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Author: Subject: Some sanity in the mortgage bailout frenzy?

Maximum Peach





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  posted on 3/25/2008 at 01:24 PM
OK, let me start by saying if you are on the verge of losing your house, I am truly sorry and I'm sure everyone in this situation has a unique and personal story as to why.

I have wondered for months about this darn mortgage "crisis" and why we are considering all this bailout business.

May sound cruel, but if Joe Average signed a really, really bad mortgage to begin with, then later lost his house because he couldn't afford the ARM payments...well I guess I don't have all that much sympathy. I mean, just listen to Clark Howard / Dave Ramsey, they all have said for years to never get anything but a fixed rate mortgage.

Now the unscrupulous companies that were feeding off the whole bad loan thing...that's another story altogether.

Anyhow, I like what McCain says here...

March 25, 2008
McCain Warns Against Hasty Mortgage Bailout
By JOHN SULLIVAN
Drawing a sharp distinction with the Democratic presidential candidates, Senator John McCain, warned on Tuesday against hasty government action to solve the mortgage crisis, saying “it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

In an address focusing on domestic issues following his stops in the Middle East, Mr. McCain, the presumptive Republican nominee, did not propose any government bailout.

“Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy,” said Mr. McCain, spoke before a business group in Santa Ana, Calif.

His comments came a day after Senator Hillary Rodham Clinton called for aggressive federal intervention to help troubled homeowners, including directing $30 billion to states to help homeowners at risk of foreclosure. Mrs. Clinton’s Democratic opponent, Senator Barack Obama, has similarly called for active federal intervention, including a $10 billion relief package to prevent foreclosures.

As the mortgage crisis has rippled through the economy, it has thrust itself to the forefront of the presidential race. But Mr. McCain’s remarks Tuesday represented a stark tonal shift from the increasing calls for helping homeowners, as he faulted not only borrowers who engaged in risky lending, but suggested that some homeowners engaged in dangerous financial practices.

“Some Americans bought homes they couldn’t afford, betting that rising prices would make it easier to refinance later at more affordable rates,” he said. Of the nation’s 80 million homeowners, he said, “only 55 million have a mortgage at all, and 51 million are doing what is necessary — working a second job, skipping a vacation, and managing their budgets to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?”

Mr. McCain split the blame between the rising housing bubble and the use of confusing and complex financial arrangements, which he said were badly understood even by financial managers. He said initial losses, coupled with the lack of transparency, has caused a “crisis of confidence in the markets.”

“Capital markets work best when there is both accountability and transparency,” he said. “In the case of our current crisis, both were lacking.”

Any government assistance must be accompanied by reforms to ensure the problems are not repeated, Mr. McCain said. He said homeowners and lenders must be clear from the outset about the terms and obligations of any mortgage.

“We must have greater transparency in the lending process so that every borrower knows exactly what he is agreeing to and where every lender is required to meet the highest standards of ethical behavior,” he said.

Mr. McCain did not rule out a bailout, instead saying any such aid should be temporary and “no assistance should be given to speculators.”

“Any assistance for borrowers should be focused solely on homeowners, not people who bought houses for speculative purposes, to rent or as second homes,” he said.

Mr. McCain did not provide specifics about any immediate plans to deal with the crisis, saying he was “prepared to examine new proposals and evaluate them based on these principals.”

He also called for a meeting of the nation’s top mortgage lenders, asking them to pledge support for customers and homeowners.

“Working together, they should pledge to provide maximum support and help to their cash-strapped but credit worthy customers,” he said. “They should pledge to do everything possible to keep families in their homes and businesses growing.”


 
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Maximum Peach



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  posted on 3/25/2008 at 01:31 PM
I agree that government has no responsibility and should not be involved.

That said, the reality is that the financial industry is right up there with the military-industrial complex in terms of Washington power and special interest. Congress just can't help themselves - they're gonna bail these guys out or risk loosing some of their best contributors. Once they do that, they also have to do something for irate voters if they have hopes of being re-elected. And so the circus goes, and goes....

 

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  posted on 3/25/2008 at 01:35 PM
Assuming his figures are correct...(and if anyone can dispute, please do with sources) this statement stands out for me...

