Hillary's modest proposal

[Fash]

http://money.cnn.com/2008/01/16/comment ... 2008011617

Hillary's modest proposal (to wreck the housing market)
The current mortgage mess requires a more intelligent approach than the buzzsaw plan floated by Hillary Clinton.
By Jon Birger, senior writer

(Fortune) -- Hillary Clinton is no dummy. Even her detractors know that. And yet in last night's Democratic presidential debate in Nevada, Clinton floated what is perhaps the dumbest solution to the current mortgage mess I've heard from a top presidential contender.

"I have a plan - a moratorium on foreclosures for 90 days [and] freezing interest rates for five years, which I think we should do immediately," Clinton announced at what was the last Democratic debate before the Nevada Caucus on Jan. 19. A 90-day moratorium on foreclosures would throw a lifeline to some deserving homeowners, though I suspect it would only delay the inevitable for most. That's not my beef.

Where Clinton goes awry is her proposal to freeze mortgage rates for five years, which is essentially a much broader version of a deal President Bush recently hammered out with lenders to assist some subprime borrowers. If Clinton's only goal were to bail out homeowners facing steep rate resets on adjustable mortgages, her plan would work just fine.

For everyone else though, such a freeze would be disastrous. Interest rates on new mortgages would skyrocket - perhaps past 8 percent, as the mutual funds, pension funds and other investors who typically provide capital to the mortgage market shift their money into other investments where the government isn't impairing returns. With higher mortgage rates eroding buying power, the downward pressure on home prices would only increase. Lower home prices would lead to even more defaults, as more folks who'd lost the equity in their homes choose to walk away from their mortgages.

"It certainly would not speed the recovery of the housing market," says Doug Duncan, chief economist of the Mortgage Bankers Association. "The problem now is that investors are already worried about what the risks are, and (a rate freeze) would only widen risk premiums more."

Then there's the long-term impact such a bailout would have on behavior. While Clinton's plan would no doubt save some legitimate victims who were duped into taking out bad loans, she'd also be saving the flippers and speculators who knew the risks of low teaser rate mortgages but figured (wrongly) that they could always sell their house for a profit if the reset mortgage rate proved unaffordable. Bailing out these folks now would only encourage them to take even bigger risks down the line.

To be fair, John Edwards, has endorsed an even broader rate freeze - one lasting seven years - and he also wants to give homeowners the right to halt foreclosures if lenders haven't made a "good faith" effort (whatever that means) to rework the loan. Edwards, however, seems a longshot to win the White House.

Barack Obama, meanwhile, wants to require better disclosure by lenders (of low teaser rates, for example) and, like Clinton and Edwards, proposes a government fund to help borrowers transition from unaffordable adjustable mortgages to lower-rate fixed ones.

When it comes to a rate freeze, Duncan and the Mortgage Bankers Association aren't exactly disinterested parties, of course. A freeze would directly impact the bottom line of MBA members. However, when I discussed Clinton's plan with a more sympathetic economist - one who'd worked for Bill Clinton - his reaction was much like mine and Duncan's. "This is an ugly correction, but it's a necessary one," says Jared Bernstein, senior economist with the liberal-leaning Economic Policy Institute. "This kind of an idea is a little bit of untying your shoes with a buzz-saw."

I'm no financial expert, so I can't add anything to this... Doesn't sound good, though. Is this writer on his own and biased against Clinton, or does what he and his sources say ring true?

[Leonaerd]

His argument is pretty sensible. Freezing the rates fucks new homeowners in the ass.

[Boogahz]

aw shit, I just lost about 2 pages worth of a response by hitting something on the keyboard...will try to sum it up in less:

I think that the "idea" behind Clinton's plan is good, but I do agree that the plan would hurt the market more than it would help and in ways other than mentioned in the story (unless I missed them). The idea of freezing rates would not help those people who already stand no chance of digging out of the hole they are in. It might help those people who have an ARM now to reconsider moving it, but if the rates will not change for them for 5 years, why move now? Edwards' plan sounds even worse in respect to the "good faith" attempt to save it. If a company will only write you a loan with particular terms because your risk would not fit into their financials otherwise, how are they going to be affected by offering higher grade paper to you? They are going to potentially lose a lot more money and then you have other problems. There are reasons why refinancing really isn't done with the company you are already with.

