Regarding the maid – she will stay in the house only if she qualifies (w/docs) after the loan is written down to a BPO or appraisal value minus some additional arbitrary % down. Otherwise she is a goner.
If moral hazard isn’t already out the window, it’s sitting on the ledge. Certainly the powers that be can refuse write-downs to those who have ability based upon the existing loan balance. Maybe they will. But I’m expecting a more sweeping and generalized program that ignores moral hazard in favor of the ease of a template approach. In any event if the goal is to avoid foreclosures you have to throw moral hazard out to head-off ruthless defaults. I suspect you will find that much like everything else we have seen so far, it is moral hazard that is being paid lip service and lip service only. Moral hazard will not derail the bailout du jour, that much is almost certain.
I have posted many times about the inevitable mark to market of homes and a govt. subsidation is of course a mark to market or what may amount to a mark to slightly below market. We are not going to see home prices propped up. Values are going down with or without subsidation and are likely going to settle within the same historical parameters of debt/value/income regardless of subsidation. All we are talking about is a more orderly and controlled mark down that has a much less chance of driving the credit/investment industry and yes the entire economy further into the dirt.
