The Effect of the $700 Billion Bailout on the Homeowner

When last we met I was asking "Where is the Help for the Homeowners?

Today I want to talk about the:

$700 billion dollar bailout and the effect it is going to have on the homeowner.

First, let's recap the bailout plan

The program calls for our government to spend "up to" $700 billion dollars to buy distress mortgages from ailing banks.

This is in addition to:
> The $85 billion dollar agreement for the bailout of American International Group (AIG)
> The $29 Billion dollars for the government back deal that allowed JP Morgan Chase to acquire
Bear Stearns
> The $25 billion dollar government acquisition of Fannie Mae & Freddie Mac.

The Program is supposed to:

Attack the Credit Crisis: It allows the Treasury access to the $700 billion in stages. With $250 Billion made available immediately.

Protect Taxpayers: The bill requires 1) the financial industry to reimburse taxpayers for any net losses from the program after five years. And 2) the Treasury will be allowed to take ownership stakes in participating companies.

Curb Executive Pay: The law will place curbs on executive pay for companies selling assets or buying insurance from Uncle Sam.

Provide Oversight: The rescue plan will set up two oversight committees. A Financial Stability Board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary.

Provide Tax Breaks: It extends a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.

The law also continues a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.

In addition, the law includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

Require New Accounting Rules: The bailout plan underlines the Securities and Exchange Commission's power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue.

Shield Bank Deposits: The law temporarily raises the FDIC insurance cap to $250,000 from $100,000. It allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit.

The plan will also temporarily increase the level of federal insurance for credit union savings to $250,000.

Mitigate Foreclosures: The program calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate.

It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.

Cost: The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill. However, the agency noted in a letter to lawmakers that it expects the program "would entail some net budget cost" but that it would be "substantially smaller than $700 billion."

Overall, the CBO said, "the bill as a whole would increase the budget deficit over the next decade."

So there it is, this is what $700 billion dollars gets us! A major investment in Multi-National companies and an America deeper in debt!

BUT WHAT ABOUT THE HOMEOWNER?

The bill calls on federal agencies to "ENCOURAGE" loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate.

This is a joke! Let me get this straight, the federal government is giving money to "bailout" our financial institutions and in exchange all the financial institutions have to do is "MAYBE" help the homeowner?

Well, what is your definition of ENCOURAGE?

When this bill was first announced I spoke out against it in a meeting of concern homeowners in Riverside, CA. My reasoning then was simple "if they give money to the banks to buy their distressed mortgages, then the banks will not negotiate with the homeowners and their realtors in good faith!"

And why should they? The banks will be able to recover the full amount of the loss instead of just a portion!

The banks have begun to prove my point - let me provide an example:

We submitted a short sale package to a well known bank in early August 2008 (prior to the bailout). We called to verify that the bank had received the package and was informed that they had. When asked how long the process would take the bank rep told me approx 45 days.

I called back 1 week later for an update and was told that the file had been assigned to a negotiator. Great, I said to myself, this bank (who is normally difficult to work with), is really on the ball!

30 days later, after numerous calls to the negotiator and customer service, I was told to re submit the short sale package, because they couldn't find it. No problem this is normal! I sent the package in as requested. I try to call the negotiator but can't reach him. I leave message after message.

It's now October and I'm continuing my pursuit of the elusive negotiator, when I'm told that my file had been reassigned! 60 days into the deal! Wow!

Late October, I'm asked again to provide ALL of the information I sent back in August & September, which of course I do. And yes I verified that they received it.

November goes by and on or about December 19th 2008 after numerous calls to the bank, I receive a call from from customer service who tells me that the short sale package has been turned down! 120 days after we started!

I ask "why" and the CS rep says "the notes here say that the amount offered for the house does not meet INSURANCE GUIDELINES"

"What insurance guidelines?" I ask. The CS rep tell me that he doesn’t know what that means, he's only going by what is on the computer screen. I get it - Turned down with no explanation.

I have tried to speak to the negotiator numerous times since, but he will not return my calls.

Insurance guidelines - I'm sure they're speaking of the company that provided the mortgage insurance for the loan.

What this bank doesn't know is that I've had the pleasure of actually speaking with the Mortgage Insurance Company regarding this loan earlier in the deal and told me they rather have the property sold because if the property was foreclosed on, they would have to pay an insurance claim!

You see, now that we've given the banks an opportunity to dump all of their distressed mortgages, the banks no longer have any reason to negotiate with the homeowner in good faith!

I had another bank rep tell me, earlier this fall, "if the homeowner doesn't like the deal I've given, then we'll just take the house back!"

Another closed the file in the middle of negotiations because the homeowner didn't send back the form that okayed the deal the bank wanted to have approved! Again, right in the middle of negotiations!

Over and over again, I hear stories about how the banks are unwilling to negotiate with sellers, take their time working on Short Sale packages and generally being difficult to work with.

This is why I say we must not give to the banks unless they are willing to actually help the homeowner in distress!

The bail out plan does absolutely NOTHING for the homeowner! Yet, it is the homeowner who needs the most help.

By the way, why is it that the banks don't have to show their financials or provide their credit rating?

When we try to get a loan don't we?

Frankly, I am in favor of helping to stabilize our nation's financial institutions. But why is it the banks are able to receive funds to help them get back on firm footing and all the fed can do is "ENCOURAGE" the banks to help the homeowner?

Something doesn't fit does it?

We must "ENCOURAGE" our leaders to strengthen the Emergency Economic Stabilization Act of 2008 to include the following:

"Any financial institution who receives money from this program "MUST" modify all homeowner loans in distress"

We should not give money to the financial institutions without something in return for the American Homeowner and for the Small Business Owner.

And that's our next subject!

The importance of Small Businesses and why we need to support them!

Here's wishing you "Nothing but the Best!"