mortgage relief plan

wrote

I saw this article first thing this morning as well. I felt the article was clear that the mortgage industry had initiated this. It is doing so largely to cut its losses and/or simply maintain flow into their corporations.

Apparently, lenders do not have to freeze or do anything with the contracts they have with borrowers. What they do in this matter is entirely voluntarily, from my reading.

I think the Bush announcement was an effort to shore up the stock market as much as anything else. Psychology. :-)

Now if NY Attorney General Andrew Cuomo would just announce he is not going after WaMu after all... But in my opinion WaMu needs investigating for its shady appraisal business; Goldman Sachs for its simultaneous hedging and promotion of mortgage backed securities. Etc.

If queried, the only thing I might say to my members of Congress is that I feel government regulation may be appropriate if lenders effectively defrauded low income and low net worth borrowers, preying on their lack of education.

Too bad. What does your opinion on Bush's plan have to with financial planning?

Elizabeth Richardson

wrote>

securities. Etc.

Strawdog.

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needs to vacate the house and rent. Lots of us do. If the

Yup.

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As with all bail-out plans it subsidizes people who failed to do their financial planning, thus encouraging risky behavior in the future.

Since it got by the moderator without comment, it obviously was sufficiently on-topic. I get a little upset by off-topic post in unmoderated groups. But in moderated groups, it's not my job to police other people's posts. It's really quite freeing once you get used to it. If you are one of the moderators, them my apologies.

Best regards, Bob

"zxcvbob" wrote

There is no government bail-out with this "plan." Lenders are free to charge less interest on mortgages than that which was originally contracted. Or the lenders can stick with their original contract with the borrowers.

Since it's entirely voluntary, it's a ploy to buoy consumer optimism.

Indeed, the NYT story says it's not a Government bailout, it's industry lead. One tiny quote from it: "The plan was the target of criticism from consumer advocates who said its scope was too narrow, and from investment firms, who said it went too far. Others warned that the plan, by letting some stretched homeowners off the hook, could encourage more reckless borrowing in the future." Well, that's fascinating. If less than 20% of subprime borrowers can qualify, I don't think that will slow the crisis too much. I agree that helping 360,000 people is likely 'good', but it won't solve the problem, and it does allow for reckless behavior. How this props up the value of the CMDs those mortgages comprise remains to be seen. In the end, doesn't this 5 year delay just take part of today's problem and push it out to 2013? At this point, I don't have any answers, just more questions on how this will all get played out.

Someone posted that the cost of foreclosure and subsequent resale is so high, not to mention carrying costs along the way, that the subsidized lower rate is less expensive to the banks (and CMD holders) than to foreclose. Sounds good to me.

JOE

I agree this is somewhat on topic. Maybe not venting frustration, but discussion of mortgage relief package can be relevant to financial planning. For example, it is now more advisable to get an ARM that you cannot afford after the rate adjusts rather than get one that you can afford.

Why couldn't lenders do that before?

Because the ultimate lender is some pension fund in South America, who bought a CDO from an investment bank that bought the mortgage from the originating broker and paid still another company to service the loan.

It is not clear to me who, if anybody, in all that mess has the authority to modify loan terms.

-- Doug

The plan, and how it is constructed, may indeed be part of financial planning. The OP said "I am upset about the mortgage relief plan". His political opinion on this subject , and that of any other of us, is decidedly off topic and has no place here, as is, for instance, a political opinion on social security. That discussion, too, has been nixed several times by our moderators.

Elizabeth Richardson

And some recent case law shows that it's not clear, to the courts, exactaly who, if anybody in all that mess has the authority to actually *foreclose*:

Why do you think they couldn't?

Oh, Elizabeth, lighten up. If you don't want to read about this subject, skip it. I, for one, find this mortgage relief plan discussion interesting and financially informative. Several friends have mentioned it to me recently & I was able to discuss it intelligently due to reading this website. Incidentally, I enjoy your posts as well--you are sharp and informed. SandyBeth

======================================= MODERATOR'S COMMENT: Discussions of the mortgage relief plan, to the extent it impacts financial planning, is appropriate here. Our political views (on the plan or any other topic) are not.

"joetaxpayer" wrote

I don't know... IIRC speculators will not be bailed out; only those who live in the homes they bought will.

Lots of folks do seem to come here asking about real estate investing. This bubble should be instructive.

Again, I don't know for sure, but I do figure a lot of folks in trouble will see pay raises over the next five years, so they will have a better chance of avoiding foreclosure then. So to anyone coming here saying they were almost foreclosed and your bank is giving you five years: You have a reprieve. Now save save save and work hard.

"Bucky" wrote

Sure they could. I am supposing they made this announcement because industry and our political leaders (as always so often in bed together, and not necessarily always for bad) felt some kind of blanket announcement from the head of the country et al. would help boost consumer confidence in banking, credit, etc. I really think this was about giving people hope on a mass scale. That's not a bad thing for the economy yada. So many in stocks do unwisely buy into mass hysteria and sell at losses.

Understood. But the numbers from the article still leave the 1.4 million who will go to foreclosure. Speculator or not, the CMOs created from those loans will have an impact on the market as will the depressed home prices.

Elizabeth was right that the introduction to this topic was a political line, but this topic impacts us all. The rest of the market is likely to react and overreact both on the upside with this seemingly positive news and to the downside when the remaining problems are still tallied.

I hope you are right regarding the 5 year improvement to one's income and cash flow. I posted back in August, "Did anyone believe that the 1 year t-bill would actually stay at 1% forever? Borrow $250,000 interest only at 3% and you pay $625 per month. When the rate goes up to 6% (and fully amortizes) the payment jumps to $1500." I suspect these are the numbers for many, an increase of more than 100%. Will 5 years' pay raises and 5 years' planning save more than half these people? I hope so.

JOE

Only if everyone else does that, too. The coverage that this whole mess is getting may just prevent a recurrence, at least for the next few years...

-Will

william dot trice at ngc dot com

This was my thought, too. However, a bit on CNBC yesterday said that the servicing companies can take action to "maximize the profit of the mortgage pools" they service (the quotes do not imply an exact quotation

- sorry). The commentators were speculating that this meant that the ball was in the service companies' court to decide if foreclosure was less desirable than reducing or freezing interest rates.

-Will

william dot trice at ngc dot com