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Perhaps we can talk a bit about the practicalities of a bailout.
I work for a big company involved in the MBS business. How can current subprime loans be “restructured” in any way when they are owned by MBS investors who purchased these securities assuming the loans will perform as originated? In other words, they paid for loans with certain payment characteristics - any restructuring will certainly make them less valuable as the interest rates will be less than planned.
I’m very confused by this. Almost all mortgage loans are part of an MBS transaction. The originator certainly has no right to restructure them (I’m thinking of WaMu’s recently announced $2BN plan).
If there is some kind of forced restructuring the MBS market will totally collapse. Bit of an arcane subject I know, anyone else have any thoughts on this?
I work closely with most of the MBS underwriters on Wall Street, there are a lot of very unhappy people here right now. We can enjoy their discomfort (and frankly, I often do) but the MBS holders will be the losers in the end, and that is all of us one way or another.
I’m not sure this could work at all, but if it would it could work like this. All the investors in all the tranches with their varying interests (good luck) would have to agree to swap some of the their bonds (matching the non-performing part of the portfolio) for new ones in one of two pools – the workout pool and the foreclosure pool.
To be eligible for a workout, a FB would have to be a legitimate purchaser who could have afforded their home at pre-bubble prices, but overpaid due to the frenzy, or someone who bought earlier but fell behind to due temporary hardship. Not a flipper, investor, gas station attendent in a McMansion, or person who HELOCed themselves to the poorhouse to live large. They would get a 30 year fixed self-amortizing loan at current interest rates, but with the principal written down so the payment would be more than is traditional but not oppressive (say 38% not 30%). And they would have to agree not to take on any more debts. Those investors who choose the workout option would take the loss on the write down up front.
Those investors who choose the foreclosure option would get the results of foreclosure proceeds.
Here is the problem. Once you have a workout options, what about the family eating Ramen noodles every night and paying 50% of their income to meet the higher payment? Once a workout at 38% is available, and if they were underwater, they would have every reason to default unless they had extensive other assets. And it is possible that if not every investor chooses the “workout” option the borrowers in each issue who would be eligible for a workout could be limited. In that case, it would be first come first serve, and everyone would have reason to rush into default before the only option left is foreclosure.
So the only think I can think of that works only works if a minority (the sharpest operators and most selfish people, most likely) figure out what to do. Any other ideas?
“Here is the problem. Once you have a workout options, what about the family eating Ramen noodles every night and paying 50% of their income to meet the higher payment?”
That’s why any bail out will kill credibility for decades.
If the governing ‘elite’ wants to try this option, they will have to take that as a consequence…
Ramen Happens.
Interesting, but substituting loans in the existing MBS pools would not work, it would fundamentally change the cashflow structure of the transaction. Your idea does make me think though that it might work for CDO’s that have MBS in them since they are not designed to be static pools. Still, even in that case the MBS themselves would need to be reconstituted so you are back to square one. I can’t think of a simgle incidence in the past 15 years (as long as I’ve been in this business) where investors have got together to agree an MBS pool restructuring, just too cumbersome of an exercise.
I’m really interested to see how this bailout idea can possibly work given the existence of the MBS business. However, one thing I am sure about, it’s going to be a great time to be a securities lawyer!!
It would be an amazing validation of the Law of Unintended Consequences if the MBS business by its very structure prevented bailout ideas from working.
Englishman,
This CNN article says much the same.
http://money.cnn.com/2007/04/18/real_estate/barriers_to_solving_subprime_problems/index.htm?postversion=2007041812
easy, the i-banks and anyone who originated these will have to come up with any shortfall from their pockets
Like New Century? I don’t think they have the capital or the profits once this gets rolling. And the only way it doesn’t roll all the way down the hill is having a large share of Americans live in near poverty to keep paying their debts, which any workout would work against. They’d run like lemmings into default just as they ran like lemmings into debt peonage, if that’s what the people down the street are doing and what shows up on Oprah.
I was thinking we were seeing more a Jerry Springer audience…
No, the originators or IB’s have no contractual obligation to make up any shortfall to MBS holders so why would they. These entities are taken out by the MBS trust, they no longer own the loans - a true sale to the trust has taken place.
