Bailing out primary home loans vs. MBS/derivatives

[gevorg]

Instead of bailing out banks' assets that have failed with MBS/derivatives, why not bail out *all* current primary home loans? Not by 100% of course (those million dollar California homes will still foreclose), but with the number of trillion of dollars being printed now, it could easily cover $50-100K per loan, which is a good chunk of most of US home loans. Less people will foreclose due to lower or even no monthly payments. Banks would still benefit since this bailout would be used to pay for their loans.

Wouldn't this be more effective and more fair to all taxpayers?

Of course this will still contribute to inflation, but at least most of the bailout won't go to cover investments made out of thin air (mortgage-backed securities, derivatives, etc).

 

[Craig234]

You aren't alone.

Some in Congress have said alternatives like yours are not getting a fair hearing.

Of course there have been plenty of threads raising the "Is big finance so powerful they can use this crisis to gain even more power" type of questions.

 

[ElFenix]

i don't know if 50 to 100k per loan is going to be enough to cover the problem areas, which are the million dollar homes in california, vegas, and floriduh. yeah, foreclosures are up in des moines, but a couple houses there is nothing compared to the vegas crash.

 

[Fern]

Originally posted by: gevorg
Instead of bailing out banks' assets that have failed with MBS/derivatives, why not bail out *all* current primary home loans? Not by 100% of course (those million dollar California homes will still foreclose), but with the number of trillion of dollars being printed now, it could easily cover $50-100K per loan, which is a good chunk of most of US home loans. Less people will foreclose due to lower or even no monthly payments. Banks would still benefit since this bailout would be used to pay for their loans.

Wouldn't this be more effective and more fair to all taxpayers?

Of course this will still contribute to inflation, but at least most of the bailout won't go to cover investments made out of thin air (mortgage-backed securities, derivatives, etc).

Can't administer it.

While the % of home mortage loans in default is quite low, it's still a big number. If you wanna give everyone up to $100K to pay down their mortgage, well that's a lot of people to find and verify that they actually have a primary home mortgage of at least $100K.

Then I don't really think you wanna put the cash directly into their hands, can't be assured it will actually be used to pay down the mortgage can you? (Vegas anyone?)

Can't really pay it directly to the banks, nobody seems to know what mortgages are owned by whom, nor which mortgages are actually rolled up into which MBS (or even who owns those).

(Besides, I don't think this has anything to do with helping the homeowner. And to funnel money to them for their mortgages would be some kind of 'trickle up' economics that would eventually help the rich (banker/capitalists) if it could be implemented, but they are interested in having any 'middlemen' (homeowners) in the way of their money.)

Fern

 

[Lemon law]

At least a home based mortgage is not a totally toxic asset, the only thing that is lost is really the paper money difference. At worst, a bank loaned 400k on a house now only worth 200k, given enough time the same house will again be worth 400K.

But if its a raw derivative type bet with nothing backing it, there is absolutely no bottom to the crisis. I suspect the latter is the case, but getting the facts out to the public or congress seems more than the government can admit. Until I know what the case is, how can we know what to advocate?

 

[BoberFett]

Since my personal opinion of "let them rot" isn't a popular one and we're apparently intent on paying for everyone's stupidity anyway, the best option would be not lump sums but to defer payment for homeowners. If someone applied for assistance due to unemployment, etc. then we cover their mortgage on a month by month basis, but add the payment onto the end of their loan. The bank will still have the same terms, they'll continue to get their money and the mortgage will be paid off on time, but the government would become another mortgagee on the property and would continue to get paid after the original mortgage is paid off using the same payment, for as long as it takes to repay.

It's basically zero sum except for interest between now and the time the original mortgage is paid off, maintains home prices, and we aren't funneling endless amounts of money through corrupt bureaucrats to Wall St. shysters without evidence of whether it's having an affect or not.

 

[BoberFett]

Originally posted by: Fern
Can't really pay it directly to the banks, nobody seems to know what mortgages are owned by whom, nor which mortgages are actually rolled up into which MBS (or even who owns those).

It's easy to find out who holds a mortgage, and the MBS has nothing to do with indvidual mortgage. It's a security. If the invidual mortgages continue to be paid, the interest on the security will continue to flow.

 

[LegendKiller]

Originally posted by: BoberFett

Originally posted by: Fern
Can't really pay it directly to the banks, nobody seems to know what mortgages are owned by whom, nor which mortgages are actually rolled up into which MBS (or even who owns those).

It's easy to find out who holds a mortgage, and the MBS has nothing to do with indvidual mortgage. It's a security. If the invidual mortgages continue to be paid, the interest on the security will continue to flow.

The individual mortgage has everything to do with the MBS. The mortgage is put into a trust, the trust's purchase is paid for by proceeds of the bond sales. The bond has an undivided security interest in every mortgage. They are completely linked.

 

[Hacp]

Originally posted by: BoberFett
Since my personal opinion of "let them rot" isn't a popular one and we're apparently intent on paying for everyone's stupidity anyway, the best option would be not lump sums but to defer payment for homeowners. If someone applied for assistance due to unemployment, etc. then we cover their mortgage on a month by month basis, but add the payment onto the end of their loan. The bank will still have the same terms, they'll continue to get their money and the mortgage will be paid off on time, but the government would become another mortgagee on the property and would continue to get paid after the original mortgage is paid off using the same payment, for as long as it takes to repay.

It's basically zero sum except for interest between now and the time the original mortgage is paid off, maintains home prices, and we aren't funneling endless amounts of money through corrupt bureaucrats to Wall St. shysters without evidence of whether it's having an affect or not.

This is a really good idea, but it would bail out the banks. Perhaps if the government only pays down 60% of the mortgage and tells the bank to take it or leave it, it would be fair to everybody. We can then proceed to charge the irresponsible homeowner 100% of the mortgage, paid out over his lifetime. Restraining cash from paychecks will ensure that everyone pays back the government.

 

[JS80]

Fuck that, that is not fair to non-homeowners and responsible homeowners. Just write a check for $100k to every taxpayers making more than $30k/year and let the market take care of itself. If that's not enough to pay down your mortgage/credit card bills then you should fail.

 

[GuitarDaddy]

Originally posted by: Lemon law
At least a home based mortgage is not a totally toxic asset, the only thing that is lost is really the paper money difference. At worst, a bank loaned 400k on a house now only worth 200k, given enough time the same house will again be worth 400K.

But if its a raw derivative type bet with nothing backing it, there is absolutely no bottom to the crisis. I suspect the latter is the case, but getting the facts out to the public or congress seems more than the government can admit. Until I know what the case is, how can we know what to advocate?

Exactly, we are looking at a much bigger problem than home mortgages, the mortgage bubble only got the ball rolling and exposed the deeper problem. I think the reason they don't entertain a plan like BoberFett's is that the government could pay off all the "toxic" mortgages tommorow and many of the banks would still be screwed because of the extreme leveraging of derivative's

Think about it, even as deep as this ression has gotten on a national average the amount of morgtages in default is still a small percentage of banks loan portfolio's. How much can this effect the banks balance sheets, enough to turn an annual profit to a loss no doubt, but not to justify the full scale financial collapse that we have witnessed.

I find Geitner's remarks today regarding the stability of banks a bit ominous as he seems to feel the need to release a positive statement before releasing or even announcing the release of the the stress test data.