"Hide Your Wallet When A Man Shows Up Saying That He's From The Government And He's Here To Help You!" Well, I think that this might not be a bad saying in regards to Secretary of the Treasury Henry Paulson's announcement that the Treasury is "here to help" people in trouble with their sub-prime mortgages that are close to resetting.
As those of you who read my blog know, I've come out strongly in support of the government stepping in "fix" the credit markets and their problems with foreclosures. It is my belief that this is the quickest and best way for our economy to put this nightmare behind us. In my previous blogs I've also expressed my dismay that the government seems to be more than willing to step in to aid Wall Street, but has done little to help the little guy out.
So why am I skeptical of Secretary Paulson's remarks? Because they are overly simplistic and lacking in detail. I
also question the Bush Administrations true intentions here. Why is Mr. Paulson not addressing the fact that most mortgages (around 96% of all mortgages, as a matter of fact) are pooled into securities and sold on the secondary mortgage market.
This being the case, no one (not even the Secretary of the Treasury) can waive a magic wand and order the holders of these securities to accept the terms of these mortgages being modified.
Mr. Paulson knows this and if you listen real carefully you can already hear the rumble of hoofs as the big Wall Street types have started the dash to feed at the government tit!
On CNBC this morning it was reported that representatives of the companies that hold many of these mortgage back securities are already demanding compensation from the government for the interest income that they will forgo by participating in the Treasury's plan. Never mind the fact that if many of these loans are allowed to reset that these companies wouldn't be getting interest income from a good number of them. Also consider that the income from the ones that do continue to perform will be more than offset by the costs of dealing with the foreclosures.
The most efficient way that I see to deal with the securitization problem is for the government to offer to buy these mortgages from the investors that own them. And I'm not talking about buying them at some imaginary retail value either. I'm talking about the government negotiating a hard deal.
If these institutions want to get these mortgages off of their books, I would think that they would be willing to let them go at a fairly steep discount. If I'm wrong and they think that they can make more money dealing with these loans themselves, then more power to them! My gut level is that they will be eager to have the government take them off of their hands.
Once the government owns these mortgages they will be free to renegotiate terms with the borrowers.
Will all of the people in trouble with their mortgages be able to be helped? More than likely not. But, many will. The loans that do perform will be able to be seasoned and sold back to the secondary mortgage market and depending upon the discount that the government is able to buy these mortgages at, there is a good chance that the government could even turn a profit on the sale of these loans.
This profit could be used to offset the costs of the loans that aren't able to be rehabilitated.
So, we'll see how this goes. Admittedly, not very many people are interested in listening to any common sense approach to getting out of this mess. Especially when the powers that be are more interested in lining the pockets of Wall Street than in helping people save their homes.
R.B. "Bob" Mitchell
ValueList Real Estate Services, Inc.
Bob Mitchell is the president of ValueList Real Estate Services, Inc., St. Louis' largest discount/full-service real estate and mortgage company. To find out more about Bob, ValueList or our flat-fee listing program please feel free to visit our web page,
valuelistre.com
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Bob - I truly enjoy reading your posts on this issue. Nevermind that we are on opposite sides of the fence regarding how the issue will be resolved. You take the time to point out your position and have not once backed down.
I don't like what Paulson shared either. I dislike, even more, what he did not share. I do not believe that this is an emotional problem that can be solved by the government stepping in and making everyone feel better.
I do believe that the majority of the loans that are resetting are no surprise to the consumers. I do believe that most of those caught up in this mess, were caught in the end of the cycle. The rules of mortages are very simple and spelled out very clearly.....you pay, you stay.
If homes go to foreclosure, the prices will be reduced and they will be purchased. Any one that feels that this will hurt their property values need only be reminded that their property values increased artificially when this market was in an escalating frenzy. Those that bought in the frenzy will either have to remain in the home or sell at a loss. The investors that are bare back will have to accept that this investment plan did not work out. The investors that timed buying and selling correctly have not been hurt.
It is the way the market weans the bad investors. They lose and they go home.
There is nothing in the tax code that indicates to me that I should have any of my dollars going to support those that made bad decisions. If you wish to have assistance for those that were abused, have them apply after the alleged abuser has been charged , tried and convicted.