Something tells me we’re going to have to come up with new words for these things. Using the words “trust” and “fiduciary” for anything done in finance is false advertizing!
I am guessing the subprime bailout will come in the form of some kind of taxpayer-provided insurance. This is a good way to get taxpayers to assume the costs, as few taxpayers understand that loading up the balance sheet of explicitly-guaranteed government agencies like the FHA or implicitly-guaranteed (too-big-to-fail) government sponsored enterprises like Fannie Mae or Freddie Mac with toxic mortgage debt is a form of taxation.
However, one would have to pay premiums to a private insurer to assume the risk. In lieue of premiums, the cost assumes the form of a time bomb that will go off at some indeterminate point in the future when one of these debt-burdened agencies blows up and taxpayers are billed for the cleanup costs.
How about a retroactive windfall profits tax for the investment banks that allowed gold rush to hell to take place in the first place. Goldman Sachs, Bear Stearns, etc. It’d be a good place to start as these geniuses set the system up to fail, took their huge cuts knowing disaster was around the corner but assumed someone else would be holding the bag.
I’m surprised at myself as I generally am right of center on economic issues, but increasingly I am seeing the investment banks as the financial equivalent of the five mob families. Half jokingly, I think the feds might be able to go after them under the RICO statutes. What do you think, a Giuliani or Spitzer type as independent counsel going after these amoral douchebags?
Ikea revolutionizes house construction!!!!!!!!!!!!!
http://arts.guardian.co.uk/art/architecture/story/0,,2048116,00.html
You’d better wait until cost-efficient Indians start developping our houses…
“An Indian car may soon earn a parking place in history alongside Ford’s Model T, Volkswagen’s Beetle and the British Motor Corp.’s Mini, all of which put a set of wheels within reach of millions of customers after they rolled onto the scene. Tata Motors is developing a car it aims to sell for about $2,500–the cheapest, by far, ever made.”
http://finance.yahoo.com/family-home/article/102865/the-next-peoples-car
I always knew China would jump on the prefab bandwagon… and remember Ikea is fanous for optimizing the specialties of foreign subcontractors to suit the lowest cost possible. They pioneered what Wall Mart only copied with a 100% China based model. Ikea can go to China, India, Eastern Europe and Asia and get from each country the cheapest deal for the money, not to mention the best quality!!!
I have a lot where to build a house and I explicitly wait for prefab to come to the US… meanwhile I am renting while not paying 200k+ for a stucco box built by illegals!!!!
If the Chines could they would do exactly that. One thing that the Chinese have actually learned that Scandanavians apparently (ahem) have not - is that you can use low-cost labor to build quality things for less.
What’s that, you say? Surely I’m joking.
I did some serious furniture shopping last year. 90% of all the highest quality furniture designed in N.C. is now made in China. And despite being as good or even better quality than the other 10%, it was about 1/2 to 2/3 the price.
Problem with houses is that it’s just not logistically feasible to ship them across the ocean - yet. As factory-built houses gain in popularity though it wouldn’t surprise me to see it in a few years.
There are plenty of prefab options in US. Has been for a while.
Weren’t the Craftsman houses prefabs?
I’ve been watching the prefab movement for a good 6 yrs. I’ve been a Dwell subscriber for years and will continue to be. I have to say I love the design and direction of what I am seeing. That said, most of the products are still too expensive for the consumer who really should be their target market.
The introduction of the Ikea homes means that big corporations are going to begin to take prefab seriously and to me this is nothing but good news.
I have been racking my brain trying to pick our next growth industries by watching faculty hiring here but we doesn’t have an architecture program so I missed this. I came up with bio-tech, plant engineering, alternative fuels, and geriatric medicine. I’m now adding prefab housing.
Thanks for the link - you made my week.
Slim,
Bingo! Many of the craftsmans were prefabs. I lived in an Aladin kit house for 10 yrs. They were marketed as the democratic or “everymans” house because of the ease of build and affordability. The concept was that anyone who wanted a home could make one for themselves.
