Are Bailout Proposals “Feasible Plans”?
Readers suggested a topic surrounding the latest bailout news. “Supporting a tax bailout is akin to supporting higher taxes, higher interest payments and ultimately serfdom. If the market is allowed to run its course, prices will fall and homes will once again be affordable.”
A reply, “IMO, this stuff doesn’t have much support. Here’s an editorial.”
One said, “Hooray for the St. Cloud Times! Now lets see if we can get this type of editorial into the 2 big papers! (The Star Tribune and Herald, and the St. Paul Pioneer Press).”
Another had questions. “Why a bailout to keep people in ‘their’ homes, when the only out-of-pocket equity they have invested in it are the curtain rods? What right to an enforced transfer from taxpayers do they deserve?”
“Why a bailout to the first mortgage companies if they are already out of business?”
One thinks borrowers won’t want a bailout, “Are people going to want to be saved if their homes are worth less than they paid for them or would they rather walk away?”
“Bankruptcy reform makes it harder to do a Chapter 7, many won’t be able to even afford after a Chap 13 rearranges their finances. Things will still be too high.”
“What is the number, something like $600 billion in ARM’s reset this year? That is just the tip of the iceberg. Bailouts for FB’s will not even make a dent in this bubble. Sorry.”
One posted this link. “Does anyone have a spare $120b to chip in for bailing out FBs? ‘Want to pick up the check for every homeowner who got saddled with a risky mortgage? It’s a big one, on the order of $120 billion.’”
“‘The numbers are going to get very large,’ says Raphael Bostic, a professor of economics at the University of Southern California. ‘I don’t think this is a feasible plan.”
“Economists say bailout could have the effect of causing more defaults. ‘If the plan is to pay off loans when people quit, then I plan to quit paying my loan,’ says Michael Englund, chief economist at Action Economics.”
“What’s more, some economists say a bailout could encourage more risky lending in the future. ‘A bailout would validate what some of these lenders and borrowers did, which we now understand was reckless,’ says Carl Tannenbaum, president of the National Association of for Business Economics. ‘I don’t think that’s what we want to do.’”
From CNN Money. “Non-profits and lawmakers are stepping up efforts to help people at risk of losing their homes. But critics contend the programs will do little to stem the nation’s rising tide of foreclosures.”
“‘By putting people in new loans all we are doing is throwing leverage after leverage,’ says Joseph Mason, a finance professor at Drexel University and an expert in the mortgage market. ‘These programs are not a good idea. They just don’t work.’”
“‘There are hundreds of billions of dollars worth of problem loans out there,’ says Zach Schiller, research director at Policy Matters Ohio. ‘We have much larger problems than can be dealt with by these programs.’”
Unless you give FBs Debit Cards - Katrina Style - at the end money will always end up in banks pockets
Forgive a stupid question from a new reader, but what is an “FB”?
FB=Fooked Buyer
FB = F***ed Borrower
All this talk about helping borrowers is nothing more than helping F@ck banks by assuimng their screwed up assets by the government. At the end, FBorrowers will still be in the same position but instead of defaulting to Wall Street Banks they will be defaulting to tax payers.
From the article: “Borrowers who enter the NACA program will be able to refinance out of their loan into a 30-year fixed mortgage at a rate that is 1 percentage point below what would be available through a for-profit bank. Currently NACA is offering loans with a 5.62 percent interest rate.”
Well, $hit, if they are giving some FB a full %age point off of their fixed rate loan, I sure as hell want one of them too! This is why nonsense like this CAN’T and WON’T work, but it will not stop them from trying.
Gobment providing below market interest rate loans to the people least capable of making sound financial decisions. Why stop there? How about free health care for people who are addicted to rancid grease and pharmaceuticals? Reminds me of the Soviet Union’s famous five year economic plans that where always counter productive.
Got 10% down?
“We are proud to announce that the latest 5-year plan was fulfilled in 4-years. Unfortunately, our dog ate the independent audit so we no longer have anything to back our figures. But you can trust us!”
I suggest government issued credit cards backed by special bonds sold to hedge funds and overseas investors. The holder of these cards could spend as much money as they liked, and would never have to repay it, as once everyone was in over their heads, a government guarantee of the debt would kick in and transfer the liability of defaults over to taxpayers.
Not much difference between this and the current situation if bailout proposals go through, other than the need to become a homeowner in order to qualify for the free money.
To be fair - the NACA program isn’t a govt. bailout — it’s a nonprofit that will presumably raise money from financial institutions.
Of course, I’m skeptical that their “billion dollar program” really means they have/will receive a billion dollars from these groups — I’m sure it’s more like some nebulous pledges of support. It’s probably more like millions of dollars used to help insure and/or buy down the value of a billion dollars worth of loans so that they can offer the these bad adjustable / option loans.
I’ve got nothing against private money doing this kind of thing — I guess if they could somehow stanch the potential flood of foreclosures a little bit, they can protect the asset value of a larger portfolio of loans.
I think the problem is probably too big to make a big difference, but I won’t fault the logic of trying. Better than the government throwing money at the problem.
Well, I would submit to you that it is UNFAIR to propose a 1% lower rate for an FB when I have to pay full market rate on a loan for being prudent…
dukes, I don’t want to insult anyone on this blog, but borrowing is imprudent. Period.
Oh no!!! Some less financially-prudent folks might get a second chance to keep their homes. That would just be awful!
C’mon Dukes — if the finance industry wants to slow the the tide of foreclosures by helping some FB’s with crushing resets, that’s certainly less foolish than a government bailout.
I would assume that there would be some loan caps here, anyways, and that folks who rolled the dice on no-downpayment $800,000 SFRs probably wouldn’t be eligible. It would be interesting to see how they administered it, of course.
Look - just remain a happy renter, and don’t worry too much - it’s not going to be a huge program, anyways.
I am a happy renter, and I will remain so until it is feasible to do otherwise. But, I stick to my point that it is UNFAIR to subsidize a lower interest rate for some jacka$$ who borrowed over their head.
Subsidize all or subsidize NONE. I vote for subsidizing NONE.
Dukes, I for one and totally with you. The husband and I have crazy-good FICO scores and all that other good stuff, but if we were to buy a house today, could we get one of NACA’s one-interest-rate-poing-below-market 30-year fixed mortgages? Of course not, since we’re too financially responsible to qualify for one. Those would be saved to refinance eejits who probably shouldn’t have bought a home to begin with.
Makes me want to rush right out and buy a place.
“dukes, I don’t want to insult anyone on this blog, but borrowing is imprudent. Period.”
That depends. When there is blood in the street and nobody is interested in buying a home, that could be a very prudent time to borrow. The trick is to keep your powder dry until the point when lenders and sellers are both desperate for business.
