Last night I got a call from a friend who needed some advice. In good spirits but distraught, she related to me the story of the condo she bought in suburban Maryland a few years ago.
It was supposed to be the modest beginning of a new life with her then-boyfriend and a reflection of her readiness for some stability after landing a new job, in her chosen field and not far from her parents, after spending stints in New York, Los Angeles after college.
All was going well and she did, she thought, everything right. It was the height of the housing boom and with not much saved, she opted for a zero-down mortgage. Not the best decision in hindsight, but with property values literally doubling in the DC area, she thought it a good risk. Besides, her income was stable enough to take care of the place in the event of a breakup (which happened) and since then, she's made every payment on time.
In short, she's been a model first-time homeowner. But that's part of the problem. The housing crash happened and the DMV
The real problem, though, came when she started watching home values drop and new buyers scoop up comparable places for pennies on the dollar. A similar condo in her complex just sold for $125,000, a sign her place could have lost $75,000 in equity that's not likely to come back any time soon. That's made her question whether keeping the place is worth it -- or whether she should just suck up the hit to her credit by letting the mortgage go into default, and walk away.
"I'm starting to think about whether I should hold onto this place forever," she said.
I understand her frustration. Many homeowners are in the same position, watching people who made bad choices get bailed out while their own good choices have left them stuck in homes that are now terrible investments. The losses they're taking are accruing with every mortgage payment they're making because not only have they lost equity, but each interest payment is money they can't get back.
Moving and renting the place out isn't a solid option because she likely wouldn't be able to rent the place for as much as would be needed to cover her hefty mortgage payment. Staying in the place would mean sticking around at least a decade until maybe
But walking away isn't a good option either. A hit to your credit score can affect much more than the ability to buy another home; it could mean limited job prospects, higher insurance rates and potentially that a landlord won't even rent to you.
My advice to her was to give it some serious thought, and then inquire with her bank about a possible short-sale, in which the bank agrees to accept less for the property than they're owed on the mortgage. Short sales are common these days, though there's no guarantee the bank will accept that from a paying customer, which is rare these days.
If you were in her position, what would you do??
was hard hit. She borrowed $200,000 for a one-bedroom condo and hasn't missed a payment, only to watch others who borrowed more than they could afford get out from under their loans either through foreclosure or loan modifications. With a stellar payment history and relatively high income she's not a candidate for either. she breaks even on equity. Not a good look for a single woman in her early 30s.
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Thursday, March 4, 2010
Wednesday, April 29, 2009
Obama's 100 Days, my 100th post
I discovered something interesting a second ago: this is my 100th post on this blog. Wow. I guess it's appropriate that this post is about President Obama's first 100 days. Let's get right to it:
Yesterday I asked readers to grade the president's performance on three economic areas: his handling of the housing crisis, the Wall Street bailouts and the economic stimulus package. Now, here's my grade:
Overall, I give President Obama an "I" for incomplete on his performance on the economy. That's not a bad thing but it's not great, which is the point. Despite his high approval rating and Democrat-controlled Congress, the idea that the economy would improve this soon because of anything the president has done is unrealistic. It's easy to blame Bush's eight years for the problems but our economy had fundamental problems -- most notably all of us living off credit -- long before that.
On specifics, I give Obama a B on housing, mostly for signing a package that gives an $8,000 tax credit to new homebuyers. On the stimulus package, he gets a C. I'm optimistic that much of what's in it will help, but it's taking a while for federal and state bureaucracies to start spending the money, and I'm no fan of bureaucracy anyway. There's always waste and corruption involved. That grade could easily go to a B or an A, especially if any of this funding for improving passenger rail service actually happens.
Last, on the Wall Street bailouts, another C. Something had to be done to prop up the financial system. Obama stepped up to the plate depsite how unpopular investment bankers are and so far none of the remaining big banks has failed. But that doesn't mean they won't, and most people still can't get over the AIG bonuses.
What's your take? Do you think the economy is getting any better under Obama?