Of the nation’s 80 million homeowners, he said, “only 55 million have a mortgage at all, and 51 million are doing what is necessary — working a second job, skipping a vacation, and managing their budgets to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?”

 

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  posted on 3/25/2008 at 05:25 PM
I haven't been watching major news media stories for this, but did it get any play? If so, I missed it.

More likely it got burried way down because of that question heineken. Let's not apply reason or logic to anything. We'd really be in a mess then

 

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  posted on 3/25/2008 at 10:59 PM
Here's some hard numbers from the Mortgage Banker's Association, using basis-point type reporting data:

quote:
WASHINGTON, D.C. (March 6, 2008) - The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 5.82 percent of all loans outstanding in the fourth quarter of 2007 on a seasonally adjusted (SA) basis, up 23 basis points from the third quarter of 2007, and up 87 basis points from one year ago, according to MBA's National Delinquency Survey.
The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 2.04 percent of all loans outstanding at the end of the fourth quarter, an increase of 35 basis points from the third quarter of 2007 and 85 basis points from one year ago.

The rate of loans entering the foreclosure process was 0.83 percent on a seasonally adjusted basis, five basis points higher than the previous quarter and up 29 basis points from one year ago.

The total delinquency rate is the highest in the MBA survey since 1985. The rate of foreclosure starts and the percent of loans in the process of foreclosure are at the highest levels ever.

The increase in foreclosure starts was due to increases for both prime and subprime loans. From the previous quarter, prime fixed rate loan foreclosure starts remained unchanged at 0.22 percent, but prime ARM foreclosure starts increased four basis points to 1.06 percent. Subprime fixed foreclosure starts increased 14 basis points to 1.52 percent and subprime ARM foreclosure starts increased 57 basis points to 5.29 percent. FHA foreclosure starts decreased 4 basis points to 0.91 percent and VA foreclosure starts remained unchanged at 0.39.

Since the fourth quarter of 2006, the foreclosure start rate for prime ARMs increased from 0.41 percent to 1.06 percent and the rate for subprime ARMs increased from 2.70 percent to 5.29 percent. The foreclosure start rate for prime fixed loans increased from 0.16 percent to 0.22 percent and the rate for subprime fixed loans increased from 1.09 percent to 1.52 percent.

As can be seen in the chart below, while subprime ARMs represent 7 percent of the loans outstanding, they represent 42 percent of the foreclosures started during the fourth quarter. Prime ARMs represent 15 percent of the loans outstanding, but 20 percent of the foreclosures started.



Percent of Loans
Percent of Foreclosures Started





Prime Fixed
65%
18%

Prime ARM
15%
20%

Subprime Fixed
6%
12%

Subprime ARM
7%
42%

FHA
7%
8%


California and Florida continue to represent a disproportionate share of the foreclosure starts in the country. Those two states represent 21 percent of all loans outstanding, but accounted for 30 percent of foreclosure starts in the US. More importantly, they accounted for 39 percent of all prime ARMs outstanding, but 47 percent of prime ARM foreclosure starts. Similarly, they represented 29 percent of all subprime ARMs, but 36 percent of subprime ARM foreclosure starts. The rate of foreclosure starts in Florida more than tripled between the fourth quarter of 2006 and the fourth quarter of 2007, while the rate in California more than doubled.
While Michigan, Ohio and Indiana continue to have the highest percentages of loans in foreclosure, and are among the states with the highest rates of new foreclosures, those states experienced comparatively little increase over the last year or last quarter in their rates of new foreclosures started.

"Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," said Doug Duncan, MBA's Chief Economist and Senior Vice President of Research and Business Development. "In states like Ohio and Michigan, declines in the demand for homes due to job losses and out-migration have left those looking to sell the homes with fewer potential buyers, particularly with the much tighter credit restrictions borrowers now face. In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through.

"Of significance, however, is that the rate reset issue on adjustable rate mortgages is becoming less of an issue. The 6-month LIBOR rate, the index rate used for many subprime ARMs, has come down around 2.5 percentage points since last September, greatly reducing the payment shock on many ARM resets."