“Subsidize all or subsidize NONE. I vote for subsidizing NONE.”
All are already subsidized — it is called the mortgage interest deduction.
Oh man I would LOVE to see the mortgage interest tax deduction go away. What a scam. And that 250K capital gains deduction too.
This country is so screwed financially that I’m hoping some pol will come along and point out those 2 things as a way to recoup some tax money.
Owned and sold a house pre the 250K deuction and made out very well without it thankyou very much. And never used the stupid mortgage interest deduction while I owned. There is no need for either of those things. All they do is help keep the market in lottery-ville.
Seattle Price Drop –
There are people trying to get this exact thing done.
Purchase the Fair Tax book (Boortz/Linder). If you like what you read, write your congressmen. Repeatedly.
Help get it passed.
If real estate is such a good investment, why does the government have to give you an interest tax deduction on a mortgage?
Seattle — you can hardly imagine all the flippers here in Florida who are holding their properties for exactly two years, in order to claim the capital gains exclusion. Many, many of these people are lying about the place being their principal residence. The easiest way to confirm this is to find all the RE industry people in your area who own multiple properties and trace how they “move” from (but do not sell) one property into another that they own. It is even easier for out-of-state owners. Where they screwed themselves is that the amount of loss in market value they are going to experience will in many cases exceed any savings they will realize or could have have realized on the property.
If there were such a thing as an invisible, all-hearing, “Oh, crap!” counter, the numbers would be rising very rapidly right now.
“To be fair - the NACA program isn’t a govt. bailout — it’s a nonprofit that will presumably raise money from financial institutions.”
Nonprofits are government subsidized, due to their tax-exempt profit stream. The best kind of bailout is the kind which does not involve any explicit (that is, easily noticed) transfer of tax dollars into the hands of bailout beneficiaries.
To be fair - the NACA program isn’t a govt. bailout — it’s a nonprofit that will presumably raise money from financial institutions.
Oh good they can give the loans to their relatives and to people they like. Like government jobs.
NACA is funded by the federal and local government aka taxpayers. where the heck do you think they get their money, the toothfairy?
Here’s the criteria for the NACA program:
Eligibility criteria:
* You cannot own other property, and the property to be refinanced must be owner-occupied.
* You have a predatory interest rate or unaffordable loan terms. The interest rate for the current mortgage(s) must be 10% or greater or considered to be predatory, or the home must be in need of substantial repairs. NACA considers loans predatory that have a teaser rate, but once they reset become high rate.
* The property to be refinanced must be within a NACA region where the NACA Program is available.
* The property to be refinanced and all requested money for improvements cannot exceed NACA’s maximum purchase price limits set for that region.
* You cannot have multiple refinances where you are continuing taking money out to pay for your living expenses. This does not include refinances to obtain lower rates or to pay for one-time expenses such as home repairs, medical, or education.
* All properties to be refinanced must have thorough home inspections: complete house inspection and termite inspection. If applicable, a septic inspection will also be required.
In general i’m not really worried about these bailouts. Even if the govt proposes I would think that most would have standards like this, if not tougher…
Not many are going to want to jump through these types of hoops even if they do qualify.. it’s partially why FHA loans went out of favor… required patience more than anything.
I’m not worried about these types of bailouts either. There are some folks out there who could have qualified for a decent loan from the get-go but the loan officer wanted to get more $$$$ and signed them up for a funky/toxic loan.
I think people who CAN afford the houses they are living in should be able to refinance into realistic mortgages. I don’t really see this as a bailout.
Unfortunately, I don’t think most borrowers fall into this category.
Apparently anyone can qualify for these NACA mortgages as long as s/he doesn’t already own a house. There aren’t any income limits. It seems to be funded by banks? I had never heard of this organization before a couple of weeks ago when one of my neighbors told me about how she and her husband were working with them to buy a house.
Daddy is about to throw a humdinger welcoming party for the prodigal son who has squandered his inheritance. He hopes his prudent brothers and sisters will understand because they are more “mature.”
Methinks some of these politicos have been reading the scriptures too narrowly.
What’s the point of paying your bills on time if the irresponsible subprime FB’s get better rates than prime borrowers?
Oh yeah, let’s do that again …
It’s insane to talk about bailouts when the reasons for people defaulting exist:
- toxic loans are still available and widely advertised.
- home prices are still too high for salaries, causing people to stretch like mad.
All of the above just needs to be cleared out of the market. Then we can think about talking. The pols are trying to do 2 things with this talk: 1) Help their banker buddies hang in there a while longer and 2) keep home prices high. (Or ,as Senator Schumer put it in his questioning of Bernanke last month: “protect home prices”).
The smartest thing for an FB to do at this point is just walk and rent. Save themselves a world of headache. The lenders caused the mess with their insane lending practises, let them deal with it.
Toward this end (clearing out the market), I feel like it might be a reasonable bail-out to force banks to allow a short sale… up to some $ amount of loss, for some number of months before foreclosing on loans already made.
While not exactly a ‘bail-out’ (no taxpayer money involved), it at least would address the real problem.
IMO the only kind of bailouts are ones that the lenders rewrites loans to be cost effective and save money . Its up to the lenders/bagholders to go over these notes and interview these people and save some of them by rewriting the loan . In a 6 % fixed rate market its a little high to be charging 10 to 13 % on the adjusted up rate of the many FB’s . If the Lenders can make the rate more like 7 or 8 % fixed for 5 years for the FB than some homeowners can remain in their home and actually pay down the note some .The FB should not get as low a rate as a prime borrower gets but some of these FB’s could make the payments if it was at 7 to 8%.At the end of five years the FB and the bank can recast the loan according to what the loan situation is in 5 years .Some people need another five years for their income to catch up with the loan they went on .
It’s clear the lenders were making these loans as a short term loan so FB’s could purchase real estate in the middle of a mania . So, let the lenders correct their own problems of making loans to people that did not qualify for the adjusted up payment .The underwriting was so bad however during the boom that there will only be a certain % of FB’s that can really benefit from a re-write of their loan .
If the gov stays out of it the lenders will go ahead and try to be cost effective if they have to many foreclosures ,as any business would .
Old Mason-Dixon Line: North & South, geographically
New Mason-Dixon Line: North & South, financially
Thank you James Mason, finance professor of Drexel Univeristy, for showing me the light…
Cheers~
That’s odd, I always think of James Mason as being underwater (in his starring role as Capt. Nemo in the 1952 Disney production of 20000 Leagues Under the Sea). OK, so I’m old…
I thought I knew so much @ 20, when in reality, I knew little.
Old happens.
I’ve definitely got my mojo working, today.
