Posted on 12/06/2007 7:53:20 AM PST by SmithL
The Bush administration will unveil its methadone plan for the mortgage crisis today.
Instead of going cold turkey and letting the free market take its course, the administration reportedly has reached an agreement with lenders and mortgage investors to freeze interest rates for a select group of subprime borrowers who made bad, greedy or uninformed decisions.
"You're just giving the junkie more dope," says Christopher Whalen, managing partner with Institutional Risk Analytics, a consulting firm.
Treasury Secretary Henry Paulson also has urged Congress to pass a law that would let cities and states sell tax-exempt bonds to refinance mortgages for borrowers who otherwise might lose their homes. If that's not a bailout, I don't know what is.
Paulson offered a general outline of the plan on Monday. He identified four groups of subprime borrowers facing rate increases on their adjustable-rate loans: Those who cannot afford their payments even at the current rate; those who could afford payments at the higher rate; those can refinance into a "sustainable mortgage while keeping investors whole;" and those who can afford their mortgages today but could not at the higher rate.
Only the fourth group would get help.
According to media reports, people in this category who took out a subprime loan between January 2005 and July 30 of this year and whose rate is scheduled to rise between Jan. 1, 2008 and July 31, 2010 would have their rates frozen for five years.
(Excerpt) Read more at sfgate.com ...
Hyperbole to point out the innerracies of the hysterical posts of others.
OK...”innerracies” isn’t a word...not sure where that came from. Errors. Better word.
Yes. That’s correct. But some worst-case scenarios would have prices drop BELOW where they should be.
Wish you wouldn’t use hyperbole on issues that aren’t easy for laypersons to understand. My gut says that this thing is wrong, but I’m trying really hard to understand your explanations of why it isn’t just another dumb move by those who want to simply delay bad results for others to worry about (a government hobby over the past few decades).
Not everyone is affected by a temporary decrease in prices. The only impact appreciation has on me at this time is increased taxes. My primary house isn’t a piggy bank and it does not impact me one iota whether its worth X, or Y tomorrow as I am not selling it. My family requires a roof over... Long term is a different story. As long as it goes up on average a couple % a year above inflation it’s ok.
Now appreciation on the rental houses I owned concerned me greatly. I sold 2 in 04 and 05. Covering yourass is important as markets never go strait up. This time really wasn’t different.
The quicker we resolve this the better it is for the housing market. Screwing with the market is not potential for catastrophy?
The government declaring a contract is not binding is something to be afraid of imho.
OK.
The overall number of people affected is comparatively small, but large enough that the government “must” do something. Not economically so much, but politically. Pragmatically, I would rather see this type of solution, that doesn’t cost taxpayers money (directly, anyway) to something that a Hillary would propose where we’re actually giving taxpayer money to people.
Regardless of how large or small the number is, it’s still better overall for this group of people to be able to hang on to their homes and preserve whatever credit rating they might have, and take a small loss on the investors’ end, than a major loss in the form of a foreclosure.
And even though the effect on the overall economy is likely rather small, the effect with this plan is smaller.
They trying patch the bubble somehow, to keep up the appearance of a sound economy.
According to other articles on the matter, one of the challenges of crafting this deal is that the government wants to give the banks immunity from lawsuits for unilaterally modifying the terms of the bonds they sold.
This indicates that it's hardly a "win-win" situation for those who were sold a false bill of goods, and now have no recourse against the parties who defrauded them.
Not everyone.
Should a young hard-working couple saving up their pennies to buy their first home . . .
Pay you more money for your home than it's worth, simply because the government props up its value, to put more money in your pocket for doing no work at all?
I have issue with that. There should have been included input and participation from the investors as well. The investors have to know that they can (contract issues aside) recover a lot more money this way than by getting 60% on the dollar for the loans that go into foreclosure.
This is what people in the industry call a "buying opportunity."
We tolerate this in the stock market.
We tolerate this in the energy market.
We even tolerate this in the agricultural markets, to some extent.
Why should the government make housing exempt from the boom/bust cycle?
What will happen if the government continues manipulating the market, and the younger generations are priced out forever?
The government messing with the ‘invisible hand’ always goes wrong in the end.
It is a good opportunity. Good for my business too as my clients will buy more homes.
I just worry about the effect on the economy.
That said, the effect is small. Only a small number of people are actually affected by this agreement.
To answer this question, I think the answer is simple:
A lot more people have a lot more money tied up in houses than stocks and energy and agricultural futures combined.
“Should a young hard-working couple saving up their pennies to buy their first home . . . “
That young hardworking should be happier if their home appreciates in value over 10 years.
Not 25% per year which is unrealistic, but 5-7% which is a good thing.
Homeownership is a good thing.
Again I just don’t get the doom and gloomers that just can’t wait to see a train wreck.
The truth is that the market has already corrected. Home prices have corrected in the bubble areas.
No new sub prime loans are being made now.
People who did 100% financing in bubble areas have already lost money.
The market has worked, we just need to need keep something stupid from happening
“Everyone is affected if housing prices have a significant decrease.”
Everyone is affected by housing prices going through the roof to.
If I could get a house at $150,00 for 15 years or $300,000 for 30 years I might just chose the 15 year loan.(My home has gone from 150 to 300 in a short time)
The inflated housing prices just makes the working class slaves to the lenders and makes the government more tax money. It’s fine if you are in the market but for any poor 20 year old they should get ready for a nice 40 year loan so they can pay for the inflated housing cost.
It’s called placing the burden on our kids.
I sure as hell do, even if the establishment doesn't. Jeez, I hope this doesn't happen as my own bargaining position has been getting better and better every month for a year now. I plan on buying within the next 4 months...JFK
What if they can't afford it in the first place, because the government has manipulated the market to keep prices artificially high for the benefit of existing owners?
Again I just don’t get the doom and gloomers that just can’t wait to see a train wreck.
Yes, some do want to see a "train wreck." Liberals in particular want another reason to trash the President, and find excuses to justify more socialist programs.
However, most objective observers just want to see reasonable prices again. You'd have to be crazy to buy at today's valuations; they are way out of line with incomes and rents.
If prices do fall dramatically, it will create new opportunities that just don't exist in today's market.
Falling home prices are not bad for everyone: they’d be great for me, looking to buy what is currently an overpriced home in a neighboring great school district. . .if home prices fell I’d love it, as a buyer.
“if home prices fell I’d love it, as a buyer.”
They already have in the bubble areas.
Better not wait to long, I have seen more buyers buying homes in the past 3-4 weeks than any other November December time period in years.
Rates are way down and buyers are buying homes.
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