In a nutshell, banks made business decisions to lend money to people to buy houses that banks knew people could not afford. Banks also made business decisions to lend with no money down. Banks knew there were risk to these strategies but they took the risks anyway.Those were bad business decision for banks. Banks, not taxpayers should pay the price.
Paulson is now begging people to do something that may not be in their best interest to do. My recommendation is simple. If it benefits you to walk away, then walk away.
More advice from the Treasury Secretary today -
First, many in Washington and many financial institutions have been floating proposals for a major government intervention in the housing market, with U.S. taxpayers assuming the costs of the riskiest mortgages. Today, 93 percent of American homeowners � 51 million households - pay their mortgages on time. Many are on tight budgets, sacrificing other things in order to make that payment. Only 2 percent are in foreclosure.
Question - What is up with the missing 5% - are they late on payments and starting the foreclosure process - not technically in foreclosure?
Second, this is a shared responsibility of industry, government and homeowners. We in government are working to expand options through the FHA, and we've worked with the industry to reach as many homeowners as possible to let them know that help is available. There is more that government and industry can do, and our efforts will continue to evolve. Homeowners have responsibilities as well. If borrowers won't ask about solutions, there is only so much that can be done on their behalf.
Someone I think one of the industries that the Paulson won't be working with is the "Walking Away" industry.
Third, the current public discussion often conflates the number of so-called "underwater" homeowners � that is, those with mortgages greater than the value of their house � with projections of foreclosures. Let's be precise: being underwater does not affect your ability to pay your mortgage, nor create a government responsibility for assistance. Homeowners who can afford their mortgage should honor their obligations --- and most do.
Obviously, being underwater is not insignificant to homeowners in that position. But negative equity does not necessarily result in foreclosure. Most people buy homes as a long-term investment, as a place to raise a family and put down roots in a community. Homeowners who can afford their payments and don't have to move, can choose to stay in their house. And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator � and one who is not honoring his obligations.
I guess that is a great insult to be called a speculator? And what about peoples other obligations? To their families, themselves and their futures? No one wants to be underwater. Some people will definitely stay as long as they can - their house is a home. However for alot of people a house was not considered a home - it was considered more of an investment. If the vehicle they were supposed to become wealthy with is losing money why drain more money? If you out 0% down you are not losing anything, other than credit issues, by walking away.
We know that speculation increased in recent years; a resulting increase in foreclosures is to be expected and does not warrant any relief. People who speculated and bought investment properties in hot markets should take their losses just like day traders who speculated and bought soaring tech stocks in 2000.But unlike the day traders who lost their cash - many of these arrangements were made using the house as collateral - so the speculators are giving the properties to the bank and technically upholding their end of the bargain.
He sites how HOPE NOW and the stimulus package will ease the foreclosure burden and help strengthen the overall economy.
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