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http://www.msnbc.msn.com/id/28045659

"The Treasury Department is strongly considering a plan to intervene directly in the mortgage industry to dramatically force down rates and stimulate the moribund housing market, according to sources familiar with the proposal.

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home purchases, according to the sources. But to participate in the government's program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans."

They can lower it all they want, doesnt do any good when we still have the property value factor.

Not to mention all the self employed borrowers out there that no longer have stated programs available and have little to turn to.

Bottom line is, this is just a band-aid on an open wound. There are several other factors that come in to play to try and straighten this mess out.

Guidelines have got to loosen up a bit more.

Just wanted to know everyone elses thoughts and opinions on this.

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I agree about the band-aid. Bottom line- loose guidelines got us into this mess and I don't think loosening guidelines is the answer. A couple decades ago, you needed great credit and 20% down. Now you need half-decent credit and 3% down (for most people).

Last night the governor of Michigan was claiming that it is the fault of the banks that automakers are having an awful year because they've tightened autolending. That's absurd- she's either spinning to help get taxpayer subsidy or she's a fool. There are more cars in the US than we have licensed drivers. There's just no demand because consumers are comign back to reality. Same with housing. There is so much supply we're choking on it. And consumers, smartly, lack impetus to take on more debt.

So cheap money may help spread the symptoms out over the next 5-10 years (the symptom being prices declining to a sustainable point), but unless the government wants to bulldoze housing developments then prices have to come down. You have to view the monthly housing cost in comparison to rent multiples and affordability. We're not back to the historical median yet unfortunately.

With that said, I'll be buying a long term home in the next 2 years. I hope the 4.5% loan is available. If I can shift some of the cost of my McMansion to some poor taxpayer, what the heck. I want my 0.000001% of the bailout money too!

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I agree about the band-aid. Bottom line- lose guidelines got us into this mess and I don't think loosening guidelines is the answer. A couple decades ago, you needed great credit and 20% down. Now you need half-decent credit and 3% down (for most people).

Last night the governor of Michigan was claiming that it is the fault of the banks that automakers are having an awful year because they've tightened autolending. That's absurd- she's either spinning to help get taxpayer subsidy or she's a fool. There are more cars in the US than we have licensed drivers. There's just no demand because consumers are comign back to reality. Same with housing. There is so much supply we're choking on it. And consumers, smartly, lack impetus to take on more debt.

So cheap money may help spread the symptoms out over the next 5-10 years (the symptom being prices declining to a sustainable point), but unless the government wants to bulldoze housing developments then prices have to come down. You have to view the monthly housing cost in comparison to rent multiples and affordability. We're not back to the historical median yet unfortunately.

With that said, I'll be buying a long term home in the next 2 years. I hope the 4.5% loan is available. If I can shift some of the cost of my McMansion to some poor taxpayer, what the heck. I want my 0.000001% of the bailout money too!

Let me clarify that I did not mean loosen up the guidelines so much that everything comes undone again. What I mean is that things have gotten so tight that lenders dont want to give money to ANYONE anymore. We need to find a happy medium. Starting with LTV restrictions.

There is a program out there called H4H or Hope for Homeowners. (something of that effect) Basically it gives consumers the opportunity to refinance even though they owe more than what their home is worth. Lenders are being asked to write down the mortgage to 90% ltv and essientially forgiving and second liens. Consumers will eventually be paying for that, as should you choose to sell the home at any point you split the equity with HUD. 50% after 5 years. 90% if its within the first year.

I actually got pretty excited about this. Digging through files that I had of people that would fit in this criteria.

The program is a joke. Apparently there have been less than a handful nationwide that are even in process. I can't find any lender that wants to do these. Similar to FHA Secure. That too was a joke in my opinion.

I could go on and on.

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The rise and fall is inevitable though. Now we're just shifting the burden of owning a home to everyone, including non-homeowners. That's not right. As my example was shown above, if I receive a 4.5% mortgage for my theoretical 5 bedroom house, why should Bob the Renter subsidize the cost of ownership of my 3000sq foot home while he lives within his means in his 1200 sq foot apartment? Its a highly regressive subsidy. Now I not only get to write off mortgage interest (subsidy #1), but Bob the Renter is now helping carry the weight of my debt payment through my below-market interest (subsidy #2). Not only do I not think this will not work, but its a real backward way of shifting burden to the least able to afford it.

