The Mortgage Mess

Townhall.com ^ | December 8, 2007 | Robert Murphy

[raybbr]

One report I read said about 50% of subprime loans also had piggyback loans in 2006.

If true, then the true culprits are the brokers who finagle these deals. They do so without any regard to the validity of the loan.

Everyone wants to make money regardless of the future consequences.

[logician2u]

Dittos.

[MNJohnnie]

That is the ticket. Cling to your utter ignorance and your rabid BDS. DON’T bother to learn a single fact. Just cling to your emotion based ignorance.

[EVO X]

If true, then the true culprits are the brokers who finagle these deals. They do so without any regard to the validity of the loan.

I think you put some blame on brokers, but only a modest amount. Reports of bait and switch and application altering have certainly been in the news. They only got away with it because nobody else involved in the loan process was asking any questions. That goes for people borrowing the money and the institutions buying the loans.

[PUGACHEV]

PMI is now deductible for loans written after 1/1/07, provided that the household gross income is less than 100K.

[HereInTheHeartland]

” I assume, that most, if not all of these mortgages have to carry PMI?”

The PMI helps to blunt the cost of a foreclosure. PMI companies are in trouble due to the large amount of claims; I assume this will lead to higher PMI rates but I don’t know that for sure. As far as I know the PMI companies are still ok, but they have been hit really hard.

[supercat]

Don't kid yourself: bond buyers have *not* signed on in any way to this plan. They are so dispersed that one could not even begin to assemble a quorum of them. Imagine you bought a bond with certain cashflows, and the government came in and said: "sorry; the flows are now X0% lower. Eat it." That's what is being forced on the "lenders" here.

Interesting puzzle. I would think the fundamental problem lies with the scattering of buyers in such fashion that nobody has authority to make necessary decisions. To what extent is the government making the decisions, and to what extent is it giving the mortgage bond service companies the authority to do so?

Suppose that the government hadn't acted, but a mortgage bond service company unilaterally decided to accept a point lower interest rate from someone and had rock-solid proof that the alternative would be a foreclosure which would have cost the bold holders more. Would the bond holders have standing to sue for breach of contract even if the service company could demonstrate that they came out better than they would have if the contract had been adhered to precisely?

What would happen with a conventional corporation if its shares became so widely distributed among non-voting entities that it became impossible to establish a quorum? Would the quorum requirements be waived, or what?

Perhaps the best remedy in the mortgage situation would have been to provide that certain actions could be undertaken on mortgage bonds by less than a full quorum of bold holders. In that case, bond holders who would have reason to object to a particular course of action could make their objection known; those who declined to object could be deemed to have given at least tacit acceptance.

[EVO X]

PMI is now deductible for loans written after 1/1/07, provided that the household gross income is less than 100K.

Looks like it is for homes purchased or refinanced this year unless the law is extended..

PMI article

[TexanToTheCore]

A billion ain’t what it used to be.

1 Billion dollars equals the value of only 1500 homes in California. In a state with 40 million people it just doesn’t amount to much.

[GregoryFul]

Try and convince the CountyWide Financial stockholders it is not a disaster.