Finally something that we can all get behind: Don’t pay your bills. It’s not my idea, although it has appeal. It’s the Fed’s and it’s the cornerstone of the new Homeownership Preservation Policy. To qualify for aid, the homeowner must be at least 60 days past due on his or her mortgage payments. (This program is for mortgages acquired from Bear Stearns and AIG rescues. Another program begun in December 2008 required that the homeowner be 90 days late.) At the same time, the mortgagee must be able to make a reduced monthly payment, therefore, must have some income, presumably a job. The having a job part might be tough; the missing two payments part, easy.
And more good news for mortgage delinquents; several mortgage lenders have suspended foreclosures, at least through January 2009. Among them are: Fannie Mae and Freddie Mac—together a good half of the market; Bank of America/Countrywide; Citi; and several foreign banks. If your mortgage is not held by one of these lenders, you still may be in luck. Several cities and states have suspended enforcing foreclosures; to name a few: Chicago, Philadelphia, Baltimore and Illinois and Florida. Initially, delayed-foreclosure preference was given to mortgagees who lived in their houses. It now has been extended to having an occupant in the house. An unintended consequence: what’s this going to do to the rental market and the commercial mortgagee’s ability to make payments? They will be subjected to the full force of the free market I guess.
Those who do not have mortgages must be asking: What about me, what can I not pay? Here’s a suggestion—credit cards. And there’re a slew of them not to pay: bank, store, gas, travel. You did your patriotic duty by running up this debt in the first place. Now join your neighbours and default.
The approximate $2.6 trillion in consumer-credit outstanding as of November 2008 is at serious risk. Charge-offs are expected to rise from the current 5.62% to as high as 13%, according to Nouriel Roubini. The all-time high was 7.85% in 2002. Consumer-credit defaults are tied to unemployment. Some banks have increased their assumptions on 2009 unemployment to 8.7%, which is as much as they say they can handle; beyond this level they would be in trouble. Well, they’re in trouble. According to the BLS, the rate of unemployment as measured in U-6 is already 13.5%, well into the banks’ danger zone. And this number is far below the almost 18% computed by Shadow Stats (the people who came up with the definition of recession that is universally accepted), which also puts us in depression territory.
The televised Congressional Hearings/Jerry Springer Show on the new stimulus bill carried on all day. They should give up on everything except social programs at this point. Little of what they’ve done has worked. The trigger for the next major leg down will be out of their control by definition and could even come from outside the US.
mg
P.S. Just found out the stimulus bill passed. They’re going to send me a check and broadband will be brought out to my summer place. I take back all the bad stuff I just said.
All of this stimulus talk chafes me the wrong way, given that we don’t have $815 billion lying around to spread around the economy, we’re going to have to borrow it. I figure at some point, someone is going to call our tab, and that can’t mean anything good for the average consumer here in the U.S. With that said, if you’re a homeowner, the stimulus package that President Barack Obama recently submitted (and passed in the house) does contain some provisions that could mean some savings and tax credits for you.
First time buyers, for example, could be looking at a $7,500 tax credit assuming they buy in the near future. It’s really a modification of the first tax credit in the already passed Housing Recovery Act, except that it isn’t a loan that has to be paid back within 15 years. Instead, you won’t need to repay it at all. Considering the HRA didn’t really do much to bring buyers out of the wood work with an additional loan (even with no interest), perhaps free money will entice those on the sidelines to get back in the game, assuming you qualify anyway. To do that, you’ll have to be a consumer who hasn’t owned a home in the past three years, and the new home must be your primary residence.
If you didn’t qualify for the “other” stimulus act that was passed last year, you also have a shot at that money this year if you had a kid or if your income dropped in 2008. If you had a kid you’ll also be rewarded with an additional tax credit of up to $1,000 per child this year for 2008. That’s in addition to the $3,500 exemption you get for each dependent you claim!
The bill is still currently being tossed around, though, so don’t count your chickens just yet. It passed in the House, but is well on it’s way to the Senate, where the few Republicans that are actually left are opposed to the amount of pork the bill contains. Whatever your political leanings are, it’s tough to argue that homeowners don’t need at least some relief from the bottomless drop in housing, but we’ll see how this plays out.
Mortgage Insider - Mortgage rates jump to 5%
The Big Picture - Good Bank, Bad Bank by Dr. Seuss
The Reformed Broker - People I Can Do Without: Winter ‘09
Huffington Post - Senate Banking Chairman: Confiscate Wall Street Bonuses
Deal Book - Nassim Taleb: ‘I Was Happy Lehman Went Bust’
The Big Picture - Greed + Incompetence + A Belief in Market Efficiency = Disaster
Housing Doom - Where are taxpayer billions [Make that trillions] going?
Mish’s - Geithner Discusses Nationalization In $2 Trillion Bailout Proposal
Calculated Risk - House Passes Stimulus Plan
Huffington Post - Good Gov’t Groups: Are Corporations Using Bailout Money To Fund Political Campaigns?
Mish’s - Fed Adopts “Throw The Kitchen Sink” Policy
Infectious Greed - Ebay as Federal Reserve 2.0