Mortgage problem Question -

CTM · 10-18-2008, 12:24 PM

So, since the Fed is now loaning to banks, brokerages, investment houses and companies directly, why not solve this Mortgage mess by loaning to mortgage holders directly at the discount rate (1.5%). I'm not sure if 100% of loan value is feasible, but I'd like it if they made this available to everyone who holds a note, for a percentage of their loan

I ran the numbers and my personal mortgage would be almost 1k a month cheaper if I could get access to a rate that low. My mortgage is for 390k, so I may be on the higher end nationally, but even if the average savings was $500 a month, think how many people would avoid foreclosure and have a ton of extra money to spend every month to help us avoid this economic downturn.

It bails out the banks, it bails out customers, props up housing prices and puts extra money in customers pockets.

I haven't thought it all the way through and frankly lack the expertise, but considering the mess we are in and that we're buying bad mortgages anyway, the biggest downside I see is to banks profit margins as loans are cashed in, but to heck with them as most of them are on the verge of failure anyway and this would provide liquidity.

I don't see huge inflationary risk as you are simply replacing existing debt (money supply) by cutting out the middle man.

Thoughts? Am I missing something really big?

MysticalJet · 10-18-2008, 12:49 PM

I am not a financial guru by any means, but you have to look at NPV of the money being loaned and what it is worth over the long term. In essence, money loaned today will be worth less than 10, 20, 30 years from now, so interest rates (beyond making a profit) would have to account for this. Not sure what that value is at the moment - but probably more than 1.5%.

CTM · 10-18-2008, 12:58 PM

[QUOTE=MysticalJet;2809628]I am not a financial guru by any means, but you have to look at NPV of the money being loaned and what it is worth over the long term. In essence, money loaned today will be worth less than 10, 20, 30 years from now, so interest rates (beyond making a profit) would have to account for this. Not sure what that value is at the moment - but probably more than 1.5%.[/QUOTE]

Yes agreed. This couldn't be the status quo going forward and shouldn't be done except in extreme circumstances, but it's better then the gov just buying bad mortgages imo and also would increase tax revenues with all the extra cash in peoples pockets.

dcJet · 10-18-2008, 02:05 PM

Dude, you would start a whole new housing bubble!

jetstream23 · 10-18-2008, 02:32 PM

[QUOTE=dcJet;2809683]Dude, you would start a whole new housing bubble![/QUOTE]

Quite true.

Many, many questions...

1. Is this only for existing mortgages?
2. Wouldn't you put new mortgages at a disadvantage? If yes, wouldn't this keep people from buying/selling, essentially locking them into their homes?
3. Would the U.S. Government now be the mortgage holder? What if they have to foreclose? Do they now own the homes like a bank would?

I like the government stepping in to help banks do what they already do, but do it better and more easily. I also don't know the cost of your plan. It could be in the trillions if every existing homeowner is now allowed to renegotiate a mortgage with the Federal Government. In a way, wouldn't renters and homeowners with no mortgage now be paying almost directly for people to buy homes more cheaply?

CTM · 10-18-2008, 03:55 PM

[QUOTE=dcJet;2809683]Dude, you would start a whole new housing bubble![/QUOTE]

How? If new mortgages aren't eligible and we only did a percentage of existing ones. I don't know it'd be enough to cause a shortage of available homes enough to create a bubble...

CTM · 10-18-2008, 04:00 PM

[QUOTE=jetstream23;2809709]Quite true.

Many, many questions...

1. Is this only for existing mortgages?
2. Wouldn't you put new mortgages at a disadvantage? If yes, wouldn't this keep people from buying/selling, essentially locking them into their homes?
3. Would the U.S. Government now be the mortgage holder? What if they have to foreclose? Do they now own the homes like a bank would?

I like the government stepping in to help banks do what they already do, but do it better and more easily. I also don't know the cost of your plan. It could be in the trillions if every existing homeowner is now allowed to renegotiate a mortgage with the Federal Government. In a way, wouldn't renters and homeowners with no mortgage now be paying almost directly for people to buy homes more cheaply?[/QUOTE]
1) Yes existing mortgages
2) Yes, locking them into their homes would be an unintended consequence, for sure, which is why redeeming a % of the mortgage value may make more sense.
3) Well the federal govt is already buying up mortgages, shares in banks and is now talking about buying down mortgages. So why not? If it's a percentage, maybe the banks manage as usual and collect.

I'm talking about this as a potential solution to a crisis, not the new way of doing things. My biggest concern is that any solution we come up with is going to reward the irresponsible (banks and homeowners in over their head) and gravely penalize the responsible. With what I'm suggesting, those who did the right thing all along also get to benefit.

