Robert Shiller backs a proposal from Cornell's Robert Hockett for local or federal governments...


Robert Shiller backs a proposal from Cornell's Robert Hockett for local or federal governments to seize underwater mortgages, pay them off at fair value with money from new investors, and issue new loans with smaller balances to the homeowners, who would then be less likely to default.

Comments (52)
  • Michael Clark
    , contributor
    Comments (11579) | Send Message
     
    No Quick Fixes. Leave the housing market alone. It will eventually fix itself.

     

    No quick fixes, please. Quick fixes are tomorrows disasters.
    24 Jun 2012, 06:21 AM Reply Like
  • Reel Ken
    , contributor
    Comments (6506) | Send Message
     
    Self Healing or Entropy?
    24 Jun 2012, 06:35 AM Reply Like
  • Mike Maher
    , contributor
    Comments (2861) | Send Message
     
    No this time, it'll work! Just like Fannie, Freddie, the home buyer tax credit, HARP, the $25 billion bank settlement, and HARP 2.0 all worked!

     

    Prices have to reach a bottom before they can start moving up. It takes time to de-leverage an entire nation.
    24 Jun 2012, 10:43 AM Reply Like
  • into dark shadows
    , contributor
    Comments (460) | Send Message
     
    Spot on Michael!

     

    The system needs to clear!
    Either you make this stupid and dangerous plan open to EVERYONE or None!

     

    What about the poor slob who has not taken a vacation in 10 years and is busting his / her butt trying to "HONOR" their commitments?

     

    This is a terrible idea Mr. Shiller,
    you should know better than this!
    Hey Bob, please stop hanging out with the "progressives" like Krugman / Sperling / Reich / Altman and the biggest looser of them all,
    Robert Rubin!

     

    Lord have mercy on our beleaguered republic already!
    24 Jun 2012, 11:59 AM Reply Like
  • TAS
    , contributor
    Comments (3798) | Send Message
     
    Shiller..is he related to Ponzi?
    24 Jun 2012, 02:37 PM Reply Like
  • bbro
    , contributor
    Comments (11216) | Send Message
     
    Shiller tends to be Ivory Tower about a lot of things...
    24 Jun 2012, 06:29 AM Reply Like
  • Paul Price
    , contributor
    Comments (1509) | Send Message
     
    And who eats the immediate losses?

     

    Innocent taxpayers who had nothing to do with their originations.
    24 Jun 2012, 07:13 AM Reply Like
  • bdarken
    , contributor
    Comments (645) | Send Message
     
    Innocent? Not so much.

     

    It was the taxpayers/voters who elected the politicians who created /legalized the government-mortgage-po... They got the "fairness" they wanted: Homes for all!

     

    Of course voters/taxpayers should pay the invoice: They're the one's who made the order.
    24 Jun 2012, 06:09 PM Reply Like
  • Tack
    , contributor
    Comments (16266) | Send Message
     
    bd:

     

    The problem is that the very same folks who vote for this "fairness" and freebies are the near-50% not paying any taxes, plus a few more sympathetic bleeding hearts to give them a voting majority. They're mostly not paying any bills.
    24 Jun 2012, 06:42 PM Reply Like
  • Tack
    , contributor
    Comments (16266) | Send Message
     
    Pure nonsense.

     

    Most of the mortgages that were going to default have already done so. Those remaining in underwater mortgages are there by choice because they see it as unwise to default and wish to retain their homes. As such, these people are servicing their mortgages, as per contract, so to the bank holding these mortgages, their value on a performance basis -- not some mystical mark-to-market "for-sale" basis -- appears not much different from the day they were issued.

     

    Now, comes along a do-gooder academic, like Shiller, who wishes to expropriate these performing mortgages from their legal and rightful owners at "fair" value (yeah, sure), provide a huge unjustifiable cash gift to the homeowners who volunteered to undertake the obligations (hey, how about all the owners who didn't take out excessive home equity loans or buy too-expensive homes?), and saddle the banks with the loss differential, by fiat.

