DawgTalkers.net Forums DawgTalk Tailgate Forum A Bailout, but with a Twist

http://www.charlotteobserver.com/406/story/409597.html

A bailout, but with a twist
By Christopher Skardon
Special to The Observer
Posted: Friday, Dec. 12, 2008
GU07PFG0.2

As Washington searches for a way to spend the remaining $300 billion to $400 billion of TARP funds, policymakers should consider an approach that directly empowers taxpayers to solve the mortgage crisis. It is commonly accepted that current programs are overly complex, unfair, and not reaching homeowners. The main goals of any new plan should be to simplify and broaden access to mortgage relief.

The source of the mortgage crisis is rapidly eroding home equity. As home values plummet, an increasing number of homeowners find themselves “under water” with decreasing incentives to re-build equity by staying current on their mortgages. There is a growing consensus, from the San Francisco Chronicle to the Wall Street Journal, that the government has thrown gasoline on the mortgage delinquency fire with its existing plans. Government “solutions” are creating a moral hazard, whereby delinquency is the only path to relief. As it becomes more “acceptable” for homeowners to treat delinquency as “opportunity,” irreparable damage will follow.

The HART plan

Rather than tempting borrowers not to pay their debts, the government should promptly give “Main Street” the ways and means to fix the problem. Friction caused by intermediaries such as government agencies, banks or mortgage servicers must be reduced. This can be done through a process already in place: individual income tax returns. Through what I call the Homeowner Assistance and Relief for Taxpayers plan, homeowners will be able to direct their income tax payments to pay down debt on their primary residence. The borrower would simply check a box on his federal income tax return and redirect his income tax payments from the federal government to his mortgage lender. The Treasury Department would make the payment on the borrower's behalf. HART would be broadly utilized and would increase fairness since any taxpayer could reduce his mortgage debt, and, in most cases, the means (money) would already be available due to payroll withholding.

HART is not a tax cut. Income taxes would still be paid at their respective rates. It is simply a reallocation of already collected or owed funds. It would benefit homeowners across all income levels. That said, those who pay higher taxes will receive a higher benefit. However, so this is not viewed as a giveaway to the “rich,” the total individual benefit could be limited by annual and cumulative caps.

HART is not a free lunch. Its sole purpose is to pay down mortgage debt. Its proceeds can only be applied to currently outstanding mortgage debt. Nor is it a gimmick to stimulate consumer spending or uphold living standards.

Resolving the mortgage crisis will require a lot of economic pain. The residential mortgage market is over $10 trillion, and potential losses are in the trillions. A loss of that size can only be absorbed on a socialized basis and can only be funded by issuing additional government debt. The costs will have to be repaid by this and future generations. By acknowledging this, we can at least focus on the cure, get the medicine directly to homeowners and prevent the situation from becoming worse.

What's the cost?

So how much taxpayer medicine is required and how long will the treatment be? There are approximately 48 million owner-occupied residences that also have a mortgage. The average household income is approximately $58,000 and the average gross federal individual income tax payment is approximately $7,225 (excluding FICA). If we assume that every “average” taxpayer/homeowner uses HART, the cost in 2009 would be approximately $350-400 billion. How long HART remains in effect is related to how much of an impact each annual installment has. It is safe to assume that one year won't solve the problem, but the benefit should be finite.

A plan that helps many

By directly addressing the mortgage crisis at its source, HART offers a potential cure to a complex array of problems:

Mortgage relief that benefits borrowers who are not delinquent will reduce the moral hazard of public assistance – the temptation to become delinquent – and reduce the absolute amount of distressed homeowners.

A fairer plan will broaden public support, which will facilitate the political process and expedite relief delivery.

Fewer delinquencies will increase the success rate and decrease the cost of other programs, such as FHA Secure and the FDIC's “IndyMac” plan.

Individual mortgage principal payments will “trickle up” to financial institutions and provide the financial system with liquidity.

Asset securitization will remain a viable source of future liquidity if more homeowners and institutions abide by their financial contracts.

