Yet another economist who dines at the restaurant of the free lunch: David Greenlaw of the US Economics Team at Morgan introduces what he calls a “Slam Dunk Stimulus” of sorts:

“If it were possible to inject a significant amount of stimulus into the US household sector, and this stimulus had zero impact on the budget deficit, did not require an exit strategy, did not distort the markets, and took effect almost immediately, wouldn’t it seem like a slam dunk? Such an option actually exists in the form of a change to mortgage refinancing requirements.”

His proposal? Change the Loan-to-Value requirements of homeowners applying for a refinancing.

In other words: The solution to poor lending standards and ultra low rates is to reduce the lending standards further to take advantage of even lower rates.

WTF? If that sounds absurd, it probably is because it is.

The best rationale that Greenlaw musters for doing this is that Uncle Sam is already on the hook for the existing debt, so why the hell not do the refis: “The Federal government stands alone as the guarantor of the principal value of agency-backed mortgages.

But that leads to such absurd conclusions as Greenlaw’s argument for a streamlined refi process for agency mortgages. In his final sentence, he states: “Quite simply, there is no need for a case-by-case credit analysis when the principal value of the mortgage is already backed by the government.”

I’m sure that will work out just fine . . .

>

>

Source:
Slam Dunk Stimulus
David Greenlaw
Morgan Stanley, July 27, 2010
US Economics
http://www.morganstanley.com/views/gef/team/index.html

Category: Bailouts, Credit, Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

69 Responses to “Morgan Stanley: More Irresponsible Mortgage Lending, Please”

  1. realgm says:

    So…this is using US Treasury to buy houses for the poor guys and the US taxpayers would be paying for it if the poor guys can’t pay it off while the banksters pocketed all the “service” fee. Great idea!

  2. Mike in Nola says:

    Sounds crazy enough to have traction. Guess I’ll have to move to a non-recourse state and buy a house so I can get one of these.

    OTOH, these are the same guys who said 10 year yields would be at 5.5% now.

  3. Rescission says:

    This is the dumbest idea I have heard in a while. Idiot thinking.

  4. dougc says:

    He may be taken seriously by half of the American people, the ones that reside on the left side of the bell curve desribing the IQ distribution. They want a simple painless solution to this and other complex problems, When they discover that eating Snickers is making them fat , they are then led to believe that the solution is to eat deep fried Snickers.
    e

  5. kaleberg says:

    Hilarious. It seems that the cure for the economy is anything but increasing incomes. What I’m wondering is how this proposal is different from deflation?

  6. Mannwich says:

    Well, it sort of fits with everything that’s gone on in the past few years. Why not just amplify the stupid at this point?

  7. Mannwich says:

    We can’t have increased incomes, kaleberg. That would be inflationary. Snark off.

  8. kaleberg says:

    realgm makes a good point – Perhaps the left and right could find a meeting place here. Let the government guarantee garbage loans with no money down and crazy low interest, but when the guarantee kicks in, the borrower gets to keep the house. Of course, the left will squawk that this is just subsidizing the bankers, and the right will squawk that this would give housing to the undeserving middle class, but it isn’t as if places like Singapore don’t subsidize housing, and we probably won’t have to tear down any Pruit-Igoes or Cabrini Greens when this is over.

  9. How about zero percent financing? It’s the way the car companies protected their balance sheets, for a time, when demand collapsed after 9/11. Of course, it would end as badly for the residential mortgage market as it did for the automobile industry, which should be about 2/3rds smaller right now were it not for government largesse.

    This doesn’t surprise me, actually. The housing market is poised to crash again. All these monetary shenanigans are only forestalling the inevitable. Prices have to decline. Whether they get there by lower, perhaps zero, interest rates or by actual declines–they will get there.

    I just posted that my bet is on zero percent financing.