You just picked up on one of my major interests >; )
there are some houses here in NYC that don’t look too different that were built back in the 1960’s or 1970’s. basically a box with aluminum siding
I have to laugh at this -
“‘When you come home you should be able to recognise your house straight away’ … BoKlok housing. Photograph: BoKlok”
That is a caption for a photograph of four identical houses!! And they’re touting how the houses are “different”?? Got to scratch my head on that one.
Sorry, but the Scandanavians really build some butt-ugly stuff. I’m not so much into 70’s-rental-style furniture, and certainly don’t want a house that looks like a painted concrete block, and also the same as 3,500 other ones around.
“Home foreclosures rise fourfold in Hub
By Kimberly Blanton, Globe Staff April 20, 2007
The number of Boston residents who lost their homes in foreclosure was four times greater last year than in 2005, according to a new report, and the rate is accelerating this year.”
http://www.boston.com/business/globe/articles/2007/04/20/home_foreclosures_rise_fourfold_in_hub/
Ah, the good old Globe and Kim Blanton. Just five days ago, Blanton interviewed a newly-minted 25 year old “economist” for Global Insight who said homes would be appreciating again by the end of the year:
http://www.boston.com/realestate/news/articles/2007/04/15/market_signs_suggest_worst_is_over_sales_gaining_steam/
This is why I said, at the beginning of the week, that you have to watch the Globe carefully. I’ll reiterate: they put a somewhat realistic warning in the Business section, and then a few days later — THWACK! — they smack you with a piece of garbage in the Real Estate section. This goes on week after week. Kim Blanton cannot get her story straight. What is it Kim? A collapsing market or all wine and roses?
Blanton probably drives with one foot on the gas pedal and one on the brake pedal! (Just like the Fed)
Just got back from vacation in the Palm Springs area.
Stayed in the Bermuda Dunes Country Club complex. So many houses for sale in the complex it was funny. The PS area is quite old, crowded and very noisy. The houses are old and musty-smelling, the area is quite odd really. Massive amounts of construction ongoing, but very interestingly, several large developments under construction didn’t actually seem to have any work going on. Half built, and ghost developments, absolutely no sign of life. I was only there 10 days, but even so. It seemed like much construction had come to an abrupt halt!
(Hiking and golf was very good though!). However, I do have a question some of you might be able to help me with. Why, when you have a whole massive desert to use, do you have all these very small lots crammed into a small area? Why would you conceivably do that when you have vast amounts of land to spread out a development on?
PS is just a tired, old version of Scottdale. I would much rather vacation in Carefree in North Scottsdale, where all the houses are newer, it’s much less crowded, and there are no noisy motorbikes ruining your afternoon by the pool.
I’ve just realized what a terrible curmudgoen I’ve become!!
The answer is, simply put, *greed*. Smaller lots (”zero lot line” and “patio homes” etc) + cheap labor (many times illegal or green card) + cheap materials (green wood that warps, cheap porous concrete) + poor site prep (soil testing, leveling & compaction, lack of pre-control for termites) = maximum builder profit$.
~Misstrial (sorry for the repeat ans.)
I would qualify that though - part of the problem too is that us Americans put too much emphasis on the size and amenities of our house vs. the size of our land. As a result, we’re giving up privacy and individuality.
I can’t tell you how dismayed I am seeing neighborhood after neighborhood of what are essentially row houses being built on farmland! Street after street of identical houses all about 10 feet from your neighbor. It’s the American dream!
If we’re willing to buy it, and it maximizes builders’ profits, then voila! You get crap.
>
The answer is, simply put, *greed*. Smaller lots (”zero lot line” and “patio homes” etc) + cheap labor (many times illegal or green card) + cheap materials (green wood that warps, cheap porous concrete) + poor site prep (soil testing, leveling & compaction, lack of pre-control for termites) = maximum builder profit$.
Question: is there a term for RealtorsTM & property sellers who charge outrageous amounts for their home hoping that an “equity locust” will descend? As we all know, this conduct prices out locals who make far less money to be able to afford these home prices. Is there a term for these realtors & sellers yet? PLMK! Thanks
~Misstrial
And we need a name for the parent/investors who buy up all the property around a univ to fund their brat’s education and lock the people who actually work there for a living.
YES!
