Greg Weston writes:
So the banks will call you up and offer to lower your housing payment, but only if you stop paying it for 90 days.

Why should some homeowners get lower rates, but not every mortgage holder in a similar situation?
Greg Weston

Barley writes: "I also expect that if this is meant to be an ongoing program, those folks who are now 30 or 60 days will simply be patient and wait to be in arrears for 90..."

If this is meant to be an ongoing program, I suspect those folks who are NOT late in payments will soon be.

Robyn:

I'm surprised that anyone would buy them at 6% also. I took a look at the monorail on the web and it looks like a loser.

If anyone is interested in what the AIG thing is all about, there is a lot of information in their Dec investor day presentation.

American International Group, Inc. | Investor Information

Now, this is interesting-

Bond Buyer Online - Page Not Found

Any delay in a foreclosure is good for lenders, I guess. The plan is unfair to people who are pushing to keep current, but at no point has this bubble been favorable to the fiscally prudent.

If it keeps your next door neighbor from forclosure or a distressed sale, it would help you, the prudent homeowner.

Is this a signal that homeowners who want lower payments should stop paying for three months?

That seems to be the case with my private student loans. They've refused to consolidate, extend the term, grant a deferral or do anything else without making me fill out the same paperwork over and over and even then they just send a denial. But once it hit 90 days I started getting calls from actual people who had the power to do actual things.

by the way....AIG is anxious for the triggers to be hit on the 2005 and 2006 vintage subprime rmbs's to their super senior bonds don't suffer any 'leakage' to the lower rated bonds.

The moral hazard in this new plan (of freezing everyone's rate) is so gigantic it makes me sick. I chose not to purchase a ridiculously overvalued house (in SoCal).

I guess I should have put 0% down on a $750,000 2 bedroom condo with 1% teaser rate then cried uncle or stopped paying my mortgage until I got bailed out.

On topic - I don't think any of this will make a dent in the bubble areas like south Florida. Forget where I read it - NYT - WSJ - whatever. Between 2004 and 2006 - almost 25% of all residental sales in the whole state of Florida - and probably a much higher percentage in the more bubbly areas of the state - were sold to people who had no intention of living in the houses/condos.

Call them investors - or speculators - or something a bit more scatalogical - the bottom line is they are not interested in saving their "homes". They are simply trying to lose the least amount of money possible on their improvident purchases.

I don't know how this excess demand - which has not only disappeared - but is running scared - translates into price reductions. I think the price reductions would have to be so large in the extreme bubble areas - like Biscayne Blvd. in Miami - that the distressed condos will probably be bought as entire buildings by vulture funds - and turned into rentals while investors await the return of "owner-occupied" demand.

Just anecdotally - my father's girlfrend's late husband was a dentist. There isn't a single dentist in Miami she knows who didn't buy at least a couple of these units. So if you find that your root canal costs more this year than last - you'll know why (talk about rubbing salt into a wound). Roby

If it won't kickstart the ATM in the kitchen it won't really matter. The 750B dollar gorilla in the room ain't going to leave peacefully. If people can't borrow to fuel their unsustainable lifestyle this economy is going tits up.

As for people walking away they will do it in droves like you never would believe possible. Texas was this bad in the early 1980's and prices are just now barely what they were nominally and no where near where they were when adjusted for inflation.

I suspect that the debt splurge of the last couple of years will yield more of the same-

Holley, Specialty Car-Parts Maker, Files Bankruptcy (Update2) - Bloomberg.com

I want a pony, too.

Angry Saver, your assuming that for the time period in which you'd like the return that the economic conditions will be favorable to you. That's a coin toss. If you are sticking money in a retirement or college fund, and your total investment window is 15 to 30 years, this is a point of little or no return that will be averaged against mid to large returns.

So the bankers answer to you should be just that. Your time windown and the economy's time window may not align. That's the way it goes. But over a timespan, things will average out. Go look at the 70's and see what your rate of return would have been then.

True story. I'm listening to talk radio today, and on this show about credit they have a local "short sale specialist" from a local Realtor. Several folks call in and tell them how they are in a financial bind and have received foreclosure paperwork. The first thing he says is if they are not at least 90 on the mortgage, the bank is not in a hurry to work with them. Later in the broadcast, they start to talk about how the FB can essentially stay in the home for perhaps a year or more without making the mortgage payment until they are actually evicted. Then they discuss how if the FB has a good attorney, they can try and fight the foreclosure on technicalities similar to Duetsche Bank, etc. to delay the process. The discussion ended with how the banks often end up owning the properties as the amount owed often far exceeds the amount of debt the FB owes.

