dagblog - Comments for "The fastest stimulus and the best long term stimulus: pass em now!"

Oleeb - what price will the

MiddleClassBill — Sun, 07 Dec 2008 16:31:31 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

Oleeb - what price will the government buy my mortgage from Citibank for? It's a $500,000 mortgage and I paid $500,000 for my house last year. Will the government buy the house from Citi at the market price? Or at a haircut such that Citi loses money?

There could be a holiday, as

oleeb — Sat, 06 Dec 2008 10:45:24 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

There could be a holiday, as it were, on payments if necessary in certain cases but for most people the combination of the interest rates and inflated value of their homes when purchased has been a toxic mix. Refinancing pays off the old mortgage and new terms are set. There are several options on how to handle any difference between the new and old mortgages. First, the government could pay the difference which is a much cmaller sum than their current preffered approach of simply assuming the entire bad debt. Second, they could make the bank eat it as a consequence of their knowlingly making loans that could not be paid. Or third, a combination of these approaches is possible as well as other remedies for handling any discrepancy. Many people who are eeking by right now will not be able to afford their mortgage payments if anything goes wrong, one spouse loses their job or that sort of thing. By lowering their payments through refi's that pressure is lessened, but we also could save millions from actually going under. At 10,000 foreclosures daily with no end in sight that means millions of people are looking at dire straights in the next year if something doesn't change. For those who no longer have an income this would not be a panacea. The benefit of this approach is keeping millions in the homes they live in, stabilizing the market, and giving our people some basis for recovery that also makes money for the government since all the money is repaid with interest.

But bluebell, most people

oleeb — Sat, 06 Dec 2008 10:38:18 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

But bluebell, most people aren't going to have their mortgage paid off in a few years. Most people got their mortgages in the past 5-10 years. It isn't about giving people freebies. It's about stabilizing the market for homes (where most American's only tangible wealth lies). By adopting a policy such as this all homeowners benefit when the market stabilizes and the value of your house stops dropping for one thing and over time, the value of the property will grow. If you are comfortable with the terms of your mortgage and paying it off you wouldn't be forced to refi.

It's too bad the government

bluebell — Sat, 06 Dec 2008 04:04:42 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

It's too bad the government didn't react in a timely fashion to the mortgage crisis but I wonder if the economic disaster hasn't moved in so many additional directions that your solution is too much for one problem and too little for others.

My mortgage will be paid off in just a few years but what I really need now is a car. Can we have a choice here? Can the government buy me a car instead? I don't want more long term debt.

How are the banks' interests

WorkinJoe — Sat, 06 Dec 2008 03:59:07 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

How are the banks' interests satisfied by government-sponsored lower rate mortgages? Homeowner Jones owes $250,000 for his home that is now worth $180,000. Does the government give him a low interest rate on a $250,000 loan so Jones can pay off the bank? What would motivate Jones to go $70,000 in the hole to the government, rather than have the bank eat his lunch?

On the other hand, if the government only offers Jones a low interest loan for the current $180,000 value of his house, and Jones can't pay off the bank, what keeps the bank from putting a lien on Jones or starting foreclosure on the unpaid bank mortgage? Now Jones has legal expenses up the kazoo fighting the lien. Why would Jones take this deal either?

The government needs to facilitate discussion between Jones and his bank for the bank to refinance first. Somehow the loss of home value has to be addressed, and the govenment entering as a third party will not fully address this loss and will likely lead to great legal costs.

I am for the public works aspect of the post. Enjoyed the post.

oleeb, you are right to

SleepinJeezus — Sat, 06 Dec 2008 02:34:57 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

oleeb, you are right to remind me of the ARM's that are out there that will strongly affect the homebuyer's ability to pay. In this instance, it makes sense to rework the mortgage to a fixed, more affordable interest rate.

During the Depression, as I understand it, the problem was not that there was a home valuation bubble that burst. The mortgage assistance that was offered at that time was essentially designed to:

1.) maintain homeowner's control of the asset until such time they could afford to resume payment on their own.

2.) inject large amounts of capital into the economy.