I used to work in the subprime servicing field in collections, pre-foreclosure, and then foreclosure. I felt bad for most of the people I worked with (as in mortgagors I helped, not referring to co-workers) to come up with payment plans or other options. They really had no clue what they got into, and, in many cases, they HAD been told what they were getting into when they bought it. People tend to assume that their customers/contacts have the same knowledge that they have when selling something to them. You don't want to go into the interaction with a feeling that you are talking to an idiot, but you cannot go into that interaction with the assumption that the customer will fully comprehend what you are going to discuss even half of the time. I would think that they majority of people would only go through the mortgage loan process a couple times in their lifetime. Why would they know the ins-and-outs of the loan process? It is the responsibility, in my opinion, of the lender and loan officer to educate the potential customer as to what they are getting into. That said, I feel that it is generally the lender's fault for the current crisis, but I feel that it has been ramping up to get to this point for over a decade.

That sums up my original post, I think. I would also like to add that I have no sympathy for house "flippers."

[Siji]

Just over a year ago when I was buying my house, every single lender I spoke with (except the one I ended up using at Bank of America) tried to convince me to go with either interest only mortgages or sub-prime variable mortgages by telling me how great they were and how much better off I'd be with them. I can't imagine the fear, pain and sadness that people that were suckered into these things may be living with. I don't have a solution, but Clinton's offered solution certainly doesn't sound like it.

[Midnyte_Ragebringer]

Just over a year ago when I was buying my house, every single lender I spoke with (except the one I ended up using at Bank of America) tried to convince me to go with either interest only mortgages or sub-prime variable mortgages by telling me how great they were and how much better off I'd be with them. I can't imagine the fear, pain and sadness that people that were suckered into these things may be living with. I don't have a solution, but Clinton's offered solution certainly doesn't sound like it.

Sucked in? Nah. The folks who ended up in Interest Only and No Document loans were the folks who couldn't qualify under the traditional (Principal and Interest/ Full Documented) format. Those people shouldn't have been buying homes in the first place. They knew that Principal and Interest payment was more than they could afford, yet they barged ahead anyway and took the Interest Only and No Document loan, with the lower payment that they could qualify for. Most of them couldn't afford that payment either, but the lending institutions were allowing these to go through. There is only about 4 main buyers of bulk loans. They are the ones to blame. They were buying these low graded shit loans. They made the rest of us adapt and lend to these people. The intelligent buyers over those 3-4 years didn't take those Interest Only/No Doc loans and they are still fine today. The ignorant, I must have a $450,000 home when I only make $80,000 a year assholes are the ones who are renting now and have had their homes forclosed on.

A No Document loan is one where we, the loan officer, doesn't look at their debt vs. income ratio (how much money they bring in a month versus how much money will be going out). It is generally acceptable if this ratios is under 45%.

[Noysyrump]

Why exactly would lenders give out these loans in the first place... Oh I know... because the housing prices where going up (very fast), and if they loaned money to someone who couldnt keep up with payments they could then forclose (keeping the money that was payed) and reselling the house with a nice tidy little profit. Very devious behavior. But it should be up to the consumer to educate themselves BEFORE making such a HUGE LIFE CHANGING purchase, not the gov't.

Good thing is the housing prices dropped and now the forclosers are gettin it stuck right up their ass for tryin this...

[Midnyte_Ragebringer]

But it should be up to the consumer to educate themselves BEFORE making such a HUGE LIFE CHANGING purchase, not the gov't.

Well said. Accountability is a lost virtue.

[Boogahz]

Why exactly would lenders give out these loans in the first place... Oh I know... because the housing prices where going up (very fast), and if they loaned money to someone who couldnt keep up with payments they could then forclose (keeping the money that was payed) and reselling the house with a nice tidy little profit. Very devious behavior. But it should be up to the consumer to educate themselves BEFORE making such a HUGE LIFE CHANGING purchase, not the gov't.

