Posted on 12/10/2007 9:40:39 AM PST by Titus Quinctius Cincinnatus
This was not done by the government to the banks, and it was narrow enough that I suspect that the government exerted very little influence over the banks, though they should have exerted none.
The banks are renegotiating these mortgages because it is in their own best interest to do so. They are only doing this for borrowers who will have to default on their mortgages if their rates rise, but are not already behind on their mortgages and would likely default even after the rates were frozen.
If people were already behind on their mortgages freezing the rate an an unfordable level doesn't solve the problem. The banks can deal with such situations on a case by case basis, but they are likely better off going ahead with the foreclosure even though that means taking a large loss.
If it appears borrowers can continue to pay their mortgages if the rates go up, even if it does stretch, their finances greatly, the banks have no incentive to give them an interest rate break either. They simply expect such people to live up to their obligations.
However, for those that are just able to keep paying their mortgages as they are now, there is an incentive for the bank to freeze the rate and accept the lower rate of return rather than force the home owner to default and then for the bank to lose a fortune through the foreclosure.
Those are the only people to whom the banks are offering this rate freeze, and they would have likely done so without any prodding from the government simply because it is in their own best interests.
Because they aren't paying anything. You seriously think banks make money on foreclosures? Why do you think banks are writing off $10 billion dollars in loses left and right on these subprime loans?
Making private contracts subject to government "do-over" calls is not a wise way to encourage a healthy and vibrant economy.
The government is not involved. The government did not mandate anything. The government is not spending a dime or overseeing this. This is banks volunteering to do this because it is in their best interest. If you really understood how banks packaged these subprime loans and sold them to investors, you would have an idea why this was necessary. This was all done to cover the rear-ends of banks.
Another reason is that the voluntary plan was a good way of heading off the fantasyland bill that will come out of Harry Reid and Nancy Pelosi. This approach does minimal damage. And it may actually help the market absorb the losses over time, keep the real estate market more stable, and avoid a real-estate lead recession. All in all, a deft move by W. Failure to act would have lead to measures from congress that were MUCH worse.
The only concession banks made was extending the freeze to 5 years. Banks had only wanted to freeze for 3 years.
Those are the only people to whom the banks are offering this rate freeze, and they would have likely done so without any prodding from the government simply because it is in their own best interests.
That the problem, financial institutions sold these subprime loans to investors. Investors now own the loans, not the banks. If the banks just renegotiated the loans, they would get sued by the investors. This agreement with the government backing, gives banks the ability to change the loan terms to get as much money as they can from borrowers while giving them legal cover from lawsuits.
I believe the banks are behind this effort because they and the investment banks do not want investigations into the subprime mess. Investors and stockholders will sue like crazy when they find out just how deceived they were.
What will be found by investigators is wholesale fraud by banks, mortgage brokers, investment banks, and ratings agencies, with the willing or unwitting collusion of borrowers.
Paulson, who before he became Treasury Sec’y was the head of Goldman Sachs, has his hands deep inside the start of this subprime mess and would probably like to avoid a perp walk to jail a la Enron, as would a whole lot of Wall Street insiders.
Yep, real government intervention dreamed up by Democrats in Congress would have been a certain disaster.
This is voluntary, remember ?
Remember, Paulson was head of Goldman Sachs before being head of Treasury.
He’s trying to help his former colleagues avoid jailtime for fraud.
There will be lawsuits. Banks did deceive investors on the safety of these mortgage fund investments. And yes, the banks were very much behind this effort.
I posted my #25 before I read this.
Remember, Paulson and several before him were chiefs of Goldman Sachs. Goldman Sachs is knee-deep in this stuff.
“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.”
Uh, they’ve been collecting interest for 20 years on these sub-prime loans. They’ve already made a lot of money on the loan. If they foreclose, THEY WILL OWN THE HOUSE.
They could sell the house WELL BELOW market value and still make more out of it than if the loan reached full maturity and was paid off.
?????? I am sorry you believe that. I don't even know where to start. But here it goes. Sub-prime loans weren't made twenty years ago, they are a recent creation from about two years ago. Most of these people bought at the height of the housing boom, and had little or no down payment. Even if what you think is true is true, if the banks do collect more money than is owed on the house, they must give it back to the owner. Banks do not win in a foreclosure, and ESPECIALLY not with one of these subprime loans.
That's very true. As America demonstrates, faith thrives in a free market. In Europe, the established church, whether formal (the Church of England) or informal (as in Catholic Italy and Spain), killed religion as surely as state ownership killed the British car industry.
This is utterly superficial. If a monopoly killed Christianity in Europe, it took 1600 years to do so. The demoralizing effects of two great wars, and Christian complicity(real and imagined) in them, had a lot to do with it. Propagandistic political movements like Communism, nationalism, and Liberalism, the sexual revolution, Darwinism, all have had erosive effects.
Pushing it down the road is always a strategy for ever increasing misallocation of resources.
It is not "conservative," it is Nixonian.
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