Wednesday, August 22, 2007

Foreclosure Moratorium???

From a story on KCRA.com.

"California consumer advocates are calling for a moratorium on home foreclosures.

They warn that the state is facing a tidal wave of foreclosures over the next year as more homeowners are hit with payment increases brought on by subprime loans and risky mortgages.

The executive director of the California Reinvestment Coalition told the Senate Banking, Finance and Insurance Committee that a six-month moratorium would give officials time "to figure out how to keep people in their homes."

The Mortgage Bankers Association estimates that more than 46,000 California homes were in foreclosure in March and more than 76,000 mortgage loans were seriously delinquent.

Subprime loans are made to borrowers with shaky credit histories or those who cannot always document their incomes."


This line of thinking really amazes me. I'm wondering just what in the world they think they can do to keep someone from getting foreclosed on. We're talking straight affordability here in the majority of cases. People can't afford their payments!!! How about a 40 year mortgage? 50 year? Lower the interest rate?

Let's see how that would change the payment on a loan:

We'll use a $500,000 mortgage with a 6.5% interest rate, amortized over 30 years.

P&I would be about $3,160 a month. We won't add taxes or insurance since that's a fixed cost and won't be affected by changing the terms of the loan.

40 year mortgage: $2,927 a month (savings of $233)
50 year mortgage: $2,818 a month (savings of $342)
30 yeat at 5.5% interest: $2,838 (savings of $322)
30 yeat at 4.5% interest: $2,533 (savings of $627)

One more weak attempt at keeping values inflated.

9 comments :

Gwynster said...

The majority of people in this area can not afford a 500k house. It's not like this is rocket science. We just don't have the income base. The only hope they have is to either get six months of no payments or an interest rate of say 3% or better. If they get the 6 mo free, they'll just stay, collect the half year free, and squat until the sherrif tosses them. But hey, at least there will be someone in the house right?

Frankly, I think the "California consumer advocates" should have to pick up this tab for those 6 months personally.

Flipping glue huffers.

AgentBubble said...

At some point, this plan from these "advocates" would have to involve our tax dollars. That's where it (hopefully) is killed by our legislators.

Gwynster said...

I have no problem with flooding Boxer and Feinstein's mail box again. I miss the days when you could catch Wille Brown at Paragary's give him an earful if he was drunk enough.

Patient Renter said...

This is so wrong I just don't even know where to begin. From the perspective of the lender (or whoever actually holds the note for a home), how can you tell them that they can't forclose on a home if the "owner" IS NOT making their payments? They are the true owner of the home, and you're telling them they are not allowed to take it back? How is that possible?

It's the same as someone buying a new car with financing, then telling the bank that even if the owner doesn't make their payments, they are not allowed to reposess the car, because how would the person get to work without their car?

How on earth could someone possibly survive without "owning" their home? This is all just ridiculous insanity, moreso being that you can more reasonably rent a home than you can a car (longterm).

Darth Toll said...

Not only will this moratorium not solve anything as you guys have said, but it also will lead to further bond market instability as owners of this MBS garbage will not even be able to adequately execute the recourse provisions (ie kick people out and sell the house) and therefore will find even fewer buyers than they are. Once enough of the CDO's are marked to market, the investors will wake up and realize that the paper is garbage and the only thing worth anything is the actual house, which will need to be liquidated. I fully expect even some good borrowers to get their loans called before this mess is over.

So when these so-called consumer advocacy groups start butting heads with these huge pensions, investment banks, and hedgies that want their money back, who will win? At some point these chumps are going to realize that there is no way to prevent the nuclear fallout. Either you foreclose and your pension stays somewhat solvent, or you don't foreclose and pension gets foreclosed. There's just no way to prevent the losses, which seems to be what they are trying to do.

smf said...

Great example!

I said long ago that the phrase 'you can refi later' mean s**t. I mean, how could someone who purchased a $500K house actually get their payments to become affordable?

Once a lot of these people got into overpriced homes, the ONLY options they had was:

1. Sell at a profit (not likely now)
2. Foreclosure

A moratorium just delays the inevitable. Let the pain begin, so we can let the healing begin.

After all, if housing costs go down, there will be more people that can use their real money (as opposed to MEWs) to purchase commodities.

Patient Renter said...

"there will be more people that can use their real money (as opposed to MEWs) to purchase commodities"

Mmmmmmmmm... gold.

Anonymous said...

This is crazy. Now the already broke state is going to have to bail out the losers that didn't take the time to read their loan papers.

This market IS going to crater irregardless of what the state does.

Anonymous said...

This is crazy. Now the already broke state is going to have to bail out the losers that didn't take the time to read their loan papers.

This market IS going to crater irregardless of what the state does.