Friday, August 10, 2007

Mortgage Meltdown...

It seems to me that it's pretty obvious that foreclosures are not in the best interest of the Banks, or the homeowners going into foreclosure.

The way that seems most likely that they will "solve" this problem will be for the Fed to lower rates, or otherwise bail out the holders of bad debt.

On the other hand, as far as mortgages that are going to go into foreclosure we're not done yet, as mortgage rate increases have yet to hit many people, and right now even mortgage-holders with the best credit are unable to refinance out of a suddenly bad deal. Support for the holders of future bad debt without looking at the other end of the equation, the homeowners, seems to be a losing proposition.

Is there any way that some remedy could be had that would help to minimize these future forclosures without causing more harm than good?

Say you have a homeowner. They have a job, and are paying their mortgage. Some time in the next year or so, their rate is going to jump, and they can not now refinance as they'd planned. Nobody wins if they foreclose in this market, and the bank was hoping to make a ton of cash off of that increasing interest rate. Could something be done to, say, modify that person's loan and find a new balance between profit to the lender vs affordability to the customer without need for refinance?

Thinking about it, there's such a web of contracts involved, and complexities like mortgages being broken up into bits, packaged, and sold around the world, that I don't know that any such thing could be done... so that basically leaves a vast Government bailout to the same people that created much of the problem in the first place by creating a culture drunk on risk.

Am I totally naive? :)

X-Posted to LJ

Addition: It seems to me that the Government should team up with the lenders and set up a program by which borrowers are supported in refinancing out of bad mortgage agreements, so that they can lower their monthly payments and stabilize their interest rates, the cost of which is shared by both the bank and the taxpayer. It has to be fair, though, and so the lenders should take the most significant part of the loss (loss as compared to original projected profit off of the original predatory loan, anyway), as they're the ones that used poor judgement in the first place. This would be a bailout, but one in which the needs of the "little guy," the borrower was well considered. Nobody benefits from foreclosures.

Of course, the chance of GW supporting such a move is approximately nill, but that's another story.

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