     

    And, giving the same performing mortgages to "new investors" at reduced prices isn't "eminent domain," i.e., for public use and benefit; it's simply a gift to new investors, who get performing mortgages at through confiscation of the existing holders property rights, and it's a gift to some select private homeowners, who get portions of their debt forgiven, free of charge.

     

    This plan all too typical of liberal academic types, for whom the respect for the conventions of law and the Constitution is merely an inconvenience to their grand schemes.
    24 Jun 2012, 07:22 AM Reply Like
  • slard271
    , contributor
    Comments (64) | Send Message
     
    Pure nonsense.

     

    The value of the home _is_ the collateral backing up these bits of paper debt. That value has, in many cases, been completely eviscerated.

     

    The only thing mythical about mark-to-market is how we don't do it anymore and instead simply mark-to-unicorns that nothing has happened since the ponzi began to collapse in 2008/9.

     

    That said, I agree, this plan is more crap on top of crap.
    24 Jun 2012, 01:58 PM Reply Like
  • Tack
    , contributor
    Comments (16266) | Send Message
     
    slard:

     

    Sorry, you've bought into the recent populist theme perpetrated during the recent crisis by short sellers (as it was their road to wealth) and swallowed whole by the media.

     

    In fact, "mark to market" had never existed as an accounting concept for bank loans held as non-sale assets until very recently (mid 1990's). For eons prior to that, bank loans were valued on the books based on discounted-cash-flow models, which valued the loans by virtue of their future stream of payments. These models had been refined over many decades, which included assessments of default rates, delinquencies, collateral and other factors.

     

    When a loan is being held for account, and is not "for sale," why would anybody part with it at a steep discount, artificially applied by ABX values, which were created by the very entities that sought to short such paper? The fact of the matter is that a loan that is being amortized on schedule by the mortgager looks very much like the loan that the bank initiated and holds the bulk of its cash-flow-based value. It's only to exterior profit seekers that it is contrived to be worth less. In any case, the assertion that the value of a loan is only the liquidation value of the collateral is patently false.

     

    Lastly, to recapitulate, the suspension of mark-to-market for non-sale assets wasn't some new invention, contrived to avoid reality; it was merely a return to the method accounting for non-sale assets had been done for generations, prior to the recent "new-and-improved" alterations that led to so much mischief and manipulation, resulting very nearly in the collapse of the entire financial system.
    24 Jun 2012, 02:21 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    Tack, well said.
    24 Jun 2012, 02:32 PM Reply Like
  • klarsolo
    , contributor
    Comments (705) | Send Message
     
    tack, good post, I did not know that yet
    24 Jun 2012, 02:37 PM Reply Like
  • Jeremy Johnson, CFA
    , contributor
    Comments (775) | Send Message
     
    And anyways, there is still a footnote that includes estimates of fair value. It's not like the information is not available. For example, for Wells Fargo in the final section of Note 17 of the 2011 annual report, the carrying value of mortgages not held for sale is $731.3 billion, while the estimated fair value is $723.9 billion.
    24 Jun 2012, 02:55 PM Reply Like
  • J 457
    , contributor
    Comments (1000) | Send Message
     
    "In any case, the assertion that the value of a loan is only the liquidation value of the collateral is patently false."

     

    My goodness, where to even start without writing a book in response. When FASB 157 was suspended it opened the door to this flawed logic. In residential real estate, there is no more value than what the asset will sell for- its that simple. Just follow the MBS CDS market as it blew up in 2009. Or better yet, read a history book about great depression trustee auctions. Do you really think banks are now holding mortgages, otehr than servicing? Most every residential loan is sold off to GSE's within weeks of settlement. Except for smaller regional or local banks, very few mortgages are carried thru to maturity. Take the govt out of the equation and the mortgage market crumbles. Just another reason the FED continues to punish the savers with 2.5% 30 year bonds.

     

    24 Jun 2012, 04:22 PM Reply Like
  • J 457
    , contributor
    Comments (1000) | Send Message
     
    And actual fair value if sold today might be 400 billion?
    24 Jun 2012, 04:23 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    J 457

     

    Shortsellers like Bill Ackman were watching and waiting while FAS 157 came down the pike. It provided them with the ammo they needed to bring down the system.

