[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

[patientrenter]

andy, in a true free market, I’d agree with you, but it’s not a completely free market.

Here’s how the pols do it: Cajole banks into lowering the reset rates. In return, lower the fed funds rate to increase banks’ margins for as long as it takes to make it up to them. If banks don’t participate, you get rough with them. It’s not going to look good if they are pushing people out of their homes, so it’s easy to destroy a banks’ good public image and force them onto the ropes. Make an example of one or two renegade banks and they’ll all fall into line. Better yet, make it clear you will make an example of any renegade bank and they’ll all fall into line before they get into trouble.

So who pays so that the borrowers can get a better-than-market deal? Savers who deposit money in banks or money market funds.

Patient renter in OC

[patientrenter]

andy, in a true free market, I’d agree with you, but it’s not a completely free market.

Here’s how the pols do it: Cajole banks into lowering the reset rates. In return, lower the fed funds rate to increase banks’ margins for as long as it takes to make it up to them. If banks don’t participate, you get rough with them. It’s not going to look good if they are pushing people out of their homes, so it’s easy to destroy a banks’ good public image and force them onto the ropes. Make an example of one or two renegade banks and they’ll all fall into line. Better yet, make it clear you will make an example of any renegade bank and they’ll all fall into line before they get into trouble.

So who pays so that the borrowers can get a better-than-market deal? Savers who deposit money in banks or money market funds.

Patient renter in OC

[patientrenter]

andy, in a true free market, I’d agree with you, but it’s not a completely free market.

Here’s how the pols do it: Cajole banks into lowering the reset rates. In return, lower the fed funds rate to increase banks’ margins for as long as it takes to make it up to them. If banks don’t participate, you get rough with them. It’s not going to look good if they are pushing people out of their homes, so it’s easy to destroy a banks’ good public image and force them onto the ropes. Make an example of one or two renegade banks and they’ll all fall into line. Better yet, make it clear you will make an example of any renegade bank and they’ll all fall into line before they get into trouble.

So who pays so that the borrowers can get a better-than-market deal? Savers who deposit money in banks or money market funds.

Patient renter in OC

[patientrenter]

andy, in a true free market, I’d agree with you, but it’s not a completely free market.

Here’s how the pols do it: Cajole banks into lowering the reset rates. In return, lower the fed funds rate to increase banks’ margins for as long as it takes to make it up to them. If banks don’t participate, you get rough with them. It’s not going to look good if they are pushing people out of their homes, so it’s easy to destroy a banks’ good public image and force them onto the ropes. Make an example of one or two renegade banks and they’ll all fall into line. Better yet, make it clear you will make an example of any renegade bank and they’ll all fall into line before they get into trouble.

So who pays so that the borrowers can get a better-than-market deal? Savers who deposit money in banks or money market funds.

Patient renter in OC

[patientrenter]

andy, in a true free market, I’d agree with you, but it’s not a completely free market.

Here’s how the pols do it: Cajole banks into lowering the reset rates. In return, lower the fed funds rate to increase banks’ margins for as long as it takes to make it up to them. If banks don’t participate, you get rough with them. It’s not going to look good if they are pushing people out of their homes, so it’s easy to destroy a banks’ good public image and force them onto the ropes. Make an example of one or two renegade banks and they’ll all fall into line. Better yet, make it clear you will make an example of any renegade bank and they’ll all fall into line before they get into trouble.

So who pays so that the borrowers can get a better-than-market deal? Savers who deposit money in banks or money market funds.

Patient renter in OC

[patientrenter]

bubba, I’ve saved diligently for over 35 years, never taking much risk (=banks and money markets) until very recently. It’s been a losing proposition over the long haul and even in different countries, net of inflation, taxes, and expenses. I would definitely advise you and NeetaT and others that taking no risk is just a loser in the long run.

If and when enough savers like us desert low risk investments, they might actually pay a positive return. Don’t hold your breath!

Patient renter in OC

[patientrenter]

bubba, I’ve saved diligently for over 35 years, never taking much risk (=banks and money markets) until very recently. It’s been a losing proposition over the long haul and even in different countries, net of inflation, taxes, and expenses. I would definitely advise you and NeetaT and others that taking no risk is just a loser in the long run.

If and when enough savers like us desert low risk investments, they might actually pay a positive return. Don’t hold your breath!

Patient renter in OC

[patientrenter]

bubba, I’ve saved diligently for over 35 years, never taking much risk (=banks and money markets) until very recently. It’s been a losing proposition over the long haul and even in different countries, net of inflation, taxes, and expenses. I would definitely advise you and NeetaT and others that taking no risk is just a loser in the long run.

If and when enough savers like us desert low risk investments, they might actually pay a positive return. Don’t hold your breath!

Patient renter in OC

[patientrenter]

bubba, I’ve saved diligently for over 35 years, never taking much risk (=banks and money markets) until very recently. It’s been a losing proposition over the long haul and even in different countries, net of inflation, taxes, and expenses. I would definitely advise you and NeetaT and others that taking no risk is just a loser in the long run.

If and when enough savers like us desert low risk investments, they might actually pay a positive return. Don’t hold your breath!

Patient renter in OC

[patientrenter]

bubba, I’ve saved diligently for over 35 years, never taking much risk (=banks and money markets) until very recently. It’s been a losing proposition over the long haul and even in different countries, net of inflation, taxes, and expenses. I would definitely advise you and NeetaT and others that taking no risk is just a loser in the long run.

If and when enough savers like us desert low risk investments, they might actually pay a positive return. Don’t hold your breath!

Patient renter in OC

[patientrenter]

DaCounselor’s advice is crisp and correct, as usual, and is the right advice for you to act on, sandiego. The rest of the discussion in this thread is an opportunity for Piggingtonians to argue over the opportunities and morality of your type of situation. Don’t take it personally.

Asianautica’s comments make it clear that many people are indeed assuming, and pulling for, a government bailout, just as Marion says. Saying that walking now and buying for much less in 7 years time is a good idea assumes that this will be possible. Any purely self-interested investor would not lend money to such a deadbeat borrower in 7 years time unless the rate was very high, or the downpayment was huge. Would you loan everything in your bank accounts and money market funds at a low rate to sandiego in 7 years time, asianautica, if they put none of their own money down? Loosening those tight (high rate/downpayment) conditions can only be done via some government intervention favoring more leveraged buyers at the expense of people who’ve always kept their house purchases low compared to their savings.

For me, the biggest lesson of this upswing and downswing in the home market is not that it’s a good idea to limit your home purchase to what you can comfortably afford with low borrowings. Nope, the lesson is that it’s a good idea to take maximum advantage in non-recourse states of any stupid lender who’ll offer 100% loans at low teaser rates. Buy lots of properties when the market is heading up, and start cashing them out as the market continues to head up. When the market heads down, you only lose tiny amounts compared to your gains. What a racket!

Patient renter in OC

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