Proposals for a Depreciating Housing Environment

Being “upside down” is the term for when a borrower owes more on a car than the car is worth. Cars have always been a depreciating asset, but real estate has not been viewed in the same way. That is about to change.

Friday’s New York Times describes how falling home prices are affecting sellers who are not only taking a loss on their home, but have to bring cash to closing to cover their shortfall. The housing market has become stagnant as inventories of homes for sale continue to rise, but homeowners and banks are unwilling to sell at a deep discount.

Some members of Congress, such as House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd, have called for the federal government to buy certain mortgages. A plan by John M. Reich, the director of the Office of Thrift Supervision (regulates the S&Ls), would allow a “negative amortization certificate” lien to be put on the home. My interpretation is that the plan could only be financially viable if investors bought the lien certificate at a deep discount on the anticipation that real estate values will at least modestly rise. Since I believe that is unlikely to occur, the more likely outcome of Reich’s plan would be to essentially put real estate in a “lockdown” mode. No buyer will come to close unless all liens are removed (or the title insurer is willing to exempt the lien). In a depreciating asset environment, lenders would have to give certificate lien holders a financial incentive to allow the property to close unencumbered at a lower price.

Banks are becoming more vocal with their own proposals. Credit Suisse (CS) is complaining that the Federal Housing Administration’s FHA Secure program to exchange subprime mortgages to a federally guaranteed fixed rate offers little help. The Swiss bank has held meetings with the FHA, proposing that borrowers who have made at least six mortgage payments should qualify. Bank of America (BAC) which will have even greater mortgage exposure after it acquires Countrywide Financial (CFC), proposes “to create a new federal agency that would buy vast quantities of delinquent mortgages at a deep discount and replace them with fixed-rate federally guaranteed loans.”

The federal government should not be purchasing mortgages. A more viable solution would be for the government to guarantee mortgages after the home has been substantially reduced to a value level that leaves little financial risk. In order for this to happen, lenders would have to be willing to accept that their writedowns are real.

Disclosures: none

Comments

[H2O]

The rich greedy don't care if millions of americans lose there jobs
- and they sure don't care if americans - are living in the streets
- They love there no-reg GOV ....


Conservatives say Obama lacks patriotism:

First the flag pin - is nothing more then - those showing
- who supported the lies of iraq - all the while - not giving
the troops the things they need - while Americans died they ran
around with there TAX CUTS - That stopped the troops from getting
the things they needed - and they call that support ????

Now the star spangled banner is a song - it has nothing to do
with the pledge of allegance to America - and only a rich-greedy IDIOT
- wouldn't know the diff ....

And the most stupid of all - Being relly proud of something - has
nothing to do with pride in something - I can have pride in my kids
- but not be proud of the things they do !!!!

BUt since these rich-greeeedy Conservatives - want to look at being patriotic
- when the time comes - well go over just how patriotic there hero is !!!

Now whats that saying - If your going to play the game - This time - Lets
play the game !!!!

Presidential candidate John McCain denied that the Soviets interrogated
U.S. POWs in Vietnam. But, former U.S., Soviet, and Vietnamese intelligence
agents say they did. Why is McCain lying?

www.vietnamveteransaga.../


Click on the video link below and you will see a revealing snapshot of "the real"
John McCain and his ongoing love affair with leaders of communist Vietnam as contrasted
to his rude, hateful treatment of families of men still missing as a result of the
Vietnam War.

In 2005, just after Sen. McCain finished warmly introducing Vietnam Prime Minister
Phan Van Khai to a Washington, D.C. audience of corporate representatives wishing
to take advantage of Vietnam's cheap "slave labor market," Vietnam veteran Jerry
Kiley threw a glass of red wine on Khai's vacated seat. Kiley was protesting Vietnam's
continuing chronic human rights abuses and McCain's betrayal of America's left behind
POWs.

McCain ordered Kiley arrested and jailed accused of assault on Khai. Months later,
a U.S. court after hearing over two days testimony against Kiley, ruled that the
veteran did not assault Khai. All charges were dismissed despite the protest of McCain's
surrogates.

Kiley, a long time activist against human rights abuses still occurring in Vietnam;
is co-founder of Vietnam Veterans Against John McCain.

The woman being treated so poorly by McCain is Delores Alfond, chairman of the National
Alliance of POW/MIA Families. She was trying to give testimony before the 1992 Senate
Select Committee on POW/MIA Affairs.


www.vietnamveteransaga...

[Jack K]

Barney Frank is an idiot. The best thing for our country is almost always the exact opposite of what that socialist says

[Jack K]

And that Warrior sounds like a socialist. Yep. Tax cuts are bad. They give money to greedy people. Hey if you earn it it is not being greedy. Only a socialist thinks it is. Expecting to receive something for nothing from the government is not being greedy however? Apparently not to a socialist.

[brokerbila]

Many homebuyers are waiting to buy thinking that prices will fall further. Perhaps we could find an insurance company to accept premiums to insure against a drop in value. It would be like the FDIC guarantee sticker on the window at your bank. The money you put in, you'll be able to get back out, as long as you have held the property for X number of years. We currently insure the lenders with PMI private mortgage insurance for such shortages (and the buyer pays a small monthly fee for it). Why not the owner of record too?