To your last point, I don't understand how renters and homeowners with no mortgages would be paying for anything more then they already are? In thinking more about it, the rate should be whatever the treasury bills are paying. I think the real people that get screwed would be first time buyers who haven't bought yet..

jefethegreat · 10-18-2008, 05:05 PM

[QUOTE=CTM;2809617]So, since the Fed is now loaning to banks, brokerages, investment houses and companies directly, why not solve this Mortgage mess by loaning to mortgage holders directly at the discount rate (1.5%). I'm not sure if 100% of loan value is feasible, but I'd like it if they made this available to everyone who holds a note, for a percentage of their loan

I ran the numbers and my personal mortgage would be almost 1k a month cheaper if I could get access to a rate that low. My mortgage is for 390k, so I may be on the higher end nationally, but even if the average savings was $500 a month, think how many people would avoid foreclosure and have a ton of extra money to spend every month to help us avoid this economic downturn.

It bails out the banks, it bails out customers, props up housing prices and puts extra money in customers pockets.

I haven't thought it all the way through and frankly lack the expertise, but considering the mess we are in and that we're buying bad mortgages anyway, the biggest downside I see is to banks profit margins as loans are cashed in, but to heck with them as most of them are on the verge of failure anyway and this would provide liquidity.

I don't see huge inflationary risk as you are simply replacing existing debt (money supply) by cutting out the middle man.

Thoughts? Am I missing something really big?[/QUOTE]

:bangwall:

bitonti · 10-18-2008, 07:27 PM

[QUOTE=CTM;2809617]
Thoughts? Am I missing something really big?[/QUOTE]

yes you are. the banks have lobbyists and you don't.

CTM · 10-18-2008, 07:28 PM

[QUOTE=bitonti;2809891]yes you are. the banks have lobbyists and you don't.[/QUOTE]

:D

CTM · 10-18-2008, 07:28 PM

[QUOTE=jefethegreat;2809795]:bangwall:[/QUOTE]

I'm assuming you're an anti-bailout, let em all fail guy?

I don't think that was an option...

10-18-2008, 12:24 PM	#1
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	Mortgage problem Question - So, since the Fed is now loaning to banks, brokerages, investment houses and companies directly, why not solve this Mortgage mess by loaning to mortgage holders directly at the discount rate (1.5%). I'm not sure if 100% of loan value is feasible, but I'd like it if they made this available to everyone who holds a note, for a percentage of their loan I ran the numbers and my personal mortgage would be almost 1k a month cheaper if I could get access to a rate that low. My mortgage is for 390k, so I may be on the higher end nationally, but even if the average savings was $500 a month, think how many people would avoid foreclosure and have a ton of extra money to spend every month to help us avoid this economic downturn. It bails out the banks, it bails out customers, props up housing prices and puts extra money in customers pockets. I haven't thought it all the way through and frankly lack the expertise, but considering the mess we are in and that we're buying bad mortgages anyway, the biggest downside I see is to banks profit margins as loans are cashed in, but to heck with them as most of them are on the verge of failure anyway and this would provide liquidity. I don't see huge inflationary risk as you are simply replacing existing debt (money supply) by cutting out the middle man. Thoughts? Am I missing something really big? Last edited by CTM; 10-18-2008 at 12:59 PM.

10-18-2008, 03:55 PM	#6
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=dcJet;2809683]Dude, you would start a whole new housing bubble![/QUOTE] How? If new mortgages aren't eligible and we only did a percentage of existing ones. I don't know it'd be enough to cause a shortage of available homes enough to create a bubble... Last edited by CTM; 10-18-2008 at 04:03 PM.

10-18-2008, 04:00 PM	#7
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=jetstream23;2809709]Quite true. Many, many questions... 1. Is this only for existing mortgages? 2. Wouldn't you put new mortgages at a disadvantage? If yes, wouldn't this keep people from buying/selling, essentially locking them into their homes? 3. Would the U.S. Government now be the mortgage holder? What if they have to foreclose? Do they now own the homes like a bank would? I like the government stepping in to help banks do what they already do, but do it better and more easily. I also don't know the cost of your plan. It could be in the trillions if every existing homeowner is now allowed to renegotiate a mortgage with the Federal Government. In a way, wouldn't renters and homeowners with no mortgage now be paying almost directly for people to buy homes more cheaply?[/QUOTE] 1) Yes existing mortgages 2) Yes, locking them into their homes would be an unintended consequence, for sure, which is why redeeming a % of the mortgage value may make more sense. 3) Well the federal govt is already buying up mortgages, shares in banks and is now talking about buying down mortgages. So why not? If it's a percentage, maybe the banks manage as usual and collect. I'm talking about this as a potential solution to a crisis, not the new way of doing things. My biggest concern is that any solution we come up with is going to reward the irresponsible (banks and homeowners in over their head) and gravely penalize the responsible. With what I'm suggesting, those who did the right thing all along also get to benefit. To your last point, I don't understand how renters and homeowners with no mortgages would be paying for anything more then they already are? In thinking more about it, the rate should be whatever the treasury bills are paying. I think the real people that get screwed would be first time buyers who haven't bought yet.. Last edited by CTM; 10-18-2008 at 04:03 PM.