  10. jeff in indy says:

    sounds like the fanniemae refi plus program that’s been place for several months. last time i checked they would refi a fannie-to-fannie loan up to 105% ltv. and how much has the fed ponied up to the gse’s so far…$400 million + or so with no ceiling. sounds like it’s already being done…

  11. @jeff in indy:

    The credit line at Fannie/Freddie is actually $200 billion each, for a total of $400 billion. I’m guessing you meant that “m” was a “b”.

    Each recently announced they were “comfortable” with the level of funding being provided by the Treasury. And what’s not to be comfortable about? There’s always more where the last came from.

  12. jeff in indy says:

    million, billion, trillion… it’s all coming from the same place. how come i don’t have that warm and fuzzy “comfortable” feeling?

  13. @jeff in indy:

    because you, my man, and me, and that guy over yonder behind the tree, are the ultimate source of their funds.

  14. NoKidding says:

    Something about that chart looks wrong to me.

    It has an x-axis of years and a y-axis of percentage. So it is tracking (?) the percentage of mortgages backed by the US government through Fannie/Freddie. The numbers top out at 35 pct of all mortgage count, or 45 pct of all mortgage dollars. I had thought those numbers were much higher.

  15. Scott F says:

    I’d send Greenlaw this link. The (apparently) unseen costs to his proposal are not small.

    In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference – the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, – at the risk of a small present evil.

    http://bastiat.org/en/twisatwins.html

  16. They know it will be years before the mortgage debacle sorts itself out and these guys have short term bonuses to get to. Let next year’s CEOs worry about the choices of today

  17. Expat says:

    I’ve said it before and I’ll say it again. Sell all your assets, hock your clothes, rent out the wife and kids, empty your savings account, and send all the cash to JP Morgan, Morgan Stanley, Citi, Goldman, and a random Senator. Avoid the rush and leave out the middle man (the IRS) by just giving them all you have right now!

  18. How these clowns advocate is a good predictor of of where and when they get their compensation. The sooner they want things reset the shorter they plan to stay around before they walk out of the corp with suitcases stuffed full of your cash

  19. Mannwich says:

    The term “Slam Dunk” also calls to mind another boondoggle – The Iraq War. I’m sure it would work just fine as that one has though.

  20. ACS says:

    Mannwich, if California would just invite the Taliban in then it could be “rebuilt” just like overseas!

  21. FHA already does streamline refinance.

    The logic is they are on the hook for the mortgage anyways, if you refi the borrower into a lower rate mortgage it strengthens the borrower finances and you will be more likely to be repaid. It’s not a horrible idea for FHA as long as you check income and all that because the borrower is paying a FHA mortgage premium still and that won’t change.

    But for Fannie/Freddie (who i believe have a 125% LTV refi option) there is no attendant MI premium that goes into building up the reserves and so I think the effect will be muted to the additional payments a slightly strengthened borrower makes.

    The other issue isn’t just LTV but the fact that many borrowers are in Interest only loans.. there is no (and shouldn’t be) IO only refi option and the borrowers can’t qualify both on LTV and definitely cant qualify on an amortizing loan.

    Stop pretending and start foreclosing, we’ve lengthened this crisis instead of ended it.

    But streamline refinance based on full doc income isn’t nearly the bugaboo you are making it out to be.

  22. Soylent Green Is People says:

    The servicer of a FN/FR loan can go to 125% Loan To Value to day, and practically unlimited Combined Loan To Value in certain situation.

    I guess this might boil down to a question of fairness in one respect. Joe Responsible HomeDebtor has a 6.25% 30 fixed, but Donald ” DBag” HomeDebtor next door has an Option ARM. Because of other short sellers and foreclosures in the area, loan to values are in the 130% range for all home owners. Don will get far more help modifying his loan, even principal reductions depending on the lender, but Joe is stuck. No way to refi, even though he took out the right loan and continues to pay it as agreed.

    This line of thinking is not addressing the MBS investor, or other parties involved in the ownership and servicing of this mortgage contract. That’s a different moral issue to address at another time.

