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View Diary: Plan For Fed to Buy Bad Mortgages Gaining Steam (23 comments)

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  •  That is not how I read it. (0+ / 0-)

    But individual loans are much easier to value, making government purchases more practical, according to the plan’s proponents.

    RebelCapitalist - Financial Information for the Rest of Us.

    by dennisk on Thu Feb 12, 2009 at 02:07:19 PM PST

    [ Parent ]

    •  Problem is paying full value for bad mortgages (0+ / 0-)

      on houses that are not worth the face value of the mortgages. If a bank holds a mortgage that has defaulted and the house is "under water" because of declining house prices, what does the government pay for the mortgage? Face value? That would be a blatant ripoff of the taxpayer because the home could never be sold for what was paid for the mortgage - the bank would make out like a bandit because it just recovered full value on an asset that was worth maybe 60-70% of face value.

      A better idea is to just declare a foreclosure moratorium until all the endangered mortgages can be worked out through arbitration or courts - this would have to include write-downs of the principal amounts and conversion to more acceptable terms(no ARMs, 30-yr terms). This would make it possible for people to remain in their homes during the foreclosure holiday and to emerge with more reasonable mortgages. The banks would be allowed to temporarily carry these non-performing loans in a separate account until they are worked out. This benefits the banks by not forcing them to recognize the losses on their books, which should return confidence to the banking system.

      -6.38/-3.79::'A man is incapable of comprehending any argument that interferes with his revenues.' Descartes

      by skrymir on Thu Feb 12, 2009 at 02:38:15 PM PST

      [ Parent ]

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