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 ...
I don’t know about this. Where does it stop? Suppose we have a recession and ramped up unemployment. Do we then get the banks to declare a moratorium on loan payments for some individuals?
Sorry, people need to be made to understand their actions have consequences.
Where's Mr. Housing Bubble when you need him ?
The problem is not the subprime lending it is the off balance sheet magic act that affects all finance recently. Enron was just the appetizer. There is extreme moral hazard.
This sort of finance gives engineering a bad name.
Sorry, people need to be made to understand their actions have consequences
One person’s actions have consequences that don’t extend beyond themselves. However, the actions of a million persons have consequences that extend throughout the entire economy, that is to say — Are you willing to shoulder the burden of their consequences to teach them a valuable lesson?
I looked up this operation on the internet and it's actually been in place for some time. The main feature involves credit counseling, which usually teaches people about consequences and how to organize their finances better. So far it has a bout a 50% success rate.
My house was built in 1952. Part of the post-war housing boom. It's a little brick ranch, not remarkable in any way, and pretty much like the other houses on my street. But if I tried to replicate it today, it would cost a small fortune.
The exterior walls are brick. Not that silly brick facing, but real fired two-inch-thick brick. The interior walls are concrete board on a wood frame, with a steel mesh to hold the plaster. No drywall. In ill-considered bursts of youthful anger, I've put a fist and a foot through a Sheetrock (tm) wall -- not gonna happen here. My hand will break before the wall will.
I never knew what a wall anchor was until I went to college. In this house, the walls are robust enough that just tapping in a straight nail is enough to hang most of the stuff you'd want to hang. If it's a heavy frame, two nails.
The floors are hardwood, and the sub-floors are ... unfinished hardwood. There's not a lot of plywood to be found.
The insulation value of these sturdy walls is pretty solid, too. It's 38°F outside, 62°F inside. I have not fired up the furnace yet this year. Once I replace the old windows with some nice double-pane numbers, I should be able to knock out the drafts and make things nice and cozy.
I can't imagine buying a new house unless it's built to my specs and under my supervision. Most houses today are built on the assumption that buyers want something trendy and shiny, and in a few decades it'll be razed and something else built on the site. Old houses were built on the assumption that they would stay in families and should stand forever.
There are drawbacks. My '50s house has a '70s electrical system. One designed for the days before computers, microwave ovens, blow dryers and air conditioning, A typical new home has a 200-250 amp breaker box. I have a 75. Over the years I've learned which electrical appliances I can't run at the same time without tripping a breaker. I can iron my clothes and microwave my breakfast in the morning, but not at the same time.
The plumbing is no great shakes, either -- I have galvanized, cast-iron and copper pipe where more modern homes have PVC. Gluing PVC isn't fun, but it's a lot less hassle than sweating copper. And if anything goes wrong with the cast-iron sewer line, just damn.
But this sturdy old dame is a good platform to improve on. It's got cable and Wi-Fi, coax and twisted-pair copper to every room, which I ran my own damn self. I had the notion of running cat-5 to every room, but then Wi-Fi came along, and it wasn't worth the hassle. My house has a basement that's damp and an attic that's hot, but I can work with that.
All in all, I think I'll stick around for a while.
What the story is talking about is a much more ambitious plan: Think Third World loans in the 1980s.
I don’t have access to WSJ. Can you share some details?
I'd be willing to bet that in at least some parts of the country the increase in property taxes has far exceeded that of interest increases.
Yeah but the lenders no longer own these mortgages they have been securitized with other loans and sold with bogus AAA rating.
And the problem is no longer just housing loans. This off balance sheet device was utilized for all types of debt in the past 5-10 years it's called SIV and it created a mountain of toxic derivatives.
The real purpose of this announcement is to reverse the building psychology of doom and gloom.
The only ones who will learn nothing are the members of Congress who pressured the banks to loan to marginal borrowers in the first place.
I agree the Fed appears to be out of options. If their only tool left is to lower rates they are in trouble.
You're right, of course, but there's another point here. Remember that banks and insurance companies have enough money to buy any politicians they want, and get whatever laws they want passed (why do you think you have to wear a seatbelt?).
The banks went along with this because of greed - they engaged in wishful thinking that the housing market would continue to inflate so that they would never have to worry about the consquences of bad loans - there would always be buyers waiting in line in case the last guy defaulted. They got caught up in the housing bubble, too.
I agree, but that would also apply to the lenders. And "non-actions also have consequences", which applies to those of us non "sub-primers" who didn't raise sufficient alarms when this problem was forseen and when it appeared on the horizon.
Agreed. This is an instance where a compromise in in everyone's best interests.
The government wants to stanch the flow of blood, because the buying, selling and building of homes is a key measure of the health of the economy. A housing crash isn't an apocalypse, but it ain't good. You've got homeowners who are in over their heads, tenants who are without a home because the landlord got over-leveraged, and so on.
The banks don't want to foreclose on a large scale, because banks are not fundamentally in the business of obtaining and selling real estate. Foreclosed buildings are generally sold at auction or at a discount, just so the banks can unload them. If the borrower is upside-down in the mortgage -- that is, his loan balance plus equity is more than the house is worth -- then the bank can at best recoup some of its losses, and then chase down the borrower for the rest. That's usually a write-off.
A lender forecloses to cut its losses; if the mortgage isn't getting paid, they seize the house and at least hope to get something out of it. Cutting losses is not a long-term business strategy. Better to extend those teaser "introductory" rates and maintain a profit, however modest, than to drop back and punt.
Obviously, it benefits homeowner/borrowers and their tenants. Having a stable home is better than, how can I say this? Not having a stable home. My brother is a renter, with three kids, who pays his rent faithfully and on time. If he got a note one day that his apartment building was in foreclosure and his lease was void, that would suck like an Electrolux. It's not fair, it's not just, and it's not good public policy.
IMHO, it seems sensible to strike a bargain rather than ride out an emerdement. It's a win/win/win deal.
In the interest of full disclosure, I'll mention that I'd rather not have my brother, his wife, and their three kids coming to live with me. I love them, I see them as much as I can, but I don't want to share a bathroom with them. I have a vested interest.
What a croc, those people should be put out on the street.
Yhey should never have been alowed to have the home in the first place and the banks should eat it big time for allowing them to have them.
And that lesson would be:
Don't worry about making bad decisions, the government will eventually rescue you with other people's money.
I've got a 60-amp service.
Try running a box from each 110-side of your range. You'll find lots of amps that way.
From a former regulator of lenders, they probably are negotiating an exception from TILA (Truth in Lending Act) that will permit the lender to unilaterally change the terms of the loan without having to renegotiate with every single borrower individually. Just a thought.
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