     

    The prior system, which used amortized cost, had worked for generations. FAS 157 caused trouble from the day it went into effect.

     

    In the insurance industry during the Depression, mark to market would have made most companies insolvent. Regulators determined that any bond that was current on its payments would be valued at amortized cost. It worked, and it worked until it was superceded by FAS 157, and it worked again when FAS 157 as susupended.
    24 Jun 2012, 04:30 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    The housing situation is healing itself. There is no reason for the government to step in and tamper with the process.

     

    The lax monetary policy that created the mess to begin with should be gradually reversed, to let the markets stand on their own two feet and let the normal laws of supply and demand resume operations.

     

    The lax lending policies that fed the bubble have mostly disappeared, in favor of "just say no" mortgage underwriting. Regulators should position themselves to exert the missing prudential regulatoin when it again becomes necessary. That would include bean by bean examination of mortgage lending practices, with the offenders shut down before they morph into the next Countrywide.
    24 Jun 2012, 08:07 AM Reply Like
  • enigmaman
    , contributor
    Comments (2868) | Send Message
     
    Tom, it would be more constructive if you would try to tone down your bias towards lenders, they did not create or work in a vacuum, there were and are multiple counter parties, like PMI underwriters, secondary market underwriters, MBS bundler's, MBS rating companies, MBS investors (private, public and governments) and last but not least the US Fed Government who had and still has a heavy hand in orchestrating the terms and conditions for all the above to function. IF anyone of the above enablers refused to participate the entire chain of events would have been broken. For some one who seems to be quite intelligent your constant drum beating against lenders is tiresome and very naive.
    24 Jun 2012, 08:29 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    enigama man,

     

    I don't have anything against lenders, per se. I simply dislike the effect that fraud in the issuance and securitization of morgages has had on the US economy and financial system. It has impoverished millions and cost the country millions of jobs.

     

    You're getting a little personal here: you will do well to cultivate the abiltiy to engage in constructive dialogue and discussion.
    24 Jun 2012, 08:35 AM Reply Like
  • Bret Jensen
    , contributor
    Comments (14022) | Send Message
     
    Don't forget the deadbeats who lied on their mortgage applications and took on too much debt hoping to hit the housing lottery.
    24 Jun 2012, 08:57 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    Bret,

     

    I don't overlook that aspect of it. They were all in it together. The successful flipper was a repeat customer, and highly esteemed, until the bottom fell out. Likewise the real estate agent who bought 18 houses and claimed to be the owner occupant of all of them.

     

    After the fact, some states passed laws with meaningful penalties for mortgage fraud. Enforcement has been sparodic, mostly directed at organized gangs.

     

    A lot of businessmen take the attitude that honesty and ethics in business are old-fashioned relics of morality, and should be treated similar to commandments against adultry.

     

    Leaving morality out of it, mis-statements of facts in business transactions create inefficiency, waste, misallocation of capital, and inappropriate redistribution of wealth. They undermine the assets that undergird the financial system, endangering the economy.

     

    The answer is pretty simple, mis-statements of facts in business transactions need to be curtailed, by imposing penalties sufficient to reduce them to a manageable level.
    24 Jun 2012, 09:14 AM Reply Like
  • apberusdisvet
    , contributor
    Comments (3098) | Send Message
     
    Enigmaman: When you understand the why and when of the establishment of the housing crisis, especially MERS, the linchpin of all the fraud that followed, you might finally be able to connect the dots. MERS was established by the TBTF banks in the mid 90's, aided and abetted by FED and legislative policy to purposely obscure ownership and title so that securitization and bundling of mortgages could be accomplished. To give a pass to the banks that created the vehicle that has essentially abrogated long standing real estate law in this country is either naive or delusional.
    24 Jun 2012, 09:16 AM Reply Like
  • enigmaman
    , contributor
    Comments (2868) | Send Message
     
