With some time house prices will start to recover.
What, back to top-of-the-bubble levels? They need to come down about 40% from their peak and stay there.
Posted on 11/30/2007 1:38:02 AM PST by HAL9000
Excerpt -
WASHINGTON -- The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.An accord could reassure investors and strapped homeowners, both of whom are anxious as interest rates on more than two million adjustable mortgages are scheduled to jump over the next two years. It could also give a boost to the Bush administration, which is facing criticism for inaction amid the recent housing turmoil.
The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance.
Details of the plan, which could be announced as early as next week, are still being worked out. In general, the government and the coalition have largely agreed to extend the lower introductory rate on home loans for certain borrowers who will have trouble making payments once their mortgages increase.
~ snip ~
(Excerpt) Read more at online.wsj.com ...
It is obviously less expensive to have the borrowers continue to service the loan even at a slight loss to the mortgage holder than it is to foreclose and take control of a property that is worth significantly less than they loaned against it.
At a minimum the “reset” dates should be spread out over as much time as possible so they don’t all come due over a short period. With some time house prices will start to recover. The financial situation of the borrowers may be improved in a few years as well.
I think this makes more sense than “bailing” them all out. This might allow more people a chance to keep their homes and HOPEFULLY learn a valuable lesson in all this. I am one person that allows people error in judgement if the lesson is learned. I think alot of people were either ignorant or stupid when signing up for these programs. Hopefully now when they purchase a home at another time they will think before they act. Plus, as a bonus, the experience of seeing their neigbors and friends going through this may teach others who were thinking about buying a home to learn what is best for them.
One problem with all this is that other types of loans out there will see a jump in interest rates. The lenders will recoup their losses somewhere else
Good time to clear all credit card debt...and maybe think about repairing that old car instead of buying another (unless you pay cash for it).
Of course, there are a variety of ramen noodles out there...
The lesson seems to be "take on more debt than you can afford and someone will come along to change the terms of your loan agreement so you don't have to pay what you said you would." How will that teach them a valuable lesson? They end up better off than the people who took on only as much debt as they could afford.
With some time house prices will start to recover.
What, back to top-of-the-bubble levels? They need to come down about 40% from their peak and stay there.
This IS bailing them out!
As a borrower with a good credit rating, plenty of money down, and a fixed rate mortgage, I anxiously await my opportunity to be treated in a similar fashion.
If they cut the rates for deadbeats, they should cut everybody's rate.
There is also a lesson for the lenders and builders involved in the subprime McMansion boom.
What is a “standard” house? While modern houses are nice, the construction methods and materials used in some homes of the period are nearly impossible to procure today. Quarter-sawn oak, walnut staircase, etc. Tough to make comparisons on some of that stuff.
I think that's reasonable. And the other problem is mortgage rates aren't going down much because of large risk spreads, which means that lower Fed rates and lower bond rates aren't having their usual effect.
If this is like some of the voluntary programs already in place, "deadbeats" won't qualify. All payments have to be on time and people have to prove that they can't make the higher payments. Personally, I think that's a pretty high price to pay for what may be only one or two late payments.
I couldn’t care less if the banks choose to let any or all of their customers off the hook. But what does the Treasury Department have to do with this? I sincerely hope that they’re not planning to use my tax dollars to subsidize any of this.
Rewarding irresponsible behavior will NOT go over well with the rest of Americans.
The American work ethic is a precious and rare commodity.
How do we explain this to our kids when we exhort them to work hard ?
The cost of building a home has gone up dramatically over the last 5 years or so as well. Many of those costs aren’t going down again. I started building a new home a little over three years ago. The permit fees were over $40,000. The water meter fees went up to over $32,000 (the increase was just after I got my meter for around $8,000). Copper costs about triple what it did when I started. That’s true of many other materials as well. From plywood to concrete. Add all the city requirements such as fire sprinklers, earthquake reinforcement etc. and you’ve added tens of thousands more dollars. Houses won’t cost less than what it costs to build them as long as the population is increasing and people need to live somewhere.
Now I’m not saying that explains the real estate bubble, I’m just saying it is a factor.
In fact I’ll argue several things caused it. The first being easy money. People who had no business borrowing money did and the banks cheered them on... People spent as much as their immediate monthly payment would buy... The second issue which I think has been buried is inflation which was much higher than anyone admits. I’m guessing low cost Chinese imports across the board helped hide the increasing costs in other areas. I also think the decline of the dollar is inflation catching up with it to some degree. Since dollars are worth less it costs more of them for a house. I’m no expert obviously, but it seems to me once paper currency looses significant value it very rarely gains it back again. So hard assets cost more dollars from now on. So where the cost of a house comes back to is hard to say. It depends on how much of the increase is inflation be it via government regulation or devalued dollars and how much is "Irrational exuberance". Obviously it is a mix of both, but how much?
Goodbye to easy money.
Hello to easier money.
Lenders got themselves into a BIG jam.
It costs lenders less to continue a mortgage at a small loss and hope things get better later than foreclose now and definitely take a big loss.
It is in their own self interest (lenders) to figure out a way to keep people in their homes, making payments, so they don’t end up with the property in a down market and the losses that go with it.
Why do they need an agreement to do this? Why do they need the government to be involved in this? If freezing subprime rates helps keep these people out of foreclosure, then why don’t the mortgage companies just do it without waiting for government to act?
My answer: The leaders of the mortgage companies are so used to relying on government to provide the solution to all their problems that they can’t deal with the concept of individual responsibility. They can’t think for themselves.
And that works well, because the government is anxious to take credit for everything that happens that is good anyway, so they of course want it to appear that this was their idea.
It wasn’t so much low interest rates that did this. It was the relaxing of lending rules - mandated by the federal government - to make easier for people with poor credit and no money to qualify... Basically to give loans to people with sub prime credit and with virtually no money down. Suddenly just about everyone qualified for a home loan... This was all to get “minorities” into a house so said the politicians. Well they succeeded... At least in the short term... Too bad they failed to see the obvious consequences...
Any loan backed by Fanny Mae or Freddy Mac would likely have to have government approval to change any aspect of the terms.
Why do they need an agreement to do this?
Because dollars to donuts, the gubmint is going to re-write the tax code to accomodate them.
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