[Homestead] Fannie/Freddie bailout question
Clansgian at wmconnect.com
Clansgian at wmconnect.com
Sat Sep 13 21:34:16 EDT 2008
> >As the inventory of REOs builds, banks will become amenable to holding
> payments at their original rate.
Yes, except for two things, one addressed below and the other one is that in
many cases the original paymens not only did not pay any on the principal but
didn't cover the interest on the loan. For the banks to continue with that
loan at the original rate, they'd have to be bleeding money which they can't do.
Banks do not want massive
> foreclosures and they will work to avoid that condition.
No they don't.
Bear Sterns didn't want that.
Freddie Mac and Fannie Mae didn't want that.
The eleven FDIC insured banks that failed this year didn't want that.
Lehman Bros doesn't want that.
But it happened anyway.
> >A dangerous condition exists if mortgagors react negatively to the
> >news that they are making payments on a loan that is greater than
> >their home is worth.
Dangerous for whom? If a person finds themselves paying for an asset that is
worth far less than they are paying, it only makes sense to nullify that
agreement as quickly as possible and quit doing that. The only cudgle to hold
over their heads is that their "credit" might be ruined. For many of these
people before the bubble they would not have qualified for the loan and here after
the bubble they don't qualify for any such loan so it is an idle threat to
give them a bad credit score. You have only the vague notion that it is somehow
immoral to renege on the loan. I don't see it this way mainly for the
following reason:
(And this is my other thing I referenced above) Banks don't acutally hold
many mortagages now of days. That is, they do not lend depositors money to
homebuyers. Rather the mortgages are converted into Mortgage Backed Securities
and other such instruments and sold to people who are taking a gamble that the
contracts upon which they are based are good and valid. They take this gamble
in hopes of making a profit on it, just like any other bet.
They believed the hype about 'no bubble' and the dice didn't go that way.
They lost.
>This is an example of the power of the
> >sensationalist and negative media.
Just the opposite I'd say. The fact that so many people bought into the
housing frenzy was the result of sensationalism and media hype. What follows is
just the natural consequence of falling for that hype. </HTML>
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