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| Name: |
GoneFishin
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| Subject: |
McCains Mortgage Bailout
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Date:
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10/8/2008 9:04:03 PM
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He declared in Tuesday night's debate that he would order his Treasury secretary to buy up bad mortgages and let struggling homeowners refinance into more affordable loans -- a power the government already has under the new financial industry bailout law.
Under McCain's plan, the government would spend $300 billion to purchase distressed loans and provide new, fixed-rate mortgages. Douglas Holtz-Eakin, the Arizona senator's economic adviser, said the plan would help stabilize the plunging values of mortgage-backed securities that are at the heart of the crisis in the financial markets.
To do so, the government would pay the full face-value of the distressed mortgages, Holtz-Eakin said.
Under that scenario, the government could buy a $200,000 subprime mortgage on a home now worth just $100,000, give the homeowner a 30-year, $90,000 loan with a 5 percent interest rate, and essentially eat the $110,000 difference.
"It's the only way to do it in a timely fashion," Holtz-Eakin said.
Obama's campaign said right after the debate that he had made similar proposals to McCain's and there was nothing new in the Republican's remarks. But as McCain aides offered more details on Wednesday, the Obama camp changed its tune.
The plan would cause the government "to massively overpay for mortgages in a plan that would guarantee taxpayers lose money and put them at risk of losing even more if home values don't recover," said Obama economic adviser Jason Furman. "The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud."
Indeed, analysts on the right and left said the plan would let banks and investors who bet heavily on the risky mortgages walk away with a handsome payout courtesy of U.S. taxpayers.
"You run into the question of whether or not then you are bailing out bad lending decisions," said David C. John of the conservative Heritage Foundation.
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| Name: |
MartiniMan
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| Subject: |
This is a silly analysis
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Date:
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10/8/2008 9:40:01 PM
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Another economics lesson for the illiterate.
The fact is that at the end of April ess than 0.2% of all mortgages are in default. That means 99.8% are NOT in default. So if the government buys a $200,000 mortgage on a house worth $100,000 it does not mean they take a loss. Mortgages are bought and sold all the time and when someone buys my mortgage it doesn't mean I suddenly don't have to pay it back. It means I pay someone else back, in this case the government. If the government elects to they can in the case of struggling mortgage holders revise the terms to allow them to repay the loans because they are not constrained by the need to make a profit. The fact is most people that are struggling to repay the loans were duped by unscrupulous loan originators into excotic loans that became too costly to repay. So, they redo the terms of the loans, the people stay in their homes and repay the mortgages. All is joyful.
And in doing this the government creates greater liquidity in the marketplace by giving lenders cash so they can continue to lend to other borrowers which will help stimulate the economy and stabilize home prices. Hopefully they won't listen to the likes of Barney Frank and Chris Dodd and will only lend money to people that can afford to pay it back under reasonable terms.
I mean, do you actually think critically about the things you write or do you just take them off of some leftist website without any thought? It is just embarrassing but it does point to the continued failure of government schools to teach basic economics and critical thinking. C'mon GF, you can do better than serving up these softballs. Give me something that actually challenges my intellect.
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| Name: |
GoneFishin
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| Subject: |
This is a silly analysis
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Date:
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10/8/2008 10:07:07 PM
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Reread what I posted. This is a direct quote from Holtz-Eakin economic advisor to Mccain explaining the program. READ the senerio he provided. The governemt will pay the bank the FULL value of the mortgage and eat the loss NOW. The $700billion rescue BUYS it at the distressed value. BIG BIG difference. You have selective reading.
To do so, the government would pay the full face-value of the distressed mortgages, Holtz-Eakin said.
Under that scenario, the government could buy a $200,000 subprime mortgage on a home now worth just $100,000, give the homeowner a 30-year, $90,000 loan with a 5 percent interest rate, and essentially eat the $110,000 difference.
"It's the only way to do it in a timely fashion," Holtz-Eakin said.
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| Name: |
4691
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| Subject: |
This is a silly analysis
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Date:
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10/8/2008 10:22:48 PM
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I've been trying to find valid details on this individual mortgage bailout called Homeownership Resurgence Plan. On Fox News earlier today it was said something like (I'm making up the numbers here) homeowner buys home for $300,000 and now it's only worth $200,000 and owner in default. The government pays off the $300,000 and the homeowner is given a new mortgage on the house at market value - $200,000. I interpreted this to mean the government (i.e.; tax payer) eats the $100,000 loss in value. This seems to be confirmed by the statement below which says the existing loan is retired and the difference between the two loans would be taxpayer contribution. It certainly does not read like the standard mortgage purchase between institutions.
