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http://www.latimes.com/business/la-f...2308676.column

Government and private-lender attempts to stem the home foreclosure crisis so far have mostly focused on loan modifications or refinancing -- giving borrowers a temporary or permanent reduction in their monthly payments.

But some housing experts say the next wave of help will have to address the core problem for many homeowners: negative equity.

This camp believes that there is no alternative but outright forgiveness of a substantial chunk of mortgage debt for many people who are underwater in their homes and at risk of foreclosure.

What do you guys think?

Will this fix the housing slump?

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JD

i doubt it. too many people have payments they couldn't pay even if it was 1/2 as much

EscortBiz

here is the fix

deadbeat dont pay = throw him out of his house (most will come up with the cash)

cant pay because he lost his job? well giving the guy free money will turn already a lazy population into more lazy, give temp breaks where for 3 months he can pay 25% of the stuff after that he must leave the home regardless if he yells bank lied to him (bullshit)

layoffs havent even started, those with stable jobs turned lazy those without jobs for a while are motivated and will work harder as they will remember that it wasnt easy finding the job, companies will perform a serious dialysis on their organization and they will thrive! Those who wont will collapse.

Great opportunities now, few see it those who do will do things that will set them for life those who dont will be penniless really fast.

You know your uncle that has been working for company ABC 12 years? When he calls that hes been laid off dont assume its because the company is closing or cutting costs, they simply want fresh motivated blood.

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Plus the massive moral hazard....

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PurrrsianPussyKat

What about the rest of us that were responsible, didn't take on a mortgage we can't afford and make our payments every month?
Shouldn't WE be the ones rewarded? Not the useless dumb fucks who can't pay their mortgages?

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$5 submissions

Exactly the reaction on Main Street if this massive debt forgiveness idea hits Congress.

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DWB

It won't fix it and I'll tell you why. Because Americans need to learn a lesson first. They need to take their medicine and live a few real hard years. If you fix everything too quick, they will not learn a single lesson and do it all over again. A perfect example is idiots sleeping outside of stores to buy a new iPhone that they can't afford, but put on a credit card. Because they STILL don't get it.

THEY ARE ALL LIVING BEYOND THEIR MEANS. And they will do it again if the problem is quickly resolved. They need to let people drown in debt and really feel the karma for how they have been living.

For those of you who are responsible with your money, then you should have nothing to complain about. But if you can't buy it in cash, you can't afford it. It's that simple. If you don't have the cash to buy what you need, work harder, work longer or change jobs.

I'm for letting the whole system fall in on itself, hitting rock bottom and rebuilding from the ground up. It's going to hurt like hell but it has to be done. It is time to cleanse the colon. Buuuuuut, we won't do that. We will instead keep printing money that will sooner or later cause hyperinflation and then we will be in a real mess that will make this one look like a walk in the park

DWB

"Freedom" isn't fair. Neither is life. I'm dealing with it fine, so should you.

DWB

Great post.

Snake Doctor

That's not going to happen.

It would create massive voter backlash. Not to mention what would happen in the bond markets.

Principle forgiveness is a non starter with everyone who has a say in the matter.

So far the proposals put forward have been fair, regarding moral hazard. Anyone can refinance at the new lower rates, or stretch the payments out to 40 years, or even have a baloon at the end if that's what it takes to reduce payments to 31% of their income.....but nobody is being allowed to reduce the amount they owe.

There are alot of people talking about it, thinking that it's all the bank's fault and they should be the ones taking the losses, but it's never going to happen.

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Snake Doctor

What probably will happen, that will end up helping underwater homeowners, is inflating the currency.

Alot of people, me included, think we're headed for some 1960s style inflation in the next few years.

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baddog

Bailouts are not the answer.

brassmonkey

i dont think so

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candyflip

The junkie needs to hit rock bottom before he'll (maybe) change his ways.

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DWB

I'm expecting hyper-inflation if they don't curb the spending ASAP. You just can't keep printing money like this.

Dark days ahead I'm afraid.

PurrrsianPussyKat

I'm not looking for a hand out here. I'm guessing you misunderstood me.

What I'm saying is, why are the people who live beyond their means, the ones who get rewarded by having someone swoop in and fix their shit?

If you can't handle your finances, be broke and homeless. My taxes shouldn't go up because you're a failure at life.

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David!

How about the banks work out payment extension deals with people who actually bought houses/condos/apts to live in?
It would cost a lot less than the shitload of foreclosed properties that is weighing on the market.

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Agent 488

printing billions to bailout banks and auto companies is fine but changing a loan payment to make it easier to pay back is the highest treason.

good thing gfy is sitting in front of their computers pressing buttons and fattening up so when the legions of hungry and unemployed are at their door they will be nice and tasty.

Pleasurepays

the solution SHOULD BE that everyone who can't afford their home, lose it. learn a very hard lesson, banks learn a very hard lesson, people buying the loans learn a very hard lesson and everyone adjusts their behaviors for the better.

this nation needs to learn that you can't live in perpetual debt as a part of prudent financial planning and money management.

Snake Doctor

Most people were against bailing out banks and auto companies FWIW. I hate the argument of "well we already did this so why don't we do that too".
I'm sure if it had been put on the ballot in November, 80% or more of the voters in this country would have told the banks, AIG, and GM to go eat a dick.