Finally, and perhaps most importantly, HART will emphasize the importance of individual and shared responsibility. It is difficult to accept that current prescriptions for relief will have lasting effect when the disease has been defined in terms of “victimization.” Instead of relying on a passive government solution, each homeowner in America will be directly and mutually responsible.

A more engaged citizenry creates greater institutional accountability which, ultimately, is the best defense against this ever happening again.

Maybe it's just me, but I fail to see how me allocating my tax return directly to my mortgage company would help. I can already do just that on my own, and I don't need the fed to give me a box to check to pay my mortgage.

All this does is gives a person a way to pay it without writing the check. Nothing more, nothing less. I don't see what good this would do except lower the payments a little because the principal is lower (something that can already be done).

If I'm missing something, please enlighten me. But I don't see how this would reduce the mortgage crisis.

This isn't directing your "refund"....it is directing your PAYMENT

Quote:

---

Through what I call the Homeowner Assistance and Relief for Taxpayers plan, homeowners will be able to direct their income tax payments to pay down debt on their primary residence. The borrower would simply check a box on his federal income tax return and redirect his income tax payments from the federal government to his mortgage lender. The Treasury Department would make the payment on the borrower's behalf.

---

So in effect instead of the Government giving these mortgage companes 300-400 million and your mortgage not going down except for what you put into it. The government gives the mortgage companies 300-400 million and your mortgage goes down by the amount of your taxes paid plus what you put into it.

So the average person gets say 1-2k tax refund, that's what 1 maybe 2 payments for most people?

I'm with keys, I don't see how this is helping anything. They take my refund and pay the mortgage company. Or they can send me the check and I can pay the mortgage company.

I think you're misreading that Pete. The only payments that the Federal Government makes to me is the check cut Feb 21st (I file early) that refunds to me any taxes that I have overpaid.

The article isn't clear on which way it wants to go, but I can pretty much gather from the context that it is NOT talking about redirecting my income taxes to my mortgage company.

Its NOT THE REFUND....

Its is what YOU PAY IN TAXES

so if you make 52 K like in the example in the article...you most likely pay about 7K-8K in taxes...that 7K-8K would then go to the mortgage company and not to Uncle Sam...or at least a certain portion....

It is not what the Government pays to you....(the refund isn't a payment anyway...it is your money that they are returning to you) It is what YOU pay to the Government....

Yes it is talking about taking YOUR PAYMENTS to the government. And it is redirecting them from the government to the mortgage companies....

The government does NOT make tax payments to ANYONE....you are confusing tax return with tax refund.

Quote:

---

The government does NOT make tax payments to ANYONE....

---

Except in the form of a stimulus package or a welfare check.

That is how I read it too Pete when I posted...

Instead of the government cutting a check directly to the mortgage guys out of tax dollars KEPT by the government (not our refunds), the government cuts the check to the mortgage guys on our behalf that comes off our mortgage. The mortgage guys don't get the complete free lunch. Unless I missed something, there's details lacking..like how much of the Billions was my tax dollars?...would it be enough to reduce my mortgage payment by $50...$100...2 bucks?

DOH!!!

Holy crap.... I'd be all over this if it came to pass.

The ability to have all the money I pay in taxes in a year get credited to my mortgage - and still pay my mortgage - that would put me so far ahead after just one year that it's crazy. 10 to 12 extra mortgage payments in a single year... that would ROCK.

Why?

Aside from being able to pay off my mortgage earlier, I can actually then have all that tax money I paid as equity in my home, that I could then borrow against to improve my home, or buy a new car at a decent (and deductible) interest rate. For once in my life, every penny I pay in taxes would ACTUALLY be put to work for ME.




I love this idea... it would do SO much more for putting money back into the economy than any idea I've seen to date.... alas it will never come to pass

I'd be all over it to.. not sure why anybody who had a mortage wouldn't participate..

Quote:

---

There are approximately 48 million owner-occupied residences that also have a mortgage. The average household income is approximately $58,000 and the average gross federal individual income tax payment is approximately $7,225 (excluding FICA). If we assume that every “average” taxpayer/homeowner uses HART, the cost in 2009 would be approximately $350-400 billion.

---

Is $58K the average income strictly for homeowners with mortgages? Or is that the average income of everybody?

