Subprime Bailout In The Works
According 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”…
According 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
Brenda, that was eloquent and brilliant. Thank you.
The only good thing to come out of this mess may be that the uproar and subsequent publicity everywhere, especially in the tv, internet and print media, has put the spotlight on subprime loans, which have existed for a very long time.
The best way to prevent this epidemic of foreclosures in the future is education, education, education. I’m involved with organizations primarily geared towards minority communities, to educate, or steer people to organizations that educate, current and potential borrowers on the different kinds of loans available, how to read a loan application, what questions to ask, how to secure legal help, etc, etc. Potential borrowers need to learn to spot a scam (basically, if it sounds too good to be true, walk away), learn how to crunch some numbers, and figure out what you can really afford.
It’s not that people are stupid, they are uneducated in this particular field. There is no shame in admitting you don’t understand a complicated document. We are teaching people that help is available to help them understand what they can and cannot afford.
I agree with Bob and others – better to have people stay in their homes and figure out how they can continue to pay their mortgages. In the long and short run, this is better for the general economy, all of us taxpayers, and for the homeowners themselves. These people aren’t getting a free ride, they are still paying their mortgages to their lenders, still contributing to the local economy, still productive at work, and are not stressed out people on the edge. Aside from making the spiteful happy at seeing someone go down, or being able to crow “I told you so”, mass foreclosure benefits no one, except vultures who prey upon their misery.
I’ll start being concerned about “moral hazard” vis-a-vis borrowers as soon as I see some CEO’s losing their homes when their companies tank, instead of walking off into the sunset with millions in retirement and severance provisions.
Our system has created incredible “moral hazard” with respect to management — no ultimate penalty for bad performance, indeed, great rewards — so I suspect those who are worrying about borrowers who overextended, particularly when they were lured into doing so by the comfy management.
This is absolutely ridiculous. Any form of bailout would only aide the irresponsible. It would help the Street for their irresponsible supply of the liquidity that created this issue. It would aide the banks for creating exotic products and lower their lending standards to meet the need of the Street. It would help the loan officers who failed to offer the right loan program for the right clients. It would aide the irresponsible appraisers who appraised the overvalued homes to meet the contract price. The speculators which no one on this board or in the media is blaming as part of the problem. What proportion of these sub-prime loans are second and third homes for wannabe real estate investors? The first time homebuyer who wanted to keep up with the joneses and buy a home that was probably overpriced with no equity, and had no idea what kind of loan they were signing up for.
I don’t care which group you belong too, you do not deserve any help. The government should not be involved with the free market. Without correction, the only people that will benefit are the investors who hold the bonds securitized by these mortgages. F them!! Low risk security my ass. The rating agencies had nothing in place to properly identify the risk in these bonds, and these investors were all institutional investors, so they are not afforded the same protection as individual investors.
Let the market correct itself, and let home prices fall in line with historical norms. I don’t even care about all the people who did it the “right wayâ€. If you bought a home and didn’t sell before the bottom dropped, too bad. You should have jumped ship when the time was right.
Horrible government policy. Taxpayers should not be bailing out individuals or the banks. Watch the major investment banks pay out billions of dollars in bonus at the same time as the federal reserve pumps billions of dollars into the banking system.
“But only one of us is happy about it and his initials are BM.”
Happy? Hardly–just able to face reality and hoping that the nation will be able to make the best of a bad situation.
The Escalade drivers arriving at foreclosures sound suspiciously like Reagan’s infamous “welfare queens”–a worst-case scenario conflated to a convenient stereotype. If we’re gonna blame the victims in the mortgage mess, at least listen to Agnes Smedley, whose memoir, “Daughter of Earth,” has this moving depiction of the full tragedy of ignorance (here, describing beat-down Depression-era miners, but universal in its human truth):
“Too many years have flown since those days, too many storms have swept over my own life, for me to recall fully the depths of non-knowing that was ours. Often in later years I heard men and women say that ‘people get what they deserve,’ and always my mind has swept back to our canyon-like existence. ‘Deserve’ is the word which the possessors use as a weapon against those they dispossess. The darkness of not-knowing–who can realize what that means unless he has lived through it! Thsoe who speak of ‘deserving people’ are the most ignorant of all. Because the world of knowledge was far removed from us, we in our canyon reacted instead of thinking.”
Those of us lucky enough to be up on the edge of the canyon owe something to those who had crap dumped on them down below–especially when the crap-dumpers were rich, duplicitous corporate weasels. And I am a rock-ribbed paleoconservative, folks.
“Uh-OH. This deal could DESTROY “The What’s” dreams!”
Let’s hope so 9:57. As unlikely as the “The What’s” alarmist dreams are they are NOT impossible.
“Banks will suffer if they have to go through the foreclosure process. They will lose money this way”.
Historically 10:04, that would have been true, but what is driving this crisis is that the risk has been ‘sliced and diced” and passed on to investors who were lead to believe that they were purchasing low risk securities. If the banks were holding the risk you can be sure that they would work with borrowers, whenever possible, to avoid forclosure. The present situation is unique in that lenders, left to themselves, have had little incentive to avoid forclosure. That is what is so dangerous and why some type of “bailout” is justified.
“And for you “grownups” scrimping and saving and reading contracts, bully for you. You’re smarter than a lot of folks and should consider yourself lucky.”
Why should we consider ourselves lucky? Maybe we’d be the lucky ones if social Darwinism rewarded the hard-working and the clever. Instead those who think they are protecting poor preyed-upon minorities are going to encourage the gov’t to bail out banks. How bigoted of you to assume minorities are unable to read a contract and need your protection.