On Thu, 27 Mar 2008 18:10:38 -0400, "Eisboch" wrote:


"Wayne.B" wrote in message
.. .
On Thu, 27 Mar 2008 15:33:54 -0600, Vic Smith
wrote:

Whose business it anyway if lenders choose to write bad loans?
Doesn't hurt me.

That's naive. If the government ends up bailing out the lender "to
save the economy" who do you think ends up paying for that? Sooner or
later we all do, either in taxes or with a depreciated dollar.

Sounds like you want it regulated.

Actually not. My real preference would be to let the lenders fail,
except for the one that is paying my pension and holding my retirement
$$$s.

Life is complicated. :-)

I just heard on Chris Matthews's "Hardball" show of a plan being kicked
around that would provide government financing for banks to re-negotiate
some of these sub-prime loans with home owners having trouble with their
mortgage. But, here's the kicker. In this plan, not only would the rates
and terms be re-negotiated, but also the prinicple owed .... meaning it
would be lowered as well as the house "value", decreasing taxes. I am not
sure I completely understand this .... or even heard it correctly, but it
sounds rather bizzare.

The idea is that the prices are in a deflationary direction, thus the
principle has deflated in value along with the loan. In that
paradigm, it makes sense to revalue the amount of principle by writing
off a portion of the principle, renegotiating the interest on the
remaining principle to a rate and time period in which the now lowered
principle w/interest can be paid.

This revaluation of the loan, including the principle, will lower
property taxes because the house involved will not be in line with
actual fair market value rather than an inflated market valuation -
the tax base will be revalued at a lower price point.

It's a complicated way to establish a floor on mortgage valuations and
personally, I don't think it's worth discussing for a number of
reasons - in particular the whole "let's spread the pain" scenario.

Those who have managed to keep their conventional 30 year mortgage payments
by working two jobs to make ends meet receive no benefit or consideration.

Sounds like those who are financially responsible, live within their means
and borrow what they can afford finish last.

That's one way of looking at it.

Another way would be to ask what advantage do you gain? In one way,
it does do something to establish a value on any given mortgage
package. Another way would be to say that there isn't a specific
moral hazard in any practice that grants asylum to people who over
estimated the real estate market.

To my way of thinking, everybody who wrote these loans is just as
responsible as the person requesting the loan. Since when did giving
a $450,000 jumbo loan at 2% introductory rate over two years make
economic sense? Or a $250,000 loan at 2% with no qualifiers - no job
qualifications, no down payment, no nothing. All on the bet that you
will sell your $250,000 (or 450) home for 60K more than you paid for
two years from now.

If one is a true free market type, then you let it go - let those who
screwed up and made bad bets lose everything.

The complication is that toxic paper extends globally - almost every
country's central bank is involved along with Swedish towns, Norweign
government, Singapore, Chinese banks - almost everyone has a piece of
this American mortgage mess. The potential of taking down the entire
global financial system is enourmous because that system requires that
you have confidence in the system. No confidence, no system.

So that's the dynamic.

Those that took chances and advantage of loose lending practices with
mortgages they couldn't afford, win.

Sadly, that's the other half of the problem - how do you compensate
those who played the system correctly for their losses essentially
incurred by those who didn't?

I still think I have the right solution - but nobody pays attention to
me. :)