Mortgage Bailout

[lehighguy]

http://money.cnn.com/2007/04/13/real...ex.htm?cnn=yes

Mortgage bailout. Guess who's advocating it.

[bobman0330]

A mortgage bailout is one of the dumbest ideas conceivable. It would basically be a 12-figure handout to the financial industry. Brilliant. The system is working just fine, as is subprime lending. Of course poor people default on their loans more! They don't have much money!

For some reason, a lot of people think that the way to help poor people is to choke off their access to things rich people take for granted, like mortgages. And then they poo-poo the persistence of income disparities. What do they expect to happen when you restrict fat tax deductions and access to valuable assets to the wealthy?

[Msgr. Martinez]

Unless I'm missing something here, having a mortgagor default on his or her note seems like a pretty sweet deal for the mortgagee. The mortgagee collects payments and interest, and then when there is a default, it can foreclose on the house and sell it for, in most cases, more than its value when the note was made. Anyone in the industry have any insight into just how good of a deal this is for the mortgagees?

[hmkpoker]

Not when the borrower hasn't put up a down payment and doesn't have any assets. If the property doesn't sell above the purchase price at auction, in addition to any transaction costs, this is a loss for the bank.

[AJackson]

[ QUOTE ]
Unless I'm missing something here, having a mortgagor default on his or her note seems like a pretty sweet deal for the mortgagee. The mortgagee collects payments and interest, and then when there is a default, it can foreclose on the house and sell it for, in most cases, more than its value when the note was made. Anyone in the industry have any insight into just how good of a deal this is for the mortgagees?

[/ QUOTE ]

I'm not in the mortgage industry, I'm in the building industry. From what I've observed these subprime loans are rarely done with much money down. I've done deals where there was 3-5% down and that was working into the sale price.

When a mortgage company goes to take back a house and resell it, it's not a quick process. Interest costs, taxes and insurance are adding up for 6+months. If they sell it through a realator, there goes another 6-7%. Most sell it at auction, which never brings full value.

[ConstantineX]

Sigh. I'm so sick of both parties right now. Democrats seem even more invigorated than usual to add arcane laws and institutions that are not so easily repealed. Republicans on the other hand want to continue spending $10 BN a month on Iraq [img]/images/graemlins/confused.gif[/img].

In any case, this is really bad policy because of future expectations. If poor people and mortgage lenders alike know there is a high probablity of a bailout, they will rationally adjust their practices. When the next housing bubble comes, easy credit will flow just as freely, with banks issuing just as risky loans with the expectation that they will be subsidsed if something goes wrong. Moreover it threatens the credibility of federal banking system - investors and commercial banks alike should have some idea what the "real" interest rate is going to be in the future. An interesting speech on this idea is given here.

[bobman0330]

[ QUOTE ]
Unless I'm missing something here, having a mortgagor default on his or her note seems like a pretty sweet deal for the mortgagee. The mortgagee collects payments and interest, and then when there is a default, it can foreclose on the house and sell it for, in most cases, more than its value when the note was made. Anyone in the industry have any insight into just how good of a deal this is for the mortgagees?

[/ QUOTE ]

I'm not positive, but I believe the bank has to auction off the property and refund any amount over the value of the debt to the borrower. I think what usually happens is that the bank wins the auction and then resells the property, but if the home value is substantially larger than the amount owed, then the borrower will get some money back. (Which makes sense... what sort of idiot would get foreclosed on when his property is worth more than what he owes on the mortgage?)

[Banks2334]

[ QUOTE ]


I'm not positive, but I believe the bank has to auction off the property and refund any amount over the value of the debt to the borrower.

[/ QUOTE ]
You would be positively wrong.

[bobman0330]

[ QUOTE ]
[ QUOTE ]


I'm not positive, but I believe the bank has to auction off the property and refund any amount over the value of the debt to the borrower.

[/ QUOTE ]
You would be positively wrong.

[/ QUOTE ]

http://en.wikipedia.org/wiki/Foreclosure :

[ QUOTE ]
In the United States, there are two types of foreclosure in most common law states. Using a "deed in lieu of foreclosure," or "strict foreclosure", the bank claims the title and possession of the property back in full satisfaction of a debt, usually on contract. In the proceeding simply known as foreclosure (or, perhaps, distinguished as "judicial foreclosure"), the property is exposed to auction by the county sheriff or some other officer of the court. Many states require this latter sort of proceeding in some or all cases of foreclosure, in order to protect any equity the debtor may have in the property, in case the value of the debt being foreclosed on is substantially less than the market value of the immovable property (this also discourages strategic foreclosure). In this foreclosure, the sheriff then issues a deed to the winning bidder at auction. Banks and other institutional lenders typically bid in the amount of the owed debt at the sale, and if no other buyers step forward the lender receives title to the immovable property in return.

[/ QUOTE ]

[img]/images/graemlins/confused.gif[/img]

[AzDesertRat]

87% of subprime borrowers pay their bills on time--the 13% percent who don't are the ones getting bailed out--why the [censored] has our government becoming a big insurance company during a republican administration? First 9/11, then the airline bailout, the pension bailout and now this among others.

what gives?


(probably the lack of responsibility displayed by republican leadership, but we won't go there)