Yesterday I asked readers to grade the president's performance on three economic areas: his handling of the housing crisis, the Wall Street bailouts and the economic stimulus package. Now, here's my grade:
Overall, I give President Obama an "I" for incomplete on his performance on the economy. That's not a bad thing but it's not great, which is the point. Despite his high approval rating and Democrat-controlled Congress, the idea that the economy would improve this soon because of anything the president has done is unrealistic. It's easy to blame Bush's eight years for the problems but our economy had fundamental problems -- most notably all of us living off credit -- long before that.
On specifics, I give Obama a B on housing, mostly for signing a package that gives an $8,000 tax credit to new homebuyers. On the stimulus package, he gets a C. I'm optimistic that much of what's in it will help, but it's taking a while for federal and state bureaucracies to start spending the money, and I'm no fan of bureaucracy anyway. There's always waste and corruption involved. That grade could easily go to a B or an A, especially if any of this funding for improving passenger rail service actually happens.
Last, on the Wall Street bailouts, another C. Something had to be done to prop up the financial system. Obama stepped up to the plate depsite how unpopular investment bankers are and so far none of the remaining big banks has failed. But that doesn't mean they won't, and most people still can't get over the AIG bonuses.
What's your take? Do you think the economy is getting any better under Obama?
Monday, March 30, 2009
If the auto industry fails, would it kill the black middle class?
I'm supposed to be on vacation, but I had to make one post.
The Obama administration has told the auto industry that it doesn't think their plans to stay afloat will work. They have a few weeks to get their act together if they want more help from the government.
I used to be against giving any tax dollars to the automakers, until I was on a radio show where the point was brought up that the auto industry, more than any other single business, was responsible for moving blue-collar African-Americans into the middle class. Of course, a lot of those manufacturing jobs are now gone, but many people, especially in the Midwest and some southern states, still depend on those jobs.
So what's your take? Should the government make sure GM and Chrysler stay afloat like they've done for banks? Should people who still depend on the car industry for jobs hang on or start looking for modern opportunities?
The Obama administration has told the auto industry that it doesn't think their plans to stay afloat will work. They have a few weeks to get their act together if they want more help from the government.
I used to be against giving any tax dollars to the automakers, until I was on a radio show where the point was brought up that the auto industry, more than any other single business, was responsible for moving blue-collar African-Americans into the middle class. Of course, a lot of those manufacturing jobs are now gone, but many people, especially in the Midwest and some southern states, still depend on those jobs.
So what's your take? Should the government make sure GM and Chrysler stay afloat like they've done for banks? Should people who still depend on the car industry for jobs hang on or start looking for modern opportunities?
Monday, March 23, 2009
Another trillion for banks and Wall Street?
Here's the latest scheme out of Washington to get the economy moving again: the Treasury Department plans to use at least $100 billion and perhaps as much as $1 trillion to help private investors buy bad investments from banks. The hope is that with the government's money backing them, investors ranging from individuals to pension and hedge funds will feel confident enough to take the risk, and that banks will start lending again once they have risky investments like mortgage-backed securities off their balance sheets.
I know, I know: the requisite shock, awe and anger is coming right now. Who wants to see yet another dollar go toward helping banks and investors, right? It's an understandable reaction, but this plan is a perfect example of why and how the economy can't be fixed in the ways we've all gotten used to. That is to say, it won't be quick, it won't be painless and the solution won't come from a magic bullet; the government appears to be trying everything it can think of and thus far, nothing has restored confidence in the financial system enough to get lenders lending, consumers buying and employers hiring again.
Of course, that isn't to say that the anger isn't justified though. The money for this new program is supposed to come out of the Troubled Assets Relief Program, or TARP, which is the Wall Street bailout program passed last year that so many are criticizing today. That the new money is coming out of TARP, which was a fund that was supposed to be used to take bad assets away from banks to begin with, raises the question of why this plan or something like it wasn't tried first.