Remember the Star Trek episode (1960’s) where Spock beams down to planet x and the locals take his brain and Bones has to put it back in his head and he sticks this extraterrestrial helmet on his noggin and has amazing abilities, only as long as the helmet is on? and he does the task and the boys were able to cruise through the universe, the next episode…
I’ve felt like that for a month now~
Bad acid trip?
I’d believe it.
“All paths are the same: they lead nowhere. However, a path without a heart is never enjoyable. On the other hand, a path with heart is easy-it does not make a warrior work at liking it; it makes for a joyful journey; as long as a man follows it, he is one with it.”
Carlos Castaneda
I’m guessing you would sleep alone in a women’s prison.
“Brain? What is brain?”
Why would anybody want to have their tax dollars go to keep people in houses they can’t afford and to help unscrupulous lenders stay in business? A bailout would be horrible for the economy and would only put off the inevitable fo a short time. We’re talking about people who can’t even afford to pay the interest only payments on their house and mortgage brokers who have illegally pumped up the home prices with fraudulent appraisals.
Exactly. Who wants to help unscrupulous lenders stay solvent. Who NEEDS them? All they did was drive the market up to obviously unhealthy levels. If we help them now we are going to have to help them FOREVER, perpetually bailing out stupid lenders and their “victims” generation after generation.
And the FBs need to go rent a place they can afford while the market corrects.
How about a bailout funded by a windfall profit tax on anyone who currently has a home with positive equity?
Seems to me that if you’re going to let people keep the profits, then let them deal with the losses.
> a bailout funded by a windfall profit tax
Sorry, that’s against capitalism, which made America great. Profits must stay private. Wanna socialize losses? Give the politicos some dough …
That type of editorial might find its way into the Pioneer Press but never the Red Star Tribune. I’m sure they feel like the FBs should be given another house.
The stories out of Minnesota are that foreclosures are really picking up. It took them 10 years to get a deal on a stadium for the Twins. How long will it take to get a deal on this bailout? And even that looks to be tied up again.
This problem is too big for Minnesota. They just don’t know it yet.
Zawinski, Jamie:
“The focus must always be on the task that the person wants to accomplish, to communicate, to learn, to create, to be entertained.”
Well heck, if we are gonna bail-out dummies and crooks, what about $500 I lost in Vegas last year?
Surely THAT would be deductible under the “new thinking”.
And all expenses related to addictions should be deductible too…including the cost of the drug.
And if I am drunk and drive my car into a tree I should be a given a new car….
And hey, I lost money on pets.com…..where is my bailout for THAT?
And my ancestors were abused…..
Once has to wonder what happened to prudence and common sense?
The patients are trying to grab control of the asylum…..
free cigarettes for az_lender
lol. I want in on that too AZ Lender, if the governments gonna be helping people out with their bad decisions and addictions.
I’m sure we’ve all got a pet weak point that we’d like some free cash for. I just happen to draw the line at overvalued houses, or anything that costs more than 10 bucks a shot for that matter. (Roll my own cigs).
There are a lot cheaper bad habits out there that the gov. could support than some schmuck who thinks buying a house at 10 x income is a good idea.
Every single person I speak to about a potential bailout is against it. I cannot imagine how it would ever be put into action.
A few years ago Charlotte, NC voted 58 - 42 against building a new basketball stadium for an NBA team. Three years later the new NBA team was playing in a brand new Uptown stadium. If the powers-that-be want to do something, they will do it. They really don’t give a rodent’s rectum about the wishes of “the people”.
An echo: the agenda will proceed regardless of the cries of the serfs, we matter not.
The signers considered themselves “the people”, the only “people” with vision enough to rule the serfs.
I was talking to my mom about this this morning. We both feel that if a bailout occurs, it will further fracture this nation. We’re already divided on so many issues - this one will create very bad feelings and quite possibly rage. I don’t think that’s being over dramatic.
I agree Eastcoaster. Every single person I’ve mentioned this bailout idea to is against it. And their reaction is real close to “rage” level. And this is from a broad spectrum of normally pretty calm people!
Tell everybody you know about the bailout idea. Spread the news. Right now the infos only on the blogs and in the financial news, so a lot of people haven’t heard about it yet.
Thats true, and the voters will pay for it as well.
The Twins in Minneapolis made a deal with the county - get us a new stadium or we’re thinking about moving away. Condition of the deal: No referendum in the county, because the majority of the opponents of the stadium was too secure.
Nobody much liked the idea of blowing 2 billion a week in Iraq, but that went right through. We’re just going to be raped by the left for a change…then the right will be back in 8 years to have another go.
“We’re just going to be raped by the left for a change…then the right will be back in 8 years to have another go.”
And since neither one offers vaseline, it feels the same coming from either side.
What a joke. The right has been raping us for what — 6 years? They’ll package this bailout as “farm aid” and “anti-terrorism” and the conservatives won’t be able to figure it out.
> I cannot imagine how (a bail-out) would ever be put into action.
Both with great show and in secret. On the front, Senator Schumer anf his buddies announce a 100-million dollar program to avoid some foreclosures - 100 million on the federal level is spare change, so the attention won’t turn into a public outcry. On the back, the FHA is made into a giant refinancing subprime lender with government guarantees. When the guarantees start to bite the federal budget in a few years, nobody can be blamed anymore.
Dumb as a box of rocks…
Our country.
Now this is what I call ‘another box of stupid and another bucket of money’.
You must mean another bucket of debt
Exactly.
Cardboard box? Ah, you were lucky. We have to live in a small shoebox in the middle of the road
Zeno, Citium:
“Fate is the endless chain of causation, whereby things are; the reason or formula by which the world goes on.”
Bandaids do nothing to help overall housing affordability issues. Essentially, a bailout would be another facet of lowering lending/credit standards.
Trying to help affordability issues by loosening lending standards is like trying to fight obesity by purchasing bigger pants. It doesn’t treat the illness, and it doesn’t even do much to treat the symptoms — it just helps hide them, instead.
Maybe a bailout slows or postpones some pain, and makes for a more orderly rush for the exits - but, really, isn’t there way too much iffy debt out for this to make much of a difference?
“Trying to help affordability issues by loosening lending standards is like trying to fight obesity by purchasing bigger pants.”
Hah! Right on.
Who, specifically, is supposed to be “bailed out”.
What, exactly, are they to be bailed out of.
Why are they to be bailed out?
And how is said bailout supposed to be paid for?
I think if the questions are posed such that they demand serious and clear answers, then the bailout idea starts to sound a bit silly. I think the politicians are making a lot of mileage by being vague about all this.
Given that about 99% of campaign promises and “bleeding heart ideals” spawned by politicians are hot air, don’t expect this the bailout to get past the jaw stage.