    AP Im tired of the constant deriding of lenders as the orchestrator and enabler of the housing crash, which is total BS. They definitely played a big part but they were one of many players. Players who were actually the enablers, the ones who fanned the falmes and also the ones who had the ability to "just say no" but did not because everybody involved wanted their piece of the action. I know its easy to blame the lenders for as you say "obscuring ownership" while holding all the counter parties harmless because they were "duped" like Moodys, Fannie, Freddie, investment houses, pensions, governments etc yes they all did their due diligence throughly but the lenders were just so much smarter then everybody else. Oh and lets no forget the duped borrowers who borrowed money they qualified for but they could not afford to pay all with the blessings of the Fed Gov who directed Fannie Mae underwriting guidelines. Yes your correct I am naive as well as delusional to believe the majority of blame falls on the lenders.
    24 Jun 2012, 09:40 AM Reply Like
  • enigmaman
    , contributor
    Comments (2868) | Send Message
     
    Please "I don't have anything against lenders, per se" are you serious, do you read your own comments. Ive not read one that I can recall where you hold all parties accountable for the housing debacle, not one, all I ever read from you is disparaging "lenders"

     

    I said as much previously yet you took offense, it is what it is, you own it Tom
    24 Jun 2012, 09:50 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    enigmaman,

     

    Here's a link to an article I published here on Seeking Alpha in December 2009. I clearly identified the nature and scope of the mortgage fraud problem, and attributed a due measure of blame to all participants.

     

    http://seekingalpha.co...

     

    Here's are some quotes:

     

    "Mortgage Fraud is a very unpopular topic. It is simply not something anybody wants to talk about at all, let alone trace the corrosive effects of the dishonesty of our neighbors and fellow citizens on the fabric of the economy. However, it is not something that will go away. Indeed, the longer this fundamental problem is ignored or swept under the carpet, the more futile will all economic remedies be to alleviate the weakness and fragility of our financial system."

     

    "The normal lying that goes with commerce in residential real estate - exaggerating your income so you can buy a bigger house, mis-stating intended occupancy so you can control a house long enough to flip it, filling out the application with answers the applicant would not have given if asked, inflating an appraisal so the transaction can go through, holding your nose while you package the stuff into a bogus bond - will have to be punished by jail time."

     

    I touched all the bases. The article is as relevant today as it was when written.

     

    I'm awaiting your apology.
    24 Jun 2012, 10:08 AM Reply Like
  • realitybiter
    , contributor
    Comments (227) | Send Message
     
    give me a break. There would have been no housing bubble without lenders lending. Ultimately, they were the gatekeepers of the free money. If you make money available to everyone, everyone is going to take it. There needs to be reasonable avoidance of excess risk.. that is the lenders job.
    What kills me about this entire debacle is that every paper I ever signed seemed like it was thorough. I had late $50 utility bills from three years ago questioned by the lender, so it appeared to me that a "liar loan" was crazy. Little did I know, that the bankers were creating all sorts of borrowers, with no discretion, so they could compete with me and jack up my purchase price.
    THe borrowers or the lenders should not be bailed out. Heck, if everyone simply defaulted in 2008 we would only be 3 years away from them having clean credit.
    The idea that liars should be punished is crazy. The banks were offering "no documentation" loans to these people. Kind of hard to now scrutinize them for not documenting their financial past!
    The repeal of GS and commodity modernization act created a freeway of fraud. Take high risk, slap a CDS on it, and voila, this liar loan is as good as gold - only its not because the CDS can never be honored because there is not enough capital in the world.
    GS needs to be reinstated. and every other relaxed law subsequent to it. Bankers can be banks. If Dimon wants a prop desk he can start his own hedge fund.
    What we have done has not worked. Look at bank stocks. They aren't even remotely close to recovered because you can't fix that which is terminally ill. Both the borrower and the lender need to be wiped out. All we have done is waste MASSIVE amounts of capital to prop up banks and politicians....hence, the only real estate up in America is DC and Manhattan. It is a pathetic joke on the average American.
    24 Jun 2012, 10:19 AM Reply Like
  • enigmaman
    , contributor
    Comments (2868) | Send Message
     
    So three years ago you posted something reasonable about the housing debacle and you want an apology from me because why? Because in the recent past your obvious bias against lenders is found in just about everything your right with nary or no mention of any other that enabled them, give me a break.