Change from last quarter (third quarter of 2007)

The SA delinquency rate increased 12 basis points for prime loans (from 3.12 percent to 3.24 percent), 100 basis points for subprime loans (from 16.31 percent to 17.31 percent), 13 basis points for FHA loans (from 12.92 percent to 13.05 percent), but decreased nine basis points for VA loans (from 6.58 percent to 6.49 percent).

The foreclosure inventory rate increased 17 basis points for prime loans (from 0.79 percent to 0.96 percent), and increased 176 basis points for subprime loans (from 6.89 percent to 8.65 percent). FHA loans saw a 12 basis point increase in foreclosure inventory rate (from 2.22 percent to 2.34 percent), while the foreclosure inventory rate for VA loans increased nine basis points (from 1.03 percent to 1.12 percent).

The SA foreclosure starts rate increased four basis points for prime loans (from 0.37 percent to 0.41 percent), 32 basis points for subprime loans (from 3.12 percent to 3.44 percent). The foreclosure starts rate decreased four basis points for FHA loans (from 0.95 percent to 0.91 percent) and was unchanged for VA loans (0.39 percent).

The seriously delinquent rate, the non-seasonally adjusted (NSA) percentage of loans that are 90 days or more delinquent, or in the process of foreclosure, was up from both last quarter and from last year. This measure is designed to account for inter-company differences on when a loan enters the foreclosure process.

During the fourth quarter, the seriously delinquent rate increased for all loan types. The rate increased 36 basis points for prime loans (from 1.31 percent to 1.67 percent), 306 basis points for subprime loans (from 11.38 to 14.44 percent), 46 basis points for FHA loans (from 5.54 percent to 6 percent) and 27 basis points for VA loans (from 2.56 to 2.83 percent).

Change from last year (fourth quarter of 2006)

On a year-over-year basis, the SA delinquency rate increased for prime and subprime loans, and decreased for FHA and VA loans. The delinquency rate increased 67 basis points for prime loans, increased 398 basis points for subprime loans, decreased 41 basis points for FHA loans, and decreased 33 basis points for VA loans.

Compared with the fourth quarter of 2006, the foreclosure inventory rate increased 46 basis points for prime loans and 412 basis points for subprime loans. The foreclosure inventory rate also increased 15 basis points for FHA loans and 11 basis points for VA loans.

The SA foreclosure starts rate increased 29 basis points overall, 17 basis points for prime loans, 144 basis points for subprime loans, and five basis points for VA loans. For FHA loans, the foreclosure starts rate decreased two basis points from the fourth quarter of 2006.

The seriously delinquent rate was 81 basis points higher for prime loans and 666 basis points higher for subprime loans. The rate also increased 22 basis points for FHA loans and 18 basis points for VA loans.

http://www.mortgagebankers.org/NewsandMedia/PressCenter/60619.htm


 

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  posted on 3/27/2008 at 10:15 AM
Had a office sales mtg. yesterday and had two guest speakers from the mortgage industry. They both seem to feel that we are about to turn the corner on this crises.
Interest rates are great and home sales are picking up, albeit, slowly.

 

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  posted on 3/27/2008 at 11:47 AM
Called a mortgage counseling service (found out the call center was outsourced to Pakistan??). Said I was very depressed because I was going to be losing my home, the monthly payment was so high, I couldnt handle it anymore. The man on the other end of the phone said, I am sorry this is causing a severe depression for you but I have some good news, Can you drive a truck?

 

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  posted on 3/27/2008 at 02:29 PM
The press aside, most markets in the US have not had dramatic downturns.

http://www.realtor.org/Research.nsf/files/MSAPRICESF.pdf/$FILE/MSAPRICESF.p df

The number of homes sold has dropped, and selling times are longer, but prices haven't been devastated in most markets.

Certainly, there are people out there that took mortgages they could not afford, either because they were adjustable rate, or the payment was too high for their income.

I'm sorry, but that's too F'in bad. If you can't understand the terms of a mortgage, and you can't figure out if you can afford it, you don't deserve to own a home. Anyone that makes the most important financial decision of their life, without understanding each and every facet of it, gets my sympathy but not one nickle of my tax dollars to help them.

