WH to Unveil Proposals for Mortgage Market Reform

[Tilted (Premo)]

White House to Unveil Proposals for Mortgage Market Reform

The Obama administration on Friday will unveil long-awaited proposals for what could lead to the most sweeping changes to the way Americans buy their homes in decades.

The housing "white paper" presents three different visions for replacing mortgage finance giants Fannie Mae and Freddie Mac, which are set to be slowly wound down.

The paper does not make a single recommendation, but broadly outlines alternative possibilities to reduce the government's role in the mortgage market.

[huntr1]

Originally Posted by Tilted

The Obama administration on Friday will unveil long-awaited proposals for what could lead to the most sweeping changes to the way Americans buy their homes in decades.

The housing "white paper" presents three different visions for replacing mortgage finance giants Fannie Mae and Freddie Mac, which are set to be slowly wound down.

The paper does not make a single recommendation, but broadly outlines alternative possibilities to reduce the government's role in the mortgage market.

[ImnoMensa]

Originally Posted by huntr1

I would take a wait and see attitude before applauding any proposals made by this Dipstick.

[bcp (Premo)]

Originally Posted by ImnoMensa

I would take a wait and see attitude before applauding any proposals made by this Dipstick.

Same here, the fact that he is the welfare president could end up bringing a pretty interesting set of directives on this.
You make over 100k, you will pay full price for a home
you make under 100k, the price of the home will be decreased so that you are paying no more a percentage of your income than the person that makes over 100k
if you make less than 30k, the home will just be given to you, paid for by the taxpayers. You get an extra bedroom and bath for every child you claim. Its ok for a child to be claimed by more than one person once you go below 30k.

[Chasey_Lane]

Originally Posted by bcp

Same here, the fact that he is the welfare president could end up bringing a pretty interesting set of directives on this.
You make over 100k, you will pay full price for a home
you make under 100k, the price of the home will be decreased so that you are paying no more a percentage of your income than the person that makes over 100k
if you make less than 30k, the home will just be given to you, paid for by the taxpayers. You get an extra bedroom and bath for every child you claim. Its ok for a child to be claimed by more than one person once you go below 30k.

[Larry Gude (Premo)]

The next couple of years.


A problem Bush warned in April, 2001 was coming. A problem that started blowing up in 2007. A problem that might be addressed in a couple of years. That's 2013. 12 years late.

I guess this means entitlements may be on the agenda around 2076?

In any event, any plan that does not include a new assessment and attendant adjustment to mortgages, nation wide, thereby applying the long over due balance sheet hit is a waste of time.

Simple.

[philibusters]

Originally Posted by Larry Gude

The next couple of years.


A problem Bush warned in April, 2001 was coming. A problem that started blowing up in 2007. A problem that might be addressed in a couple of years. That's 2013. 12 years late.

I guess this means entitlements may be on the agenda around 2076?

In any event, any plan that does not include a new assessment and attendant adjustment to mortgages, nation wide, thereby applying the long over due balance sheet hit is a waste of time.

Simple.

There was a whole thread on that, but I still do not see that making any sense. Does that mean if the value of a home goes up, the monthly mortgage payment is going to go up to. Consumers would have a fit. Meanwhile, if you only do it so that the mortgage/ or interest is readjusted if the value of the house goes down, banks and mortgage companies will go under--quickly and our economy would collapse.

I am not sure what the government can do to improve the situation. The taxpayers ended up being on the hook for Fannie and Freddie and maybe getting rid of them is a good idea, but at the same time unless you want to get the government overly involved, I am not sure you can really pass any legislation that prevents a bubble altogether.

[Larry Gude (Premo)]

Originally Posted by philibusters

There was a whole thread on that, but I still do not see that making any sense. Does that mean if the value of a home goes up, the monthly mortgage payment is going to go up to. Consumers would have a fit. Meanwhile, if you only do it so that the mortgage/ or interest is readjusted if the value of the house goes down, banks and mortgage companies will go under--quickly and our economy would collapse.

Banks are all to happy to refinance and give you more money when the value goes up, right?

It's the same thing only in reverse. The bank loans you more because it is worth more.

Now, for most of us, the bank owns the joint in the first place and, obviously, there are larger forces at work in the value of a home in the first place than just the homeowner.

The town controls the permitting so, they allow building, hopefully well planned out. The bank has gotta be hoping the same thing. If it is a local bank using local resources, they have the best view and the best motives.

When the Feds throw all that out the window changing regulation and rules, add in the GSE's, then, all of a sudden, the homeowner is pretty much alone. He has no local support in terms of what his house will be valued at it. It gets decided at Fanny and Wall Street gamblers, all working under house rules; heads they win, tails you lose.

If they are, at core, responsible, federal government, GSE's and Wall Street and their motives were for the good of the nation in the first place which, of course they were, then, given that home values are THE key problem in the economy, then is it not in the national interest to then also say "Hey, we can fix all of this, stop the foreclosures, provide relief for all by simply fixing what we let run wild; refinance every home with a mortgage. If the new value is lower, we base the price on that and the home owner is now paying market value, the bank has honest books on their balance sheets and insurers are on the hook for proper values."

Would the banks suffer? Yes, some, but, they'd also not have to worry about the no end in sight foreclosures where they are getting ZERO on something in excess of 10% of all mortgages. They'd suffer little actual cash flow loss, hurting mainly on the stock price which would make many unhappy.

However, what we have now is a stalled economy precisely because of housing. This fixes the problem. You do this in conjunction with getting rid of the GSE's and change the regulatory laws that allowed Wall Street to play the same tax payer backed bet that Fanny did.

This benefits everyone. This patches the holes and rights the ship.

You can thank me for saving the economy later.

