True just sending money is not incentive compatible. But there is no reason to bail out homeowners. Just intervene in any mortgage default. Seize the property and continue making the mortgage payments. In the short run rent the property back to the homeowner.
This is what I have been advocating to my colleagues. I don't know why it is not under discussion. Before going with the arbitrary implememtation that Paulson is proposing now there should be some convincing argument that it's more efficient than this alternative. It is clearly the most direct approach and therefore should be the default (so to speak.)
There are inherent issues here: at what rate do we rent to the current occupants? How do we make the banks pay for their folly? Also, the government is not a notoriously effective landlord. On the other hand, it punishes the homeowners without putting them on the street, and eventually the houses will be worth something.
The rate of rent is easy to determine- you do it the same way it is done for every other renter.
I'm totally confident this plan wouldn't require a bureaucratic apparatus to rival the Pentagon in size, complexity, and fiscal opacity. Nor would there be any need for a huge increase in administrative law judges to hear complaints about the level of rent, the threats of eviction for non-payment, or the mold problems.
Of course, being government, there would be great political pressure to simply set absurdly low rents vs the market, thus putting every other landlord under financial pressure, many of whom are also mortgage holders.
Nice idea, except it would set up the next catastrophe, as Yancey indicates. And it would play out just like this one. Long after everyone knows how bad the market distortion is, Congressman Frank would block any legislation to establish more reasonable rents (i.e., what the market would clear, if there were a market), until real estate lending froze and a wave of real estate failures swept over the land...necessitating another bailout.
And that's before accounting for the secondary effects of moral hazard.
So who's your mystery sympatico?
Megan, whom are you citing? Linkage?
Anyone have any thoughts on the WSJ's Jenkins plan?
Housing stock in South Florida, at least, appears to me to be overly abundant. As expected from a bubble market, providers eagerly overbuilt for several years for buyers eager to buy, hold, and resell at a 50 percent profit after six to twelve months.
Why not get the feds to buy the foreclosed items in some markets and flatten 'em?
Won't the government own those foreclosed homes when they buy up blocks of mortgages, anyway?
They're blocks of thousands of mortgages; approx. 80% are good, 10% could be good with some adjusting, 10% foreclosed. The problem is sorting them out from the maze of other mortgages.
What happens to the homes foreclosed in a group of mortgages? We gonna spend tax-payer money to mow lawns and heat them to prevent a freezeup this winter?
I think we'll be doing just what you suggest, already. And Rob Lyman, it will require an apparatus to oversee.
Rob Lyman: "I'm totally confident this plan wouldn't require a bureaucratic apparatus to rival the Pentagon in size, complexity, and fiscal opacity. Nor would there be any need for a huge increase in administrative law judges to hear complaints about the level of rent, the threats of eviction for non-payment, or the mold problems."
Yeah, really. And the insurance liability issues, and so on, and so forth.
And why would dispossessed homeowners who have been converted into renters care about maintaining the property at all? They wouldn't. They'd be pissed at the non-bailout bailout coming on top of the actual bailouts of FNMA, FHLMC, and AIG. Many of them would start making plans to get out and they'd stop paying rent 6 months before leaving, and a lot of them would strip the property bare before leaving. Some on-the-fly government agency is NOT going to be equipped to deal with this.
It's a NIGHTMARISHLY STUPID idea, in fact.
You might be able to salvage something by offering homeowners some sort of redemption program - forgive their arrearages and reinstate them with a mortgage if they pay in a timely fashion for a year or so. But I'm not sure how the mechanisms get set up or how big the problem is. I'm not sure anyone is.
Just some anecdotal evidence, not really on-topic here, but interesting.
I have seen a lot of newly constructed commercial property sitting empty in the last 3 months, and a lot of under-contruction commericial property left unfinished. Methinks there is a lot of bad debt in commercial real estate yet to be disclosed.
I totally agree with this. The government should simply buy houses that are in distress.
Calculating the rent is straightforward -- it would be market rent.
I would also have cram downs to punish the banks. Given that rents are so much lower than the carrying cost of houses, the Government will be losing money on this. So, lower the mortgage value by cramming down the loan.
-winterspeak
I came to a similar conclusion a few days ago.
They should just buy up the "bad" mortgages (no Mortgage Backed Securities) that were in a state of nonpayment (or already in foreclosure) for the last six months.
