* FDICs Bair: An IndyMac based model could prevent almost 1.5 mn avoidable foreclosures by 2009-end with loan modifications (reduce monthly mortgage payment by increasing maturity or cutting interest rate) with govt sharing loss on any default on modified mortgages * Paulson: efforts already underway (Hope Now, IndyMac program, GSEs) will do more to prevent foreclosures than purchasing MBSs under TARP. Can mitigate housing correction and foreclosures by increasing access to low-cost mortgage lending via Fannie&Freddie and bank capital program * Treasury and White House oppose FDIC proposal to prevent moral hazard to lenders and homeowners; might consider expanding the role of Dept. of Housing and Urban Development to deal with mortgage modification * Feldstein: shift mortgages with negative equity into full recourse loans (allowing the creditor to take other property or a fraction of wages) by writing down the outstanding loan balance. Govt can bridge the gap b/w max. write-down creditor would accept and min. write-down homeowner requires * Alpert: Mandatory program in which underwater homeowners turn over deeds of their homes to lenders in return for staying in their home for 5 yrs by paying prevailing market rents after which they would have the right to buy the home back at fair market value from the lender; lenders though will get less money from rents than mortgage payments; requires no govt. money * Hubbard, Mayer: Refinance primary mortgages into 30-year fixed-rate mortgages at 5.25% (lowest mortgage rate in past 30 yrs) capped at $75,000 and place them with Fannie & Freddie; but Investors and speculators wouldn't qualify; owners and servicers can split losses on refinancing mortgage with the new agency/govt taking an equity position * Zingales: Reduce face value of mortgage by same percentage as the home price decline in zip codes where home prices dropped over 20%; lender will receive 50% of home equity value when house is sold-->makes renegotiation less appealing to homeowners who don't need it and reduces cost of renegotiation for lenders without any cost to the govt
* Colander (via Thoma): combine mortgage assistance with fiscal stimulus i.e. mortgage foreclosure vouchers to households based on income in order to pay for mortgages or help home-buyers to purchase foreclosed homes or sell vouchers in a secondary market at 25% discount to those needing them * Roubini: HOLC kind of program to reduce face value of mortgages since large no. of households facing rising debt and falling asset values are insolvent and need debt relief to have more discretionary income to spend and prevent the financial crisis and recession from becoming more severe * Other proposals: Allow Fannie & Freddie to cut mortgage rates and insure inexpensive reworked loans through FHA; HOLC was created in 1930s to buy mortgages from banks at a discount with lenders cutting principal and refinancing them into lower face value and fixed rate mortgages * Need to directly target the housing sector which will otherwise push up default rates, exacerbate contraction in consumer spending and fall in home prices, pushing more households into negative equity, creating a vicious circle of default, foreclosure, excess home supply, decline in homes prices, MBSs values and bank losses; longer housing correction would lengthen and deepen the recession leading to a slow and sluggish U-shaped recovery * Home prices are expected to fall further by around 10-15% until 2010 pushing 40% of mortgages (5 mn) into negative equity (of over 30%); total negative equity is approx. $593 bn; Moody's: About 7.3 mn homeowners expected to default on mortgages during 2008-10 with 4.3 mn losing their homes * Home inventories, vacancies are still at record levels but home sales are at record lows (starts yet to fall below sales); home demand is constrained by high mortgage rates, tighter lending standards, falling wage and asset income, unemployment, incentive to wait to buy till price falls further
Nov 19, 2008
All hope rests with Mr. Obama. Let him review and evaluate the various proposals. Bush is as useless as plastic nipple in a copper plumbing house.