Someone please explain this rate lock thing to me!!!

[DaCounselor]

We started talking about loan modifications many many months ago, so it should be no surprise to the old-timers here that this is happening. Mods are going to happen with increasing frequency, period. They are going to save alot of folks’ hides, at least for the time being.

Modifications will absolutely reduce the “must-sell” inventory that Rich has been so focused on. Neverless, I anticipate values will continue to come down simply due to the disconnect between prices and income and the unavailability of the exotic financing that contributed to the price run-up. In short, modifications may reduce the depth and speed of the devaluation, but not stop it. Certainly not stop it.

Mods are seen as an attractive option because of an anticipated “win-win” scenario. Distressed borrowers find relief. Loan servicers collect fees on mod paperwork. Investors maintain an income stream as opposed to a complete wipe-out. The politicians pronounce they have saved the day. And if prices continue to come down, those who have been waiting to buy win as well.

[citydweller]

Could an unintended consequence of helping people stay in their overpriced homes be a sharp drop in consumer spending? These families will be stretching to make their payments and no longer have access to HELOC money. If they were forced to leave their house (through foreclosure), and had to go rent something they could afford, then they would have more disposable income for eating out, vacations, etc.

I guess what I’m trying to say is that the kindest thing the government could do is to allow these people to get out of the housing trap they’re in and allow them to begin “starting over” that much sooner.

[citydweller]

Could an unintended consequence of helping people stay in their overpriced homes be a sharp drop in consumer spending? These families will be stretching to make their payments and no longer have access to HELOC money. If they were forced to leave their house (through foreclosure), and had to go rent something they could afford, then they would have more disposable income for eating out, vacations, etc.

I guess what I’m trying to say is that the kindest thing the government could do is to allow these people to get out of the housing trap they’re in and allow them to begin “starting over” that much sooner.

[citydweller]

Could an unintended consequence of helping people stay in their overpriced homes be a sharp drop in consumer spending? These families will be stretching to make their payments and no longer have access to HELOC money. If they were forced to leave their house (through foreclosure), and had to go rent something they could afford, then they would have more disposable income for eating out, vacations, etc.

I guess what I’m trying to say is that the kindest thing the government could do is to allow these people to get out of the housing trap they’re in and allow them to begin “starting over” that much sooner.

[citydweller]

Could an unintended consequence of helping people stay in their overpriced homes be a sharp drop in consumer spending? These families will be stretching to make their payments and no longer have access to HELOC money. If they were forced to leave their house (through foreclosure), and had to go rent something they could afford, then they would have more disposable income for eating out, vacations, etc.

I guess what I’m trying to say is that the kindest thing the government could do is to allow these people to get out of the housing trap they’re in and allow them to begin “starting over” that much sooner.

[citydweller]

Could an unintended consequence of helping people stay in their overpriced homes be a sharp drop in consumer spending? These families will be stretching to make their payments and no longer have access to HELOC money. If they were forced to leave their house (through foreclosure), and had to go rent something they could afford, then they would have more disposable income for eating out, vacations, etc.

I guess what I’m trying to say is that the kindest thing the government could do is to allow these people to get out of the housing trap they’re in and allow them to begin “starting over” that much sooner.

[XBoxBoy]

Can someone clarify the impact of this for me?

If I understand what people are saying, the Fed, the treasury and the banks are planning to force the investors who own the mortgage backed securities to take lower interest rates. If that’s true then won’t that make it so all investors will be more reluctant to buy mortgages in the future? (Due to the risk that the government might come in and change the terms of your investment at anytime)

Seems to me that any investment that is subject to interference from the government without warning would significantly increase the return premium the investor would demand before making the investment. So ultimately won’t this plan make mortgage backed securities less attractive to investors and thus make mortgages more expensive in the future?

Also, aren’t there legal issues with this plan? Undoubtedly the mortgage backed securities that hold these mortgages have pages and pages of legal docs that define the terms of the mortgages. Unless those docs already grant the power to change the terms to someone, can the government come in and mandate a change without the investors having the right to sue? If I owned a bunch of mortgage backed securities and the government came along and told me, “sorry, we’re going to change those rates, and no you can’t foreclose,” I’d be thinking of calling an attorney. Can the government just come along and change the terms of contracts between private individuals just because the government is worried about a slowing economy?

Thanks for your responses,

XBoxBoy

[XBoxBoy]

Can someone clarify the impact of this for me?

If I understand what people are saying, the Fed, the treasury and the banks are planning to force the investors who own the mortgage backed securities to take lower interest rates. If that’s true then won’t that make it so all investors will be more reluctant to buy mortgages in the future? (Due to the risk that the government might come in and change the terms of your investment at anytime)

Seems to me that any investment that is subject to interference from the government without warning would significantly increase the return premium the investor would demand before making the investment. So ultimately won’t this plan make mortgage backed securities less attractive to investors and thus make mortgages more expensive in the future?

Also, aren’t there legal issues with this plan? Undoubtedly the mortgage backed securities that hold these mortgages have pages and pages of legal docs that define the terms of the mortgages. Unless those docs already grant the power to change the terms to someone, can the government come in and mandate a change without the investors having the right to sue? If I owned a bunch of mortgage backed securities and the government came along and told me, “sorry, we’re going to change those rates, and no you can’t foreclose,” I’d be thinking of calling an attorney. Can the government just come along and change the terms of contracts between private individuals just because the government is worried about a slowing economy?

