This terrible idea will not die: that the only way to revive the US economy is to reduce mortgages on homes and property purchased at speculative values. The fact that so many homeowners (like me) did not buy more house than they could afford, did not buy into the speculation economy, did not use homes as ATM's, continue to pay monthly mortgages, honored their contracts and provided an example of fiscal responsibility to their families: these facts do not add up to a hill of beans according to sober commentators including former president Bill Clinton.
Clinton, especially. It was his administration (thank you, Robert Rubin) that endorsed changes to banking laws that turned the speculators loose (thank you, Phil Gramm). And it was Bush, afterwards, who paved the way for "the ownership society" (thank you Mel Martinez and Jeb Bush) and the wholesale surrender of the Federal Reserve to the gamblers and thieves. All remain more or less in situ: that is another matter.
So here is a deal that might be acceptable to fools like me, who find the idea of mortgage principal reduction at the bottom of a vomit bag. Pay me off.
Do mortgage principal reduction (MPR) in a way that rewards the ethical behavior implicit in renters who decided not to buy and homeowners who do not need reduction. This would work through cash rewards based on residential zip codes, GIS mapping, and proof of residence. (Now that I'm day-dreaming: turn Homeland Security guards at airports into office actuaries to handle the billions in claims.)
In each zip code, establish a grid comprising "speculative market value" and new "present fair value" for homes based on square footage, bedrooms, bathrooms, etc. Based on the difference between the two (SMV-PFV x months in residence or ownership), establish a baseline monthly payment. From that baseline, the federal government (ie. taxpayers) would reduce mortgage principal for the underwater homeowners and make a one time payment to all renters and all other homeowners who can prove residence and do not claim a mortgage principal reduction. In my imagination, for our honesty we would also receive a bonus tacked on. Say, a fifty percent add-on to the monthly payment for common sense and frugality.
The only thing I am serious about, here, is that the conversation about mortgage principal reduction must include benefits for those who played by the rules. My preference would be for this dialogue to take place in a public square with the bankers and speculators in stockades.
Millions of Americans are paying a severe price for having been suckered punched by a culture of speculation. Many wage-earners, too, are like victims of drive-by shootings. Many couldn't speculate on housing but would have, if they could. Many wouldn't, because they were cautious about predators. Isn't it their turn for a free ride, too?
6 comments:
Genius -- the idea that regulations caused the housing crash is an urban myth. It was not Fannie Mae or Fredie Mac that caused the meltdown. It was large banks, like Chase, and mortgage lenders, like Countrywide, that took crap mortgages and bundled them into securities, got the rating agencies to gild these turds, and then sold them off to investors, including the Chinese. Not to mention the insurers, like AIG, who wrote credit default swaps, unsecured insurance, which required the Feds to step in and bail them out.
I don't know nothin' I didn't write this post.
A good account of responsibility is Gretchen Morgenson's "Reckless Endangerment".
http://www.nytimes.com/2011/05/29/books/review/book-review-reckless-endangerment-by-gretchen-morgenson-and-joshua-rosner.html?pagewanted=all
"The authors, Gretchen Morgenson, a Pulitzer Prize-winning business reporter and columnist at The New York Times, and Joshua Rosner, an expert on housing finance, deftly trace the beginnings of the collapse to the mid-1990s, when the Clinton administration called for a partnership between the private sector and Fannie and Freddie to encourage home buying. The mortgage agencies’ government backing was, in effect, a valuable subsidy, which was used by Fannie’s C.E.O., James A. Johnson, to increase home ownership while enriching himself and other executives. A 1996 study by the Congressional Budget Office found that Fannie pocketed about a third of the subsidy rather than passing it on to homeowners. Over his nine years heading Fannie, Johnson personally took home roughly $100 million. His successor, Franklin D. Raines, was treated no less lavishly.
To entrench Fannie’s privileged position, Morgenson and Rosner write, Johnson and Raines channeled some of the profits to members of Congress — contributing to campaigns and handing out patronage positions to relatives and former staff members. Fannie paid academics to do research showing the benefits of its activities and playing down the risks, and shrewdly organized bankers, real estate brokers and housing advocacy groups to lobby on its behalf. Essentially, taxpayers were unknowingly handing Fannie billions of dollars a year to finance a campaign of self-promotion and self-protection. Morgenson and Rosner offer telling details, as when they describe how Lawrence Summers, then a deputy Treasury secretary, buried a department report recommending that Fannie and Freddie be privatized. A few years later, according to Morgenson and Rosner, Fannie hired Kenneth Starr, the former solicitor general and Whitewater investigator, who intimidated a member of Congress who had the temerity to ask how much the company was paying its top executives."
Fannie, Freddy the big banks are all bit players in this crime of the (20th) century. The Fed and its side kick fractional reserve banking are the culprits, this crime has been decades in the making and the worst is yet to come.
Anything the government does will be throwing bad money after worse money (devalued).
Moreover, I understood the reason why the CRA mod took a while to pass. Several small banks pushed back hard on the idea of subprime loans, and loans to those with poor credit. There were articles about them stating as you said, that having a down payment shows responsibility up front.
Then Clinton threatened the banks to withold FHA loan funding. Wow, - this is not his job to do. He was the president, not Stalin (or maybee too close).
So talking to a lot of people who work in the Mortgage industry, its a given that CRA/Clinton did this.
What some people say is that as house priced went above $417, $625, etc, private loans above the FHA level kicked in. There are charts that show this. So while this is true, and MBS's (thanks Rubin) performed far worse than the GFEs, this is of course because the vast majority of people paid on their FHA/Freddie/Fannie loans, and converted to private loans. You can see that only a few FHA/Fannie/Freddie loans went bad because the majority that were > $417 were paid before 2007correction time.
And some people cite the fact that much fewer GFE loans went bad prove the CRA had nothing to do with it. If you look at the Ponzi appreciation and the histogram of conversions, the trend toward upwards proves that the CRA was the root cause.
Need to have Pre-Calc to figure this out, but it happened.
how about just not doing principal writedowns and let the banks foreclose, making this housing stock available to renters who have saved and been reponsible and now want to own? and nothing to renters, other than that? a lot easier, and a lot more fair, and all the govt has to do is stay out of the way (stop obama from blaming the banks and cajoling them not to foreclose).
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