[Lyra]

Sigh.

Obviously we’ll have to agree to disagree on this. But I’ll try one more time:

Price discovery occurs when the borrower who received the principal reduction SELLS THE HOUSE ON THE OPEN MARKET. This is a perfectly valid arms-length transaction and thus a perfectly valid comp. The latency occurs because the price discovery (subsequent open market sale) occurs months or years after the principal reduction. The end result, from a macro standpoint, is the same: prices trend downward. The actually principal reduction per-se is a non-event for purposes of appraisals done at the time the mod occured. Get it? The lower prices reflected by the principal reductions DO feed back into the loop, just with a long latency.

As far as your desire for immediate price discovery goes, I’m guessing you are not going to get what you want. That doesn’t make me happy. It’s just how I call it.

So we’ll see soon enough — next week, I guess — if it’s to be death by fire (interest rate reductions) or ice (principal reductions) or both (water?)

My guess is that it’ll be some combination of the two since that seems to be the modus operandi of the bailouts: throw everything at it, including the kitchen sink.

Finally, I’ll still stick with my assertion that principal reductions will bring prices down quicker than interest rate reduction mods. So in my mind, they’re the better of two evils.

[Lyra]

Sigh.

Obviously we’ll have to agree to disagree on this. But I’ll try one more time:

Price discovery occurs when the borrower who received the principal reduction SELLS THE HOUSE ON THE OPEN MARKET. This is a perfectly valid arms-length transaction and thus a perfectly valid comp. The latency occurs because the price discovery (subsequent open market sale) occurs months or years after the principal reduction. The end result, from a macro standpoint, is the same: prices trend downward. The actually principal reduction per-se is a non-event for purposes of appraisals done at the time the mod occured. Get it? The lower prices reflected by the principal reductions DO feed back into the loop, just with a long latency.

As far as your desire for immediate price discovery goes, I’m guessing you are not going to get what you want. That doesn’t make me happy. It’s just how I call it.

So we’ll see soon enough — next week, I guess — if it’s to be death by fire (interest rate reductions) or ice (principal reductions) or both (water?)

My guess is that it’ll be some combination of the two since that seems to be the modus operandi of the bailouts: throw everything at it, including the kitchen sink.

Finally, I’ll still stick with my assertion that principal reductions will bring prices down quicker than interest rate reduction mods. So in my mind, they’re the better of two evils.

[Lyra]

Sigh.

Obviously we’ll have to agree to disagree on this. But I’ll try one more time:

Price discovery occurs when the borrower who received the principal reduction SELLS THE HOUSE ON THE OPEN MARKET. This is a perfectly valid arms-length transaction and thus a perfectly valid comp. The latency occurs because the price discovery (subsequent open market sale) occurs months or years after the principal reduction. The end result, from a macro standpoint, is the same: prices trend downward. The actually principal reduction per-se is a non-event for purposes of appraisals done at the time the mod occured. Get it? The lower prices reflected by the principal reductions DO feed back into the loop, just with a long latency.

As far as your desire for immediate price discovery goes, I’m guessing you are not going to get what you want. That doesn’t make me happy. It’s just how I call it.

So we’ll see soon enough — next week, I guess — if it’s to be death by fire (interest rate reductions) or ice (principal reductions) or both (water?)

My guess is that it’ll be some combination of the two since that seems to be the modus operandi of the bailouts: throw everything at it, including the kitchen sink.

Finally, I’ll still stick with my assertion that principal reductions will bring prices down quicker than interest rate reduction mods. So in my mind, they’re the better of two evils.

[Lyra]

Sigh.

Obviously we’ll have to agree to disagree on this. But I’ll try one more time:

Price discovery occurs when the borrower who received the principal reduction SELLS THE HOUSE ON THE OPEN MARKET. This is a perfectly valid arms-length transaction and thus a perfectly valid comp. The latency occurs because the price discovery (subsequent open market sale) occurs months or years after the principal reduction. The end result, from a macro standpoint, is the same: prices trend downward. The actually principal reduction per-se is a non-event for purposes of appraisals done at the time the mod occured. Get it? The lower prices reflected by the principal reductions DO feed back into the loop, just with a long latency.

As far as your desire for immediate price discovery goes, I’m guessing you are not going to get what you want. That doesn’t make me happy. It’s just how I call it.

So we’ll see soon enough — next week, I guess — if it’s to be death by fire (interest rate reductions) or ice (principal reductions) or both (water?)

My guess is that it’ll be some combination of the two since that seems to be the modus operandi of the bailouts: throw everything at it, including the kitchen sink.

Finally, I’ll still stick with my assertion that principal reductions will bring prices down quicker than interest rate reduction mods. So in my mind, they’re the better of two evils.

[Lyra]

Sigh.

Obviously we’ll have to agree to disagree on this. But I’ll try one more time:

Price discovery occurs when the borrower who received the principal reduction SELLS THE HOUSE ON THE OPEN MARKET. This is a perfectly valid arms-length transaction and thus a perfectly valid comp. The latency occurs because the price discovery (subsequent open market sale) occurs months or years after the principal reduction. The end result, from a macro standpoint, is the same: prices trend downward. The actually principal reduction per-se is a non-event for purposes of appraisals done at the time the mod occured. Get it? The lower prices reflected by the principal reductions DO feed back into the loop, just with a long latency.

As far as your desire for immediate price discovery goes, I’m guessing you are not going to get what you want. That doesn’t make me happy. It’s just how I call it.

So we’ll see soon enough — next week, I guess — if it’s to be death by fire (interest rate reductions) or ice (principal reductions) or both (water?)

My guess is that it’ll be some combination of the two since that seems to be the modus operandi of the bailouts: throw everything at it, including the kitchen sink.

Finally, I’ll still stick with my assertion that principal reductions will bring prices down quicker than interest rate reduction mods. So in my mind, they’re the better of two evils.

[Lyra]

[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]

Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.

Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.

Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.

Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.

[Lyra]

[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]

Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.

Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.

Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.

Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.

[Lyra]

[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]

Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.

Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.

Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.

Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.

[Lyra]

[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]

Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.

Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.

Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.

Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.

[Lyra]

[quote=SD Realtor]The fact of the matter is that when the house sells, that is the ONLY time the valuation of the home is used in a proper manner. Period.[/quote]

Um… You just made my point. The recipient of a principal reduction workout CAN sell the house at market price. And that subsequent sale is when the price discovery occurs (and that’s why the latency exists). Price discovery does not occur at the time the workout is granted. The net result is still deflationary. Principal reductions are basically foreclosures where the lucky lottery winner gets to effectively buy the house back at the foreclosure (market) price. As for appraisals, the point is moot. Lenders will make the offer and the borrowers will decide if it’s worth it to take the deal or just walk. If the principal writedown does not bring the loan down to an amount that the borrower feels will put them above water, they’ll just do the rational thing and walk. Then the house goes into foreclosure, someone buys it, and the comps are set lower. All deflationary.

Contrast this with an interest rate reduction workout. Here the borrower is stuck in an underwater house for a decade while they and the neighborhood get to pretend the house is still worth what it was at the market peak. There is no price disovery at all because the house is not going on the market anytime soon.

Also, I don’t see how you can call it fraud. If the bank gets the investor(s) to agree, they can do whatever loan mod they like with the borrower. Likewise, once Uncle Sam buys the paper, they can do whatever mods they please.

Look, again, I would much rather there be no mods at all. But since it appears that mass loan mods are coming… I would rather see principal reduction mods over interest rate reduction mods.

[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.

[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.

[Author]

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