As far as the lenders, no one is in a better position to understand who can or can't repay a loan, so tough noogies to them too. They're a business, businesses fail sometimes - tough.

The problem with a bailout is that it helps fools who made bad decisions, but punishes others who didn't. The person working hard to pay his mortgage pays for the bailout. The lender that was prudent and made sound lending decisions will soon be shackled by another level of regulations that only reinforce what's already in place.

Our economy will always face corrections and it isn't government's job to stop them.

Greg

 

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  posted on 3/27/2008 at 02:59 PM
quote:
I'm sorry, but that's too F'in bad. If you can't understand the terms of a mortgage, and you can't figure out if you can afford it, you don't deserve to own a home. Anyone that makes the most important financial decision of their life, without understanding each and every facet of it, gets my sympathy but not one nickle of my tax dollars to help them.



I'm taken aback every day by the people who are almost gleeful that people are losing their houses.

quote:
As far as the lenders, no one is in a better position to understand who can or can't repay a loan, so tough noogies to them too. They're a business, businesses fail sometimes - tough.



That depends on which business. If, say, Bank of America failed, that would have far-reaching implications.

quote:
The problem with a bailout is that it helps fools who made bad decisions, but punishes others who didn't. The person working hard to pay his mortgage pays for the bailout.


I'm not following the logic here. (And I'm not saying a bailout is the answer, either)

quote:
The lender that was prudent and made sound lending decisions will soon be shackled by another level of regulations that only reinforce what's already in place.

Our economy will always face corrections and it isn't government's job to stop them.



I spent 5 years working in the corporate headquarters of a large subprime mortgage lender. The "regulations" in the mortgage biz are only as good when someone decides to enforce them, which was very, very, very, very, very rare. Title companies, who actually hold and pay out the funds in mortgage transactions, aren't regulated at all.


 

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  posted on 3/27/2008 at 05:16 PM
quote:
I'm sorry, but that's too F'in bad. If you can't understand the terms of a mortgage, and you can't figure out if you can afford it, you don't deserve to own a home. Anyone that makes the most important financial decision of their life, without understanding each and every facet of it, gets my sympathy but not one nickle of my tax dollars to help them.

I think my children are a much more important financial decision then my house... I can live in any number of places (apartment, cheaper house)... but I've never considered a house the most important financial decision. I'm sure I'll spend a lot more in the long run on my two kids then I will on the house we live in, but I guess I know what you meant.

 

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  posted on 3/28/2008 at 06:50 AM
quote:
quote:
I'm sorry, but that's too F'in bad. If you can't understand the terms of a mortgage, and you can't figure out if you can afford it, you don't deserve to own a home. Anyone that makes the most important financial decision of their life, without understanding each and every facet of it, gets my sympathy but not one nickle of my tax dollars to help them.



I'm taken aback every day by the people who are almost gleeful that people are losing their houses.

quote:
As far as the lenders, no one is in a better position to understand who can or can't repay a loan, so tough noogies to them too. They're a business, businesses fail sometimes - tough.



That depends on which business. If, say, Bank of America failed, that would have far-reaching implications.

quote:
The problem with a bailout is that it helps fools who made bad decisions, but punishes others who didn't. The person working hard to pay his mortgage pays for the bailout.


I'm not following the logic here. (And I'm not saying a bailout is the answer, either)

quote:
The lender that was prudent and made sound lending decisions will soon be shackled by another level of regulations that only reinforce what's already in place.

Our economy will always face corrections and it isn't government's job to stop them.



I spent 5 years working in the corporate headquarters of a large subprime mortgage lender. The "regulations" in the mortgage biz are only as good when someone decides to enforce them, which was very, very, very, very, very rare. Title companies, who actually hold and pay out the funds in mortgage transactions, aren't regulated at all.




I'm not "gleeful" but I don't think I, or anyone else, should have pay for their mistake. And there is NO solution that helps them that doesn't simultaneously hurt someone else. No free lunch and all that.