So, this is the state of our society. People that are massively upside down on houses they never should have bought, and over leveraged. Most have no skin of their own in the game and there is often no recourse against them if they walk away on the 1st mortgage, other than their credit score- ( which the host can help to repair as thousands are in the same boat.)

Now, couple this with this latest socialist idea to reward the subprime borrowers that don't live up to their contractual obligations, and I ask......WHAT'S THE POINT OF PLAYING BY THE RULES?

F^&^ING MORAL HAZARD? I should have bought a million dollar house with no money down and lived in it free for a year and then if it made sense to ME, renegotiated the terms with the bank.

Angry Saver,

Sorry to be rude and blunt but if the short-term interest rates are too low for you, that's your problem. If you are concerned with the FedRes controlling the short rate, go and invest in the long rate (which is largely driven by the market) or go and invest in a foreign bond or something. The fact of the matter is that interest rates, both short and long, move up and down in a free market.

It also seems like you are caught up in the opposite of the trend right now but maybe you'll be saved in the future. Bond bulls are laughing all the way to the bank these days (due to a decline in yield) so you really should have gone long bonds last year but oh well.

Savings have nothing to do with interest rates. If anything, saving via short-term rates is not generally a good idea. The long-term real return is very close to 1%.

When you are running the Fed, and you are looking at the ENTIRE economy as a whole, and you have your dual objectives, you set your policy accordingly.

Angy saver wants his money to retain it's value and thinks he should get a positive interest flow. Peterbob sat on the sidelines, and now wants housing to decrease so that he can pay less for the asset. Some people want the asset prices to remain stable, so that they don't lose their "store of value". Some people just want to stay in their houses. Others want unemployment to be low so that they are unaffected. Still others want the FDIC to ride to the rescue should their bank fail.

Some of you will not get what you want. And, frankly, everyone from the Fed on down is just trying to keep the hinges from flying off which, if it were to happen, will make everyone described above very, very unhappy.

You all made bets because, after all, all the situations I have described for investing, buying/not buying a house are, in the end, bets. And not everyone wins a bet. I'm not shaking my fist at the system, I did that in my teens. I'll now learn out to make money out of it on the way back up because anything else is just wasted energy. But your mileage may vary.

ipodius writes:
"Are people really walking away or is that just perception? Is there some sort of legal action there, and perhaps a BK proceeding? In fact, you'd be better off to file BK because it stops foreclosure proceedings until the BK is finalized...at least in my state."
In a non-recourse state walking away from your house is as easy as 1-2-3 if you haven't refinanced the sucker. Declaring BK is a whole different ball game. Court gets involved, a repayment plan gets established, wages gets garnished, really ugly stuff you know. Walking simply makes your problem the bank's problem. End of story.

ipodius, what is it about a free market honest monetary system has anything to do with a sense of entitlement?

SWEET HOME KILLA: "The government mandated fiat system of money is immoral..."

Why? I'm actually in favour of private currencies but ignoring that, govt fiat currencies are fine with me. As long as I can convert money into something else (say share ownership, real estate, gold, foreign currencies, etc), it's all cool with me.

I find it bizarre that people complain about money losing value when they have the freedom to convert it into something else. The only people who really have a good argument against that is those living in a country with capital controls or other draconian rules. Otherwise, I could care less if my currency (Candian dollar) declines (a smooth decline). It has very little impact on anything. The US$ (as well as C$, and others) have declined somnething like 90% in the last 60 years. It had little impact on anyone (except a goldbug who bet wrong and underperformed stocks and bonds). The fact that the US$ declined 90% makes as much difference as if it had declined 80% or 70% or 60% or appreciated 50%. None of it means anything in a free market!

As long as you are not forced to hold the currency, I don't know what your beef is...

"Money losing value is IMMORAL? What religion is that? The one where people worship the God of Gold? ;)"

Sivaram, the sense of entitlement on this thead just stunning! LOL It seems supreme irony that is what got us into this mess in the first place with the whole property bubble,,

this MORAL HAZARD!!!!!!!

"govt fiat currencies are fine with me."

Okay, so you admit you are a communist? Isn't that sort of the definition of the government controlling one of the central parts of the economy?

"I find it bizarre that people complain about money losing value" ... "It has very little impact on anything."

It makes people chase yield, blow bigger bubbles, and reap the results.

"None of it means anything in a free market!"

Hahahaha, market fixing means nothing for a free market, because then it's not a free market.

You are not guaranteed a rate of return for anything, let alone guaranteed that your store of value will always have the same value.

