[Cyndyjg]

BAILOUT? BAILOUT WHO?




OK, let's be clear: There is more than one investor in most 'investment' real estate transactions.
I never sold an "investor" a home during the boom. I do clearly understand why many homeowners are upset that their home values have dropped as multiple vacant homes in their subdivisions are foreclosed upon.

Yet, they may be worse off than they know.
Who funded those mortgages? It wasn't Countrywide or Wells Fargo or Aegis. Those are technically just mortgage servicing companies. It was an investor. That's why Countrywide and so many other lenders don't have money to lend right now. Because investors have stopped putting their money into those kinds of funds. This is no different than going to your bank to borrow money. The money they lend you is money that others have deposited with them in interest-earning vehicles.
But don't let that fool you. This is not some wealthy magnate sitting in a posh Manhattan penthouse with money to burn and ever-so-grateful for the tax writeoff. Those 'investors' were you and I. Our uncles and cousins. Our co-workers. Your 401(k) and mine, too.
It is investment funds that were pooled and invested -- and maybe later traded up to the higher interest-earning hedge funds that are now worth nothing due to this subprime lending fiasco.
Much as many of you would like to see the "investors" take a beating because you feel they took a risk and lost, I've got news for you: That investor may well be you.

[olecapt]

The economy has taken a bath as some large billions of dollars of value has vanished.

The queston is not whether we take the damage. It is there and will continue to grow until it has run its course.

Most "bailout" plans have as an intent to minimize the size of the damage. You want to maximize it or something?

[Cyndyjg]

We've had a lot of angry articles and letters in the Las Vegas Review Journal here lately from people who are arguing against a bailout. What I'm trying to get those 'screamers' to be quiet long enough to listen to is this: they may be saying no to a bailout that actually affects them as investors via their 401K, etc. without realizing that they are arguing against something that may help them personally. No one would argue that an investor who took a chance and failed is just going to have to suck it up and deal with it. But, I'm asking the average consumer to consider whether they, too, may be hurt in all of this. I say, nearly everyone will be. I'd like to see some sort of intervention, to salvage some degree of the overall health of the economy. But, that's my thought... It seems like, with the election year, we need to encourage people to think about what they are asking potential 'elected officials' running for office right now to do for them. It would be no good to ask a candidate to take a tough stance against a bail out, only to find out that we're all victims of this mess in some way, later. Now, you've got an official who ran on a platform against a bail out, and suddenly the citizens realize that a bail out of some sort may be vital to everyone's economic survival during this drama.

[bumpercar]

to the banks, brokers, bond insurers, hedge funds, foreign reserve banks and foreign sovereign funds. Sure, MBS and CDOs showed up in a few places they shouldn't have (like money market funds) and that will hurt a few people, but on balance the damage is limited to the hot-money crowd. And contrary to what you hear on CNBC, a spillover to the general economy wont happen unless things get much worse. The world is not short on money - it's awash in it, esp. governments and corporations. The world never needed all the cheap credit and oceans of liquidity, and it will surely survive even as the tide of the liquidity ocean recedes.

The people who *do* need the money are the banks. Fractional reserve lending is wonderful until things start going wrong. Those leveraged bets that earned them piles-to-the-sky of money are coming home to roost. There's no way to avoid the pain of defaults so the Fed is doing the next best thing - making it easy for banks to double their bets via the borrow-short-sell-long monopoly they and the banks have going. Problem is the market isn't cooperating, and the yield curve remains inverted. That's why the Fed announced their plan to pump money into Europe. They're trying to coerce LIBOR down since so many rates are anchored to it. If you recall a few weeks ago a Federal Reserve governor complained about how so many loans are tied to LIBOR, ie tied to things the Fed can't control. The market controls the LIBOR rate, the same way the market would control the general rate of money if it weren't for an institution being given a federally-mandated monopoly on it.

Originally Posted by Cyndyjg

BAILOUT? BAILOUT WHO?


