February 18, 2009

Obama's worst-case "Family C" v. California's "Family Si"

Obama's mortgage bailout plan comes with a Q&A with three examples: Families A, B, and C, who all bought homes in 2006. Family A and Family B each put down at least 20% and are ineligible for the most lucrative subsidies. Family C, the worst case scenario in Obama's universe, put down 4.3% and are eligible.
Family C: Eligible for Homeowner Stability Initiative

  • In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down). Their mortgage broker - Mom & Pop Mortgage - sold their loan to Investment Bank. The interest rate on their mortgage is 7.5%.

- Today: Family C has $214,016 remaining on their mortgage but their home value has fallen -18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant negative shock to their income.

Yes, indeed, that's about as bad as it got in the peak of the Housing Bubble in 2006, all righty! A two parent family put down only 4.3% on their mortgage and the value of the house has dropped a gigantic 18%. And now they are $25,000 underwater. Horrors!

    • Their loan is now 113% the value of their home, making them "underwater" and unable to sell their house.
    • Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.

Let's come up with a more realistic Family C. Or, perhaps we should call them "Family Si" because they said "Yes" to a zero percent downpayment mortgage with a negatively amortizing teaser rate in California in 2006.

Roughly half of all the dollars tied up in foreclosed mortgages are in California, so let's talk about the Big C.

Instead of buying the house for $230,000, Family Si bought it for $460,000, still under the peak median in California of over a half mil.

Instead of putting $10,000 down, they put zero down, as 41% of the first time buyers in California did in 2006.

Instead of having paid off $6000 of the principle since 2006, they got a teaser mortgage that negatively amortized over the first two years so that their loan has actually grown by $6000.

Instead of their house falling by 18%, it's fallen by 45%. So, they now owe $466,000 on a house that might be worth $253,000.

Instead of their Loan To Value (LTV) being 113%, it's 184%.

And instead of being $25,000 "under water," they're $213,000 under water.

And instead of one of the two parents moving from full time to part time work, there were never two parents in the first place. The buyer's supposed husband was her real estate agent's brother.

And instead of one parent having a full time job, it was a NINJA loan -- No Income, No Job, or Assets.

Instead of the family making something like $58,400 annually when both parents were working, the one parent's maximum income when she is working is $11 per hour or $22,000.

And instead of 42% of income going to mortgage payments, 183% of monthly income goes to the mortgage (in theory, of course, since Family Si stopped paying during the second month of ownership). [Note: I'm just ballparking the monthly payment figures off the proportional difference in debt from Obama's Family C, so from here on the numbers are just guesstimated.]

Oh, and I forgot to mention, Family Si had already bought another house the month before and was planning to flip this one for a big profit.

  • Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that for five years will reduce their mortgage payment by $406 a month. After those five years, Family C's mortgage payment will adjust upward at a moderate, phased-in level.

So instead of the two year teaser loan that proved so disastrous for all concerned, Obama will give out five year teaser loans!



Existing Mortgage

Loan Modification

Balance

$213,431

$213,431

Remaining Years

27

27

Interest Rate

7.50%

4.42%

Monthly Payment

$1,538

$1,132

Savings:

$406 per month, $4,870 per year

Quite a deal for the taxpayers -- only $4,870 per year for five years or $24,350 to save Family C's ancestral manse.

Of course, for Family Si, it would take something like $33,370 per year for five years or about $166,000 total in handouts.

And then Family Si would still default after five years because even with the government handing them $166,000 of the $466,000 they owe, their house still likely won't be worth the balance.

The bottom line is that there isn't enough money anywhere to bail out the Family Sis in the Sand States. Geithner and Summers probably know that, but does Obama? It's hard to tell from his rhetoric, which promises the moon in terms of saving the economy, but then also promises to not bailout anybody but the most deserving. If he's not willing to bail out the Sand States' Family Sis, why did he go to Arizona (California Jr.) to give his speech announcing his bail out? If he's really only going to give out $5k per year, he should have gone to North Dakota to make his announcement.

My published articles are archived at iSteve.com -- Steve Sailer

16 comments:

Anonymous said...

