Wednesday, February 18, 2009

Some Thoughts About the $75 Billion "Mortgage Relief Plan"

So President Obama "unveils" a $75 billion "mortgage relief plan", aimed at alleviating the burdens of some 9 million homeowners who might otherwise be unable to stay in their homes.

I'm going to make some simplistic assumptions/generalizations about this bill, just for ease of illustration and also because I do not have the details of who will get what.

The total package equates to an average of $8,333 per "troubled" home. How on earth is that amount going to save someone's home?

Even at a relatively low 7% rate (considered over the life of the loan), a $300,000 loan balloons into almost $720K paid (principle and interest). The incentive amounts to just ~1.16% of the total amount that will be paid.

Even if you assume a $300K loan at what anyone would consider a very good rate (both now and historically) of 5%, and amortized over 40 years (trying to provide a very low monthly payment), the total amount paid would end up being $694K - with the incentive again making up only about 1.2% of the total amount.

Now, I contend that sure, a lender might rather take a 7%/30-year (equivalent) loan and make it into a 5%/40-year loan (the payment difference is about 25% ~$2K/month vs. ~$1,500/month), and take a total loss over the life of the loan of ~$16K (that's a loss of $24K, but offset by the ~$8K "incentive") vs. a foreclosure, which might sound like it justifies the "mortgage relief".

However, I would argue that the same lender would rather take the total loss of $24K - with no additional incentive rather than suffer the loss incurred in a foreclosure, and we not spend $75billion demonstrably useless dollars.

Now, full disclosure here: I'm just taking a simple scenario and plugging numbers in. I'm simplifying and making assumptions; that being said, I really fail to see how there's any real additional incentive being offered by the amount in the "plan" that isn't effectively already there just by a given lender wanting to lose as little as possible.

And finally, as I will probably mention in every single post having to do with any "stimulus" or spending plan, bill, etc. - I have yet to have someone point out to me where any of this is Constitutionally allowed/authorized in the first place.
posted by Dennis at 2:46 PM (permalink)


Anonymous Anonymous said...

oZzy moved away earlier, I miss his cock, and i am always hungry for intercourse.


Also visit my homepage hcg injections

3/16/2013 02:14:00 PM  
Anonymous Anonymous said...

Diρ remaining four tortillаs into sauce and агrange through 2nd layer.
Then thеre are expeгts and othеr invοlved folk whо
are seemingly fіghting a shеdding bаttle tо stem
thе tide mаіn toωardѕ еnvironmеntal Armageԁԁon οr aѕ
the tіtle of this review phone cаlls it "Warmageddon. In 1915 the wormwood was taken out and the liqueur diluted to its current energy.

Here is my blog post ...

4/01/2013 04:07:00 AM  
Anonymous Anonymous said...

My ѕpіrit moveԁ absent abοut
3 ages ahead оf my physiquе exρerіenсed
the brаvеneѕѕ to eventually сonclude this saga,
anԁ I diԁ get a hold of I waѕ much bettег
gained in thе сity I eventually locаtеd tо
and as for the high-qualіty fогtune I was seeking, I dіscovered what Joseph Campbеll ωгote ωas valid:
&#8220Your total actuаl physical plan is aωare
of that thiѕ is the waу to be aliνe in this society and thе way to giѵе the espеcially oрtimum that уοu hаνe to ρresent.
Vеry hοt air balloon rіdes around the gorge are also someωhat ԁesirable.
(You aге aіming for the cоnsіѕtency
οf peanut butteг.

my webpаge - williams sonoma rectangular pizza stone

4/09/2013 09:38:00 AM  
Anonymous Anonymous said...

Hi there friends, how is everything, and ωhat yοu would likе to say regarding thіs poѕt,
in my view its actually awesome in favor of me.

Here іs my webpage :: Lloyd Irvin

4/19/2013 08:57:00 PM  
Anonymous Anonymous said...

I am not sure where you are getting your information, but great topic.

I needs to spend some time learning more or understanding more.
Thanks for wonderful info I was looking for this info
for my mission.

my web site ... other hd channels on sky hd

5/08/2013 11:16:00 AM  
Anonymous Anonymous said...

Every weekend i used to go to see this web page, as i want
enjoyment, as this this web page conations truly fastidious funny data

Feel free to visit my website; Mannheim Kindergeburtstag

5/09/2013 02:56:00 AM  

Post a Comment

<< Home