     

    Look lets leave it that I represent "delusion" and you "reality" Im OK with that
    24 Jun 2012, 10:31 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    enigmaman:

     

    Here's alink to one of several favorable articles I've written on Webster Financial (WBS) which is a bank, and in which I invest, profitably.

     

    http://seekingalpha.co...

     

    I'm sorry you missed the articles, I've doubled my money on this one, so far.

     

    Like anything else, there are good banks and bad banks. More bad than good, I'm sorry to say. But occasionally there is an exception to the rule.
    24 Jun 2012, 10:51 AM Reply Like
  • Paulo Santos
    , contributor
    Comments (33740) | Send Message
     
    I'm not so sure about banking stocks not having recovered. A lot of equity was issued on the way down. For banks to trade at the same valuation levels they traded at before the credit crisis, they would need to hit much lower stock prices than those they traded at, then. I once did this study and found most had recovered most or all of their market capitalization (except for the ones that went under, that is).
    24 Jun 2012, 12:09 PM Reply Like
  • J 457
    , contributor
    Comments (1000) | Send Message
     
    Read the latest stats, still 6-7mm homes REO or in distress. About the same as 2008-09. Property values continue to fall in most markets perpetuating the downward decline. Factor in stagnant high unemployment rate, stagnant incomes, and the forthcoming fiscal cliff, and the housing market is no where near healing itself.
    24 Jun 2012, 04:26 PM Reply Like
  • realitybiter
    , contributor
    Comments (227) | Send Message
     
    citibank alone has taken an enormous amount of marketcap off. $250B in 2007 is now 82B. They were the biggest. The entire industry is well below 50% of what it was. You can be sure of it.
    24 Jun 2012, 07:46 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33740) | Send Message
     
    Citi was near bankrupt, $82 billion is a miracle. Anyway, I wouldn't buy a stock where one opens the 10-Q and had trouble knowing how many shares exist.
    24 Jun 2012, 08:14 PM Reply Like
  • enigmaman
    , contributor
    Comments (2868) | Send Message
     
    and who pray tell will be responsible for the resulting losses of the lenders???? Can anybody say "the tax payer"

     

    Just transfer of wealth by government decree which would also expand government authority and powers.
    24 Jun 2012, 08:19 AM Reply Like
  • Momintn
    , contributor
    Comments (6053) | Send Message
     
    It would seem to some people that this would be picking winners and losers. And it seems to be late after so many people have been foreclosed on when they could not pay their mortgage payment. Creating jobs, even government jobs, would have been the best way for the economy to recover. And it still is possible if both political parties would get behind hiring people to do the many things that would improve the economy. There should be no tax incentive or profit incentive to move jobs offshore. It shouldn't be that difficult to bring jobs back. And people would rather see their house go back to the price they paid. They are not interested in the government telling them that their house is not worth as much. That would be a capital loss. You can see on zillow that when jobs were growing earlier in the year, that housing prices were going up. Then the last couple of months they have dropped a little. The perception of housing prices are tied to jobs. The recession caused the loss of jobs and it was caused by traders in London. Your mortgage rate is still being set in London. Until the government gets the root of the problem fixed, we are at the mercy of traders, and many of them are not in our own country. They can devalue a company's stock in a few days, sell it off to some other company, and lose jobs by the thousands. This puts pressure on companies to outsource and offshore jobs to please Wall Street. Get control of Wall Street before you meddle in the price of our homes. Wall Street destroyed trillions of dollars of our investments. Do something to stop them from ever doing this again!
    24 Jun 2012, 09:48 AM Reply Like
  • Hubert Biagi
    , contributor
    Comments (841) | Send Message
     
