I’m only in partial agreement w/Heritage here.
If this problem is to be disappeared, either mortgage principals, home values, or bank stock prices will have to be crammed down. (Or some combo) I seriously dislike the judicial approach because (as posted later) it trashes contract law and is such a wide open invitation to judicial fraud that it’s ridiculous. Plus it has to happen case-by-case which will be infinitely tedious. Plus it has a tendency to not work in a significant fraction of cases. Thus it has limited “finalization” value.
As for home prices, if they tank further (and IMO they should) then it’s inarguable that MBS will be harmed. But these are crappy deals, and I don’t see a mathematical solution. I am in the camp that says home prices have been 3x gross incomes for 75+ years, there’s a reason why, and the market will force those elements into alignment no matter what artifice may be used or tried or temporarily propped up. I can’t see a good argument for bankrupting the system for individual errors, no matter how widespread those errors were. (Although the system, ironically, appears to favor this approach) If the deal made is impossible to maintain, the deal, not the system, should be dismantled, the home(s) foreclosed, and the market cleared. There is ample precedent for “impossibility” in current law.
The banks are the ones getting taxpayer funds to clean up their acts. They are the ones whose stock prices should be crunched. “Cleaning up their acts” means getting rid of off-balance sheet black-hole debt. We’re already stressing the system to the brink of implosion bailing out the banks, for better or for worse. So, I would prefer the banks to get the benefits of taxpayer largesse and suffer the pain of cramdowns, as the best of these several unpleasant options. At least there would be the idea of confining the damage with this approach.
There are natural cycles in almost everything.
A good read is here. http://www.marketoracle.co.uk/Article8988.html
Hope you do not have any investments in real estate or need a loan.
GLTY!!!
Take care………pilgrim
“The American people will never knowingly adopt socialism, but under the name of liberalism, they will adopt every fragment of the socialist program until one day America will be a socialist nation without ever knowing how it happened.” Norman Thomas, a socialist and member of the American Civil Liberties Union