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This is an interesting talk on how to target a major problem in the current US Financial Crisis.

Economist - Atif Mian showed one of the main problems in the current crisis is because nearly 31.4% of Mortgage Holders are under water by the tune of $1.2 Trillion Dollars in total.

He showed a direct coorelation between Housing prices drop and consumption. The effect is not uniform around the country.

You can see a marked difference between High leverage counties vs. Low leverage counties. Most of the problems are in High leverage counties.

His recommendation is finding some method to write down principal for Under-water Mortgages. Unfortunately, we know in our current political environment this will never happen.

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Comment Preferences

  •  Here is my question? (2+ / 0-)

    If we write down principal mortgages, would the participants be willing to forgo a certain percentage of the profit if housing prices go back up.

    You wouldn't owe but you wouldn't profit from another housing bubble unless you stayed in your house for x amount years.

    So in year 1...you get 0 percent of profit.

    in year 5...you get 10 percent

    in year 10 you get 50 percent

    etc....

    The banks would get nothing...until you reach whole.

    •  They should forgo profit (0+ / 0-)

      If we were to do principal write downs the home owner should forgo profit period, regardless of how long they stay in the house.

      Give them back whatever they ended up paying principal wise on the mortgage on the house and not a nickle more.

      There will be outrage in this country if we ever do a nationwide principal write down plan, so it needs to be made clear to everyone else that these people who are recipients can never profit on the house no matter how long they were there or stay there in the future.

      I can't quite think of any other way to quell the inevitable anger over a needed program like this that will inevitably be very unpopular.

      •  This would not work because under this rule the (2+ / 0-)
        Recommended by:
        leonard145b, radical simplicity

        homowner would never have equity in the house, and the homeowner without equity or any chance at it has less prospect of keeping it up or staying in it. The bank is whole when it gets its principal and interest and no more.

        •  Forgo Profits (1+ / 0-)
          Recommended by:
          radical simplicity

          The point this guy was trying to make is there is an unbalance between creditors and debtors to the bank's favor. On any right down this would rebalance the relationship.

          The banks would have to recognize their asset at its real value which would hurt. They would have to increase their capital requirement having less money to lend and profits.

          There is a real danger...

          Tea Party... Occupy Wall Street and most of the rest of us are really frustrated that no one or no institution paid the price for this Housing Depression. I hate it!

          Fairness is the ethic all of us want, BUT we have a huge problem and moralizing is not going to solve the problem. His solution of writing down principal would go a long way. Even if we foreclosed on every mortgage who was behind would not solve the problem. 90% of mortgages under-water are current on payments.

      •  forgo profits (this is a copy...) (0+ / 0-)

        The point this guy was trying to make is there is an unbalance between creditors and debtors to the bank's favor. On any right down this would rebalance the relationship.

        The banks would have to recognize their asset at its real value which would hurt. They would have to increase their capital requirement having less money to lend and profits.

        There is a real danger...

        Tea Party... Occupy Wall Street and most of the rest of us are really frustrated that no one or no institution paid the price for this Housing Depression. I hate it!

        Fairness is the ethic all of us want, BUT we have a huge problem and moralizing is not going to solve the problem. His solution of writing down principal would go a long way. Even if we foreclosed on every mortgage who was behind would not solve the problem. 90% of mortgages under-water are current on payments.

  •  Writedowns Are In: So Called Mortgage Settlement: (0+ / 0-)
    Federal authorities, including Department of Housing and Urban Development Secretary Shaun Donovan, helped bring the deal together, but weren't able to persuade Edward DeMarco, acting director of the FHFA, which oversees Fannie Mae and Freddie Mac, to go along, officials involved in the deal say. In a press conference on Thursday, Donovan said that the Obama administration is considering taking "additional steps to make mortgage principal reductions available to Fannie and Freddie homeowners," according to the Hill.

    Last week, Massachusetts Attorney General Martha Coakley wrote in a letter to DeMarco that she was concerned about Fannie Mae and Freddie Mac's "unwillingness to increase the availability of federal loan modification programs, including principal forgiveness."

    The mortgage giants say they are avoiding principal reductions to save taxpayers money and are instead taking other remedies, including modifying home loans, to offer relief to troubled borrowers.  
    Source: Huffingtonpost

    It kills me how these executives keep getting away with the ruse that the people they refuse to help (people underwater in their mortgages), are not taxpayers; while bending over backwards to let the banks and lenders get away with massive fraud and wrongdoing...