That would be awesome. Interesting idea!

Yeah... an idea for bailing out the mortgage companies that DOESN'T hurt the little guy... hence why it'll never gain traction

Quote:

---

I think you're misreading that Pete. The only payments that the Federal Government makes to me is the check cut Feb 21st (I file early) that refunds to me any taxes that I have overpaid.

---

I think you missed the point on this keys,,

WHat HART does is allow you to redirect any taxes you owe on your income directly to your mortgage.

For instance,, if you made 58000 last year and your federal income tax was 7200, instead of paying uncle sam, that 7200 would go directly to your mortgage thus reducing your overall debt,

So I gather a person/family would make thier house payments as usual, and as an additional payment, they would be the benefit of all thier fed tax reducing thier principle.

Quote:

---

Is $58K the average income strictly for homeowners with mortgages? Or is that the average income of everybody?

---

i would assume its the average income of people with mortgages....the 48 million....


so, correct me if i'm wrong, the gov't would be paying my first 7,000 of my mortgage payments? Then i'm responsible for the rest?

i'll assume that i would have to continue paying like i am now...or are they just freeing up 7000 from everyone to go spend?

so this would enable people that are behind on there mortgages to in essence "catch up" and people that have been paying there mortgages would go along with it because they can pay down their mortgage too....

only problem i can see, is that the people that are in default, or behind....can't make payments for a reason.....they are either too high, or they lost there jobs....so in effect, the gov't would be paying there morgage....they stay in there house....but don't have the means to catch back up....or they just blow the cash, because the gov't giving them a free house....why even catch up?


i suppose its a noble idea....and it helps people that are keeping up with their mortgages, but dang...thats another half trillion that the gov't is gonna need to borrow or print....

at some point this insanity is gonna catch up with us..

FYI,, just because I think I understand it, doesn't mean I think it's a good idea..

First off, what happenes to Social Security.. what funds it if all the tax dollars go to mortgages.... or are they saying that the portion of your Federal Tax that goes to SS will not ge going to your mortgage.

And what about people who dont own their house? So if I am undrstanding this right, people who own their homes would have a portion of the taxes they pay go directly into their mortage. So in essence they are keeping their tax dollars(in their home values and equity) but people like me who rent get nothing?? I pay my taxes just like anybody else.


KING

First of all, this thin won't ever make it. It will never happen.

Secondly, it's interesting to hear a non-home owner chime in. Seems unfair, doesn't it, that there might be a plan out there to help home owners, but not renters.

Seems odd to me that people that work and pay taxes get shafted over and over and some of the tax money goes to people that work and DON'T pay taxes, doesn't it?

Seems odd that people that don't own property are allowed to vote on property tax increases, doesn't it? (yeah, I know eventually the landlords raise rent if property taxes increase).

A lot of things seem odd in this country. Your post proves it.

Too many people have a "what do I get out of it" mentality. And if they get nothing, or not as much as the next person, they are against it.

Fusion Magazine. I'll try to link to it tomorrow. If I can't link to it, I'll at least scan the article in. There are some pretty darn interesting facts in there this month.

This is a fascinating idea to me. When I read this earlier my gut reaction was "that's a terrible idea". Then I started to think about it. And if it is done over a short term (say 3-5 years at the absolute longest) it makes a TON of sense. Afterall, we are paying these Wall St. companies $1 trillion anyway, why shouldn't "Main St" get something out of this?

What's intriguing is that this would theoretically act as both a financial industry bailout and an economic stimulus package. The taxpayers would gain a large amount of money that would likely either pay towards the mortgage companies (a good result as they would hopefully recover faster) or spend into the economy (which will then be taxed, pay wages, be taxed again, lather-rinse-repeat) which would theoretically increase tax revenue.

Obviously the renters don't directly get anything out of it. Of course they aren't watching their property values depreciate underneath themselves but they are paying for the financial industry bailout we are now. This takes them mostly off the hook. Their tax moneys would then go to paying for the same government service they are paying for now.

And this wouldn't touch Social Security because that comes out of a different pool of you taxes (before they sell the surplus to the Fed for bonds into the general fund, but that's another issue). Fed taxes would be the only thing credited/forwarded to the mortgage companies.