I can't be alone in thinking this....

http://finance.yahoo.com/tech-ticker/article/138829/Mortgage-Rates-to-4.5-Percent-Homebuilders-Win-Crisis-Continues?tickers=TOL,HOV,CTX,DHI,LEN,XHB,CTX

"The plan will be effective in lowering rates but interest rates aren't the key to resolving the housing crisis, Roubini says: "Prices went through the roof" and need to fall another 15% before housing bottoms and homes become affordable to the majority of Americans. (The new Treasury plan does nothing for Americans looking to refi but last week's Fed announcement was aimed, in part, to help existing homeowners and refi activity surged in reaction.)

Furthermore, there's not enough Americans who are credit worthy and confident enough in the economy and/or their job security to absorb the record levels of unsold homes on the market, says the notoriously bearish economist. "For new programs you have to qualify. Very few people qualify," Roubini said. "If you are loosening the criteria then you are creating a credit risk for the government because you're creating mortgages people cannot afford and some of them are going to default. You create another fiscal problem down the line."

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What ever one might think of this program it is at least a start to a problem that nobody knows what to do about solving.

I have seen the rate mods coming out by the droves without this new program, and so far the people who are getting them are very happy, and are saving upwards of 300 to 1000s per month in payments depending on the mortgage amount.

Take a 300k 30 year fixed at 10% with a payment of $2632.71

Take the same loan reduced to 4.5% now with a payment of $1520.06

This saved the homeowner 1112.65 per month to spend on other things, and over the life of the loan that would save over 400k, more than enough to cover any principle deficeit.

This is the best and most affordable way to get this crisis moving again in a positive way, IMO it makes sense as the numbers do not lie.

If you have a better idea please contact 1600 Penn Ave on Jan 21, 2009.

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What ever one might think of this program it is at least a start to a problem that nobody knows what to do about solving.

Don't get me wrong...Im always up for change. Im eager to see how this pans out and how it will affect everyone, especially directly being in the business.

We have already seen a dramatic decrease with rates over the past 2 weeks. I find it rather exciting, seeing how low they will go.

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I just think right now it is the only way to get the industry going again, in a positive way, and I see it going full tilt in a few months.

I watched the the FDIC chairman put it all over uncle Ben and Henry, during the testimony in congress. This was the way she was leaning and it was working with very good outcomes.

This was taxpayer money she was using so there is a good return in the future.....sure there will be defaults, there always will be, but to midigate the damage this was the best plan laid out between the 3. I do remember Dodd saying they probably gave the bailout money to the wrong person after she was through.

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Shiela Bair has about a month left before she's asked to resign. And If 4.5% mortgages were the best way to mitigate the damage, then lenders and investors would have already done so to stem losses.

Rates could go lower. The last two weeks have been driven by FED stating they'll drop rates again AND Paulson announcing Treasury will drive rates down even further by buying low yielding 10yr notes. We could see a 10yr yield below 2% very quickly. So much for rewarding savers....

It is, however, a HUGE benefit if you can get one of these loans. So go for the cheapest money you can find!

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"And If 4.5% mortgages were the best way to mitigate the damage, then lenders and investors would have already done so to stem losses".

Most lenders if not all, are now doing this. I might not agree with the standards they are currently using, but they are doing it, and sofar with great resolve.

I know it is not the complete solution, as realy there is none as it is so out of control, but time will put it back in proper perspective.

Now if we could just get the big three to start coverting the auto's to natural gas for the time being they could make great progress in that front.

To get across that big canyon there must be a bridge or you will surely fall.

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As long as it is across the board then fine. This whole mess started in the 90's.Add President Clinton to the long list of people who deserve a share of the blame for the housing bubble and bust. A recently re-exposed document shows that his administration went to ridiculous lengths to increase the national homeownership rate. It promoted paper-thin downpayments and pushed for ways to get lenders to give mortgage loans to first-time buyers with shaky financing and incomes. It’s clear now that the erosion of lending standards pushed prices up by increasing demand, and later led to waves of defaults by people who never should have bought a home in the first place.

Lets not give bailouts to people who make 50,000 a year and bought a 400,000 dollar house with an arm and now they complained they didn't realize it. 4.5% for new buyers NOT REFINANCES will help tremendously. trust me:wink:

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I agree with the first part of your post but not the second.

Anyone should be able to get a 4.5 if it is offered, the more money people have left at the end of the month the better off they are and the better the economy will fair over time.

I realy think that the total housing cost should be capped at 20-22% before any more mortgages are approved so this never happens again, the 30-40% allowance is just to high, as S*** happens and people are not prepared for it.

