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Thread: Subprime Mess---Govt to the rescue---

  1. #1
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    Subprime Mess---Govt to the rescue---

    [url]http://www.msnbc.msn.com/id/22116043/[/url]

    President Bush is set to unveil details of a plan Thursday to help head off a wave of mortgage foreclosures hitting homeowners whose adjustable-rate loans are resetting to monthly payment they can’t afford.

    Under terms of an agreement hammered out between the administration and lenders, interest rates would be frozen for five years on certain subprime mortgages, congressional aides said. Bush is expected to make a statement at 1:40 p.m. ET.

    The plan apparently would not go quite as far as those proposed by Democratic presidential candidates Hillary Rodham Clinton and John Edwards, who are focusing on the issue in their campaigns. News of an agreement on the White House plan emerged just as Clinton was discussing her own proposal in a speech in New York and then an interview on CNBC.

    The White House plan, the result of negotiations led by Treasury Secretary Henry Paulson, would freeze interest rates at lower “starter” rates on many loans that were popular with lenders and borrowers the tail end of the housing boom.

    Clinton's proposal also would impose a 90-day moratorium on foreclosures.

    With home prices now falling in many parts of the country, many homeowners are having trouble refinancing their loans because they have little or no equity left — and may owe more than their home is worth.

    Paulson, who has been leading talks with regulators, investors and lenders, said Monday that the government wanted to freeze rates to give homeowners and lenders more time to refinance or modify terms of existing loans. Bush is scheduled to speak about the plan at the White House Thursday, and Paulson will hold a news conference with Housing and Urban Development Secretary Alphonso Jackson to provide details.

    Loan servicers, who collect payments from homeowners on behalf of investors who hold the mortgages — often through complex securities — have been reluctant to freeze rates because of possible liability from investors who would have to accept lower returns on their bonds. It’s not clear how the Bush administration’s plan would overcome those concerns. Some two million loans are expected to reset to higher rates and bigger monthly payments in the next two years. Unless the loan terms can be modified, many homeowners will be unable to afford the higher payments. Some borrowers face heavy prepayment penalties if they try to refinance on their own.

    The lending industry, meanwhile, has been swamped with borrowers seeking to modify their loans. So far there are no details about how the White House plan would clear the logjam.

    The Treasury plan reportedly would include a five-year freeze on adjustable rates for borrowers with loans made from the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

    Too little, too late?
    Until recently, the White House has insisted that the task of modifying of mortgage loans should be handled on a case-by-case basis. In October, Sheila Bair, head of the Federal Deposit Insurance Corp., suggested a more comprehensive approach that would involve freezing rates on loans that are scheduled set to move higher.

    But foreclosure attorneys, regulators, mortgage brokers, credit counselors and others involved in helping homeowners head off foreclosures say the complexity of the process will make broad solutions difficult to implement.

    “My concern is the administration is quite late coming to the table,” said Michael Barr, a professor at Michigan University Law school and former Treasury official in the Clinton administration. “There's always concern of doing too little, too late, and I'm worried that's what's happening here.”

    Community groups also have said the Bush administration’s proposal doesn’t go far enough to head off the wider impact of the rise in foreclosure rates.

    “These are systemic problems which require systemic solutions,’’ said Maude Hurd, president of ACORN, a community group working with homeowners who face foreclosure. Hurd said the Bush plan wouldn’t help homeowners who already have fallen behind in their payments or a have lost their homes to foreclosure.

    In her speech Wednesday, Clinton proposed appropriating $5 billion to help communities cope with the economic impact of foreclosures. She also called on the lending industry to freeze rates on existing loans for five years.

    Clinton said that while Wall Street was not solely responsible for the wave of foreclosures that threatens to crimp U.S. economic growth, it "certainly had a hand in making it worse."

    "Wall Street helped create the foreclosure crisis, and Wall Street needs to help solve it," she said.


    Clinton said mortgage lenders and brokers who lowered underwriting standards also deserved blame for the housing market mess, as were regulators who failed to provide adequate oversight. And she pinned some of the responsibility on ratings agencies for giving high marks to securities later deemed to be much riskier, and on speculators who bought multiple properties in the hope of profiting from a strong housing market.

    Unlike conventional adjustable rates loans, which rise and fall with market rates, the current round of default and foreclosures are coming on loans that automatically reset after the first two or three years, with payments that can jump as much as 30 percent. In many cases, the initial start rates are above market rates for prime loans issued to borrowers with good credit histories. Some borrowers who were sold “subprime” ARMs had credit scores that would have qualified them for better rates.

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    Does anyone know where I can retroctively change my fixed mtg to a subprime rate, which would reimburse me for the difference Ive been paying over the years. Then I can further apply for the bailout.