    The time is approaching when Joe will see the D’bags around him getting all sorts of non-consequence relief for their bad decision making, and realize that he also decides to stop paying his mortgage. Why should he, other than simply morality of living up the contract previously agreed? Would it not be better to have the Government reach out to the responsible by lowering their rate than continue to subsidise the D-bags among us?

    My .02c

    Soylent Green Is People.

  23. Soylent Green Is People says:

    Dang my typing is terrible today. Regrets for the misspells before hitting “submit comments”.

  24. Mannwich says:

    Exactly Soylent. Why not incent (and reward) the right behavior for a change? Too much common sense?

    @ACS: LOL.

  25. curbyourrisk says:

    Morgan Stanley must be sitting on a shit load of bad loans they are praying to off load!!!!!!!

  26. jack says:

    more cowbell…….

  27. tude says:

    Mannwich Says:
    July 28th, 2010 at 2:55 pm

    Exactly Soylent. Why not incent (and reward) the right behavior for a change? Too much common sense?

    EXACTLY. It seems as though no one thinks about “us”, that is, those of us that are screwed coming and going with all this. I am a responsible person watching everything being done to help the irresponsible! I was the idiot that bought a tiny house in a working class area at a price I could afford easily at a time I could afford it. No monkey business. We are DINKs well within the top 10% of wage earners in the US. We bought a 1000sf home, our PITA is less than 15% our gross income. We are in an area where home prices plummeted from peak more than 60%, we have gone from more than 50% equity to probably 40k underwater. We luckily have a 5.4% fixed 30yr rate, but would LOVE to refi into a 15 or 20 year at 4% +/-, or even a 30 yr and shave a few hundred off our monthly mortgage (so we can continue to save/spend, turn this into a rental and buy another house). We would stimulate like crazy people with our nice paychecks..

    But instead we are faced with either never moving out of our starter home or buying another house and either losing money monthly on this house, or dumping it.

    I am not the only person I know in this same situation. We are the ones paying a crapload in taxes to bail everyone else out.. I don’t want a single penny, but it kinda pisses me off that with my income, almost non-existent debt load, and freddie mortgage, I cannot refi and take advantage of the lower rates.

  28. AHodge says:

    nice
    “Quite simply, there is no need for a case-by-case credit analysis when the principal value of the mortgage is already backed by the government”

    may i submit this as reason #19 why Fannie Freddie WERE part of the last boom bust?

  29. DeDude says:

    If the consumer goes from a 6% mortgage to a 5 % mortgage someone will lose that 1% of interest, who is ending up with that loss? Is it Fannie and Freddie or the investors that purchased paper from them? I agree that the underwater homeowner gets a break in that they can lower their monthly payments – and that will indirectly be good for Fannie and Freddie because the risk of default will get lower. If it is simply Fannie and Freddie bailing out themselves by giving home-loaners a longer time to pay back the loans and making use of the current lower interest rates to reduce monthly payments, then that just seems like a good business decision. We need a little more sophisticated analysis of this. Can we drop all the whining about “why didn’t I get something” or “but I want to see those (bad) people boiled alive” and figure out who will end up holding what bag for whom?

  30. Mannwich says:

    @DeDude: It’s not about “why didn’t I get something”, but about incenting (and rewarding) the RIGHT behaviors so that we get MORE of those said behaviors going forward and less of the bad ones. Why don’t you and others seem to get that?

  31. Robespierre says:

    tude Says:

    “We are the ones paying a crapload in taxes to bail everyone else out.. ”

    You still don’t get it. You are only bailing out the bankers. Bailing out the irresponsible “home owners” is just the side effect if you will….

  32. NoKidding says:

    “incenting (and rewarding) the RIGHT behaviors”

    Instead of taking 1 pct less interest paid, why not add 1 pct to principal received? That would bring in an avalanche of early payments to offset late/no payers.

    …and crush the already fading consumer economy.