The ARM rates need to disapear altogether never to return to the mortgage industry, and any and all closings need to be done in a lawyers office, no more sending this or that person to your home to sign the papers fo 5 min, and leave with you realy not knowing what you just signed.

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I'm in an option ARM currently. It has saved my wife and I about $11,000 in interest. Its all about how you use them. You can hang yourself with a rope or you can use it how its intended. They're not supposed to be used to cram yourself into a home you cannot afford.

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I'm in an option ARM currently. It has saved my wife and I about $11,000 in interest. Its all about how you use them. You can hang yourself with a rope or you can use it how its intended. They're not supposed to be used to cram yourself into a home you cannot afford.

Yes it works for you, but you are not the norm.

Arms were used as a cramdown for tens of thousands of people who should not have gotten the high loan amount based on low income comparison......most were told hang on for a year or 2 then refi. We all know where that went.

Maybe putting this another way....say if the ARM stays in the market and you want one, then you should be instructed on the pro's and con's of such a loan, much like a credit counseling class before one is approved.

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The last few posts mention things like

leave with you really not knowing what you just signed

and

They're not supposed to be used to cram yourself into a home you cannot afford

and

you should be instructed on the pro's and con's of such a loan

I disagree with all of these sentiments. If you are about to put your name on the dotted line of a document where you are accountable for hundreds of thousands of dollars, it is your responsibility to know what you are signing. It's your responsibility to know what you can afford. Likewise the lender should protect themselves and not lend in situations where they know the consumer cannot afford it, but the other side of the coin that absolutely got us into this mess is consumers being greedy and uninformed.

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Yes it works for you, but you are not the norm.

Arms were used as a cramdown for tens of thousands of people who should not have gotten the high loan amount based on low income comparison......most were told hang on for a year or 2 then refi. We all know where that went.

Maybe putting this another way....say if the ARM stays in the market and you want one, then you should be instructed on the pro's and con's of such a loan, much like a credit counseling class before one is approved.

Well, it's worked for me too! I have had an FHA ARM for sixteen years, and never once during that sixteen years have I had the opportunity to refinance and lower my interest rate. Right now, I am at 4.875% and eagerly awaiting my next anniversary (reset) date to lower my rate to 3.875%, and then the following year (at worst), returning to 4.875%. I have never been over 6.875% during the sixteen years.

While the interest rates are low, more of the principal/interest payment is applied to principal, and vice versa when intererst rates are higher. One distinct advantage to an ARM, is that when the interest rate resets, the new payment is based on an amortization table with the new current rate, the number of years remaining to pay off the mortgage, and the mortgage balance at the reset period.

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Maybe putting this another way....say if the ARM stays in the market and you want one, then you should be instructed on the pro's and con's of such a loan, much like a credit counseling class before one is approved.

These terms were supposed to be specifically spelled out in the TILA Disclosure at closing, however, I would have to speculate that at least fifty percent of the TILA Disclosures failed to do so. If this is discovered then there is a violation in the loan, and the terms of the TILA must be followed, which would mean that the low teaser rate would become a fixed rate for the life of the loan.

The TILA disclosure must disclose the worst case scenario of the terms of the loan.

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I suppose views on ARMs and consumer protection closely track one's view of role of government generally. Some people see consumers as inherently naive and in need of protections. Others value due diligence and personal responsibility. I'm in the latter camp. Home ownership comes with responsibility. Part of being a responsible consumer is knowing what you are consuming. I'm certainly not advocating procedural tricks played on the consumer such as bait and switch techniques. But I am against wholesale prohibition of what are reasonable loan terms because a small portion of the population has opted to misuse them to their own demise.

In addition, in some respects fixed rate loans cary their own dangers to banks and consumers. If the price of money doubles 10 years from now, the face value of the loan is destroyed and the bank takes losses. If the price of money is cut in half in 10 years, the borrower cannot take advantage unless they refi and extract fees (see amortgageman's post above on his favorable ARM terms). Certainty of a fixed rate can cut both ways. The CEO of ING was just talking about this.

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It would be interesting to see just how many people realy understand an ARM, and just how many diffrent versions there are or were.

I would even go as far as taking 12 mid 30's well educated peeps, put a ARM in front of them and let them explain what they are getting themselves into, I would bet the outcome would be a suprise.

But in the mess we have now you have thousands of people who do not even have a HS education signing ARM loans without even a basic knowledge of what they mean, all they understood is, they were getting a home and would and did anything to get it.