When compared to many other economic trends - manufacturing shifted to Asia, weak dollar, absurdly high national debt and deficit, vanishing middle class etc., the failure of a Bank of America or Citi or whoever would be inconsequential. It would be news because it would be exciting and these other trends aren't, but in the end, the deposits would go to another bank, the assets to others and most of the employees would find work soon enough. There was a wave of bank failures in the 80's and 90's and while all of us had hoped for a few months off, in truth, we all found work soon enough.

The logic that a bailout helps the fool who made a mistake and hurts the one that didn't is this: If there is a moratorium on foreclosures, or interest rate increases, then that hurts the company that holds that mortgage. That company is owned by someone, quite possibly you in the form of stock, perhaps in a 401k or mutual fund, and you may not even know you own it. Or you may indirectly own the bonds backed by those mortgages.

Another unintended consequence...the Fed can't cut rates fast enough. But the fed cuts short term rates, which is seen as inflationary, so LONG TERM rates i.e. mortgage rates, are going up. Who tends to save/invest in short term instruments? the elderly on fixed incomes. So as the Fed primes the pump with rate cuts, they hurt grandma living off her bank account/money market/cd interest. The next effect is that with mortgage rates going up, guess what, home prices go down because it becomes more expensive to borrow money to buy that house.

In almost every way, financial and economic decisions are a zero sum game. What is good for one interest tends to be bad for another. So to the extent that we bail out homeowners or mortgage lenders, we are negatively affecting someone else. First because we have to pay for it, second because someone on the other end "loses" something.

As far as subprime lenders not following regulations...I agree it happens, reputable lenders don't follow all the regs either...but in the end, it is the BORROWER who needs to understand what they are signing up for, and if they can't, they shouldn't sign it.

Greg

 

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  posted on 3/28/2008 at 06:57 AM
Amen Greg. And I am not gleeful about anyone losing their house either. But one segment of the foreclosure frenzy is simply speculators that were buying houses as an investment, not for their primary residence....
 

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  posted on 3/28/2008 at 03:11 PM
I found this an interesting read on the Fed's new role as bailout for bad paper on Wall Street.

I think it was necessary to prevent the collaspe of the Market from it's own greed.

quote:
Fed Leaders Ponder an Expanded Mission
Wall Street Bailout Could Forever Alter Role of Central Bank

By Neil Irwin
Washington Post Staff Writer
Friday, March 28, 2008; A01

In the past two weeks, the Federal Reserve, long the guardian of the nation's banks, has redefined its role to also become protector and overseer of Wall Street.

With its March 14 decision to make a special loan to Bear Stearns and a decision two days later to become an emergency lender to all of the major investment firms, the central bank abandoned 75 years of precedent under which it offered direct backing only to traditional banks.

Inside the Fed and out, there is a realization that those moves amounted to crossing the Rubicon, setting the stage for deeper involvement in the little-regulated markets for capital that have come to dominate the financial world.

Leaders of the central bank had no master plan when they took those actions, no long-term strategy for taking on a more assertive role regulating Wall Street. They were focused on the immediate crisis in world financial markets. But they now recognize that a broader role may be the result of the unprecedented intervention and are being forced to consider whether it makes sense to expand the scope of their formal powers over the investment industry.

"This will redefine the Fed's role," said Charles Geisst, a Manhattan College finance professor who wrote a history of Wall Street. "We have to realize that central banking now takes into its orbit everything in the financial system in one way or another. Whether we like it or not, they've recreated the financial universe."

The Fed has made a special lending facility -- essentially a bottomless pit of cash -- available to large investment banks for at least the next six months. Even if that program is allowed to expire this fall, the Fed's actions will have lasting impact, economists and Wall Street veterans said.

As they made a series of decisions over St. Patrick's Day weekend, Fed leaders knew that they were setting a precedent that would indelibly affect perceptions of how the central bank would act in a crisis. Now that the central bank has intervened in the workings of Wall Street banks, all sorts of players in the financial markets will assume that it could do so again.

Major investment banks might be willing to take on more risk, assuming that the Fed will be there to bail them out if the bets go wrong. But Fed leaders, during those crucial meetings two weeks ago, concluded that because the rescue caused huge losses for Bear Stearns shareholders, other banks would not want to risk that outcome.