A much more real problem is the upcoming presidential election, the amount of hot air spewed out and the consequential melting of the polar ice cap due to aforesaid spewing.
Good points about specifics. Why would it be restricted to subprime? And wouldn’t everybody who is underwater rush the window?
IMO, the real threat to the taxpayer will be the GSE bonds.
“wouldn’t everybody who is underwater rush the window?”
Now that’s a scary thought.
From what I’ve seen, if everybody who’s underwater financially “rushed the window” at the same time, there would be a sudden “shudder” and the the Earth would “tilt” off it’s axis.
Then we’d have “real” problems…..
It’s almost funny, but if the criteria were strict enough (and the lenders eat the cost and don’t pass it on to us), the FBs would probably prefer bankruptcy.
When you think about it, If they were ‘forced’ to live within their means as most of us already do (comfortable and happy), they would probably say that arrangement was too severe. Boo hoo!.
I would love to see these people required to live a more austere lifestyle. If they go through bankruptcy, they’ll just be back to their old habits in no time. This way, they really learn the lesson, because they have to live it for years.
Wishful thinking, I know.
People like Kiyosaki think that our school systems have been failing at providing people with financial education.
Perhaps, any “bail outs” would be best to require successfull completion of financial education courses, kind of like requiring “driver’s ed” for people wanting to get a traffic ticket taken off their record.
It seems that those driver’s ed classes may have contributed to making the streets safer for the rest of us. And perhaps some kind of financial ed for FB’s may make for a safer economy for the rest of us whom are resposnible money managers.
“real threat to the taxpayer will be the GSE bonds” - does that mean you expect the govt to buy all the bad loans from Fannie & Freddie? Or just to loan them a whole lot of $$ till things smooth out? (Maybe the effect is the same.) Say more if time permits.
Fannie ad Freddie could become insolvent in a large downturn of house prices. Their bonds are rated AAA and found in many pensions plan. There will be a lot of pressure on congress to fulfill a NEVER given promise to guarantee GSE’s bonds. As I see it, only a federal budget already in dire straits could lead to congress rejecting that demand.
Right, bailouts are already in place for loans backed by GSE bonds.
How do you mean that? Are any bonds bailed-out now (I haven’t heard anything like that), or do you mean bailout plans are already in place? The latter would not surprise me, but I haven’t heard any details. Could you elaborate?
As always: follow the money. The bailout is being prompted by the banks and will end up in the pockets of the banks. Oh, and by the way, it will BK the USA along the way. That’s what’s called multi-tasking.
In most cases that make the press, the FB is not just a little underwater, but is in way over their heads, and was qualified based on a Neg AM mortgage with a super low teaser.
In some cases, they lacked even the income to make the teaser amount, and in the majority of the rest, they lack the ability to make the adjusted amount - even close. For the aforementioned group, a bailout will mean someone essentially forgiving their debt entirely, or paying it for them for the rest of the time the “own ???” their property.
There is a marginal group who could benefit from a refinanced loan at a lower (say 6%) fixed rate, but this is a pretty small (IMO) group.
Anyway, not to ramble too much, it is the first group that will need to be fixed if a bailout is to succeed long term, and I doubt there will be money or will long term to pay.
What I suspect is that efforts will be made to stagger the defaults over a longer time period, in order to avoid a devastating tsunami of foreclosures striking all at once and in hopes the market can absorb the losses. Many will be behind this, since they will be sold on keeping their home values up.
Long term I believe a bailout will create a devastating malaise over the economy and be devastating. Short term who knows, but whatever is done, I doubt it will make much difference; given I suspect the magnitude is much bigger than anyone suspects at this time.
In mass casualty / disaster incidents they use a different set of triage rules compared to everyday medicine. In everyday medicine those that are near death / severely ill (and sometimes those that are actually dead - but very recently) get the most resources allocated to their care. In MCI’s, those that are near dead or judged non-salvageable given the resources at the time are left to die and the care is given to those that are injured but salvageable. It’s ruthless but completely ethical and practical.
Here’s my proposal - Help those that are in a toxic mortgage that will (or already has) reset to unaffordability but could likely afford a fixed rate mortgage at prime rates refinance into one. (there’s about 1000 people like this nationwide). Next, screen FB’s for fraud. If they entered into a loan fraudulently - leave them by the side of the road to die. If they were just stupid - give their future landlords $500-1000 cash for security deposit on the next rental and let the banks foreclose their properties.
The borrowers better hope people on this blog don’t get the chance to list the ‘rules of engagement’ for helping them out. They’ll rue the day they ever signed on the dotted line.
Now for those who profited from this malaise, well….. is water boarding considered torture?
But of course any “bailout” HAS to be target at a narrow range of marginal cases because there simply isn’t enough money to do anything else. If they were to target the majority of people who were at risk of foreclosure, the only help that they could give would be cabfare to a cheap apartment complex.
Actually, I’d be okay with the “carfare to a cheap apartment bailout” for FBs. I can live with that.
Did you read that link from Kentucky(?) the other day about foreclosures. They interviewed the sheriff who had to bring people the final notice to vacate. He said the vast majority left early on in the process but for the few who were still there on the day he arrived, the bank arranged for packing their stuff and moving it! Nice!
“…the bank arranged for packing their stuff and moving it!”
I think that quite some time ago a poster here mentioned this as a practical initiative taken by banks or S&Ls in a prior bust — an effort to seem half-human to the FB in the hope of getting them out quicker and with less damage to the property. Might have been TxChick — she knows a lot about the bust and foreclosure process, through prior work.
My thoughts on the marginal cases is of course to be careful not to seem “racist” in implementation, so there is another hurdle for any potential bailout. We cannot be seen discriminating aginst migrant workers no can we?
“…making a lot of mileage by being vague about all this.”
I think the CNN/Money article that suggested a $120b price tag may go far to explain the vagueness.
Zhi, Xi
“Large skepticism leads to large understanding. Small skepticism leads to small understanding. No skepticism leads to no understanding.”
I think I read that one in a fortune cookie
I’m skeptical about aphorisms.
I dont think there will be a bailout for home owners as some politicians have been talking about. I do think the govt. will cave and bail out the banks if it really hits the fan. They will say they must do it to save the economy like they allways do (ie S&L crisis, Long Term Capital crisis etc).
I think the home owner bailout plan is crazy for several reasons. 1)Most of the home owners in trouble are in trouble because they were irresponsible as well as illogical thinking that these prices were justified and would go up forever. Why should prudent citizens bailout gamblers. 2)This would also perpetuate the housing bubble and cause a bigger crisis down the line. 3)This would turn bad loans into good loans at taxpayer expense-UNFAIR!. This is purely political posturing. Homes are too expensive in many cities, these markets are sick. There is only one medicine for this sickness-LOWER PRICES-not giving irresponcible people a handout to justify thier negative business transaction. TAKE YOUR MEDICINE home owners. Lets get this bubble behind us and move on.
