Obama's Plan to Save the "Homeowner" (Note Holder)

Obama and his minions are going to save the underwater home owners. Below is a graph of the distressed home owners from 2006 to the present. 29 percent of these people owe more than the house is worth.

The banks in 2006 were writing loans to anyone who could fog a mirror. An in essence, every loan they wrote was a winner even if the borrower defaulted; the house was worth more than the original note. The banks were nothing more than a machine, taking depositors money, writing a loan, paying the seller his cash and then selling the note to private investors. Repeat cycle again. I wrote a letter to the head of Federal Reserve Allen Greenspan in 2005 complaining about it to no avail (see this link from August 28, 2009). The problem was obvious, home speculation was more profitable than working for a living.

So if we examine these underwater buyers, the phrase comes up “no skin in the game.” Most of these underwater owners had very little or nothing down. The person who made out like a bandit, was the seller, they got cash on the barrel-head. All the new owner did was sign a piece of paper and he was handed the keys.

The phrase “Strategic Default,” is the educated solution to the problem of being underwater. Don’t pay. Pocket the mortgage payment and move when evicted. Many defaulters maintain, “The banks shouldn’t have loaned us the money in the first place.” So better terms and free money from the Federal government are not going to turn their lives around. The average homeowner moves every 5 years and it’s about that time again.

The real question you have to ask is; who is the Obama administration helping, the home owner under water or the “private parties” who hold the notes? The home owner can ride rent free on the home now for almost 2 years in California and in places like New York for a lot longer. We hear the phrase “the poor underwater home owner.” I just don’t see it, the guy bought something for nothing and has decided he paid too much and will walk.

Fannie, Freddie and the FHA, hold a majority of the foreclosures. If marked to market at existing sale prices, they have about a 20% loss. The loss would probably approach 70% if markets were allowed to find their own bottom. Instead of an 800 billion dollar taxpayer bill, it could end up costing many trillions of dollars. The neat thing about letting housing prices hit bottom, our kids could afford to buy a home again.

Just who holds the debt? The banks drop out of the equation. They write home loans and sell them, but they do tend to get nailed on commercial loans. The banks usually have to hold 5 year construction loans, and this is probably what has gotten many a bank in trouble the last three years where the Fed has had to bail them out.

It’s the private investors that hold all of this real estate paper. Insurance companies, mutual funds, and Retirement plans come to mind just to mention a few. These fund managers are wondering where the monthly income they were counting on has gone to? No worry, it's all guaranteed by the taxpayer.

The humorous thing about this whole mess is that the Congress back in the 1930’s passed legislation to prevent this from ever happening again. Then from 1990 to 2003 we got rid of those safeguards. We were smarter now and knew what we were doing. Congress is now replaying the same 1930’s script. Let’s lock the barn door. Why? ---- There is nothing in the barn! Do we really need to protect the consumer? He’s the one who created this mess when he decided to buy a house and get rich. Of course we can wrongly blame the Banksters and Wall Street for our predicament. They supplied the clearing house to securitize our borrowing. But it was individual greed that got us to where we are now. The government couldn't stop you from buying that house in 2006 anymore than they can force you to buy one in 2012.

It’s a little like the problem in Greece, the European countries are not trying to help Greece get out of debt; they want to get paid what they are owed and kick the can down the road a bit further. The only trouble, the can has gotten bigger and heavier--it doesn't kick like it used to.