Cavuto just pointed out an hour ago that the numbers in the Stimulus bill do not include insurance or tax. PITI — to arrive at monthly payments: price, interest, tax, insurance. So they calculated the numbers are off by about $150 per month for each new payment.
BO does not understand that once the bank loans the money, they sell the mortgage note within six months to clear the books of liabilities so they can borrow more money from the central bank to make new loans to new applicants. The re investor buys these notes assuming a certain yield over a certain time period. This keeps the money flowing in the system. Subprime and false entry by applicants/lender on conventional loans placed a cloud and risk on the mortgage notes the bank is trying to sell to re investors because the mortgages started to default more often then anticipated. BO program to allow certified victims of predatory lending is adding more risk to the mortgage note market, because the re investor can no longer tell which mortgage note within the portfolio he is buying into may end up with a borrower via court/fed intervention default and rewrite the payment process, thus affecting the yield on the original mortgage note. This messes up the investors buying strategy, and if the mortgage note market becomes too confusing and uncertain, they will refuse to buy. If the banks cannot sell their mortgage notes, they cannot lend money from the central bank to lend out to the public. Bank credit again will freeze up and we are back to square one on the credit crisis.
PITI = Principal (not “Price”), Interest, Taxes, Insurance. These are the components of a monthly mortgage payment on a conventional escrowed product where the mortgage company, not the borrower, remits the payment for taxes and insurance when due out of an escrow account established by the borrower at loan origination to hold those portions of each monthly payment.
A non-escrowed product (the subprimes typically) will be interest-only or just principal and interest with the buyers qualified only for the lesser monthly payment of P&I usually because they did not have sufficient income or assets to set up an escrowed account for the taxes and insurance.
These “escrow waiver” shoe-horned loans, as one might suspect, have by far been the ones most likely to default.