Well Washington should do more than just prod other big banks, they should mandate it. Isn't this the kind of thing our $700 billion dollars was suppose to do? I was starting to think is was purely for them to use to gobble up other banks.

You know what they should do? END ALL SUBPRIMES. Once the adjustment period comes, adjust it to a low rate 30 year fixed, and not some crazy inflated amount. Yeah they'll lose a little money on the interest being lower, but I think that's better than losing all the cash when the borrower defaults.

Well I'm glad that someone will get to take advantage of having their loan modified. Three years ago I had to file for bk because the rip-ass mortgage company couldn't get it done although they said I qualified for a mod. They couldn't get "the investors" to approve it - now I understand the deal was bundled/packaged into one of those 'instruments' that were in the news a few months ago.

@downwithmonstercable: The only problem with this idea is it requires either CEOs or congresscritters to be reasonable...

Sounds like a good deal - buy a home for an unrealistic price that uses an unrealistic amount of your income, and then get it adjusted. Makes those of us who laughed at the amount the bank pre-approved us for and looked for a cheaper home within our means and paid the mortgage regularly look like complete idiots. At least this isn't a taxpayer bailout. I wish I could get in on this deal, but if my mortgage was adjusted to 38% of my income it would probably increase the payment. I should have gotten a bigger house and got behind on my payments.

So how do I get in on this if I've actually been paying my mortgage? Can I quit paying it for 3 months and become elegible? I'm more than willing to endure 3 months of harassing phone calls to get a chunk of my principal forgiven.

@TMurphy:

And the fact that it punishes the good consumer who bought what he could afford. Why does someone who bought something they COULDN'T afford get rewarded?

Why is everyone ok with bailing out the consumer who made the mistake? Don't say "the bank tricked the"because there's a point in life that one must learn to start taking responsibilities for their own actions. No one was forced to sign. No one had a gun to their head.

What's next - if someone loses money in the stock market the banks give it back because understanding market volatility is hard?

We need to stop rewarding people for bad decisions or soon there will be NO personal liability left.

Let's see, I've been faithfully making timely payments on the loan that I have had since 2004. It's on a house I actually can afford, although I was tempted to buy way above my means (not!). I wonder what my reward will be? A lower rate? A month off every now and then? No. Probably higher taxes to pay for all of those who grabbed their shiny object without thinking about the reality of paying for it.

Bah Humbug!

@SomeoneGNU: "We need to stop rewarding people for bad decisions or soon there will be NO personal liability left. "

You mean like rewarding the banks who made bad decisions in making the loans and currently are sitting pretty on billions of taxpayer dollars, or are they excluded from the need for personal responsibility?

Good for the goose, good for the gander.

@Red_Flag:

I was and am still completely against bailing out banks and other large businesses. The *only* saving grace to that is they are supposed to repay the bail-out money though I doubt that will happen.

Just today, spent some time going over a housing financing article (specifically, Debt-To-Income Ratio) at Get Rich Slowly.

[www.getrichslowly.org]

Why were banks pushing backend DTI's of 41% instead of something more reasonably affordable? Maybe it's because they wanted to make more money off the process and never thought about, "gee, these people can't really afford to make these kinds of payments, can they?"

Not that it absolves the individuals taking out the loans, per se; this kind of screwing takes two parties. But one gets bailed out while the other... well, we'll see what the press conference says.

@Trencher93: Yep like Countrywide who were full of disbelief that I didn't take up their offer of a $750K home loan. The guy kept saying "but it's yours to have!"

@SomeoneGNU: This is not a reward, this is keeping the economy afloat. We normally don't bail out companies either, but hey we just spent $750 billion doing that, and look what's happened? Nothing.

If you are an unknowing victim of a sweet talking shady lender, there's not much you can do. People were outright lied to. How are they supposed to know? All people are basically good and smart. Yes there is a minority that made bad decisions. But on the whole, if people knew they'd be in foreclosure a couple years after getting the loan, they wouldn't have done it. It's ludicrous to make these sweeping judgements like you have because a small number made bad choices and now have stained the rest.

Or maybe I'm wrong. Let's just let the market collapse even more without any intervention and see if they all learned their lesson?

@TMurphy: Yeah, that's why this crazy idea will never take off. They'd rather lose millions in defaults rather than a percentage point in interest.

This is an atrocity. The proper solution to this crisis is to foreclose on everybody in loans that they could never pay and get bad debt off the books. Then prices will quickly fall to historical numbers and prudent consumers like many of us on this site can afford to buy a house. Anything else will needlessly prolong the economic crisis.

It has a human cost. People are being forced out of their homes. Stupid people, admittedly, but people nonetheless. But that cost is _necessary_ to get through the crisis and return to normalcy.

@downwithmonstercable:

All people are NOT good and smart. I don't know what world you live in to think this.

You can't convert all subprimes to conventional because the borrows can't afford that. If they could have done a conventional in the first place, they would have. You can't fit a square peg into a round hole.

@downwithmonstercable: How are they supposed to know? They could have read the paperwork, or maybe researched on the internet. Or even read a book. I know those things are complicated, but I would like to hold people to some kind of standard when they are making the biggest investment of their lives.

@TecmoTech: You read what I wrote wrong. I said all people are basically good and smart, but there are a minority that made bad decisions.

Converting subprimes to conventional has a greater chance of people being able to afford it, because the rate is lower than what the adjusted rate would be. around 6% compared to 8%, or even more depending on what people got lured into.

@downwithmonstercable:

"People were outright lied to."

And people tried to outright lie to me. Tried to push us towards ARMs when we were buying a house, tried to tell us that there's no risk. But I took responsibility to research my options, talk to people more experienced than I, and listened to the advice of people I trusted and in the end I own a house that I can afford my payments on.