I recently learned of a phenomenon going on the DC/MD area that I have never heard anyone on a bubble blog mention before. Real estate agents/agencies are being requested by lenders and banks to do a CMA (comparative market analysis) and take photos of any homes for which the borrower is 30 days late or more with their house payments. The agents are reportedly being paid $40-$80 per house for providing the lenders with this information. Business for this service is described as “very brisk.” Anyone else seeing this?
These are called “BPO’s (Broker Price Opinions).
PREFAB now available in the US (although I personally balk at the price of those toys for the rich i.e minimum of 200k).
Only when Ikea makes a prefab house will we be paying a fair price… 40-50k for a house.
http://www.fabprefab.com/fabfiles/fablisthome.htm
Globalization is GOOOOOODDDDD!!!!
Frank Lloyd Wright’s Usonian idea lives. He was ahead of his time.
We were @ The Martin House in Buffalo a few years back and it’s a little used and abused, but has such classic lines, as all of his houses do…
Howard Roark had a plan.
I commented above and agree that they are still too expensive. The MKD Breeze house has been my dream house for years. Ikea coming into the market is big news for affordability.
The LV home can be had for 30k BUT all costs added around 100k… and 10+ have now been built making it a safe bed… maybe.
http://www.rocioromero.com/LVSeries/LV.htm
I think I would prefer mine with wheels, axel, and DOT lights.
you go!
How about a death pool list of REIC executives who may be trading in their pinstripes for prison stripes in the coming years a la Joseph Nacchio and Co.? Legal eagles on the blog please post up potential charges that honest folk on the blog may not be aware.
“According to the Justice Department, Nacchio sold his Qwest stock during the first nine months of 2001 when he knew, but didn’t reveal publicly, that Qwest wasn’t likely going to meet its publicly stated financial goals.
He also was accused of providing investors with very bullish financial projections while he was told by Qwest co-workers that the company’s revenue was slumping.”
http://tinyurl.com/ywhp5s
Yeah, I wonder if Angelo Mozillo slept well last night!
Fraud, misrepresentation, and in some states: unjust enrichment.
Property taxes. Here in Florida, there is a proposal to eliminate property taxes in favor of hike in sales taxes. Right now we have “Save Our Homes”, which gives resident property owners a homestead exemption and tax cap that non-residents and business owners don’t get. From being on this blog, I’ve also heard a little bit about Prop 13 in California. But I don’t know much about how it works in other states. How do property taxes work where you live and are you happy with the system?
I’d like to hear from other bloggers about property taxes in their states, how the bubble has affected their property taxes, if they feel that eliminating property taxes in favor of sales tax hikes might or might not be a good idea.
Caveat: discussions of property taxes have become somewhat heated in the Florida thread, causing Ben to have to delete hostile comments (including my own) so I pledge to keep any discussion of this clean on my part.
I would like to discuss federal subsidies for the housing market, not in the form of payments today but payments later, as mortgages are getting a federal guarantee. If, for example, the FHA is now “modernized”, as proposed, and required downpayments are done away with as “antiquated” (as if 3% were that much to begin with), what influence will this remake have first on the housing market and second on the federal budget?
In NJ we have the highest property taxes in the nation (also the highest car insurance rates, I’m so proud). The state govt. recently announced a property tax rebate which will average about $1,000 per homeowner!! Sounds good, right? Um, actually, no. It only applies to people earning less than $100,000 per year. In NJ $100,000 is nothing, really. So, basically, the highest taxes in the country are bound to only get worse.
But, I hear you cry, surely you get some really worhwhile services for this humongous taxation, right? Um, actually no. The roads are in terrible shape, state funding for education is a complete joke if you live in a relatively wealthy area, and corruption and graft are so institutionalized and accepted that no-one commented on the fact the James McGreevey recently got a job at a university here in NJ as a lecturer in Ethics!!!!
Only in NJ, folks, only in NJ.
Englishman, I maintain that the higher the taxes in any state, the worse are the services provided and the more waste, graft and corruption, so thank you for illustrating my point.
I am all for eliminating property (and income) taxes in favor of sales tax hikes. It levels the playing field for everyone and is much simpler to administrate. I used to live on the border of Connecticut and New York back in the day when Connecticut did not have a state income tax. We always knew when we were crossing the border into New York, because the roads became rutted and pocked, despite the horrendous taxation that New York imposed. Connecticut had no income tax at the time, but always had well maintained roads, at least in the more populous areas.