[Mike B.]

Some people will be able to make their mortgage payments, even if they are underwater on their mortgage, as long as their bank doesn't foreclose on them. So banks should keep mortgages open as long as payments are made. Foreclosure doesn't help banks, so they should do whatever they can to avoid it.
Then in a few years when the inevitable inflation kicks in (because of the massive stimulus now in the system), all the house prices are going to rise again and the home-owners won't be underwater anymore. This could be a temporary problem if the banks play it right.

[markg]

The whole idea is absurd. Now the banks want a hand-out/bailout. Where was the helping hand when they were making ridiculous profits?

We live in a free market society do we not? Without question, unethical and illegal mortgage practices have to be stopped. I find it outrageous the same companies who want the government to keep a hands off position want their butts saved by the taxpayers. Are the board members and management of these companies going to give back the bonuses they have received the last 4 years for their stellar management insight?

[Pent updemand]

Banks are not foreclosing on people who make the payments. If the value of the collateral deteriorates that is just part of the risk of being a banker. And Mike B., holders of mortgages are not happy if the nominal value of the asset goes up through (unanticipated) inflation. They want a real yield on their investment. Federal Reserve funny money is not a real yield.

Hell, brokerbila, I like your plan. But why not cut out the middlemen? Just have the Feds buy up all the troubled properties, and then they can allow citizens to live in them rent free. We all pay taxes, right? I'm sure we can figure out an equitable way to assign party members, I mean citizens, to housing units.

[H2O]

And that Warrior sounds like a socialist. Yep. Tax cuts are bad. They give money to greedy people. Hey if you earn it it is not being greedy. Only a socialist thinks it is. Expecting to receive something for nothing from the government is not being greedy however? Apparently not to a socialist.

I don't want anything from the GOV - but I expect IDIOTS - to honor there treaties - and stealing - with genocides - don't really count as this country being your's - now does it ????

[H2O]

But I Know - I know - the greedy can not see past - they won it - and who cares how they won it - so it took a genocide to get it - now why honor the treaties - after all - soon the grass will not grow - and the rivers are so polluted - they are not flowing like they did before - But only the rich-greedy idiots - think - who cares who dies for - my way !!!

Bet most rich-greedy - love the way enron traders did there biz - and think - corpo tax welfare is a good thing too !!!!

But enough of the rich greedy-idiots ....

Under the guize of helping - Onca again - The corpo's
are creating a spy program - on Americans !!!!

Now besides Medical - Who else will get your personal info ????

You apply for a job - do they get all your personal info ????

You apply for a loan - do they get all your personal info ????

How will your insurance be effected ????

What about your credit score ????

Then how will - your family history effect - all of these ????

Say your grandma - had a genetic defect - according to them -
and they say it's hereditary ????

Now ask your-self - How easy would it be for them - too list a whole
list of people - as just being drunks ???? - what about all you want is
drugs ????

Now ask your-self - Why do they want immunity - so badly ????




AT&T, Tenn. create medical info exchange

The system is designed to securely transmit detailed patient
information between medical professionals. It will allow doctors
to access medical histories, prescribe medicines over the Internet
and transfer images like X-rays, MRIs and CT scans.

"As patients we really want our information to be available to
physicians whenever and wherever they're needed," said Diane Turcan,
director of health care marketing for AT&T in Atlanta. "And we
certainly don't want to be copying paper records."

[H2O]

See how easy it is for the rich-greedy - To take no resposibility
for the things - there history has done - But there more then willing
- too keep doing it - There family - holds no honor - would it be so
acceptable - If someones father stole a car and while doing it killed
the owner - then the father died - and the son got the car - Is it
not for the son to make things right??? - with the family - his father
stole from - or should the son benefit from - his fathers sin ????

Why is it - When fairness is called for - the rich-greedy - thinks -
it's a moral sin to be fair - and honest????


Pride and Prejudice: 1998

By Bruce Herschensohn


I want to make it unmistakably clear that I have never broken a
treaty with an Indian, nor did I ever own a slave. On the other
side of those issues, I must regrettably confess that I did not
fight against those who were breaking treaties with American Indians,
nor was I in the Cabinet of President Lincoln. In short, I take no
blame or credit for American events prior to my birth. I am neither
ashamed or proud of those things with which I had nothing to do.

[H2O]

Ex. 20:5//Deut. 5:9 (cf. Ex. 34:7) You shall not bow down to them or worship them; for I, the LORD your God, am a jealous God, punishing the children for the sin of the fathers to the third and fourth generation of those who hate me...
2 Sam. 12:14 "But because by doing this you have made the enemies of the LORD show utter contempt, the son born to you will die."
Is. 14:21 Prepare a place to slaughter his sons for the sins of their forefathers; they are not to rise to inherit the land and cover the earth with their cities.
Rom. 5:19 For just as through the disobedience of the one man the many were made sinners, so also through the obedience of the one man the many will be made righteous.

