So, how this "strip down" rule will work?
I can buy a house. If prices go up, I keep appreciation, if prices go down, I keep house but
lenders take losses. I like this idea, but I'm not sure where you are going to find lenders willing to play such game. If you have any money, would you lend your money to anybody if strip down" rules are in effect?

You're being deliberately obtuse, ignoring the facts. The snark fails.

If you lose your job while prices are high for your house, and lose it to foreclosure, lender benefits from same high price. And of course there's the main issue, which is the disparity in bankruptcy treatment between businesses and homeowners.

Note that not too long ago, and for a very long time before that, lenders did lend money for homes and businesses with precisely the strip-down rules in place. Guess it works OK after all. Just was too darn bend-over-backward fair to ordinary people. Only business deserves bailouts and bankruptcy protection.

If you lose your job while prices are high for your house, and lose it to foreclosure, lender benefits from same high price.

Just was too darn bend-over-backward fair to ordinary people

No I'm not in mortgage market, however you'll never know how your money is being used.

I'm fine with interest rates reflecting risk

I'm fine with interest rates reflecting risk.

and shouldn't the decision to buy also be based on risk?

I have no savings, only income, children, and college loans. I'm not personally at risk in the mortgage market. How about you?

my cousin wanted to buy a house, he's having a kid; but I think he smartened up after we talked about the financial risk of doing it.

the best thing that could happen right now is for home values to drop substantially so mortgage payments are again aligned to income. if that doesn't happen, people will keep crying over the squeeze and the free market can't work.

To boldly go...

One of the problems in all this is that new houses cost a great deal more in certain areas of the country than other areas. As an example, Massachusetts houses cost 3 or 4 times more to build than houses in rural Georgia. Given equal land costs, and nearly equal material costs, the exact same house will cost 3 times more in Massachusets than in rural Georgia. Part of the difference is the cost of labor, but a very substantial difference is the over aggressive building inspection departments of Massachusetts. Building inspectors are supposed to be servants looking out for the interests of the unknowledgeable consumer. The good departments do that. In certain areas, though, the inspectors are driven mostly by personal goals and egos. There is a huge difference from one area of the country to the next.

Home owners cannot jack up the prices of homes. The housing market is almost a free market. It takes both buyers and sellers to set a sales price. Surely you don't advocate a home seller insisting that an able and willing buyer pay less than he is willing to offer in selling a house? I know from 3 year old experience that a seller can set any price he wishes on his house, but if he expects to sell it, he has to adjust that price to what the buyers are willing to pay.

There have been a few brief times when a seller could set any price he wished, then step back as buyers bid up that price to the maximum the most able buyer can pay. Those times are a joy for a house seller, but times like today are an equal joy to a house buyer.

Since most houses are purchased by financing the sale through a mortgage seller, it is really up to that mortgage seller to get good appraisals on the houses they finance to be sure their investment is a sound one. That was not done over the past few years, and may not be done even now, for all I know.

Hoppy in Sacramento

Lets face it Reagan had the Saving & Loan Scandal to float the economy for him. Clinton had the Tec stocks to float the economy. Bush had the home refinancing to float his time.

Do you see a pattern here? We are bailing out the banks when we could be doing this through the homeowners and achieve the same results.

Instead we bail out the banks and then they want the ice cream with nuts and cherries on top to take what else they can get to add to the unearned subsidy. The public talks about let the individuals feel the pain of their bad decisions, but nowhere do you hear let the banks feel the pain of their (efforts to pump the economy for Bush) bad decisions.

I heard an interview with some BS economist on PBS. He said these bubbles tend to happen every 5 years and it is known they are happening. Talking like it was nothing and stating it will happen again and during the cycle and what is causing the new bubble will be again know by financial observers and nothing will be done to stop the blowup again. No emotions just the facts. I wanted to shake him and say, “what good are you if you are not trying to help the problems”? I would have asked if he used his insights to invest and profit from others misery? Obviously this is the case of many.

What a country. You can typical say that whatever the media is saying the closer truth is exactly opposite. We talk about education, but the media submarines the true facts.

Remember we are s#!^$ in the minds of the influentials. They know that when we shed assets in the fire sales they will profit. What a f()(%!^ up society that the politicians and media keep calling the best! They must be only thinking about their profits also!