1. Prudent citizens have always had to bailout irresponsible idiots
2. It is an American tradition to pass our problems off to future generations (national debt, Social Security, Medicare)
3. The GSE’s have been buying enormous amounts of subprime loans the past few years. Taxpayers will foot the bill for this stupidity just as they did for the S&L crash
I’ve been trying to imagine a scenario under which I could support any type of financial help from the government and I am at a complete loss. Maybe if the fb put cash down on the purchase, is a subprime borrower with a rate that is much higher but has sufficient income to make the payments if the rate was in the 6% range, doesn’t own any other homes…….
Is there support for a limited bailout under any circumstances?
Both parties have fallen in love with growing this monstrous government. They are addicted to buying off their constituencies instead of doing what is right for the nation. This is a great chance to cozy up to their base.
We need less government. Period.
Sing it, NYCityBoy!!!
The reason we’re doomed (for a decade or so) is exactly that — the government is too big, too expensive, and has interjected itself into too many things. Here’s hoping that the coming depression will cut it down to size so that we may have a future.
Ditto.
Good question. If there was such a thing as a victim buyer in this mess, would be interesting to see how they could be assisted. I would think the first thing is determination of FB’s history. If they were ligit, proceed. If they were speculators / fraud / liar loans, proceed to the door or the IRS. If FB’s do qualify for some gov assistance, implement a social service program where they must do community service (mowing lawns or vacant foreclosures?), say 20 hrs for each $1K borrowed.
People who have acted with restraint / responsible should receive some benefit from their taxes.
Zi, Xun:
“A person is born with feelings of envy and hate. If he gives way to them, they will lead him to violence and crime, and any sense of loyalty and good faith will be abandoned.”
Zsa Zsa Gabor:
“He taught me housekeeping; when I divorce I keep the house.”
“Macho does not prove mucho.”
“She drove me to drink, its the one thing I’m indebted to her for”
Fields
“She’s my designated driver:
She drives me to drink…in her car.”
The Outerspace Band
The bailout (if any) will be for the banking/lending instituations, not for the homeowner. Yes, I know they are talking about a forced homeowner bailout. It’s like magic; get you looking this way, while this hand goes and bails out the banking system from the mess they made. Then, before you know it, the talk on the hill will be over about a housing bailout.
Honestly, would most people even want said bailout? I think the majority would rather walk, take the hit to their credit, and then buy the same home down the street in a few years for 50% (in real dollars) what they paid last time. A bailout just puts another layer of handcuffs on; chaining them to the asset that is already dragging them under.
The Fed will raise rates into the summer and everyone will shut up about the bail-out after they hit 6 percent. The banks are going to be bleeding (the ones holding the crappy paper not the ones that sold it). After the negative media blitz it will stop just as the drop precipitates and the media will concentrate on Michael Jackson or something completely off the top to shift attention. Slow quiet clouds will surround those in pain and foreclosure will efficiently saddle banks in trouble with the pain of paying real estate taxes etc… FA la la
The fed may very well drop rates instead
It depends on what they care for most.
if they care more about the dollar: then they must defend it and raise rates. This will cause many a bank to buckle and fail, and remember, the Fed is a private bank.
or do they care more about their member banks. if they do, they will drop rates down. The dollar will go into a spin.
look at history: how often does the fed defend the dollar? Once under Volker, that’s it. The rest of the time: inflate inflate inflate inflate….
nobody can know what the Fed will do. They are truly behind the biggest rock and the hardest spot that I’ve ever heard of. There will be signficant pain either way, the choice is not simple.
Australian dollar at yet another all-time high against US dollar today. Monday I will buy more of the Australian government bonds due 10/15/15, YTM maybe 5.7 in AUD, but the currency play is the big thing.
Reading “Crash Proof” right now. Schiff is very high on foreign equities, bonds, etc. and makes a great case. Nothing like reinvesting dividends in an appreciating currency.
I bet the FED will lower rates and stiff all foriegn creditors with a falling dollar. And we will have 5.00 gasoline as a bounus.
from the start of the FED the US dollar has lost 97% of its value. What makes people believe that the FED gives a damn about the dollar? They will inflate until the bitter end, I have no doubt about it. Of course they will say exactly the opposite in public from time to time, that’s part of the game.
The only thing that makes the FED raise rates is wage inflation. If these pesky workers demand a larger share of the cake, the job of the FED is to stop this. How likely are such demands in the upcoming recession?
I think the FED can afford rising wages as long as they don’t rise as fast as real inflation (like company profits and nominal stocks value). In Europe we are seeing a definite increase in wages lately and government (which is a shill for big business, just like in the US) agrees, so they keep the unions happy and workers believe they are getting a fare share. After all, why worry about 3% higher wages if real inflation is around 10%?
A bailout for the lenders is as feasable as the ongoing war in Iraq. Just print more money, and pray the notes aren’t called.
Every time I put a dollar in my 401k plan I cringe at the thought that it might be worthless when I need it.
your 401K plan can buy some foreign government bonds. NZ, Australia, Iceland, Brazil all have high current yields.
My 401k has no foreign bonds, only foreign stocks - sad.
what is the credit rating on Iceland bonds? Choosing between US bonds and Iceland bonds looks like the choice between a certain slow drip or a high risk to loose it all within a few years.
Try one of the foreign curreny ETF’s
FXA
FXB
FXE
When the dollar crashes, you make money plus interest.
Do currency ETF’s pay interest? I was told they did not and would be interested if that is incorrect. There is a foreign bond (short term gov’t 1-3 year) no-load fund that Prudent Bear operates (psafx) that may fill the bill as well.
Yes, they act like government bonds of those countries. You get 5.75% yield for the Aussie $
So with ARMS resetting for years down the line, do all those FB’s get to cry victim and get bailed out as well?
So glad I’m a renter with fiscal responsibility…seems to really pay off (sarcasm off)
The Dems are not serious about a bailout. They just need to “float” the idea to try and force their opponents to argue (or vote) against it. Then they can point to the Repubs as uncaring fat cats who put little old ladies out on the curb w/out a care.
I agree 100%. I’ve seen this many times before, where left-wing politicians propose unrealistic legislature that they know will never fly, so that: (a) they get Brownie points with the unwashed masses for proposing it; and (b) they can demonize their political opponents who vote it down. It’s theatrics, nothing more.
Maybe that is why the opponents are resolutely silent. It would be better to let the bailout proposals fall flat at the hands of the voters, than to take a vocal stand against an untenable proposal.
