February 20, 2009

Stupid, Mr. President. Very stupid.

So, the housing plan is out. Cramdowns, mod's and all the other good times. Reich thinks the mod law and bankruptcy cramdowns will give the servicers leverage with the MBS holders. Yeah. Sure. Since they're under a legal obligation to listen to the servicers and all. Unless this law rewrites FAS 140 and overcomes ruining the Q, they're going to sue. And this may all end with 30 year mortgage rates in the teens.

Sure, I could be wrong. I certainly was about my bet with John Sharp. Of course, my side of that bet was predicated on smart people doing smart things. So far, that hasn't happened.

My big problem with the housing plan is that the damn thing rewards bad behavior and allows many people to profit from their bad behavior, while asking the investor to take it on the chin.

Let me tell you a little story... my family owns rental property. My grandmother depended on that income from those properties. When someone didn't pay, she felt bad but that was HER INCOME. Further, these folks signed a contract to pay a certain amount every month. She wasn't a monster, she'd work something out with them if possible, but she didn't write down what was owed. The payment was the payment. Millions of retiree's depend on income from MBS and you're, in effect, telling them to stock up on tender vittles.

This is the equivalent of letting everyone underwater on a car get the balance written down. I have no problem with the government subsidizing an interest rate for a borrower either directly as part of a refinance or through the purchase of MBS in the open market to a point where they can afford to pay. I do have a problem with a principle cramdown. When you buy a house, the people who lent you the money didn't write into the loan that they wanted to share in appreciation when you sell the house for more than you paid. Why the hell should they now share in your loss because the house isn't worth as much as you paid?

I am acutely aware of the crisis. I know people need help. I also know that the quickest way to get us on the path to recovery is to end the decline in housing and we can't do that until we arrest foreclosure rates. Unfortunately, this plan will end up causing more pain for far longer in an effort to help even those who really don't deserve it and couldn't afford their homes even at a 1% interest rate.

My plan is better.

Posted by mcblogger at February 20, 2009 02:02 AM

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