Cutting mortgage principal could ease crisis

What the HELL is Ben smoking? Give money away faster as long as it isn't yours.
 
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How would a person qualify? I have a mortgage, and would like to see the amount I owe reduced.
 
From the link:

On the idea of cutting mortgage values, Bernanke said, "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure. "

With low or negative equity in their home, a stressed borrower has less ability — because there is no home equity to tap — and less financial incentive to try to remain in the home, he said.

Isn't "tapping" home equity one of the things that got these people into trouble in the first place? Sheesh...
 
Its finally true. We're suckers for avoiding unnecessary risk and making financially prudent decisions.
 
Yeah, I want a piece of this ... how long do I need to not pay my mortgage?
 
Sign me up. I can probably skip a couple payments and default on a few credit cards if necessary.
 
Yay! They're going to be giving away free money!

From the bank's perspective it might be a wise business decision. If they made a bad loan and the borrower is upside down on it, the bank might cut their losses by writing off some of the loan instead of eating the expenses of foreclosing and selling the property.

But still, it irritates the hell out of me. Why did I bother to live within my means?
 
Walt34 said:
Yay! They're going to be giving away free money!

From the bank's perspective it might be a wise business decision. If they made a bad loan and the borrower is upside down on it, the bank might cut their losses by writing off some of the loan instead of eating the expenses of foreclosing and selling the property.

But still, it irritates the hell out of me. Why did I bother to live within my means?
Click to expand...

what do the MBS trust contracts say about this?
 
crazy connie said:
What the HELL is Ben smoking? Give money away faster as long as it isn't yours.
Click to expand...
I think Ben has realized that this a lot more convenient than pitchforking bales of cash out of helicopters.

This reminds me of a Jim Carrey character on "In Living Color": "Ah'm followin' his plan to win the lottery and retire, and Ah'm already halfway thayuh-- Ah just quit mah job!!"

I'm gonna go out and get TWO mortgages...
 
My2 cents have been sent to the Feds at Federal Reserve Board: Contact Us

Mr Bernanke is quoted as suggesting lenders forgive/reduce principal on mortgages. This is totally without merit. Should the lenders do that, it only shifts the burden to intelligent taxpayers who save and invest. Why should we be penalized once again for doing the right things. Why should those who overextend themselves be given free money? This does not stabalize the economy in the long term at all.
When do we stop encouraging bad behavior of the individual? A stable economy will not be gotten without pain. Why should the pain be on those who have done the right things?
As a recent retiree I know a bit about the markets. Every time my portfolio drops 100K I lose 4K a year in purchasing. Why should I have to bear that loss and pay taxes on bailouts for fiscally irresponsible individuals as well as the lending industries loose policies. Where are/were the controls for this fiasco which the government condones?
Please STOP giving debt from irresponsible individuals to me as a tax payer!
 
Can we just call the mortgage co and ask them to reduce the interest:confused: BF's interest is at 5% I think. Can he get it lowered?? :)
 
Yes, yes, the world isn't fair because you aren't in danger of foreclosure. What an injustice!

Really, this is about pragmatism. Imagine you are a bank holding a mortgage that is now at 120% LTV. Your borrower gets a couple months late on t heir paments, but they live in the house and want to stay there. You could choose one of two paths:

1) Spend months and thousands of dollars foreclosing, wind up with a trashed house that sits empty for more months, helps depress prices of nearby homes (some of which you hold the mortgage on), and finally sell the house for maybe half of what you were owed (if you are lucky). During all that time, you get no interest on the loan.

2) Contact the borrower, make sure they want to stay in the house and are willing to keep paying, and cut them a deal. Maybe you reduce the loan amount by 25% and lower the interest rate by 2%.

Which one does less damage to the bank?
 
if the bank holds those mortgages, they will have to write down the value of them and may have to raise capital to be within FDIC regulations and have to pay more interest on the money to attract it
 
Many people who HAVE the ability to repay are upside down and are simply walking away from their mortgages.

So you cut the principal 25% on an upside down mortgage and give them an equity position.Unless we bottom out in the near future,it's can be a matter of months and they're flat to upside down all over again.

Back to square one.......
 
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and if you do cut the principal, what does it do for appraised values? do you continue to accept appraisals for the area that are higher than the new principal?
 
al_bundy said:
if the bank holds those mortgages, they will have to write down the value of them and may have to raise capital to be within FDIC regulations and have to pay more interest on the money to attract it
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Do you have any idea of how bank regulatory capital works? Or do you just repeat what you think you heard on CNBC?
 
