Do as I say, not as I do.

So it looks like the government has gotten concessions out of private banks in regards to outstanding mortgage balances. According to USA Today  the settlement requires the five leading mortgage servicers to forgive at least $10 billion in principal that homeowners owe on mortgages. That will help underwater borrowers who owe more on their mortgages than their homes are worth.

But will you get relief? It depends on who owns your loan.

Some Bank of America borrowers will see their principal cut to the point where they will not be underwater.

But the settlement terms only require JPMorgan Chase, Wells Fargo and Citibank to write down mortgages to the point where borrowers’ loans are 20% more than home values, although the banks can write them down deeper.

Ally Financial, meanwhile, has settlement terms that require it to write down some first-lien home loans to no more than 5% above the home’s value.

And if you have a Fanny Mae or Freddie Mac loan?  Fugget about it!

Distressed homeowners whose loans are owned by Freddie Mac or Fannie Mae won’t benefit from the settlement at all. That’s half of all home loans.

Note that I am NOT saying there should be any mortgage loan modifications at all.  I think doing so simply prolongs the actual price discovery process and drags the housing crisis out longer. I think those who don’t make their payments should be foreclosed on, and the banks then sell the properties at market value – real market value as determined at an auction.

This is the worst of all possible outcomes, because the government sets one set of rules for itself, and another for private lenders.  This is what happens when the government gets involved with the free market – they pick winners and losers.

The market (consumers) should pick winners and losers. Bad banks and lenders go broke and disappear, while good ones – those who didn’t loan money to any warm body holding a pen – get rewarded. This mixed economy crap gives capitalism and the “free” market a bad name when neither had a damn thing to do with creating the problem.


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