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
9:50 is on the money. This administration has taken us back leap years. We’re hated everywhere wherever we go, our currency blows, foreign owners of USD’s basically call the shots because they enable us to keep living beyond our means and we don’t learn. Did I mention Iraq’s costs $3 billion (at least) a week? Exporters are benefiting, but do you think they’re really going to expand when the writing is on the wall regarding a US slowdown? They’re stacking their chips and hoping for a soft landing too. Our society is all about self-indulgence and instant gratification and then we wonder how we got into this mess. Your child watches “Super Sweet 16” and pressures you into buying her a new Range Rover, so you refi your home at a teaser rate because you just can’t grab your fcuking b@lls and tell her no, we can’t afford it!?!?
This is too much…time for a smoke break…
“My question is, do the banks have the right to rewrite the loans after they have sliced and diced them and sold them off to the Bank of China. If 2% of a loan is held by the Bank of China’s CDO can the originator of the loan simply offer a lower interest rate? Who makes up that difference?”
You and I and Bob Marvin and anyone else who pays taxes to a gov’t that is handing them over to bail out the stupid and irresponsible. But only one of us is happy about it and his initials are BM. Go figure.
If the lenders decide to freeze the interest payments and accept less money isn’t that their right? Why does anyone have the right to complain, the banks are be rewarding people who couldn’t afford to take out the loans? Corporations they have a right to make the business decisions. When Apple sent the rebate to people who bought the Iphone before the prices went down, that was a simple business decision. Now, if the government was bailing the lenders/borrowers out that’s another story. But if it’s the banks using their own money, I don’t think anyone can have a legitimate beef with that.
Yes, many homeowners were irresponsible, but a significant number were also preyed upon. Worse yet, buyers, disproportionately minority buyers, were steered into riskier loans even when they qualified for fixed rates.
The ultimate goal was to close a loan that would be resold, meaning lenders cared little about long-term risk.
Obviously I hope there’s a bailout. It probably won’t happen in much of brownstone Brooklyn, but in many parts of the country whole neighborhoods are being decimated by foreclosures. So what if you can afford your house that’s now on a block filled with boarded-up buildings? That’s the scenario in many places.
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.
Many people who are in trouble can not pay their mortgages even with a fixed rate, they bought assuming they could cash out in 3 years. The problem is going to remain.
Only lower housing prices or hyperinflation will get us out of this mess
Posted by: guest at November 30, 2007 9:59 AM
According to the article, those persons would not be eligible for help.
And if this plan is enacte on the limited basis proposed in the article, its not going to stave off a correction in housing prices, it will only slightly reduce the effect, possible stave off a recession, and keep more people in their homes.
This isn’t Cleveland. If home prices come down 20-30% due to forclosures, then normal people will buy just as normal people did 5 years ago. Moreover, many of those losers hoping to get bailed out will actually sell before going into foreclosure and get a reasonable payment. The neighborhoods won’t be destroyed, the value of their homes will simply be corrected as needed by the market.
As for Bob Marvins belief that the evil lenders that ran into the streets and forced people to buy houses they couldn’t afford, don’t worry. Banks will suffer if they have to go through the foreclosure process. They will lose money this way. If, on the other hand, both sides that are guilty are bailed out by the gov’t, then the rest of us will lose by paying for them via taxes.
9:38 you are correct as is Bob Marvin. Really, very well said.
Don’t worry Washington will take care of the Banks, they are the ones writing the legislation.
My question is, do the banks have the right to rewrite the loans after they have sliced and diced them and sold them off to the Bank of China. If 2% of a loan is held by the Bank of China’s CDO can the originator of the loan simply offer a lower interest rate? Who makes up that difference?
Many people who are in trouble can not pay their mortgages even with a fixed rate, they bought assuming they could cash out in 3 years. The problem is going to remain.
Only lower housing prices or hyperinflation will get us out of this mess
I bought my commercial property in 2006 for $525k and promptly sank another $100k to fix it up. The previous owner bought it in 2001 for $130k. I knew it was overvalued by $300k before I bought it, but I had no choice if I wanted to continue my business growth. I put 30% down and have a 15 year mortgage. I am getting killed on payments, but I saved enough before buying to be in a safe position even if the economy sours. I have a crapload of schadenfreude, and I am hoping for a hard crash. I don’t care if my property drops $400k in value over the next 5 years because a)I am not selling, b)I didn’t buy to flip, and c)it will allow me to buy the property next door to expand our building. The decrease in the assessed value of the property will lower my taxes, which is nice.