Posted on 12/10/2007 9:40:39 AM PST by Titus Quinctius Cincinnatus
Last week the Bush administration decided to "freeze" for five years the interest rates of certain types of mortgages. You've probably caught the tail end of news stories about "subprime" home loans, lots of foreclosures, etc. Never a happy moment when the bank takes the farm.
So now the government has stepped in and said that, if you fall into a particular category of adjustable-rate mortgage (ARMs, in the biz) and you're worried that it's getting way too adjustable, don't worry: The Nanny State is about to readjust it well inside your comfort zone. By fiat of the Treasury secretary, your adjustable-rate mortgage is henceforth an unadjustable adjustable-rate mortgage. These new UNARMs will spread their healing balm across the land until it's safe enough for the housing "market" to once again be exposed to market forces.
The government has, in effect, nullified the terms of legal contracts mutually agreed by both parties — borrower and lender, Mr. and Mrs. Joe Schmoe and the First National Bank of Pleasantville.
(Excerpt) Read more at jewishworldreview.com ...
Which will engender another bubble of some kind to follow the internet and real estate bubbles.
Massive numbers of foreclosures will reduce the actual, not just the projected, income of lenders. That would have pretty drastic effects of its own.
Doesn't anybody understand, this is what the banks wanted. This fix was not pushed on to them by the nanny state. The banks want to avoid foreclosures, and if they can do so and still get a decent albeit smaller return they will be tickled to death.
The reason the banks vlunteered for this plan is to help them reduce the massive losses they are going to take when 1 million plus homes are foreclosed next year.
That's a novel theory; can you support it?
Your logic seems sound to me. Failing to deal with this now will mean bigger problems in the future.
You are correct in your thinking banks are not in the business of owning homes. They are in the business of lending money to people so that they can own homes.
Kirby
I agree. It would cause significant pain and a lot of smaller banks would have to give up the ghost and sell their portfolios to better capitalized competitors.
But the best method would be for better-capitalized banks to assess each loan and revalue it, rather than the government decreeing an entire class of lenders absolved from the terms of their contract.
Not that I support this fixing business, but the borrower in question cannot be behind nor could he have been late with a payment. Therefor he’s a better risk than the bank gave him credit for.
Should the bank take it in the shorts, probably not. But then again, is it better to have somebody who turned out to be a better risk at a lower rate continue to make the payments and not be foreclosed where the bank gets the full interest due and the property to sell at a depressed price?
I can’t answer that. Maybe. Maybe not. I would think it would be in the bank’s interest to convert as many of these ARM’s to a reasonable fixed rate for those who’s credit performance has been spotless, than to look to get paid from someone who can’t pay at higher interest rate.
[/liberal]
Can you help me locate that passage? Because it sure as hell isn't anywhere in Article 3.
Thanks in advance.
L
I’m all in favor of a Free Market for religion, starting with an end of my tax subsidy of religion via property tax exemptions. Let religions compete freely for adherents and contributions, and let thsoe who’s adherent can’t pay for municipal services relocate or go out of business.
I think I have 5 3/8... not the bottom but a nice number for the next 27 years none the less....
It's is not a government program, so it doesn't need to be in the Constitution. 80% of what the government does is not in the Constitution, but in this case the government did not create a law and is not spending a dime on this. What did they do that you think is prohibited by the Constitution. This is all voluntary guidelines which the banks will administer.
MORTGAGE MELTDOWN
Interest rate 'freeze' - the real story is fraud Bankers pay lip service to families while scurrying to avert suits, prison
Sean Olender
Sunday, December 9, 2007
New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.
Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.
But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."
Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.
Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?
You forget, taxing churches and other religious organisations would violate the Constitutional Separation of church and state!
Are you familar with foreclosures? Do you think banks make money on them? Banks typically have $25K in legal fees alone to foreclose on a home. During the months it takes, they are collecting no interest. Then the home is usually trashed and is sold in a distressed sale. Typically a foreclosed home sells from 25-50% of its market value. A foreclosure is a huge lose to the bank. It is no novel theory, talk to a banker sometime.
I love Mark Steyn, but I think he misinterprets Huckabee just because it is the shortcut to an argument against him. He never has advocated a theocracy and he never will. He is not the best fiscal conservative candidate ever, but he is just as good as Bush in that area. Those candidates which claim fiscal conservatism aren’t all that consistent either. They like the rhetoric but when it comes time to vote, they spend our money to buy our votes. The problem is us more than it is them.
Then why foreclose, if it is not the best option for the bank? Since it clearly is their best option, I'm not going to cry when they exercise their best option. It's not like they don't have teams of accountants making scores of actuarial tables to assess foreclosure risks so that they can plan for such eventualities. Just because they made stupid loans does not mean that I should be happy that they will not suffer the consequences of their own stupidity. Our nanny-government already meddles far too much in our lives. Making private contracts subject to government "do-over" calls is not a wise way to encourage a healthy and vibrant economy. THAT takes the will to watch bad decisions come to bad results... but sadly, few Americans have the stomach for that kind of thing anymore, and they are more than happy to allow government to let them feel like bad consequences are a thing of the past.
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