OK, let's be clear: There is more than one investor in most 'investment' real estate transactions.
I never sold an "investor" a home during the boom. I do clearly understand why many homeowners are upset that their home values have dropped as multiple vacant homes in their subdivisions are foreclosed upon.

Yet, they may be worse off than they know.
Who funded those mortgages? It wasn't Countrywide or Wells Fargo or Aegis. Those are technically just mortgage servicing companies. It was an investor. That's why Countrywide and so many other lenders don't have money to lend right now. Because investors have stopped putting their money into those kinds of funds. This is no different than going to your bank to borrow money. The money they lend you is money that others have deposited with them in interest-earning vehicles.
But don't let that fool you. This is not some wealthy magnate sitting in a posh Manhattan penthouse with money to burn and ever-so-grateful for the tax writeoff. Those 'investors' were you and I. Our uncles and cousins. Our co-workers. Your 401(k) and mine, too.
It is investment funds that were pooled and invested -- and maybe later traded up to the higher interest-earning hedge funds that are now worth nothing due to this subprime lending fiasco.
Much as many of you would like to see the "investors" take a beating because you feel they took a risk and lost, I've got news for you: That investor may well be you.

[Huckleberry3911948]

it will affect investment and growth in the shortrun but lessen the foreclosure rate.
its a short term fix. not great but face it people are living beyond their means and buying houses they could not afford in the 1st place. the old rule was 3 to 1
a house no more than 3 times your annual income and 25% down. they threw that out with double breasted suits.

[Cyndyjg]

Good, then. That all makes a lot of sense to me. That just gives me the strength to go back into battle on these short sale files I'm negotiating with lenders for so many of the borrowers who have to sell short due to the ARM that just adjusted/value of the house now being so much less than what they owe.
I was actually starting to feel a little sorry for the lenders and investors, but I see your point. In the big scheme of things, it's just a small part of the overall lending economy.
I agree, as well, that it will be great to see borrowers return to the old school rules of 3 x your annual income, and 25% down. People just got ahead of themselves. They could get the loans so easily, and the payments were 'affordable' in the short term. I think that made a lot of people jump into buying a home WAY too early.
I seriously thought (during the boom) that I must be really behind the times when I saw all of that coming down... In other words, I thought I just wasn't savvy enough to understand the 'high finance' that so many in the industry were spouting as a way to become wealthy overnight with real estate investing.
I could never figure out how anyone could think that a home with a $2,300 negative amortization payment that you could only rent out for $1,100 a month could be considered a sound investment. Especially the people who bought 10 or 20 homes like that; when they were only making $50K a year themselves!! Or, the waiter making $80K a year who bought a house with a $650K mortgage and no down, etc. None of it added up. Turns out, my math wasn't wrong; I just disagreed with their theories.
Thanks.

[mmffg]

The Gov needs to stay out of the mortgage industry... Or to make it fair I'm going to buy a new Bugatti Veyron for $1.4M tomorrow putting 20% down and on month two claim I can't make a dollar more payment. The government should than have to refi my loan or pay it for me. I will promise to drive it on Uncle Sam's dime until the loan is paid..

[olecapt]

Why? If a large number of these borrowers can be stabilized without big losses why not?

The people I feel sorry for are those who bought $340K homes two years ago which are now being sold REPO and by the builder for $250K.

The only sound thing for them to do economically is walk away and get foreclosed. Better now than later.

[tortoise]

Somewhat related LV Business Press article . . Subprime Mess: Could car loans be next?

[SLCPUNK]

We need regulation of the industry, but not a bail out. (It's not a true "bail out" anyway.) A mortgage is a contract between a bank and a private citizen. There is no need for government interference IMO.

When I contribute to my 401k or Roth I also understand that there is no guarantee of performance, and that market conditions can vary. That's why it is called investing (that can be said for the RE speculators too.)

Let the free market sort itself out. Life sucks and then you get an apartment.