10-18-2008, 07:28 PM	#11
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=jefethegreat;2809795]:bangwall:[/QUOTE] I'm assuming you're an anti-bailout, let em all fail guy? I don't think that was an option... Last edited by CTM; 10-18-2008 at 07:35 PM.

10-18-2008, 12:49 PM	#2
MysticalJet Rookie Join Date: Mar 2004 Location: NC in the Hizzy Posts: 902	I am not a financial guru by any means, but you have to look at NPV of the money being loaned and what it is worth over the long term. In essence, money loaned today will be worth less than 10, 20, 30 years from now, so interest rates (beyond making a profit) would have to account for this. Not sure what that value is at the moment - but probably more than 1.5%.

10-18-2008, 12:58 PM	#3
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=MysticalJet;2809628]I am not a financial guru by any means, but you have to look at NPV of the money being loaned and what it is worth over the long term. In essence, money loaned today will be worth less than 10, 20, 30 years from now, so interest rates (beyond making a profit) would have to account for this. Not sure what that value is at the moment - but probably more than 1.5%.[/QUOTE] Yes agreed. This couldn't be the status quo going forward and shouldn't be done except in extreme circumstances, but it's better then the gov just buying bad mortgages imo and also would increase tax revenues with all the extra cash in peoples pockets.

10-18-2008, 02:05 PM	#4
dcJet Veteran Join Date: Feb 2006 Posts: 345	Dude, you would start a whole new housing bubble!

10-18-2008, 02:32 PM	#5
jetstream23 recovering from turf toe Jets Insider VIP Join Date: Dec 2005 Location: Phoenix, AZ (New Jets Stadium Section 246) Posts: 31,607	[QUOTE=dcJet;2809683]Dude, you would start a whole new housing bubble![/QUOTE] Quite true. Many, many questions... 1. Is this only for existing mortgages? 2. Wouldn't you put new mortgages at a disadvantage? If yes, wouldn't this keep people from buying/selling, essentially locking them into their homes? 3. Would the U.S. Government now be the mortgage holder? What if they have to foreclose? Do they now own the homes like a bank would? I like the government stepping in to help banks do what they already do, but do it better and more easily. I also don't know the cost of your plan. It could be in the trillions if every existing homeowner is now allowed to renegotiate a mortgage with the Federal Government. In a way, wouldn't renters and homeowners with no mortgage now be paying almost directly for people to buy homes more cheaply?

10-18-2008, 05:05 PM	#8
jefethegreat lovin' America Rookie Join Date: Aug 2005 Posts: 848	[QUOTE=CTM;2809617]So, since the Fed is now loaning to banks, brokerages, investment houses and companies directly, why not solve this Mortgage mess by loaning to mortgage holders directly at the discount rate (1.5%). I'm not sure if 100% of loan value is feasible, but I'd like it if they made this available to everyone who holds a note, for a percentage of their loan I ran the numbers and my personal mortgage would be almost 1k a month cheaper if I could get access to a rate that low. My mortgage is for 390k, so I may be on the higher end nationally, but even if the average savings was $500 a month, think how many people would avoid foreclosure and have a ton of extra money to spend every month to help us avoid this economic downturn. It bails out the banks, it bails out customers, props up housing prices and puts extra money in customers pockets. I haven't thought it all the way through and frankly lack the expertise, but considering the mess we are in and that we're buying bad mortgages anyway, the biggest downside I see is to banks profit margins as loans are cashed in, but to heck with them as most of them are on the verge of failure anyway and this would provide liquidity. I don't see huge inflationary risk as you are simply replacing existing debt (money supply) by cutting out the middle man. Thoughts? Am I missing something really big?[/QUOTE] :bangwall:

10-18-2008, 07:27 PM	#9
bitonti searching Hall Of Fame Join Date: Apr 2003 Location: Philly Posts: 38,786	[QUOTE=CTM;2809617] Thoughts? Am I missing something really big?[/QUOTE] yes you are. the banks have lobbyists and you don't.