    Nice---also nice of HRC blaming everyone but the people who entered into loans they couldnt re-pay.

  2. #2
    [QUOTE=sect112row36;2249576]
    Nice---also nice of HRC blaming everyone but the people who entered into loans they couldnt re-pay.[/QUOTE]

    it's not about blame it's about making sure the economy doesn't spiral into a recession.

  3. #3
    The taxpayer gets the shaft again.

  4. #4
    JetsInsider.com Legend
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    Another nail in the coffin of Personal Responsabillity.:(

  5. #5
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    [QUOTE=sect112row36;2249576]Nice---also nice of HRC blaming everyone but the people who entered into loans they couldnt re-pay.[/QUOTE]

    It's also the fault of the mortgage companies loaning money to people they knew couldn't re-pay them, no? And/or loaning more than homes are worth...

  6. #6
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    [QUOTE=Winstonbiggs;2249927]The taxpayer gets the shaft again.[/QUOTE]

    true true!!! as usual

  7. #7
    Bushie the liberal ... at it again ... don't know why liberals hate him so much ... on economics, Bush has been a classic liberal in most cases.

  8. #8
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    [QUOTE=Warfish;2249951]Another nail in the coffin of Personal Responsabillity.:([/QUOTE]

    what about corporate responsability to make sound business decisions and not loan money to people they know couldn't afford the loans? or loaning people more than homes are worth?


    they share equally in blame, no?

  9. #9
    if the economy stays above water that's good for everyone, especially the taxpayer

    you guys would rather the dollar be worth a tenth of the euro and massive stagflation sets in?

    this is one situation where personal responsibilty takes a back seat to macro economic security.

  10. #10
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    [QUOTE=angry jets fan;2249957]Bushie the liberal ... at it again ... don't know why liberals hate him so much ... on economics, Bush has been a classic liberal in most cases.[/QUOTE]

    FYI liberals aren't liberals for their economic beliefs... we're liberal for our social, environmental, etc beliefs

  11. #11
    [QUOTE=bitonti;2249961]if the economy stays above water that's good for everyone, especially the taxpayer

    you guys would rather the dollar be worth a tenth of the euro and massive stagflation sets in?

    this is one situation where personal responsibilty takes a back seat to macro economic security.[/QUOTE]

    How does this protect the dollar? What Macro economic security is this creating? Its simple protecting one class of borrower, ones that haven't yet been foreclosed who have a teaser adjustable rate at the expense of every other borrower, including those that have already been foreclosed and tax payers and bank shareholder. How does keeping rates low for this class of borrower protect the dollar or create macro economic security?
    Last edited by Winstonbiggs; 12-06-2007 at 04:32 PM.

  12. #12
    JetsInsider.com Legend
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    [QUOTE=Tanginius;2249958]what about corporate responsability to make sound business decisions and not loan money to people they know couldn't afford the loans? or loaning people more than homes are worth?

    they share equally in blame, no?[/QUOTE]

    Of course they do, and they should suffer the fate the market provides to businesses who make bad decisions, i.e. failure.

    Shame the Govt. didn't step up to "bail out" all the kids of my generation who were all but given credit cards far too early, with no education (go go public school) as to what they were all about, with the bonus of so-called manipulative and dishonest terms, rates and information, and gave them (and me) a free pass too.;)

    Guess we're not worthy or important enough to the "macro economy", eh Bit?:rolleyes: Good thing for me that I pay the last of my personal debt off next month. Guess not everyone needs a handout in life.

  13. #13
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    There are 3 parties in this mess, the third which is quite often the biggest cause yet often overlooked. Who is that you may ask?? The big three credit reporting agencies.

    Many of the folks that entered into these bad mortgages were led to believe that they could fix, repair, change or otherwise improve their credit score during their fixed period and simply refi for a much lower rate when the loan begins to adjust.

    Unfortunately the onus that is placed on the person to try and repair their credit is monumental.

    Just a couple that are problematic.

    1. Although the "laws" are in favor of the person, the process can be dragged out for many months, even years to get an item removed.

    2. If you had a bad debt and try to do the right thing like pay-off the bad debt, the reporting agencies re-age the debt and make it current, even if it was several years old.

    3. 1 bad account, for no matter what reason, will kill the positive score impact of a dozen good accounts. Even if it is several years old.

    It may take 5-7 years to get a credit report cleaned up. Most of these folks are led to believe that they can easily "get their score up" a hundred points or more in the two years their ARM is fixed... it would simply take a miracle or some illegal practice for that to happen.