> I am all for eliminating property (and income) taxes in favor of sales tax hikes. It levels the playing field for everyone and is much simpler to administrate.
I am against relieving real estate owners and taxing consumers instead. Removing real estate taxes seems to increase the lieklihood of a bubble, too, see California. Real estate taxes are also relative easy to administrate: while it has problems so has the sales tax, e.g. with purchases on the web over state borders.
I am against relieving real estate owners
WHY ??…Why should the business of real estate ownership or your personal residence carry ANY burden for those who do not own ?? We all use the same streets…Same Fire dept…Police…etc….Because its “Easy to Administrate”…That seems like a weak argument…
“Because its “Easy to Administrate”…That seems like a weak argument…”
Here’s my logic on this: it costs money to administrate a property tax. You have to have government departments and personnel to value housing, set the taxes, bill the homeowners or banks, send out statements, collect the money, lien those who don’t pay the taxes, sell the property if taxes are in arrears, etc. At the same time, we also have departments in the states that collect sales taxes from businesses. Having two systems is a duplication of effort and a waste. The sales tax system is by far more streamlined and cost-efficient. Think about it: if you eliminate property tax, you eliminate the costs of a vast bureaucracy on state and local levels. The current sales tax bureaucracy need not be increased just to collect more money. The same people just take in larger amounts, that’s all. From the same businesses that are already submitting sales tax. Meanwhile, people don’t have to worry about their property taxes going up, or special assessments for improvements, since that would come from sales taxes. And they need not be in fear the government would lien their property for non-payment of taxes.
the change from Property tax to consumption (ie: Sales Tax)….is REGRESSIVE. Why should wealthy property owners pay, when we can get the little guy whose bulk of income goes to consumption, and get the taxes from him.
More of the same, big boys beaten up the little boys.
Any reasonable economist will tell you consumption based taxes are the most efficient to collect as well as the most productive for an economy.
The idea that they are “REGRESSIVE” is a fiction as most basic items (food, rent, clothing) are exempt. The notion that “progressive” income taxation is “fairer” is a myth.
Anyone with any experience in small business knows that what a small business makes and what is reported is (most often) dramatically different. With a large business, all you do is shift the types of incomes you provide the highly conpensated. Substitute stock or options for income.
By not taxing investments or incomes you MAXIMIZE people incentives to save and be more productive. By taxing consumption you give people incentives to save, lowering the cost of capital for EVERYONE. Plus, you can easily structure a sales tax to be “progressive”, taxing the more frivolous consumption (Ferrari’s) at a much higher rate than a Ford Focus.
Get over the hang-up on taxing income to “punish” the rich. The (unscrupulous) rich will always find ways around any distorted tax scheme. The tax structure that is simplist, hardest to evade, maximizes revenue, is minimally intrusive and provides the best incentives for maximizing a stable and productive economy should be the goal.
Do anything else is simply pandering to the political prejudices of those without a basic economic education.
“The tax structure that is simplist, hardest to evade, maximizes revenue, is minimally intrusive and provides the best incentives for maximizing a stable and productive economy should be the goal.”
Exactly. And I don’t know where this idea of sales taxes as “regressive” ever got started. We’re always blaming ourselves and others for being debtors and not saving. But the system punishes earning and saving and owning, unless you have the means to hijack the system, as many of the boyz do.
“purchases on the web over state borders.”
States need to get ahead of the curve on this problem, otherwise the feds will just apply a flat tax to web purchases and cause the states to beg for their share. Each state should just impose a tax on state residents who sell products or services over the web. The day will come when any business in any state that does business over the web will receive, along with their license, a software program that links to the the Department of Revenue. It’s going to happen and I’d rather the states got ahead of the curve on this then have the feds be the “Deciders” and the IRS issuing the software.
Englishman in NJ;….We put a stop to that crap here in Cali back in 1979 with prop.#13….Cap tax @ 1.2% of purchase price with a max 2% increase a year….
