BS: Reduce All Mortgages' Principal, TIME

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: GUEST,heric
Date: 16 Feb 09 - 01:05 PM

should have said it doesn't say whether it's gross or adjusted gross or net after taxes ("disposable").

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: GUEST,heric
Date: 16 Feb 09 - 01:03 PM

abcnews.com today claims that Obama's housing plan to be described on Wednesday will include principal reductions and rate reductions, designed to make everyone's mortgage 31% of their income. Doesn't say whether it's gross or AGI. Hard to believe.

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: JohnInKansas
Date: 14 Feb 09 - 04:25 PM

There is, possibly, some merit in the proposal; but it won't work the way it's described in the article.

The monthly payment on a mortgage does not change as the principal is paid down, so simply reducing the principal doesn't make it any easier for the buyer to make the monthly payment. It's only the monthly payment that the people most harmed by the current situation can afford to look at. They can't - directly - make decisions based on how much total amount they still owe.

Those "innocently" in the most trouble are mostly, so far as I can tell, buyers of "existing homes" with lower values who've been scammed into predatory loans that have jumped the payments beyond what they can pay monthly. The principal amount doesn't matter to them.

The current crisis is largely due to an excess of "investment money" that encouraged lenders to "try to get it loaned out" and gave them incentives to lend to people who couldn't afford to borrow under any terms. To protect the lenders, adjustable rate loans were widely used, along with a few even more predatory kinds. Additionally, the credit and bankruptcy laws and regs were changed, again to protect the lenders, by giving the victims fewer options for obtaining relief. or by reducing the extent of the remaining reliefs that can be granted.

The excessive amounts of "investment cash" available (artificially inflated by speculative trading - churning - in "debt packages") provided funding for much more new home construction than could be profitably and safely sold, so the sales and financing gimmicks were pushed to encourage more people to buy new homes rather than trading up within the existing home market.

The imperative sell, and finance, new construction, has spectacularly depressed the real market value of homes in the "existing home" market to the point that very many people - through NO FAULT of their own, are in "upside down" mortgages where the remaining principal on the loan is larger - sometimes very much larger - than the current market value of the home. This is because the actual market values of the homes is less than it was at the time of purchase. Reducing the principal amount of the mortgage at least to the current market value of the property would help to give the victims the option of refinancing.

It's this "upside down" condition that makes it impossible for people to refinance into a new mortgage with lower and more appropriate monthly payments, or even to sell a home to get out of it and into one that they can now afford - which is what many people really need and is what would most help them.

Access to realistinc available refinancing would be somewhat helped by a reduction in principal values of many existing mortgages; but it would only help if refinancing under fair and equitable terms is actually available and if people understand that they can safely look for it. Since a re-fi even in the best of circumstances takes at least a few months, quite likely the "freeze on foreclosures" now available only to Fannie Mae and Freddie Mack borrowers would need to be extended to all mortgages to allow time to work through things.

It's an idea worth receiving some consideration, but it needs some additional parts to make it a plan that will actually work.

Re-fi's with an ABSOLUTE PROHIBITION on Adjustable Rate Mortgages, Front Loads, No-Pays, Balloons, and other "gimmicks" is of absolute necessity if any plan is to be helpful to the "innocents." (My personal opinion is that the "originating lender" should be held permanently responsible for the debt, until it's paid off. Loans could be packed for servicing, with appropriate service fees taken from the payments; but should not be permitted to be "sold.")

Exisiting "recovery" plans largely include, along with other "features," throwing even more money at the construction industry, already somewhat overbuilt, to produce more new homes to sell (at prices the real majority of people can't afford). This is just "picking at the scab" on the wound that caused the hurt; but sometimes draining the wound does help, even if it takes a bit of additional flesh off the victim.

John

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Greg F.
Date: 14 Feb 09 - 12:27 PM

You Betcha! Spend your way out of debt. The American way-

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Alice
Date: 14 Feb 09 - 11:11 AM

Watch the CNBC program I linked to.

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Richard Bridge
Date: 14 Feb 09 - 11:07 AM

We know perfectly well from the last mega-big recession (the great crash) that kitchen economics (live within your means) does NOT cure recessions. Only getting people spending does.

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Ron Davies
Date: 14 Feb 09 - 11:05 AM

Those who have no mortgages, either since they have paid them off, or since they rent, would not be happy, since they would not benefit as much as those with mortgages.   They would benefit from a general economic recovery, but so would mortgage-holders.

It would be interesting to know what percentage of the electorate fall in each category, since that might well determine the political viability of the idea.

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Rapparee
Date: 14 Feb 09 - 10:28 AM

But I do. And have.

Contrary to the news media, I'm not the only one.

On the other hand, if I lose my job, how can I? Especially if there's no work to do?

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Greg F.
Date: 14 Feb 09 - 10:17 AM

Bad economic decisions by major banks or business corporations are subsidized by the government NOW

And THAT bailout - to a gang of of overpaid crooks who made those decisions knowingly & on purpose & out of pure greed - is the height of idiocy, too.