Wrong. If I have a piece of gold, it will continue to be a piece of gold of the same size, weight, and purity each and every day. As long as it isn't stolen, I will have the same value. Granted, the prices of things can change in the meantime.

Has never happened in the history of the world. Real systems are too complex for that and the best you hope for is parity over the long haul.

Bingo! Parity over the long haul is spot on. Relative prices will never stay stable, that is why real money itself doesn't change, only the market does.

If I have a piece of gold, it will continue to be a piece of gold of the same size, weight, and purity each and every day. As long as it isn't stolen, I will have the same value.""

Sweethomekilla, relative to what? What do you trade your gold for? What is the value? USD? Euro? Oil? Food? How much food do you get with your lunp of gold? How about I don't give you any until you give me USD?

You gold people kill me. Gold doesn't have intrinsic value. It has to be exchanged for something...you can't eat or drink gold, you can't live in it, and you can't put it in your gas tank.

SWEET HOME KILLA: "Wrong. If I have a piece of gold, it will continue to be a piece of gold of the same size, weight, and purity each and every day. As long as it isn't stolen, I will have the same value. Granted, the prices of things can change in the meantime."

To a gold bug, I'm sure I'm a Communist Anyway, you are right about gold--FOR THE TIME BEING!

Here is a trivia question for you... what makes you think that gold won't follow the path of silver and lose 90%+ of its value over the last 500 years? (if you don't believe the silver story, check out this chart)

"I already said that prices never stay stable in a free market. The point is that you money does not lose all of it's value. The usd will be worth nothing in a few hundred years, probably much, much sooner, but you can still buy that food, a house, or whatever else with the same gold found in ships that have been sitting at the bottom of the sea for a thousand years."

Not if they discover a cheap way to turn silica into gold.

Get it yet?

Rob Dawg | Homepage | 02.11.08 - 8:40 pm |

I checked and saw they have like 1200 in Florida. Christ,Wells Fargo has just over 1500 in Florida. And these are the ones actively on the market. Methinks banks are in full blown panic mode.

As an aside,I described recourse vs non-recourse to our building mait. guy today. After the second time he looked at me and said "Holy $hit,banks are f&cked". This is from someone who couldn't give a shit either way(ready to retire).

Chris

DCRogers | 02.11.08 - 9:10 pm |

Somebody I work with is in this exact spot. He tried to call the lender to see about getting his rate froze at like 7-8% on his 3/27 arm. It would be rough but he thinks he could handle it. The servicer told em they can't help until he was 90+ late...His whole attitude changed. I honestly think he will file bk and walk.

Chris

Sivaram - Re real rates of return (over inflation) on fixed income investments. As a general rule of thumb - anything under 2% is lousy. Anything over 4% is fabulous. You don't often see one extreme or the other. OTOH - TIPS and IBonds at 3%+ early in this decade were a gift. At today's rates - they're not interesting IMO. Roby

Re: Current Money market rates are 3.5%. But, 2007 yoy inflation was 4.1%. Hmmm. Negative interest rates. But thats my kids' college money Ben? I've saved and invested, but I just keep getting farther from my goal. What gives?

The difference in this recession will be hard core inflation. As you may recall, after the dotcom bubble 9/11 days, interest rates in a money market were maybe 2% if you were lucky, but inflation, oil food, etc, cost less just a few years ago. Now, thanks to war debt and other oil related inflationary impacts, you can plan on yields of 3% or less and inflation headed towards 5%. In addition, in this liquidity trap, you will be outright stupid to invest in stocks, bonds, homes, cars, art and thus will be stuck in a position, a trap, where inflation will burn up your cash.

Have a nice night and 20008, 09, and beyond, and dont forget, no matter what sham political puppet is elected, no one will be able to fix this Bush engineered mess, for probably a decade!

Peace baby

"If you want to park your money and get a "savings" rate on it, then what do you expect? That your savings account should always be above the rate of inflation? Expecting that is entitlement..."

A significant fraction of the population has neither the IQ nor the education to successfully beat inflation. However given high inflation and plenty of repetition, they are capable of catching on to the idea that no simple, accessible investments exist and they might as well spend all income the moment it is received.

This lesson appears to have been learned.

Kicker,

Clearly, you have never heard of the Texas Railroad Commission.

Find a Texas oilman and ask them what the word 'allowable' means.

Sivaram,

There really is no point in arguing with anyone who uses the term 'fiat currency' like it's a bad thing. You'd know the Fuggers whined about it too, with their pathetic 'mit papier dan baargeld'. Let them have their screaming rants, and if we get upset, then we can demand to trade our 12 marks of silver off them for their mark of gold, as that is the proper and natural rate.