From LBN re: mortgage bailout

[Lone_Star_Dem]

I saw several post in GD today regarding the much talked about possibility of a mortgage (lender) bailout. I had posted this article in LBN last evening which covers some of what is expected to be involved.

I'll cross post it here for those who may be interested in reading it also.


Experts: Freeze on home-loan interest no cure-all

Source: Associated Press

WASHINGTON — If lenders temporarily freeze low introductory interest rates on home loans made to risky borrowers before they soar, it would be a modest fix for the country's fractured housing market.

The problems are so far-reaching, analysts say, that an emerging Bush administration-backed plan — nicknamed "teaser-freezer" by one economist — won't spare many borrowers, or bankers, from the pain of escalating foreclosures and defaults.

Edward Yardeni, an economist who runs Yardeni Research in Great Neck, N.Y., called the plan "better than doing nothing," but added that it is "not necessarily going to make a big dent in the foreclosure problem that's facing us" because thousands of borrowers still might not be able to make their monthly payments.

<snip>

The freezes would apply only for borrowers who are current on mortgage payments but unable to afford loans when they adjust to higher interest rates — and sometimes dramatically higher monthly payments. The Federal Deposit Insurance Corp. estimates that 1.1 million borrowers are in that situation.

More at link: http://www.chron.com/disp/story.mpl/chronicle/5345861.html

LBN discussion link:
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3086950&mesg_id=3086950

[GodlessBiker]

1. I don't see how this is not price-fixing when they all collude to do the same thing.

[Lone_Star_Dem]

4. Well, it's not being done secretly so I'm not sure it would be considered collusion.

It's also voluntary for the lenders and temporary.

My take on it is it's a bandaide over a gushing wound. The freeze would in effect forestall the inevitable foreclosures until a slightly later date.

They're also proposing refinancing for financially-able borrowers with subprime loans. However, most people in subprime loans are there due to not being financially-able borrowers. So...too bad for them.

Then there's the tax-exempt bond programs for those who qualify for refinancing. That's not going to apply to most of the people currently in trouble.

Overall, I don't see it as a classic case of price fixing so much as a bunch of lenders looking for a way to spread out their losses over several quarters rather than take the full hit at once.

[GodlessBiker]

5. The creditors who agreed to buy the loans at a higher interest payment might disagree.

And I don't think the fact that the plan is open and voluntary shields it from scrutiny. Most price-fixing agreements are voluntary (no one is holding a gun to their heads) and while they are not usually public, they certainly would be if being public about it shielded you from prosecution.

[Lone_Star_Dem]

6. Those who hold the notes won't complain

They're getting some return on their investments before they have to pay for foreclosure proceedings if this goes though. If it doesn't they get less return and still have to pay for foreclosures. They also benefit from not having to take all the losses at one time.

What I was referring to via the secrecy was the act of collusion, which is usually a deal which is brokered in secret. It also refers to a deal where one attempts to make higher profits and eliminate or drastically reduce competition. I guess I just can't see how that applies here.

As for the price fixing, if you could explain how you feel it applies I'd be grateful. I think I may have missed your point by being blinded by my own interpretation.

[GodlessBiker]

7. I would think that competitors who all agree not to raise prices (interest rates) on ...

products are guilty of price-fixing.

[enid602]

2. ????

"The freezes would apply only for borrowers who are current on mortgage payments. . ." WHY?

[Lone_Star_Dem]

3. Their reasoning is that those who are current on payments can afford their current rates

Remember, what's being proposed is a freeze in rates for a short time, not an actual lowering of rates.