Milken: A Troubled Nation Turns to You

[don]

Is it time for underwater homeowners to be given a get-out-of-debt-free card?

Some housing experts believe there is no alternative but outright forgiveness of a substantial chunk of mortgage debt for many people who are at risk of foreclosure.

Tom Petruno
Market Beat

June 27, 2009

Government and private-lender attempts to stem the home foreclosure crisis so far have mostly focused on loan modifications or refinancing -- giving borrowers a temporary or permanent reduction in their monthly payments.

But some housing experts say the next wave of help will have to address the core problem for many homeowners: negative equity.

This camp believes that there is no alternative but outright forgiveness of a substantial chunk of mortgage debt for many people who are underwater in their homes and at risk of foreclosure.



One proposal for a debt-forgiveness program was floated this month by the Milken Institute in Santa Monica. The plan, authored by institute President Michael Klowden and regional-economics director Ross DeVol, would refinance existing mortgages of underwater homeowners with new loans from the government.

Klowden and DeVol call it the "homeowner principal forgiveness vesting plan." Here's how it would work:

Say an owner's mortgage is worth $400,000 but his house is valued at $300,000. The government would refinance the $400,000 loan with two new loans. Fannie Mae, the mortgage financier now under government control, would provide a first loan for the market value of the house, in this case $300,000. The Treasury would issue the second loan, in this case for $100,000.

The Treasury loan would be interest-only and would provide the vesting part of the program. For each year that the homeowner keeps up payments on both loans, one-fifth of the Treasury loan would be forgiven.

"This gives homeowners the incentive of returning to a positive net-equity position before their hair turns grey -- maybe even in time to pay for their children's college education," Klowden and DeVol wrote in a summary.

They estimate that the cost to Treasury (and thus to taxpayers) of saving 1.5 million homes from foreclosure or abandonment with this plan would be between $75 billion and $100 billion. That assumes the government wouldn't jeopardize the original lenders' balance sheets by forcing them to share in the cost via haircuts on their loans.

http://www.latimes.com/business/la-f...2308676.column

[don]

Re: Milken: A Troubled Nation Turns to You

We seem to be recycling our crooks. Must be a shortage at the top, or is this a green thing?

[D-Mack]

Re: Milken: A Troubled Nation Turns to You

Banks already "help" according to him

The real problem is this: The banks have been and still are lying about the value of these loans.

Nowhere is this more evident in the mortgage arena. People are being "allowed" to remain in homes where they have stopped paying the mortgage and banks are sitting on the foreclosure process.

Why? Because if they foreclose and sell the house they are forced to book the loss. But if they "forget" to foreclose they can hide the fact that there's an embedded loss, sometimes as much as 50%, from both regulators and shareholders!

The same thing is going on in Commercial Real Estate. Rather than force the defaults that are occurring to be recognized and foreclosed, the banks are "pretending and extending" terms. That is, ignoring the default and extending the terms of loans even though they are not performing, as this way they can (and are) avoiding taking the write-down.

This is accounting fraud, by the way, but nobody in the regulatory or law enforcement apparatus of this country seems to care.

http://market-ticker.denninger.net/archives/P2.html

[vanvaley1]

Re: Milken: A Troubled Nation Turns to You

When and how would one pass such a bill now? Bailouts generated a well-deserved scorn for how they have been used and abused with benefits directed to a small segment of the population. You might get some voters who are underwater supporting this but the 'opposition' party would ride this political pony into hell and back again. They'd not care if it helped the general economy regardless if it would work or not in freeing up cash to be spent consuming again, bringing in more taxes to relieve the local, state, and federal governments again, and banks seeing 'real' savings increase as debt is paid off and the lessons of saving more while consuming moderately was acknowledged by the public. And if you'd really like to hike the economy's skirts and 'conservatives' hackles adjust the CPI for determining the social security payments back to the Carter criteria. Ya don't think there's a ton of new and soon to be baby-boomer grandma's and grandpa's out there that would spend that extra money on helping their kids and grandkids while fattening their own 'real' savings account a bit?

If the banks aren't gonna step up to the plate and stop taking pitches rather than swinging at some then bench them. How are ya gonna pay for all this increased debt? There are ways. They're just not a politically appetizing meal that most politicians would enjoy snacking on.

Nah. it's better to continue to hammer the economy into the ground, continue to squeeze the working poor and middle class into oblivion while reducing their social services, be content with a 10+% unemployment rate as an 'acceptable' standard for an economy, and keep on siphoning what wealth remains into the obscenely wealthy folks pockets who can't spend enough to revitalize an economy, preserve their wealth by 'saving it' in conservative investments rather than risk it in productive ventures, keep subsidizing corporate corruptions piggy banks, and continue to support non-productive overseas foreign adventures and overinflated defense budgets.