[Zanu Bob]

http://finance.yahoo...-123700375.html

'The world will only have to wait a few more weeks to find out whether Fannie Mae and Freddie Mac will allow principal reductions on mortgages they back.

The Federal Housing Finance Agency will decide this month whether Fannie and Freddie should allow write downs on the balances of borrowers who owe more than their homes are worth, said Ed DeMarco, acting director for the agency.

Fannie and Freddie have been at the center of a tug-of-war over fixing the housing market. They have long resisted calls to write down the balances on the loans in their portfolio, saying it would be too costly for taxpayers.

But the pressure has been building, especially in the wake of the $26 billion mortgage settlement that will reduce principal for 1 million borrowers whose loans aren't backed by Fannie and Freddie.

The agency, which regulates the government-controlled companies, had decided against allowing principal reduction after internal studies showed that alternatives such as adjusting monthly payments or forbearing principal were more cost effective.

DeMarco has said his agency is charged with protecting taxpayers' interests, and principal reduction would amount to an expensive taxpayer bailout of troubled homeowners.

Since then, however, the Obama administration has sweetened the pot. It tripled the incentives it will pay to Fannie and Freddie for reducing principal under the Home Affordable Mortgage Program, or HAMP. This has prompted the agency and the companies to redo their analysis.

But will it even matter if Fannie and Freddie start allowing principal reduction?

How many are eligible?

Together, Fannie and Freddie have about 3 million loans that are seriously underwater, according to company filings. But three-quarters of these homeowners are current on their payments and may not qualify.

"These borrowers are demonstrating a continued willingness to meet their mortgage obligations," said DeMarco in a recent speech. "This should be recognized and encouraged, not dampened with incentives for people to not continue paying."

In the end, the number of eligible underwater Fannie and Freddie loans could range from a few hundred thousand up to 750,000, according to estimates. That's not that much considering there are 11 million underwater borrowers in the U.S., just over a quarter of whom are behind in their payments.

Is it effective?

"The scheme would still be a useful way to tackle the foreclosure problem," said Paul Diggle, property economist at Capital Economics. "And it certainly wouldn't do any harm to the housing recovery."

But experts still fear that allowing principal reduction will open a new wave of strategic defaults, where homeowners decide to stop paying their mortgages in order to benefit from modification programs. This so-called moral hazard has been one of the main concerns that has kept principal reductions at bay.

"Principal reduction will prevent more foreclosures for some borrowers who are delinquent," said Susan Wachter, real estate professor at the University of Pennsylvania's Wharton School. "But there is a potential for it to undermine borrowers' incentive to keep current on their mortgages."'





moral hazard shocker.if obama gets away with this then like most things in this crisis,it won't be long before we see it here.

[Bloo Loo]

doesnt that officially make the lenders bankrupt instantly?

[interestrateripoff]

I've always thought this would happen.

Politically it's a huge vote winner especially if the majority are in debt.

In this reality moral hazard doesn't exist.

However the ramifications of this happening are huge, it's a deflationary event without acknowledging deflation, which paradoxically could trigger a hyperinflationary event.

[Game_Over]

Politicians buying votes with printed money

Who'd have thunk it?

And what can possibly go wrong?

[Voice of Reason]

interestrateripoff, on 09 April 2012 - 03:10 PM, said:

I've always thought this would happen.

Politically it's a huge vote winner especially if the majority are in debt.

In this reality moral hazard doesn't exist.

However the ramifications of this happening are huge, it's a deflationary event without acknowledging deflation, which paradoxically could trigger a hyperinflationary event.

You sure it's a vote winner? If 750k people in the US are eligible then the other 200 million aren't. How will those already foreclosed on feel? How about those who can and do maintain their mortgage payments? What about those who can't afford to buy? Surely there are far more of them than 'eligible mortgage holders'?

Sounds more like a desperate last gasp of a failing political elite to me.

[Game_Over]

Voice of Reason, on 09 April 2012 - 03:23 PM, said:

You sure it's a vote winner? If 750k people in the US are eligible then the other 200 million aren't. How will those already foreclosed on feel? How about those who can and do maintain their mortgage payments? What about those who can't afford to buy? Surely there are far more of them than 'eligible mortgage holders'?

Sounds more like a desperate last gasp of a failing political elite to me.

Sounds like a Democratic President trying to get out his core vote to me.

And if he loses, he will just be replaced by another member of the political elite.

[winkie]

Write it down so as to increase the interest rate?....negative equity or not, affordability of the payments is more the salient point.....still stuck with nowhere left to go, what about a future possible claw back?

[interestrateripoff]

Voice of Reason, on 09 April 2012 - 03:23 PM, said:

You sure it's a vote winner? If 750k people in the US are eligible then the other 200 million aren't. How will those already foreclosed on feel? How about those who can and do maintain their mortgage payments? What about those who can't afford to buy? Surely there are far more of them than 'eligible mortgage holders'?

Sounds more like a desperate last gasp of a failing political elite to me.

I admit there has to be a sweetener for everyone else but as it's all printed money that's easy to conjure up!

Perhaps those already foreclosed are offered an upgrade to a new property that's unsold?

For those who've maintained paying the mortgage give them a reduction in principle as well? Give them a tax code where they have to spend the saving in the economy?

There's lots of ways for the politicians to play and create even more distortions in the free market.

[Voice of Reason]

Game_Over, on 09 April 2012 - 03:26 PM, said:

Sounds like a Democratic President trying to get out his core vote to me.

And if he loses, he will just be replaced by another member of the political elite.

Unless he only wants 750k votes this Autumn he's onto a loser with this. For every person that benefits there will be several that think it's grossly unjust, even amongst Democrats. If you're living in a trailer on welfare and you read about the government letting people off their mortgages are you going to be happy?

[interestrateripoff]

Voice of Reason, on 09 April 2012 - 03:37 PM, said:

If you're living in a trailer on welfare and you read about the government letting people off their mortgages are you going to be happy?

If you're living in a trailer park is that likely?

This post has been edited by interestrateripoff: 09 April 2012 - 03:40 PM

[Crashman Begins]

Up up and away

[Voice of Reason]

interestrateripoff, on 09 April 2012 - 03:39 PM, said:

If you're living in a trailer park is that likely?

You're right of course. Corrected below

Quote

If you're living in a trailer on welfare and you read Fox News tells you about about the Commie government letting people off their mortgages are you going to be happy?/

[KingBingo]

Still would not surprise me in the least if this happens.

The moral of the story is just be feckless and an even more feckless government will use tax payers money to help you out.

[interestrateripoff]

KingBingo, on 09 April 2012 - 04:22 PM, said:

Still would not surprise me in the least if this happens.

The moral of the story is just be feckless and an even more feckless government will use tax payers money to help you out.

Encouraging the taxpayer to be even more feckless to which the govt will bail them out with the feckless taxless money?

[ChairmanOfTheBored]

KingBingo, on 09 April 2012 - 04:22 PM, said:

The moral of the story is just be feckless and an even more feckless government will use tax payers money to help you out.

Another moral of the story is once you've buried yourself up to the nostrils in sh!t whatever happens next will definitely involve sh!t.