CNN — Rate freeze plan for ARMs gains traction. How will this affect the market if this goes thru?

[capeman]

This won’t affect much but try to simulate slow decline in the value of the MBS securities carrying these mortgages. In the background their value will crater until the music stops and bond bagholders realize they are still only holding a bag of flaming poo.

[j]

Locking rates at 4.5% will just delay the foreclosures. The big problem is that the US has to get money from overseas, and foreigners need very high rates to loan money to the US as the dollar plummets. Look at the CitiGroup deal, 11.5% who can loan money at 4.5% and pay 11.5%? I Think even the fools that could not see the current mortgage mess, like most who visit this sight did, will see that can not work.

[j]

Locking rates at 4.5% will just delay the foreclosures. The big problem is that the US has to get money from overseas, and foreigners need very high rates to loan money to the US as the dollar plummets. Look at the CitiGroup deal, 11.5% who can loan money at 4.5% and pay 11.5%? I Think even the fools that could not see the current mortgage mess, like most who visit this sight did, will see that can not work.

[j]

Locking rates at 4.5% will just delay the foreclosures. The big problem is that the US has to get money from overseas, and foreigners need very high rates to loan money to the US as the dollar plummets. Look at the CitiGroup deal, 11.5% who can loan money at 4.5% and pay 11.5%? I Think even the fools that could not see the current mortgage mess, like most who visit this sight did, will see that can not work.

[j]

Locking rates at 4.5% will just delay the foreclosures. The big problem is that the US has to get money from overseas, and foreigners need very high rates to loan money to the US as the dollar plummets. Look at the CitiGroup deal, 11.5% who can loan money at 4.5% and pay 11.5%? I Think even the fools that could not see the current mortgage mess, like most who visit this sight did, will see that can not work.

[j]

Locking rates at 4.5% will just delay the foreclosures. The big problem is that the US has to get money from overseas, and foreigners need very high rates to loan money to the US as the dollar plummets. Look at the CitiGroup deal, 11.5% who can loan money at 4.5% and pay 11.5%? I Think even the fools that could not see the current mortgage mess, like most who visit this sight did, will see that can not work.

[pnilesh]

One thing I think of is this: Keeping the subprime FBs in their home is an emotional and political issue. However, looking strictly from financial side, the govt prefers an orderly decline of realestate prices.

By doing this the banks don’t suffer immediate losses and the losses suffered over a period of time are mitigated by other types of investments.

They also want to delay or avoid recession. A sudden loss in the financial sector will trigger a recession as 2/3rd of US econony runs on consumer spending.

The govt doesn’t has any vested interested in teh subprime people. Howver, to avoid recession.. the govt needs to keep these people in their homes…

What do you all think? Either way subprime ppl are screwed anyway..

[pnilesh]

One thing I think of is this: Keeping the subprime FBs in their home is an emotional and political issue. However, looking strictly from financial side, the govt prefers an orderly decline of realestate prices.

By doing this the banks don’t suffer immediate losses and the losses suffered over a period of time are mitigated by other types of investments.

They also want to delay or avoid recession. A sudden loss in the financial sector will trigger a recession as 2/3rd of US econony runs on consumer spending.

The govt doesn’t has any vested interested in teh subprime people. Howver, to avoid recession.. the govt needs to keep these people in their homes…

What do you all think? Either way subprime ppl are screwed anyway..

[pnilesh]

One thing I think of is this: Keeping the subprime FBs in their home is an emotional and political issue. However, looking strictly from financial side, the govt prefers an orderly decline of realestate prices.

By doing this the banks don’t suffer immediate losses and the losses suffered over a period of time are mitigated by other types of investments.

They also want to delay or avoid recession. A sudden loss in the financial sector will trigger a recession as 2/3rd of US econony runs on consumer spending.

The govt doesn’t has any vested interested in teh subprime people. Howver, to avoid recession.. the govt needs to keep these people in their homes…

What do you all think? Either way subprime ppl are screwed anyway..

[pnilesh]

One thing I think of is this: Keeping the subprime FBs in their home is an emotional and political issue. However, looking strictly from financial side, the govt prefers an orderly decline of realestate prices.

By doing this the banks don’t suffer immediate losses and the losses suffered over a period of time are mitigated by other types of investments.

They also want to delay or avoid recession. A sudden loss in the financial sector will trigger a recession as 2/3rd of US econony runs on consumer spending.

The govt doesn’t has any vested interested in teh subprime people. Howver, to avoid recession.. the govt needs to keep these people in their homes…

What do you all think? Either way subprime ppl are screwed anyway..

[pnilesh]

One thing I think of is this: Keeping the subprime FBs in their home is an emotional and political issue. However, looking strictly from financial side, the govt prefers an orderly decline of realestate prices.

By doing this the banks don’t suffer immediate losses and the losses suffered over a period of time are mitigated by other types of investments.

