coutrywide1107.jpgAccording to an article in this morning’s Wall Street Journal, the Treasury Department is close to a deal with a coalition of major U.S. lenders known as the Hope Now Alliance that would freeze—for the time being—interest rate levels on some subprime loans. While details are scant, under one version of the plan, introductory “teaser” rates could get extended for some peope for up to seven years. Members of the coalition include such heavy hitters as Citigroup, Wells Fargo, Washington Mutual and Countrywide Financial as well as a number of so-called mortgage service companies. The one group of stakeholders that’s been less enthusiastic is the investor community, but The Journal reports that investors are coming around to the idea that “it’s better to get some interest than none at all.” Do you think this is the right thing to do? Do you think this kind of bail out risks creating a moral hazard that could lead people to make the same mistakes next time around?
U.S., Banks Near A Plan to Freeze Subprime Rates [WSJ]
Photo by Meghann Marco


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  1. Personally, I think everything said has some merit of truth. Unfortunately, I think governmental intervention will not change the foreclosure situation too much. A great number of people with these sub prime loans have difficulties paying their bills NOW, not to mention when the loans reset. I think the real losers in this situation will be the taxpayers. Eventually, they will have to foot the bill for all those investors who will have to be persuaded to go along with this plan in exchange for some governmental tax cuts in the future!

  2. 5:36,

    There are still options for people with middle income salaries to buy in NYC. Most of the options, I believe are in the Bronx. Parkchester has many decent two bedroom apartments selling for less than 200k.

    I wouldn’t want to live there myself since I’m too much of a stuck up yuppies, but for somebody with a kid who really wants to own, there definitely are lower cost options.

    There’s no god-given right in this country for everybody to own a 500k house, but there are lots of places where houses can be purchased for less.

    If I were a librarian, for example, and only made 40k and really wanted to own, I could move to Bethleham, PA, just an hour and a half by bus from NYC and but a brand new beautiful townhouse for 200k. I know they exist because I saw one last week.

    For folks like you, Cuba is always an option.

  3. 2:54 is a broker, and the idea of finding a modest house that will fit mid-income levels anywhere in this city is a pipe dream at the current moment. Show me anywhere in the city or entire US where a person making $40K can afford a modest $500K house – and thats definitely considered modest anywhere in these 5 boroughs. I say they got what they deserved for signing the paperwork on both sides – banks as well as borrowers. If I were so stupid to speculate and sign a loan that I had no intention to pay back – hoping greed and hype would let me live there a while then sell for a profit – then I deserve what I get if the market falls. this is no different than the dot.com speculation bust except its in real estate speculation, and for banks to loan that kind of money with no doc liars loans or when they themselves were speculating in a way that if they borrower failed to pay back they could also sell for a profit after foreclosure, then shame on them too. Boo hoo. I have no sympathy

  4. “A ton of these mortgage products were designed specifically to fail… by companies willing to completely forgo any kind of common sense (or sense of social responsibility) simply to create mortgages to earn fee income and then sell them on to third parties.

    3:02 – Wow, nicely stated.

  5. Listen, guys, this is hardly a situation of a remedy bastardizing the “free market” for mortgage loans.

    The government is already massively involved in the mortgage market and has been for years – not simply via the tax advantages conferred on owners vs. renters, but via giant government agencies designed specifically interfere with the market – Freddie Mac and Fannie Mae.

    So let’s not pretend there’s suddenly a conspiracy to meddle with an otherwise orderly free market.

    The decision has already been made that we accept intervention (as we’re proactively intervening).

    If anything, the lack of regulation in a market that provides sophisticated financial products to consumers who may not necessarily understand them is what led to this mess.

    The fact that a statistically significant number of people were mysteriously steered into mortgage products with incredibly high fees that pay extraordinary comissions to the brokers who sold them should offer some hint that the situation isn’t simply as obvious as people wantonly living beyond their means.

    To the degree that those of us (including myself) saved money and read the documents and aren’t double-parking our Escalades at the foreclosure seminars, I can appreciate the instinct to want to blame people for over-reaching.

    But to pretend that there isn’t some level of institutional responsibility is to completely misunderstand this crisis.

    A ton of these mortgage products were designed specifically to fail – not by the people who answered the ads because they wanted a house for their families, but by companies willing to completely forgo any kind of common sense (or sense of social responsibility) simply to create mortgages to earn fee income and then sell them on to third parties.

    Does it not seem odd that the companies that are running into trouble (or are already bankrupt) originated, but never intended to own, these mortgages?

    Of course they don’t care if the mortgages perform – they don’t own, and never intended to own, the risk.

    Wells Fargo, on the other hand, tends to keep what it originates, and they seem to be comparatively fine.

    Frankly, in my opinion it’s a lack of consumer protection that led to this mess in the first place.

    If the government enforced a simple “keep what you originate” rule, does anyone on this board think we’d have this problem?

    Nope, because we’d all have 30 year fixed mortgages and no bank would be foolish enough to extend 0% down 5-1 ARMs with 2% teaser rates.

    We all expect to be protected from faulty products and egregious misrepresentation, by both laws and regulatory bodies, because even if we’re really bright and read the paper we may not know whether our car actually needs new brake pads, or our dentist did a lousy job, or whether we paid the right price for some municipal bonds.

    Why shouldn’t reasonable people come to the conclusion that we all warrant a modicum protection in a sophisitcated transaction that, for most, is the biggest financial decision they will ever make?

    And, my final point: if that protection is lacking, and we have to do something dramatic so that these oddly coherent demographic groups who have been pushed into these risky financial transactions enjoy some help rather than loose their homes, then fine.

    Not a great outcome, because who wants this kind of mess in the first place, but let’s at least be a little more honest about how we got into this mess.

    Nothing that is happening today is a result of the efficient, invisible hand of the free market being meddled with.

  6. Louis… not sure if this really a bail out. anyway, even with rising prices, you can still find a neighborhood that works for the money you have. just do research. believe NYC real estate will continue to expand in the mid to long run.

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