I got this from the McCain website (link provided): ""Mechanically the initiative is very simple. A homeowner would initiate the process by calling a mortgage broker or other originator and basically saying 'I'd like to refinance my home.' They would start the underwriting process, verify incomes, this is an opportunity as well to make sure the program has in it appropriate checks to make sure that government money is not being given to folks who are not primary homeowners, who don't have adequate income, or otherwise, in the initial purchase of their home didn't provide valid information. These authorities could then be used to retire the existing loan. The FHA would issue a guaranteed thirty year fixed-rate mortgage at a manageable interest rate. The homeowner would stay in the home, their financial burden would be relieved, the valuation of the existing loan would be resolved, there would no longer be a threat of default or diminished capacity to repay. That would stabilize financial markets, and t he taxpayers' contribution would be, in some cases the difference between the values of those two loans, something which would be the necessity for taxpayer contribution."
Personally, I don't like this unless there are a lot of restrictions on who qualifies for government assistance. Some people in high cost housing areas have been buying homes they can't afford with the intention to flip in a year or two and make a big profit as the housing prices soared. Now the tax payer has to cover their gamble? (Maybe the tax payer can cover my recent 401K losses as well!)
URL: Homeownership Resurgence Plan
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| Name: |
Talullahhound
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| Subject: |
McCains Mortgage Bailout
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Date:
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10/8/2008 10:31:59 PM
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I was watching the news tonight. Apparently although McCain is saying this is his "new idea" it has been discussed on the Hill for weeks. It wasn't even McCain's original idea. Apparently the original idea came from Hillary Clinton, Barney Frank and Chris Dodd.
I think it is a terrible idea.
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| Name: |
MartiniMan
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| Subject: |
You are still confused
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Date:
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10/8/2008 10:51:25 PM
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You act like all the borrower does is pay back the principal. I know you understand this but lets take your scenario and play it out so you really understand this as my earlier post assumed too much. I understand the scenario you played out was a worst case but I am willing to use that to illustrate the fallacious thinking.
Lets say they take the $90K loan for 30 years at 5% (my assumption from your scenario is the borrower comes up with 10% down in order to only have to loan $90K on a $100K home.....frankly I am still a little fuzzy on your math). Total principal and interest repaid is $173,000 plus the $10K down payment or a total of $183K. So under your worst case scenario the loss would $17K, a far cry from your analysis of a $110K loss. Remember, that is worst case to make a already discredited point. Now lets assume a more reasonable scenario where the same home price has dropped by 25%. So now its worth $150K with 10% down so its now a $135K loan for 30 years at 5% so now they repay $260K P&I plus the $15K down for a total return of $275K on a $200K investment. Not a good deal given the risk but still not a loss in the long run. I recognize I didn't factor in the time value of money but this was a simple way to explain this.
"It's the only way to do it in a timely fashion," really means it is a simple way to create liquidity very quickly versus other more complicated methods. What they are trying to do is create liquidity in the markets which will help to stabilize home prices. Is that clear now?
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| Name: |
MartiniMan
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| Subject: |
Watching what news?
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Date:
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10/8/2008 11:20:46 PM
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Given that the mainstream media is in the tank for Obama I would suggest you believe none of what you hear and only half of what you see. I am a news junkie and I certainly don't recall Hillary et al saying anything other than defending themselves from attacks related to their role in causing this debacle.
Don't get me wrong, I am genetically opposed to all these rescue plans and think borrowers and lenders need to take personal responsibility for their poor decisions. Having said that. some very trustworthy conservatives have said we need to do this in order to restore liquidity and stabilize home prices. I begrudgingly will give them the benefit of the doubt.
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| Name: |
4691
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| Subject: |
Analysis?
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Date:
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10/9/2008 12:06:09 AM
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I think the time value of money must always be considered; otherwise the analysis is not valid and misleading. As described on the McCain site, the tax payer covers the difference between the current loan and the new market price adjusted loan. The payments on the new loan will not compensate for that immediate loss; only applies to principle and interest of the new loan. And even if the time value of money is ignored, what if the homeowner sells the house in a few years and pays the new loan in full? In that case, the tax payer would not recoup any of the their money that covered the spread between orginal loan and new loan. But I just can't make myself agree with the analysis that the interest paid on a lessor principle (obligation) is equivalent. Somebody will always lose in this deal...the tax payer. Can everyone that lives in an area where housing costs have decline get a new government loan at curernt market value and let tax payers absorb difference? What's the criteria for qualification?
