bail out math, WTF?

[brose]

An unmentioned part of this new proposal is the huge, new beauracracy that will be created to regulate Fannie/Freddie and to “monitor” this program. You’re talking at a minimum of 100 new hires (easily could go up to 500 by the time we’re done), in DC of about $100k each on average (benefits for a federal employee will run about 27% of pay). Plus new computers, supplies, etc., you’re easily topping over $11-15M per year, and that’s a minimum. I think a more accurate figure is about $75M for a new department budget. Per year. But thats less than 1% of the budget, so by DC standards, that’s efficiency.

[jrock]

>>To be on the safe side, the bill is written to allow FHA to back “up to” 300b in new mortgages, but they think that the limit is very unlikely to be hit.

>>We’re at least halfway out of the bubble,

I am not sure which part of your reply I like the best. The part about how they aren’t going to use all the money or the part about the bubble being mostly over.

[jrock]

>>To be on the safe side, the bill is written to allow FHA to back “up to” 300b in new mortgages, but they think that the limit is very unlikely to be hit.

>>We’re at least halfway out of the bubble,

I am not sure which part of your reply I like the best. The part about how they aren’t going to use all the money or the part about the bubble being mostly over.

[jrock]

>>To be on the safe side, the bill is written to allow FHA to back “up to” 300b in new mortgages, but they think that the limit is very unlikely to be hit.

>>We’re at least halfway out of the bubble,

I am not sure which part of your reply I like the best. The part about how they aren’t going to use all the money or the part about the bubble being mostly over.

[jrock]

>>To be on the safe side, the bill is written to allow FHA to back “up to” 300b in new mortgages, but they think that the limit is very unlikely to be hit.

>>We’re at least halfway out of the bubble,

I am not sure which part of your reply I like the best. The part about how they aren’t going to use all the money or the part about the bubble being mostly over.

[jrock]

>>To be on the safe side, the bill is written to allow FHA to back “up to” 300b in new mortgages, but they think that the limit is very unlikely to be hit.

>>We’re at least halfway out of the bubble,

I am not sure which part of your reply I like the best. The part about how they aren’t going to use all the money or the part about the bubble being mostly over.

[SK in CV]

You have a few things confused here. The FHA will not be purchasing any existing loans or even making new loans, they will be insuring loans. So their exposure is limited to losses on those new loans, only to the extent of the difference between the new loan balances and the liquidation values on those new loans which end going to trustee sales. The fees, which will be paid both by the old lenders, new lenders (which may be different) and borrowers should be sufficient to cover the losses. There will be no “built in” losses to be borne by the FHA, which you seem to imply. Those losses will be borne by the original lenders.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

[SK in CV]

You have a few things confused here. The FHA will not be purchasing any existing loans or even making new loans, they will be insuring loans. So their exposure is limited to losses on those new loans, only to the extent of the difference between the new loan balances and the liquidation values on those new loans which end going to trustee sales. The fees, which will be paid both by the old lenders, new lenders (which may be different) and borrowers should be sufficient to cover the losses. There will be no “built in” losses to be borne by the FHA, which you seem to imply. Those losses will be borne by the original lenders.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

[SK in CV]

You have a few things confused here. The FHA will not be purchasing any existing loans or even making new loans, they will be insuring loans. So their exposure is limited to losses on those new loans, only to the extent of the difference between the new loan balances and the liquidation values on those new loans which end going to trustee sales. The fees, which will be paid both by the old lenders, new lenders (which may be different) and borrowers should be sufficient to cover the losses. There will be no “built in” losses to be borne by the FHA, which you seem to imply. Those losses will be borne by the original lenders.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

[SK in CV]

You have a few things confused here. The FHA will not be purchasing any existing loans or even making new loans, they will be insuring loans. So their exposure is limited to losses on those new loans, only to the extent of the difference between the new loan balances and the liquidation values on those new loans which end going to trustee sales. The fees, which will be paid both by the old lenders, new lenders (which may be different) and borrowers should be sufficient to cover the losses. There will be no “built in” losses to be borne by the FHA, which you seem to imply. Those losses will be borne by the original lenders.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

[SK in CV]