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Today, are we searching for I deals or Ideals?
-Thinking

Another thought that has not been discussed is that how the banks are writing down the loan portfolios.

These things were expected to perform for 20 to 30 years depending on the chosen mortgage period.

Are the banks writing down the expected returns over these periods as lost profits and bring that loss into one year? Are these financial instruments being sold with the losses to be used as tax deferral instruments?

Also how many of these loans were for new houses vs. refinancing an existing house to pay credit cards off before the borrower received the check? Lets hear these numbers please!

There are so many questions and so few answers as to what really happened that it could really be called a cover up. Do we know what happened in the past? Do we know what is actually occurring now? Do we know if these bundled loan "losses" could cost us again in the future by using them as unearned tax offsets to the treasury?

Does anyone not think the present actions are not another gift to the rich friends
of the administration?

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Today, are we searching for I deals or Ideals?
-Thinking

We are bailing out the banks when we could be doing this through the homeowners and achieve the same results.

Do you have proof of this? The worst thing that could happen is that the government subsidizes the loans and then the "owned properties" aren't maintained because the owners can't afford to maintain them or the property owners don't pay property taxes 'cause they can't afford them, or, what if they can't afford the utilities, or what if the "home owners" bring nearly broken down cars into a neighborhood that used to be nice, etc...

and what happens if the "home owners" want to move? if housing prices are down, they'll go into foreclosure anyway!

some blogs are coining the situation as "reverse gentrification!"

i.e. what kind of "bailout" are you suggesting?

Instead we bail out the banks...

The federal reserve (private banks) creates capital out of thin air and "the people" can "borrow money" to "create real capital" and, as a reward, those who create "real capital" have to give part of it back to the bank via interest.

in the case of housing, housing isn't capital since it's a depreciating asset that doesn't create wealth. so it really makes no sense, I think, to bail out "home debters." the money really needs to go back to the banks so they can lend it out to someone who will create something of value. i.e. our money is only worth something if something real, like more efficient health care technology, backs it.

To boldly go...

I think Elizabeth Warren's heart is in the right place, but I'm not sure her article is accurate. I was having a hard time figuring out why a bank wouldn't accept a payment of 100% of a home's current value and an unsecured loan for the remaining value of the mortgage (even if that loan is likely never to be paid) over a secured loan in default that is likely never to be paid and that will require eventual foreclosure (an expensive process that rarely nets the bank 100% of the home's value). So I went to the MassHousing web site to get details on the program. We'll it turns out this program isn't for borrowers in default. It's only for borrowers who were deceived about their loan terms and haven't fallen more than two month's behind in payments but are worried they will. Here's the description from the MassHousing web site:

Home Saver Foreclosure Prevention Program
Are you worried about keeping up with your monthly mortgage payments? Were you surprised by the terms of your loan after you closed your mortgage? MassHousing's Home Saver program may be able to help you avoid losing your home through foreclosure.

Home Saver is privately financed; no taxpayer dollars are used for the program.

What it is
Home Saver is a counseling and loan program that helps borrowers who were victimized by unfair lending practices. It is a proactive step that home owners take before their mortgage becomes unaffordable, and before foreclosure becomes a real possibility. Home Saver includes a mandatory counseling component and a refinancing of your existing loan.

Who it's for
Home Saver assists home owners with modest incomes who have been put into an unaffordable loan by a deceptive lender.

Who it's not for
The Home Saver program is not available to home owners who were informed of their loan terms and knowingly accepted them, are already in foreclosure or are more than 60 days delinquent, or own more than one property

Eligibility
To be considered for MassHousing's Home Saver program, you must demonstrate that you were victimized by unfair or deceptive lending practices, are employed with verifiable income and can afford the new monthly mortgage payment,
have a minimum credit score of 560 for a single-family home or condominium, 580 for a 2-family home, or 620 for a 3- or 4-family home, and meet income and loan limit restrictions.

Eligibility will be determined as part of Home Saver's mandatory counseling component.

It seems to me that this program is designed to help very few people. Now maybe the banks are somewhat responsible for the ineffectiveness of this program because these terms were all their lobbyists would agree to (the program is not publically financed--it requires banks to refinance the mortgages). But the program as designed really only helps people who were victims of fraud but who haven't yet gone into default. That's a pretty small group.