    Typical wacko thinking, that government wealth is freely gained and can be freely redistributed. In reality, the best that can happen is the government takes from one place in order to spend it somewhere else. That assumes a zero sum game, but due to huge inefficiencies, the government must take in much more then it redistributes. The follow-on wacko argument is... yeh, but the government keeps all these people employed, and that must be good, right? This was exactly Obama's thought when the first stimulus was passed, the money went primarily to maintain public employment. Now we're seeing since the stimulus ended, that public employees have been cut anyway, about 650,000 have lost their public jobs. Turns out that private employment has increased to offset this. There are lessons in this, but the wackos will never learn. The government creates (relatively) no wealth on it's own. The more the government takes to redistribute and support itself, the more the private sector will be depressed.
    24 Jun 2012, 10:00 AM Reply Like
  • SoldHigh
    , contributor
    Comments (991) | Send Message
     
    Another bad idea from another academic, self-anointed know-it-all.

     

    Govt's specialty is taking a bad situation and making it worse.
    24 Jun 2012, 11:10 AM Reply Like
  • ssl23
    , contributor
    Comments (120) | Send Message
     
    if you offer a govt subsidy refi to underwater owners, how about those that are above water and cant refi???

     

    a govt program should consider all owners, not just those underwater.
    24 Jun 2012, 12:42 PM Reply Like
  • bdarken
    , contributor
    Comments (645) | Send Message
     
    Good luck with that.
    These days, if you're successful, you're just a target.
    24 Jun 2012, 06:25 PM Reply Like
  • Jeremy Johnson, CFA
    , contributor
    Comments (775) | Send Message
     
    Eminent domain, eek!
    24 Jun 2012, 01:15 PM Reply Like
  • davidbdc
    , contributor
    Comments (3194) | Send Message
     
    I'll be far more likely to make my payments on a ferrari if the government would make the payments be the same as a Kia!!!

     

    If you can't pay our obligation that you FREELY entered into..................... MOVE!!!!!!!!!!!!!!!!!!!!!!
    24 Jun 2012, 01:16 PM Reply Like
  • mattyw
    , contributor
    Comments (125) | Send Message
     
    Look at all these capitalists on SA: "The free market is great, it solves everything." ENOUGH! The free market is not a perfect system, which the housing bubble proved. There is certainly room for an increase in government involvement, and I hope after Obama gets re-elected, he implements Shiller's plan. I think he will.
    24 Jun 2012, 02:04 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33740) | Send Message
     
    So you really think it's a good idea to take from those who behaved responsibly, and give to those who didn't?

     

    What do you expect to achieve with that? More lunacy?
    24 Jun 2012, 02:12 PM Reply Like
  • Jeremy Johnson, CFA
    , contributor
    Comments (775) | Send Message
     
    The housing market does not run under free market principles. Housing finance is almost completely government directed and backstopped.
    24 Jun 2012, 02:24 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2861) | Send Message
     
    Fannie and Freddie are GSE's, which stands for GOVERNMENT Sponsored Entities. They exist to keep mortgage rates lower than the market would normally price them, to help fund the US government's desire of home ownership. The US Housing market probably has the most government involvement of any market in the US. Where did that get us? A bunch of banks writing loans that they didnt care if poeple would be able to pay for because they were conforming loans and Fannie and Freddie would back them. The GSE's have taken, and continue to take, billions in bailout money, over $150 billion and counting, and that is money that we will never see again.

     

    The government's involvement in the housing market laid the groundwork for the rise in housing prices, and created the system that allowed for all the shenanigans the banks did to go on. And their $150+ billion losses show that they are just as unable to predict or control the market as the rest of us. I certainly don't want to give them more control.

     

    And if the Court throws out Obamacare tomorrow, which I believe they will considering the individual mandate is a huge over reach of the Commerce Clause, Obama loses in a landslide.
    24 Jun 2012, 04:39 PM Reply Like
  • Smarty_Pants
    , contributor
    Comments (3224) | Send Message
     
    Shiller's plan is bogus on its face. It won't work because it doesn't reward investors for taking the risks involved.

