the guy is stretching bro.

Of the five guys with FICO of 650, the one that pick the 100-yr mortgage is the one you'll evict first - in less than a year - no exception.

Why this happens is a debate without end. I personally subscribed to the "drug addict self selection theory" but it was not politically correct so I draw funky colorful graphs instead in my report - which doesnt address the problem.

Jinxxor, allow me to explain why I am INFURIATED at this entire loan modification scenario.

I bought a house 2.5 years ago for about $500k. My house is not a mansion - in fact many homes in my area routinely go for $1M to $1.5M. I did the prudent thing and put 65% down and got a 5.5% 30 year fixed rate. The only reason why I had to buy that house for $500k though - and I realized it at the time - was because of the inflation of a massive housing price bubble created by the idiotic loans that were bidding up the price of houses.

Now, if you modify the terms of those loans to keep them idiotic for another 2, 3, 4, 5 years you will be perpetuating the housing price bubble. If they instead let the market take care of the market and not manipulate it, all those $1M to $1.5M homes will be at bargain prices that PRUDENT people will then be able to purchase at FAIR MARKET values. Probably in the neighborhood of $500k to $750k.

But no... We have to "help" by creating artificial market conditions to keep IMPRUDENT people in their McMansion so that PRUDENT people can STAY OUT of them.

Changing the rules mid-game is unfair and cheating. Cheat long enough and the entire game (i.e. our society) goes into the **** hole.

This Freeze has very little to do with saving the homeowners, but by implementing it, they are telling wallstreet that they now can trust each other because the collateral is good.
The entire short term market is frozen because no one knows what each others collateral is worth and refuse to trust each other. By freezing the rate on these loans, they may stave off foreclosure for a year or two giving these mortgages a phony value for that period of time. All Paulsen wants to do is give the big boys a chance to dump their crap on the market again with inflated values.
This freeze idea is no better the the super SIV fund. All smoke and mirrors.

Ok, so you are infuriated by a plan that would have no net affect on you whatsoever. Zero. Zip. The plan you like pops a bubble on those houses and deflates the value of every house (including your house btw... collateral damage) so those OTHER houses can be bought on the cheap by different people that will in effect get a better deal on them than you. Maybe in 15 years your house will then be back to the original purchase value, but you really LOSE after taxes and maintenance.

This all sounds like schadenfreude.

It's solving the wrong problem... these people have debts to pay. They NEED to pay these debts and not be allowed to just walk away. If they have a loan and have some income they need to find terms that keep them paying. If they can't pay at all due to no income, forclose and resell the asset. They need to do everything possible to make people honor their debts. I pay my debts... sounds like you pay your debts... why not others?

as always, caveat emptor.

Jinxx, so let's say we implement what you suggest, and additionally let's give the teaser rate to everyone because legally you can separate one class of borrower from another.

A year from now, we have no investor willing to lend us money, houses are still going down -faster, savings rate is still nil and can't be counted to replenish the supply. And the borrower still DEFAULTS.

At that point, after the obligatory "told ya", who do you think we should volunteer to walk in front of the firing squad?

Quote:

Yes Steph. Until you are in physical contact with a bewildered, red-eyed, whisky breathing, tobacco chomping j6p with a 70 yr IO loans and the person requests modification to 80 yr loan, to save like 6.15 a month, you do not know the nature of the US mortgage lending industry.

Wow. Just wow. Still, though... Why is it that I'm short all the right stocks, adding puts all the way up this last bounce, and yet this little voice in the back of my head is telling me I'm going to get screwed along with everyone else?

Exactly Mtg.

The problem Jinx is that a plan like this will destroy the mortgage markets.

Once you start abrogating contracts (whether "voluntarily" or with true force) you're done with people trusting that the paper they sign means anything.

ok, so when the bonds they have RIGHT NOW go to a face value of 0 due to the defaults and they're worthless how anxious you think investors will be to lend money again for new bonds? You really don't think it's better to have a reduced coupon instead of a zero coupon? You'll say they are insured, but I think it's been pointed out that ABK and the others can't possibly cover the insurance on all of these bonds.

So again, you think it would be better to impode the whole thing to fix it... what makes you think people will ever buy these again if you take the current ones to zero with your solution to the problem?

Because unless you stop the fraud I can't value the deal.

If you keep "renegotiating" I have no idea what I'm buying.

Blow it up and then start doing your regulatory job, and I will buy again, even if I lost the last time.

