Just another way of redistributing wealth. I don't have a mortgage on my home. It's lost 25% of value. Pay me. Why should I pay you because you have a mortgage? I don't get how your #1 and #2 above are impacted in any way but negative by forgiving debt. #3? Why will it help the economy. People who are in foreclosure have more discretionary income than you and I. They don't pay their mortgage and live free until eviction. Nice. Why are we so averse to letting the market solve problems? Votes. Your #4? What bailout would it avoid? Just going to a different pocket.
Maybe I've taken your comments out of context. But I sure fail to see how this "let's run it up the flagpole and salute' idea has any merit whatsoever. I also think it would be the kiss of death to Democrats. (Hey, maybe it's worth it.)
Let's look at all four suggestions I've made and see if we can find some rationale or middle ground here without the political rhetoric.
1 -- The opposition has been complaining that Fannie and Freddie got off the hook for issuing all those bad loans.
By "got off the hook" I mean they haven't sufferred the wrath of having any new federal regulations impossed on them. As most have acknowledged, the new Financial Reform legistlations did not include Fannie Mae or Freddie Mac. Why that was I don't know, but because both mortgage entities reportedly are carrying the majority of the toxic mortgage debt out there, I think it's fair to say they are not getting away scott free. They're losing money every day a mortgage isn't paid whether a homeowner files for bankruptcy or allows foreclosure to happen. Each action either forces Fannie or Freddie to take on a payment schedule that very likely is far less than what the original mortgage was for or causes them to lose those mortgage payments altogether if the courts allow their mortgage debt to be written off. So, since it's an inevitable lose-lose for Fannie and Freddie either way, wouldn't it make more sense for Fannie and Freddie to modify mortgages with those homeowners who ARE willing to pay their mortgage than to force people into bankruptcy? Mortgage modification generally last from 6-18 months. Those who want out of their mortgage will either file for bankruptcy or allow foreclosure to happen and just rent somewhere else or start the home ownership process anew a few years (7-10) down the line. So, for Fannie and Freddie not to work with homeowers isn't a smart financial move on their parts.
2 -- The majority of the loans still out there reportedly are held by Fannie and Freddi.
We've already covered this above. But imagine if you will one mortgage at $950/month. Multiply that by 1 million. Now add in an average of 8% interest. Doesn't take a mathmatician to figure out that's ALOT of money Fannie and Freddie potentially are losing each time a homeowner mails in their keys and allows their home to be foreclosed on or files for bankruptcy.
3 -- Helping homeowners stay in their homes would certainly help the economy and may even raise home values over time.
You stated that your home has lost 25% of its value. Why is that? I assume your neighborhood still has a sound economic infrastructure, i.e., stores, shops, manufacturing, banks, technology centers, etc. With that assumption, the only conclusion one can make for the decline in your home's value is that your neighbor's homes have been appraised downward. As such, I assume many of the homes in your neighborhood have been left vacant since the housing bubble burst. Here where I live, the housing bubble hasn't affected my city that much. In fact, we're experiencing the exact opposite! I have five subdivisions going up around my neighborhood as I type this. And last year, my home was appraised at ... well, let's just say I'd make money if I sold my house today. So, if your home has lost value since the housing bubble, I can only assume it's because you have alot of vacate homes around you that have been appraised downward. Get people back into those homes who will pay their mortgages even at a reduced modified rate and I guarantee your home's value will increase over time. And where you have vibrant home ownership, you have property taxes. And when you have property taxes being paid you also have consumers buying goods and services. Therefore, your local economy feels the positive impact homeowership brings...just as it feels the negative impact of not having homeowners stay in their homes.
4 -- It would eliminate another fixture in this economic mess from getting another government bailout.
Taking the above into account, it stands to reason that as long as Fannie and Freddie modify many of the mortgages they own even if they are "made" to do so, the taxpayers won't have to bail them out because in time they'd still make money as opposed to continuing to have homeowners mail in their keys and let foreclosure overtake them or file for bankruptcy.
Think about it...
For the record, I'm not on Fannie or Freddie's side here. I'm just giving what I view as a practical solution to a very ugly situation.