<p>Thanks dstark. But it is just a proposal, and one which I would object to, allowing state and local governments to do this, not mandate the practice. Lenders and borrowers have gotten themselves into this mess and they should not expect financial help from the government to get them out.</p>
<p>One other proposal floating out there is to allow judges to modify the terms of home mortgage loans during bankruptcy proceedings. I am not too keen about that proposal either.</p>
<p>From the Wall Street Journal…We will see if democrats and republicans don’t support this government bailout. </p>
<p>Paulson Urges Congress To Act on Loan Woes </p>
<p>WASHINGTON – The Bush administration is putting the burden on Congress to fend off an approaching wave of home foreclosures.</p>
<p>With two million borrowers in the U.S. expected to see interest rates jump on their adjustable-rate mortgages in the next two years, Treasury Secretary Henry Paulson urged the Democratic-controlled Congress to pass stalled housing legislation and support a new White House proposal to use tax-exempt bonds to refinance troubled subprime mortgages.</p>
<p>After months of criticism that he hasn’t responded aggressively enough, Mr. Paulson implied that the administration was already doing all it could to stem the nation’s mortgage woes, which …</p>
<p>“One other proposal floating out there is to allow judges to modify the terms of home mortgage loans during bankruptcy proceedings. I am not too keen about that proposal either.”</p>
<p>I’m not too keen on the above proposal either.</p>
<p>[Countrywide</a> CEO Seeks $625,000 Fannie/Freddie Cap | News | Market News | Reuters](<a href=“http://www.reuters.com/article/marketsNews/idUKN0559676720071205?rpc=44]Countrywide”>http://www.reuters.com/article/marketsNews/idUKN0559676720071205?rpc=44)</p>
<p>I’m not to keen about this proposal either. Let’s dump our jumbo loans onto Fannie Mae and Freddie Mac.</p>
<p>I thought this kind of proposal was dead after all the recent troubles Fannie Mae and Freddie Mac had. Evidently not.</p>
<p>“Where are all the attorneys and their class action suits for all those people who were truely victims of fraudulent mortgage lenders?”</p>
<p>Speaking as a class action attorney, I’m sure there will be suits, but these are harder to put together than they look. Finding the right plaintiffs to represent the class is going to be a challenge. I bet that there will also be various corporate protections around the defendants that will make it harder to reach the guys in charge…perhaps the actual agents selling the loans were independent contractors, etc., etc.</p>
<p>[FINANCE</a> - Five-Year Mortgage Rate Freeze Looms - Top News - Comcast.net](<a href=“http://finance.comcast.net/www/news.html?x=http://www.comcast.net/data/news/2007/12/05/831185.xml]FINANCE”>http://finance.comcast.net/www/news.html?x=http://www.comcast.net/data/news/2007/12/05/831185.xml)</p>
<p>Sax, thanks for that link.</p>
<p>I wonder how many people are going to be helped by this. I wonder if this will now make housing more unaffordable for potential buyers than before. I wonder what happens in 5 years. </p>
<p>I wonder why we are turning towards Japan’s policies. They didn’t work too well. </p>
<p>[Deal</a> Journal - WSJ.com : Paulson’s SIV, Subprime Rescue: A Convoy to Disaster?](<a href=“http://blogs.wsj.com/deals/2007/12/05/paulsons-siv-subprime-rescue-plans-a-convoy-to-disaster/]Deal”>http://blogs.wsj.com/deals/2007/12/05/paulsons-siv-subprime-rescue-plans-a-convoy-to-disaster/)</p>
<p>"Is the “convoy” steaming towards America?</p>
<p>For decades, Japan pursued a “convoy system” for its banking regulation, forcing some of its larger and healthier banks to absorb some of the bad loans of weaker brethren. The approach worked fine for a long time, until the convoy –overloaded with years of mispriced debts — ground Japan’s economy to a terrible halt.</p>
<p>It’s worth remembering the convoy as Treasury Secretary Hank Paulson steers his own ship into the credit crisis.</p>
<p>Paulson has been a forceful advocate for helping rectify both the SIV and home mortgage crises.</p>
<p>For the structured investment vehicles (SIVs), Paulson’s approach is about liquidity. As he sees it, the intrinsic value of much of the SIV books are in fine shape, and only an outflow of liquidity has imperiled the market. By creating a Super-SIV to hold that paper in the interim, the SIV assets will eventually return to their rightfully valued place. </p>
<p>The mortgage approach is similar, as it plans to freeze the worst economic outcomes (potential foreclosures) so the system will have more time to come up with less bad outcomes (less-costly workouts). </p>
<p>In both cases, Paulson hopes to essentially temporarily suspend the market. Is this a refreshing pause? Or perhaps a path to a new kind of convoy-dom, which delays an inevitable re-pricing of securities?</p>
<p>We’ve culled a selection from past Journal reporting on the Japanese economic meltdown. You decide if we’re headed that way or not."</p>
<p>“Paulson hopes to essentially temporarily suspend the market.”</p>
<p>Must be more yellow journalism. ;)</p>
<p>From the Wall Street Journal …that bastion of liberalism and communism. ;)</p>
<p>I think this guy exaggerates the problems, but it’s a good explanation for part of what is happening.</p>
<p>Similar to what thisoldman stated in the beginning of this thread.</p>
<p>[url=<a href=“http://www.washingtonpost.com/wp-dyn/content/article/2007/12/04/AR2007120402186.html?sid=ST2007120500794]washingtonpost.com[/url”>http://www.washingtonpost.com/wp-dyn/content/article/2007/12/04/AR2007120402186.html?sid=ST2007120500794]washingtonpost.com[/url</a>]</p>
