Posted on 10/07/2008 9:04:34 PM PDT by jddqr
Nice try. But incorrect. Applying for a loan and getting authorization for a loan approval are two VERY different things.
You can apply for a loan to purchase a 15 million dollar yacht while making 30k a year. Think you'll get the loan?
When you apply for a loan, the one wanting the money, has ZIP authority, or any say whatsoever as to whether their loan is approved. Zip, nada.
Stability isn't always a good thing. The deeper the pain, the better the lesson is learned.
There are things the govenment could legitimately do without compounding the problem, such as accelerating the foreclosure/eviction process to clean out the deadbeats ASAP and cutting (better yet eliminating) taxes on income, investments, and inheritances.
Any program that involves government subsidies is bound to fail and lead us further down the road to absolute socialism and other forms of institutional corruption. It would be like giving alcoholics free liquor to keep them from stealing it.
Actually, both side have to approve of the loan before it is made. I get calls and letters all the time from companies telling me I've been approved for a loan, but if I don't approve those offers they don't become loans.
Incidentally, there were no mortgage loans made that anyone knew could not be paid. They just all knew (or should have known) that some loans couldn't be paid unless the home values continued to rise rapidly.
You can apply for a loan to purchase a 15 million dollar yacht while making 30k a year. Think you'll get the loan?
I almost certainly would if I had an underwriter nicknamed Fannie or Freddie (or if I put up sufficient collateral).
When you apply for a loan, the one wanting the money, has ZIP authority, or any say whatsoever as to whether their loan is approved. Zip, nada.
Despite what passes today for common sense, there is no such thing as a contract approved by only one party. Anyone who consciously signs a loan agreement is signifying their approval of the terms.
LOL!
OK, I give up. Anyone wanting a big fat loan are legally authorized to approved the loan themselves.
:o
You are correct in that the value of the home has no effect on the lender’s liquidity once the home sale has already gone through. I didn’t say that it did. What I said was that purchasing the mortgage increases the liquidity, which is a true statement. Those banks now have more cash on hand to lend since one of their assets (the home) has been made liquid (cash). That’s simple enough.
It's far worse than that. It's more like choosing between cell mates. BOHICA.
What a mess our primary was. We had Duncan Hunter, who, bless is heart, isn't ready for prime time. And we had Ron Paul, who wants to surrender to Al Quaeda. Other than that, we had a bunch of big gubmint statists.
Purchasing a mortgage that is being paid is profitable. Today, as it were, you’d be making around 6% annually on that investment. (I hope I don’t need to explain why mortgages are used for investing.) If defaulted loans have caused banks to lose liquidity, then they can increase their liquidity by selling their assets (the mortgages). They may or may not need or want to do that, but that’s not the point. The buyer (or the buyer’s party) in nearly all cases has the right to pay off the loan at any time.
Consider the four years in question. If a first-time homebuyer purchased during that time, depending on their market they most likely paid between 5% and 20% more than the house’s current fair market value. If the original purchase price was $100,000 and the mortgage was “exotic” (90-10-10 and 80-15-5 loans were very common), then the bank was initially owed, say, either $90,000 or $95,000. The house may now be worth $80,000. If you purchase that loan for the remaining value of the principal and restructure the note for $80,000 at a fixed rate of 6%, you will earn, on that investment, $92,670 in interest. This is not ideal because you must deduct the difference in the purchase price and the principal, so in this case you make either $77,670 or $82,670 over a 30-year period. (Note that when considering the rate of inflation, the investment neither gains nor loses money on average).
Sounds like all standards are now going overboard.
I didn’t disagree that giving money to people or organizations increases liquidity. I am only pointing out that this approach has nothing to do with the current “liquidity problem” that some lenders may have. (Nor, it may be worth pointing out, is that what McCain suggested it was meant to do.) It is a government handout that will, by design, pervert markets (in many ways) without addressing any real problems, and it will vastly expand government. I think it is a really bad idea.
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