I know, I know: the requisite shock, awe and anger is coming right now. Who wants to see yet another dollar go toward helping banks and investors, right? It's an understandable reaction, but this plan is a perfect example of why and how the economy can't be fixed in the ways we've all gotten used to. That is to say, it won't be quick, it won't be painless and the solution won't come from a magic bullet; the government appears to be trying everything it can think of and thus far, nothing has restored confidence in the financial system enough to get lenders lending, consumers buying and employers hiring again.
Of course, that isn't to say that the anger isn't justified though. The money for this new program is supposed to come out of the Troubled Assets Relief Program, or TARP, which is the Wall Street bailout program passed last year that so many are criticizing today. That the new money is coming out of TARP, which was a fund that was supposed to be used to take bad assets away from banks to begin with, raises the question of why this plan or something like it wasn't tried first.
Wednesday, March 18, 2009
The $165 million question
So now the government wants to get back the more than $165 million in bonuses that AIG paid its executives. Hmm.
AIG, in case you've been dead since last year, is the insurance company that the government now owns 80 percent of due to more than $170 billion (yes, billion) in bailout money that taxpayers have put into the firm to keep it from collapsing.
Today's New York Times has an excellent piece written by George Washington University law professor Lawrence Cunningham that explains all the legal ways AIG or the government could use to justify getting the money back. My question, though, is what would the government do with the cash once it has it back?
By all indications, the more than $1 trillion in taxpayers dollars already spent or allocated for company bailouts or economic stimulus so far haven't fixed the fundamental problems in the economy: a housing market that completely tanked and lending by banks to companies and consumers to keep the economy moving. Why not take the cash from the bonuses AIG paid and put it toward fixing those problems directly? The FDIC, for example, has already shut down or taken over more banks in the last 15 months than it has in decades. $165 million sounds like it would go a long way toward recapitalizing at least a few of them, no? How many home mortgages could be made at affordable rates would that kind of cash? How many entrepreneurs could use $165 grand, let alone $165 million, to help make a payroll or get a new product into production?
AIG, in case you've been dead since last year, is the insurance company that the government now owns 80 percent of due to more than $170 billion (yes, billion) in bailout money that taxpayers have put into the firm to keep it from collapsing.
Today's New York Times has an excellent piece written by George Washington University law professor Lawrence Cunningham that explains all the legal ways AIG or the government could use to justify getting the money back. My question, though, is what would the government do with the cash once it has it back?
By all indications, the more than $1 trillion in taxpayers dollars already spent or allocated for company bailouts or economic stimulus so far haven't fixed the fundamental problems in the economy: a housing market that completely tanked and lending by banks to companies and consumers to keep the economy moving. Why not take the cash from the bonuses AIG paid and put it toward fixing those problems directly? The FDIC, for example, has already shut down or taken over more banks in the last 15 months than it has in decades. $165 million sounds like it would go a long way toward recapitalizing at least a few of them, no? How many home mortgages could be made at affordable rates would that kind of cash? How many entrepreneurs could use $165 grand, let alone $165 million, to help make a payroll or get a new product into production?
Monday, March 16, 2009
Is Bernanke right about the economy turning around in 2009?
The chairman of the Federal Reserve Bank says he actually believes the recession could turn around this year. He's also pissed off about the more than $100 million in bonuses that bailed out insurer AIG is paying its top executives.
Is he too optimistic? Do you believe the economy will turn around in 2009? And is Bernanke, who has a Wall Street background, being disingenuous in his anger over the executive bonuses?
Friday, February 13, 2009
Time for some new rules for credit card companies
After yesterday's post on the stimulus package, commenter Mia6998 wanted to know when Congress would "get on to some credit card company regulation? That's the other beast that really needs to be addressed."
That's about right, Mia. About a week ago I wrote about credit rating agency Experian's plan to stop making consumers' FICO scores available to them. Well, USA Today reports that Saturday is the last day you'll be able to see the Experian score, meaning "You now have access to 33% less important information you should have access to."
What really bothers me is the last paragraph in the story, where an Experian spokesman argues that consumers will still be able to see their scores from the agency -- through lenders when they apply for a mortgage. But that's too little, too late. By the time you've applied for a mortgage, a low credit score and whatever negative information led to it has already been on file, potentially for some time. Seeing the score AFTER you've submitted an application won't help.
