“A downward spiral thats tough 2 stop; it feeds on itself. 4closures encourage new 4closures & falling prices discourage buying”

[socrattt]

[quote=patientrenter]

Nothing surprises me any more. The main goal of a lot of the activity going on is to keep home prices high, and to keep as as much of that inflated value in the pockets of existing homeowners, either by supporting the prices, or repudiating the debt used to buy the homes, or both. [/quote]

PR, while I agree with your post, I have to point out that the government is more focused on the long term effects of their bailout plan than the actual homeowners loss. Am I correct in assuming that all loan modifications have some sort of sale clause that puts a percentage back in the pockets of our government once a sale has been made on a property with an existing LM?

Let’s be honest no one that bought from 2003 forward (aka the majority of the irresponsible) has any equity anyway and I can’t assume these loan mods will actually put equity in their pockets if they are upside down. So the essential thought that we are bailing out the irresponsible is correct, but in reality this is nothing more than a ploy for our government to make its’ money back. Which sounds more like a fairy tale if you ask me!

[Lyra]

But it’s interesting that the focus seems to be on principal reduction workouts (of course we’ll have to see the final language to be sure). If that’s the case, then these workouts will should further deflate housing prices. Unlike interest rate reduction loan workouts (which are highly inflationary), principal reductions are deflationary (assuming there are no strings attached… future profit sharing, etc). They are more or less equivalent to a foreclosure where the borrower gets to buy the house back at the foreclosure price instead of getting kicked out on their a$$es. So other than being incredibly unfair, they will not prop up prices. Just imagine how equity-heavy owners are going to feel when they see their spendthrift neighbors, after leveraging themselves to the hilt buying granite countertops and Cadillac Escalades, win the big bailout lottery. And then, to add insult to injury, the neighborhood home prices are STILL going to decline over the years as the bailout recipients start unloading their homes (made possible by their new, low, post-workout cost basis). Want to see some pissed off baby boomers? This should get VERY interesting. I’m sure many were counting on Uncle Sam to inflate away the nation’s debt binge while they rode out the storm protected by their heavy asset holdings (mostly real estate).

[Lyra]

But it’s interesting that the focus seems to be on principal reduction workouts (of course we’ll have to see the final language to be sure). If that’s the case, then these workouts will should further deflate housing prices. Unlike interest rate reduction loan workouts (which are highly inflationary), principal reductions are deflationary (assuming there are no strings attached… future profit sharing, etc). They are more or less equivalent to a foreclosure where the borrower gets to buy the house back at the foreclosure price instead of getting kicked out on their a$$es. So other than being incredibly unfair, they will not prop up prices. Just imagine how equity-heavy owners are going to feel when they see their spendthrift neighbors, after leveraging themselves to the hilt buying granite countertops and Cadillac Escalades, win the big bailout lottery. And then, to add insult to injury, the neighborhood home prices are STILL going to decline over the years as the bailout recipients start unloading their homes (made possible by their new, low, post-workout cost basis). Want to see some pissed off baby boomers? This should get VERY interesting. I’m sure many were counting on Uncle Sam to inflate away the nation’s debt binge while they rode out the storm protected by their heavy asset holdings (mostly real estate).

[Lyra]

But it’s interesting that the focus seems to be on principal reduction workouts (of course we’ll have to see the final language to be sure). If that’s the case, then these workouts will should further deflate housing prices. Unlike interest rate reduction loan workouts (which are highly inflationary), principal reductions are deflationary (assuming there are no strings attached… future profit sharing, etc). They are more or less equivalent to a foreclosure where the borrower gets to buy the house back at the foreclosure price instead of getting kicked out on their a$$es. So other than being incredibly unfair, they will not prop up prices. Just imagine how equity-heavy owners are going to feel when they see their spendthrift neighbors, after leveraging themselves to the hilt buying granite countertops and Cadillac Escalades, win the big bailout lottery. And then, to add insult to injury, the neighborhood home prices are STILL going to decline over the years as the bailout recipients start unloading their homes (made possible by their new, low, post-workout cost basis). Want to see some pissed off baby boomers? This should get VERY interesting. I’m sure many were counting on Uncle Sam to inflate away the nation’s debt binge while they rode out the storm protected by their heavy asset holdings (mostly real estate).