  14. #14
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    I know the government is bailing out the banks here and they want consumers to keep consuming, but all they are doing is pushing the problem down a few years until the next guys are in office - they aren't solving anything. And I know that the government is probably telling the banks they'll make up the difference for their lost revenues here, but does anyone really think that fixed rates for new homebuyers will not go up now that all of these ARMs are going to be frozen and banks' investments won't be as profitable, even with ever-present default risk factored in? Even if the risk is diluted with this bailout, the profits will shrink and the banks will have to make this up somehow...and they won't want to use adjustable-rate mortgages, so fixed rate mortgages will go up. Count on it. And you know people are going to default anyway in a lot of cases, even with this bailout and whether you delay it or not, these rates are going to re-set sometime and government bailout or not, banks are going to lose tons of returns for their investments and they aren't going to take risks like that in the short-future. There is a timing effect of revenues collected and if the equation is collecting something at a lower rate versus a foreclosure, that is a business risk the firm needs to make on its own and who knows how diverse their portfolios are, and I suspect the present value of the foregone re-set cashflows is likely greater than the smoother, lower cashflows at extended teasers, even when netted for all forclosures, which aren't all going to happen at once and won't all be avoided, even by doing this bailout! This is why the level of risk an investor takes should be determined by market forces, not government fiat and what it will 100% do is prevent millions of people from buying homes in the future, even though the overwhelming majority of loans are not subprime and the overwhelming majority of subprime loans do not default and banks and lenders need to learn the proper mix of prime and subprime loans through the real effects of P/L, because nothing imposes discipline on a company than losing real money. Well over 90% of subprime borrowers don't default and wouldn't have been able to buy a home without this flexibility. This is a good thing, but it can go overboard and when it does, it needs to work itself out. Getting a bailout will have downstream effects that are not pleasant for anyone and will not sufficiently teach lenders to respect the awesome power of risk - again, this solves NOTHING. I didn't have 20% for my first house and took a subprime loan with an adjustable rate. We paid the payments every month, flipped the house and were able to get a loan on our second house that was not subprime. We looked at the fixed-adjustable spreads at the time and decided to take the pain of higher monthly payments over the reward of lower ARM payments precisely because of the re-set risks.

    Not only that, but the fed kept cutting the interest rates for YEARS. Interest is essentially the price of money, which made money cheap to buy/borrow, which drove up demand for money, which drove up the demand for homes, which drove up home prices (among other things), which drove up taxes via inflated assessments, which they get to keep (GREAT for the government!). Interest is also the return on investment a lender makes (oversimplification, I know) and with lower rates set by the Fed, lenders have to take more risks to get returns they counted on or would have earned with less risk in a higher/reasonable interest rate environment. More risk means lending to people you wouldn't otherwise lend to, albeit at a higher rate (i.e. subprime). Most of these are fine, but businesses need to learn the lesson that lending money to people who can't afford to pay you back is generally not a very good business model, regardless of the premiums they are paying and when that loan is backed by nada, in real terms, except for an asset whose very value is inflated, as everyone knows they were.

    Now, the home market is correcting, as it should, but taxes and assessments of home values upon which those taxes are determined are still a year in lag, so homes, for tax purposes, are assessed and taxed based on values much higher than a homeowner could sell them for today in today's market conditions.

    It's amazing. The Fed keeps rates artificially low for years and years because they want to stimulate the economy after the TMT bubble burst in 2000 and 9-11 hit, creating an environment where investors need to take larger risks to seek out returns and also to allow people to buy homes and increase overall economic activity --- especially as people took out equity lines against the temporarily and artificially high values of their homes -- and so subprime loans become popular because it made sense for both sides. And over 90% of them don't default and are fine and allow millions of people without a lot of capital to become homeowners. But, of course, risk comes back to bite you in the a$$, especially if you become too attracted at the reward side of the ledger and not your value-at-risk's side, and now banks are collapsing and the government seeks to find a "solution" to a bubble that they helped inflate and lendees are getting bailed out by Joe Taxpayer and so they are not learning the painful yet necessary lession that risk exists and needs to be respected!! And of course, you can't let things shake out like everyone with a brain knows they should, because the government is one big short-term collection of people who face career risk and no shake out can happen on their watch, even if it is what is needed to happen. So borrowers get insulated from risks and lenders get insulated from risk, and the rates are kept lower than they should be and all this will accomplish is to delay the inevitable and will actually make things WORSE because this sort of moral hazard will only encourage MORE risky behavior in the long-term future after the inevitable reactionary period of less risk subsides and people again react to artificial stimulus that we all knowwill happen, because hey, if things get too bad, some sap who is gunning for re-election will just bail you out anyway! The government has a huge hand in creating this problem and then wants to come swooping in to "solve" it and they [B]aren't solving anything [/B]and they'll just pay for it by screwing the responsible people and taking more of their money, and they have the GALL to portray people who knowingly took out loans as victims...as if it's even true and as if they give two sh*ts about that and not trying to kick the can down the road a few blocks to save their own political hides. This creates not a shred of macroeconomic security and has nothing to do with anything but scoring political points and attempting to prop up businesses that deserve to fail for being run stupidly and teaching lendees the valuable lesson that you shouldn't buy houses you can't afford, even if someone offers it to you and teaching lenders the lesson that there is a real risk element in the risk/reward equation, even if asset prices keep going up for years. Everything reverts to the mean, everything!

