Posted on 09/24/2008 7:23:26 AM PDT by DannyTN
I want this to be a solutions oriented thread specifically addressing the questions of:
Also, if the gov’t buys the mortgage, any hedging activity done by the bank associated with that mortgage should go with the sale.
In other words, don’t split the transaction into Mortgage vs Hedge, and leave the bank with a profitable hedge and the government with an unprofitable mortgage.
Full retail price should never be paid. At one point auctions where the banks would compete for how little they would accept to get the mortgages off their books was discussed. That seems to be a reasonable approach.
Banks would get rid of the worst of the worst, but Government would buy them for closer to their workout value instead of retail. In fact, government might end up buying them below their workout value in such a scenario.
Two problems afflicte America, they have a coomon cause and a comon fix.
Energy shortages and lending money to unqualified borrowers.
Both are caused by Democrats.
To fix, turn the free market loose. Zero out capital gains, zero out Sarbanes-Oxley, the IPO killer, and “all of the above”. DUMP CAFE rules entirely. Stand back let the magic work.
Oh yeah, those people who bankrupted their financial companies, there are plenty of cells next to Ken Lay.
Eliminate the capital gains tax, and help provide investment capital to Wall Street.
#1 sounds risky to me, but I like 2 through 6 a lot.
encourgae = encourage
My idea for a plan is a massive tax rebate (7000 dollars per taxpayer) with the requirement that the rebate be used only to pay off debt or invest in newly issued bank equity.
My plan is below:
The US Financial system needs a bailout. Only the govt. aka the US taxpayers can do this. It needs to be done as fairly as possible.
The solution is to give $7000 (about 700 billion) to each taxpayer but with the following restrictions.
If you are in default on any debt (auto, home, credit card, student), then the 7000 will first go to repaying the loans. This helps keep people in their homes, cars, schools, etc. and helps liquify the lenders with payments on loans.
If you are not in default, the money will be held in a self directed Government account for you by social security number. The money must be invested in NEWLY issued stock (common or preferred) and/or Mortgage backed securities from a list of firms to be determined by the treasury department. These shares could not be sold for 5 years. Also, up to 2000 dollars could be used for a payment against a current home loan which would be deducted from the $7000 balance. Again this would help keep people in their homes and still bail out the lenders.
Since everyone is getting the money, there is no moral hazzard in bailing out the idiots only. The lending institutions are liquified and most but not all people are helped with their home mortgages.
Bottom line. We need a bailout by the taxpayers. But this would do it in a way that would relatively fair, have some free market aspects to it and benefit all taxpayers if it works. Any inflationary aspects of “printing” up 700 billion should be delayed by 5 years when we might be in a better situation.
I think the plan o buy up a bunch of these preposterous securities is a good start, but unless quickly followed by a serious move to fix the underlying mess in the housing market, it won’t do much good, because a lot of the houses underlying the securities will continue to sit empty, or squatter-occupied, or otherwise disintegrating from vandalism and lack of maintenance.
Instead of slashing interest rates across the board, the Fed should offer a heavily subsidized interest rate to lenders on sane residential property mortgages (20% down, fixed rate for full term) originated out of a bricks-and-mortar office within 100 miles of the mortgaged property. The interest rate subsidy should last only as long as the original lender (or its successor) holds the mortgage entirely for its own account, with no securitization or other tricks to pass the risk off the lender’s books. The interest rate susbidy should also evaporate if the lender ceases to maintain a bricks-and-mortar loan-originating/servicing office within 100 miles of the property. We really need to get back to a home mortgage system in which the lender gives a crap whether the financial arrangement is fundamentally sound, and knows what’s going on in the local real estate market at the time the loan is made, because the lender is really on the hook for the credit decision. If the interest rate subsidy is substantial, it will slam the brakes on the practice of originate-to-flip.
We also need to eliminate the systemic bias towards owner-occupied properties. It made sense once upon a time, but doesn’t anymore. What’s needed now is to make it attractive for financially comfortable small investors to buy distressed homes and hold them as rental properties until the market fully recovers. Right now, it’s still next to impossible to get a mortgage over 5 years on a property bought through an LLC (you’d have to be nuts to buy a rental property in your own name, both for tax and liability reasons), so you can’t lock in the current low interest rates on 15-30 year mortgages. Lenders are still only willing to make these loans if they can be palmed off on Fannie/Freddie, which don’t buy mortgages on homes owned by a corporate entity. So if your neighborhood is going down the tubes because of foreclosed homes, and you and some of the other residents could each afford to buy a house or two IF you could lock in the current rates and be in a position to profit or at least break even on a rental basis, you can’t do it, so the houses sit and rot or a few get sold at fire sale prices, dragging down values for the whole neighborhood.
The interest rate subsidy and elimination of owner-occupancy bias can be done separately or simultaneously. Separately, Fannie/Freddie just have to start treating all mortgages on residential properties alike, regardless of whether the owner is an individual claiming to reside at the property, and individual not claiming to reside at the property, or a corporate entity. Or simultaneously, make the interest rate subsidy program explicitly include all these categories of buyers, with an eye to taking Fannie/Freddie largely out of the picture, since lenders could no longer sell mortgages to Fannie/Freddie without taking a big hit via losing the interest rate subsidy.
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