Friday, October 31, 2008

"the latest trial balloon of a plan being floated to rescue overextended mortgage borrowers"

Yves Smith also has some good points about the possible mortgage plan:

"Before we debate the merits (more accurately, the lack thereof) of the latest trial balloon of a plan being floated to rescue overextended mortgage borrowers, we need to consider a few not sufficiently discussed facts:
1. The problem is that banks are not making loan modifications as they did in the past. That is turn is due to securitization In the old days, including in the nasty (in the Southwest and Texas) housing bear market of the early 1990s, it was standard practice for banks to modify mortgages. That was not charity on the part of the bank but a cold-blooded economic calculation, that in the majority of cases, it would take a lower loss by changing mortgage terms than by foreclosing."

Read the rest.

Yves says that mortgage renegotiation used to be business as usual, so enough about the morality of it. It's in the lenders interest in some cases.

The problem now is:

1) Mortgages are held by people getting fees for holding them, and that means ( securitization:see my post on it here ) One note: This could make it easier to renegotiate since each of the holders hold many mortgages.
A. The don't like renegotiations, but prefer foreclosures, since they aren't paid for the first, but are paid for the second ( Makes sense: how about giving them a motive for doing this )
B. Unlike small banks, there's no banker with a relationship to the borrower to talk to. ( See this post on smaller banks )

However, foreclosures lower housing prices in whole area, which isn't a good thing. For another thing, it lowers property taxes, so the government might not like it. I guess there's a possible trade-off for the homeowner.

Also, Bankruptcy judges dealing in loans is a pretty fair option.

Here's my comment:

Don said...

I don't understand why this part of the problem, foreclosures, has taken so long to be dealt with unless the government is now afraid that they're going to have to deal with this problem at the other end otherwise,e.g.,AIG's CDS's.

As for the plan, the news keeps being there's going to be a plan. Why do they keep announcing this prior to unveiling an actual plan? There's going to be a plan. Good for you.

I just feel that I'm missing something. By the way, has anybody studied the effects on property taxes in the seriously hurt areas?

Don the libertarian Democrat

Here was my last comment:

Blogger Don said...

If foreclosures lower housing prices in the whole area, homeowners could petition for tax reductions. This would seem a clear problem for the expenses of local government.

Don the libertarian Democrat

October 31, 2008 11:42 AM

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