Mortgage Bailout Plan / Subprime Rate Freeze

Noah - I love your posts, but please use "effect" and "affect" properly. Believe me, it makes an impression on readers.

Just a passing comment about all these band-aids.. I recall Japan also tried a similar thing when bad bank loans went bad .. they kept trying to 'prop' them back up which resulted in the 10 year slow death ...

Do you think US could see a similar looooong slow death?

anon - lol! I type so fast that I often use 'affect/effect' and 'their/there' and 'than/then' incorrectly.

I apologize and will certainly try to correct in future.

PS: I got a 470 in English SAT's! Not my strong point! 690 in math though

uwsider - yea, there is a disturbing similarity there isn't there!

You know, Im not sure but I seriously wonder how financial institutions will make as much money as they did in past years given current situation. I dont see that long a death, but I do see a very tough 2008-2009!

Noah

I read those qualifications, as well, and wondered "Who in the world is going to meet all these requirements?" Certainly only a small minority of homeowners. The whole bailout package so far seems to be more of a morale-booster and public relations move for a Congress and administration with very low approval ratings. And no amount of legislation will convince loan applicants to read dozens of pages of disclosures.

Noah - Assuming the final plan is as stated, it will not help those who are already in the red and sinking. You're right, it is a temporary band aid for a select few.

It won't help the speculative buyer. Nor should it. They are a huge part of why prices went to high and now why they are falling back down.

I couldn't agree more with your comments about the rate freeze plan. It's a temp fix that at the end of the day, all Bush is really doing is putting off a recession for someone else to deal with and trying to give the Republican party a chance in the 2008 elections. There is and will be more blood spit up by the financial sector in 2008. The big question is: what to do with your financial holdings? Do you hang onto them and ride out the storm or sell them on their good news rally about the rate freeze?

Bernanke's also got a very tough role to play in this outcome. He needs to determine where rates should be/need to be, how fast to move them there and how that will affect inflation, oil prices and the economy, while trying to achieve a "soft landing" without resparking the housing market bubble.

Volatility is likely to continue into 2008 with defaults in the credit markets increasing in 2008.

Ryan,
Absolutely. Bush wants the full-blown recession to occur after the elections. I think the longer this debacle continues, the greater the harm to the economy. Laying all the losses (to the extent possible) on the table, dealing with them, and going forward would be painful, but less painful than creating a longer-term environment of continued negative news, with up and down (soon only down) swings. That will cause a great deal more distrust and lack of confidence.
Regarding your financial holdings, at least in terms of a 401(k) where gold, etc. isn't an option, what do you do with your money? Money markets and bonds may not even be safe. I'm sticking with strongly equity-based funds, natural resources, etc. They may drop in the short term, but the GDP is strong, exports are high, and at least there's production behind them. The rest of my money I'm keeping in cash, at 4.5%, and hoping for the best. This is ugly.

There are a lot of expectations about what Paulson's plan is and what it should be. It's not a bailout and will only help those who were in a position to avoid risking foreclosure in the first place.

It sounds like a big loan workout program for a select group of borrowers with good credit who comprised the majority of subprime borrowers within the past 2 years. These folks would have qualified for loans with better terms anyway (according to the WSJ this week, "Subprime Debacle Traps Even Very Credit-Worthy", 12/03/07).

The plan on its own won't address the key reasons for the mortgage mess - cheap money, unethical/loose lending standards and unrealistic expectations by borrowers. Some of these issues are already being addressed to some degree by various Federal, state and local initiatives.

So is Paulson's proposal the right thing to do? Is it fair? What's the alternative - or should there be one?

A full-on bailout would be prohibitavely expensive and reward those who took unrealistsic risks.

Administering the Paulson program will be time-consuming (you have to look at each borrower's terms, financial stability, various state laws & regulations, etc.). So imagine how much more challenging it would be to expand this plan to lower-income borrowers, many of whom may not have the sophisticated understanding of finance, lending, etc. and would require more handholding.

It would mean greater backing from the Federal government. In the meantime assistance from local community groups on credit counseling could be a start.

But at the end of the day many people bought homes they should not have. And many others were able to buy homes for the first time and are not going to foreclose. So much of the US economy floated on the RE market and now it's adjusting. Paulson's plan is a start but it won't address the issue, nor should it.

"Volatility is likely to continue into 2008 with defaults in the credit markets increasing in 2008."

Ryan - dead on! I fear this will not be a fast pain, but rather will be a longer, drawn out slowdown as lack of liquidity is resulting in the seizing up of credit markets. If we slow, so will the world; I dont care what anyone else says.

Global slowdown will extend this mess.

I think theres another requirement that knocks the vast majority of borrowers out of eligibility for this bail out: the loan cannot be for a value greater than the value of the home.

How many subprimers (this bailout only concerns them after all) are upside down on their LTV? My guess is the majority. Heres why: the bailout only covers loans from 1/1/2005 and up- the tippy top of the bubble for most areas- meaning there is little to no appreciation. Add to that: how many of these loans were for 0-down? If you didnt put any of your own skin in the game, or even if you only put a little in, you start out under water. How many of these loans were neg-am loans, and because of how little the buyer has been paying, have seen negative amortization? How many involve second loans? Or for those that did get some appreciation: how many involve HELOCs? How many were victims of rank appraisal fraud that was rampant until the prices turned down?

wow, I have read these posts against all better judgement. How depressing to see how many heartless people there are out there posting. While you all are being pontifical, remember that there are a lot of people out there who only wanted a piece of the pie. A wound needs a bandage before it can be healed. At least this freeze will give some real people time to hold onto their dream. In the meantime, how about some of you out there use your gifted intelligence level to offer a better solution?
Thanks, my sister and her family could use your help.

Effect/Affect???? Who are you kidding lady??

While I sympathize with the many millions of homeowners who are out there feeling the pinch and the hundreds of thousands to millions who will actually lose their homes over this, I cannot endorse any solution that approaches moral hazard. They wanted their piece of the pie- they gambled- so we all lose?

We all rent- some of us rent land, and some of us rent money. Those of us who rented land have been mocked and derided for nearly 3 years now- we didnt see that "Real Estate only goes up!" and that "they arent making any more land!"

I'm sorry- but I call em like I see em. Did you buy a second home? Speculator. Did you take a mortgage whose terms only made sense if real estate continued to appreciate for ever? Speculator. Did you buy a home at twice the cost of renting because you didnt want to get priced out of a dream you could already only barely afford? Speculator. Did you take a mortgage that would adjust to levels you couldnt afford on the assumption that you would be able to refi later? Speculator.

Here is my solution: its one that has worked for hundreds of years. Let the market correct. Yes- people will lose their houses. They will go back to renting, and maybe next time they will be less likely to gamble with the single biggest purchase of their lives, and prices will remain near historic trends, rather than several standard devs above the affordable mean.

The HOPE NOW (Bush/Paulson plan) is just one of the many programs that are being setup by the government and banks. We created a simple wizard to help you figure out what mortgage rescue program you qualify for by just answering a few simple questions about your mortgage. It also checks for qualifying factors for the HOPE NOW, FHASecure and other programs.

GREED.

who do i contact so that i can put the freeze in place. I qualify going off of you list?

Here's the full list of lenders freezing HELOCs now: http://www.helocbasics.com/which-lenders-are-sending-out-heloc-freeze-letters/

yes Govt must step in to clean the mass if it is destroying booming housing industry.