You have a few things confused here. The FHA will not be purchasing any existing loans or even making new loans, they will be insuring loans. So their exposure is limited to losses on those new loans, only to the extent of the difference between the new loan balances and the liquidation values on those new loans which end going to trustee sales. The fees, which will be paid both by the old lenders, new lenders (which may be different) and borrowers should be sufficient to cover the losses. There will be no “built in” losses to be borne by the FHA, which you seem to imply. Those losses will be borne by the original lenders.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

[Eugene]

Hmmm….so your saying 20% of these mortgages are heading to default. What do you think commercial paper with a 20% default rate is fetching on the open market today? Probably a lot less than 25 cents on the dollar. Probably more 5-10 cents on the dollar. Does anyone have the data on this? THanks

You clearly don’t understand how this bailout works.

BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime. Just think about it. $50,000 buys you 10 mortgages for $100,000 each. 2 of them are going to default and you “only” get 60% of market value of the underlying house through foreclosure. The remaining 8 will honestly pay (say) 6% or $48,000/year for the next 30 years.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

Yes, they are understating the number of distressed borrowers. If this bill gets passed, everyone who bought between 2004 and 2007 in bubble states will want in.

This proposed bailout is DOA. Ain’t happening.

There seems to be a lot of bipartisan support for the bill. It seems likely that they will even defeat the president’s veto. This bill has a very good chance of passing.

[Eugene]

Hmmm….so your saying 20% of these mortgages are heading to default. What do you think commercial paper with a 20% default rate is fetching on the open market today? Probably a lot less than 25 cents on the dollar. Probably more 5-10 cents on the dollar. Does anyone have the data on this? THanks

You clearly don’t understand how this bailout works.

BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime. Just think about it. $50,000 buys you 10 mortgages for $100,000 each. 2 of them are going to default and you “only” get 60% of market value of the underlying house through foreclosure. The remaining 8 will honestly pay (say) 6% or $48,000/year for the next 30 years.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

Yes, they are understating the number of distressed borrowers. If this bill gets passed, everyone who bought between 2004 and 2007 in bubble states will want in.

This proposed bailout is DOA. Ain’t happening.

There seems to be a lot of bipartisan support for the bill. It seems likely that they will even defeat the president’s veto. This bill has a very good chance of passing.

[Eugene]

Hmmm….so your saying 20% of these mortgages are heading to default. What do you think commercial paper with a 20% default rate is fetching on the open market today? Probably a lot less than 25 cents on the dollar. Probably more 5-10 cents on the dollar. Does anyone have the data on this? THanks

You clearly don’t understand how this bailout works.

BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime. Just think about it. $50,000 buys you 10 mortgages for $100,000 each. 2 of them are going to default and you “only” get 60% of market value of the underlying house through foreclosure. The remaining 8 will honestly pay (say) 6% or $48,000/year for the next 30 years.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

Yes, they are understating the number of distressed borrowers. If this bill gets passed, everyone who bought between 2004 and 2007 in bubble states will want in.

This proposed bailout is DOA. Ain’t happening.

There seems to be a lot of bipartisan support for the bill. It seems likely that they will even defeat the president’s veto. This bill has a very good chance of passing.

[Eugene]

Hmmm….so your saying 20% of these mortgages are heading to default. What do you think commercial paper with a 20% default rate is fetching on the open market today? Probably a lot less than 25 cents on the dollar. Probably more 5-10 cents on the dollar. Does anyone have the data on this? THanks

You clearly don’t understand how this bailout works.

BTW if I could buy commercial paper with a 20% default rate for 5 cents on the dollar, I’d go all in, it would be the investment of the lifetime. Just think about it. $50,000 buys you 10 mortgages for $100,000 each. 2 of them are going to default and you “only” get 60% of market value of the underlying house through foreclosure. The remaining 8 will honestly pay (say) 6% or $48,000/year for the next 30 years.

Additionally, the biggest fallacy in this plan is the CBO’s estimate that 400,000 distressed borrowers may be able to benefit. I suspect that estimate is off by at least an order of magnitude.

Yes, they are understating the number of distressed borrowers. If this bill gets passed, everyone who bought between 2004 and 2007 in bubble states will want in.

This proposed bailout is DOA. Ain’t happening.

There seems to be a lot of bipartisan support for the bill. It seems likely that they will even defeat the president’s veto. This bill has a very good chance of passing.

[Author]

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