Posted on 09/25/2008 5:50:56 PM PDT by dickmc
House Republicans, who've been swamped with your phone calls demanding that they reject President George Bush's historically huge $700 billion bailout of Wall Street and bad mortgage bankers, have come up with another idea:
Sell this and the Congress would not dare oppose it.
NO earmarks or other attachments, either.
Only if your boy DINGY or Miss America put it in there. FHA and VA will not lend to anyone who is not either a citizen or a permanent resident alien. No bu!!sh!t Tax ID numbers Se Hablo Espanol, No Credit Check stuff. That is why I say, if its an insurance program, that means that there will have to be criteria, guidelines, and a underwriting process to get the insurance. In an auction situation, you will potentially have clowns in wall street taking two good loans and showing those to the fed and bundling 98 bad loans and auctioning it off. If there is insurance, someone with capital, like a buffett, takes the risk, and we only pay on a default.
Still pi$$ed about the nasty campaign he ran as a Dem against Denton so many years ago, but he has done good with this one.
They have conditions that must be met in order to receive the interest. I.e., direct deposits, internet banking, etc.
We take full advantage of their program.
sw
There you go. If you have cash, you can find some great deals.
“by Monday” why? I do not believe in the YTK type thinking that says all ends Monday unless the Feds do something massive by Friday PM.
Banksters, as in Gangsters. I like that.
Me too, but it would be awfully hard for them to offer that rate on savings while simultaneously offering loans and mortgages in the 5.5% range.
The illegals were given "no documentation" loans, one of the many sub-prime programs. They did not have to prove if they had a job or how much money they made or how long they were employed.
These loans should stand as they are and maker/buyer beware.
On a side note that is somewhat off topic..the local skool boards here in Florida can't figure out where all the students have gone!? lol
Boston Globe..snip
Tangle of loans feeds foreclosure crisis
Borrowers can't tell where to turn for change in terms
By Robert Gavin Globe Staff / July 31, 2007
Each month, Stephen and Kim Martinelli sent their mortgage payment to Chase Home Finance, and when they fell behind, it was Chase that launched foreclosure proceedings, with an auction of their Lawrence home scheduled for later this week.
The Martinellis, squeezed by the cost of caring for a disabled son and carrying an adjustable-rate mortgage that boosted their monthly payments by $900 over the past year, pleaded with Chase for a break: for a new payment plan, a lower, more affordable rate, or a delay in the foreclosure, due to hardship.
Chase's answer: "No."
What the Martinellis did not know was that Chase was not calling the shots. Chase merely services the loan, acting as bill collector and administrator.
The mortgage was held by an unknown investor, whom Chase declined to identify and who refused to modify the terms of the Martinellis' loan.
They are among thousands of delinquent borrowers caught in the maze of modern mortgage financing as they desperately try to save their homes. Unlike in the last real estate bust, when local banks and credit unions wrote nearly 80 percent of mortgages in Massachusetts, most home loans issued today pass through a nationwide chain of brokers, lenders, service companies, Wall Street firms, and investors. That makes tracing ownership difficult, if not impossible....snip
sw
I very much like the idea that at least the House Republicans are offering some concrete proposals, and not just things like Newt’s 4-point plan which I do like but is just chopping around the edges of the systemic risk.
I would like to see more details, but my preliminary reaction is that taxpayers are likely to be better off with the Treasury plan.
This idea of issuing a United States government guarantee on the principal amount of the outstanding mortgage-back securities may end up with more exposure to taxpayers, not less. I think there is something like $6 trillion of mortgage-backed securities through Fannie and Freddie, which we are already on the hook for, having nationalized these companies (and were thought to be on the hook for anyway by everyone in the market) and something like another $6 trillion (or some other huge number) of securities which we taxpayers are not yet on the hook for.
As I noted in an earlier post, take a particular mortgage-backed security that might at the moment be worth 30% of face value if attempted to be sold into the current fire sale market. Slap a US taxpayer guarantee onto that security and its value immediately goes above par value, probably to as high as say 110%, given the difference between the US treasury rate and whatever the interest rate of the original security was, and assuming, say, a AAA rating at that time.
Obviously that is a huge gain for the bank or other financial institution holding that security, and with the US guarantee attached the accountants should let them mark it to treasury-equivalent rate on their books.
But then the question comes, how should the US government price the value of the guarantee it has just placed on the bond? Obviously, the premium needs to reflect the ultimate cost of bearing whatever losses will occur in the underlying mortgage pool.
But each mortgage pool is different. Pehaps in my example the mortgage pool is subprime loans in the San Joaquin valley. Or maybe jumbo loans in the upper Midwest. Or whatever. The loss characteristics will differ significantly for each pool, and would have to be evaluated by experts on a pool-by-pool basis for every outstanding mortgage-backed security to be guaranteed, potentially multiple trillions of them. And then of course there is the wild card of prepayment risk in the mortgage pool and building that in to the pricing. And of course different assumptions about the time value of money and future inflation.