If the owner has significant equity, then a refi with a 5% penalty on top of the loan. If no equity but they can afford the payments, a refi with 20% penalty. If neither, than a seizure of all equity and whatever they can afford for rent, providing it's at least 50% of the market value, otherwise they never could afford it and out they go. The agency should sell the renter/empty homes gradually at a steady rate to take advantage of dollar cost averaging as the market finds its footing and begins to recover. The refi loans could be resold to the private market once the market solidified and the refi holders achieved 15% equity. A renter could convert back to a refi if they accumulate a 15% downpayment and qualify for a refi before the house (selected by lottery) comes up for sale.
Finally pass legislation to impose simple bright-line rules on the industry: 15% minimal downpayments for a new mortgage, and no equity loans beyond 60% of current equity. Then convene a federal grand jury to investigate Dodd's special mortgage deals, Barney Frank's relationship with Fannie/Freddie, and Jim Johnson, Raines, and Gorelick for the Enron/WorldCOM/Tyco treatment. They are lucky they don't live in the PRofC, were they have a more immediate solution to serious white collar malfeasance.
winterspeak writes: "Calculating the rent is straightforward -- it would be market rent."
Sorry, but this makes no sense. Why would people pay "market rent" to live under the most absentee landlord imaginable? That would be purely idiotic.
How about utilities, especially with the winter coming up? Would the tenants be responsible for them in all cases?
Who would qualify tenants? How would it be done? If it isn't done carefully, you'll have lots of system-gamers occupying houses and paying nothing.
Mike & MarkG, the simpatico is Jeff Ely
link: http://www.marginalrevolution.com/marginalrevolution/2008/09/jeffrey-elys-pr.html
There are a bunch of different ways the government could help, really. The problem is a balance sheet issue (of many of the nation's financial institutions). You could in theory just reduce their debts (I don't for the life of me see understand how this would work, but that U Chicago fellow who writes for one of the NYC papers is pushing this idea). You could simply inject capital in exchange for equity and not even bother to deal with their toxic assets (my preference). Or you could simply inject capital by overpaying for said toxic assets and not get anything in return (shockingly, this is the preferred option of the Republican administration). Or yes, I suppose you could try and manipulate the housing market into raising the value of the underlying assets. It sounds complicated, though. There are millions of behind-in-their-payments mortgage borrowers -- or borrowers who have long since abandoned their properties. There are only 800 or so firms the government won't let you short. And I don't doubt a good number of these are in decent shape and don't need a bailout. Writing several hundred checks sure sounds like a much easier task -- from the perspective of simple logistics -- than seizing millions of abandoned properties and dealing with all the loan servicing issues (yes, I know vendors exist for that sort of thing, but still, somebody has to check up on them).
Such a plan is impossible to administer. It might take two years to get the bureaucracy in place and even then it would be a mess, soon filled with its own corruption. Your talking about hundreds of thousand of individual deals each with it's own complications. Who pays the taxes for instance? Who manages said rentals?
No, it's much simpler to just give the money to Treasury and their small bureaucracy, Hank and some guys he hires, with simple mostly secret rules, giving the money to a few dozen corporations.
The beauty of the real estate bubble plan was that the blow up would be so widely distributed among common folk that no plan to work out individual cases could possibly be devised. The bailout was always going to go into sopping up the damaged paper.
I would also have cram downs to punish the banks.
That would be a taking without just compensation.
For that matter, taking ownership of the house itself would also be such a taking; it rightfully belongs to either the mortgagor (homeowner) or, if properly foreclosed through the required procedures, the mortgagee (whoever the hell that is for securitized mortgages).
You could get a distressed mortgagor to sell to avoid foreclosure, and you could arrange a consensual reduction in mortgage payments with the mortgagee (or the millions of them who bought CDOs), but you can't just jump in and do this by force.
So, as for why this isn't under discussion: it's illegal.
Forgive my naivete. For people with no equity in their homes anyway who are nervous about whether they will be able to make payments in the future, if the rent is less than they are paying for their mortgage what is to stop people from letting the house go into foreclosure and then renting it from the government for less?
(if this is a really dumb question I apologize)
Who would qualify tenants? How would it be done? If it isn't done carefully, you'll have lots of system-gamers occupying houses and paying nothing.
No problem. I know I trust the same government that brought us Mission Accomplished to engage in millions of complicated, detail-oriented transactions, or carefully supervise the hundred thousand realtors and property management firms who will undertake the work.
j asks: "For people with no equity in their homes anyway who are nervous about whether they will be able to make payments in the future, if the rent is less than they are paying for their mortgage what is to stop people from letting the house go into foreclosure and then renting it from the government for less?"
