Home › Forums › Financial Markets/Economics › How is this not a formula for looting the U. S. Treasury?
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March 24, 2009 at 11:37 PM #15361March 25, 2009 at 12:48 AM #372698CA renterParticipant
Excellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins!
March 25, 2009 at 12:48 AM #372982CA renterParticipantExcellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins!
March 25, 2009 at 12:48 AM #373155CA renterParticipantExcellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins!
March 25, 2009 at 12:48 AM #373199CA renterParticipantExcellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins!
March 25, 2009 at 12:48 AM #373313CA renterParticipantExcellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins!
March 25, 2009 at 1:58 AM #372708analystParticipant[quote=CA renter]Excellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins![/quote]
The possibility of debt reduction to the borrower is an interesting angle. At least it adds a plausible explanation for why certain non-bankers might see some merit in backing this approach.
But how does anybody propose to know or control how the borrowers will be treated by the second purchasers of the loans? Without the inhibitions the banks had (the effect of principal reductions on the solvency of the bank), they might just push the foreclosures through as fast as they can. It does, after all, require significant effort to staff and run a real estate lending operation, even if you are offering attractive deals. The borrowers must be properly assessed, even at the new lower dollar levels, to make the loan attractive on the secondary market. Given the drop in real estate prices behind us, the more yet to come, even a 50% reduction in the loan balance would not create a proper loan-to-value ratio in many cases.
March 25, 2009 at 1:58 AM #372992analystParticipant[quote=CA renter]Excellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins![/quote]
The possibility of debt reduction to the borrower is an interesting angle. At least it adds a plausible explanation for why certain non-bankers might see some merit in backing this approach.
But how does anybody propose to know or control how the borrowers will be treated by the second purchasers of the loans? Without the inhibitions the banks had (the effect of principal reductions on the solvency of the bank), they might just push the foreclosures through as fast as they can. It does, after all, require significant effort to staff and run a real estate lending operation, even if you are offering attractive deals. The borrowers must be properly assessed, even at the new lower dollar levels, to make the loan attractive on the secondary market. Given the drop in real estate prices behind us, the more yet to come, even a 50% reduction in the loan balance would not create a proper loan-to-value ratio in many cases.
March 25, 2009 at 1:58 AM #373165analystParticipant[quote=CA renter]Excellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins![/quote]
The possibility of debt reduction to the borrower is an interesting angle. At least it adds a plausible explanation for why certain non-bankers might see some merit in backing this approach.
But how does anybody propose to know or control how the borrowers will be treated by the second purchasers of the loans? Without the inhibitions the banks had (the effect of principal reductions on the solvency of the bank), they might just push the foreclosures through as fast as they can. It does, after all, require significant effort to staff and run a real estate lending operation, even if you are offering attractive deals. The borrowers must be properly assessed, even at the new lower dollar levels, to make the loan attractive on the secondary market. Given the drop in real estate prices behind us, the more yet to come, even a 50% reduction in the loan balance would not create a proper loan-to-value ratio in many cases.
March 25, 2009 at 1:58 AM #373209analystParticipant[quote=CA renter]Excellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins![/quote]
The possibility of debt reduction to the borrower is an interesting angle. At least it adds a plausible explanation for why certain non-bankers might see some merit in backing this approach.
But how does anybody propose to know or control how the borrowers will be treated by the second purchasers of the loans? Without the inhibitions the banks had (the effect of principal reductions on the solvency of the bank), they might just push the foreclosures through as fast as they can. It does, after all, require significant effort to staff and run a real estate lending operation, even if you are offering attractive deals. The borrowers must be properly assessed, even at the new lower dollar levels, to make the loan attractive on the secondary market. Given the drop in real estate prices behind us, the more yet to come, even a 50% reduction in the loan balance would not create a proper loan-to-value ratio in many cases.
March 25, 2009 at 1:58 AM #373323analystParticipant[quote=CA renter]Excellent post, analyst! IMHO, you are exactly on target.