With this program, we are asking many homeowners to continue making payments on an asset that will forever be valued at far less than the amount of the mortgage. My question (I don't know!) regards the dynamic here as it plays out. Does not the sensible homeowner too often find that it STILL makes sense to cut his losses and abandon this home/investment? I don't understand how this proposed mortgage adjustment has great impact on foreclosures.

It seems you are otherwise promoting something like continuance of the principal-free mortgage, wherein the home "owner" simply rents the home. This will perhaps work for so long as his payment doesn't surpass rent that might be paid elsewhere. There's no correlation here, however, and therefore no real basis upon which to build an effective policy.

Ultimately, it appears you are arguing to inject major $$ into the economy by means of helping the middle class pay their bills and thus protect themselves from foreclosure/bankruptcy until such time the economy recovers and they can again be secure in their jobs and income. To direct this solely and specifically at the mortgage payment seems to be unnecessarily limited in scope.

Finally, as a father whose son (34 years old; 13 years at his job) was just laid off without good prospect of finding any other family-supporting employment anytime soon, I am well aware of just how dire is the circumstance in which we find ourselves.

Half a million people lost

oleeb — Sat, 06 Dec 2008 01:55:56 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

Half a million people lost their jobs LAST MONTH for starters so many families that have always made their payments in the past are going to find it increasingly difficult to do. Many of them are not going to be able to find full time work. Millions of people also have mortgages that will be adjusting in the coming year but with much less equity than when they took out their mortgage so they can't refi again and may have trouble or find it impossible to sustain the adjusted mortgage rate on a house that is worth less today than when they bought. Furthermore, selling isn't much of an option since it's unlikely they will find a buyer for their home right now or anytime soon. We cannot afford to allow 10,000 foreclosures daily to continue. This would put an end to the vast majority of these foreclosures. This action would directly benefit mortgage holders of course, but everyone in the nation would benefit as well because of the many residual benefits of this action. Methinks even here at TPM many people do not recognize the magnitude and immediacy of the ongoing catastrophe that is facing larger and larger numbers of our people daily.

You're glomming on to a minor

oleeb — Sat, 06 Dec 2008 01:45:59 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

You're glomming on to a minor technicality here Ellen, but if you want to play that game (as you seem want to do) then I should have written "every homeowner who has a mortgage."

It isn't "taking over"

oleeb — Sat, 06 Dec 2008 01:44:42 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

It isn't "taking over" mortgages that is being proposed. It is refinancing them just as was done during the New Deal. Various forms of this idea (albeit in far too restricted forms) are being floated by numerous actors in government including the head of the FDIC. And in doing this, the government MAKES money! It isn't a loss. It stops losses from mounting.

Values too, can be adjusted

oleeb — Sat, 06 Dec 2008 01:41:46 +0000

In reply to The fastest stimulus and the best long term stimulus: pass em now!

Values too, can be adjusted so they reflect reality instead of the artificially high prices of the bubble. The government can do this and did do this previously during the New Deal so it isn't as though it is an untested idea. If there is a difference between the refi and the articially inflated bubble price there are remedies for that too.

You are correct this pumps huge amounts of money into the economy and that's a good thing. It is also a very economical way of addressing the problems in the mortgage industry as opposed to borrowing billions to buy bad mortgages that will never return a penny. It relieves a great deal of economic pressure on millions of families. It also gives a break to the very people who will have to be paying back all the free money the government is giving out to the rich and powerful.

Seems only fair to me that if we're deficit financing the various business bailouts to the tune of nearly a trillion dollars, we can afford to loan ourselves the money to achieve this goal which will stop the bleeding that continues in the mortgage industry (10,000 forclosures per day and nothing on the horizon can be ssen that would slow that number) and stabilize the economy. All those bad mortgages and foreclosures is what keeps the financial institutions spooked and hanging on to the all the cash Uncle Sam is giving them.

The benefits of this approach are clear, extremely widespread and beneficial in every respect. As a practical matter there is no reason not to adopt this approach or something very like it and quickly before everything gets much, much worse as it will with continued inaction to help our citizens.