What Does the Bailout Mean for Homeowners?

Posted by: Chris Palmeri on September 25, 2008

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You have to love those New Yorker cartoons. The kid breaks open his piggy bank and says “Now we just have to sit back and wait for the Fed to bail us out.”

Yes, the big bailout is upon us. Compromises will be made. The money will get paid in stages. There will be limits on executive pay. The government will get some equity in the troubled firms that participate.

Big banks will get to unload their worst loans on us taxpayers. Stock prices will recover. Credit will flow again. But what does this really mean for home owners?

Some have suggested that the wave of foreclosures will end. Housing prices will bottom out. Don’t bet on it. A little historical perspective is warranted.

A previous Bush president—I’m not trying to infer anything here—created a similar government bailout mechanism in 1989. The Resolution Trust Corp. was in business for six years. Some $300 billion worth of bank assets were taken over. Tens of thousands of distressed properties were sold. It took years to work these through the system. It wasn’t until about 1995 that housing prices in the U.S. bottomed out.

Homeowners are in for a long, bumpy ride. That’s what history tells us.

Reader Comments

Snoz

September 26, 2008 6:03 AM

Worshipping real estate and ostentatious materialism, California has lost its way. Obeying false prophets who promised unimaginable riches from real estate "investments," greedy California mortgaged its soul for the promise of a treasure chest of gold. In the end, the promise turns out to be filthy rags left behind from the catastrophic destruction of renown banks, collapsed insurance companies, and failed government institutions. Due to their avarice and transgression in the name of real estate, the infidels of California have spread the plague across this land. For their multitude of sins, many Americans will now live in squalor, misery, or forced to roam circuitously in the desert for 40 years. Never have so many paid so much for the evil of so few. Neither enemy attacks nor the Civil War has brought such calamity upon the shores of America as the evil California landscamers. The real enemy of America's future resides at home, no other than in California. Poor America, so close to California and so far away from the Righteous. In deed, the fall of Rome was from causes within rather than without. The great challenge laid before us is whether this country conceived in honesty, goodness and belief in the hard-work ethic will survive long enough to reaffirm those values brought to these shores over four scores ago or will the get-rich-quick scheme trample over the work-ethic and destroy this Nation. In the name of boundless prosperity, everlasting progress, and real property for all, the evil California prophets have desecrated the goodness, honesty, and wholesomeness that formed the foundation of this country at its conception. During the past 5 years of shameless land speculation in California, the melodic words, "Sweet Land of Liberty" gave way to: Land Where My Investment Lie From Every Mountain Side Let My Cash Register Ring. Unfortunately, the time has come for the rest of the nation to atone for California's continuous worship of idolatry and obedience to false prophets. While the wages of sin for the California landscamer is death, the Nation that partake in the bail-out of those who worship the golden calf will suffer for a decade or more the wrath of the Almighty. So said the Judgment. It is thus written.

Brian

September 26, 2008 4:05 PM

Well certain measures have had immediate impact on homeowners already. For example in New York, the number of Lis Pendens filings ('pre-foreclosures') has dropped dramatically in the last month after the signing of the new foreclosure bill on August 18, 2008. You can see current listings at
http://www.propertyshark.com/mason/Foreclosures/#product=Lis_Pendens and they are down about 70% even from July.

We will have the monthly and quarterly numbers compiled next week after month end in our Q3 Report Foreclosure report.

Lis Penden

September 27, 2008 4:56 AM

Lis Penden filings are merely notices to other creditors that the subject property has encumberances. Lis Penden is not a prejudgment remedy or a lien on the property because the property still can be sold by the owner. It is basically a notice to potential creditors that their loan to the debtor is at their own risk. Subsequent creditors who loan to the debtor will probably become unsecured creditor because the property value won't be enough to satisfy all the secured and unsecured lenders. Priority based on the "Race" rule still applies. The new foresclosure bill merely delay the inevitable. In sum, Lis Penden filing does nothing to stop foreclosures. Where a Homeowner(mortgagor) defaults, Holders of 1st mortgage(mortgagee) can foreclosue without filing Lis Penden or even where a Lis Penden has been filed.

Arie Shapiro

October 2, 2008 5:53 PM

Now I understand that Business Week has to publish articles like this to sell Ads on their website, but if you look at the entire article, there is very little that can be done by reading it.

You've pretty much said, "This kinda thing didn't really work in the past, so I don't know if it will work in the future."

My question is, who cares? Are you just trying to show how smart you are?

Useless article. What's done is done and your senator does not care. So please move on to a topic that is actionable.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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