So, to Mia's point, how about a little regulation here: the Obama administration or Congress should push for a rule banning credit agencies from supplying crucial information to lenders that isn't available to consumers themselves. In an era where everyone in every state is entitled to a free copy of all three of their credit reports once a year, it's almost inconceivable that a credit bureau is allowed to keep your score hidden from you but not your potential creditors.
While we're at it, why are lenders, many of whom are awash in taxpayer bailout money right now, allowed to make lending decisions based on information that's not freely available to taxpayers?
Washington, are you listening?
That's about right, Mia. About a week ago I wrote about credit rating agency Experian's plan to stop making consumers' FICO scores available to them. Well, USA Today reports that Saturday is the last day you'll be able to see the Experian score, meaning "You now have access to 33% less important information you should have access to."
What really bothers me is the last paragraph in the story, where an Experian spokesman argues that consumers will still be able to see their scores from the agency -- through lenders when they apply for a mortgage. But that's too little, too late. By the time you've applied for a mortgage, a low credit score and whatever negative information led to it has already been on file, potentially for some time. Seeing the score AFTER you've submitted an application won't help.
So, to Mia's point, how about a little regulation here: the Obama administration or Congress should push for a rule banning credit agencies from supplying crucial information to lenders that isn't available to consumers themselves. In an era where everyone in every state is entitled to a free copy of all three of their credit reports once a year, it's almost inconceivable that a credit bureau is allowed to keep your score hidden from you but not your potential creditors.
While we're at it, why are lenders, many of whom are awash in taxpayer bailout money right now, allowed to make lending decisions based on information that's not freely available to taxpayers?
Washington, are you listening?
Wednesday, February 4, 2009
Bailed out banks: I want my money back
Seriously, Wells Fargo?
In case you missed the news the past two days, the bank Wells Fargo Corp. was planning a lavish Las Vegas party for some of its employees. The problem is Wells just reported a $2.6 BILLION loss for the fourth quarter. And oh yeah, there's the matter of the $25 billion in bailout money that Wells got out of the $700 billion bank bailout program last year.
Wells called the party off after word hit the media but swears it wasn't using bailout money for the party. Either way, it brings up two important questions: why hasn't Congress forced banks to disclose where all that money went yet and as a friend said eloquently this this morning, what does the government need to do to be able to call the money it gave to banks?
By "call", she meant at what point can the government decide that the banks haven't met their obligations under the terms of the bailout plan and force them to pay all the money back to taxpayers immediately. Calls happen all the time: on Wall St., investment houses make margin calls, forcing investors whom they've lent money to to pay up to avoid steep losses. Lenders call back loans to businesses if management doesn't handle that cash consistent with the terms of their loan agreements.
Of course, there's a snowball's chance in hell that anyone in Congress will demand that banks tell us where the money went or force them to pay it all back. But wouldn't it be nice just to know under what circumstances they could?
In case you missed the news the past two days, the bank Wells Fargo Corp. was planning a lavish Las Vegas party for some of its employees. The problem is Wells just reported a $2.6 BILLION loss for the fourth quarter. And oh yeah, there's the matter of the $25 billion in bailout money that Wells got out of the $700 billion bank bailout program last year.
Wells called the party off after word hit the media but swears it wasn't using bailout money for the party. Either way, it brings up two important questions: why hasn't Congress forced banks to disclose where all that money went yet and as a friend said eloquently this this morning, what does the government need to do to be able to call the money it gave to banks?
By "call", she meant at what point can the government decide that the banks haven't met their obligations under the terms of the bailout plan and force them to pay all the money back to taxpayers immediately. Calls happen all the time: on Wall St., investment houses make margin calls, forcing investors whom they've lent money to to pay up to avoid steep losses. Lenders call back loans to businesses if management doesn't handle that cash consistent with the terms of their loan agreements.
Of course, there's a snowball's chance in hell that anyone in Congress will demand that banks tell us where the money went or force them to pay it all back. But wouldn't it be nice just to know under what circumstances they could?