[Lyra]

But it’s interesting that the focus seems to be on principal reduction workouts (of course we’ll have to see the final language to be sure). If that’s the case, then these workouts will should further deflate housing prices. Unlike interest rate reduction loan workouts (which are highly inflationary), principal reductions are deflationary (assuming there are no strings attached… future profit sharing, etc). They are more or less equivalent to a foreclosure where the borrower gets to buy the house back at the foreclosure price instead of getting kicked out on their a$$es. So other than being incredibly unfair, they will not prop up prices. Just imagine how equity-heavy owners are going to feel when they see their spendthrift neighbors, after leveraging themselves to the hilt buying granite countertops and Cadillac Escalades, win the big bailout lottery. And then, to add insult to injury, the neighborhood home prices are STILL going to decline over the years as the bailout recipients start unloading their homes (made possible by their new, low, post-workout cost basis). Want to see some pissed off baby boomers? This should get VERY interesting. I’m sure many were counting on Uncle Sam to inflate away the nation’s debt binge while they rode out the storm protected by their heavy asset holdings (mostly real estate).

[Lyra]

But it’s interesting that the focus seems to be on principal reduction workouts (of course we’ll have to see the final language to be sure). If that’s the case, then these workouts will should further deflate housing prices. Unlike interest rate reduction loan workouts (which are highly inflationary), principal reductions are deflationary (assuming there are no strings attached… future profit sharing, etc). They are more or less equivalent to a foreclosure where the borrower gets to buy the house back at the foreclosure price instead of getting kicked out on their a$$es. So other than being incredibly unfair, they will not prop up prices. Just imagine how equity-heavy owners are going to feel when they see their spendthrift neighbors, after leveraging themselves to the hilt buying granite countertops and Cadillac Escalades, win the big bailout lottery. And then, to add insult to injury, the neighborhood home prices are STILL going to decline over the years as the bailout recipients start unloading their homes (made possible by their new, low, post-workout cost basis). Want to see some pissed off baby boomers? This should get VERY interesting. I’m sure many were counting on Uncle Sam to inflate away the nation’s debt binge while they rode out the storm protected by their heavy asset holdings (mostly real estate).

[SD Realtor]

Sorry but no way do I agree that any modication is helpful even if it results in a de facto increase in homeowners equity. How can you say this is deflationary? The home does not become active inventory. The home is NOT comped at the new value because no appraisers know of what happened, and if anything this move then invalidates all other comparables for the neighborhood. It essentially perpetuates fraud.

How would you feel if you bought a home only to find out half of your neighbors had recently “gained equity” by reworks and writedowns?

Are you kidding me?

[SD Realtor]

Sorry but no way do I agree that any modication is helpful even if it results in a de facto increase in homeowners equity. How can you say this is deflationary? The home does not become active inventory. The home is NOT comped at the new value because no appraisers know of what happened, and if anything this move then invalidates all other comparables for the neighborhood. It essentially perpetuates fraud.

How would you feel if you bought a home only to find out half of your neighbors had recently “gained equity” by reworks and writedowns?

Are you kidding me?

[SD Realtor]

Sorry but no way do I agree that any modication is helpful even if it results in a de facto increase in homeowners equity. How can you say this is deflationary? The home does not become active inventory. The home is NOT comped at the new value because no appraisers know of what happened, and if anything this move then invalidates all other comparables for the neighborhood. It essentially perpetuates fraud.

How would you feel if you bought a home only to find out half of your neighbors had recently “gained equity” by reworks and writedowns?

Are you kidding me?

[SD Realtor]

Sorry but no way do I agree that any modication is helpful even if it results in a de facto increase in homeowners equity. How can you say this is deflationary? The home does not become active inventory. The home is NOT comped at the new value because no appraisers know of what happened, and if anything this move then invalidates all other comparables for the neighborhood. It essentially perpetuates fraud.

How would you feel if you bought a home only to find out half of your neighbors had recently “gained equity” by reworks and writedowns?

Are you kidding me?

[SD Realtor]

Sorry but no way do I agree that any modication is helpful even if it results in a de facto increase in homeowners equity. How can you say this is deflationary? The home does not become active inventory. The home is NOT comped at the new value because no appraisers know of what happened, and if anything this move then invalidates all other comparables for the neighborhood. It essentially perpetuates fraud.

How would you feel if you bought a home only to find out half of your neighbors had recently “gained equity” by reworks and writedowns?

Are you kidding me?

[Lyra]

With principal reductions, price discovery occurs with greater latency than via foreclosures. But it occurs, nonetheless. Suppose a borrower bought a house for 500K at the peak, gets a writedown to today’s market value at say, 250K. When they go to sell the house at some point in the future, they can sell the house for 275K, pocket a small profit, and still contribute to the decimation of the neighborhood comps. Now contrast that a clearly inflationary bailout tactic: the Government’s targetted monetization of agency debt with the goal of reducing mortgage rates to an artificially low level (say 4%). This is clearly inflationary. So is reducing a borrower’s interest rate, in a loan workout, to 2% (or whatever).

