Amateur Hour teams at the Fed and Treasury

Real Estate Agent with Kilauea Real Estate Company

The subprime workout will be a blessing to any family whose home is saved. However, as an economy-wide reality, benefits from the workout will be undetectable. This episode will defy workout efforts for several reasons:

1. The primary cause of foreclosure is zero or negative equity and this is the situation today in the aftermath of a plague of idiotic and predatory, no-down-payment 100 percent lending. There's no hope for these homes.

2. The first step in workouts is to add delinquent payments to balances and recast future payments ("capitalized interest"). See #1: no equity, no room to add.

3. Another common workout: convert to a period of interest-only payments. A ton of these troubled loans already are interest-only so this won't work either.

4. Another traditional approach: reduce the interest rate. The FHA "streamline refi" was fabulously successful in the 1980s (available today, but only for FHA loans). Families under water or in job trouble were stuck with 14 percent loans and walking away. A streamline allowed them to refinance to then-current 8 percent rates with no proof of income and no appraisal. This won't work today because the inventory of loans made from 2001-2006 carries average rates that are too close to today's rates.

The Amateur Hour teams at the Fed and Treasury have missed two remedies. The obvious one: restore an adequate supply of new credit (re-guarantee Fannie Mae and Freddie Mac, expand their limits; unblock bank financial statements). Also, rate cuts, discount-window blabbing, and announcements that the crunch is loosening. Get with it, guys.

wendy smith

the mortgage-rate-freeze is a joke, think about it - in order to qualify, the loan must be current.

Home Retention departments are so over burdened with loans in default, does anyone honestly think they will have time to handle loans that are current?

Government should mandate a turn-around time in which lenders must respond to borrowers request for assistance; loan modification, even short sales.  Lately, I'm told over and over by Loss Mitigators that a loan modification will take 60 days - that's garbage.

Lenders, instead of adding additional loss mitigators to handle the load, have turned to outsourcing customer service/home retention calls to India & the Phillipines.  Unacceptable. Totally unacceptable.

Dec 07, 2007 10:16 AM