Government Mortgage Bailout...Yea or Nay?

"the bill would also allow FHA to insure loans with no money down"

I don't like this idea at all.

Funny, it's the same government that pushed for greater lending leniency. Whatever garners most votes will be the government policy.

No, no bailout.

No. I mean I know the government is always up for the creation of a new moral hazzard, but I think we should change that trend.

My opinion is that it is just political posturing and won't do any good. Prices are too out of whack with salaries. 120 mortgage companies have gone bankrupt lately. The remaining ones are getting out of the subprime business which is the only reason that prices inflated as high as they did.

Even if the FED drops interest rates, banks are going to open up the coffers again. Stricter lending practices are here to stay.

People bought houses they couldn't afford, why should the government bail them out even if they could?

Maybe people should have decided that they really couldn't afford an 800k house on 60k a year salary.

I've ranted on here before about this. A lot of the borrowers I've seen who are taking out these risky mortgages are not doing so on dumpy, small homes. They are buying nice, new McMansions. They've bought a home well beyond their means and now the government is going to come in and save them so that they don't lose their home. I guess the moral of the story is that you're a fool if you're fiscally responsible. I guess I'm also wasting my time saving for retirement while my neighbors all buy Beamers and boats like there's no tomorrow.

I'm sorry, that is, "banks aren't going to open up the coffers again."

OED wrote:

I've ranted on here before about this. A lot of the borrowers I've seen who are taking out these risky mortgages are not doing so on dumpy, small homes. They are buying nice, new McMansions. They've bought a home well beyond their means and now the government is going to come in and save them so that they don't lose their home. I guess the moral of the story is that you're a fool if you're fiscally responsible. I guess I'm also wasting my time saving for retirement while my neighbors all buy Beamers and boats like there's no tomorrow.

I just don't see how the government can save these people. They are underwater just by paying interest. No amount of refi is going to save these people.

It's too bad that they will lose the house, but it's not that they'll become homeless. They'll have to rent again.

It's a fact of life that not everyone gets to be a homeowner.

Running the presses at the mint and then dumping billions into the market to maintain liquidity - that is already a huge bail out for the geniuses who invented all the new derivative instruments designed to create mansions in the Hamptons out of pure nothing. As for bailing out the trash who bought McMansions with nuthin' down on flexi-rate mortgages - yeah, lets reward them for their frikken stupidity as well. When all the bailing is done, the dollar should be worth about nothing.

Fat Old Man wrote:

Running the presses at the mint and then dumping billions into the market to maintain liquidity - that is already a huge bail out for the geniuses who invented all the new derivative instruments designed to create mansions in the Hamptons out of pure nothing. As for bailing out the trash who bought McMansions with nuthin' down on flexi-rate mortgages - yeah, lets reward them for their frikken stupidity as well. When all the bailing is done, the dollar should be worth about nothing.

Well written. Clearly the FED has chose the way of inflation...dollar is definately toast.

Inflation isn't a problem right now.

It is about time that the fed lowers the federal funds rate.

An slow decline of the dollar wouldn't be the end of the world. It will improve our exports and maybe we will decrease our imports some.

Higher oil prices would be a problem with a weaker dollar. That is why we need to get our dependence off foreign oil.

a federal bail out can be taken to mean several things.

If raising the amount for a conforming loan from 417,000 to something slightly higher is all that will be done, I am okay with that to some degree. Allowing more people to buy in areas like in California or New York where someone putting down 20% down still has to take out a jumbo mortgage, the 417,000 limit might be low.

But I am not for bailing out mortgage companies that profited from under pricing risk and who are not going out of business and I am not for bailing out borrowers who took a major gamble and bought a house they couldn't afford because they used an adjustable mortgage hoping they would be able to refiance when their fixed rate period was going to reset or for bailing out poeple who put little money down and had bad credit who hoped to make a quick buck by buying a home that they couldn't really afford.

It may sound contraditory to be for a rate cut since it may help the same folks but I don't want to punish those who were more conservative and didn't gamble when purchasing a home and who didn't use their home as a personal atm that they didn't need to make deposits.

The govt should not bailout mortgage companies. The problem is that even though the company is bankrupt, the owners are off with millions of dollars. The investors of the bonds are the ones left holding the bag. They should go after these owners and prosecute them the same way they did to the crooked ceos of other companies. The end result is they did the same thing to the bond investors that the ceos did to the stock investors.