Remember we live in a country where millions cant even balance a checkbook, let alone understand a legal document, and that is a sad truth.

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Remember we live in a country where millions cant even balance a checkbook, let alone understand a legal document, and that is a sad truth.
Well then, I suppose we reap what we sow. I think we're heading down a dangerous road if everything is set to protect the lowest common denominator among us. How many people have been crushed in this stock market because they buy stocks without reading financial statements? How many rang up inescapable credit card debt in Wal-Mart or Macy's? How many people wreck their vehicles because they misuse them and speed? What about medications? Even Tylenol can be deadly when misused. This could go on and on...but the point is the same. Its a lost cause trying to protect consumers from themselves. If someone was "willing to do anything to get a house", then that's pretty scary. They're better off as renters now anyway.
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It would be interesting to see just how many people realy understand an ARM, and just how many diffrent versions there are or were.

I would even go as far as taking 12 mid 30's well educated peeps, put a ARM in front of them and let them explain what they are getting themselves into, I would bet the outcome would be a suprise.

But in the mess we have now you have thousands of people who do not even have a HS education signing ARM loans without even a basic knowledge of what they mean, all they understood is, they were getting a home and would and did anything to get it.

Remember we live in a country where millions cant even balance a checkbook, let alone understand a legal document, and that is a sad truth.

A properly disclosed ARM is very simple to understand. If you were to look at a Truth in Lending (TIL) Disclosure Statement, there are four large boxes near the top of the page. These four boxes contain the Annual Percentage Rate, the Finance Charge, The Amount Financed, and the Total of Payments.

Below the four boxes contains a yes/no question as to whether the purchaser would like an Itemization of the Amount Financed.

Directly below that is a Payment Schedule. The Payment Schedule has three columns, which are headed Number of Payments, Monthly Payments of:, Payments are Due Monthly Beginning (date).

If the loan were to adjust after twelve months then there would be 12 months (number of Payments) of $600.00 (Monthly Payments of), January 1 2009 (Payments are due Monthly beginnning.

Now suppose that payment adjusts, after twelve months. Then there would be a second line showing a worse case scenario of the adjustment. So let's add a second line, showing 12 months (number of payments), of $1,100 (Monthly Payments of) January 1, 2010 (Payments are due Monthly beginning).

This would continue until the highest interest rate cap is shown, adn the remaing payments would reflect a worse case scenario. The TIL does not show any interest rate reductions because a worse case sccenario must be shown.

Let's assune that the highest interest rate cap is provided in the third year. The third line would read 336 months (number of payments), of $1400.00 (Monthly Payments of), January 1, 2011.

It really is very simple, very basic to understand.

But...... as I replied in an earlier post, if the title company did not disclose this information to the consumer properly, then there are TIL violations, and a court would back what the TIL Disclosure had in writing, which could have easily been represented as 360 months at the initial interest rate.

The advantages and disadvantages of an ARM are an entirely different topic.

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In addition, in some respects fixed rate loans cary their own dangers to banks and consumers. If the price of money doubles 10 years from now, the face value of the loan is destroyed and the bank takes losses. If the price of money is cut in half in 10 years, the borrower cannot take advantage unless they refi and extract fees (see amortgageman's post above on his favorable ARM terms). Certainty of a fixed rate can cut both ways. The CEO of ING was just talking about this.

JQ, you really hit the nail on the head, because back in the late seventies, IMHO, is when all this mess really started. AIG and every insurance company and later brokerage house in America satrted pitching "Guaranteed 7 and 8% Annuities. All of a sudden, thees financial powerhouses could not get 7% and 8% off of safe investments because safe bonds that were paying that amount were being called in, and new bonds were being issued at 4%, 5% and 6% (good ole mortgage backed securities). In 2002, over 55% of FNMA's portfolio was turned over, due to the refi boom.

Insurance companies still had these guaranteed annuities that were paying 7% and 8%, and thus the subprime mortgage market appeared. FNMA was losing market and began competing into some of the aspects of safer? lending in the marketplace, which really just catered to those who were purchasing second homes and investment properties with no doc loans, and credit scores which were supposed to be safe at 700 or above. When foreclosures started happening, and the real estate market started loasing value, then, even those with good credit gave up their investment properties because they were losing value. That's why the majority of housing depreciation occurred on the coasts. Now, it is starting in the areas of hardhit job losses. We all know the next chapter.

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