06 Nov 08 
Government is Going to Bailout Homeowners
I read Jay Thompson’s blog at least once a day. Jay is an amazing blogger, an educator, an Arizona real estate broker and the owner of one of Arizona’s best brokerages, Thompson’s Realty – okay, enough about Jay.
Yesterday, Jay posted a very informative post-titled “Obama on Housing“; as the title suggests, the post talks about what Obama has mentioned, or plans to do to fix/repair/jump-start the troubled residential real estate market. A comment by a blogger on the post got me thinking about a current government proposal - Reset mortgage loans so that the principal on the loan matches the home’s current market value -. I know what you’re thinking: “Is this going to be done monthly as home prices decrease?” and “Who decides what the current market value of the home is?”… sorry, I don’t know.
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In the comment, the blogger mentioned that he was “dead set” against the government resetting loan values to match the current market value of the home. There are many reasons why the government shouldn’t reset these mortgages… it’s not their responsibility, not something all taxpayers should pay for, not fair for those homeowners that are not under on their home…the list goes on and on and on. I can see why the blogger, and others, would be against this move by the government. I’m still not sure I’m for resetting mortgage principals and getting rid of negative equity, but I can’t help thinking of what could happen if the government decides against resetting mortgages.
In an earlier post, I mentioned that real estate has traditionally created wealth for Americans and that many Americans depend on this wealth as part of their retirement. As of right now, for millions of homeowners, that future potential wealth is off the table. For many homeowners, it’s going to take close to a decade, if not longer, for their home to appreciate back to what they paid for the home. I probably don’t have to tell you that 10 years of equity typically does a lot for a family besides retirement…new appliances, consolidating debt, school tuition etc… In addition to the overall economic effect of millions (approximately 7.5 million) retiring with less, moving less and buying less of everything, nearly 60% of the mortgages that exceed a home’s value are in Nevada, Arizona, Florida, California, Michigan and Georgia. Negative equity shared by many homeowners in these states could destroy these economies for years and inhibit growth throughout the rest of the nation. If the reset is not done, millions of homeowners may choose to foreclose on their home, which would only keep home prices declining and may end up costing everyone much more. It seems like a lose-lose situation regardless of how you look at it.
What do you think? Should the government reset negative equity home loans, and if so, would you think that; if you didn’t have negative equity in your home?
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Tags: arizona, California, florida, foreclosures, georgia, hope for homeowners act, house values, jay thompson, michigan, nevada, obama on housing, phoenix real estate guy
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If the government does this I will spend every waking moment figuring out how to suck every penny out of the government and “game” the system till it dies..
Well isn’t that nice of you cc…
There has been several suggestions including the government buying equity in peoples homes and the homeowner paying rent to the government.
Great article, very thought provoking. I personally don’t think the government should be bailing out homeowners, but instead should be helping banks to renogiate home owners loan payments.
Nates last blog post..Foreclosure sales in Eden Prairie in October
There are 1000000 rumors out there. I heard of a $30,000 tax credit for homebuyers (when you read the fine print, you have to pay that back to the gov’t over 15 years)….and also heard 30 year loans dropping to 2.99% which I don’t see happening. Banks are too greedy to accept that even with the bailout money.
Scott Allans last blog post..Search Hudson County MLS