Good thing is the housing prices dropped and now the forclosers are gettin it stuck right up their ass for tryin this...

There is very little profit in what you are saying. We did not want to foreclose on properties, because it wasn't as cost effective as you make it seem.

[Fairweather Pure]

The folks who ended up in Interest Only and No Document loans were the folks who couldn't qualify under the traditional (Principal and Interest/ Full Documented) format. Those people shouldn't have been buying homes in the first place.

So why have a system that enables these people?

[Boogahz]

The folks who ended up in Interest Only and No Document loans were the folks who couldn't qualify under the traditional (Principal and Interest/ Full Documented) format. Those people shouldn't have been buying homes in the first place.

So why have a system that enables these people?

Greed

[Midnyte_Ragebringer]

The folks who ended up in Interest Only and No Document loans were the folks who couldn't qualify under the traditional (Principal and Interest/ Full Documented) format. Those people shouldn't have been buying homes in the first place.

So why have a system that enables these people?

Greed

Nods. I hated these loans from day one. It made me sick having to put people in loans I knew they couldn't handle. Problem is, if I didn't, someone else was right there waiting to do it.

[Fairweather Pure]

So who is at fault? A person that cannot afford the loan or the people that convice them they can and then provide the means only to fuck them later? Accountability is a lost virtue indeed. But it applies to both sides of the game.

It's a fine line IMO. There are a shitload of snake oil salesmen out there in the loan industry just waiting to take advantage of people. I trust loan officers about as much as police officers and politicians.

[Midnyte_Ragebringer]

You cannot convince an educated person they can afford a $3000 a month payment when they make only $4500 a month gross. The system is to blame for allowing these types of loan to exist for people who should not have access to them. The borrowers themselves are to blame for being ignorant, illogical and blind to basic truth and mathmatical skills. America is to blame for continually bailing out everyone who gets in over their head. What is to fear for these people who have nothing to lose? If they can't pay their mortgage they'll take the credit hit and go back to where they came from. They didn't have good credit or a concern for good credit in the first place. What's to lose?

[Tyek]

We refinanced the house once to build an addition. The person who we discussed the loan with was almost obsessive with their desire to push me into a low interest ARM. They pushed the fact it was only 1-2%. Even if it went up 3% I would still be at what the fixed rate would be and then I could refinance. Etc.

The pressure was brutal and we moved onto another lender, but unfortunately the general population is probably not as educated as many on this board and I could see couples easily falling for this. For most people a home loan is the biggest purchase of their life. I figured that was the case and researched. I refused the low interest loans and went with a 5.75% 30 year loan because I like knowing what my payment range will be, but a lot of people buying homes were young, excited and may not have understood what they were agreeing too.

I think the buyer is at fault, but the industry itself bears serious responsibility and I cannot understand how they did not see this coming. I feel bad for buyers tricked into buying something they could not afford, but I do not feel bad for lenders who knew this was bad business and did it anyway. People see a home and they see their future, they get clouded vision and outspend their means. How could experienced lenders not see bad money for what it is?

[Boogahz]

Especially when the buyer may only go through the process one time in their ENTIRE life.

[masteen]

How could experienced lenders not see bad money for what it is?

The only thing I can figure is that the lenders made the same mistake a lot of IT companies did during the tech bubble of the 90's: they assumed the abnormal growth of the market could continue forever.

A lot of housing markets were undervalued and people found ways to find and resell these properties for closer to real market value. If you've ever spent a sleepless night flipping channels, you've seen the infomercials talking about some guys amazing business strategy to buy houses with no money down, ect. Get enough people doing this and pretty soon there are no undervalued houses left. It's like musical chairs, only you're left holding a 7 figure, double digit interest rate debt at the end. FUN!

These aren't poor folks who got suckered in; these are greedy fucks who tried to exploit the system, and got burnt. Fuck 'em, and let the market sort 'em out.

[Winnow]

Stupid fucks in California (eventually spreading to other desirable states to live in) kept buying homes even though they were too expensive and too many people had moved there. Instead of artificially supporting them by giving loans they can't afford, cut them off and they'd eventually move back to the Midwest, Montana, rural Texas, etc. were houses are cheap.

