US Foreclosure Bailout Plan Doomed to Failure

I have just finished reading through the great Barack Obama’s fix for the foreclosure mess in the USA which will magically mend the world’s housing woes. NOT!

For those of you expecting a quick fix to the financial crisis, sorry to disappoint, but this is just another $275 billion of US taxpayer’s money pissed down the toilet. Ignoring the fact that the whole mess started by lending cheap money to people who could not afford to make the payments and doing more of the same is just…………. Not even sure I know what word to use actually. If any individual acted the way the governments and banks are doing, I guarantee they would be behind bars this very minute.

Why is it garbage?

Banks are offered taxpayers money for restructuring a loan that is likely to default. Once again, ignoring the fact that most of the loans restructure recently have since defaulted, there are only two possible ways of doing this: 1. Reduce the interest rate and extend the term. 2. Reduce the outstanding amount. Or a combination of the two.

So, guess what the banks are going to do. They are going to offer a lower interest rate and extend the mortgage duration for as long as they can. They are also going to write in a provision to increase the interest rate at a later date

What will this do? This will increase the value of the banks assets on paper so they can start borrowing more money based on an inflated asset valuation. Sound familiar?

Fortunately, this bailout is only going to be available to those who are in the position of owing no more than 105% of the current valuation. Which is NO ONE ! A couple of months of arrears combined with a 25% drop in values last year pretty much puts the entire nation in a position of owing more money than their property is worth. Certainly those likely to default.

So, where will this money end up going? Some of it will go to the valuer, some of it will go to the mortgage provider and some of it will go to pay Fannie Mae’s CEO secretary’s coffee bill. A complete and utter waste of time that will just delay the inevitable.

The sooner we accept what is going on, get these toxic mortgages and other un-known banking debts out of the system, the sooner we can move on.

My advice? – When your friendly neighborhood mortgage provider offer to restructure your loan and spread it over the next 30 years with a hidden proviso that they can raise the interest rate when things look a little rosier.

You don’t really think you are going to get 30 years at -0.5% do you?

Tell them to stick it, offer to take out a new fixed rate mortgage at 6% p.a. interest based on 20% of your current outstanding mortgage and get them to agree to write off the remaining 80%. Seriously – tell them it is either that or go ahead and foreclose on you. They will be lucky to get 20% with 19 million mortgagees facing foreclosure.

A lot of people see this new plan as a waste of time for a variety of reasons. Mostly because anyone with half a brain can see that all this does is delay the inevitable and goes so far against the idea of a free market economy that we might as well all go out and buy a hammer and sickle. Screw the denial. We have a problem. Let’s face it, deal with and make the banks pay for it. If that means a few banks go to the wall, so be it. Then we can move on.

CNN have a “If you are too dumb to understand the bailout here are some questions” page here. But think about my advice.

And if you thought things were bad your side of the pond, the latest guesstimates at the cost of the British banking bailout is now £1.5 TRILLION. Of course these morons are too stupid to take into consideration the up coming commercial mortgage defaults, so who knows where it will end?