There are already lots of ways to modify loan payments to make them easier to pay back, but none of them involve a flat out forgiveness of principle.
If you can't afford the monthly payment once the loan has been modified to a 4% fixed rate and stretched out over 40 years, then you don't belong in that house. Period.

Forgiving principle is where you really get into moral hazard territory. Then you've got one guy who has to pay back all 400K that he borrowed, because he makes enough to afford the payments on that loan....and the guy across the street only owes 200K, because he can't afford the mortgage so the government just lopped the negative equity off the top. There would be riots.

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kane

I think negative equity is something we will be dealing with for a while. The US housing market is/was so overpriced that it is ridiculous. I read a little while back that the average wage in the US is $16 per hour. The average house in the US costs 180K. When you add in taxes and insurance what it means is that these days the average wage earner cannot afford the average house. So a lot of people do the wrong thing and overextend themselves. In doing that the continued to drive the market up. now it has come back down to earth, but many of those who bought at the top of the market are feeling like they got screwed. To me it is a big market correction and if you are in it for the long haul you should be okay.

Case in point. A friend of mine bought a house 3 years ago for 270K. It is a nice house in a nice neighborhood. Then as things started to collapse his neighbors got foreclosed on or moved. A few months ago he decided to see about refinancing since rates are pretty low right now for those that have good credit. Turns out even though he put in central AC and did some other things to the house it is now only worth about 235K so he didn't refinance. He is planning on living there for at least the next 10-12 years so over that time it should regain what it has lost, but those that are looking to sell sooner could be screwed.

Bailing everyone out won't fix the problem. If there is a way to refinance someone and lower their payment with a better interest rate and that will allow them to keep the house instead of having it foreclosed on, I say do it. If there is no way to do that, then we just have to take it on the chin. I say you don't fully forgive the loans, but instead you restructure the debt to make it easier for people to pay back. Keeping people in the houses, even if it means longer payback times, is better for everyone in the long run then just letting a ton of houses be foreclosed on.

DateDoc

The economy is going to take years to get where it needs to be. Forgiving negative equity is a bad idea unless everyone in the US gets the same deal. You want to forgive 50k in homeowner debt then there better be something for all the none homeowners in the deal too. All the help that homeowners are getting is having quite a bit of backlash among renters. Program after program has come out to help homeowners that spent more than their means while renters who have to pay every month or get evicted are left in the cold so to speak.

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Matt 26z

A friend of mine is a real estate agent. He told me that his younger buyers are realistic and looking for something economic. While his baby boomer generation clients are still demanding luxury they can't afford.

notime

"Realistic and economic" sounds fair and will be the new trend for 2009 and the coming years. The more people realize that, the sooner problems could go away in that market.

DWB

Yes, I agree with that. I did misunderstand you.

If you got in over your head for whatever reason and can't pay the bills, you lose just like everyone else has to lose.


Amen.

Sadly, nobody is going to learn anything from this.

Vasago Reno

Needs repeating.

PornMD

The big problem is not just that house values have come down and people being irresponsible, but that the economy as a whole is in the shithole and has fucked a lot of people, both responsible and irresponsible. So instead of people in mortgage jeopardy consisting only of idiots who did in fact buy a house they couldn't afford on their wage or people that got duped into ARM loans that have since exploded such that they can't afford the payments, it also consists of people that did purchase a home responsibly, maybe even got a great fixed rate loan well within their budget, but the economy fucked them in the ass since purchasing the home and NOW they can't afford it. Figure anyone that put a down payment on a house purchased in the last 2-3 years, expecting to be able to take it out if necessary down the line, have completely lost that money and probably owe 10-20% more on their home than it's worth - at least. Anyone with stocks saw that go down anywhere from 20% down to 50-60% down or even more if they held particularly rough stocks. Anyone expecting that annual raise at their job probably is no longer getting it and may have even been asked to cut their pay to help the company survive. Anyone expecting the continuing expansion of their small business probably saw their business go backwards or possibly even fold. Anyone in business for themselves in any of the vast majority of industries that got reamed probably saw their income plummet. Those people don't have to be idiots buying every gadget in existence, houses they can't afford, luxury cars, going out to eat every night, etc. - could be the smartest spenders in the world and still get screwed by this economy.

That said, I'm one of those people and I'm doing everything I possibly can NOT to take any govt assistance because I think it WOULD be bullshit, and my home loan is even WITH the govt - California's first time homebuyer program...if anyone could get assistance easily it's probably me, but fuck that - unless I'm absolutely to the point where it's either that or declare bankruptcy or something, but even then I would have to convince myself into it. Some people are lucky - people doing all the theoretically wrong things, making all the theoretically wrong decisions may have lost a lot less money than people that made the theoretically right decisions. My sis got an ARM interest only loan on her house w/ no money down - if we both walked from our mortgages today, she'll have paid probably $80k less than I have with my fixed loan and 20% down. And someone renting will have paid even less - hardly seems fair when having been told my whole life that real estate is the best investment one can make. I guess welcome to this millennium - can't wait to raise children and have to come up with financial wisdom to impart to them...that'll be fun. "Just make 10 million dollars somehow or marry someone rich so you don't have to fucking worry about money."

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