It's the same principle as starving people in Africa. If the land can't support them because they keep breeding, don't fucking give them food artificially, let them die off and things balance out. After they die off, move back in and teach the remaining people some skills and educate their young to do call center work with those underpowered 100.00 toy laptops that are going to solve the worlds problems.

I'm thinking about joining the Peace Corps.

[Aabidano]

Why exactly would lenders give out these loans in the first place... Oh I know... because the housing prices where going up (very fast), and if they loaned money to someone who couldnt keep up with payments they could then forclose (keeping the money that was payed) and reselling the house with a nice tidy little profit.

I thought that in foreclosure essentially all the lender can get was their investment + costs back to prevent this sort of scheme? That was the case in the one foreclosure I've dealt with, as a buyer. Profits in excess of expenses go back to the homeowner. Expenses in excess of profits are the responsibility of the homeowner as well.

The draw for this as folks have said is greedy lenders and unrealistic consumers. Like folks I work (note the tense) with who kept their entire retirement in tech socks and aren't retired now because the cash evaporated. The people who gave the loans should be fired for taking an unacceptable risk with the company's money.

I was pushed hard when we bought to get a house costing double++ of the one we bought, which would have required creative financing to go through. No thanks.

[maglin]

I first ventured into this market right at 11 years ago and went with an ARM because at the time it was a whopping 3.5% than the prime rate, was fixed for the first 5 years and could only go up a maximum of .5% a year there after. After running the numbers it would have taken 9 years of worst case increases for the money saved on the ARM to to make up for not having the fixed rate.

Fast forward 7 years, they had incresed my mortgage rate the maxium amount three times (every time they could) and the prime rate had dropped to be what my orginal arm was, being no dummy I re-financed at the cost of the 1% of the orginal loan to a fixed rate that was the same as what my arm was origional, only I spent about another $1500 in so doing, it also allowed me (due to equity) to drop the requirement of the payment insurance portion of the loan saving me $50 bucks every payment. All in all, I think having the ARM saved me on the order of $20,000 in interest payments, but it cost me 7 years on the back end of mortgage payments as I refied back at a 30 year starting point.

I however I believe was lucky as I was early in the cycle and found one that was fixed for 5 years coupled with the prime rate dropping instead of being flat.

[Aabidano]

...kept their entire retirement in tech socks

Stocks too

[Midnyte_Ragebringer]

...kept their entire retirement in tech socks

Stocks too

Yeah. That way the money doesn't smell vinegarey.

[Winnow]

Why Hillary Clinton Should Withdraw From the Race Today

http://duggmirror.com/2008_us_elections ... ace_Today/

digg mirror as the site was too busy

[Fairweather Pure]

McCain never should've tried to run in the first place. What a complete waste of time and resources.

[Winnow]

McCain never should've tried to run in the first place. What a complete waste of time and resources.

McCain will be our next president with Hillary if Hillary is what the Democrats offer up as an opponent. He will still probably be president if Obama runs but it will be a race.

Heard a sound bite from Obama in South Carolina today that went something like:

"The Clintons couldn't say enough good things about me when I was 20 points down in the polls. Now that the tables have turned, the lies come out."

[Boogahz]

McCain will be our next president with Hillary if Hillary is what the Democrats offer up as an opponent.

[Noysyrump]

McCain will be our next president with Hillary if Hillary is what the Democrats offer up as an opponent.

K I wasnt the only one...

[Winnow]

McCain is so liberal friendly that he might grab Hillary as his running mate if she loses to Obama!

[Tyek]

Seriously. Anyone who chooses Hillary as their VP will be dead before their second year in office. If McCain actually asked her, he would have a "heart Attack". Nothing is going to stop her from being President, especially if she is THAT close.

[Noysyrump]

Seriously. Anyone who chooses Hillary as their VP will be dead before their second year in office. If McCain actually asked her, he would have a "heart Attack". Nothing is going to stop her from being President, especially if she is THAT close.

ROFL I was thinkin "who would dare kill the pres..." Then I realized... "Oh yeh, she would"

[Sueven]

I'm thinking about joining the Peace Corps.

Please do!