More worrisome, in the view of top Fed officials: The parties that do business with investment banks might be less careful about monitoring whether the bank will be able to honor obscure financial contracts if they assume the Fed will back up those contracts. That would eliminate a key form of self-regulation for investment banks.

Fed leaders concluded that it was worth taking that chance if their action prevented an all-out, run-for-the-doors financial panic.

Those decisions were made in a series of conference calls, some in the middle of the night, against hard deadlines of financial markets' opening bells. Fed insiders are just beginning to collect their thoughts on what might make sense for the longer term.

"It has wrought changes far more significant than they were probably thinking about at the time," said Vincent Reinhart, a resident fellow at the American Enterprise Institute who was until last year a senior Fed staffer.

Whether there is a formal, legal change in the Fed's power over Wall Street or not, the recent measures, which were taken under a 1930s law that can only be exploited in "unusual and exigent circumstances," represent a massive departure from past practice.

The central bank was created in 1913 to prevent the banking crises that were commonplace in the 19th century. The idea was that the Fed would be a backstop, offering a limitless source of cash if people got the bright idea to pull all their money at once out of an otherwise sound bank.

In exchange for putting up with regulation from the Fed and requirements over how much capital they can hold, banks have access to the "discount window," at which they can borrow emergency cash in exchange for sound collateral. A bank might take deposits from individuals and make loans to people buying a house. Hedge funds do something similar: borrow money in the asset-backed commercial paper market and use it to buy mortgage-backed securities. But the bank has lots of regulation and access to the discount window; the hedge fund does not.

In recent decades, more of the borrowing and lending that was the sole province of banks has come to be done in more lightly regulated markets.

A decade ago, the nation's commercial banks had $4 trillion in credit-market assets, and a whole range of other entities -- mutual funds, investment banks, pensions, and insurance companies -- had about twice that much. Now, those other entities have about three times as many assets, based on Fed data.

Still, the Fed has resisted broadening its authority. On March 4, Fed Vice Chairman Donald L. Kohn told the Senate Banking Committee that he "would be very cautious" about lending Fed money to institutions other than banks or, as he put it, "opening that window more generally." The Fed did exactly that 12 days later.

The New York Fed said yesterday that investment firms have borrowed an average of $33 billion through that program in the past week.

The Fed has intervened in the doings of Wall Street in the past, but in limited ways. Most notably, in 1998, the New York Fed brought in heads of the major investment banks to cajole them into a coordinated purchase of the assets of the hedge fund Long-Term Capital Management, to prevent a disorderly sell-off that could have sent ripples through the financial world.

"Long-Term Capital was the dress rehearsal for what happened with Bear Stearns," said David Shulman, a 20-year veteran of Wall Street who is now an economist at the UCLA Anderson Forecast.

Treasury Secretary Henry M. Paulson Jr. said that if investment banks are given permanent access to the Fed's emergency funds, they should have the same kind of supervision that the Fed requires for conventional banks. "This latest episode has highlighted that the world has changed, as has the role of other non-bank financial institutions, and the interconnectedness among all financial institutions," he said in a speech Wednesday.

If Congress and the administration do broaden the formal powers of the Fed, it would be the latest in a long history of financial policy made out of a crisis. The Great Depression fueled an array of stock exchange regulation. The 1987 stock market crash led to curbs on stock trades. The 2002 corporate scandals led to the Sarbanes-Oxley Act.

And after the panic of 1907, a National Monetary Commission was formed to figure out how to prevent such things from happening again. Its crowning achievement: The creation of the Federal Reserve.

 

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  posted on 3/28/2008 at 03:35 PM
It is NOT the Federal Government's job or responsibility to use tax dollars to bail people out of their bad decisions. If that is true, they can send me some for the expenses for marrying that Bit*h!!

 

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  posted on 3/28/2008 at 03:38 PM
quote:
It is NOT the Federal Government's job or responsibility to use tax dollars to bail people out of their bad decisions. If that is true, they can send me some for the expenses for marrying that Bit*h!!


so they should let the markets collapse like in the great depression?

