with the same requirements our domestic manufacturers must comply with. Labor laws, environmental laws, etc.

Finally, tax companies that offshore jobs for domestic work. Remove the financial incentive to move operations out of the country. If a company says they will leave the country for good, who cares? Someone else will come in and take their place. It's called the cost of doing business in the US.

Bringing down the USA

I believe this is just another way to bring down the U.S.A. I believe this is all in the great CHANGE.
The banks should have failed, the dumb mortgage companies should fail and the dumb people who took out these loans. Here I sit and look at my retirement go down and down and down. So where is my share? Where are the jobs? We are just a service nation. I think I will file exempt on my W-4 so no taxes are withheld and then not file a tax return. Let them figure out how to pay for all the bailouts. If everyone would do this, I don't think we have enough prisons to hold all of us...even if they do, we could apply for a bailout.

Laissez Faire...Again?

Consider the assumptions of total free trade/laissez faire.
The tide flows out, investors err...let the markets naturally discipline them. We lose our auto industry, our financing capacity, most of our other industrial capacity, and with automation ultimately erode our service sector to India. Hey, in the long-term...we're better off, just like a piker camping next to a lean-to. That's what we've become, right? At least we still have an abundance of coal, natural gas, and oil shale as natural resources to monetize.
But like dropping a large ball into a puddle, when the water gets displaced, it may take a long while for another rain to bring back new water. Again, consider the assumption of total laissez-faire theories in today's global real politic.

Come on PEOPLE

My husband and I are both 50. We have paid and paid, fixed up homes, and sold. Since the market fell and my husband lost his job at IBM after 29 years, WE ARE STUCK. We want to stay in our home, and not move. If we could actually get actual forgiveness to stay in our home, on our home equity loan, we would be forevor grateful to this country, and to this economy. The bailout plan is EXCELLENT, it WILL spur the economy by allowing additional funds back into the economy, homes will level off at a reasonable rate, and it's a blip in our history. How about some compassion people. Not everyone is out to 'cheat'

New retirement scheme link

This is really a test message to see if it is. It should be threaded below "Come on PEOPLE" just like "Time for one last flip" should have been. To see a better version of "Time for one last flip", visit my other blog Outside the Autistic Asylum, for a retirement scheme that didn't really fit here.

*edit- I'll delete the other message, this threading worked*

Moral hazards would not exist in a system designed to eliminate fraud.

Maximum jobs, not maximum profits.

Time for one last flip?

*Deleted* see above

Maximum jobs, not maximum profits.

People not a fault

for those who think that people are to blame for this mess with everything that has happened think again and have some respect, the Banks knew what they were doing they got us into this mess not the people its no different when the banks go to colleges and offer full time students a credit limit for $5,000-10,000 dollars to students that have no jobs or work part time in a burger joint and think that the students will pay it back, what BS. I do agree that there are some people that when out on a spending spree and never thought about the consequences. But majority as myself have been put in a position that now I don't have a choice and need to remodify my lone and try to get rid of my equity lone, it is not my fault that my property has dropped in value, my job is on the line because I work in construction and don't see much being build in 2010, I am seeing huge company's go under that have been in buisness for a long time. also with everthing that has happened my property taxes jumped 20% go figure. I have always paid my bills on time and had a good credit score of 710 and now my credit cards are hitting me up from 9% to 29.99 % their excuse is that " in order to keep credit flowing at these times we must increase all customer rates " this is a statement from citicards I have been a customer for 15 years and this what they are doing to me as a outstanding customer. I have learned a hard lesson from this and it is every one should go back to the old way "cash" and as a credit card open a checking account with a visa/debit card and only transfer money that you will need so in case it is stolen you do not have all your cash in that account. When everything was great and the housing market was booming the banks called me and made me offers of 100% equity I refused but they still called me every other day, but when every thing fell apart , I called them for help to reduce my 30 year fixed from 6.5% to 4.5% they told me that they could not , but yet we the tax payers helped them out by bailing them out and still till this day they would not help me until I stopped paying the bills , what a fu!!!!!! joke. So please don't blame the people that have worked there ASS off to own a house and put down 20% and did I forget to mention all those people that lost their 401K and other investments people that where about to retire and can not retire because of the Banks BS and have to now go work in a burger king or walmart .Being in construction I am seeing more and more people losing their jobs and companies going under, I am bidding jobs constantly but yet when it comes to an award the job is canceled or rebid or the bank will not fund it so wake up people this turmoil is not going away just yet it has only begun. The rich will be rich the poor will be poor and the middle class will be poorer.