Those poor people in million dollar homes

Barack Obama will be sending welfare checks to people living in million dollar homes.

March 4 (Bloomberg) — The U.S. Treasury released new eligibility guidelines for homeowners seeking federal aid that will allow troubled borrowers to lower their mortgage rate to as low as 2 percent.

The rules released today require applicants to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” the Treasury said. People living in their homes who have an unpaid principal balance of as much as $729,750 can participate.

So say someone lives in one of these million dollar (well, technically $729,750) homes. Mothly interest payments on a 30-year, 7% mortgage are $4,855.04. But as I understand Obama’s plan, it will loser those payments to $2,697.30.

Under Obama’s plan, some people living in million dollar homes will receive the equivalent of $2200 a month in welfare checks.

As I said, only fools pay their mortgages and only fools bought homes they could afford.

4 thoughts on “Those poor people in million dollar homes”

  1. The cap is 31% of gross income, so my hunch is that relatively few low-income owners of million-dollar homes are going to be eligible for help here.

    Also, in 2006 Bernanke opened Greenspan’s dusty desk drawer and implemented the unused authority to regulate exotic subprime. I think a large percentage of the low-income buyers of million-dollar homes have already gone through foreclosure – between 2006 and 12.31.2008 4 million homes have gone into foreclosure. So a lot of the true weaklings have been shaken out of the bush.

    Property taxes and insurance, which have to included in the 31% test, on a million dollar house leave little room to help low income people.

    Say you have a San Francisco couple who have a mortgage balance of 729,850 on a 20% down deal. When they purchased the home one partner made $75,000 and the other $350,000. You can’t really argue that these people bought a house they could not afford. Now say the higher-paid individual is diagnosed with a crippling disease and ends up on 50% disability income from an insurance company. They can argue financial distress.

    Their new gross income would be 250,000. 31% X 250,00/ 12 = 77500. Assume their property tax is 20,000 and their insurance is 4,000 (wild guesses).

    2000
    4855
    ——
    6855
    ——
    X12
    ——
    82260
    ——-
    (77500)
    ——-
    4760
    ——–
    /12
    ——–
    $396 – monthly welfare for million-dollar home owner
    =====

    Also, if the numbers I’m looking at are correct, 729,000 is not too far from the median price for a home in San Francisco. I think the vast majority of the people who will benefit from this will be owners of homes that are close to the median price.

  2. To be honest, I don’t think the couple in my example would qualify for help, but the explanations of the programs so far leave a lot of open questions. The bank has to agree to take them 38% with their own concessions. It can’t do that in the above case. They’re already below that.

  3. sonofsamphm1c,

    Thank you for your calculations. They are clarifying.

    Have you heard of any calculations establishing a table of these welfare checks? I would be interesting to see, but I think you are more involved in this world than I am.

    I think your identification of those individuals who sufffer catastrophic, unexpected, innocent losses (they, through major health care costs) is important. It makes this bail-out program all the more tragic, as it is aimed at real estate speculators and sentimental home-owners, instead of helping individuals who actually face, say, catastrophic medical costs.

    Purpleslog,

    What is more disturbing is all the opportunity costs of these funds — these checks could be used to pay for health care payments, improved urban rail, even more F-22s! Instead, Obama’s trying to inflate a tire through the puncture (to use Krugman’s analogy) and bailing out a bubble.

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