Do you want to pay for the Sub-Prime freeze?

[ERD50]

Originally Posted by brewer12345

So, Armor, you don't use public roads? Think the military is an abomination? Can't stomach the thought of clean air regulations, drug purity standards, etc.?

I think this is not the thread for another "Atlas Shrugged" diatribe.

I think it goes hand-in-hand with a thread about 'should we pay to bail out xyz'. Not off-topic at all, IMO.

The other govt services you mention would be supported by all but the most hardcore - and they are already living in cabins in the mountains. The phrase, ' provide for the common defence' is in the Constitution. I think the problem stems from that vague line in the Constitution 'promote the general Welfare'.

So, is bailing out people who took on too much/risky debt 'promoting the general welfare'? If it helps smooth out an overall recession, maybe it is? OTOH, if it ends up encouraging risky behavior, because there is always a safety net, then maybe it isn't?

I don't know enough of the details to know which way to 'vote' on the issue, but my general feeling is that bailouts create more problems in the long run. But I'll hedge that, and say that there are exceptions.

-ERD50

edit/PS - sorry, did not see there was already discussion on starting another thread - hope this does not step on any toes, JMO

[deserat]

The pony - from my individualistic viewpoint -thank goodness I'm not someone who is in the position of having taken a second mortgage to pay for my SUV and HD TV - thank goodness I am near to having a paid for roof - thank goodness I don't want an SUV and HD TV (spouse may argue about the second one, but we will wait until the TV market settles down) - thank goodness I decided that retiring early was a goal and redirected my effort in money management and lifestyle management towards that aim allowing me to muse about this 'mess' and become educated without having the flames scorch me.

Very interesting thread, though - sometimes when systems decouple too much and don't understand their impact on interfacing systems, you end up with undesired consequences - reminds me of the middleware guys telling me I just need to upgrade the input and output sides to get advantage of their middleware system -hmm, it costs more to upgrade the input and output sides to meet your middleware requirements - perhaps another middleware guy is the answer ;-)

[emilylynn]

I have a novel idea. Relax the standards for piercing of the corporate veil, and let the individuals who designed and profited from this fraud take their licks along with the affected homeowners. I don't much care how the losses are allocated so long as they are not once again foisted off on the general public.

[emilylynn]

In case you didn't already know that a taxpayer bailout would be forthcoming, here's the first:

"Today, we are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinancing," Paulson told a housing conference sponsored by the Office of Thrift Supervision. "If enacted, this would reduce the cost of innovative mortgage programs."

Paulson outlines mortgage-aid plan - Yahoo! News

[brewer12345]

Originally Posted by emilylynn

I have a novel idea. Relax the standards for piercing of the corporate veil, and let the individuals who designed and profited from this fraud take their licks along with the affected homeowners. I don't much care how the losses are allocated so long as they are not once again foisted off on the general public.

What on earth are you talking about? Only fraud I am aware of is borrowers lying about their income and occupancy status in order to get a loan they shouldn't have.

[Payin-the-Toll]

Jeez--what's the big deal. I keep seeing the streamer on Fox News that 97.4% of all mortgages are being paid on time. So if a small percentage of the 2.6% that don't actually pay on time default, could it really be that bad?

[tryan]

My guess is any government "bailout" will come in the form of "bailing out" Freddie and Fannie.

The dreaded private sector will have to sink or swim on thier own merit.

Several analysts asked the executives in the conference call why the company couldn't disclose what proportion of high-risk mortgages it is able to refinance into fixed-rate loans and save from default.
"The problem is that we don't have the underlying information," said Credit Suisse analyst Moshe Orenbuch.
Another analyst said in a report that Fannie's new calculation method is similar to that used by Freddie Mac, its smaller government-sponsored sibling, which also suffered a multibillion-dollar accounting scandal several years ago.