     

    Per "The Plan":

     

    1) Gov't seized mortgages.
    2) Gov't uses Investor money to pay off mortgages at full value (thereby making Banks whole).
    3) Gov't issues new mortgage to homeowner in smaller amount.

     

    What is unspoken is how are the "Investors" paid anything resembling a reasonable risk adjusted return on their investment?

     

    Take a handful of houses with original mortgages totaling $1 Million at 6% as an example. Annual income should be $60,000 or so in interest payments.

     

    Now the "fix":

     

    A) Investors supply $1 Million to pay off original mortgages in full, making banks whole.
    B) Gov't issues new mortgages totaling $670,000 at 3.6% interest for 30 years - ie. the going mortgage rate.
    C) Interest received is about $24,150 annually on new mortgages.
    D) After servicing expenses (the Gov't will take their cut) the Investor will earn less than 2.4% on their money for 30 years.
    E) 30 year US Treasury Bonds currently yield 2.75%.

     

    Notes: New mortgage values based on Schiller's own chart of 100 Year Home Values. Peak of housing market reached 205 in 2007, the value is ~137 for Q1 2012. New mortgage values reset porportionally to 137/205 * $1 Million = $670,000.

     

    What group of investors will put money into this so called investment scheme and earn less than a 30 Treasury bond coupon with a LOT more risk due to the possibility of future defaults on the even lower mortgage payments?

     

    Answer: None. Any Investor with a functioning brain will buy the 30 year Treasury bond instead.

     

    Shiller is so clueless that he gives Yale a bad name. His scheme is a failure on the merits, unless you're an insolvent Bank holding an underwater mortgage, then it's the greatest thing since sliced bread.
    24 Jun 2012, 02:40 PM Reply Like
  • Smarty_Pants
    , contributor
    Comments (3224) | Send Message
     
    As a secondary consideration, what happens if after the Plan is executed the housing market continues dropping and the new mortgages are underwater by 10% to 20%?

     

    Do we bail out the new Investors, or let them sink? I guess (as long as none of the new Investors are Banks) we should let those foolish enough to buy into Shiller's scheme suffer as a result.
    24 Jun 2012, 02:51 PM Reply Like
  • Zhenchu
    , contributor
    Comments (3) | Send Message
     
    Bail the homeowners out with an advance from their social security account. Recoupe this as a reduction in their future social security payments.

     

    No more give away programs. Actions should have consequences.
    24 Jun 2012, 03:41 PM Reply Like
  • Destin
    , contributor
    Comments (717) | Send Message
     
    Tell Ben to keep the presses rolling if they ever put an idea like that into action. Anybody 40 or younger would be a fool to not take SS money up-front as opposed to trusting in the long-term viability of a system where the goal of pretty much every single participant is to take out more than they put it. Give people the choice between just taking the money now or trusting that the government will be able to pay your benefits 30 years down the line and you'll have Gen-X'ers like myself lined up around the block waiting for their check.
    25 Jun 2012, 05:59 AM Reply Like
  • alsobirdman
    , contributor
    Comments (433) | Send Message
     
    Yep. Just what we need. Another program to bail out people who made poor decisions. I wish someone would step in and relieve me of all the investments I own that are worth less than they were when I bought them.

     

    Good example; A relative of mine and his wife, both professionals, bought a house in 2007 with the express intent to paint it, put a new kitchen in and sell it for a big profit. Ended up under water big-time. Recently took advantage of the last program that gave them the ability to refinance and now pay $500 less per month than they were. I see no fairness anywhere there.There's no free lunch and someone other than that couple has to eat that money.

     

    As many have said here, we need to leave things alone and let the markets take care of themselves. Sure some people will get hurt, but life isn't fair and wasn't meant to be. When you make bad decisions in life you should have to live with them.
    25 Jun 2012, 04:38 AM Reply Like
  • BDHPlayer
    , contributor
    Comments (309) | Send Message
     
    Do like Canada does. If you default on your mortgage, you are liable for the difference.

     

    End of story.
    5 Jul 2012, 03:30 PM Reply Like
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