Nothing. In many cases they'd be foolish not to do exactly that, especially if the rent was significantly less.
And who's paying insurance and property taxes on these properties?
Rather than having the gov't take ownership, it would probably be better to put the home into some sort of conservatorship (i.e. the person who took the mortgage still nominally owns it), and provide a mechanism to take some payment amount from the wages of the mortgagee.
Obviously there are difficulties with this, but I don't see them as being inherently greater than a small group of people valuing assets that the market can't seem to assign a value to.
Nice idea, except for the part about the government being involved. If the homeowner is unable to pay his mortgage, let the lender foreclose and then rent the property back to the (former) homeowner. Or, put the house back on the market. Or, renegotiate the terms of the mortgage with the owner. Or, just hold it and pay for the maintenance and upkeep until things rebound. Or, whatever the hell they want to do with their problematic investment.
After Oxley-Sarbanes passed, much money left the mainstream Wall Street firms and went into hedge funds and other investments that were not subject to the requirements of Oxley-Sarbanes. Now, congress is asking for limits on CEO and executive pay for any Wall Street firm that is assisted by the federal government. If there are any qualified leaders left on Wall Street, they will probably leave if their pay is capped.
BTW, I like your suggestion that the the federal government, or an agency created by the feds, simply take over paying for mortgages that have defaulted.
Re: Of course, being government, there would be great political pressure to simply set absurdly low rents vs the market, thus putting every other landlord under financial pressure, many of whom are also mortgage holders.
If the current occupants are already renters (which is the case with many houses bought for "investment", i.e., speculative, purposes) the solution would be to continue their current rent. For former owner-occupants there'd be a bit of a tussle with determining fair market rent but this could be isolated by only allowing current occupants to rent, not throwing the house out on the rental market to everyone. When current occupants decide to move on (or after a set period of time, say two years) the house could go on the market for sale. There are by the way real estate management companies which specialize in managing rental properties so there would be no need for the government to become directly involved with the tenants.
Re: Why not get the feds to buy the foreclosed items in some markets and flatten 'em?
The foreclosures are all over the place, not just in any one neighbrohood. Inner cities, suburbs, exurbs, small towns, the middle-of-no-where. Except in the latter case no one is going to appreciate a barren, weedy lot next door.
Re: How about utilities, especially with the winter coming up? Would the tenants be responsible for them in all cases?
I have never rented a house (as opposed to say an apartment) where tenants were not responsible for the utilities, with my water bill now being the only exception (my landlord handles it). I hardly see that as a big problem.
Re: Why would people pay "market rent" to live under the most absentee landlord imaginable?
See above: the government would have to hire a management company to do the nuts-and-bolts of landlording.
This alternative is not only an alternative, it is a better alternative.
It directly addresses the root causes, foreclosure risk and price declines.
It also indirectly addresses the problem with derivatives, because it provides a credit backstop to loans.
The right interest rate to charge will be no harder to determine than the "right" "hold-to-maturity" price. I'd guess the rate should be 150-200 points higher than prime / convention mortgage rate.
If the government's terms are known, it will be no harder to administer than say, the "Hope Now" alliance (and could be done by loan servicers, even). The bare-bones of an Administration already exists within the FHA, who make and insure loans.
What's more, this solution is the only one that is robust.
Bush-Paulson-Bernanke plan may just be a down payment. It does NOT provide price discovery or liquidity, as would this plan. All it does is provide a capital infusion at a fictitious price to companies with politically connected CEOs who can call the Treasury Secretary if they don't like the prices he is bidding for their securities...
Because it is a one-time capital infusion, it may not cover all the losses, yet to come. Consider that defaults continue to spiral. The underlying assets continue to melt, even while the Fed/Treasury is holding onto them. The credit default swaps and the CDOs that do not get a bid suddenly require another mark-to-market. Then Banking system seizes up again.
No, Megan, your friend is right, I'd say. The way to go is to think ahead and to get directly involved at the source: mitigating some foreclosure risks and providing and interest backstop for lenders, at a price.
Anon Y. mous writes: "Nice idea, except for the part about the government being involved. If the homeowner is unable to pay his mortgage, let the lender foreclose and then rent the property back to the (former) homeowner. Or, put the house back on the market. Or, renegotiate the terms of the mortgage with the owner. Or, just hold it and pay for the maintenance and upkeep until things rebound. Or, whatever the hell they want to do with their problematic investment."