The folks across the street foreclosed months ago. They recently returned to steal the appliances and fixtures. Their house cost more than $450,000, which is a ton in our crappy little neighborhood. In addition to the house, they purchased a new S-class Mercedes. Their jobs: line cooks at Applebees. Their ethnicity: from some Caribbean island. The color of their front teeth: gold. The color of their shoes: gold. The status of the rims on their car: big.

Anonymous said...

Karl Denninger says Obama's Chief of Staff, Rahm "IDF" Emanuel, has tax problems. Major f***ing tax problems.

Does Anyone In Obama's Administration Pay Taxes?

Still, citizens of the North American Union will be expected to take an oath to this man and "do jumping jacks" as part of the civil defense Obamacorps.

We have always been at war with Oceania!

Anonymous said...

Actually the government is going to buy Family Si's mortgage from the bank at 460,000 to recapitalize the bank for its hard working in making CRA loans. The US government will recoup its capital outlay by the mortgage payments made by Family Si. It is a hate crime to object to this.

Anthony said...

After 5 years of Obama and Bernanke inflating the currency, that house will be worth $500k or more. But those dollars won't buy what a dollar does today.

Anonymous said...

Keep in mind, this is not a bailout of the owners, this is a bailout of the banks. It transfers the banks' bad debt to the government, i.e. all of us.

Latest housing news from Arizona: median price for Phoenix area homes is now 130K, equal to the prices of 2001. 2001!!!

And WE ARE NOT EVEN CLOSE TO THE BOTTOM!!!

This, my friends, is deflation. Japan's real estate took a decade to sink to 90% of its peak value. We are already half way there, in just a over a year.

rightsaidfred said...

There was a lot of wasteful spending after the big WWII armament bill, and during one congressional hearing, an official said something to the effect of: "I was just signing checks, I wasn't paying attention to the amount."

eh said...

Stimulus/mortgage relief pooper.

jody said...

NINJA loans - i like it!

the south african style wealth transfer continues. white taxpayers, meet brown homebuyers.

hey steve, how about what US attorney general eric holder said today about race. makes you feel good about the future of the united states, huh? the most powerful lawyer in the nation looking to use the justice department as his own personal "racial correction" tool.

headache said...

Obama does not care about the economics of the situation. He is simply using tax money to secure his re-election. This fraud gets covered up using SWPL wording to con the self-righteous white morons. Somebody on these threads said Obama is already in the 2012 re-election cycle. I think so too. Republicans are bitching about bailouts and other nonsense whereas Dems are already campaigning for 2012. In spite of the WS meltdown, most SWPL’s are going to come out of this depression better than middle/lower-class whites. And then they can feel all moral about giving away the tax money of fly-over country. Blacks and Hispanics will feel supporting their man was a good decision, since by then even more money will have come their way. It’s the underlying principle of AA, and who would make a better expert than Obama?

headache said...

"And then Family Si would still default after five years..."

Note its 5 years. Mmm, the next election is in 4 years time. So that puts Obama safely over the top. I'm glad he hasn't yet planned to erase the term limit of the presidency.

Ronduck said...

If he's not willing to bail out the Sand States' Family Sis, why did he go to Arizona (California Jr.) to give his speech announcing his bail out? If he's really only going to give out $5k per year, he should have gone to North Dakota to make his announcement.

I read a few months ago in the AZ Republic that oil had been discovered in ND. A lot of good German and Norwegian farmers there had sold the mineral rights to their land decades ago to raise cash for the farm and were now having to deal with "non-English speaking foreigners" coming to their farms to pump oil. What state is the oil industry headquartered in?

There is nowhere to run.

Dutch Boy said...

Family C is Republican; Family Si is, well, you know.

Anonymous said...

This is the most depressing blog post I've ever read.

Whenever liberals get pissed off they say they're moving to Canada. Where can the rest of us go?

Tax Slave said...

Obama does not care about the economics of the situation. He is simply using tax money to secure his re-election.

He's trying. It's losing him a lot of votes, though.

Ronduck said...

Tax Slave said...

He's trying. It's losing him a lot of votes, though.

Maybe among Conservative, but has he lost votes among the Kool-Aid drinkers?

PrestoPundit said...

It doesn't matter whether Obama knows it or not.

Obama doesn't care.

That's all you need to know.