Yes, they were lied to but does that absolve them of the responsibility of doing their own research? Of learning about the process? Of reading what they signed? No one was forced to sign. Everyone had the same opportunity to research.

@TecmoTech: Sorry, I also forgot to emphasize the BASICALLY. That does not mean DEFINITELY or ABSOLUTELY.

@Trencher93: That makes a ton of sense, because getting behind on your loan is so awesome for your credit!

@SomeoneGNU: Look, we can go back and forth on this and neither of us are going to change the other's view. But, oddly, I think we are on the same page. I don't think this is "right" to do this, so much as I think as it's necessary given the situation we are all in. I didn't like the bailout package, but if that's what it's going to take to dig the economy out of the hole, it might be our best choice.

@Red_Flag: Why were banks pushing backend DTI's of 41% instead of something more reasonably affordable?

Because the dem run congress banking committee threatened to sic regulators on any bank that didn't. This was all engineered by Barny Frank et.al.

@olderbudwizer: I feel like that's the real root of the problem. Your loans aren't just loans anymore. You can't talk with anyone or negotiate with anyone or arrange terms with anyone. When I called my student loan financer to talk about my interest rate (it went up 3% without notice, even though I hadn't missed a single payment ever) they just plain said, "no," and hung up on me.

@Canino: The gov't doesn't have to twist private enterprises' arms to convince them to make a profit.

As far as who -caused- the crisis... much more complicated than this one facet.

[www.factcheck.org]

"As The Economist magazine noted recently, the problem is one of 'layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role.' Here's a partial list of those alleged to be at fault:

# The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
[www.business.cch.com]

# Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
[knowledge.wharton.upenn.edu]

# Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
[www.gao.gov]

# Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
[knowledge.wharton.upenn.edu]

# The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
[thehill.com]

# Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
[www.pbs.org]

# Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
[www.federalreserve.gov]

# Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
[www.pbs.org]

# The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
[www.iht.com]

# An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
[www.consumeraffairs.com]

# Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.
[www.business.cch.com]

The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation."

@downwithmonstercable:

No, I read that correctly. Most people are stupid. That's a fact. The minority make the good decisions.

Hey, I intentionally bought less house than I "qualified" for, and have never so much as had a late payment on my mortgage. What do I get?

Oh, right--what I get is SCREWED to pay for deadbeat borrowers, shady bankers and the crooked politicians who ran Fannie and Freddie. Thanks for clearing that up.

@downwithmonstercable:

Yeah! Every single lowlife who "bought" a house they couldn't afford was a complete naif who didn't understand what they were doing.

BS. They're deadbeats, and they OUGHT to be foreclosed on (and the idiots who loaned to them should go out of business).

Old Barney Frank says Fannie and Freddie are in fine shape. Oops.

@downwithmonstercable:

You're right - we can agree that it's not right. Do you think the people who made bad decisions once GIFTED another chance will suddenly start making good decisions? I doubt it.

I'm not saying every single person in foreclosure is a bad decision maker. I think there are people who are innocently hurt by a slowing economy. I feel bad for them but the only way to help them will be to get money flowing again. Taking people who are already broke, already so far underwater that it takes debt forgiveness to save them - giving them a break won't help. It'll just hurt the company who had to eat it. In turn, it'll hurt the people who work there who now become the victims of "saving the economy."

There's no perfect answer to this. And even if there was I doubt the politicians would be able to see it without slapping pork to it. But these knee-jerk "save the people because they can't afford their mortgage" reactions definetely aren't it.

@SomeoneGNU: If all you have to do is set someone's interest rate to a normal rate for them to continue to pay and keep the house it is stupid not to. I don't see how doing that punishes anyone. Now if you write off the principal, then yes that is a huge problem. And if just one person gets that kinda deal, everyone deserves the same.

@Corporate_guy:

Why does person A who took a loan they could not afford get an interest rate cut? What about person B who can afford their mortgage? More than likely person B has more disposable income AFTER the interest rate cut then person A. Wouldn't it be in the best interested to give the cut to B?

Person A makes $1000/month. Their mortgage is $700/month leaving them with almost nothing.

Person B makes $3000/month and their mortage is $700 month leaving them with plenty.

Give person A a $100/month discount and they're still barely scraping by - still barely able to pump that money back into the economy. In fact, I'd say that Person A is probably behind on a few bills which means that $100/month is already spent if not already over-spent.

Person B on the other had now has a $100 more cash per month. That cash will probably be invested, saved, or spent "jump starting" the economy.

In either case, the bank must write-down the loss. If they were expecting $300,000 over the life of the loan and only get $275,000 it will hurt the numbers. Multiply that onto a larger scale and you could be talking about another government bailout for banks.

@kwsventures:

The Savior already named one crooked Fannie director as his chief of staff, and he's talking about making another one Attorney General (Jamie Gorelick, pocketed a cool $25 million after cooking the books there). They and every other Fan/Fred crook politician should be making license plates.

@SomeoneGNU: I'll agree with you on that - once gifted, I doubt the bad decision makers will suddenly wake up and make good decisions.

As I said early, while I fundamentally don't agree with anything that's happening, whether it's the bailout of companies or changing individual loans to avoid defaults, I think that no action is worse than these actions. It's unfair to us responsible homeowners, but if a so-called deadbeat or naive person is able to avoid foreclosure and the economy can rebound because of it, I'd rather that than make them learn a lesson and have the economy tank even more. I think for a lot of these people that even the terror they feel about possibly losing their home would be enough of a life lesson.

@TecmoTech: Nah, most people aren't stupid. Most are ignorant or lazy (which often leads to being ignorant). In modern society there's not a heck of a lot of incentive to actually educate yourself; if you don't and screw up, somebody else (meaning the people who did bother to take care of business) will pay to fix it for you.