The strip down law before congress is a completely different issue (related, but a different type of program). I don't think Warren's article made these distinctions very clear.

The attempts at wholesale restructuring may be running afoul of the contradictory mandates governing the loan officers where the rubber meets the road (to mix in a really inapposite metaphor...)

They stand in a fiduciary relationship not to the borrower but to the lender, and as such are not at liberty, absent the imposition of force majeure, ie a bankruptcy judge's order, to modify the terms adversely to the cash recovery of the holder in due course.

From this description of the exploitative greed of the lenders and parasitic feeding off the misery of American families by the mortgage industry it sounds like Tony Soprano is in charge of it.

It seems like a whole lot of the corrective policies being proposed are primarily designed to protect those who hold the paper on these mortgages vs rescuing the families who either foolishly or unknowingly took out mortgages they cannot pay. Why is that? Couldn't a policy that helps families but lets the creeps who really cultivated this crisis and profited substantially from it bear the brunt of the downside here?

I blame myself. But my kids will pay the real price as the schools in our school district go to hell and we can't afford to move out.

I once read that the American worker is writing his/her own layoff notice because companies can't afford to pay the cost of living in America so they have to go abroad where people live closer to subsistence and, thus, don't require a huge paycheck to be happy and/or survive. Why we willingly price ourselves out of the labor market is beyond me.

To boldly go...

That is the big unanswered question.

because they can put their hands onto the cashflow first. in general, I think that CEO's are paid not to talk about the dirty dealings, etc... i.e. If they did, corporate America would no longer exist.

the employees on the assembly line just can't extort money out of a company like a CEO can and the CEO surely benefits from using lower cost labor.

To boldly go...

Re:

Nah. The Bush tax cuts only made it through Congress because an automatic sunset provision was attached to them, and in a couple of years that provision will be triggered and the tax cuits will be reversed. Congress may act to keep some of the middle class aspects of those tax cuts (like the elimination of the marriage penalty) but that's small potatoes compared to the vast give-aways to the upper classes. Remember, Clinton restored budgetary sanity after the debt-party of the 80s with a small increase on 1% of the population and a slight increase in the gasoline tax. It won't take much to restore fiscal responsibility this time around either. And even if by some malignant miracle a Republican captures the White House next year, his ability to push any further tax cuts through Congress (almost certain to even more Democratic) will be nill, and, again, the Bush tax cuts will sunset on their own. So we're going to be back in the black by 2010 or 2011. Gloom and doom is definitely not warranted.

my belief about "american democracy" is that it's a fairly non-violent way to redistribute the wealth to those who would take it by force otherwise and prefer power over justice.

and folks who seek justice will become relatively poor and, thus, they can be bought off relatively cheaply when they get into their 30's and realize that they need retirement funds.

To boldly go...

At the end of the day, 'the government' still
owns the land. Who they permit to do business
on that land depends kind of on who paid money
to whom, and if you read the dark and sordid
details of freddie and fannie, well...something
in there stinks like dead and rotting fish or
something.

Tent
400 dollars
Sleeping bag
200 dollars
Food for a month
100 dollars
Tent space for a month
75 dollars

Not signing THAT piece of paper? Priceless.
Some things, money can't buy...

This was alluded to above, but one of the reasons that borrowers and lenders have difficulty negotiating mutually beneficial modifications (adding time to the loan to reduce the payments etc.) is that the loans are packaged and sold, and that frequently the customer service reps have no knowledge of the community where the borrower lives or authority to negotiate meaningfully. If loans were still largely held by local banks I suspect that they would be routinely altered to reflect the market. Allowing bankruptcy courts to get involved would, at the very least, force lenders to the table, and cause them to retain local counsel for the bankruptcy proceeding who could advise them as to the reasonableness of the borrower's proposal.

Hmmm, the way the supreme court sees it, an invidiual can be forced to sell their private property to the government if there's a good public use for it. Even economic development is considered a reasonable public use now, meaning a homeowner can be forced to sell to make way for a strip mall.

So... under that principle, to heck with the mortgage lender. It shouldn't be up to them to decide whether or not they'll release the borrower. The state should say that in the name of the public good and economic development, they are invalidating the mortgage contract. Period.

If eminent domain can be used against people, why not against lenders?

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