<p>"What’s important to understand is that, contrary to what you heard from President Bush yesterday, this isn’t just a mortgage or housing crisis. The financial giants that originated, packaged, rated and insured all those subprime mortgages were the same ones, run by the same executives, with the same fee incentives, using the same financial technologies and risk-management systems, who originated, packaged, rated and insured home-equity loans, commercial real estate loans, credit card loans and loans to finance corporate buyouts. </p>
<p>It is highly unlikely that these organizations did a significantly better job with those other lines of business than they did with mortgages. But the extent of those misjudgments will be revealed only once the economy has slowed, as it surely will."</p>
<p>Loan workouts have always been standard in the commercial property lending market. The problem with doing it on homes is the vast volume and the fact that the loan has been passed through multiple hands and broken into different bits. I think the idea is good but execution will be difficult. Just like NOLA there will be people scamming and gaming the system for personal gain but the overall need to do something means will just have to accept some level of cheating. Taking back and reselling all these homes IS the worst case scenario.</p>
<p>^Likewise with the amount of outright lying by the writing agent and borrower. As for the countrywide CEO…</p>
<p>“Taking back and reselling all these homes IS the worst case scenario.”</p>
<p>For who?</p>
<p>I am trying to figure out why housing prices at levels very few people can afford is a good thing.</p>
<p>E-Trade sold their CDOs for 27 cents on the dollar to Citadel. That’s what happens in free markets when you make a mistake. You get punished and you will be more careful and make better economic decisions in the future or you won’t survive.</p>
<p>[Could</a> Citadel’s valuation of E*Trade’s CDOs wipe out capital at three big banks? - BloggingStocks](<a href=“http://www.bloggingstocks.com/2007/12/04/could-citadels-valuation-of-e-trades-cdos-wipe-out-capital-at/]Could”>http://www.bloggingstocks.com/2007/12/04/could-citadels-valuation-of-e-trades-cdos-wipe-out-capital-at/)</p>
<p>Who are we bailing out here?</p>
<p>A vacant home has more impact on communities than some debt certificate sold at a discount. These are real place in real towns with real neighbors. Vacant homes attract all sorts of vermin and become a cancer on any neighborhood. See problems in NOLA rebuilding for proof. </p>
<p>Prices are not at levels “few” can afford. Using the median income to determine affordability is misleading as the bottem third of incomes are not likely to be homeowners under most scenarios at any time. Typically around two-thirds of households are owners. Use their income and current interest rates to determine affodability. Many of those comparisons of income to home price ratios ignore the fact that in the 70’s interest rates were at least 50% higher. That screws the affordability too.</p>
<p>We may not like the unintended consequences:</p>
<p>[Homeowner</a> bailout is a lousy idea - MSN Money](<a href=“http://articles.moneycentral.msn.com/Investing/SuperModels/HomeownerBailoutIsALousyIdea.aspx?GT1=10718]Homeowner”>http://articles.moneycentral.msn.com/Investing/SuperModels/HomeownerBailoutIsALousyIdea.aspx?GT1=10718)</p>
<p>Donald Trump and just about every other developer has made a career out of changing loan terms when things don’t work out. His assumptions that it is delaying the likely later default is pure conjecture. I would only apply the “bailout” to owner occupied homes. Investors and flippers should just be moved out of the system and the homes sold.</p>
<p>Dadguy, thanks very much for the link. I obviously agree with the sentiments of the author. :)</p>
<p>Now we get a political solution to an economic problem. What a mess.</p>
<p>and what the heck happens in five years…just in time to elect yet another crew into the White House.</p>
<p>Things much be much, much worse than they appear with the financials and housing to have the gov’t feeling the need to jump in here with both feet.</p>
<p>I suppose you opposed the Chrysler “bailout” and the S&L “bailout” programs too.</p>
<p>I didn’t oppose bailing out the depositors in the Savings and Loan crisis because they had nothing to do with it. And if you remember the S&Ls were taken over and sold.</p>
<p>As for the Chrysler bailout, I was too young so I don’t remember. 
Didn’t we loan them money or guarantee the loans with strings attached so we actually made money? ;)</p>
<p>I recently bought a house with an adjustable rate mortgage. It’s not subprime; we saved a good down payment, led frugal lives which led to a great credit score, and waited till prices came down. So, we got a good rate, but not as good as some of those teaser rates that are going to be frozen. Wonder how far ours will adjust up to make up for them. </p>
<p>Guess I just don’t know money management…</p>
<p>Garland, as rates decline, maybe you can refinance into a fixed rate loan.</p>
<p>The biggest problem is home prices are overinflated. They aren’t affordable. Prices need to go down. They can either go down fast and we can get over the problem quickly. Or they can go down slowly and we can go through this for years.</p>
<p>Many borrowers are better off just letting the homes go. Renting is cheaper.</p>
<p>[House</a> prices seen falling 30 pct - Yahoo! News](<a href=“http://news.yahoo.com/s/nm/20071206/bs_nm/usa_economy_housing_dc;_ylt=AhTMzfAtQc***EB2WjisX68DW7oF]House”>http://news.yahoo.com/s/nm/20071206/bs_nm/usa_economy_housing_dc;_ylt=AhTMzfAtQc***EB2WjisX68DW7oF)</p>
<p>[url=<a href=“http://bloomberg.com/]Bloomberg.com[/url”>http://bloomberg.com/]Bloomberg.com[/url</a>]</p>
<p>Click on Schiller sees home prices falling despite mortgage freeze</p>
<p>The markets reacted wonderfully to the Treasury announcement and my investment portfolio increase about $65,000 in value during the past two days. </p>
<p>Booyah!!</p>