[analyst]

[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.

[analyst]

[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.

[analyst]

[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.

[analyst]

[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.

[analyst]

[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.

[Author]

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