Did you pick 7300 for a reason?

Since 1995 the big bottoms for the Dow have been at just under 8000. I'll take 7750-8000 as the bottom this time, with a recovery to 9500 by year end.....

Posted at October 10, 2008 4:20 PM in response to It's Time for Paulson to Cut the Crap and Do His Job

I don't follow the question. Could you explain?

Posted at October 10, 2008 11:38 AM in response to McCain's Mortgage Measure Misses Its Mark

ps thanks ellen!

Posted at October 10, 2008 11:37 AM in response to McCain's Mortgage Measure Misses Its Mark

The monthly principal reduction is what makes the program work, because it eventually puts that mortgage on the same level with the surrounding mortgages. Plus by paying down the mortgage faster, you reduce the total amount that the holders of the mortgage securities make off the deal. Not the best way to penalize the dorks who set this whole thing up but at least you're not paying them to rewrite the mortgage!

The focus of the plan is to help stabilize neighborhoods and housing values, and it forces all parties to work together to make it happen:

The homeowner gets to stay in the home, but even that is a challenge in some of these neighborhoods at this point. (I've played around with the idea of making homeowners do certain things like working on behalf of the neighborhood in order to qualify for the program, but maybe that would be too hard for people who are just struggling to stay afloat.)

The lender and the holders of the ultimate securities do get paid, but probably not as much as they had expected because the term of the mortgages is shortened. Bummer, guys. Maybe be a little less greedy next time.

Taxpayers get a housing market that functions again and a reduction in general panic.

I know it's not a fantastic plan in every way, but I haven't seen a better plan that goes straight to the housing crisis and doesn't cut off the nose of ordinary people to spite the face of ordinary people. I'm writing comment after comment on this subject in the hope that folks will come to share my opinion that mortgage workouts for our neighbors, while grating, are better than debt workouts for company executives.

I suspect that much of the effect of the interest-only ARM has been psychological. Five years into this mess, folks haven't paid anything off their principal and property values have dropped precipitously. People have been told that they made terrible decisions and bought worthless properties. I don't quite know how to describe this, but when I look at the housing situation, it seems to me that in some ways people have overreacted, become discouraged and that's why the housing market has ground to a halt. I haven't done a survey or anything, but I suspect that any plan that goes straight to the neighborhoods and gives people a little confidence in the value of their property will be a success.

It's just a matter of figuring out how to do it in a way that costs taxpayers the least.

Posted at October 10, 2008 11:33 AM in response to McCain's Mortgage Measure Misses Its Mark

Yes, he does, and at least in part it goes like this:

"I get elected. Everyone breathes a sigh of relief upon learning that John McCain and Sarah Palin won't be running the country for the next four years, and the Dow goes up a thousand points."

Posted at October 10, 2008 2:35 AM in response to McCain's Mortgage Measure Misses Its Mark

So whatever the weaknesses of McCain's suggestion, it's not necessarily a completely stupid idea, and as you point out, he is grappling with the radioactive core of this crisis.

(It might also be said that rather than providing relief to the most needy the program would provide relief to the least greedy, i.e. homeowners rather than mortgage company executives.)

With repsect, there are a few practical inaccuracies in what you are saying, and a few ideas that have not yet been visited.

First is that the taxpayers already own a lot of these loans, they just don't control them. If any loan guaranteed by FNMA (or I assume Freddie Mac) goes bad, the bank's best bet by far is to force the property into foreclosure, hang onto it through the redemption period, then go to FNMA (meaning the taxpayers nowadays) and get the FULL amount of principal and interest. In return, the taxpayers get, via FNMA, a property that has probably sat empty, boarded and vandalized for some time. You say:

" That law, which incidentally provided $300 billion in loan guarantees, similarly enabled lenders and borrowers to renegotiate mortgages at mutually favorable terms. So McCain's proposal is, at best, superfluous, right?"