If you cut the principal, do you still pass along a poor credit report to the various agencies? Say, report that the borrower caused X amount of bad debt to the bank.......

If in five or ten years real estate has reversed and the home is now nicely valued ref the original mortgage principal amount, would the borrower owe some or all of that to the bank or would it simply result in extra profit to the borrower when he sells?
 
youbet said:
If you cut the principal, do you still pass along a poor credit report to the various agencies? Say, report that the borrower caused X amount of bad debt to the bank.......

If in five or ten years real estate has reversed and the home is now nicely valued ref the original mortgage principal amount, would the borrower owe some or all of that to the bank or would it simply result in extra profit to the borrower when he sells?
Click to expand...

I'd imagine that your credit report would take a hit, especially since the borrower was probably late already. I'd also imgine that any profit would revert to the borrower. I have heard the idea of "negative equity certificates" floated, but I doubt we will see it come to pass. Frankly, the bank will probably hope the borrower straightens up and refis to someone else's balance sheet.
 
brewer12345 said:
Really, this is about pragmatism. Imagine you are a bank holding a mortgage that is now at 120% LTV. Your borrower gets a couple months late on t heir paments, but they live in the house and want to stay there. You could choose one of two paths:

1) Spend months and thousands of dollars foreclosing, wind up with a trashed house that sits empty for more months, helps depress prices of nearby homes (some of which you hold the mortgage on), and finally sell the house for maybe half of what you were owed (if you are lucky). During all that time, you get no interest on the loan.

2) Contact the borrower, make sure they want to stay in the house and are willing to keep paying, and cut them a deal. Maybe you reduce the loan amount by 25% and lower the interest rate by 2%.

Which one does less damage to the bank?
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All that makes perfect sense. And, I'm sure the banks see it that way, too--they want to do everything they can to lose as little money as possible in the current situation. So (forgive my ignorance)--what business is this of Mr Bernanke? Does he believe that he and the Fed are smarter than the banks, and that they haven't thought of this already?
Maybe the FDIC insurance or other regulatory issues put this into the Fed's area of interest. But, somehow when the Fed gets involved with "helping,' the next thing that happens is that hand of the feds slips into the pocket of those who lived responsibly. (Or sometimes they don't use their hand--or a pocket).
 
samclem said:
All that makes perfect sense. And, I'm sure the banks see it that way, too--they want to do everything they can to lose as little money as possible in the current situation. So (forgive my ignorance)--what business is this of Mr Bernanke? Does he believe that he and the Fed are smarter than the banks, and that they haven't thought of this already?
Maybe the FDIC insurance or other regulatory issues put this into the Fed's area of interest. But, somehow when the Fed gets involved with "helping,' the next thing that happens is that hand of the feds slips into the pocket of those who lived responsibly. (Or sometimes they don't use their hand--or a pocket).
Click to expand...

Ummm, the Fed regulates the banks, dontchaknow. That makes it their beat.
 
I will float my own proposal: instead of writing off a write down the bank should take an equity position in the house equal to the reduction. When it is sold the mortgage is paid off and the balance is shared with the home owner and the bank.
 
Its finally true. We're suckers for avoiding unnecessary risk and making financially prudent decisions.
Click to expand...

I dunno about that -- I think a lot of us have benefited from other people's unwise borrowing. For example, the speculation caused my buy-and-hold rental property to shoot up in price, at which point I changed course and sold it to lock in gains. So all those folks who ran up the market did me a favor, in some sense. My having saved and spent wisely didn't make me a patsy -- it put me in a position to take advantage of circumstances when they presented themselves.

Most of the people on this board are the same -- their prudence has bought themsomething intangible but very valuable -- the ability to govern their circumstances vs their circumstances governing them.

This may be more than the debt-strangled folks trying to save their homes will ever be able to say.

Another way I'm thinking about it -- if the folks struggling to save their homes are getting such a windfall, would I trade places with them to get the same? Hell, no!

I think brewer's point about minimizing damage to the bank works for us as individuals, too. If we let everyone go down in flames our neighborhoods will suffer, our property values will sink, etc. etc., and that's not good for any of us. So I hope a lot of these people do get saved.

So long as I'm warm and dry and well-fed I'm resolved not to spend a lot of time worrying about the prodigal son.
 
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