With that in mind, let’s recall an idea described in this space on Nov. 16, 2008. As conceived by two Wall Street veterans, Thomas H. Patrick, a co-founder of New Vernon Capital, and Macauley Taylor, principal at Verum Capital, the plan calls for refinancing all the nonprime, performing loans held in privately issued mortgage pools (except for Fannie’s and Freddie’s) at a lower rate. The mass... [more]
With that in mind, let’s recall an idea described in this space on Nov. 16, 2008. As conceived by two Wall Street veterans, Thomas H. Patrick, a co-founder of New Vernon Capital, and Macauley Taylor, principal at Verum Capital, the plan calls for refinancing all the nonprime, performing loans held in privately issued mortgage pools (except for Fannie’s and Freddie’s) at a lower rate.
The mass refinancing could have helped borrowers, while retiring mortgage securities at par and thus helping pension funds, banks and other investors in those pools recover paper losses created when prices plummeted. Fannie Mae and Freddie Mac could have financed the deal with debt.
http://www.nytimes.com/2010/09/12/business/12gret.html?ref=business[less]
Response by Riversider
almost 16 years ago
Posts: 13573
Member since: Apr 2009
There are so many things wrong this it's hard to know where to begin.
1) If it's performing and under-water the mortgage is prone to strategic default anyway
2) The premium coupon is funding annuities, insurance, pensions, and lots of mom & pop basic needs
3) If the mortgage is in trouble refinancing it transfers the burden to the tax payer and is too good a deal
for the bank. For example if the loan was 400k an underwater and the bank was told to forgive 100k for
the gov't refinance, then the bank loses only 25% which is far more generous than any foreclosure and
liquidation, and then the tax payer is on the hook for a loan which has a high probability of future default
(lets call that recidivism or falling off the wagon after sobering up)
This policy helps the banks with bad loans first and foremost, is bad for the investor of performing loans, is questionable in terms of benefit to the home-owner and is very negative for the tax-payer.
Ignored comment.
Unhide
Response by Riversider
almost 16 years ago
Posts: 13573
Member since: Apr 2009
Gretchen also fails to address that by artificially keeping home prices high, we're screwing the new home buyer.
There are so many things wrong this it's hard to know where to begin.
1) If it's performing and under-water the mortgage is prone to strategic default anyway
2) The premium coupon is funding annuities, insurance, pensions, and lots of mom & pop basic needs
3) If the mortgage is in trouble refinancing it transfers the burden to the tax payer and is too good a deal
for the bank. For example if the loan was 400k an underwater and the bank was told to forgive 100k for
the gov't refinance, then the bank loses only 25% which is far more generous than any foreclosure and
liquidation, and then the tax payer is on the hook for a loan which has a high probability of future default
(lets call that recidivism or falling off the wagon after sobering up)
This policy helps the banks with bad loans first and foremost, is bad for the investor of performing loans, is questionable in terms of benefit to the home-owner and is very negative for the tax-payer.
Gretchen also fails to address that by artificially keeping home prices high, we're screwing the new home buyer.