SEARCH BLOG: OBAMA
"It’s time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts."From the State Of The Union address:
"That’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust."Just a point here. If your home value is more than the mortgage, that means you probably bought your home in the 1990s or earlier. If you bought your home sometime during the last decade and have been a "responsible homeowner", e.g., paid your loan payments on time each month, you won't qualify because you are "upside down" ... your home is presently worth less than the mortgage. We all have a friend or relative in that position and know how difficult it is to be stuck in that situation.
It forces the bank to take less compensation for what is now a risky investment and not their fault... the government rewrites the loan contract... writing a NEW LOAN, in effect [a homeowner bailout]. I presume the banks will say "Thanks, but no thanks. Show me the money."
Or, the government will have to guarantee the loan repayment in full to compensate the bank for the receiving less money [lower interest payments] for an unsecured risk which is not something that any taxpayer in his right mind would propose. Besides, writing new loans with large amounts of unsecured risk might create a situation that is against the law, unless my understanding is faulty.
The standardized requirements in place for banks and other depository institutions, which determines how much capital is required to be held for a certain level of assets through regulatory agencies such as the Bank for International Settlements, Federal Deposit Insurance Corporation or Federal Reserve Board. These requirements are put into place to ensure that these institutions are not participating or holding investments that increase the risk of default and that they have enough capital to sustain operating losses while still honoring withdrawals. Also known as "regulatory capital". [source]If the banks' capital is sufficient to cover the rewritten loans, it may very well prevent the banks from approving new loans because their lower revenues from the old loans reduces their future capitol reserves... and difficulty getting new loans is already hampering the recovery.
H/T Townhall Finance