Of course the financial industry wouldn't be in favor of this because then the fraud that it was mortgage failures that caused all these problems would be exposed (it was the multiple bets against mortgages that caused the problems). But upon analysis it looks like a good idea, so you can expect it to die a lonely death on Capitol Hill.

Quote:

---

Kinda sucks to be a taxpayer, doesn't it? Sucks even more if you are struggling to pay your own mortgage and the gov't says "hey, we'll help the people that are behind on their mortgages". Kinda ticks me off, honestly. Perhaps I should get behind on my payments and let you other taxpayers bail me out.

---

which is exactly what a ton of people will do if they only help out those that are behind........

anyone could easily just keep there mortgage payment in the bank....become late.....file for whatever plan the gov't comes up with to help homeowners in trouble....and get there payments for free anyway....


one thing i did notice about this plan, is that it doesn't bail out the speculators...

but like you said.....its a pipe dream.....the gov't hasen't come up with a good idea, in a long while....

Your property taxes pay for the school because that is a part of the community you live in. Whether you have kids in that school or not is besides the point. It is a community service, whether you use it or not. Its there for you if you need it, and if it is a good one, it is good for your property value, beause it is a asset to the community. You may never need the police at your home(hopefully) but you still pay for poilice(in some form or another) as a community sevice.I pay rent to a landlord, he pays a mortgage,and taxes, so whether it is a direct payment or not. The house I rent, the rent I pay, goes towards property taxes just the same as yours. I pay local income,stateincome, federal income taxes, just the same as you do. My kids attend the local school, I have just as much interest in those schools as anybody else in the community, whether I own the house and property I am in or not. Also looking at the big picture, in the future I will own a home in this community so my vote on property taxes counts just the same as anyones, as it should.

Also, in my original post. I should have stated it a bit different, I didnt mean to come accross as being selfish. I understand the mortgage thing, I owned my home on the west side of Cleveland until this past june. We wanted out of the city, and the neighborhood. The nice little working class neighborhood had steadily went downhill in the eight years we were there,a lot of that because of the foreclosure crisis. We ended up losing everything we had paid into the house because property values had declined so much because of the glut of houses on the market. We had a choice, stay in the house and be stuck in a losing deal, or sack up, let the house go for what we owed on it, rent a house in the little country town we wanted to be in until financially we can afford another house here in the country.

Like you said though, it is all kind of pointless, because there is no way the bearucrats are going to give up control of OUR money.


KING

What I think is that everyone should pay the same percentage. In your example, someone making 200K would pay 20,000 and someone making 20,000 would pay 2,000.

Which is why I am a HUGE supporter of the fair tax

But, I would certainly love to have this "taxes to mortgage payment" too!

agreed.

I'd dive all over this like a starving man on a steak.

5 years of this would pay off about 65% of my mortgage balance ..... and cut my remaining term by over half.

Never happen . Besides ... that massive loss of interest would somehow "cripple" the banking industry, and then we'd hve to re-bail them out ......

well like it or not....it makes a heck of a lot more sense than TARP did...and it does get the money flowing towards the real problem....its not THE real problem....but its part of it....

TARP did noting to help with forclosures....it did nothing to free up credit....all it did was repair the balance sheets of a bunch of companies that didn't deserve it...now they are sitting on the cash....

a plan like this, does help with forclosures, and repairs the balance sheets of people that were "doing it right" also...maybe we should get to repair our balance sheet also....after all its our money that they fixed the banks with...

its like a temporary tax cut, but they are keeping control....


and as far as the banks losing intrest....they are gonna lose it all on forclosed houses....

couple that with the fact that many would probably use the money to pay down other debts (like credit cards) or spend it.....in the end all the cash goes back to the banks.....

its not like its worth saving these days....

Quote:

---

And what about people who dont own their house?

---

This wouldn't help you at all on a personal level. But I would think that if it turned out to be good for the economy in general, you would benefit from that at some point. Still doesn't mean it's right..

If I have this right, this is an attempt to help those that are in thier homes upside down. Meaning, they owe more than they are worth.