 

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  posted on 3/28/2008 at 03:50 PM
The markets are not going to collapse. In fact, the corner is being turned as we 'speak'.
The RE market is picking up, and with the interest rates being excellent, around 5.75%,
we will begin to see some movement. Our area of n. Central Alabama is coming sround and growth is solid.

 

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  posted on 3/28/2008 at 03:53 PM
Actually, the Fed and any other government entity has done very little to help individual borrowers. They are, however, making billions upon billions available to banks, but now also to investment banks, something largely unheard of since the Depression.

The question of whether or not the Fed should bailout lenders and banks is kinda moot, because, they already are.

 

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  posted on 3/28/2008 at 03:56 PM
quote:
Assuming his figures are correct...(and if anyone can dispute, please do with sources) this statement stands out for me...

Of the nation’s 80 million homeowners, he said, “only 55 million have a mortgage at all, and 51 million are doing what is necessary — working a second job, skipping a vacation, and managing their budgets to make their payments on time. That leaves us with a puzzling situation: how could 4 million mortgages cause this much trouble for us all?”



Really good question. If others have paid off their mortgages by working hard, or are making their mortgage payments by working hard, why should they have to bail out people who can't budget correctly?

 

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Zen Peach



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  posted on 3/28/2008 at 04:11 PM
Here's what I have always thought should be done since the middle of last year when this all really started to collapse (taking into account my personal detestment of ARM loans and my belief that they should be illegal):

Any borrower who is facing an imminent ARM reset that they cannot afford gets a loan modification to a fixed rate loan. Heck, even charge a fee for it. (Many products had conversion options built in anyway). If you can afford your payment now, by modifying to a fixed you should be able to keep affording it rather than getting strongARMed out of your house.

If you modify into a fixed and still can't afford it, then it's time to move on and accept that you can't afford that house.

I can hear the question now: "Why should the lender have to make a change for someone who was foolish enough to sign such a loan in the first place?"

Answer: When the ARM resets, that lender is going to lose even more money because the borrower can't afford it anyway. Might as well try to make a shaky loan perform and keep people in their houses.

Someday what's left of my old company will finally be swept away and the confidentiality agreement won't apply anymore, and I can really share what I saw happen in the subprime world from 2002-2007.

 

Zen Peach



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  posted on 3/28/2008 at 04:13 PM
Very reasonable.

 

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Zen Peach



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  posted on 3/28/2008 at 04:28 PM
quote:
The markets are not going to collapse. In fact, the corner is being turned as we 'speak'.
The RE market is picking up, and with the interest rates being excellent, around 5.75%,
we will begin to see some movement. Our area of n. Central Alabama is coming sround and growth is solid.


but if they hadn't stepped in when they did could the market have absorbed the total collapse of
Bear stearns?

we may never know.

 

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Ultimate Peach



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  posted on 3/30/2008 at 09:39 AM
quote:
Here's what I have always thought should be done since the middle of last year when this all really started to collapse (taking into account my personal detestment of ARM loans and my belief that they should be illegal):

Any borrower who is facing an imminent ARM reset that they cannot afford gets a loan modification to a fixed rate loan. Heck, even charge a fee for it. (Many products had conversion options built in anyway). If you can afford your payment now, by modifying to a fixed you should be able to keep affording it rather than getting strongARMed out of your house.

If you modify into a fixed and still can't afford it, then it's time to move on and accept that you can't afford that house.

I can hear the question now: "Why should the lender have to make a change for someone who was foolish enough to sign such a loan in the first place?"

Answer: When the ARM resets, that lender is going to lose even more money because the borrower can't afford it anyway. Might as well try to make a shaky loan perform and keep people in their houses.

Someday what's left of my old company will finally be swept away and the confidentiality agreement won't apply anymore, and I can really share what I saw happen in the subprime world from 2002-2007.


Hawk, excellent point about changing the ARM to a fixed - theoretically helps the lender and the homeowner right?

My only objection to this is it isn't the govt's place to FORCE this. In many cases, lenders will rewrite deals - believe me, most want no part of foreclosing an owner occupied home - it's a loser every time. There is no need for the gov't to get involved, it will work itself out if it makes sense.

Greg

 

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