Yeah well the Dems blew it with this proposal if they thought the average American was wanting to be magnanimous with their tax dollars to bail fools and crooks.
They’ve lost my vote. That’s for sure. And I know I’m not the only one out there. There is HUGE difference between offering help to people who are in a mess through no fault of their own and enabling idiots who can’t add 2+2 on a mortgage payment. And enabling the crooked lenders who helped get them there? AAARGGH…let’s not go there.
Seattle price drop, they’ve lost my vote too, so now I really have no idea who I am going to vote for.
At this point, I’m seriously considering Ron Paul. But I need to hear more from him. What I’ve seen so far from him at least makes sense. And he was one of the very few who did not vote to go into Iraq. It took a lot of guts to do that. We need someone with guts. Outsider may be the way to go now.
Sorry Ben for the blatant political , nothing to do with RE talk. Couldn’t help myself. Will control in future.
Anyone who bought real-estate no-money down using creating financing at the peak over the last few years deserve to be punished for stupidity and foolishness…not rewarded with bailouts. Call it fiscal natural selection. These pinheads should NEVER be allowed to purchase a house again - unless they win the lottery or their pay off all (AND I MEAN ALL) of their debt.
OT. Last December 1 I posted about an 80-y-o friends outside Phila who had just bought a $300K house and was about to sell his $550K house. I expressed shock (to him) and said I thought it would’ve been better to sell the bigger one first. He said no problem, these things are selling like hotcakes. Talked to him today. Is the hotcake sold? No it’s not. He’s going to do a fifth Open House tomorrow. This time I wasn’t rude, tried to be reassuring.
I have to say…it’s good to see that he is trying to downsize (and reduce financial obligations) but what a time to try to do that. Not to mention, at 80 years old. Boy, oh boy.
BayQT~
Frankly, I see no problem with helping fb’s. Just print more money. The US has been doing nothing else but print money under the Bush administration (and still counting into the distant future) so why stop now? For the sake of fairness, give the Dems a chance to run the printing press. What’s another couple of trillion $’s more or less? After all, we are paying for rebuilding Iraq so why not give some cash to US citizens? Besides, as we now know from the just released Bush IRS documents, if he (or Cheney) loses 50% in the value of the their family dollar holdings because the dollar is in the toilet, it doesn’t mean a damn thing. On the other hand, if 95% of average Joe America loses 50% of the value of his dollars it’s a whole new ball game. Like the elderly lady in front of me at the supermarket said yesterday as the cashier totalled up her bill, “It just seems to come in and go straight out these days. I don’t know how these young families are making it.” News flash: Most are not.
I don’t think the Government even bothers to print it anymore. Its just a computer entry now.
Yup, just keep raising peoples credit card limits.
I suspect the purpose of a bailout is neither for the benefit of banks or debtors, but to stem the flood of foreclosure properties about to hit the market and devastate housing price gains. You might be surprised how many “home owners” will support anything that will stop their retirement fund being gutted. The good news, I doubt any efforts will make a damn bit of difference anyway, but as always, NO BAILOUT!
America has rewarded irresponsible behavior since the Great Welfare Society. This is just another chapter. Corporate welfare, welfare for the rich, welfare for the poor - no welfare for anyone who works for a living.
So true. Wages are the lowest-quality earnings in our tax system. You can’t even move them to a low-tax state, unless you actually work in one. And then you have to pay FICA into a system that is itself likely to crash. Of course, you can buy into an IRA or 401K (i can’t), but then there is so much work involved in figuring out the tax-optimal way to get your money back afterwards. Yawn, I wonder what fraction of our national labor is wasted on complying with or evading govt BS.
I remember reading, many years ago, that taxes in a particular Scandinavian country (don’t recall which, but Sweden pops up first) were so confiscatory that doctors there worked fewer hours a week than anywhere else in the world. The reason was that it was cheaper, for example, for them to go home and paint their own house than it was to work enough additional hours to pay a painter, also is in the tax system, to do it.
I had a German friend who operated a barber shop out of his house. Because of the taxes, he cut the hair of the butcher for no cash — just a whole pig once in a while; he cut the hair of the town carpenter for no cash, but received new cabinets when he needed them. Higher taxes cause more barter and less taxable work — everywhere, as far as I can tell. A big bailout of FBs would be the same as higher taxes in this respect, IMO.
Question: what is the difference between flying pallets of cash into Baghdad and flying pallets of cash into bubblicious America? Answer: distance.
They can give everyone as much money as they want, but they cannot control the value of the money they give. Note that the skeptics of ‘helicopter drops’ (including on this board) are now openly debating it.
They can give everyone as much money as they want, or they can control the value of the money, but not both.
Do folks understand the distinct change in principle the US has undergone when folks say “they can control the value of the money, but not both.”?
The US has gone a long way towards a USSA (United Socialist States of America) when folks don’t even blink as they describe the circumstances of our economy. A central planning agency determining the value of “our” money. That is a far cry from liberty, freedom, and anything resembling a democratic republic (even though we have 2 parties-democrats and republicans-that supposedly subscribe to those principles).
Bailout for whom? homeowner who has made no down payment? Irresponsible mortgage companies? Irresposponsible bankers? Greedy investors? Financial mearketeers who were so responsible? idiots congressmaen? These will be done by destorying the honest and responbilbe Americans who is trying to live within their means and future economy of the United States of America.
Good points — if the bailouts were limited to actual skin in the game — the down payments and principal reduction paid by the FBs — perhaps the hit to the rest of us wouldn’t be so great. I don’t favor even that much assistance, but it might be a useful counter to the most radical proposals.
> Bailout for whom?
Let’s take a look.
> homeowner who has made no down payment?
No, who cares for them really? They have no money (obviously) and so many votes either.
> Irresponsible mortgage companies?
What could they do for me, the politician? Most won’t survive, out with them.
> Irresposponsible bankers?
Bingo. I need to raise millions of dollars to get reelected. My friends from Wall Street support our democratic process by helping me.
> These will be done by destorying the honest and responbilbe Americans who is trying to live within their means and future economy of the United States of America.
If they would vote for responsible fiscal policy, I would cast my vote so, too. So far, they vote for the candidate with the biggest election budget and most numerous stupid TV commercials, and for that I need my banker friends. How should I cast my vote?
Instead of helping those injured soldiers, who went in vain to fight this stupid war in Iraq or helping families of soldiers who lost their lives, they are planning to help those FBs who bought their homes in a free market economy, nobody forced them to do that …or maybe I don’t understand what is free market economy?
I agree with you about helping the returning vets and vets families.
I think it is disgraceful that The Montgomery GI bill is worth a whopping $48K, when that won’t pay tuition for 2 years at most schools. Many men and women enlist in the military to help with future education goals. To learn after 4/5 yrs that the goal is still out of reach is horrible.