Thanks for your responses,

XBoxBoy

[XBoxBoy]

Can someone clarify the impact of this for me?

If I understand what people are saying, the Fed, the treasury and the banks are planning to force the investors who own the mortgage backed securities to take lower interest rates. If that’s true then won’t that make it so all investors will be more reluctant to buy mortgages in the future? (Due to the risk that the government might come in and change the terms of your investment at anytime)

Seems to me that any investment that is subject to interference from the government without warning would significantly increase the return premium the investor would demand before making the investment. So ultimately won’t this plan make mortgage backed securities less attractive to investors and thus make mortgages more expensive in the future?

Also, aren’t there legal issues with this plan? Undoubtedly the mortgage backed securities that hold these mortgages have pages and pages of legal docs that define the terms of the mortgages. Unless those docs already grant the power to change the terms to someone, can the government come in and mandate a change without the investors having the right to sue? If I owned a bunch of mortgage backed securities and the government came along and told me, “sorry, we’re going to change those rates, and no you can’t foreclose,” I’d be thinking of calling an attorney. Can the government just come along and change the terms of contracts between private individuals just because the government is worried about a slowing economy?

Thanks for your responses,

XBoxBoy

[XBoxBoy]

Can someone clarify the impact of this for me?

If I understand what people are saying, the Fed, the treasury and the banks are planning to force the investors who own the mortgage backed securities to take lower interest rates. If that’s true then won’t that make it so all investors will be more reluctant to buy mortgages in the future? (Due to the risk that the government might come in and change the terms of your investment at anytime)

Seems to me that any investment that is subject to interference from the government without warning would significantly increase the return premium the investor would demand before making the investment. So ultimately won’t this plan make mortgage backed securities less attractive to investors and thus make mortgages more expensive in the future?

Also, aren’t there legal issues with this plan? Undoubtedly the mortgage backed securities that hold these mortgages have pages and pages of legal docs that define the terms of the mortgages. Unless those docs already grant the power to change the terms to someone, can the government come in and mandate a change without the investors having the right to sue? If I owned a bunch of mortgage backed securities and the government came along and told me, “sorry, we’re going to change those rates, and no you can’t foreclose,” I’d be thinking of calling an attorney. Can the government just come along and change the terms of contracts between private individuals just because the government is worried about a slowing economy?

Thanks for your responses,

XBoxBoy

[XBoxBoy]

Can someone clarify the impact of this for me?

If I understand what people are saying, the Fed, the treasury and the banks are planning to force the investors who own the mortgage backed securities to take lower interest rates. If that’s true then won’t that make it so all investors will be more reluctant to buy mortgages in the future? (Due to the risk that the government might come in and change the terms of your investment at anytime)

Seems to me that any investment that is subject to interference from the government without warning would significantly increase the return premium the investor would demand before making the investment. So ultimately won’t this plan make mortgage backed securities less attractive to investors and thus make mortgages more expensive in the future?

Also, aren’t there legal issues with this plan? Undoubtedly the mortgage backed securities that hold these mortgages have pages and pages of legal docs that define the terms of the mortgages. Unless those docs already grant the power to change the terms to someone, can the government come in and mandate a change without the investors having the right to sue? If I owned a bunch of mortgage backed securities and the government came along and told me, “sorry, we’re going to change those rates, and no you can’t foreclose,” I’d be thinking of calling an attorney. Can the government just come along and change the terms of contracts between private individuals just because the government is worried about a slowing economy?

Thanks for your responses,

XBoxBoy

[patientrenter]

XBox, I can’t answer your excellent question about the legal power government has to modify private contracts. But on the subject of destroying investor appetite for future home loans, this can be mitigated in two ways:

1. For non-securitized loans made by banks, lower fed funds rate to increase overall bank profits and thereby compensate banks for the loss of future higher interest income on existing ARM loans that were supposed to reset.

2. For future securitized loans, offer (per Bernanke) government guarantees of repayment to investors on a borrower default.

Patient renter in OC

[patientrenter]

XBox, I can’t answer your excellent question about the legal power government has to modify private contracts. But on the subject of destroying investor appetite for future home loans, this can be mitigated in two ways:

1. For non-securitized loans made by banks, lower fed funds rate to increase overall bank profits and thereby compensate banks for the loss of future higher interest income on existing ARM loans that were supposed to reset.

2. For future securitized loans, offer (per Bernanke) government guarantees of repayment to investors on a borrower default.

Patient renter in OC

[patientrenter]

XBox, I can’t answer your excellent question about the legal power government has to modify private contracts. But on the subject of destroying investor appetite for future home loans, this can be mitigated in two ways:

1. For non-securitized loans made by banks, lower fed funds rate to increase overall bank profits and thereby compensate banks for the loss of future higher interest income on existing ARM loans that were supposed to reset.

2. For future securitized loans, offer (per Bernanke) government guarantees of repayment to investors on a borrower default.

Patient renter in OC

[patientrenter]

XBox, I can’t answer your excellent question about the legal power government has to modify private contracts. But on the subject of destroying investor appetite for future home loans, this can be mitigated in two ways:

1. For non-securitized loans made by banks, lower fed funds rate to increase overall bank profits and thereby compensate banks for the loss of future higher interest income on existing ARM loans that were supposed to reset.

2. For future securitized loans, offer (per Bernanke) government guarantees of repayment to investors on a borrower default.

Patient renter in OC

[Author]

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