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| Name: |
GoneFishin
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| Subject: |
Silly Analysis
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Date:
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10/9/2008 12:06:19 AM
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Martini, the example I show IS NOT mine. It is from McCains Economic advisor.
Most people do not stay in their home for 30 years. The average according to the Realtors Association is 7 years. I recognize this may not be true currently.Using a 7 year average and the right off in the example of $110,000, the tax payers would take an absolute beating.
It is interesting that you a Conservative are supporting a new $300billion bailout. Many of those that will be helped are poor uniformed Democrats. Here I am saying enough is enough. Let's give the $700billion bailout a chance to work.
The Treasury just loaned AIG another $37billion on top of the $85billion.
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| Name: |
MartiniMan
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| Subject: |
Analysis?
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Date:
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10/9/2008 12:15:36 AM
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I don't disagree about the time value of money and the point I was trying to make was that the blanket statement that we will lose all this money is simply not correct. We can quibble about cash flow discounting, discount rates, etc, and come up with a bunch of different scenarios. The point of the plan is to create liquidity and stabilize home prices. If you have a better suggestion as to how to do that I am all ears.
Again, the simplistic view is to let the loans fail and the holders of the consolidated risk fail. But fiscal conservatives that I trust are saying we need to act to hopefully stem even greater losses. If you have cancer you accept chemotherapy even though it is basically poison because in the long run you recover from that poison and hopefully put the cancer into remission.
What is missing from all these discussions is to fix the programs that caused the problem in the first place but that is being blocked at every turn by Democrats that want to buy votes.
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| Name: |
MartiniMan
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| Subject: |
Silly Analysis
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Date:
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10/9/2008 12:27:20 AM
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I understand where the statement came from but they are trying to communicate with people that have a 3rd grade understanding of economics. I was trying to explain this in a more sophisticated way. By the way, granted people only stay in their homes for an average of 7 years but if you look at an amortization schedule it is close to 100% interest over those seven years and then they still have to pay back the principal. MY WHOLE POINT IS THE STATEMENT IS MISLEADING AND OVERSTATES THE POTENTIAL LOSSES!
As for me being for this, as I said in other posts some very fiscally conservative congressmen have stated that we need to do this or something similar to create liquidity and stabilize home prices. I find it funny that Obama allegedly had the same idea until McCain promoted it and all of the sudden they are concerned about the taxpayer paying for these loans. Let's see, they want the taxpayer to pay for everyone's health care, unemployment benefits, child care, and on and on but they are opposed to trying to stem the current economic problems? Give me a break!
As for giving the $700B a chance to work I assume you have been watching the stock market since this brilliant piece of legislation was passed? My guess is that nothing is going to happen with this proposal anyway as Dems benefit electorally when bad things happen to this country so you will get your wish.
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| Name: |
4691
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| Subject: |
Homeownership Resurgence Plan
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Date:
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10/9/2008 8:00:35 AM
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I am also a fiscal conservative. I am of the opinion that the cost of housing was driven up in a lot of areas by speculation demand to unreasonable levels. I view what is happening to housing prices in those areas as a market correction. The bailout money should be used to shore up the financial institutions to facilitate new lending and growth; not prop up inflated prices. I understand there is no simple or quick fix and most all of us must share the pain even whether fair or not.
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| Name: |
MartiniMan
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| Subject: |
Homeownership Resurgence Plan
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Date:
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10/9/2008 9:28:52 AM
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On that we agree but the practical reality of creating liquidity is the shoring up of housing prices as demand caused by available credit stabilizes the market. I think we can weather regional corrections where the market got totally out of whack with reality but a general erosion of home values nationwide is more problematic. The question we have to ask is how much do you want to destroy market caps, how much unemployment are you willing to accept and how deep or lasting a recession is palatable in order to punish the financial markets and those that made poor personal decisions?
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It seems that they could just set fixed rates at todays current rates, wave the penalties and put the outstanding balance on the the principal of these loans. If you can't afford this, then you shouldn't be in the house anyway. You shouldn't have gotten the loan to begin with. Some of this is caused by the parlaying of peoples equity into second and third investment homes and then the market slowing down. It's called legal gambling.
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