In Florida we have a similar system with Save Our Homes, or SOH. But the call is going out to eliminate SOH, so I advocate elminating property tax completely, in favor of sales tax hikes. That ends the debate on the fairness of laws like Prop 13 or SOH.
Could we please not have a thread hijacking about this every day? This and gold. Thanks.
housing apocalypse, this thread is to suggest weekend topics. I am proposing this as a weekend topic. It is not a thread jacking, since this is the thread for weekend topic suggestions. People post ideas, others reply, hopefully there’s some sort of interesting debate and useful ideas put forward. If people aren’t interested in the topic, it gets no responses and sort of dies out. At least, that’s the way I think it works.
Topic Suggestion: “Are people (friends, relatives, strangers, strange friends or relatives) any more open to your bubble rantings than they were before? Is the general population finally aware of what is going on, or are they still calling you ‘a bitter renter’ or a ‘housing doom and gloomer’?
My answer…I’m looked at as being pretty smart to have rented these past 2 years; however, I’d better buy now, as housing here on the central coast “will soon take off again”. As I’ve said before, it’s the “whew, I’m glad THAT’S over!” sentiment combined with “this place is STILL special”.
People around me now concede there’s been a bubble, but they still look at me with pity because they just *know* I’ll never be able to buy. (The general assumption is that prices will no longer be skyrocketing, but they’ll never drop to a level that I can afford.)
Absolutely not! My roommate is trying to sell me his condo for $200K here in Bozeman, Montana
What would it take to get our alternative viewpoint onto a panel at a Congressional Hearing? So far you have advocates for various sectors of the housing and finance industries testifying. Nobody represents first-time buyers that have been locked out of the market due to absurdly inflated prices. Nobody advocates for savers whose thrift has been devalued by the cheap money recklessly injected into the economy.
Someone was recently writing “Testify brother” in response to comments on this blog. So I say lets do it for real. “Testify brother Ben!” - in Congress on Capitol Hill. We need to find a spokesperson and cover his costs through Paypal to put send him to DC. If he can’t get inside the next bailout hearing, at least we can have a demonstration and get all the DC area bloggers to go down to Capitol Hill and get some media attention. Get at least one story that is fully focused on presenting some of the views articulated on this blog.
Good idea. I’d donate to Ben’s travel costs.
I’ll take a day off and come down to DC to be part of a demonstration.
March 2007 DataQuick numbers for SoCal might be worth discussing. Here is the link to SD statistics:
http://www.dqnews.com/ZIPSDUT.shtm
I find the numbers for our zip code (Rancho Bernardo west 92127) especially intriguing. The YOY changes in median used SFR and condo prices are way down, while the new home price change is slightly positive:
Category YOY change in median sale price
———- ————————————
Used SFR -18.2%
Used Condo -23.5%
New home 1.7%
At first glance, it appears that used homes appear to have fallen in value by “about” 20%, while new homes have gone up. But one should not forget that the drop in new home market value is masked by the use of incentives, which are financed as part of the purchase price. I am wondering how well the use of incentives will hold up under tightening credit conditions, as it is hard to claim that the price of a new car, fancy vacation or cash back should legitimately be financed as mortgage debt.
P.S. Assuming that 18.2% drop in the median is roughly in line with the drop in value of SFRs, those who bought the median-priced SFR last year took a $189,000 haircut in one year — equal to nearly 3X the median SD household income.
Also of interest: The median SFR list price in 92127 on ziprealty.com currently stands at $1.395m, which is $545,000 above the median SFR sale price of $850,000 for March 2007. I am wondering who will step up to the plate and purchase all the brand spanking new wannabe-Rancho-Santa-Fe homes against a backdrop of falling prices?
At the risk of being called a troll I would like to propose a bailout plan. I think all the plans being discussed have one insurmountable fault. By bailing out the borrowers they would also bail out the lenders, which I am 100% opposed to.
I propose that all loans that were secured by homes be made 100% recourse loans. The idea being if you loaned money with home ‘equity’ as the collateral then you should be happy to get the collateral.
The FBs have to give up there property and suffer a down grade in their FICOs, but otherwise get away free ie no tax consequences, no seizing of assets, etc.