  33. @DeDude:

    If you pay taxes, go look in the mirror. You’re one of the bagholders. If you own a home with a mortgage that can be refinanced to a lower rate, never mind your equity situation, then you are also one of the beneficiaries. If you don’t, you’re just a bagholder, like me (my mortgage is paid off).

  34. DeDude says:

    So F&F is on the hook for 300K on a 250K home that has 27 years left. The home-loaner want to do a refi into a new 30 year at 5% instead of the 6% on the current loan. That is good for the home-loaner who reduces monthly payments. It is good for F&F who is more likely to avoid foreclosure and the associated losses. It’s good for taxpayers who ultimately are on the hook for any F&F losses.

    Why is anybody crying foul here? Is it that you didn’t get that warm fuzzy feeling from observing those bad irresponsible people suffering the humiliation of being set out on the street? Or were you waiting and hoping for some real good carcasses to feed on when the house prices dropped and really undershoot fair value? Sorry but those joys would come at tax-payers expense since F&F do take a hit when someone is kicked out and the house sold. But then I am against taxpayer subsidies both to irresponsible and to immoral people.

    I am all about bringing the right incentives into current systems, but that horse has left the barn, and sh!t all over, long time ago. Furthermore, a lot of those people who thought they would be 100K in the black by now and instead are 100K in the red, have either learned a lesson or are beyond learning a lesson ever, so the incentive thing is also all over long time ago. None of the “rescue” programs have left the home-loaners “whole” relative to the story they originally were sold. They are simply left not having to take the full blunt force of the scams they were lured into – and mostly because the collateral damage from letting them do that, are to severe. Remember that when the housing market crashes it hurts every homeowner and home-loaner, including responsible ones like me that purchased and have fully paid off a home that I could afford.

  35. Robespierre says:

    DeDude Says:

    “Why is anybody crying foul here? ”

    Because it never occurs to you or most people that renting is a viable alternative for people who can not afford a home. Instead of trying to force a “ownership” society come hell r high water, how about eliminating all subsides from home ownership and move that money to subsidize good rentals. And BTW if you ever had a mortgage YOU were subsidized with tax payer money. One more thing housing didn’t crash it just went back to reality and everything that is being done today to elevate it to previous level will fail.

  36. obsvr-1 says:

    Enough of the back door bailouts !!! The FED has already taken on over a $T on their balance sheet to push capital into F&F — pushed through to the banks if F&F take on the loan, MBS or guarantee.

    let the banks keep their residential and commercial loan bets … place a moratorium on F&F purchase of Private mortgage, RMBS, CMBS or guarantees and let the banks figure out how to manage the bad debt through unsubsidized mortgage modification. They should have enough economic incentive to modify mortgages or other foreclosure mitigation w/o a taxpayer subsidy. The toxic crap on their balance sheet was from their own doing, let them unwind it.

    Any taxpayer $ that goes to mortgage modification is another bailout $ going through the backdoor.

  37. DeDude says:

    Yes I am really pi$$ed at the fact that those people ended up in houses that were way beyond what they could afford. But I blame the “professionals” that told them that they could afford this, although these professionals had all the information to know that it was a lie and something that probably would crash soon after they had harvested their fees on the deal. I also blame the government and federal reserve who passively stood and watched as this fraud of the century was perpetrated on people who were not sophisticated enough to understand that they were doomed to lose this American dream that they had been sold. These people hired professionals to help them with a thing and a process that they in many cases had not previously been exposed to and that clearly were way to complicated for them to fully understand on their own (particularly if they were hard-working folks with one or two day-jobs). They were victims of a huge scam that convinced them that they could afford (had earned/deserved) something that in reality was beyond their means.

  38. TomL says:

    I can see where this is going. Let’s just cut thru the mustard, okay?

