gsiebenthal
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San Diego economists divided on how deep recession will be
Johnny Vegas, I agree there are a lot of idiots out there and it is easy for people to sit around and complain about it. My intent was to put forth an idea that could improve things given the current situation. These banks are under tremendous pressures to get these "non-performing loans" off the books as soon as possible and they are not doing it. They do know how to make a profit when things are going good (look at the financial statements of BofA, Wells Fargo, US Bank and even Wachovia for the last 5 years) but they do not move fast enough to protect their downside. My idea (in post #3 above) is simple for homeowners to understand and it is also simple to implement on a large scale which is something the lenders would need to do and it is also a program that the government could support. All parties involved are really struggling with this right now and they have only just begun. Greg— November 19, 2008 10:13 a.m.
San Diego economists divided on how deep recession will be
My thought is that residential real estate is at the center of most all of this so here is what I would do if I were Sec of the Treasury. For the next 18 months, offer a 6% fixed rate mortgage to anyone that currently owns a home based on two conditions. The loan cannot be for more than the home is currently worth and you have to have the income going forward to pay the new 6% mortgage. The company or bank making this new loan would earn a fixed fee for originating it. I am thinking something like $1,000 to cover their processing and profit. We have a million out of work mortgage people that could be immediately put back to work. This would accomplish several things. Anyone that owes more than their house is worth would need to agree on a current value with their lender. Yes, this bails out some who bought a home with a stupid loan. The upside is the stabilizing affect this would have on home values which helps everyone including the homeowners that were more prudent as even a prudent borrower will suffer if his home goes down in value 50% or more. Banks don't really want to foreclose on these people as it costs them so much more to kick the people out and find a new owner. Yes, the lenders would have to make decisions about the current values but at least they would be getting close to 100% of the current value to offset their existing loan on the home. The lender is certainly better off as is the owner that can now stay in their home. The government could have Fannie and Freddie "buy" these loans and pool them based on their loan amount and origination date. Since all of the loans would be 6% fixed, each pool would have a loan "history" 12 months down the road and if the default rate at that point on these new loans are 2%, then at least the pools can be properly valued and there are many investors that would invest in these loans if they knew they would earn 5.7%+. The government could even make them tax free initially. Another benefit of this would be that the "investors" that have bought these original Collateralized Mortgage Obligations would at least recover a larger percentage of their investment than if the lender has to incur the legal expense, commission expense and time value of money costs of going the foreclosure route. The problem would go away so much more quickly. What I do not understand about any of the current solutions being proposed is how will the financial system deal with millions of foreclosures. What is the cost to our society to have millions of families displaced spending money on relocating rather than on their domocile? Without a program like this, I forsee people who have not made a mortgage payment for 5 months living in their homes for another 18 months because the foreclosure process in the courts is so backed up, few people are getting to the point where the foreclosure process is complete. Greg Siebenthal— November 13, 2008 2:58 p.m.