All of that is already happening.
"See above: the government would have to hire a management company to do the nuts-and-bolts of landlording."
I'm sure the property management equivalents of Halliburton and Blackwater and 500 other beltway bandits would be happy to put in a bid for the job.
JonF quotes and replies: "Re: Why would people pay "market rent" to live under the most absentee landlord imaginable?
See above: the government would have to hire a management company to do the nuts-and-bolts of landlording."
Exactly. There's your first layer of corruption.
"Re: How about utilities, especially with the winter coming up? Would the tenants be responsible for them in all cases?
I have never rented a house (as opposed to say an apartment) where tenants were not responsible for the utilities, with my water bill now being the only exception (my landlord handles it). I hardly see that as a big problem."
It's a problem if the pipes burst and the government takes a huge bath when trying to sell the property. Remember, I'm responding to people who are suggesting renting the properties out to folks who have been foreclosed on.
With expected winter heating costs in the $3000-5000 range, it can become a "big problem" if you're dealing with enough properties.
This idea looks good on paper and, if executed flawlessly might cost less than the 700 billion number. However, many house currently in default are currently unoccupied because A. the defaulters were already kicked out or B. there was no one living there in the first place because some house-flipping turd bought it and kept it fallow thinking he'd get some idiot to buy it when it was "worth" a half million dollars. There are housing developments out there where you couldn't get a ghost to haunt them much less get some sucker to rent them. Further, this idea holds the same problems I see with our fearless sec of treasury's idea of bailing out the banks - it has the possibility of pumping air into the housing market to hold up prices that need to be lower by as much as another twenty percent - and thus reflect reality - before we can get past this crisis. There's a hole in the bubble but the treasury is trying hard not to let the air escape the bubble.
I don't know why it is not under discussion.
I agree! Make people pay their own government for the privelege of continuing to live in their homes. Dear lord, why on Earth has this not been raised earlier? After all, when you come right out and say it, serfdom just kinda says "American Dream," don't it?
... great minds, indeed...
mlr,
Huh? So, if you buy a house with 0 down and make a few payments you should be able to stay forever without paying? What you said doesn't even make any sense...
Why buy the houses when you can just buy the mortgages? The government could offer to buy first mortgages for 50% of the face amount or 50% of the current appraised value of the underlying property, whichever is lower. The loans sold to the government would mostly be non-performing loans. The government could then write down those loans by 20% or 30% and try to get the delinquent borrowers to start making payments again. Whether they did or didn't, as long as real estate prices didn't fall another 50%, the government would eventual break even or better on the deal.
By putting a floor under the price of mortgages, this deal would, presumably, stabilize the market for mortgage backed securities and CDOs derived from MBS. If not, the same financial engineers who put the complex securities together could figure out how to unwind them and sell the underlying mortgages to the government. Since mortgages would be easier to value than the securities derived from them, the government would be less likely to overpay and more likely to turn a profit on the whole deal.
Incidentally, I've read about entrepreneurs in Bergen County, NJ and Orange County, CA who are already doing this. The model works, but there probably isn't enough private money to have a quick impact here.
@jmo
Of course I didn't make any sense. Because of course when the state owns your home, and you pay the state to live there, that's not serfdom. No! Everyone knows it's not serfdom as long as people aren't running around in Maid Marian dresses and Robin Hood tights.
As for whether people should or shouldn't be able to live in their homes after paying 0 down and then being unable to make the payments, please, feel free to explain to them how they aren't. Gather them all up, give them pitchforks and torches, y'know, to lean on and stuff, and I'm sure they'll very calmly listen to how throwing them all out is the right and proper thing to do.
feel free to explain to them how they aren't.
Are you suggesting that the average US homeowner is accustomed to receiving housing rent and/or mortgage free, or unfamiliar with the concept of eviction for nonpayment? Really?
The government already has an ageny with considerable experience as a landlord: HUD.
@RobLyman
If I wasn't clear, then please let me be: they should be made to regard the former as unthinkable, and made very familiar indeed with the latter. As the political class in your country is spineless, I don't expect this to be the case, as doing it properly would probably require alot of force (to prevent riots, and general social instability).