    Lift the LTV to 100%.
    Don’t check the borrower’s income or debt load – just use FICO scores.
    Bundle thousands of re-fi’s into CDOs.
    Rate them by The Usual Suspects (S&P, Moody’s and Fitch.)
    Carefully use a sharp Ginsu knife (from the county fair) to slice & dice ‘em just like tomatoes.
    Sprinkle liberally with CDSs to make them more appealing.
    Position them as “tastes great and less filling” (AAA and high-yield securities.)
    Voila – instant housing recovery.

    Haven’t we been down this path recently?

  39. patient renter says:

    I’m not sure why we even discuss these sorts of ideas on the basis of merit. It is not the intention of such proposals to be meritworthy, but rather to simply make money for the proposer.

  40. Robespierre says:

    obsvr-1 Says:
    July 28th, 2010 at 4:25 pm

    “Enough of the back door bailouts !!!”

    Very naive there. The banking syndicate OWNS the government. Compare the economic damage that the big banks cause and the damage that BP cause. How many big banks CEOs were force to resign in disgrace?

  41. karen says:

    I found this fascinating:

    West Virginia Offers 30-Year Fixed Rate Mortgage at 3.5% with No Money Down
    Wednesday, July 28th, 2010, 9:45 am
    The governor of West Virginia announced an unparalleled housing strategy, and is now offering the best mortgage rates the state has ever seen — a 30-year fixed-rate of only 3.5%.

    Not only that, but the program includes a 0% down payment policy and families are still eligible for closing cost assistance loans.

    This program, run by the West Virginia Housing Development Fund, is able to achieve the rate through a $35m bond issue.

    http://www.housingwire.com/2010/07/28/west-virginia-offers-30-year-fixed-rate-mortgage-at-3-5-with-no-money-down

  42. DeDude says:

    @Robespierre, yes the mortgage deduction should be removed, but that has nothing to do with the refinancing proposal discussed above. I personally used renting as a viable alternative until I was in my mid-thirties, then got a house on a 15-year mortgage that I paid back in less than half of that time. The first two years I did get a small tax deduction but then I reverted to standard deduction because the interest and taxes paid did not add up to enough. If it had really hurt me that others got to deduct homeowership costs then I would have used the system and purchased a McMansion. I was free to make my own choices and either use or not the rules that apply to us all – I don’t whine over the consequences of my choices.

  43. Mannwich says:

    This has always been about the banks and politicans trying to put the genie back in the bottle to blow another asset bubble or series of bubbles. They view it as THEIR only choice at this point since any other would involve serious pain for both of these groups. Nothing has changed on that front.

  44. patient renter says:

    Karen – A followup to what you posted:

    “the West Virginia Housing Development Fund is committed to providing affordable housing to the citizens of West Virginia”

    From wvhdf.com

    Indeed, subsidized rates down payments are exactly what West Virginia needs to make housing “affordable”. As always, the irony of programs that promote affordability via subsidies is that they effectively pump prices. Econ 101 and all that…

  45. Mike in Nola says:

    Dedude: maybe I missed the beginning of the argument, but lowering interest rates as your are talking about is not the proposal. The proposal is to let underwater borrowers get more underwater, which increases default risk. And, since about the only ones refinancing are the Feds, the banks are using Refi’s to move bad loans from their books to the taxpayers. All the proposal does is take a bad, bank loan and replace it with a worse federally guaranteed loan.

    What they should do is force MS to write down the principal on their underwater loans to lessen the default risk. They can take it out of banker bonuses.

  46. Mannwich says:

    @Mike: You ARE kidding about that last part (bankers forfeiting their bonsuses), right? That’s the VERY last thing that will will happen.

  47. Soylent Green Is People says:

    To take this in a slightly different direction…

    I’ve often wondered what happens when the weighted average rate of a TBTF banks mortgage servicing portfolio is 5.0% and falling, if CD rates climb to 5.x and up percent. Won’t these loans be considered as income “losers” in a 5.x% pay out rate environment? Say we see the return of 6.0% CD’s. How will banks pay that rate unless fee income skyrockets. Did this same thing not happen in the 70′s? What’s different today?

