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Thursday, October 16, 2008

Comments

WillG

Rick Santelli said it best today, "This is America!" and then his rant was joined by the traders on the floor of the Chicago Merc. These mortgage holders should either work out a deal with there bank or move into an apartment. I feel for them on a personal level, but the market for homes needs correction.

I read a great article about it called "A Moral Hazard," found at http://economicefficiency.blogspot.com/2009/02/blog-post.html

Bill George

All of the terms and conditions of mortgage modification programs which I have read about put the borrower in the position of a renter rather than a true equity holder. Adding years to the pay-down of the mortgage and mandating requirements for splitting equity accretion with mortgage lenders, if the home price recovers dramatically in the first few years after the modification, are disincentives for accepting a modification and / or maintaining or improving a property subject to such mortgage modification terms. This could have a negative effect on the quality of the housing stock and create more costs for mortgage lenders when the properties eventually become uninhabitable and are abandoned. To a significant degree the mortgage bubble made homes in desirable areas unaffordable for first time home buyers, honest borrowers, economic realists and those people who did not want to become a slave to a mortgage payment. It seems mortgage modification and mortgage restructuring will slow down the re-pricing process necessary to make homes affordable for people who earn (and can document) something close to an average income. Another reasonable question, will the borrower in the mortgage modification get full value of the larger mortgage interest income tax deduction created by the modification? It seems unfair for a borrower who is getting taxpayer assistance (through the mortgage bail-out) to also get a tax break as a result of their poor financial planning.

Mike McCarthy

Commercial delinquencies are resolved with written-down debt based upon financial principles. Moral hazard is only for individual borrowers.

What seems to be missing in the last three or four years is any effort to prosecute criminal violations by mortgage brokers and appraisers, among others. Many of these cases are simply matters of establishing repeated patterns of behaviors. RICO seems suitable just from the facts reported in some press stories.

While there are individuals committing fraud (serially claiming that each of 4 houses bought in the last 6 mos. is my primary residence), the serious cases that did the most harm are traced back to intentional business practices. Patterns prove intent. Cases are mostly document investigations. Witnesses mainly put flesh on the bones so juries see a narrative.

Timely, effective criminal prosecutions, with press coverage, would have served the industry well and mitigated against some of the losses now being experienced.

It must be reestablished that violating the law is an unfair method of competition.

jonglennCA

thoroughly agree with the above, it has reached a point where the Fed needs to amend "the rules" of the bailout and demand immediate action by the banks; or they can cease and call all flows of capital to financial institutions. We're already in a Government controlled world, democracy has become a sham. John and Jane Q Public already know it is their own money that has been used recklessly by the Government to prop up the banks. Expalin why IF the Fed drops rates to 1.0, why banks are lending at 6,7,8,9 % ....the spread is egregious and immoral !
...so the banks can "make up their losses".

jonglennCA

thoroughly agree with the above, it has reached a point where the Fed needs to amend "the rules" of the bailout and demand immediate action by the banks; or they can cease and call all flows of capital to financial institutions. We're already in a Government controlled world, democracy has become a sham. John and Jane Q Public already know it is their own money that has been used recklessly by the Government to prop up the banks. Expalin why IF the Fed drops rates to 1.0, why banks are lending at 6,7,8,9 % ....the spread is egregious and immoral !
...so the banks can "make up their losses".

jonglennCA

thoroughly agree with the above, it has reached a point where the Fed needs to amend "the rules" of the bailout and demand immediate action by the banks; or they can cease and call all flows of capital to financial institutions. We're already in a Government controlled world, democracy has become a sham. John and Jane Q Public already know it is their own money that has been used recklessly by the Government to prop up the banks. Expalin why IF the Fed drops rates to 1.0, why banks are lending at 6,7,8,9 % ....the spread is egregious and immoral !
...so the banks can "make up their losses".

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