They also want to delay or avoid recession. A sudden loss in the financial sector will trigger a recession as 2/3rd of US econony runs on consumer spending.

The govt doesn’t has any vested interested in teh subprime people. Howver, to avoid recession.. the govt needs to keep these people in their homes…

What do you all think? Either way subprime ppl are screwed anyway..

[Bugs]

I think it comes down to the investors. The teaser rates already represent a negative cash flow and every year at that rate only increases the amount of the principal. Bear in mind that some of these teasers are a lot lower than 4.5%.

If the investors are dumb enough to think that the market is going to turn around and cover the borrower’s positions they might agree to the short term losses with a view of recouping them later. The question is, how dumb are these investors?

If I’m holding one of these SoCal-backed CDOs I’m going to recognize that my loss upon liquidation in 2007 is going to be less than if I wait until 2009 or 2010. I’m going to recognize that the only way I break even is if the current trend stages a spectacular reversal and my borrowers’ positions – which have degraded even further by the extension of the teasers – get covered. That would take price increases well beyond the original purchase/refi values that got them into this mess.

As far as I’m concerned, this is posturing on the part of the polticians and the banks. Meanwhile, we still have 10+ months of inventory sitting around in SD County and a sizable number of other would-be sellers casting about in search of an exit that doesn’t involve a short sale or foreclosure. At most, a bail out will only slow the pace of correction down, increase the amount of collateral damage; and worse, burn the investors beyond all recognition.

[Bugs]

I think it comes down to the investors. The teaser rates already represent a negative cash flow and every year at that rate only increases the amount of the principal. Bear in mind that some of these teasers are a lot lower than 4.5%.

If the investors are dumb enough to think that the market is going to turn around and cover the borrower’s positions they might agree to the short term losses with a view of recouping them later. The question is, how dumb are these investors?

If I’m holding one of these SoCal-backed CDOs I’m going to recognize that my loss upon liquidation in 2007 is going to be less than if I wait until 2009 or 2010. I’m going to recognize that the only way I break even is if the current trend stages a spectacular reversal and my borrowers’ positions – which have degraded even further by the extension of the teasers – get covered. That would take price increases well beyond the original purchase/refi values that got them into this mess.

As far as I’m concerned, this is posturing on the part of the polticians and the banks. Meanwhile, we still have 10+ months of inventory sitting around in SD County and a sizable number of other would-be sellers casting about in search of an exit that doesn’t involve a short sale or foreclosure. At most, a bail out will only slow the pace of correction down, increase the amount of collateral damage; and worse, burn the investors beyond all recognition.

[Bugs]

I think it comes down to the investors. The teaser rates already represent a negative cash flow and every year at that rate only increases the amount of the principal. Bear in mind that some of these teasers are a lot lower than 4.5%.

If the investors are dumb enough to think that the market is going to turn around and cover the borrower’s positions they might agree to the short term losses with a view of recouping them later. The question is, how dumb are these investors?

If I’m holding one of these SoCal-backed CDOs I’m going to recognize that my loss upon liquidation in 2007 is going to be less than if I wait until 2009 or 2010. I’m going to recognize that the only way I break even is if the current trend stages a spectacular reversal and my borrowers’ positions – which have degraded even further by the extension of the teasers – get covered. That would take price increases well beyond the original purchase/refi values that got them into this mess.

As far as I’m concerned, this is posturing on the part of the polticians and the banks. Meanwhile, we still have 10+ months of inventory sitting around in SD County and a sizable number of other would-be sellers casting about in search of an exit that doesn’t involve a short sale or foreclosure. At most, a bail out will only slow the pace of correction down, increase the amount of collateral damage; and worse, burn the investors beyond all recognition.

[Bugs]

I think it comes down to the investors. The teaser rates already represent a negative cash flow and every year at that rate only increases the amount of the principal. Bear in mind that some of these teasers are a lot lower than 4.5%.

If the investors are dumb enough to think that the market is going to turn around and cover the borrower’s positions they might agree to the short term losses with a view of recouping them later. The question is, how dumb are these investors?

If I’m holding one of these SoCal-backed CDOs I’m going to recognize that my loss upon liquidation in 2007 is going to be less than if I wait until 2009 or 2010. I’m going to recognize that the only way I break even is if the current trend stages a spectacular reversal and my borrowers’ positions – which have degraded even further by the extension of the teasers – get covered. That would take price increases well beyond the original purchase/refi values that got them into this mess.

As far as I’m concerned, this is posturing on the part of the polticians and the banks. Meanwhile, we still have 10+ months of inventory sitting around in SD County and a sizable number of other would-be sellers casting about in search of an exit that doesn’t involve a short sale or foreclosure. At most, a bail out will only slow the pace of correction down, increase the amount of collateral damage; and worse, burn the investors beyond all recognition.

[Author]

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