As it is, what these delinquent home"owners" own is not clear, uncertain; uncertainty tends to lead to violence. Throw them out, or render them serfs... I'm just not sure how either is going to be sold to people without upheaval. Good luck with that, though, eh? I'm gonna get some popcorn and enjoy my front row seats.
*shrug*
Rob Lyman asks: "Are you suggesting that the average US homeowner is accustomed to receiving housing rent and/or mortgage free, or unfamiliar with the concept of eviction for nonpayment? Really?"
Doesn't matter. In the Brave New World Dumbya's reign has wrought, bankers can go belly up and emerge unscathed. Jumping out of windows on Wall Street works out okay when your pals in the government are handing out golden parachutes for free.
And so what if in that Brave New World a few undeserving homeowners get some goodies as well? Sure, it goes against the Republican belief in reaming the little guy every chance you get, but you'll get over it.
Throw them out, or render them serfs... I'm just not sure how either is going to be sold to people without upheaval.
People are thrown out of their homes and apartments every day. Most jurisdictions have special courts just for that purpose. It's not a big deal. I can't imagine any reason for it to become a big deal; the political class may be spineless, but "we want to live rent-free in our McMansion while keeping our Beamer" isn't going to be a political winner. The responsible middle class and the poverty advocates will both be disgusted, and most of the people we're talking about do, in fact, have something to lose from violence.
Megan writes: "The government already has an ageny with considerable experience as a landlord: HUD."
An agency that's probably already overextended and underbudgeted and has been reviled by conservatives from the beginning. But you're right.
@Rob Lyman,
It's not a big deal.
Oh, sure, NOW you tell me, after I already start nuking the popcorn.
I shoulda known, really... if it's all over the headlines, that's "not a big deal." I always get that backwards.
Rob Lymans: "People are thrown out of their homes and apartments every day. Most jurisdictions have special courts just for that purpose. It's not a big deal."
Unless it happens to you at the hands of the federal government while that same government is giving prostate massages to multimillionaire bankers who screwed up the system in the first place. I could see it becoming a big deal.
I shoulda known, really... if it's all over the headlines, that's "not a big deal."
You're using two different referants for "it." The credit crisis is a big deal. Eviction is not a big deal. If 90% of homeowners were being evicted, maybe we'd be worrying about riots. We're talking about less than 10%, and most of them aren't the rioting type, being middle-class types for whom a prison term, even a short one, is a rather big deal.
Rob Lyman again: "Eviction is not a big deal. If 90% of homeowners were being evicted, maybe we'd be worrying about riots. We're talking about less than 10%, and most of them aren't the rioting type, being middle-class types for whom a prison term, even a short one, is a rather big deal."
You're assuming the current status quo remains so. But if we do have a severe recession/depression you'll see some riots and some McVeigh-style activity. There's a long history of riots in this country and it would be overly sanguine to think it won't happen again.
I could see it becoming a big deal.
Yes, but the far more likely result is that the prostate massages stop rather than the evictions stop.
You're assuming the current status quo remains so.
Sure. If we have 25% unemployment, all bets are off. But frankly, if we get there--or indeed, if mortgate defaults rise to the point that defaulters are a plausible voting bloc--then pretty much any bailout plan, including the 5th Amendment special which is the subject of this post, is pointless.
I'm not saying riots can't happen. I'm saying they will require the flippers and overextended strivers to lose everything, not just their houses. Nobody is going to risk his life and a prison term if he has well-fed kids and a plasma TV to go home to, even if his home is a crappy apartment.
Rob Lyman: "I'm not saying riots can't happen. I'm saying they will require the flippers and overextended strivers to lose everything, not just their houses. Nobody is going to risk his life and a prison term if he has well-fed kids and a plasma TV to go home to, even if his home is a crappy apartment."
I think you're underestimating the numbers of the already-disaffected and dispossessed. It won't take 25% unemployment to set things off. I'll bet you 10% would do it.
I already guarantee that an Obama presidency will see some McVeigh-style incidents even if the economy is relatively stable. There are a whole lot of well-armed nuts out there and the dogs of wingnut radio will be whipping them into a frenzy once again.
The government already has an ageny with considerable experience as a landlord: HUD.
Posted by Megan McArdle | September 24, 2008 7:02 PM
???
Please tell me that this is the punchline and I'm being obtuse.
I already guarantee that an Obama presidency will see some McVeigh-style incidents
What are the current prices you're offering on derivative securities tied to the occurrence of such incidents? I'd like to hedge against the boredom of peace and prosperity.