    Emphasis mine.

    •  I'm a taxpayer that didn't get a mortgage (6+ / 0-)
      Recommended by:
      valion, coffeetalk, FG, Sa650701, VClib, shann

      I could neither afford nor understand.  So the set of taxpayers and the set of underwater homeowners are not the same.

      •  Well It's Not Because People Are Underwater On (1+ / 0-)
        Recommended by:
        radical simplicity

        their mortgages, that you don't have a mortgage.  What did homeowners do to cause them to be underwater, or cause you not to be able to afford a mortgage?

        The other point is, foreclosures, decrease tax revenue, vital services, teachers, police, and bring all kinds of other issues that destroy, people, families, and communities.  

    •  You underestimate the anger (7+ / 0-)

      there will be of people who have spent years and years saving for a down payment, and/or paying down their mortgages, so that they now have some equity in their house if they also have to pay for others to have thousands of dollars of their mortgage principal forgiven so that they now have equity in their houses.  

      The government constitutionally cannot simply force mortgage lenders to alter contracts and give up rights (i.e., forgive principal) in those contracts.  Government can offer incentives for lenders to forgo rights they have under existing contracts, but they can't simply rewrite contracts.   If there's "principal forgiveness," taxpayers are going to pay for it, one way or the other.  

      •  I am one of the unhappy mortgage holders w/ equity (1+ / 0-)
        Recommended by:
        Chinton

        I am mad and frustrated. I hate it.

        The 30% of under-water loans are effecting the 70% who are above water by depressing housing prices. This also includes all the home owners who own their homw out right.

        This limping along waiting for foreclosures and supply of homes to equal demand will take years further depressing the economy.

        It may be tax payers will have to pay.

        That's why it will never happen.

        •  as someone getting into the (3+ / 0-)
          Recommended by:
          Sa650701, VClib, Sparhawk

          market for the first time, the depressed values are a godsend.  I hope they go lower.

          •  Homebuyers have no rights and neither (1+ / 0-)
            Recommended by:
            radical simplicity

            do renters.  The higher housing price is good mantra is the accepted dogma.

            It is only homeowners with any political power.

            Right now the government is the housing market.  Fannie and Freddie and the FHA are practically financing the whole housing market.  ANd then we have the Federal Reserve keeping rates too low.

            SO if you buy now, what happens when the government is forced to stop this nonsense.

            The price of the house will drop to its true market level.

      •  Your Own Words Perfectly Describe Underwater: (2+ / 0-)
        Recommended by:
        Jim P, radical simplicity

        Homeowners:

        there will be of people who have spent years and years saving for a down payment, and/or paying down their mortgages, so that they now have some equity in their house
         What part of the constitution prevents mortgages adjusted to reflect actual market prices?  That's all principal write-down, does.  
        •  the 5th amendment. (2+ / 0-)
          Recommended by:
          coffeetalk, nextstep

          a compulsory write down would be an unconstitutional taking.

          •  LOL, I Give Up, No, I Plead The Fifth, No Forget: (1+ / 0-)
            Recommended by:
            radical simplicity

            that ... Congress can simply include mortgage writedowns in Chapter 7 Bankruptcies like they used to do before Congress at the behest of George Bush, prohibited them with the exception of the summer homes, etc., of the 1%.  

            The only "unconstitutional taking" systematically occurring here, is government allowing banks to foreclose people out of their investments without proof of ownership while simultaneously claiming it's to "protect taxpayers."

            In fact, homeowners are actually taxpayers, paying for their own demise..

  •  I've never heard anything that seems to have any (1+ / 0-)
    Recommended by:
    radical simplicity

    real potential for meaningful principal reduction for clearly needy honeowners other than adding "mortgage cramdown" to the bankruptcy code. Trying to do it on a defacto basis as "short sales" for instance still makes families leave homes that they can and will eventually pay for. Keeping families stable, and keeping neighborhoods stable has enough social value to justify the the one approach that lenders say is, to them, the most extreme approach.

    But any "voluntary" option runs afoul of standard covenants in securitization instruments, basically leading to guaranteed failure.

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Sun Jun 03, 2012 at 02:59:48 PM PDT

  •  I read (can't remember where) that if all (1+ / 0-)
    Recommended by:
    radical simplicity

    mortgages were writeen down to mkt value and the house refinanced at current rates $71 bill would be injected into the economy.

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