Finance Lesson

The other night Councilman Cawthra made the statement that there is no difference in what Keller is doing in refinancing its TIF bonds than a homeowner refinancing a house to pay off a car or pay his bills.  My response on the blog was that this is the very reason why this country is in the shape it is in, too many people taking out money in a refinance and when the house value drops, they walk away.

Well, today this article appeared at Bloomberg:

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months

Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.”

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

This will be the second time the City of Keller has had a “loan modification”, this time it will cost us $2.7 million in extra interest.  The City Council needs a Dave Ramsey course….maybe we can all go together and pay to send them.

Keller couldn’t afford the TIF when it was instituted, that is why they had an escalating repayment schedule.  They couldn’t afford the TIF in 2005, that is why they had to refinance it then, still with escalating payments.  In 2010, instead of either using reserve funds and/or cutting the budget, they are going in for another modification of their loans pushing their debt out another 10 years, hoping this time will be the last. 

How is this any different that what is going on in this story?  The only difference is the Federal Government is bailing out these homeowners, while the Citizens of Keller are bailing out the TIF….once again. 

Too bad we can’t just walk away.


Comments are disabled.

%d bloggers like this: