Putting it all together

[CA renter]

That was a truly excellent post, analyst!

You wrote:

6. Foreclosures may be forced to continue for homes where loan ownership is fragmented due to complicated MBS contract provisions.

For homes where the ownership of the loan is not fragmented, and the home is still borrower-occupied, foreclosures may be put on hold, waiting for the flood of new-buyer FHA loans to raise/hold home prices, and to replace the really bad existing loans with less bad FHA loans.
—————–

One of the reasons they are pushing everyone to refi into govt-backed or subsidized loans (FHA and/or GSE loans) is because this solves the messy problem of private/fragmented MBS ownership.

Right now, they are keeping prices high, which keeps the prices of the mortgages high, so the private banks/lenders can recoup their investments at an artificially high price when the mortgages are refinanced into govt loans. Once they’re refinanced as many loans as possible, they will let prices fall, IMHO, because the taxpayers will take the hit instead of the financial industry (for all the reasons you’ve posted).

[pemeliza]

Interesting theory about them letting prices fall. I agree that may become less involved with the market eventually but not until the economy has picked up the slack and prices are stabilized or moving up.

I think as an example of what could happen consider the stock market. At first the government was heavily involved with short sale bans, capital injections, bailouts, etc. Eventually the stock market came back on its own because it had over-corrected to the downside and had priced in a complete meltdown which didn’t materialize.

I believe that at certain price points at least the housing market may very well have over-corrected to the downside and now may be recovering a bit on peoples expectations that fundamentals will improve quicker than most people think. When the fundamentals improve to the point were banks are ready to lend again, the government will slip out the back door. This won’t happen IMHO for at least 2-3 years.

Of course, that is what I think will happen and I could be dead wrong. Time will tell.

[pemeliza]

Interesting theory about them letting prices fall. I agree that may become less involved with the market eventually but not until the economy has picked up the slack and prices are stabilized or moving up.

I think as an example of what could happen consider the stock market. At first the government was heavily involved with short sale bans, capital injections, bailouts, etc. Eventually the stock market came back on its own because it had over-corrected to the downside and had priced in a complete meltdown which didn’t materialize.

I believe that at certain price points at least the housing market may very well have over-corrected to the downside and now may be recovering a bit on peoples expectations that fundamentals will improve quicker than most people think. When the fundamentals improve to the point were banks are ready to lend again, the government will slip out the back door. This won’t happen IMHO for at least 2-3 years.

Of course, that is what I think will happen and I could be dead wrong. Time will tell.

[pemeliza]

Interesting theory about them letting prices fall. I agree that may become less involved with the market eventually but not until the economy has picked up the slack and prices are stabilized or moving up.

I think as an example of what could happen consider the stock market. At first the government was heavily involved with short sale bans, capital injections, bailouts, etc. Eventually the stock market came back on its own because it had over-corrected to the downside and had priced in a complete meltdown which didn’t materialize.

I believe that at certain price points at least the housing market may very well have over-corrected to the downside and now may be recovering a bit on peoples expectations that fundamentals will improve quicker than most people think. When the fundamentals improve to the point were banks are ready to lend again, the government will slip out the back door. This won’t happen IMHO for at least 2-3 years.

Of course, that is what I think will happen and I could be dead wrong. Time will tell.

[pemeliza]

Interesting theory about them letting prices fall. I agree that may become less involved with the market eventually but not until the economy has picked up the slack and prices are stabilized or moving up.

I think as an example of what could happen consider the stock market. At first the government was heavily involved with short sale bans, capital injections, bailouts, etc. Eventually the stock market came back on its own because it had over-corrected to the downside and had priced in a complete meltdown which didn’t materialize.

I believe that at certain price points at least the housing market may very well have over-corrected to the downside and now may be recovering a bit on peoples expectations that fundamentals will improve quicker than most people think. When the fundamentals improve to the point were banks are ready to lend again, the government will slip out the back door. This won’t happen IMHO for at least 2-3 years.

Of course, that is what I think will happen and I could be dead wrong. Time will tell.

[pemeliza]

Interesting theory about them letting prices fall. I agree that may become less involved with the market eventually but not until the economy has picked up the slack and prices are stabilized or moving up.

I think as an example of what could happen consider the stock market. At first the government was heavily involved with short sale bans, capital injections, bailouts, etc. Eventually the stock market came back on its own because it had over-corrected to the downside and had priced in a complete meltdown which didn’t materialize.

I believe that at certain price points at least the housing market may very well have over-corrected to the downside and now may be recovering a bit on peoples expectations that fundamentals will improve quicker than most people think. When the fundamentals improve to the point were banks are ready to lend again, the government will slip out the back door. This won’t happen IMHO for at least 2-3 years.

Of course, that is what I think will happen and I could be dead wrong. Time will tell.

[Author]

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