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.
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(Excerpt) Read more at online.wsj.com ...
I have a house built in 1963 done this way. A new 200 Amp service was installed with two 100A breakers. One to the old panel and one to a new panel. The old was left alone and all additional circuits run from the new panel.
One man’s compassionate help is another man’s Speculator Relief Bill
As far as lawsuits, those are coming anyway... The business that appraised properties and inflated their value for banks so people would qualify and particularly the rating companies that gave artificial quality ratings of this bundled debt as it was resold are in big trouble no matter what else happens.
Exactly, which makes me wonder about the efficacy of additional small rate cuts regarding the recap or spurring the buying demand.
I agree but I think the probability is very low that anyone at the Fed will break tradition of cautiously moving way behind where they should be. Bond yields indicate that the Fed does need to lower rates around a point or so. My position is the longer they wait the more they'll have to lower rates later, which does reinforce an unnecessarily large credit cycle, and is inflationary.
Unfortunately, I believe you are right, but whatever they think should be done, not to be behind the curve, they should dispense with "traditions" (which often led to recessions) and do it once, surgically, and indicate that the next rate move, whenever that may be, will be up - that will immediately stop buyers' strike and procrastination and spur buying including some of the reasonably prices properties in many not previously overinflated areas that now stand waiting. Once that happens, a lot of recapitalization will take place on its own, and confidence will return to the markets, prices stop falling and possibly dollar may not even take much of a hit - just on the interest rates factor alone.
Lowering Fed rates in slow motion really doesn't help much, because of uncertainty about direction and timing of next move and ability of some banks to recap so they can make some sound loans and not just live off of the spread. If Fed does it surgically and indicates that, they might even get away with lower overall rate cut than they otherwise will be "forced" to make. Personally, I am not that happy about Fed having the responsibility of setting the rates, I'd rather have them adjusting their rates to the market - if that's a tenable position - there are several pros and cons to that.
Got the same chart adjusting for square footage size and interest rates (which affect the cost of the mortgage)? A person whom in 1980s could afford a 1200 mortgage can now afford twice the paper price of the house because of much lower interest rates.
The bubble starts in 1997 on the chart. The prime rate in Jan 97 was 8.25%. The prime rate now is 7.50%. It's not low interest rates that caused the bubble in McMansion building. It's these interest-only and teaser-rate ARM loans and two-income households buying a house that they can afford only as long as both are working. One loses their job, gets ill, gets pregnant, for some other reason has to quit work, or their teaser-rate ARM resets, then they can no longer make the payments.
Excerpt:
Two years ago, Kelley Lowry camped out overnight to buy a four-bedroom home in the upscale community of Fairfield, Calif., northeast of San Francisco. He paid $580,000."We bought at the top of the market," Lowry said.
Just six weeks later, his house was worth $750,000 -- but now? The value has plunged to just about $400,000.
"It's pretty devastating, especially when you owe more than that," Lowry said. "It's tough to swallow."
Fairfield is emblematic of suburbs across the country where home prices took off in the past few years in a booming housing market.
Just like I said a few months ago. Prices were down about 25% + all over California from the highs of 2005.
Now the truth is slowly leaking out. You do the math yourself. $ 780,000 less $ 400,000 means a net loss of (____________ )? OMG ! In just two years. And prices are still falling . . .
The meeting was chaired by Santa Claus.
"If we all close our eyes and wish real hard, all this bad debt will just go away" said coalition member Easter Bunny.
How dare you deny us deadbeats, er, deserving credit-challenged persons, the right to have the rest of you subsidize our loans? You sir, are no compassionate conservative, or whatever it is that liberals are calling themselves these days.
Actually the lenders and other bag-holders are hoping to devise a 'solution' that sticks the taxpayers with all their bad loans, so they have to get the government involved. You're not supposed to notice that their explanation doesn't make sense, so please shut up. Thank you for your cooperation.
Yep, inflation is the stealth tax that will be inflicted on the unsuspecting dollar-sheep.
Correct. But a rate freeze (federally mandated) is a much different thing than banks deciding to take a smaller profit or break even (or minimize loss). That is a business decision, not a government function.
I’ve heard nothing of a federally mandated freeze. Have you?
I don’t think inflation is their plan, though that won’t bother them any. They’d prefer to offload their bad paper onto the Fed or the Treasury or anywhere else they can dump it, getting nice taxpayer money at par for the junk. All in the name of compassion or some other convenient lie.
First line of the article:
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.
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