Look, I’m not saying principal reductions are a good thing. If I ruled the land, I would let foreclosures run their natural course and let house prices fall unimpeded until they reached the level where Mr. Market says they should rationally be. I’m just saying that the flavor of the bailout matters. Principal reductions do not, generally speaking, reinflate house prices. They are hideously unfair, I’ll grant you that.

As to your questions about how I’d feel if half my neighbors got writedowns… I’d be pretty pissed (I thought that was pretty clear from my original post). However, like many on this board, I’m currently a member of the greatest underclass in the land: I’m a renter. From a practical standpoint, I just see principal reduction lottery winners as just another category of home sellers (along with bank REOs, shortsellers, and equity rich downsizers) who can now afford to sell me a house at 2001 prices.

[Lyra]

With principal reductions, price discovery occurs with greater latency than via foreclosures. But it occurs, nonetheless. Suppose a borrower bought a house for 500K at the peak, gets a writedown to today’s market value at say, 250K. When they go to sell the house at some point in the future, they can sell the house for 275K, pocket a small profit, and still contribute to the decimation of the neighborhood comps. Now contrast that a clearly inflationary bailout tactic: the Government’s targetted monetization of agency debt with the goal of reducing mortgage rates to an artificially low level (say 4%). This is clearly inflationary. So is reducing a borrower’s interest rate, in a loan workout, to 2% (or whatever).

Look, I’m not saying principal reductions are a good thing. If I ruled the land, I would let foreclosures run their natural course and let house prices fall unimpeded until they reached the level where Mr. Market says they should rationally be. I’m just saying that the flavor of the bailout matters. Principal reductions do not, generally speaking, reinflate house prices. They are hideously unfair, I’ll grant you that.

As to your questions about how I’d feel if half my neighbors got writedowns… I’d be pretty pissed (I thought that was pretty clear from my original post). However, like many on this board, I’m currently a member of the greatest underclass in the land: I’m a renter. From a practical standpoint, I just see principal reduction lottery winners as just another category of home sellers (along with bank REOs, shortsellers, and equity rich downsizers) who can now afford to sell me a house at 2001 prices.

[Lyra]

With principal reductions, price discovery occurs with greater latency than via foreclosures. But it occurs, nonetheless. Suppose a borrower bought a house for 500K at the peak, gets a writedown to today’s market value at say, 250K. When they go to sell the house at some point in the future, they can sell the house for 275K, pocket a small profit, and still contribute to the decimation of the neighborhood comps. Now contrast that a clearly inflationary bailout tactic: the Government’s targetted monetization of agency debt with the goal of reducing mortgage rates to an artificially low level (say 4%). This is clearly inflationary. So is reducing a borrower’s interest rate, in a loan workout, to 2% (or whatever).

Look, I’m not saying principal reductions are a good thing. If I ruled the land, I would let foreclosures run their natural course and let house prices fall unimpeded until they reached the level where Mr. Market says they should rationally be. I’m just saying that the flavor of the bailout matters. Principal reductions do not, generally speaking, reinflate house prices. They are hideously unfair, I’ll grant you that.

As to your questions about how I’d feel if half my neighbors got writedowns… I’d be pretty pissed (I thought that was pretty clear from my original post). However, like many on this board, I’m currently a member of the greatest underclass in the land: I’m a renter. From a practical standpoint, I just see principal reduction lottery winners as just another category of home sellers (along with bank REOs, shortsellers, and equity rich downsizers) who can now afford to sell me a house at 2001 prices.

[Lyra]

With principal reductions, price discovery occurs with greater latency than via foreclosures. But it occurs, nonetheless. Suppose a borrower bought a house for 500K at the peak, gets a writedown to today’s market value at say, 250K. When they go to sell the house at some point in the future, they can sell the house for 275K, pocket a small profit, and still contribute to the decimation of the neighborhood comps. Now contrast that a clearly inflationary bailout tactic: the Government’s targetted monetization of agency debt with the goal of reducing mortgage rates to an artificially low level (say 4%). This is clearly inflationary. So is reducing a borrower’s interest rate, in a loan workout, to 2% (or whatever).

Look, I’m not saying principal reductions are a good thing. If I ruled the land, I would let foreclosures run their natural course and let house prices fall unimpeded until they reached the level where Mr. Market says they should rationally be. I’m just saying that the flavor of the bailout matters. Principal reductions do not, generally speaking, reinflate house prices. They are hideously unfair, I’ll grant you that.

As to your questions about how I’d feel if half my neighbors got writedowns… I’d be pretty pissed (I thought that was pretty clear from my original post). However, like many on this board, I’m currently a member of the greatest underclass in the land: I’m a renter. From a practical standpoint, I just see principal reduction lottery winners as just another category of home sellers (along with bank REOs, shortsellers, and equity rich downsizers) who can now afford to sell me a house at 2001 prices.

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