Proceeds from the ads below will be donated to the
Bob Wuesthoff scholarship fund.
Tuesday, October 09, 2007 |
OT: Saying "Yes" To Cram Downs
I spent a few moments discussing the subprime market mess in the context of the Countrywide collapse. Recently, it's come to my attention that one of my favorite non-baseball blogs, Calculated Risk, ran a piece lampooning the Mortgage Bankers Association for whining about a proposed piece of legislation, H.R. 3609. The short reason why is that the mortgage bankers, freed from the constraints of actually loaning their own money (as bankers used to do in the quaint old days), started looking at the origination fees, not interest, as the golden fleece. As a result, they cooked up all kinds of crazy valuations and justifications for real estate prices. But now, with bankruptcies littering the landscape and a ton of unsold inventory on the market (12% of Orange County unsold housing now qualifies as "distressed"), Congress is considering a radical (to the real estate industry) but wholly sensible punishment: allowing bankruptcy court judges to write down property values to what the market will bear, or as it's called in the industry, "cram downs".
The bankers are understandably furious at the idea of mark-to-market being the basis of bankruptcy proceedings; after all, it's their necks in the guillotines. Listen to this:
“Giving judges free rein to rewrite the terms of a mortgage would further destabilize the mortgage backed securities market and will exacerbate the serious credit crunch that is currently hindering the ability of thousands of Americans to get an affordable mortgage,” said Kurt Pfotenhauer, Senior Vice President for Government Affairs and Public Policy for MBA. “The current legislation gives no guidance as to the proper parameters for judges to modify existing loan contracts.”Hint: Americans couldn't afford those houses to begin with. Flooding the market with cheap money didn't help. Now the party's over, and they want the cops to pour them another drink? Puh-leeze.
Comments:
The whole this a a sham.
Stupid people with minimal talent except an ability to misstate incomes and property values making a ton of money on loans for which they do minimal work for to people who had no business taking out said loan for houses they had no way of affording. Now everyone wants to be bailed out.
Whatever happened to personal responsibility in this country? Whenever I read all these sympathetic stories in the paper of people who didn't understand that an ARM was just that, or thought it was great that they could still get a jumbo loan despite having 50K in credit card debt and no stated income- and now boo hoo they are in so much debt and don't know what to do and how will they afford the payment on their new car too...
I just shake my head. It seems like it is now the accepted American way to try to live as far above your means as possible, and then hope for someone to bail you out when the going gets tough.
Stupid people with minimal talent except an ability to misstate incomes and property values making a ton of money on loans for which they do minimal work for to people who had no business taking out said loan for houses they had no way of affording. Now everyone wants to be bailed out.
Whatever happened to personal responsibility in this country? Whenever I read all these sympathetic stories in the paper of people who didn't understand that an ARM was just that, or thought it was great that they could still get a jumbo loan despite having 50K in credit card debt and no stated income- and now boo hoo they are in so much debt and don't know what to do and how will they afford the payment on their new car too...
I just shake my head. It seems like it is now the accepted American way to try to live as far above your means as possible, and then hope for someone to bail you out when the going gets tough.
kdoc, the reason people do that is that the government has shown a willingness to bail people out when the going gets tough. This is especially true if you are in the middle of a "national emergency" like an earthquake, hurricane, flood, or if enough people just happen to take on mortgages they can't afford.
Josh -- see also, moral hazard. In this case, who is being bailed out? Mostly, it's the mortgage-holders, i.e., guys with money.
It's sort of interesting, I think, that it was just a couple of years ago that the bankruptcy laws got tougher. At the time I thought it was good (and I haven't really changed my mind), because it was being used as a way for people to bail themselves out of debt. I figured that at least on a first iteration, that people would be less likely to go into severe debt (as now it wouldn't be so easy to get out of it and the companies can really try to collect). Unfortunately, as is always the case when you change things, I didn't really foresee (even though it might have been obvious) that it meant that companies were probably more willing to hand out loans to people that couldn't afford them, because those people couldn't just take their debts into bankruptcy court. It turns out that people just tend to be stupid and a lot of companies appear to enjoy preying on that stupidity. Shocking, I know.
As far as the companies being bailed out, first of all, no one should (they chose to enter into these contracts without properly checking out the other side). If anyone lied on these applications, they should immediately forego any bailout, and that includes the lenders and the lendees.
As far as the companies being bailed out, first of all, no one should (they chose to enter into these contracts without properly checking out the other side). If anyone lied on these applications, they should immediately forego any bailout, and that includes the lenders and the lendees.
Newer› ‹Older
 |
Post a Comment
Note: Only a member of this blog may post a comment.