Wednesday, February 18, 2009

The Housing Bailout

by Bill McBride on 2/18/2009 01:49:00 AM

From Daivd Leonhardt at the NY Times: A Bailout Aimed at the Most Afflicted Homeowners

The long-awaited housing bailout will finally be announced on Wednesday.

[T]he key to understanding that plan will be remembering that there are two different groups of homeowners who are at risk of foreclosure.

The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments.
...
The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater.
...
The administration is betting that few of those 10 million underwater homeowners will walk away. ... If they begin to abandon their homes in large numbers, however, they will aggravate the housing bust ...
The details of the housing bailout should be available tomorrow (who qualifies, etc.). I'm not sure why the government is bailing speculators (aka homeowners) who bought homes they really couldn't afford during the housing bubble.