Friday, Feb 13, 2009
US rally on Obama mortgage bailout plan
Reuters: Obama eyes home loan subsidies in rescue plan: sources
The Obama administration is hammering out a program to subsidize mortgages in a new front to fight the credit crisis, sources familiar with the plan told Reuters on Thursday..U.S. stocks shot up from session lows on the report..Under the evolving plan, homes would undergo a standardized reappraisal and homeowners would face a uniform eligibility test, sources said.
Bank regulators have used 38 percent of gross income as a benchmark for one mortgage relief program. If a homeowner is spending more than that amount on housing, they may qualify for a streamlined loan program, but the Obama administration may choose a lower percentage as a trigger for relief in any new plan.
Posted by mountain goat @ 12:02 AM (591 views) Add Comment
15 Comments
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1. gardeniadotnet said...
A rally to negative 6.77?
Let's hold the champagne, shall we?
2. Crunchy said...
Wall Street stock indexes quickly retraced earlier losses on the report, with the blue-chip Dow Jones industrial average jumping 245 points
crunchy- A nice little earner for Obamas backers, Wall St.
Still an Obama fan Gardeniadnet? LOL.. There is so much more to come. Remember what I said? No excuses!
3. paul said...
This is Zimbabwean econmics.
Getting people to bail each other out? I'd rather get the jerry cans, milk bottles and rags ready and start marching to parliament.
4. flashman said...
This is a recipe for fraud. People will be scrambling to alter their debt/income parameters so they can scam a cheap mortgage. Unemployed people will be suddenly employed for a 'cut'. Instead of zombie banks we'll have zombie mortgage holders. They will be able to hang on a bit longer but they will not be long term viable. As soon as the banks stabilise, interest rates/taxes will rise, cancelling out any of the value of these mortgage subsidies. Then the repossessions will start rising again and the zombie mortgage holders will wish they had been allowed to die before they piled on more debt. This scheme is almost dumb enough for Gordon to try.
5. bellwether said...
I've been saying for weeks that hyper inflation won't happen but admittedly paying off everyone's mortgage would be the sort of thing that would do it.
Suspect this is nowhere close to that, a form of social housing and behind the headline major limits all over it.
ps Paul you go girlfriend!
6. flashman said...
one of the 'major limits behind the headlines' will the terrible price that the banks will extract. In return for reducing mortgage payments, they will demand the lions share of any future capital appreciation. Even if there is no house price appreciation in real terms, long term inflation will effectively hand a large chunk of capital to the banks when the house is sold. The subsidised mortgagees will be in effect renting their houses. This is a further transfer of wealth away from the middle classes
7. bellwether said...
Flashman, I'm close to the view that inflation at a level that would erode mortgage debt is impossible without western states pursuing outright hyper inflationary policies.
8. bellwether said...
ie expanding the money base faster than the vast credit expansion of the past decade - handing every man women and child in the US $100,000 would be a start but it would need to be on that scale. Literally.
9. flashman said...
Bellweather, I'm pretty sure that high levels of inflation are almost impossible for the forseable future. The inflation I'm talking about is just plain old moderate inflation down the road a bit (say in 5 years time). If house prices rise moderately, in line with inflation, for the last 10/15 years of a mortgage, then the banks will own this appreciation and the home owner will have an ever decreasing share in their 'own home'
10. mountain goat said...
Flashman yes "help" schemes will benefit the "helping hand" if there is inflation. Take this http://www.millerhomes.co.uk/promo/miway/ scheme.
Pay 75% own 100%
* Simply arrange your own finance for 75% of the purchase price and Miller Homes will provide a loan for the remaining 25%.
* You repay the loan by paying back 25% of the value of your home when you sell or transfer it or after 10 years, whichever comes soonest.
* If the value of your home stays the same or falls, you will pay back the same or less than you borrowed but if the value increases you will have to pay back more.
11. mountain goat said...
12. mountain goat said...
sorry closing tags
13. mountain goat said...
14. bellwether said...
At those limits I'm not clear, and you maywell be right. I'm unclear on what is going to happen with the US but it will remain a major force, I think.
My view on the UK in isolation is close to uberbearish, as I cannot see how we can grow GDP until there is a massive and unprecedented contraction. On that perspective either we will turn inwards and end up much poorer but with hyper inflation, or we will continue to try and connect with other countries (ie keep our currency within tradeable and therefore sane limits) but be forced into our place with protracted asset deflation for 10/15 years.
15. mountain goat said...
sorry I didnt close the html tag Bellwether