[philibusters]

Originally Posted by Larry Gude

Banks are all to happy to refinance and give you more money when the value goes up, right?

It's the same thing only in reverse. The bank loans you more because it is worth more.

I do not see a bank giving you a second mortgage the same thing except in reverse of what you are proposing.

As it currently is, the homeowner bares the primary risk that the house will depreciate. Not to say the lender does not face some risk, but the primary risk is on the homeowner. So if a house depreciates from $400,000 to $350,000 that is tough luck for homeowner, they still own on the $400,000 loan.

On the other hand, if the house appreciates to $500,000, the bank doesn't get bigger monthly payments. Rather the homeowner still only pays on a $400,000 note. Thus as it is currently, the homeowner bares the risk the house will depreciate, but at the same time gains ALL THE BENEFIT if the house appreciates.

A second mortgage is not analogous, because the bank would be giving the person $100,000 if they gave a second mortgage based on the increased value of the home.

You seem to forget that person in my example received $400,000 from the bank in the first place and if the house appreciates gets all the benefit of the appreciation.

Think about it honestly, do you think banks woiuld make any loans on the terms you are talking about. In your idea, if the house appreciates, the homeowner gets all the benefit. If the house depreciates the bank has to take the loss. So if things go good, the bank gets no added benefit and the homeowner benefits. If things go poorly, the bank has to take the loss and the homeowner doesn't have to the loss.

The only way a bank would make that loan is if the interest rate on the loan was enormous, like say 20% or something and that makes no sense from the homeowners perspective. Alternatively the bank could raise the mortgage payments to reflect the appreciation in the house's value. (That would actually be the reverse of your scheme). I don't think homeowners would go for that.

When the Feds throw all that out the window changing regulation and rules, add in the GSE's, then, all of a sudden, the homeowner is pretty much alone. He has no local support in terms of what his house will be valued at it. It gets decided at Fanny and Wall Street gamblers, all working under house rules; heads they win, tails you lose.

What? How are Fanny and Wall Street gamblers determining what you house is worth? In a free market your house is worth what a buyer is willing to pay for it. Fanny and Wall Street gamblers are not buying these homes. Other individuals are. Easy credit may induce them to buy homes they cannot afford, but its the price struck between the buyer and seller of the home that determines the value of the home. Fanny and Wall Street never set home prices.

I think you have a tendency to scapegoat Fanny and Wall Street. They were acting irresponsible, but so were a lot of people that are now losing their homes. You totally ignore their culpability. I mean I agree its sad to hear of a family being kicked out of their home, but if they agreed to pay $500,000 to somebody for their home and they overpayed and cannot afford it, what can we do about?

"Hey, we can fix all of this, stop the foreclosures, provide relief for all by simply fixing what we let run wild; refinance every home with a mortgage. If the new value is lower, we base the price on that and the home owner is now paying market value, the bank has honest books on their balance sheets and insurers are on the hook for proper values."

If they had to readjust the mortgage (and I am not even sure what you mean by readjust the mortgage), the banks would go under and our economy would collapse.

And what happens in 10 years when the housing market is doing well again and the price of the house is now $450,000. Do we readjust the mortgage up?

Would the banks suffer? Yes, some, but, they'd also not have to worry about the no end in sight foreclosures where they are getting ZERO on something in excess of 10% of all mortgages. They'd suffer little actual cash flow loss, hurting mainly on the stock price which would make many unhappy.

I think that would drive most banks under. I think you are underestimating the negative impact on the banks.

Right now in my example they loaned $400,000 to somebody to buy a home. The home is worth $350,000. If they reduced the principle to $350,000 they take money out of their own future pockets with no benefit to themselves. First off, most people don't miss their mortgage payments because they are slightly too high, but because they are out of work. The recession is more complicated than just the housing market. So there is no guarantee that they don't have to foreclose in the future anyway. Most of the people with jobs are paying their mortgages even if they have no equity in the houses. They do so because they don't want to lose their house. These people are CAPABLE of paying their mortgage (even if they have no equity in their house, remember they bare the risk that if the housing market goes down, but also will reap the benefit if the housing market goes up).

So the bank losses a lot of money as it lowers the mortgage payments for plenty of people who are capable of making the monthly mortgage payment and get nothing in return. A lot of people who don't make payments don't have jobs and the bank gains nothing by lowering their mortgage principle as they will still have to foreclose. There are some homeowners who may be able to save their house through slightly lower mortgage payments and they have already been acts passed by Congress to lower their interest rates, which is just an effective means of lowering their monthly mortgage payment as lowering the prinicple amount they owe to the banks.

However, what we have now is a stalled economy precisely because of housing. This fixes the problem. You do this in conjunction with getting rid of the GSE's and change the regulatory laws that allowed Wall Street to play the same tax payer backed bet that Fanny did.

So like a true conservative you want more government regulation of Wall Street? Obama is recommending phasing out Fannie and Freddie. I don't think Fannie and Freddie were the main causes of the housing bubble. What is sick about them though is that their stockholders benefitted from their profits during the good days and the tax payers had to bail them out around 250 billion dollars when it was all said and done. Kind of like with your scheme with the banks where the banks take all the risk (of depreciation) but don't reap any of the rewards (of appreciation), the taxpayers did not reap any benefits from Fannie or Freddies big profits in the middle part of the decade but had to pay the entire cost of the risky investments they used to the tune of 250 billion dollars or so.

This benefits everyone.

Except the banks. Except for entrepreneurs (who can't borrow money from non-existent banks. Except for people who want to purchase and house or car, but can't get credit because banks don't exist.


EDIT: Rereading I used bare when I meant to use bear. There are lots of other typos, but I make that one throughout.