One thing to consider outside of this, is if the eventual purchasers — of securities that control the mortgages — buy the assets for 30 cents on the dollar, they can go to the home debtors and reduce their principal by 50%, repackage the loan and sell it on the secondary market for 50% of its original value. The private equity guys make their spread, the home debtor now has a mortgage cram-down, and the taxpayer foots the bill.
Perhaps this is their plan after all? Everyone but the taxpayer wins![/quote]
The possibility of debt reduction to the borrower is an interesting angle. At least it adds a plausible explanation for why certain non-bankers might see some merit in backing this approach.
But how does anybody propose to know or control how the borrowers will be treated by the second purchasers of the loans? Without the inhibitions the banks had (the effect of principal reductions on the solvency of the bank), they might just push the foreclosures through as fast as they can. It does, after all, require significant effort to staff and run a real estate lending operation, even if you are offering attractive deals. The borrowers must be properly assessed, even at the new lower dollar levels, to make the loan attractive on the secondary market. Given the drop in real estate prices behind us, the more yet to come, even a 50% reduction in the loan balance would not create a proper loan-to-value ratio in many cases.
March 25, 2009 at 5:33 PM #372969carlsbadworkerParticipantBasically, we know there are a lot of people in US now who can’t sell their houses, because they’ve leveraged themselves for more than the house will sell for on the open market. They have negative networth and selected not to honor their liability, but our government decides that they need a bailout.
So it only makes sense to extend it to the banks, which too leverage themsevles for more than their assets will sell for on the open market. They too will have negative networth and contemplate not honoring their liability(i.e. declare bankrupcy) so they too need a bailout. Only in this case, the government marks up their asset but in the home owner’s case, the government lowers their liability.
My point wasn’t that it’s right. My point was the government has been doing all the nonsense for a while already, it is unlikely the law makers will repent now, given the banks have more lobbying power than the FBs who got the loan remodification.
March 25, 2009 at 5:33 PM #373251carlsbadworkerParticipantBasically, we know there are a lot of people in US now who can’t sell their houses, because they’ve leveraged themselves for more than the house will sell for on the open market. They have negative networth and selected not to honor their liability, but our government decides that they need a bailout.
So it only makes sense to extend it to the banks, which too leverage themsevles for more than their assets will sell for on the open market. They too will have negative networth and contemplate not honoring their liability(i.e. declare bankrupcy) so they too need a bailout. Only in this case, the government marks up their asset but in the home owner’s case, the government lowers their liability.
My point wasn’t that it’s right. My point was the government has been doing all the nonsense for a while already, it is unlikely the law makers will repent now, given the banks have more lobbying power than the FBs who got the loan remodification.
March 25, 2009 at 5:33 PM #373425carlsbadworkerParticipantBasically, we know there are a lot of people in US now who can’t sell their houses, because they’ve leveraged themselves for more than the house will sell for on the open market. They have negative networth and selected not to honor their liability, but our government decides that they need a bailout.
So it only makes sense to extend it to the banks, which too leverage themsevles for more than their assets will sell for on the open market. They too will have negative networth and contemplate not honoring their liability(i.e. declare bankrupcy) so they too need a bailout. Only in this case, the government marks up their asset but in the home owner’s case, the government lowers their liability.
My point wasn’t that it’s right. My point was the government has been doing all the nonsense for a while already, it is unlikely the law makers will repent now, given the banks have more lobbying power than the FBs who got the loan remodification.
March 25, 2009 at 5:33 PM #373468carlsbadworkerParticipantBasically, we know there are a lot of people in US now who can’t sell their houses, because they’ve leveraged themselves for more than the house will sell for on the open market. They have negative networth and selected not to honor their liability, but our government decides that they need a bailout.
So it only makes sense to extend it to the banks, which too leverage themsevles for more than their assets will sell for on the open market. They too will have negative networth and contemplate not honoring their liability(i.e. declare bankrupcy) so they too need a bailout. Only in this case, the government marks up their asset but in the home owner’s case, the government lowers their liability.
My point wasn’t that it’s right. My point was the government has been doing all the nonsense for a while already, it is unlikely the law makers will repent now, given the banks have more lobbying power than the FBs who got the loan remodification.
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