I think it is disgraceful that The Montgomery GI bill is worth a whopping $48K.
It’ not worth quite that much. It’s pays a little over a thousand a month for full time attendance and is only good for 36 months.
I saw a segment on PBS the other night where the gov. was going to supply another 3.5 billion towards medical for returning vets with brain injuries, amputations, etc. Sounds like the fund for vets could use that 1 billion that the neighborhood group is wanting to give to stupid FBs.
Honestly, there is SO MUCH here that the Republicans could use against the Democrats, and actually have a point for once! I rather wish they’d start ripping into them!
And, let’s not forget the unfolding cluster@uck that are Student Loans…..(sigh)
Personally, if someone is willing to go and fight in the most dangerous place in the world for 3 tours of duty, then I’m happy to pay for their education out of my tax.
For free.
No questions asked.
A real case of someone who truly ‘deserves’ it.
Gal, you are so right. What you said is important because it does not rely on one “ideology” or another, it’s just plain simple justice. We are not only failing to help the the wounded and the families of the fallen. We are using these young people to fight a rich man’s war and then we are setting them loose in society like used rags. Now it turns out that any old FB is more valuable than one of them. It makes me want to scream.
What kinds of ‘free market’ or ‘none-subsidized government negotiated’ bailouts do you support?
Do you support FB class action lawsuits against predatory lenders? Do you support loan term extentsions from 30 to 30 plus years?
Do you support negotiated interest rate reductions?
Do you support a reduction in the FFR?
Do you support increasing tax deductions?
Others?
Extensions to 30+ years won’t do much good, FBs already having trouble just paying the interest.
Negotiated interest-rate reductions would be in the best interests of lenders AND borrowers, but it’s so hard to figure out who is who after all the slicing and dicing and tranching and blanching.
The home-interest tax deduction used to make me furious almost to the point of apoplexy, until I became a private mortgage bank and realized I could take advantage of people’s inflated sense of how much their home-interest tax deduction was worth. In principle I am completely against the home-interest tax deduction, but for my personal welfare, increasing it (how?) would probably enable me to charge an even higher rate of interest.
Reduction of FFR: this is absurd, but it looks likely, hence my love affair with foreign government bonds.
Class action lawsuits against predatory lenders: I have yet to understand what crimes the loan-originators have committed. They are scum for sure, but the idiots who sign the paper and the idiots who buy the paper are responsible for their own troubles.
“the idiots who sign the paper and the idiots who buy the paper are responsible for their own troubles.”
Amen.
Amen, they deserve each other.
It’s interesting to me that *most* of the people who signed onto these exploding ARMs freely admit that they knew what they were doing. They don’t “blame” the lender - yet.
Wanna bet that’s going to change once people start hearing about a bailout?
> What kinds of ‘free market’ or ‘none-subsidized government negotiated’ bailouts do you support?
Making a mortage for purchasing a primary residence non-recourse in the whole union. Underwater borrowers could walk with a hit to the credit score but no debt and no tax on forgiven debt. Lenders would emphasize downpayments and appraisals more, because the house is all they could get for the outstanding balance.
> Do you support a reduction in the FFR?
There should be a window of acceptable inflation, like 1% to 2%, preferably set by congress. The FED’s only responsibility should be to keep inflation there. When inflation is high, raise the rate.
> Do you support increasing tax deductions?
I actually support the tax deduction for PMI, because piggy back loans are worse, but their interest was deductable. In the long run, congress should schedule a phase-out of the deduction. Ain’t happening any time soon.
IMHO. I think the politicians are doing this so that they will appear to be compassionate representatives to the FB’s out there. They want to associate themselves with the post depression gov’t bailouts orchestrated by FDR so that they can appear to have the same “greatness” coming into the elections. From the numbers it really looks like any form of a bailout is truly unfeasible so I am thinking Dodd, Schumer, Clinton and the others are really just posturing to gain votes.
“…just posturing to gain votes.”
From the looks of that CNN/Money poll (92% against bailouts), it looks like the plan may blow up in their faces. I for one plan to make certain to vote against any politician that supports bailouts, and so will my wife. And we have both voted in every presidential election since we each turned eighteen.
I think you’re probably right about the posturing. Which just shows how out of it these politicians are if they think that the average American “little guy” (their supposed base) wants to help out FBs with their own hard earned limited funds.
Also, I think by now many people can see that housing is in the process of correcting and it does the “little guy” no good to pitch in and try to stop that process.
They are forcing every American to catch a falling knife
Exactly! And this is why most people polled will not go for it. Now that the buzz from the MSM on RE is negative for the most part, J6P may be on to the fact that any bailout is going to come out of his/her tax dollars. Now I don’t know about J6P, but I for one have had my fill of flippers and shoeshine boys telling me how much they have raked in in their RE deals. Couple that with the uncanny stories about strawberry pickers who have 700k mortgages who now cry about being victimized and there is no way in hell any bailout gets my support. Oh, and the cherry on top is knowing that most bailout money will actually go to those on Wall Street who trade all those MBS and got $500,000 plus bonuses last year. Yeah right! Any politico who pushes a bailout is TOAST as far as my vote (and Mr. and Mrs Stucco too) is concerned.
How many of these FB’s are going to WANT a bailout??? How many will actually want to stay in these houses and make decades of mortgage payments on a place that isn’t worth what they paid for it? How many had no fraud involved with their no doc/ stated income loan. How many would rather just walk and dump their problem in the lender’s lap?
The bailouts are for the banks. Once folks get up in arms over this (like the CNN poll and write-ins to the politicians), the talk may start to subside. I hope….
Forgot about Dodd or Schumer orchestrating a bailout for the FBs. These guys are Judas Goats for the financial oligarchs they serve. Their “bailouts for bankers” scheme will be packaged as benefiting the FBs, who, just as when they signed for their toxic loans, are too stupid and lazy to read the fine print. Both major parties will try to con enough to the 30% of the herd creatures who actually go out to vote, into thinking this somehow benefits the “little guy” rather than their wire-pullers on Wall Street. Sure, the sheeple might be momentarily upset when none of the relief actually trickles down to them, but then the MSM - the border collies for the oligarchs - can distract them with more bread and circuses.
What’s the news on Anna Nicole Smith these days?
She’s dead. She died a while ago. Now they’re just trying to decide how to auction off the new ones that sprung up during her orgasmic rise to stardom.
It’s really a lot like the housing market.
There is no frakkin’ need for a frakkin’ bailout. Lots of people borrowed money and put collateral up for it. The borrowers that default will have to give up their collateral. The ones that make their payments get to keep their collateral.
