When my household is in financial trouble, I don’t keep spending more than what’s coming in. This just digs the hole deeper. Help the homeowner who is responsible. Politicians know these programs set people up for failure but it sounds good and gets them re elected.

To begin, the term “homeowner” itself is misleading. First, a “home” doesn’t have to be a house. An apartment or a trailer is just as much a home to its occupant as someone who lives in a house. Second, one “owns” something only when he pays up his promised amount of money in the full. Until then he is merely the buyer of the property and the real owner is the person who has put up the money, i.e., the lender and the house buyer is merely his renter.

The two main groups of house buyers who are in trouble are (a) speculators who overextended themselves to flip a house to make a quick buck and (b) those who took out their home equities to spend on luxuries. If the house was a cake, then they have already eaten it and now the government is assuring them that they can have it too.

These asinine legislations of rewarding the irresponsible and punishing the responsible will have extremely derogatory effects. Mortgage money will be increasingly harder to come by because the prospective lender will be reluctant to lend, knowing that the government can change the terms down the road at its will. Also, increasing numbers of formerly responsible buyers will become delinquent on purpose just to qualify for these government handouts.

To make up for the shortfall, the government will turn to the printing press to create funny money which will increase inflation, which will increase its future expenses and debt, which will require more and more money printing, resulting in hyperinflation, which will cause prices to skyrocket, which will make politicians slap on price controls, which will make goods disappear from the shelves and a black market to emerge, which will cause more and more draconian laws including rationing to be passed.

In short, it will be a totally predictable mess for which the politicians will blame everybody else except themselves and reward themselves with a hefty pay raise for their achievement.

Your last comment says it all. Our money freely flows to the bznkers and they spend it on themselves with no regard to the rest of the nation. Case in point the $18 billion in executive bonuses given out after they got our bailout money.

Until there is help for homeowners and we begin to stem the tide of foreclosures, a recovery will not be possible.

Congressman Conyer’s bill is on track but does contain some flaws. ONe such flaw is that the lender will participate in the appreciation on the house whose loan was modified.

This from the Natinal Law Network:

” House Judiciary Amends Bankruptcy Act to Include “Clawback”

Posted: 30 Jan 2009 10:27 AM CST

HR 200, the house version of the “Helping Families Save Homes in Bankruptcy Act of 2009,” as reported in Northern California Mortgage Mods, was amended in committee to include a “clawback” amendment. This allows mortgage companies, whose loans are modified by a bankruptcy judge, to share in the appreciation of a house that is later sold by the home owner.

The benefit to the lender will go from 80% of any appreciation in the house’s value during the first year after modification to 20% in the 4th year. Thus the lender, whose loan exceeded the value of the property when modified by the bankruptcy court, will get a wind-fall if the house appreciates and the home-owner sells it.

Without the modification by a bankruptcy judge, the lender would end up with the house in foreclosure. Generally that means that the lender, on average, will end up with about 50% of their loan. With the modification, they rate to get 75% of the loan amount; so is it fair that they end up with 75% and a chunk of the appreciation?

Certainly, giving the lender a large chunk of a home’s appreciation is a disincentive to the homeowner to improve the house. Would you spend $15,000 on a new roof to enhance the value of your property knowing that the mortgage company is going to get 80% (or even 20%) of that additional value?

Like all dramatic changes to existing law, the devil is in the details. Just how this is going to work is not an easy problem. One thing is certain: homeowners need this legislation to save their homes, but it has to be a workable, reasonable solution.”

What I don’t understand is why we need to legislate common sense business practices. Is there a profit motive for lenders to not modify loans that is unseen by everyone?

In an article published on Flippingfrenzy back in March, 2008, I wrote about the common sense of loan modifications as a win-win situation. The article, “Win-Win versus Lose-Lose: Why’s the choice so hard to make?” can be seen at http://www.flippingfrenzy.com/2008/03/02/win-win-versus-lose-lose-whys-the-choice-so-hard-to-make/

Last note: A bankgrupcy judge recently “voided” a mortgage saying that the lender could ot prove ownership and that the original lender had been paid in full for the note therefore there was no debt owed any longer. This is a federal court and the case could become precedence.

I ask again, what is the motive that lenders - actually the servicers and not the real lenders - have? They owe an obligation to the “real” owners of the note - the investor that purchased a share of the note in the securitization?