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Three Problems with the Fannie / Freddie Mortgage Modifications

Paying "rent" in the form of tax deductible mortgage payments is far better than simply paying rent. Uncle same is subsidizing the mortgage payments.

Furthermore, your conclusion that they would be better off walking away from the current situation where they are merely "paying rent" and getting into a better housing situation with upside is based on the false assumption that their credit record would allow them to do so.

Lot of people took out 30 year mortgages due in 5 or 7 years on the assumption that they'd only be in the home for less than 5 or 7 years and thus would not face the higher reset rate on the balloon that was due. How is this any different than the refinancing risk on the balloon at the end of your 10-year recovery scenario?

I'm sorry, but your description here wreaks of a prevailing attitude that purchasers of real estate are entitled to capital gains while the downside risk is only to be born by the lender.


On Nov 11 05:32 PM RJMoran wrote:

> I have to agree with PK...
> The last time prices fell 30% in Southern California, it took 10
> yrs to get back to the 'top' or 'break even' point for the mortgage.
> In other words, IF you bought a $600K house that is NOW worth $400K,
> even if the government modifies your loan, you are essentially paying
> 'rent'. In the forward 10 yrs of paying your mortgage, you'll NEVER
> accumulate ANY equity and will only get you out @ your original $600K.
> You're essentially servicing a loan like a renter is paying a landlords
> mortgage! You are 'renting' your own house till the mortgage is
> paid OR you move and STILL have a balloon payment to pay off...WHY
> would anyone do this!? Walking away and getting into another situation
> where there is at least SOME upside Equity potential would be THE
> only answer for these people! Sorry...

Why Treasury Shielded Frannie's Sub Debt

Chris B stated "In buisness, when liabilities far exceed owner's equity, bankruptcy occurs, and the assets are seized by the creditors or used to pursue their interests." The more accurate description is that bankruptcy occurs, or is forced to occur when liabilities exceed the current value of the assets.

With respect to Government, Chris B stated "but it can force the taxpayers to pay, so the taxpayers have no leverage." That has always been the case, so nothing's new.

Mexico has defaulted several times on its debt, but we still happily play in the sand box with them.

China is up to its eyeballs in US debt, but that is because of our huge trade imbalance with them, which they are happy to continue. Otherwise, who else would they sell their cheap goods to?

Will Securitized Mortgages Rise Again?

In answer to the specific question, yes mortgage securitisation will return, but never at the extreme form that we saw in this cycle. Too many people drank the securitisation KoolAid. It was financial alchemy, turning subprime lead into gold.

You know what happens when you hand out money that can never be repaid? That's right, asset prices soar to unrealistic levels. Gee, what a new concept.