How simple can it be? Way it’s always been, way it should be. No need for a bailout because there’s nothing wrong with the market. Market forces adjust rates to match risk. Sometimes there’s sweat during adjustment periods, but it’s still the frakkin’ market.
Can America move on already - there’s nothing to be bailed out!
To our government:
How to do a fair bailout :Just pay the mortgage so that each family in America can live in a $500K home for free & while you’re at it pay the RE taxes & property taxes every year. This solution should keep the people, Wall Street, & the banks happy. Although some people may still whine that they need new furniture …(sarcasm)
Although I’m often accused of being as peppy as Eyore on a bad day, an FB bailout - coupled with a Miltiary Draft - will probably start a second Civil War.
You underestimate the sheer magnitude of the apathy and inertia in this country.
I began wondering about the draft issue again last night. The 15-month tours will ruin what’s left of morale in the Army. Neither party seems willing to end the intervention, but rather one merely postures. I can’t imagine that the country would tolerate a draft — in addition to the young, there are too many living people who served in the military solely because of the draft and who lost friends and arms and legs in Viet Nam — this time around, they will rail against a draft. I’m one of ‘em.
The bailout shall last forever.
Like now when estimates are that Katrina people need another 250 Billion (yes, with a B).
Once the original funds are blown, and both the original deadbeats (wait, it’s a government agency, so they are ‘clients’) are once again behind, they will march and demand more. And the second wave of clients will then hit just about that time.
There will be marches and demands for more more more.
And why not? If it was important enough to give it up for them once, that very fact is sufficient to give it to them again and again.
Public housing will mean each gets and deserves a SFH, regardless of ability to pay, since it is only fair.
Polls will reveal that 82% of the clients believe the words “American Dream” and “own your own home” are guarantees in teh US Constitution.
I’m still of the opinion that a housing bailout will be pushed off the table by bigger crises elsewhere.
This is a global credit/debt bubble. Before this year is over the stock markets will crash, numerous hedge funds will crater, GM & Ford will file bankruptcy, pension funds will implode, tax revenues will evaporate, the dollar will plunge further, inflation will ratchet upwards, etc.
The idiots in DC will be paralyzed as the walls come down around them.
> a housing bailout will be pushed off the table by bigger crises
This seems a distinct possibility.
People care about their home values, but they care more about their jobs. If the upcoming recession hits hard, foreclosures could increase tenfold and would still not dominate the news.
Politicians like to distribute pork to voters, but fear the bond market. There can come a point when the dollar falls so much that the bond market shuts off credit to the US government as if it was a subprime lender, by demanding exorbitant interest on treasuries.
–You underestimate the sheer magnitude of the apathy and inertia in this country.–
There it is!
There will be a huge bailout. No doubt about it. The only question is how soon and how much.
120 Billion last i heard.
But this will rock the finance banking industry raising the risk premium higher .
Bail out with US Tax dollars isnt going to happen.
It will increase interest rates.
Housing Bubble Accomplices Preparing for Death: Caroline Baum
http://www.bloomberg.com/apps/news?pid=20601039&sid=a79_cFhW1pEA&refer=home
Chairman Frank might want to call some folks from the state of Georgia, where the enactment of a Fair Lending Act in 2002 rocked the mortgage industry.
The law assigned liability for predatory lending to everyone along the food chain, from lender to securitizer to investor.
The reaction was predictable. Many lenders pulled out of the state, the rating agencies refused to evaluate the pools of home loans and the secondary market dried up.
The law, which took effect in October 2002, was amended the following March “to address a number of unintended consequences’’ and to limit assignee liability.
New Jersey’s Home Ownership Security Act of 2002 had to be amended in 2004, too, because “the market shut down,’’ according to Robert Levy, executive director of the Mortgage Bankers Association of New Jersey. The amended law put limitations on assignee liability.
Let’s hope the committee calls some mortgage-bond investors to testify. If they can be sued for someone else’s actions, they aren’t going to buy any mortgage bonds. Period.
> Are Bailout Proposals “Feasible Plans”?
They might bail out some banks that got too deep into the mortgage business. In the long run, they will cost the taxpayer dearly. How?
The federal government doesn’t have a lot of cash lying around for bailing out the banks in trouble in the mortgage market. And the increase in debt that would be necessary to accomplish anything measurable in the housing market, would raise the inflation expectation and the interest the government has to pay on treasuries.
Instead, the government could try to support housing prices with federal guarantees of new and refinanced loans, e.g. through a remodeld subprime FHA. The guarantees wouldn’t show up in the bottom line of the government at first, and the effect of the measure could well be a temporary stabilization of housing prices, which makes the guarantees seem not to be too risky. Banks take the money from the refinancing and run, never to be seen again in subprime mortgages.
In the long run, the guarantees are eating away a sizable chunk of the federal budget. Profits kept private, losses socialized - mission accomplished.
just look at Europe for where things are going …
in Netherlands we have a ‘National Mortgage Insurance’ which makes up for anyone who has to sell his home at a loss (that is: for those who can’t pay the mortgage debt after the home is sold). About 70% of mortgages in Netherlands are covered by this semi-government insurance. Because of the insurance, the buyers get lower rates from the mortgage companies (financial risk is assumed to be zero) and although they pay a fee for the insurance, effectively they pay less than those who are not covered. No risk for the buyer, no risk for the lender!
There are some requirements to qualify for the program, but definitely not like those NACA requirements. At the moment it only applies to mortgages up to 250K euro (average home price is EUR 241K) , but there are proposals to raise it to 350K soon. Also people are very creative in adding some mortgages (sometimes even toxic mortgages) together for more expensive homes while still getting the government insurance. The system works great as long as prices are climbing or at least not declining strongly. When things go wrong the Dutch government will have a huge bailout problem but who cares … the Netherlands already spends more on housing subsidies than on education and healthcare anyway
> the Netherlands already spends more on housing subsidies than on education and healthcare
I didn’t know it was this bad. In Germany, they took instead a homeowner subsidy away at the end of 2005, the “Eigenheimzulage”
A thought on the countries in Euroland - they can actually go bankrupt now, because they cannot inflate their debt away anymore for themselves, only in concert with the other countries. It could get interesting in a housing downturn.
“I’m still of the opinion that a housing bailout will be pushed off the table by bigger crises elsewhere.
This is a global credit/debt bubble. Before this year is over the stock markets will crash, numerous hedge funds will crater, GM & Ford will file bankruptcy, pension funds will implode, tax revenues will evaporate, the dollar will plunge further, inflation will ratchet upwards, etc.
The idiots in DC will be paralyzed as the walls come down around them.”
Of interest are the responsible homeowners who can afford the payments on their recent “80% LTV” refies, make that 80% LT-false-Value =150% LT-actual-Value. Mighten they “walk” too after they wise up?