The transparency element is critical.

" ok, so when the bonds they have RIGHT NOW go to a face value of 0 due to the defaults and they're worthless how anxious you think investors will be to lend money again for new bonds? "

Jinxx, so that's what you are concerned?

This is the expected value of a 6% teaser, resetting Libor + 3.5%, Floridian, FICO 680, LTV 80, Single Borrower: $98 / $100 notional.

That's mildly subprime and I stress mildly.

The breakdown:

100% par
a) +2.5% interest rate premium
b) -4.5% default cost net of mortgage insurance.

Part a) and b) are sold separately. Furthermore part a) and b) later is each separated so that people with different ideas:

- earlier vs. later default
- higher vs. lower rate
- buy & hold vs. technicals
- hedge against ongoing business (like servicers who buys mortgages to hedge because they HAVE TO deliver what they signed on contract).

can all take the RISK THEY WANT. This market is NOT ONE dude owning ONE America. So if reducing default works at the expense of 99% of the other who signed the contract relevant to them in good faith, is this still American? Doubt it.

Breaking the contract requires everyone to agree, but holy ****, look at my post on Fannie Mae and tell me that's remotely manageable. We are talking about people with money here so you know the argument is nil that it'll go ahead with any REAL implementation. Rick puts it best and indeed I am guilty for exaggerating the possibility but I was VERY*****ed since yesterday: "This Dog WONT HUNT".


Besides, the guy LONG CREDIT somehow end up with 0 and won't lend again? Then why is it that he bet the way he did? That people supplying no income documentation will pay back his loan?

No argument at all about the fraud. Companies that wrote fraudulent deals must be dealt with... there needs to be perp walks for some.

I still believe in caveat emptor on the deals though. You (collective you) better damned well understand what you're signing. I don't like the idea of people who took on debt getting out of it by walking away. It's not all fraud. I have no doubts though that some of it is though.

The problem Jinxx is that some people made the correct bets on these securities and you're going to **** them.

The problem with this is that those correct bets are, in fact, what makes a market. If you change the deal after its been done then you've added - not removed - uncertainty.

This is bad for the market in general because if I can't find someone to take the other side of my trade, I can't do it at all!

Mtgspy, great post... I'm making a bad assumption on taking the long side only of the trade, but you make a good point that there is more than one side IN this trade.

Only problem I see with that is "if reducing default works at the expense of 99% of the other who signed". I'd like to know what the actual impacts are, but that's another problem of its own.

"You (collective you) better damned well understand what you're signing."

Yeah, ok, look at this one though:

http://www.tickerforum.org/cgi-ticker/ak....

Education does not substitute sanity is my take.

"The problem Jinxx is that some people made the correct bets on these securities and you're going to **** them."

Yeah, you guys are right on that... wasn't thinking of it that way.

<i>Ok, so you are infuriated by a plan that would have no net affect on you whatsoever. Zero. Zip. [...] This all sounds like schadenfreude.</i>

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Jinxxor, either I didn't explain myself very well or you were so anxious to argue you missed my point entirely. I am infuriated by a plan that has tremendous impact on me. That is what I stated originally. To reiterate, imprudent people are living "the high life" in a $1.5M house that I think is only worth $750k. I would like to live in that house. Until they pop this bubble that was formed by idiotic loans, I will never be able to live in that $750k true value house because it costs $1.5M.

Extending the "teaser rate" on these loans is perpetuating the bubble and keeping me out of a house I want. I'm being punished for being prudent; i.e. I am unable to live in the house I want because I know it costs too much. But imprudent people are going to be able to continue living in those houses because of government manipulation and extension of artificial market conditions.

This has a direct impact on me. I'll say it again: it has a direct impact on me.

the "understand what you're signing" was in reference to mortgages, not the packaged derivatives, but thanks for the link.

In case you missed the obvious point I didn't make - yes, my $500k house is going down in value. My plan all along was to move up to a more expensive house. If all houses go down 50% in value, then I have lost $250k in my house but gained $750k in the $1.5M house I bought.

I say again - let the market work this out, and prudent people will benefit. Let the government manipulate and you hurt the prudent people and benefit imprudent people. Is that the message we should be spreading in America?

America: Go ahead and be stupid! Everything will still be fine. Oh, and if you are smart - SCREW YOU.

No, the message should be that you keep your word and are honest in your business dealings. You sign a contract, you live up to your end of it.