So, again, if I have this right (and there is no reason to believe I do) if a person/family owns a home with a principle owed of 250k. But, the value based on appraisels and home sales in the area has caused your home to drop in value to say....200K. This plan would assist you with that. it would help you get some of that 50k difference back.

Not saying it's right or wrong.. but I think that's what the attempt is.

OK king..how about looking at it this way....

Right now we are giving the mortgage company 400 billion dollars...that is you, me, and everyone. We are ALL paying them.

Under this HART plan...the mortgage companies still get their 400 billion dollars but it is ONLY the homeowners that will be paying it....

Quote:

---

Under this HART plan...the mortgage companies still get their 400 billion dollars but it is ONLY the homeowners that will be paying it....

---

I suppose that's true, but that money that isn't going into the country coffers has to be made up somehow right... So in order to make up for the money the Government doesn't get in tax revenue,,, we, the taxpayer have to pick up that tab as well.,.,.

SO while you may be correct,, you aren't!

Thanks for clarifying Damanshot. I get the idea now. And if it was put in over the short term, i would agree that it would probably help loosen the credit and home crunch. I only see it really being effective if done over 1 - 3 years at the most. Otherwise it would lead to greater problems. But like others have said, won't happen unfortunately.

You are welcome and Happy Birthday Keys..

I don't know if this plan would actually work.. Think about it,, how many years would they need to have it in effect to make a significant difference.. I gotta believe 4+ years would be the minimum and that's a hell of a long time to go without replenishing those tax dollars...

So, while some might find it to be a good plan,, based on the very very little I know of it, I can't agree...

But then,, that's just me I guess.

Thank you. =)

In the article it says that one year would have a $350 B - $400 B net effect. So if you take that and extrapolate to 3 years it would in effect be $1 Trillion to $1.2 trillion. Right about what they are projecting for the current bailouts (prior to anything for the Auto and whatever industry tries for the next one).

well if they take my tax payments and apply them to my mortgage, who's going to pay to run the government, we are already way over budget.

Quote:

---

However, if everyone that has a mortgage is allowed to have their tax money go towards the mortgage (which would be fantastic), where does that leave the gov't. as far as tax receipts? Answer: our national debt goes up by exactly the same amount.

---

Very true.... but with a significant difference.
In the current plan, the money goes direct from the Gov't to the lenders and all the outstanding debt out there stays there... the only thing that has changed is that the mortgage companies/financial institutions have more cash on their bottom line. People carrying lots of debt are still carrying lots of debt and properties carrying a massive loan against a deflated value are still just exactly that (and this is a HUGE part of our current problems... due to the use of derivatives: a bank lending "x" amount based upon having a property of "y" value to back the loan... when "y" dropped in value though, the bank could no longer back "x").

However, pay that money to the lenders in the form of credits to each person's primary residence's mortgage and the debt for each person is reduced. The degree to which homes with deflated values are overmortgaged is reduced and the people that do the borrowing as well as the people that do the lending come out way ahead. People have equity in their homes (or are just able to make a home payment that they couldn't make before)... people that are then healthy enough are able to borrow against that equity for a car or to fix up their home to improve its value, or whatever, and that money then gets shifted back into the system yet again. It makes WAY, WAY, WAY more sense than any current bailout or financial aid proposed to date.

Quote:

---

First off, what happenes to Social Security.. what funds it if all the tax dollars go to mortgages.... or are they saying that the portion of your Federal Tax that goes to SS will not ge going to your mortgage.

---

Income tax and Social Security are not the same thing and are totally separate. I would think that they are talking about only your Federal income taxes.

Quote:

---

And what about people who dont own their house? So if I am undrstanding this right, people who own their homes would have a portion of the taxes they pay go directly into their mortage. So in essence they are keeping their tax dollars(in their home values and equity) but people like me who rent get nothing?? I pay my taxes just like anybody else.


KING

---

Your tax dollars are going to bail out failed mortgages everywhere right now as it is.... how would this be any different? If what we're looking for is something that is fair for all... well, that'll never happen, but perhaps they can set up Savings accounts or something for non-homeowners.