Kary…details…details… I certainly wouldn’t want to encourage more defaults and I don’t think that having a moritorium would encourage that–nothing is being “forgiven” and payments are not being reduced.

I believe that the underlying fraud by certain brokers in bundling these sub-prime loans and selling them to the investors as “federally guaranteed student loans and were safe and liquid” …plays a large role in the systematic failure. If there was no market to sell these risky loans to investors, many would never have been sold to the consumer.

The banks themselves were defrauded. Have you seen this yet?

SEC Charges Two Wall Street Brokers in $1 Billion Subprime-Related Auction Rate Securities Fraud
FOR IMMEDIATE RELEASE
2008-187
Washington, D.C., Sept. 3, 2008 — The Securities and Exchange Commission today charged two Wall Street brokers with defrauding their customers when making more than $1 billion in unauthorized purchases of subprime-related auction rate securities. The SEC’s Division of Enforcement in 2007 formed a subprime working group, which is aggressively investigating possible fraud, market manipulation, and breaches of fiduciary duty that may have contributed to the recent turmoil in the credit markets.

The SEC alleges that Julian Tzolov and Eric Butler misled customers into believing that auction rate securities being purchased in their accounts were backed by federally guaranteed student loans and were a safe and liquid alternative to bank deposits or money market funds. Instead, the securities that Tzolov and Butler purchased for their customers were backed by subprime mortgages, collateralized debt obligations (CDOs), and other non-student loan collateral.

Go here for full Press Release:

http://www.sec.gov/news/press/2008/2008-187.htm

I don’t see issues with a moratorium…I bet that some of the banks may welcome buying a little time as well.

This issue is beyond subprime. This is from James Lockhart’s testimony yesterday to the Senate Banking Committee:

“They [Fannie/Freddie] bought or guaranteed many more low documentation, low verification and non-standard ARM mortgages than they had in the past. For example, for the first half of 2007, roughly one-third of the Enterprises’ new business was composed of Alt-A (less than standard documentation), interest-only, or Option ARM products, and mortgages with layered (multiple) risk characteristics vs. 14 percent in 2005. For Fannie Mae, roughly 40 percent of new business in the first half of 2007 was in Alt-A and interest-only products versus 26 percent in 2005. The quality of their holdings of private-label mortgage securities (PLS) issued by others also deteriorated. The portfolio caps restrained the size of their PLS books, but maturing subprime and Alt-A PLS were replaced by PLS from the much riskier 2006 and 2007 origination years.”

I believe most of the honest troubled homeowners would prefer to stay in their home regardless in the loss of value. Why not erase all the sub mortgage loan resets, keep them at their original rate, allow people to stay in their homes, thereby reducing the amount of foreclosures on the market to stop the bleeding and help stabilize the housing market. I would not reduce the loan amounts.

I think the bail out should be built with the “trickle up” theory.

First, stop the foreclosures.
second, restructure the loans.

I understand there was a lot of fraud and that’s another story, but keeping the cashflow coming in to the banks for these troubled loans is better than taking the home back in foreclosure and losing millions and millions of dollars.

Just my thoughts.

I’ll second that. I really have to wonder what it will be like 15 years from now, when the new houses are 15 years old, and they’re competing against the houses that are 30 years old (or older). I really can’t see these boxy crammed together things holding their value, unless maybe the new houses built then are even worse.

I’m really hoping that what ever the bail is that it does exclude mortgages for investment properties and over-stated income. If home owners used income beyond what they make, sorry–they don’t qualify and should not have a mortgage written down to their “actual” income. That would be wrong.

I prefer a bottom up approach. Use the $700 billion for massive works type projects – infrastructure, parks, transportation network, BUILDING FREAKING OIL REFINERIES, etc. This will create JOBS which is what people need. Very few foreclosures are due to crazy lending, they are due to people losing jobs. The specuvestors need to be foreclosed on.

Second, the government needs to provide stop gap lending so people who have loans can refinance. You have an ARM and want to flip it to a 30 year but can’t due to appraised values. You want to refi but can’t because the 2nd lender won’t subordinate. You have been making payments on time and great credit but can’t refi because you are self-employed and need a stated program.

Third, provide incentives for people to buy foreclosed properties. Lower than market rates, tax incentives, financing to fix the property up.

Fourth, put a moratorium on building these crap box subdivisions in corn fields until home inventories get to a more manageable level.