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I'm kind of torn here because on one hand I believe there's not much reason to fund a government unless it's going to help the people and on the other hand I think people must accept some responsibility for their actions. When I read about a family making $50K a year buying a $750K house with nothing down I have to wionder just what they've been thinking. I have the feeling this whole situation is going to be a long, rough ride that's going to get a lot worse before it gets beytter.
And you have to think what the heck were the lending institutions thinking? No income? No credit? No problem!!
I don't see it as a great outcome for the lender, it fixes a low rate of return for the mortgage for an extended period.
In general, lenders won't be taking much of a hit, as they don't hold the assets anymore. Mortgages are typically sliced, diced, and bundled as asset-backed securities into secondary markets. Those ABS sales result in a reflow to lenders who can then lend again. Service agencies collect the amortizations on the original mortages, then use those proceeds to make the scheduled payments on the ABS's. It's the secondary market holders that so far seem to be left out in the cold here, and they aren't going to be very happy about it. Rate freezes may benefit certain classes of borrowers, but the secondary holders are facing a unilateral change in the terms of the instruments they hold. This is going to affect more than a few balance sheets. With all the rejoicing I see around here over yet another significant group of people facing hardships, I expect some will rejoice further still in seeing these usually anonymous financial fat cats being left holding the bag. Except those fat cats are quite possibly your own pension fund and 401-k. Various classes of such holdings are exempt from disclosure requirements, so you yourself may be sitting on downgraded assets even if you have tried to keep a careful eye on the nature of your various nest eggs. If so, well, I guess you had it coming yourselves...only getting what you deserved...
Great sense of priority we've developed. If you're forced to sell your house to pay off medical bills you've incurred through no fault of your own the government and many, many citizens are happy to tell you that's just the way it is, tough luck but................if you tried to live beyond your means and bought a house you really couldn't afford because someone let you the government's going to try and help you. I think we've gotten a bit off the path here.
Yeah. Deviations began not long after November 1980. We recovered from most of that, but then came another veer beginning in November of 1994. After that, things really took a turn for the worse in response to November 2000....
In general, lenders won't be taking much of a hit, as they don't hold the assets anymore. Mortgages are typically sliced, diced, and bundled as asset-backed securities into secondary markets. Those ABS sales result in a reflow to lenders who can then lend again. Service agencies collect the amortizations on the original mortages, then use those proceeds to make the scheduled payments on the ABS's. It's the secondary market holders that so far seem to be left out in the cold here, and they aren't going to be very happy about it. Rate freezes may benefit certain classes of borrowers, but the secondary holders are facing a unilateral change in the terms of the instruments they hold. This is going to affect more than a few balance sheets. With all the rejoicing I see around here over yet another significant group of people facing hardships, I expect some will rejoice further still in seeing these usually anonymous financial fat cats being left holding the bag. Except those fat cats are quite possibly your own pension fund and 401-k. Various classes of such holdings are exempt from disclosure requirements, so you yourself may be sitting on downgraded assets even if you have tried to keep a careful eye on the nature of your various nest eggs. If so, well, I guess you had it coming yourselves...only getting what you deserved...
Kind of undermines the whole bond fund investment process though. As I see it, the bonds which are repackaged and sold are priced based on anticipated return and anticipated risk.
I already have a significant problem with the pricing of risk, believing that the core problem with the whole sub-prime mortgage fiasco is the failure of the bond rating agencies, such as Moodys, to accurately evaluate and score the credit risk, allowing many of these loans to even exist in the first place. Then, the saps buying the packaged loans can't receive their anticipated rates of return due to administrative decisions. Seems like this would be illegal to me.
There was a huge amount of mortgage origination fraud taking place at the end of the boom. Multiple homes being bought with questionable mortgages by the same investors. Nobody was checking whether multiple loans were being taken out, else they were lying on the applications. It was a rigged game from the outset. The Fed and Wall Street did this to themselves by not having any meaningful rules or regulations over the industry.
Attention Shoppers: This is what you get with laissez-faire, free-market economics. If you're a baron, you rob. If you are not a baron, you are robbed from. Milton Friedman really was the anti-Christ.
If there is anything good that can come out of all this, it will be a Great Awakening to the fact that if this country is to hold together in at least a financial sense, what we need to have happen in the worst way is a return to managed capitalism.
Turn off Rush...listen to some common sense for a change...
Kind of undermines the whole bond fund investment process though. As I see it, the bonds which are repackaged and sold are priced based on anticipated return and anticipated risk.
That's correct. Except the risk was higher than anticipated, and now the return will be lower. So far, nobody seems to care very much.
Quote:
Originally Posted by NewToCA
I already have a significant problem with the pricing of risk, believing that the core problem with the whole sub-prime mortgage fiasco is the failure of the bond rating agencies, such as Moodys, to accurately evaluate and score the credit risk, allowing many of these loans to even exist in the first place.
Yes, the rating systems have been a problem. You have the fox minding the henhouse. A nice government-trained watchdog or two wandering about the grounds would have made for a much better bet. But there is no reason why these loans should not exist. There is a perfectly good market for junk. There were a few years in the early 90's when junk bonds, for instance, were about the smartest investment you could have made. But junk has to be labeled junk, and it hasn't been, leading people whose financial balance depends on holding investment-grade assets to fall off the track through no fault of their own.
Quote:
Originally Posted by NewToCA
Then, the saps buying the packaged loans can't receive their anticipated rates of return due to administrative decisions. Seems like this would be illegal to me.
No, not illegal, just inequitable. Of course, we could have had regulations and oversight regimes in place that would have assured greater transparency and at least made all this mess much, much less likely, but we don't have that, because some people think that the key to financial security, efficiency, and progress is...deregulation and the cutting of bureaucratic red-tape. And, of course, those people are never wrong. Just ask them...
I dont understand this, so people who were dumb enough to buy a home when they couldnt afford it are now getting government assistance?
Isnt a house supposed to be a investment, sometimes you win, sometimes you lose, so after they get their government assistance they now have a home worth hundreds of thousands of dollars?
Can't argue against that sentiment, but let's see the details. Perhaps there will be a cap on how big a mortgage would qualify for this benefit, and maybe a mechanism to account to some of the lost interest expense when disposing the asset (or repricing the outstanding balance at the end of the 5 year period).
I guess you didn't see when they 'overhauled' the bankruptcy law?
One can't just 'file for bankruptcy' in the old sense of that phrase.
Oh, I know all about the overhaul and YES, one can just file bankruptcy. They have to prove that they can't pay their debts and they will always, now since the overhaul, have to pay something back, but they can darn well file bankruptcy. I never said it was the old send. That came from you. And bankruptcies are up in all states.
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