If the government underprices the premium, we get screwed. If it overprices it, the other side takes the hit.
But the biggest problem is, how are the financial institutions going to come up with the cash to pay the government the premium for the insurance?
Just to pick a number on the premium, let’s say it is an average of 10% and the amount of mortgage-backed securities to be guaranteed is $6 trillion. Where are financial institutions going to come up with $600 billion of cash (change the numbers however you like, it’s a large amount of cash)? This is at a time when lack of cash in the banks is currently constricting credit. Does the government allow the banks to give a promissory note for the amount of the premium? That just gives us taxpayers even more exposure to the credit of these banks. Once trading recommences in these securities, the banks can liquidate some holdings and then pay Treasury the cash, but shouldn’t that money be better put getting credit into the real economy so we don’t go down into a recession or worse?
Would we have to have a new federal bureaucracy to do the premium valuation on each pool and then make an offer to the securityholders, and would there be an individual negotiation in each case? I suppose we could outsource that function to Fannie and Freddie, which has some expertise in mortgages however incompetent. Or just nationalize MBIA???
Under this plan, the government will need to be involved in this business for decades to come - the government guarantee on the mortgage-backed securities won’t settle until ultimate maturity, which might be decades away depending on each security.
On the other hand, in the Treasury plan we don’t need to get the valuations exactly right. In my example, the 30% of face security, we start with a cash flow valuation of the securities to get an idea of the intrinsic value — what Bernanke calls a hold-to-maturity value, let’s say we think that’s 80%. We bid somewhere north of 30% and below 80% and either through holding them or reselling them later when market conditions improve, we should get more than we paid for them, unless there is a bad recession. And we can get out of the buy-side market within a year or so, hopefully, and then just focus on carefully liquidating our position.
The opportunity for abuse and sweetheart deals for favored institutions in my opinion is greater in the security-by-security negotiation of the guarantee premium on a mortgage pool (if in fact that is what they have in mind) than open and transparent reverse auctions available to all financial institutions as I understand the Treasury proposal to be.
Another advantage to my mind of the Treasury plan is the following. I do think average Americans instinctively grasp that the government going into the market, such as on the floor of the NYSE, and buying up shares of, say, General Motors is directly violative of the basic principle of a free economy.
But I don’t think they appreciate that about insurance schemes - what with social security, medicare, the FDIC and all of the other insurances the government does, they do not view that as an unnatural function of government.
So therefore in my view the Treasury plan of buying securities on the market is so directly violative of free market principles, it is more likely to be harder to repeat in the future than the insurance structure.
How are you going to differentiate between these types of mortgages? This plan rewards people who bought way more house than they could afford and sticks it to people who live within their means.
sw
According to our local news, Sen McCain met with some house members this morning. Rep Cantor is a huge McCain supporter and one time rumored to be on the short VP list. Dems were trying to hang them out to dry when they were never consulted by Pelosi and company.
No wonder Republicans wanted McCain back in DC because he is one person that could stand up for the House when the Dems/Bush were pushing this forward.
Need to look that up.
I have never liked this global economy crap.
Country first, damn it
I didn't say I had all the answers but it is a work in progress.
Better than sitting on my hands.
Why don’t they just raffle the properties off to the citizens of the US? Limit the tickets sold to the note minus the insured portion (MI) and this way we would all get something for the money they took from us...the chance at winning a house for $5. The banks take a little hit for writing bad loans, the Mortgage Insurance companies take a little hit for insuring bad loans and some people in the USA may wake up owning an apartment complex in phoenix or a townhouse on the bay. If we need more cash, let the Euros and Asians in on the action as well.
Yes, I think that the original Paulson plan is better also.
One problem is that the politicians are just not financial professionals --- they are lawyers, and they are going to most likely choose a poor plan based on their instincts as lawyers.
At least with Secretary Paulson we have some chance of getting a more financially feasible plan than with a bunch of lawyers concocting "insurance" plans.
Why don’t we do both? Buy $350 billion of bad loans at a discount, and use those assets to back up mortgage insurance for the rest. The Government can charge a healthy premium to get the full faith and credit of the United States behind those mortgages, and that money can go into the pool too. If, as we all hope, there’s plenty of money in the kitty in 30 years, require that every dime goes to pay the national debt, so the Democrats can’t spend it.
Who in their right mind would finance a home with an adjustable rate mortage? I'm economics challenged, but even I know better than to get an adjustable rate loan. Sometimes, folks, you just have to take your lumps when you make bad decisions.
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