Traders wary of Fannie Mae's mortgage math - Mortgage mess - MSNBC.com

[emilylynn]

Originally Posted by brewer12345

What on earth are you talking about? Only fraud I am aware of is borrowers lying about their income and occupancy status in order to get a loan they shouldn't have.

How about the lenders who knowingly inflated borrowers' qualifications, who obtained overblown appraisals, and who intentionally assumed risks that never would have been deemed commercially reasonable had it not been for the fact that these loans were destined for the securitization pipeline? How about the Wall Street wheelers and dealers who couldn't get enough of these loans and who tacitly approved and encouraged the practices of lenders? Or the bankruptcy-remote special purpose entities who, in concert with the lenders, managed through some feat of financial alchemy to package a single loan into multiple securitization pools? How about the ratings agencies who slapped AAA ratings on the resulting securities? How about the mainstream bond and money market fund managers who used this trash to boost returns, unbeknownst to the individual investor? This was a multi-layered fraud the success of which was attributable to the fact that when the whole thing blew up, it would be somebody else's problem.

[brewer12345]

Methinks you aren't all that familiar with the machinery of the mortagge market that has developed over the past few decades. And oddly enough, I heard very few complaints as the housing market rocketed upwards, fuelled by all this cash.

FWIW, the people who made the lousy loans have either gone bust or nearly so; those who bought the trashy paper wish they had bever heard of this stuff; teh rating agencies are awaiting a replay of the Congressional ass-whipping session that followed the implosion of the junk market in '02-'03; and everyone else involved has suffered plenty. I think the remedies being proposed are being offered with the intention of limiting the damage to the wider economy, which seems reasonable to me.

[TickTock]

Originally Posted by Retire Soon

When home prices drop 20% in some areas and people are upside down on their mortgage anyway, with huge payments and rental prices going down, many will elect to walk away from their mortgage responsibility. What will they have to lose, but bad credit for 7 years?

I can't locate the MSN Money article right now, but apparently the loan owner can stick you with a 1099 showing the loan cost as income to you (or maybe it's the difference between the loan amount and what the house sells for at foreclosure, I'm not sure). Then it's between you and the IRS! Not good.

Anyone familiar with this?

[emilylynn]

Originally Posted by brewer12345

Methinks you aren't all that familiar with the machinery of the mortagge market that has developed over the past few decades.

Perhaps you could edify us.

[lets-retire]

Originally Posted by emilylynn

How about the lenders who knowingly inflated borrowers' qualifications, who obtained overblown appraisals, and who intentionally assumed risks that never would have been deemed commercially reasonable had it not been for the fact that these loans were destined for the securitization pipeline?

1) The lenders and the government have policies to prevent issue number one. Several banks have been put on probation for proven issues. While on probation these banks must endure extensive audits by the government. If there are any errors the probation remains. Only when a bank successfully passes an audit without any errors is it allowed to resume normal operations. Unless the borrower is getting a "liar loan" all items are scrutinized very well. If an originator purposely overstates a borrowers qualifications they can be liable for several legal and civil repercussions.

2) Overblown appraisals are VERY difficult to prove. The appraisers are held to a standard and if they are caught willingly producing an inaccurate appraisal they can be held liable and can lose their license. Since appraisals are essentially one person's estimate they are like filling out your taxes. One appraiser might come in at X dollars while another comes in at Y dollars and both are correct. The people reviewing the appraisals might be able to see inconsistencies in them and send them back for corrections, but other than that they are not appraisers and short of glaring inaccuracies can not outright say the appraisal is wrong.

3) ANY loan sold to an investor must meet the investor guidelines. If it does not the loan goes back to bank granting the loan for servicing. Yes the loans are sold in groups, however each loan is entered into the investors' system and is reviewed at that time.

[emilylynn]

It was reported just one month ago that Washington Mutual, perhaps the largest of the country's savings and loans, is under investigation by the New York attorney general concerning allegations that it pressured a well-known title company to inflate appraisals for the purpose of qualifying individuals that would not otherwise qualify for mortgage loans.

