fixed income investor

The Mac vs. PC Debate Was Never Clearer

MS and Apple both have their share of enthusiasts.
I have found that many biz apps don't run well on a Mac, as well as some industry specific websites. So, for me, there's not much utility.
Maybe for others, there is.
Apple has done a great job marketing and portraying the PC as a nerdy guy vs a younger, cool guy. I guess this approach is working for some people.

Why Banks Prefer Foreclosures over Mortgage Modifications

great post. IMO it's not a paradox in the first place. I know some well meaning people believe it, but it is also fodder for politicians, punsters and others who want to demon-ize lenders as the "cause" of the credit crisis. For those people, the "solution" to this "sin" is for the lender to give up their leverage (threat of foreclosure) by pressuring them to modify.

Until proven otherwise, I assume servicers do what is in the best interest of lenders. Each loan is an individual situation and the lender and servicer are in the best position to decide if forbearance is in THEIR best interest (not the borrower's). They have the data, the collection experience and other info on the borrower and the loan to know if modification is appropriate.

The Senate Voted Wisely on 'Cram Down' Bill

completely agree with the author.
When a borrower does not pay their mortgage, the only true recourse a lender has is foreclosure. The cramdown would force lenders to negotiate modification at a borrower's request, giving borrowers additional negotiating leverage, which they do not deserve. Lenders perform 100% on their side of the contract when the loan closes and funds. Borrowers need to hold up their end or face the consequence of losing their house. Cramdowns would give borrowers a free lunch and require lenders to still maintain the contractual relationship, even though it is clear the borrower is unwilling or unable to perform. Fool me once shame on you fool me twice shame on me.

The Riskiness of Bonds

I think there is another important consideration.

Investors with long-term horizons / goals / retirement effectively are short the long-term time value of money. Someone in this category can reduce their risk by buying long term bonds to hedge their "liability". If you were a pension plan with long term future benefit payments and you did not own a significant allocation of longer bonds, the recent move in bonds may have caused you to become underfunded (even more underfunded if you were in equities instead). So in this circumstance, owning long term bonds is a risk reducer. Not owning them exposes the investor to further loss if rates continue to fall.

The Riskiness of Bonds

I think there is another important consideration.

Investors with long-term horizons / goals / retirement effectively are short the long-term time value of money. Someone in this category can reduce their risk by buying long term bonds to hedge their "liability". If you were a pension plan with long term future benefit payments and you did not own a significant allocation of longer bonds, the recent move in bonds may have caused you to become underfunded (even more underfunded if you were in equities instead). So in this circumstance, owning long term bonds is a risk reducer. Not owning them exposes the investor to further loss if rates continue to fall.

Ten Reasons to Hate Mortgage Modifications

Agree with the ten reasons. In case it wasn't emphasized enough, modifications and foreclosure delay through government pressure is simply screwing over the lender. If the lender decides to modify on their own, that is one thing. They will do so when they think it is in their best interest. Therefore any prompting by others is probably not in their best interest.

Foreclosure is the only real leverage a lender has at their disposal when borrowers stop paying. Even if I were a lender negotiating a modification, I would want to have the clock running out on the right of redemption to ensure that the borrower negotiated in good faith. Crap, they already have my money, what else do they deserve?

As noted above, there are cases where a mod might be in the best interest of both parties, ie someone who dutifully made payments, had some sort of financial disruption, but presents a credible plan for getting on track. Even then, the discretion should ultimately lie with the lender with regard to modification or delay of foreclosure.

John Berry: Homebuying Binge on East Coast, Too

Mr. Berry's article was excellent. One of his most important points was that each loan is an individual contract with unique borrower and lender motivations. It is naive to think that a govt sponsored one-size-fits all fix will be effective.

My understanding of the market and the foreclosure process:

The foreclosure process is driven by the lender, excercising their contractual rights in response to a borrower's failure to perform.

In many cases servicers have the ability to modify loans where it is in the best interest of the lender / investor. Perhaps they choose not to because it does not serve the lender's interest. Why would we second guess this choice? Are we comfortable negating or delaying the enforcement of contracts? Why? because it's someone else's property/collateral?

Mortgage lending is unique insofar as many rights are bestowed to homeowner/borrowers that do not exist in other lending arrangements. This includes a protracted time period to redeem the outstanding balance after non-payment. The lender's ultimate defense is the right to take possession of the collateral and foreclose after the time period expires. Why do we wish to deny them this leverage?

I do not see how any investor will regain confidence in lending if govt tries to drive the market in some populist direction or limit the contractual rights of lenders.