28 June, 2008

Mortgage - Doddgate = more homeless

Look if we remove the risk and impact on mortgage companies of defaulted loans the result will be more defaults and therefore foreclosures. The result of congress bailing out the mortgage companies will be more foreclosures not less because they will have less incentive to negotiate with borrowers who are on the line.

This holds especially true in variable rate loans where the borrower is able to make initial payments but the increased payments are out of reach. In these cases neither the borrower or the lender should have made the agreement in the first place but if you remove the downside of the default from the vendor why would they ever entertain the idea of negotiating with someone who was making payments earlier.

This article misses the point in the end but I agree with the bailout point. Government involvement is exacerbating the problem and it isn't a solution.

This makes Doddgate even worse. Dodd's FOA status might lead directly to more people getting kicked out of their houses.

We need to make it clear to Congress and the Senate that they need to be very careful about how they walk when it comes to solutions that take away one side of the bargaining position. In this case our side.

1 comment:

ashimmy said...

I read the article you refer to and not sure I agree with your analysis here. To date the bailout has been of wall street banks like Bear Stearns. Not banks who gave mortgages, but houses that were selling and investing in security backed by packaged mortgages. At the end of the day, people getting thrown out of homes does not work. I saw another report that utility shut offs are up drastically as well. I think we are headed for drastic economic times with inflation rising and recession looming. The attitude of the government staying out of business is exactly what got us in this mess. The banking and mortgage industry needs better regulation.