A New Hope

Via Brad DeLong, Tanta's detailed explanation of the Bush mortgage adjustment plan suggests that there's less to it than meets the eye:

From what I have seen about the plan to date, it is clear to me that it is in fact structured with the overarching goal of making sure that it stays on the allowable side of the existing contracts. I proceed from the assumption that nobody could write such a convoluted and counter-intuitive plan if that wasn’t the goal. So everyone who is thinking, “Gee, we’re violating contracts and we still don’t get much out of it!” is thinking the wrong thing, in my view. It’s more like “Gee, we don’t get much out of it when we don’t violate contracts.”

Meanwhile, Felx Salmon explains why lenders love the mortgage freeze plan, so it seems that the administration has its priorities straight as usual (that's sarcasm).

Comments

Never besmirch Luke Skywalker again!

Posted by JFD | December 7, 2007 10:58 AM

for the record, if you haven't been reading Calculated Risk (Tanta's home base), you haven't been keeping up with the housing/credit market crisis, and Tanta is a brilliantly funny writer as well.

Posted by howard | December 7, 2007 11:25 AM

I guess I should ask you Matt: what would you do about the mortgage meltdown if you were President? Would you allow equity to tank and foreclosures to rise? Would you bail out greed borrowers? Or predatory lenders? How would you stop the crisis without bailing out people that don't deserve a bailout?

Posted by freddiemac | December 7, 2007 12:09 PM

freddiemac, i think before matthew answers your question, you should provide a definition: who are these "undeserving" people? are they the ones who went into a mortgage company with a gun in their hand and forced the company to provide them a mortgage?

otherwise, i'm a little confused: you mean that a mortgage "application" is automatically granted and that the mortgage company has no further obligation to its owners and its capital?

because i could understand if you didn't think someone who extorted a mortgage at the point of a gun didn't "deserve" any help, but everyone else? you mean they made the lending decision themselves?

Posted by howard | December 7, 2007 12:24 PM

Yes, what we really need are the equivalent of drunk driver laws for borrowers and lenders. You know, the ones where bars and other establishments are responsible if they continue to sell alcohol to someone who is drunk and then that someone goes out and has an accident. We should apply something equivalent to lenders: if dumbass borrowers come in and borrow too much money, then we should hold the lenders at fault and make them responsible because they made the loan that the borrower requested and they should have known better. What's that you say? The lender doesn't get repaid? Or the idiot who bought the SIV/mortgage-backed scurity doesn't get repaid. And then let's fix the drunk driver laws so that we can lend more money to the drunk drivers who wreck their cars after being forced to drink up by the bartenders.

Posted by Gene | December 7, 2007 12:35 PM

The real targets should be the flippers. Amateur and Pro. When individual houses are being flipped three times in a single year then its safe to say that the speculators are feeding the bubble. Its not just the lenders at fault. There is a fair amount of genuine homeowners getting burnt, but it seems like that those stories have become a sort of smoke screen for the fact that a lot of americans have been trying to cash in on speculation or went full on into the flipping business altogether.

There has to be someway to identify those who are trading in homes beyond their primary residence and tax the hell out of that habit. Consider it a form of luxury tax?

Posted by Condor | December 7, 2007 1:11 PM

Ummm, why should we bail out people who invested in real estate again? Would we bail them out if they in invested in a stock market bubble? How is this different?

I sat on the real estate sidelines over the last few years, telling my friends and family that buying into this market is lunacy. I didn't pay 1-2% intro aprs; instead I paid higher rent, confident that the lunacy would end, and I would finally be able to afford to buy. It lasted much longer than I thought, and I had several friends tell me it was I who was dumb for not buying a place, refinancing to fix it up, and increasing my standard of living.

People had lifestyles far beyond their means, achieved through rising real estate prices. Incomes weren't going up, but standards of living and net worths were rising. But now they have the headaches, and I have cash waiting for the shit to hit the fan. And I hope prices come crashing down so I can get me one of those sweet Brooklyn condos with granite countertops that people have lived so cheaply in with borrowed money.

They made bad decisions. Why reward them with continued artificially-low interest rates that I cannot get despite a higher fica score? Why reward their bad decisions by having people like me pay for a bailout? Because they believed that there is no risk in real estate? Please. The early 1990's were not that long ago. California went through a prolonged slump. Japan is just now recovering. Remember the savings and loan scandal? That was partly about real estate too.

I'm sorry, but besides the cases where fraud was involved with the mortgage, I have little sympathy for those who owned these assets. Will innocent people be hurt when the shit hits the fan? No more than innocent people in 2000 who didn't sell their tech stocks.

How is this different?

Posted by tomboy | December 7, 2007 1:12 PM

"..because i could understand if you didn't think someone who extorted a mortgage at the point of a gun didn't "deserve" any help, but everyone else? you mean they made the lending decision themselves?"

No, they made the borrowing decision themselves.

There are people out there who were offered these wonderful no doc, no down teaser rate ARMs, were prudent and cautious, did their sums in depth, and then did themselves and the rest of us a favor by walking away from it all. These are the deserving ones.

The others deserve jack $hit.

Posted by kafka | December 7, 2007 1:58 PM

kafka, so your answer is that the mortgagee granted him or herself the mortgage, huh? i'd sure like to know how that worked!

meanwhile, of course, the point of any kind of attempt to stabilize the market is that if we simply let the market clear - that is, foreclosures, bankruptcies, credit market freezeup, etc. - all kinds of people whom you call "deserving" are going to lose out too.

will that make you feel better?

Posted by howard | December 7, 2007 2:22 PM

Matt, the president and/or the treasury secretary don't have the authority to rewrite the contracts. If you'd read what you just posted, you'd see that without rewriting the contracts, you can't do that much. So why the bitching about how the administration hasn't done much?

Also, howard's right....Tanta rocks, and most other people should be a little humble about what they don't know.

Posted by ed | December 7, 2007 6:12 PM

This plan is a fake. Even if it was legal it is impossible to administer. Remember the first plan, the Super SIV plan? That was a fake also. The $100 billion became $75 billion and now has been slightly reduced again, to $50 million. I kid you not.

This hare brained plan was designed to make everyone forget hare brained plan #1. When all is said and done in a year you will hear that a few thousand people had their payments frozen but many of them walked away from the home anyway. For the majority of these people the best course is to walk away since they have negative equity.

The capital to make these mortgage loans was fake capital and the mortgage securities are fake capital as well and no amount of Potemkin plans are going to make that money real. This plan like the first is meant to manipulate sentiment for another couple of weeks in hope that some magic pony will appear and make things all better.

http://wallstreetexaminer.com/blogs/winter/

Posted by rapier | December 8, 2007 8:47 AM