Bill Garrison , Sarasota Fl wrote:
Why Loan Modifications Are Like “TITANIC” and we need a Life Boat !
So many Americans bought a ticket on the USS TO BIG TO FAIL… MR Greenspan advised us to use adjustable rate mortgages. The White House said every American should buy a home. FNMA allowed borrowers to buy up to 10 investment properties. Moodys and S&P rated all of those junk CDOs as AAA…. and the ship sank….. Now Americans need a life boat…. Were are the life boats? You don’t want to help out American familys because it might impact government agencys? Really sad to see what’s happening to our country … That’s my $000,0000.02 bg
Pete Marriott and Bill Garrison Professional Sarasota Realtors ® Prudential Palms Realty .
1:06 am December 10, 2009
Oh….Jeepers maybe B of A will have to sell one of it’s 17 corp jets….. What’s gonna happen to the P&L’s of those lenders and pension funds when a potential 1,000,000 mortgages go into default and the monthly payments turn into $0.00. Hmmm…Wonder if all of the appliances will vanish and maybe in a few years “home sweet home” will finally get sold at 50% of the could have been save mortgage. Oh and how many people do you know that have kept their home for fourty years? 20 years? 10 ? Death, divorce, job relocation, retirement and a hundred other reasons would keep most modifications lasting only a fraction of that term. Most just want a to keep roof over their heads until this economy shakes out. A discounted mortgage has got to be better than monthly payments tunring to $0,00 and an eventual 50% off sale on what’s left of the property …… It’s almost Christmas and I need my $1,000,000 bonus, Is it in the mail ?
December 9, 2009, 5:24 PM ET Why Loan Modifications Are Like ‘Jurassic Park’
By James R. Hagerty
Controlling the dinosaurs in “Jurassic Park” proved difficult. As he appeared before the House Financial Services Committee Tuesday to discuss the slow progress of government efforts to force lenders to ease payment terms on home mortgages, Anthony B. Sanders was reminded of the movie “Jurassic Park.”
It might be possible to bring dinosaurs back to life, but does that make it a good idea? Similarly, says Dr. Sanders, a professor of real estate finance at George Mason University, it might be possible to slash interest rates on millions of loans, but that doesn’t mean we should.
What if the government’s Home Affordable Modification Program somehow finally gains traction and manages to reduce interest rates to 2% on millions of loans and extend their terms to 40 years? That would just create fresh problems, Dr. Sanders says.
“Our banking industry, Fannie Mae, Freddie Mac and our Federal Reserve would now be sitting on trillions of dollars of mortgages, many at super-low interest rates and stretched maturities to 40 years,” he writes. Any rise in inflation and interest rates would then slash the value of those mortgages. “When one considers the precarious balance sheets of our lending institutions and our government agencies, we should think very, very carefully about loading up their balance sheets with these mortgages,” he warns, adding:
“Congress and the Administration should bear in mind that it is not just the banks that will suffer, but our pension funds, our own government agencies and the viability of the economy going forward.” Banks would be “stuck with low-interest, long-maturity loans on their books that will prevent them from lending to other borrowers or small businesses for a long, long time.”
The solution, he says, is to encourage financial institutions to sell distressed loans and mortgage securities at big discounts from face value to private investors, who could then restructure the loans on realistic terms related to today’s house prices. Such sales would force banks and other financial institutions to book big losses, but perhaps regulators could allow those losses to be absorbed in stages over five years.
If U.S. financial institutions don’t clean up their balance sheets by shedding dud assets soon, “we will make the Japanese zombie banks look the role model for a healthy financial system,” Dr. Sanders says.
But what about all those borrowers struggling to avoid foreclosure? “The (loan) servicers and financial institutions should be able to modify distressed loans as they see as economically appropriate,” Dr. Sanders says. “After all, these are private market contracts between borrowers and lenders.”
Please follow me for housing news on Twitter at: http://twitter.com/jamesrhagerty