...like the personal responsibility of those who designed mortgages and sold them even though they were not basing them on the person's ability to pay...

Oh, Please. Lets rather discuss the personable responsibility of someone who purchases something he/she KNOWS he/she is unable to pay for - like idiots with tens of thousands of dollars of credit card debt at 18% to 24%- did someone force them to buy without having the money to pay and at that kind of interest rate?

Or are you maintaining that the population are simply morons who would purchase the Brooklyn Bridge were it on offer?.

Its a simple concept that many in the U.S. simply seem unable to grasp:

Live Within Your Means

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: heric
Date: 13 Feb 09 - 02:52 PM

Ignoring for the moment the disgruntlement of people who paid their mortgages well down, and the banks or other mortgage investors who prudently avoided the larger risks, the suggested approach would be simple and effective, and that alone disqualifies it. Simple and effective would challenge our elected representatives as a new paradigm, and they could not adapt. Sausage making is the only approach they know for crafting legislation, and that can not be changed.

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Alice
Date: 13 Feb 09 - 02:52 PM

The article goes on regarding how this would help stabilize the system for all of us.

snip

Because of the uncertainty surrounding the future of asset values and the prices of complicated derivatives like mortgage-based securities, the banks are hoarding money. They lack trust even to lend to each other. Reducing mortgage principals addresses both of those problems directly. By stabilizing the mortgage markets, much of the uncertainty will vanish. Banks' balance sheets could stabilize. And confidence may very well return.

snip

Yes, personal responsibility... like the personal responsibility of those who designed mortgages and sold them even though they were not basing them on the person's ability to pay. That is at the root of the global investment crisis. The ratings firms also rated those mortgages for investments when they should not have been.

Did anyone else watch CNBC's report last night on how all these bad mortgages were designed, given good ratings, and packaged as "investments" that were sold all over the world?
HOUSE OF CARDS Inside the sub-prime mortgage crisis

Link:http://www.cnbc.com/id/28892719

quote from a Wall Street email regarding these mortgage investment packages, "Let's hope we are all wealthy and retired by the time this house of cards falters." 12/15/06 email date

Many of them KNEW it was going to cause a crash, as the mortgages had a false value. And yet they were getting rich, so they sold them anyway. Yes, people should not have over stretched to get a home. But designing mortgage packages in the first place that were meant to be sold to people who had no proof of being able to pay was the first act of irresponsibility.

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Midchuck
Date: 13 Feb 09 - 02:34 PM

Or are all bad personal economic decisions to be subsidized by the government frpm here on in ??

Bad economic decisions by major banks or business corporations are subsidized by the government NOW. Why not give private individuals parity, after all?

Peter

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: Greg F.
Date: 13 Feb 09 - 01:08 PM

While I have a great deal of sympathy for those caught up in this wholesale disaster, is there to be NO personal responsibility for those who were foolish enough, thoughtless enough, or greedy enough to fall for the sub-prime snake oil flim-flam?

Or are all bad personal economic decisions to be subsidized by the government frpm here on in ??

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: beardedbruce
Date: 13 Feb 09 - 01:04 PM

Hey, anyone who thought ahead and only bought what they could afford ( AND PAY OFF) doesn't deserve to get any benefit!

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: KB in Iowa
Date: 13 Feb 09 - 01:03 PM

Here seems to be the main idea.

"Reduce the outstanding principal on every single mortgage to, say, 70% of the original value."

What if you owe less than 70% of the original value on your mortgage?

Maybe I am reading this wrong but it sounds to me like if your mortgage was for $100,000 and your principal is now down to $69,999 you would not benefit.

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: gnu
Date: 13 Feb 09 - 12:53 PM

Did not read the article. Dunno if I agree with the idea, but... thought... should there be an accompanying cap placed on rates?

If the principals are cut, even though the mortgagors get their money, they are still going to have to generate income. I assume they may raise the rates to do so, no?

Subject: RE: BS: Reduce All Mortgages' Principal, TIME
From: GUEST,HiLo
Date: 13 Feb 09 - 12:12 PM

It might be much better if mortgage interest were not a tax deduction. Homeowners would have more incentives to pay down debt and accumulate equity in their homes.

Subject: BS: Reduce All Mortgages' Principal, TIME
From: Alice
Date: 13 Feb 09 - 11:11 AM

There is an interesting article I read in TIME magazine online today. A "Better Bank Fix" according to the author would be "trickle up" from the home owners by reducing everyone's home mortgage principal across the board.
Here is a link:
A Better Bank Fix: Cut Every Mortgages' Principal


snip -
The plan is equivalent to a universal renegotiation of terms that improves the situation for both homeowners and banks. As a bonus, mortgage-backed—and, indeed, all mortgage-based—securities will become less "toxic" by virtue of a trickle-up effect.
snip -

Alice