Re: Exactly. There's your first layer of corruption.
Most apartment complexes and even many rental houses are already managed by such companies. If corruption is problem we already have plenty of it.
Re: It's a problem if the pipes burst and the government takes a huge bath when trying to sell the property.
I fail to see the point. Of course tenants can damage a property or neglect it. And of course landlords must be willing and able to put up the money to maintain a property. That's true already. Presumably tenancy would be conditional on responsible behavior. the one difficulty I can see is how tenants disatsfied with how the property was managed would be able to register that disapproval.
Re: With expected winter heating costs in the $3000-5000 range
Where? The north slope of Alaska? Or heating an uninsulated mansion the size of the White House? Friends of mine (who live in wintery places like Michigan and New York) bitch about their heating bills, but these are in the $200-300 a month range during full-on winter. That's about half what you estimate. (And many of these foreclosures are in places like Florida and California where heating costs are pretty nominal).
Re: But if we do have a severe recession/depression you'll see some riots and some McVeigh-style activity.
Riots, maybe-- we've had those even in fairly good times (1967, etc), though the goad was usually racial. But I don't recall massive civil violence even at the heart of the Great Depression, let alone during any past recession, including the 19th century Panics when the safety net (other than private charity and families) was non-existent.
Re: I'll bet you 10% would do it.
I believe we've been there in living memory-- my memory even (1980-1982 recession). Unless you think the Miami riots of 1980 were caused by the recession (and I would disagree) I don't think this created civil upheaval. Even 1/3 unemployment in the 1930s didn't lead to revolution.
This seems like a rather silly plan. Guaranteeing mortgages in some form or another? That ship has sailed, and sailed a long, long time ago. About three years ago as a matter of fact. For while the subprime crises may have 'caused' the lending crises, the 'alternative banking' crises etc., the truth of the matter is that the more accurate characterization is that it _exposed_ the sham of 'alternative banking'. Moving in a timely manner on the subprime crises would have been like plugging a hole in a dam whose contractors reaped immense profits by using rusty rebar and concrete that's nintey-five percent sand. Yes, that particular Bad Thing is going to be avoided, but there will be a guaranteed succession of Bad Things, any one of which is more than capable of bringing the whole shebang down.
Yes, by all means, give the courts the power to renegotiate terms for some homeowners. Trim and nip and tuck whenever and wherever possible. But the fact of the matter is, what's really required to prevent the same thing from happening again is some serious oversight, as well as some other reforms.
Starting with making it a condition that any company seeking relief must have it's upper echelons go on TV and publicly apologe for having messed things up so badly, as well as admitting that they were not worth a plugged nickle, let along the extravagant compensation packages they were awarded.
Also: capital gains must be taxed at the same rate as ordinary income. I think the notion that investors need that bit of manuveuring room to efficiently allocate resources has been much, much more than thoroughly debunked.
Give the SEC and other regulatory bodies some real teeth, a real budget and real manpower. Again, this unregulated marketplace is a better marketplace nonsense has been - or should be - disproven quite convincingly to all but the most partisan.
And while we're at it, stop with the privatization nonsense as well.
Put the people who were right all along in charge. Kick out the bums who weren't.
I could go on in more detail, but I think everyone gets the idea. Failing this, we're only going to lurch from one self-made crises to the next, from one decade to the next, each time emerging poorer for the experience, until the U.S. has a more than passing resemblence with Russia in 2001.
I already guarantee that an Obama presidency will see some McVeigh-style incidents
Funny, didn't some columnist recently promise race-riots if Obama lost? Wow, win or lose there will be violence. What a deal.
You know, if a way, William Ayers was really the proto-McVeigh with his hatred or and attacks again the US gov't - though Ayers' relative incompetency was sort of a saving grace. Of course, I tend to thing that McVeight's attack was all-too-competent for his hate-filled pea-brain, which is why I never bought that there weren't other conspirators.
JonF replies: "Friends of mine (who live in wintery places like Michigan and New York) bitch about their heating bills, but these are in the $200-300 a month range during full-on winter. That's about half what you estimate."
Bullshit, Jon. Home heating oil is well over 4 bucks a gallon these days. Ask your friends what they expect to pay THIS YEAR.
Of course a lot of them will end up shivering just to get by. Which might be fine if they don't have small kids or they're not elderly.
