The mortgage settlement – political grandstanding and my deep cynicism

Ultimately – it’s all for political show and virtually worthless. When the President announced the settlement, and I saw arrayed behind him a flank of bureaucrats and politicians, that’s what I thought – lots of thunder and fire, but ultimately not a lot of bang.

The politicians had to “do something” about the housing crisis and after over a year of negotiating, this is what we got:

People who lost their homes will get a check for maybe $1,500 – 2,000, but only if it was through one of the 5 banks. Underwater homeowners maybe can get $15,000 knocked off their loan balance through a loan mod, but again, only if their loan is with one of those 5 banks. Fannie Mae and Freddie Mac loans don’t qualify.

In reality, for troubled homeowners in Ventura County who were maybe looking to somehow save their homes through this “breakthrough settlement”, it doesn’t do much. Reducing a loan balance by $15k means a payment reduction of about $80 a month ($20k at 5% over 30 years = $80.52). Reducing it by $20k saves a little over $100 a month. Not to minimize those savings, but when a homeowner has payments of $2,500 to $3,000 a month (mortgage, taxes and insurance) on a home that’s $150,000 underwater or more, $100 a month isn’t going to save that home.

But all the politicians from the states involved (Kamala Harris of CA) and the federal government can add this settlement to their political resume. Ultimately, the banks escaped serious damage. This settlement is going to be slowly played out as the economy continues to improve, allowing the 5 banks to absorb these costs gradually over time.

Should “something” have been done with banks? Absolutely. Will this help the housing crisis in Ventura County? I don’t think so. I believe what ultimately will heal this mess is job creation and the continued building of consumer confidence. It will be “we the people” who will solve this and solve it we will.

Most people understand their home is their most important asset, emotionally and financially. More young people in their 20s and 30s will come into the market as they seek to have their own nest. Growing families will need to move into larger homes. As incomes become stronger and wage earners feel more confident in their job security, they’ll want to move up. It’s just the way things are.

So I admit I’m a cynic going into this political cycle. I just hope the public is too.

Filed under article topic: Housing Market,Mortgages/Interest rates,The Fed & Housing policy
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