Znufrii, was reading this earlier, speaks a little of the moral hazard in the (mooted?) mortgage relief program.
Posted by
Loyola
Dec 8 '08, 12:53
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Fastest way out of this whole mess? Half the mortgage debt of everybody, banks to garner capital appreciation of the asset at the end of the loan term. It'd be like flicking a switch on the economy. You're paying 1600 a month mortgage repayments, suddenly it's only 800 a month, what happens? People go nuts spending. Of course those who didn't participate in the housing bubble would be kicking themselves but what can you do.
"Under Ms. Bair's program, the Department of the Treasury would offer federal guarantees to lenders who agreed to modify troubled loans by lowering the interest rate, principal or term of the loan to make monthly payments more affordable for the homeowner. Servicers would be paid $1,000 for each modified loan and the government would share up to 50% of the losses if the modified loans go into default.
Critics worry that Ms. Bair's program would encourage non- distressed homeowners to default to get lower monthly payments. However, Thomas Cooley, dean of New York University's Leonard N. Stern School of Business, said this problem could be eliminated if homeowners were required to share home appreciation with the lender when they sold the house."
- link (www.investmentnews.com)
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