I know many will think this is too generous to the FBs and I agree they are getting off easy but if you don’t want the whole economy to spend the next decade in ‘Great Depression II (GD2)’ I think it’s the best solution. It would have a lot of positive side effects.
1. The increase in REO would be massive meaning that the prudent savers would get bargain prices.
2. Lenders would be very reluctant to make crazy loans in the future as they would know if prices go down they are going to get shafted.
3. The FBs will be chastened by the experience but as renters they will be able to take an active part in the economy thus keeping the GD2 at bay.
4. It will cut short the downward spiral of owners under water, foreclosures, lower prices more owners under water, more foreclosures, lower prices repeat, repeat repeat. Just give the lenders the property and have done with it; the end result will be the same and years of economic recession, depression, stagnation, job loss etc will be avoided.
This is a decent idea. Rather than keep FBers prisoners in their houses, it would quickly circulate those houses back to the market. This has the side effect of forcing the lenders to accept the consequences of their decision to loan to the FBs. Maybe a few banks go out of business, or get bought for $1. Let them.
The bigger picture question is this: “Suppose a bailout is inevitable. What would you accept?”
Well personally I have a problem with using tax money for bailouts. I think some arrangement needs to be made where the guilty parties share the pain and the rest of us are just bystanders.
Is subprime “contained” or will it go on “for several years” or both? At any rate, I applaud Senator Shelby’s efforts to let the free market handle the problems the free market created, and not offer up innocent taxpayers as unwilling sacrificial lambs to Wall Street subprime kingpins.
I guess Senator Dodd will have to figure out some other way to get campaign contributions.
I still expect an effort to cobble together an unpublicized stealth bailout. Keep your eye on efforts to relax FHA lending standards and load up the Federal balance sheet with taxpayer-insured toxic mortgage debt. There is nothing like fighting fire with fire (or the problems created by overly loose lending standards with still-looser lending standards)!
———————————————————————————-
Senators see no need for subprime “bailout”
Wed Apr 18, 2007 2:30PM EDT
By Patrick Rucker
WASHINGTON (Reuters) - The Democratic and Republican leaders of the U.S. Senate Banking Committee said on Wednesday they see no need for a federal bailout of the subprime mortgage lending industry.
Both spoke after a morning summit on the crisis among subprime mortgage borrowers, who qualified for loans despite shaky credit, and their lenders. The meeting drew lawmakers, regulators, mortgage industry representatives and consumer groups.
“I’m not interested in (a bailout) at this point. I think this problem can be addressed without going down that route,” said Sen. Chris Dodd, the Democratic chairman of the committee.
Sen. Richard Shelby, the most senior Republican on the panel, said he would be “unalterably opposed” to a costly federal program to rescue troubled mortgage borrowers and lenders.
“I believe the subprime problem will go on for several years,” Shelby said, but added that market forces would be corrective.
http://www.reuters.com/article/politicsNews/idUSN1826513120070418
Heard on KPIX ch 5 San Francisco.
Adding to rental demand, economists noted recent home buyers are facing higher monthly costs than renters in the form of property taxes, closing costs, agent fees and down payments.
Because of these costs, for the first time in 15 years, renting may make more sense than buying.
http://cbs5.com/topstories/local_story_109222714.html
While that is true today (renting making more sense), it made more sense even yesteryear. The only economical reason for buying was expected appreciation, and that is gone.
Aren’t municipalities painting themselves into a corner with property taxes? Maybe they can’t care less, but when they raise rates/assessments, they are apt to drive folks out. Is that part of the plan? Almost a gentrification pursuit? Call me crazy, but a bailout plan looks awfully shady if the solvent property tax payer gets no relief along with the kit and kaboodle. Is this fairness being arrived at, or just a way to protect bank money and its cronies?
I would like to see a topic discussion on time payments and how that is getting thrown out of sync with normal flow of things. Once people run out of cash to finance their debts, how much more extended can their credit get? Some one has to pay for all the toys and real estate purchases that transacted the past four or more years. Clue me in. Is the foreclosure rate climbing or is that just a blip anomaly? Is printing money via reduced a lower interest rate the only way that things can get paid off? And if so, will that just lock more people into a debt tread-wheel?