[jack kreg]

It seems to me that if the bank is to write off some of the money it loaned to the home owner, that the bank ought to get an equity position in the property, that is infront of the borrowers. I can't see how the bank should not participate in future growth in real estate prices, after forgiving their money to the borrower.

[jack kreg]

Warrior, if you are a soldier, then bless you for your service to the USA, the best country in the world, always has been, always will be. With all due respect for the freedom of speech that you may have fought for, you might want to take a more freedom orientation to your perspective. The worlds great socialists, also have the honor of being the greatest mass durders of all history. Stalin, Mao and their world wide ilk have murdered nearly 100 million people. No other country is anyway near. I like the sound of freedom, better than your form of socialism. But bless you always for your service to the good old USA.

[WAKEUP]

Oh, please, spare me this rubbish, about what to do, now. It's now obvious that a lot of people are going to lose their asses, on these houses. It's all talk, about DOING anything. If you paid too much for that house, you are screwed.

[H2O]

I'm sure there are other great murders in other countries too - But were not talking about them are we - were talking whats in our own back yard - are we not - Hiding and lying about does no-one any good - Like I said - I am asking for nothing - I am only asking for honor of the treaties - Thats not socialist - there just plan being fair and honest ????

Now if you want to project the image of what was done here with the other great killer of history - thats up to you

"""&quo... worlds great socialists, also have the honor of being the greatest mass durders of all history.""&q...

Let me tell you of the freedom - to re-educate the Native Peoples - I had the privilage of seeing my grandmother - scares across her body - for even thinking of speaking her own language - The kill the Indian save the man policy - and if you would actually look at how the Native are still being treated - You might wonder - how could this still be - across a nation that proclaims freedom for all ....

I do not have a problem with a rich-man - but I do have a problem with a rich-man when all he has has been stolen !!!!

So maybe your right - When it comes to the rich greedy thiefs - The worlds great socialists, """&quo... have the honor of being the greatest mass durders of all history.""&q...

....

[H2O]

So what is Hillary trying to say - with pics of
Obama in some of other peoples Native cloths ????

Is she saying that Native Americans that dress and
dance in there Native clothing - Is less then she is ????

She saying that Mexicans that dance in there dress - Is
less then she is ????

What about the irish day parades - She saying there less
then she is - for dressing as they do ????

What about what Catholics wear ???? - What about how mormons
dress ???? Is she making fun of Jewish dress - How The Babtist
dress ???? What about the Amish dress ????

Whats next - Her making fun of Bush dancing with the people
in africa???? - When he is actually doing a good thing ????

I take back - everything I said about Hillary just being - a
continuation of Bush - She's is really a lot worse then Bush !!!!

Hillary is too damn good - For us common People !!!!

[H2O]

I think that Capitalism Can give rise to Socialisms - This happens when – The balance of fairness – tilts too far to the top greedy – Look through out history – There was those so-called – rich-greedy living the high-life – all the while the people were starving.

Take the greedy capitalist of today – They think all they do is just fine and dandy – just as long as they get all the money they want – No matter who they hurt – Take Enron traders – There only goal was to make money – while the state of cal suffered – Take the speculators of today – they care very little – Americans are suffering – With-in this suffering – anger has built – The Constitution clearly states – freedom and justice for all –
That’s what the greedy forgot about and tried to destroy – freedom and justice based on what they say freedom and justice is.

Greedy capitalism – kills off the poor – and socialism kills off the rich-greedy – That’s why the constitution was written – to create a free and fair system – But the regulations – of the constitution has been destroyed to the point – Americans have suffered – Now those who suffered – are angry – but with the constitution – that anger is directed at – the change of guard – in Washington – a change for Americans – of Americans – and for Americans.

So the rich-greedy should be thankful – The constitution they tried to destroy for greed – Is there and fully followed by the so-called – worthless of the rich-greedy – otherwise I am very sure – a socialist could rise up as in the past – across Europe.

So I totally understand – why the rich-greedy – FEAR the rise of socialism – But they should also understand – if you treat the people badly – it is only a matter of time – before the people rise up – and demand freedom and Justice.

Now it becomes – how do the American people call for there justice – hanging all the rich greedy – jail for all those who tried to destroy America – or could it be – come and sit down at the table – and make a fair and balanced system together???

Now calling the American people socialist – simply because they – Follow and believe with great pride and honor – In the constitution of these United States – Is just feeding into the Anger – The American people will have change – To once again follow the Constitution of these United States - To once again put the power – Into the hands of all the people – not a select few.

All men are created equal – With Freedom and Justice for all.

The sky will open up – and the Constitution shall shine through – and all the people will sing – the song of freedom and justice for all – The song of all men and women are created equal!!!!!

[Malkiel]

I think it's a fair proposition that the government should only buy mortgages where speculative excess has been wrung out of the price--which in this case means the bank rather than the seller has blinked first and taken a loss. Whether the loss is taken by the mortgage issuing bank or the seller is not as important as making sure that speculative excess is wrung out of the pricing so that we can return to a normally functioning housing market where prices bear a viable relation to the income levels of the buyer...