[brewer12345]

Originally Posted by TickTock

I can't locate the MSN Money article right now, but apparently the loan owner can stick you with a 1099 showing the loan cost as income to you (or maybe it's the difference between the loan amount and what the house sells for at foreclosure, I'm not sure). Then it's between you and the IRS! Not good.

Anyone familiar with this?

Correct. Although there have been some noises made about striking this provision of the tax code. Not clear if this will happen, although it would seem to be a populist type sop to the masses.

[brewer12345]

Originally Posted by emilylynn

It was reported just one month ago that Washington Mutual, perhaps the largest of the country's savings and loans, is under investigation by the New York attorney general concerning allegations that it pressured a well-known title company to inflate appraisals for the purpose of qualifying individuals that would not otherwise qualify for mortgage loans.

True. I guess I tend to discount anything the NYAG does by at least half after all the hullabaloo the current and most recent past AGs for that state raised in the past few years (that mostly amounted to very little).

[emilylynn]

Here's Hillary Clinton's plan--straight from the horse's mouth--for solving the subprime crisis. Prop up the borrowers with taxpayer money, legislate a freeze on mortgage resets, and strip end-investors of their right to sue when their money market funds tank.

Clinton Writes Paulson a Letter and Asks For 90 Day Ban on Foreclosures | Loan Modification & Loan Workout News

[twaddle]

Looks like another good reason not to pay off your mortgage. If it gets too expensive, the taxpayers will pay it off for you.

I love the newspeak we're getting from this. "Foreclosure timeout." "Hope Now Alliance." I wonder which one will stick. So far, I'm betting on "teaser freezer."

[Retire Soon]

In Hillary Clinton's letter to Secretary Henry Paulson, she threatens the use of $5,000,000,000 of taxpayer money to give to communities to deal with the problem if he does not come up with a solution. Taxpayer money should not be used in any way to deal with this crisis. These home buyers were not forced at gunpoint to take out these loans. If home prices were going up instead of down, would these same borrowers who are now in serious financial trouble share their equity with taxpayers?

Hillary is right on one count: where were federal regulators when all of these home loans with ridiculous underwriting requirements written? The answer is they handled the situation in the same manner as they dealt with the 12,000,000 illegal aliens that crossed our borders-they simply looked the other way. Sorry folks, Washington has once again failed to protect its citizens.

[lets-retire]

The government's role in mortgages has been to protect people from predatory practices and discrimination based on a protected class. In most cases neither of these issues were raised. The mortgage, like any other loan, is a private contract between two entities. The only time government becomes involved is when one of the parties to the loan brings them in. In most cases it is when the borrower files a complaint. People were very happy with their loans when things were going well, but now they are very upset.

I think if government leaves it alone things will work themselves out. The banks will not foreclose so much that they put themselves out of business, so they will work out some kind of deal. If government wants to help things along pass a law that forbids a mortgage company from renting residential property. That would force the banks to to either work out a deal or foreclose themselves into closure.

[Gumby]

Anything that paves the way for lenders to restructure instead of foreclosing is a good thing. There are enormous deadweight losses to the economy when houses go into foreclosure. Among other things, they resell for less than they are typically worth, driving down the prices of the neighbors' houses. Also, cranking up the legal machinery of foreclosure imposes large transaction costs. Ultimately, the borrower loses their home, the lender does not recover the full loan amount and going after a deficiency judgment is probably not worth the lender's time and money. In that scenario, value that otherwise would exist has simply vanished. However, if people can be kept in their homes and continue paying the loan on terms that they can handle, that value is eventually unlocked to the benefit of the economy as a whole. The lenders/investors may receive less than they bargained for, but the first loss tranche will receive much more than they otherwise would in a foreclosure scenario.

You can feel morally superior and berate the borrowers for their irresponsible behavior all you want, but it won't change these economic realities. I would prefer to save the economy than crater it just teach a moral lesson to foolish and/or naive people.