    Ugh.... un-f*cking-believable. I HATE the government in so many, many ways....
    Last edited by jets5ever; 12-06-2007 at 05:24 PM.

  15. #15
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    [QUOTE=Warfish;2250019]Of course they do, and they should suffer the fate the market provides to businesses who make bad decisions, i.e. failure.

    Shame the Govt. didn't step up to "bail out" all the kids of my generation who were all but given credit cards far too early, with no education (go go public school) as to what they were all about, with the bonus of so-called manipulative and dishonest terms, rates and information, and gave them (and me) a free pass too.;)

    Guess we're not worthy or important enough to the "macro economy", eh Bit?:rolleyes: Good thing for me that I pay the last of my personal debt off next month. Guess not everyone needs a handout in life.[/QUOTE]



    just making sure you knew that :)

  16. #16
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    [QUOTE=jets5ever;2250078]Ugh.... un-f*cking-believable. I HATE the government in so many, many ways....[/QUOTE]


    I hear ya... although it's worth pointing out that the Fed Reserve is not a government agency (although it has a .gov website!), and is actually a private corporation. They're a big part of the problem...

    and not surprisingly, The Good Doctor Ron Paul has that part of the problem solved!

  17. #17
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    [QUOTE=Tanginius;2249954]It's also the fault of the mortgage companies loaning money to people they knew couldn't re-pay them, no? And/or loaning more than homes are worth...[/QUOTE]


    Agreed. I would feel better about this bailout if they also announced an equivalent cut in govt costs of hard costs akin to how the private sector would work, which is why the handling of this is wrong on two different fronts.
    The bailout is bad enough, the funding of taxes without accountability is irresponsible and our $ gets devalued again when rates decline next week.

    Bit--this may delay a recession, but it wont stop it as you claim and will only make it more severe if/when it comes.

  18. #18
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    I agree 100% with Sec112 and 5ever re: pushing decline/problems a little into the future

  19. #19
    flushingjet
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    it's yet another govt handout to the lower end of the economic spectrum,
    paid for primarily by the upper end of the economic spectrum, oddly benefiting members of both when rationalization is forced on them

    the many , (but not all) of whom got drawn into risky deals by the commission-chasing, gravy sucking pigs also known as mortgage brokers

    the laughs keep coming even from a potentially miserable situation

    in no particular order

    edwards and clinton's "solution"-nothing like more govt,
    $5B is a nice round number to fund more paper pushers

    dr. moon, i mean, pall, would do nada for these folks
    if that were the case hed be the very first compassionate libertarian

    unless you're a novice or a mute, compliant sheep,
    if you are assessed on a higher old value of a home you own
    or just bought, you never resign yourself to pay the old amount,
    you march yourself down to the assessors office and
    ask for an assessment based on fair market value
    then a hearing if that dog dont hunt
    you have some recourse under the law
    i bought my house for $225K (market value in down
    market) assessed at $375K from
    years earlier - no prize for guessing what i did

    market forces never fully guide the US real estate market
    anyway-sub-prime lending will always exist to some degree
    because the HUD [U]mandates[/U] lenders take some risk on their books
    (psst, thats due to gov't liberals, so much for liberals economic
    beliefs not affecting markets)

    people will still buy and sell homes, there will always be
    opportunities - a buyer's market is a boon for some priced
    out the last few years and the young
    and that's not all bad-nothing more american than home ownership

    also consider the general appreciation in a home's value long term-
    greater today due to no/lower capital gains on primary residence sales unlike the old days

    something like a rupaulian "fair tax" might have more of a drag
    on the real estate market with no mortgage interest deductions allowed-
    just ask our canuckistanian friends aboot that

    my advice to prospective homeowners
    drop a few luxuries for awhile, (the pipe, the lunchtime rub & tugs)
    pay PMI with less $ down and refinance later
    Last edited by flushingjet; 12-06-2007 at 07:28 PM.

  20. #20
    [QUOTE=Tanginius;2249968]FYI liberals aren't liberals for their economic beliefs... we're liberal for our social, environmental, etc beliefs[/QUOTE]

    yes, except you generally want to use the gov't and the economy to advance your social and environmental beliefs.

    The GOP does too but.. just sayin

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