Wednesday, November 26, 2008
The $800 billion bailout that might actually help you
I really didn't want to do another bailout post, but...
Yesterday the Fed rolled out another $800 billion package to prop up the economy. This time, though, the money is aimed at helping banks make affordable loans to consumers:
It could wind up being a better short-term thing for consumers than anything the government has done so far, given that so little of the trillions spent on bailouts have gone toward anything that might make it directly easier for you and I to borrow. Problem is, this, like everything else, will have to be paid for and will have long-term ramifications that most of us can't even imagine yet.
What's your take? Good idea or bad one?
Yesterday the Fed rolled out another $800 billion package to prop up the economy. This time, though, the money is aimed at helping banks make affordable loans to consumers:
- $200 billion will be used to buy securities backed by consumer debt like car loans or credit cards
- $600 billion is intended to directly buy troubled mortgages, taking them off the books of Fannie Mae, Ginnie Mae and Freddie Mac, the three government-backed mortgage lenders.
It could wind up being a better short-term thing for consumers than anything the government has done so far, given that so little of the trillions spent on bailouts have gone toward anything that might make it directly easier for you and I to borrow. Problem is, this, like everything else, will have to be paid for and will have long-term ramifications that most of us can't even imagine yet.
What's your take? Good idea or bad one?
Wednesday, November 19, 2008
Does Detroit Deserve a Bailout?
No, I'm not talking about the Detroit that just suffered through the embarrassing tenure, resignation and felony conviction of its mayor. That Detroit needs therapy along with a check for its legal bills.
I'm talking about the Detroit's Big Three automakers, GM, Chrysler and Ford, whose top executives went to Capitol Hill yesterday begging for a $25 billion rescue package to keep them out of bankruptcy. That money, of course, would be added to the $700 billion that Congress already gave to Wall Street -- half of which has been spent but can't be accounted for.
If you ask me, that's reason enough to stay away from any more big company bailouts. Remember welfare reform in the 90s? The argument was that if you kept giving people "free money" from the government without oversight and limits, they'd never get off the taxpayers' proverbial tit. Why doesn't that now hold true for mismanaged, big industries?
The problem, though, is that if the Big Three are allowed to go bankrupt, many people will lose their jobs at precisely the worst time for that to happen. Some people, like former Republican presidential candidate Mitt Romney, think that's a worthwhile risk if on the other side of Chapter 11, the automakers come out leaner and stronger. The automakers argue that transformation is impossible if they don't get help now.
I think both sides have valid points, though I'd really not like to see any more tax money go to corporate welfare. But hey, my opinion doesn't count here, yours does! If you were in Congress, would you vote to help the auto industry save jobs now with a bailout, or to force it to get its act together by risking job losses and potential bankruptcy?
I'm talking about the Detroit's Big Three automakers, GM, Chrysler and Ford, whose top executives went to Capitol Hill yesterday begging for a $25 billion rescue package to keep them out of bankruptcy. That money, of course, would be added to the $700 billion that Congress already gave to Wall Street -- half of which has been spent but can't be accounted for.
If you ask me, that's reason enough to stay away from any more big company bailouts. Remember welfare reform in the 90s? The argument was that if you kept giving people "free money" from the government without oversight and limits, they'd never get off the taxpayers' proverbial tit. Why doesn't that now hold true for mismanaged, big industries?
The problem, though, is that if the Big Three are allowed to go bankrupt, many people will lose their jobs at precisely the worst time for that to happen. Some people, like former Republican presidential candidate Mitt Romney, think that's a worthwhile risk if on the other side of Chapter 11, the automakers come out leaner and stronger. The automakers argue that transformation is impossible if they don't get help now.
I think both sides have valid points, though I'd really not like to see any more tax money go to corporate welfare. But hey, my opinion doesn't count here, yours does! If you were in Congress, would you vote to help the auto industry save jobs now with a bailout, or to force it to get its act together by risking job losses and potential bankruptcy?
Subscribe to:
Posts (Atom)