As for trying to bailout the homeowners, they should try to make conventional loans available to those who were coerced into poor adjustable rate mortgages with high prepayments.

It is very easy to tell if the house is worth what is borrowed on it and it is worth a bailout. My guess is they could save 20-30% of the foreclosures. There are homeowners who could afford a reasonable payment on their house with a reasonable interest rate but cannot afford the payment after an adjustment on a poor loan with a very high interest rate.

There is really nothing wrong with fha loans going to 100%. What they have to do is make sure the insurance they charge covers the foreclosures that occur. Even if the govt has to subsidize some of the cost, it has been proven that the greater percentage of owner occupied homes is better for the community. Years ago, the govt plowed this money into subsidized rent and soon found out this wasn't the way to go.

Here is a story about a foreclosure I bought. A guy owned a large property with an old farmhouse for about 30 years. He divided the property into 3 sections. The other two sections have newer homes built on them. He sold the farmhouse to his daughter and son-in-law. They probably paid quite a bit of money to have new windows and have the house sided. Most of the walls had been re-drywalled and newer electric had been run.

At some point about 2002, the old township vacated an alley and added it to the homeowners property. When they did this, they created a seperate deed for the house property and the property the garage is on. When the bank foreclosed, they were only able to foreclose on the house property but not the garage. The result was that nobody wanted to buy the house without the garage and eventually I bought it for $22,000. The amount the bank was owed was 87,000 but they only netted about 18,000 after expenses.

Our govt considers the difference between the 18 received and the 87 owed as $69,000 income to the owner who got foreclosed on. He received a tax bill for $24,000.

He now has not only lost his house and any money he put into it, he has to rent the place he is living at now and he owes the govt 24 grand.

The bank is also a big loser since they are out 69 grand.

This deal didn't work out for either party.

yes the investors in mbs are the ones left holding the bag (somewhat) but they should be the ones left holding the bag...

if there was a credit bubble then these investors should have done their homework just like when an investor buys any other bond

if everyone will recall another bubble - the tech bubble, investors were acting completely irrationally, all those tech companies that had their IPO then went bust later on, who could blame them, they took advantage of ridiculous behavior on the part of investors... no one was saying we should bail out tech investors

same here, if they didn't know or understand the true risk of the sub-prime tranche of the mortgage bonds they purchased, then they either shouldn't have purchased them, or they should have charged a higher premium

there needs to be discipline in the market and bailout is not about helping the homeowners or mortgage companies it is would only be encouraging reckless investment in the future...

[quote]rippy cripple wrote:

The govt should not bailout mortgage companies. The problem is that even though the company is bankrupt, the owners are off with millions of dollars. The investors of the bonds are the ones left holding the bag. They should go after these owners and prosecute them the same way they did to the crooked ceos of other companies. The end result is they did the same thing to the bond investors that the ceos did to the stock investors.

[quote]

i'm happy to see the overwhelming consensus on here is that a "bailout" is ill-advised, impractical/impossible or both.

i do hope that the government, state and federal, prosecute mortgage brokers who committed fraud. as well as the real estate flipping fraud rings who sold to one another with the help of a crooked appraiser. stupid buyers and mbs investors deserve to incur losses, but these criminals, who played a big role at the local level at least in artificially inflating home prices (which then hurt ill-informed first time buyers and mbs investors), deserve criminal punishment.

I agree. There needs to be some shaking out of the industry. People got greedy and underpriced risk. They gamble and lost and the risk they took shouldn't be taken on by the goverment.

kaitainen wrote:

i'm happy to see the overwhelming consensus on here is that a "bailout" is ill-advised, impractical/impossible or both.

i do hope that the government, state and federal, prosecute mortgage brokers who committed fraud. as well as the real estate flipping fraud rings who sold to one another with the help of a crooked appraiser. stupid buyers and mbs investors deserve to incur losses, but these criminals, who played a big role at the local level at least in artificially inflating home prices (which then hurt ill-informed first time buyers and mbs investors), deserve criminal punishment.

Didn't the Reagan govt. bail out the savings & loans institutions in the mid 1980's. Precedent has been set.