Home Loan Aid Bill: What it means to you...

As many of you know, the Senate passed their version of the Home Loan Aid Bill, a $300 billion mortgage bailout on Friday. This doesn't actually mean anything just yet, even in pure perception, because it still has to be merged with a House version, and finally signed by the President, who has said he will veto it in no uncertain terms.

Notably, this comes on the same day Feds seized control of IndyMac, a bank with $32 billion in assets, due to bad lending practices leading to it's demise.

For the moment though, let's assume this bailout does get signed into law, and look how that may impact real estate investors, and the market as a whole.

Most people are looking at the bill as a way to bailout greedy lenders and irresponsible borrowers, as opposed to fixing financial systems that created the problem.

The reason the banks love this bill is it allows them to wipe the really bad loans off their balance sheet, because the government is guaranteeing them. If someone defaults on the loan, the loss is basically insured (subsidized) by the government (taxpayers or Freddie/Fannie). (See more details: http://article.nationalreview.com/?q=MmEwYzQ1NmY2NDc1ZGIzNTIzZDVkMTRhMzg...)

But in terms of the direct impact on the housing market as a whole, it is hard to say the degree it could help it. Perception plays a large role in markets. Just the perception that this bill is a fix-all could change the dynamics of the market.

Next, the extent of the households that will actually be able to save their homes is unpredictable right now. The key part of the bill is it allows owners to refinance the loan amount at a amount lower than the original, along with the terms. So if you bought your home at the top, for say $300k, you could possibly refi it at $200k, with a traditional loan schedule. The caveat is that the owner must agree to forgo some of the profits when the homes is sold to make up for the reduced rate.

In all, the details sound rather fishy to me. The major perk in the whole thing is for the banks being able to write off all that really nasty paper that is almost guaranteed to default anyways. I haven't had time to read the bill in it's entirety.

Naturally, we would assume if bill is signed in, it will reduce foreclosures. By a lot or a little... who knows. But any reduction in the inventory should have a positive impact on prices, even if it is a tiny impact.

However, with owners being able to refi at lower costs, does this mean houses are worth less? They paid less in reality, even though the Recorder's office doesn't reflect this.

Also, now that they are able to possibly sell their house closer to current market prices without being deep underwater, or even above water in cases, will this create just as much supply through owner originated sales as the foreclosures would have generated?

Or, do owners now have an incentive to stay in their house because they got a smoking deal via the bailout? I guess that depends on how much of a discount the lenders offer.

My initial impression so far is the bill might give new hope to homeowners, and reduce some foreclosures, which we be touted as a indicator it worked and the market is booming again. This will probably make the really really good deals out there dry up, but won't be sending real estate soaring, and it will still be a buyers market. Once I get more data and projections, and read the entire bill, I will have more solid opinion. If nothing else, it is another reason to try to get the really good deals now, because even without this bill I believe the window for them is shrinking with every passing day, not growing.

What are your impressions on it? Has anyone here read the bill yet and have more details to fill in on it?


sistreat's picture

dgadmin wrote:

In all, the details sound rather fishy to me. The major perk in the whole thing is for the banks being able to write off all that really nasty paper that is almost guaranteed to default anyways.

This is probably what Mr. Bush thought too and why he said he would veto the bill.
I have not yet had a chance to read the entire bill.
I have been wondering howthis would effect us as investors.
Thank you Jay for your insight and thoughts on this. Smiling

Every day...

cbrpower's picture

Every day that goes by in America it seems as if we are moving toward a communist government. If this bill goes through it will be a sad day for the principles America was founded on. I'm tired of getting taxed to cover the carelessness of others. The main thing our forefathers wanted to give every American was freedom. The greater the freedom the greater the wealth. The greater the taxes the greater the poverty. Now it seems as if every time something goes wrong in our society we point the finger at our government as say "fix it." How about taking responsibility for our own actions instead of asking the people who were diligent to carry the load. I hope you all keep this in mind on election day. There are only two ways to vote. Vote one way and you agree to raise taxes to bail more careless people out. Vote another way and you choose freedom not "change". Remember the Boston Tea Party-a revolt against taxes-and that was only about a 1/2 percent increase in tax! Also, Karl Marx stated in the Communist Manifesto that the best way to turn a free republic into a communist nation was "slow and steady increases in taxes". We need to reduce taxes in this country not raise taxes!

The Home Loan Aid Bill

I am ashamed of these bankers and mortgage people. They are supposed to set a moral,trustworthy standard for the rest of us. A $300 billion bailout. come on, they're making this money from foreclosures and bad lending practices. This is their plan. They don't care if good people are losing their homes, they are full of GREED. . It goes across the board. Food ,Housing etc. They are all full of GREED. it's too early to tell if this bailout will help or hurt REI. i HOPE IT HELPS US!


Elena M's picture

That's a fact! They have been fleecing Americans for so long and now it's come back to them 10 fold! Things are happening exactly as they should be. That's for sure!

Taxes and Relief

Wib's picture

Enjoyed both cbrpower's thoughts and dgadmin's post as both seem to indicate that laws/taxes are marketed to protect/help the middle class but a closer inspection suggests otherwise...

Thanx for sharing these insights as I start the REI business...wib

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