Unsurprisingly, upon further review, the Bush mortgage bailout plan is only meant to keep mortgage bankers afloat by preserving the loans, it’s not intended to help people keep their homes in any way, shape or form:
Every word in the proposal is intended to maximize the net present value of recoveries, nothing else…. Scheme Part 1: Say the subject property was valued at $100,000 with an 80/20 financing package in place. Now the property is worth $90,000. Using only the 1st lien, the LTV is only 88.9% ($80,000/$90,000), far below the 97% LTV. The idea is to get these suckers (borrowers) to refinance into one of those FHASecure while the 2nd lien holder agrees to subordinate to a new 1st. The old securitized 1st is now home free with a FHA/government bailout while the 2nd, though still in an over-encumbered position, has just received a reprieve. How brilliant.
Scheme Part 2: If the property has dropped to approximately $83,000 or below, then Scheme part 1 is not feasible. So it is best to keep this borrower paying in a 120%+ CLTV property. As you can see, with the property value so low, they know with certainty that a default would be a total wipe of the 2nd and a severe loss to the 1st.
This two part scheme assures that there are no crumbs left on the table for the borrowers. In summary, regardless of its devious intent, this bailout plan will not work.
The greed and shortsightedness of the financial predators is truly astonishing. Even animals usually know better than to ruthlessly wipe out the prey that sustains them.