Maybe not so superfluous. Banks don't seem to be actually renegotiating these loans--the only company I know of that has renegotiated loans is Countrywide, and only because they lost a lawsuit. If you call a loan servicer, they will say that the Fed hasn't provided adequate guidance, and if you call FNMA they will tell you they "can't tell the servicers what to do," even though taxpayers are currently getting an absolutely terrible deal. As a taxpayer, you should be peeved about this.

What the govt ought to do is put together a program that leaves the bad loans in place (unfortunate but saves on the cost of rewriting them) and pays a chunk of interest and principal each month on behalf of the upside down homeowner. The program ends when the amount owed on the mortgage matches up to the value of the house, ie when the bubble mortgagers are on an equal footing with their peers. If housing prices come up a little in the hardest hit neighborhoods and stabilize in the least-impacted neighborhoods, the half trillion bucks will be well spent.

If they go into the worst neighborhoods first and manage the program well it could settle out the panic at a much lower cost that McCain is proposing.

Posted at October 10, 2008 12:04 AM in response to McCain's Mortgage Measure Misses Its Mark

I've personally just spoken with McCain and Obama and both gave me the go-ahead to shop for a jaunty set of epaulettes for you to wear to the ceremony.

So go ahead, explain the plan--and in the simplest terms possible, please--here in the peanut gallery we've just got the little brains to work with.

Posted at October 9, 2008 6:07 PM in response to It's Time for Paulson to Cut the Crap and Do His Job

Wow, I'm all a flivver. My pleasure would be:

1. Decree an end to foreclosures until the program is in place.

2. Transfer money to local agencies wherever possible to make administration as specific as possible.

3. Start with the neighborhoods that have been hardest hit.

3. Figure out what you want people to do in exchange for participating in the program.

4. Leave the loans as is--no rewrites, or the same people who made money writing these things up will make money rewriting them.

5. Provide a chunk of interest/principal on behalf of the owners each month to get these loans paid down fast. (Which does actually penalize the baddies a bit because they were expecting to make $400k off each $200k mortgage, but if the mortgages are paid down faster they won't make as much.) Might have to declare prepayment penalties null and void.

6. Homeowner has to pay taxes on the benefit (I think).

7. Program ends when the mortgage amount meets up with the values of surrounding houses.

God and the devil are of course in the details--your thoughts?

Posted at October 9, 2008 6:02 PM in response to Follow up Tom Brokaw wouldn't allow

You know, I think that maybe there's good (ethical, reasonable, kind) government and bad (mean, selfish, thoughtless) government. No matter what size the government is, its actions are composed of the actions of the individual people who set it up and run it. People doing things for good reasons equals good government, people doing bad things for bad reasons equals bad government. In most cases, it's not that tough for individuals to tell which actions are good and which are just a little icky.

For some reason, we have got in the habit of de-personalizing government (and corporations too) and have decided that govt--or the corporation--is some sort of otherish entity that has its own agenda. But at the end of the day, government is us.

Posted at October 9, 2008 5:51 PM in response to The Enemy Is Government for the Rich, Not Small Government

PeonInChief has it right. A lot of people renting properties being foreclosed on just don't have the time, the money, or a ride down to the courthouse to file the papers. Plus, some of them have other issues (like too many people living in a Section 8 housing unit) that they are afraid they'll be asked about if they try to complain.

So when the Man says go, they go, in many cases leaving their furniture behind because there's no place to put your stuff if the next stop for your family is the spare bedroom at your sister's place. And if you're not lucky enough to have a sister, there definitely ain't no place for your ratty old sofa at the homeless shelter.

It's funny--if you ever talk with a certain class of potential tenant, you will find that if you ask them where they live, they'll reply "I stay at..." and then either give the address or describe the family member or friend where they live. But they almost never say "I live at..." even if you use the word "live" when you ask the question.

Maybe it's some sort of weird regionalism, but I take it to mean that there are a lot of folks out there who really don't feel that they live anywhere.

Just trying to paint the circumstances in which people might find themselves practically unable to fight an eviction. We like to think that help is available, but a 20 foot rope isn't much good to somebody who's drowning 30 feet from shore.

Posted at October 9, 2008 5:35 PM in response to Chicago Sheriff Puts His Foot Down