As usual the right wing crazies are out there talking about how unfair it is to save these horrible scum of the earth from foreclosure. It amazes me that with $75b committed towards this effort there is about 10 times as much discussion in the mainstream media about this then the Trillions being poured into the banks........and then there are nuts like the CNBC reporter, a different issue.
Rather then focusing on the multiple reasons why not foreclosing is a good thing for all socially and economically, below the fold are some simple numbers that even the mentally challenged republicans and their banks should be able to understand, even from their purely greedy and heartless perspectives.
Let's say you bought a house in 2007 for $277,000 you put down 10% and were left with a $250,000 mortgage.
Now your house is worth only $200,000 on the open market in a fair market sale (Only $180,000 as a distressed foreclosed property), a drop of about 28% in value. In addition, you cannot afford the payments which are at 7% on $250,000 for a house worth only $200,000(it does not matter how you got here it does not change the numbers).
The bank can foreclose or you can can abandon the house either way the bank is going to end up having expenses which typically run as much as $30,000 (attorneys fees, maintenance, holding costs and disposal costs etc)
Option #1
The bank sells the house finally for $180,000 in a distressed sale and nets $140,000 (sale price minus costs). At the same time all the houses on the block and in the neighborhood drop in value due to the distress sale.
Option #2The bank renegotiates with the homeowner to drop their mortgage to 90% of appraised value ($190,000)and gives them a new fixed rate 30 year mortgage at 5% (this can be backed by the feds to create security and peace of mind for the bank that this is a one time event).
Final score Option #2:
A. Homeowner stays in home and monthly payment goes from $1,663 per month to $$1,019 per month - Winner
B. Bank gets non performing loan off the books and nets $50,000 over what they would have gotten if foreclosed - Winner
C. Community stabilizes home values for all - Winner
D. Taxpayers do not invest 1 penny (they do provide mortgage security) - Winner
Why is simple math so difficult to understand?