Holdfast writes: "You know, if a way, William Ayers was really the proto-McVeigh with his hatred or and attacks again the US gov't - though Ayers' relative incompetency was sort of a saving grace. Of course, I tend to thing that McVeight's attack was all-too-competent for his hate-filled pea-brain, which is why I never bought that there weren't other conspirators."
Only a conservative would compare Ayers - who never killed anyone - with McVeigh, who, uh, sort of did. It was in all the papers.
Ayers committed wrongful acts, but at least he was protesting a genocidal, insane war. McVeigh didn't have that going for him.
Compare McVeigh to Rusty Calley instead.
Megan,
Responding directly to your opening suggestion: For legal & practical reasons, having the government seize houses with defaulting mortgages isn't realistic. However, it seems to me that it wouldn't be that difficult for Congress to craft a plan which gets sub-prime mortgages insured by the Federal Housing Administration. When a homeowner defaults on an FHA insured mortgage, the holder of the mortgage can either assign the mortgage to FHA for full payment or foreclose. Obviously, they typically assign the mortgages to FHA.
As the mortgage holder, FHA could negotiate with borrowers and, hopefully, allow many of them to keep their homes by giving them new mortgages that they can afford. In cases where there is no choice but foreclosure, FHA could foreclose and sell the homes.
There has been a good deal of discussion about setting up an agency like the New Deal Era Home Ownership Loan Corporation but little about the role of FHA. (BTW, when Fannie Mae started out, it only bought FHA insured mortgages, which meant that its MBSs were very safe.) I don't understand why there hasn't been more interest in finding creative ways to use the FHA -- which already exists & has plenty of experience with defaulted mortgages. Actually, the same could be said of the FmHA and the VA programs.
By putting a floor under the price of mortgages, this deal would, presumably, stabilize the market for mortgage backed securities and CDOs derived from MBS.
=====
Bingo!
By putting a floor under the price of mortgages, this deal would, presumably, stabilize the market for mortgage backed securities and CDOs derived from MBS.
=====
"Bingo!"
What deal is this referring to?
Many could be saved simply by lowering their rates of interest to a point below what would have been considered usury a half generation ago. A forced reduction in in the interest collected will not put any bankers out on the street. They just might not be able to buy the third house in the Bahamas as quickly as they hoped.
The fundamentals of the economy are strong according to John's gospel and those fundamentals are the American workers. Why are we not letting the strongest of our fundamentals a place at the table when considering the options? I'd like to see a citizen's committee somehow involved instead of a bunch of greasy congressmen and investment types.
Enjoy.
It blows my mind that so many people on this board are seriously weighing the merits of this idea. We are talking MILLIONS of sub-prime mortgages in various stages of foreclosure, some already abandoned, many stripped of copper, vandalized etc.
So let us create a gigantic bureaucracy to set rates for these "rentals", maintain the properties, collect the rent, flood the already overburdened housing courts or create new courts, and everything will be just fine.
The Govt. couldn't pull this off without near-dictatorial powers. And all these problems completely ignore the fact that this is completely immoral and possibly unconstitutional.
I know the standards for beltway libertarians are pretty low, but you are quickly becoming a parody, Megan.
The way to do this - or at least the part that might do some longer-term good - is for the government to offer subsidies or premia to the private enterprises who find the foreclosures which are on the market cheap in a rentable state, rent them out with a first offer to the old owners, and manage the property thereafter. These companies should definitely not lose if they turn a quick buck by selling the property back to the original owner at a bit more than they paid the bank for it, and fix a more affordable mortgage for the owners.
It needs some careful design of the detail and a procedure for improving the format as we go. Uncle Sam will be ripped off for something in the process, but an order or two of magnitude less than under the Paulson bail-out.
Here's my (probably ill-considered) proposal. Banks can put any loan they chose up for auction. The government provides a minimum bid (say 20 cents on the dollar). Anybody can buy the note, but if goes to the government it is converted to a tax lien against the person who took out the mortgage.
This way, banks get the bad loans off the books, albeit at some cost to them. Private money I assume will provide most of the funds, and in the case where the taxpayer is put on the hook, the bad mortagee doesn't get off scot-free.
Where are the flaws in my plan?
Fortunately, commenters here are not the only people thinking about working with borrowers to renegotiate mortgages to avoid foreclosures. I heard in testimony about Fannie & Freddie that both of them now have active programs to do so. Also, the head of the FDIC is an advocate of this approach and is doing it with the mortgages that the FDIC acquired when it took over IndyMac.