    My .02c

    Soylent Green Is People.

  48. Robespierre says:

    Mike in Nola Says:

    “What they should do is force MS to write down the principal on their underwater loans to lessen the default risk. They can take it out of banker bonuses.”

    This I like and therefore will never see it happen

  49. Soylent Green Is People says:

    Mike In NOLA has it somewhat right – that principal reductions help prevent strategic default, but if your D-Bag neighbor get’s a $50k haircut on his principal, won’t your hand out be as well? Principal reduction if ever enacted can only be done on an inequitable basis which is why it won’t be universally adopted.

    What would be nice to see is loss sharing agreements.

    Homedebtor A has $100k on a house today worth $50k and is thinking of walking. Bank says they will reduce principal to $50k, but put a $25k equity share agreement on the home. If you sell for more than $50k, the bank gets the net, up to the $25k remaining.

    Yes, MBS investors will take a haircut. That’s called risk investing. Better to retain 25% of something than 50% of nothing.

    Step two is to require FN/FR/HUD to limit total debt to income to 35%. Not 35% housing, 55% total debt as it is today, but 35% period, the end. This will encourage responsible borrowing, responsible lending, and push prices back to an affordable level. If a hedgie wants to fill the gap by lending to buyers at higher debt to income levels … Great! At least John Q Public isn’t on the hook for it. If they make money doing …. Great as well. It’s the market at work.

    Step three is to eliminate FDIC insurance for any bank that funds loans higher than 35% Debt to Income. No sense watching banks put out “private portfolio loans” when in fact they are simply gambling with depositors funds.

    Simple, easy to sell to the public, and a way forward that’s going to help all parties (IMHO) come back to reality.

    My .02c

    Soylent Green Is People.

  50. DeDude says:

    Mike; The way I understand the proposal it applies to a person with a F&F loan of e.g., 300K on a house that originally was valued at 375K (80% LTV) but now with the house value at 250K the loan to value has changed such that he/she cannot refinance due to the loan-to-value requirements. I do not see anything in the proposal suggesting that he want to allow cash out refinancing (allowing underwater borrowers to get more underwater) I agree that the exact winners and losers in this proposal have to be evaluated carefully, but with the right restrictions it could be a win-win for both F&F and the home-loaner.

  51. rktbrkr says:

    curbyourrisk Says:
    July 28th, 2010 at 2:57 pm
    Morgan Stanley must be sitting on a shit load of bad loans they are praying to off load!!!!!!

    Amen to that!

  52. rktbrkr says:

    It’s the ultimate can kick down the road move, help these people roll their loans into lower rate, longer term loans and maybe something good will happen before they have to realize their paper losses (which will really be F&F losses).

    And as some posters pointed out they can already get 125% LTV so these people are WAYYYY underwater (I recently read that the underwater folks don’t walk away til like 63% under which limits the walkaways to CA,FL,AZ,NV and Detroit)

    This is such a good idea they should take it one step farther and allow the refinancers to take some cash out too – to hep the economy – a chicken in every pot, a flatscreen in every room!

  53. DeDude says:

    I want to stress that I am not in favor of letting banksters use this to unload their liabilities onto F&F. Nor am I in favor of letting them get a fat fee for the refinancing. I would suggest a simple program that allow F&F to do a no-cashout refinancing on F&F loans regardless of loan-to-value ratios, provided that it reduce the monthly payment for the home-loaner. The fee for that refinancing should be capped at a flat rate of something like $200 and handled by a simple form send to F&F by the home-loaner.

  54. willid3 says:

    Didn’t Morgan Stanley and Wall street learn any thing? they seem to want to repeat what they just did. unlike last time, it won’t work. to many are out of work, and to many are underemployed and have just had a come to grips with a near death experience. and they probably relearned the same lesson those from the 1930s did.
    don’t trust banks.
    don’t trust wall street.
    they will kill you if you do

  55. tude says:

    Just an FYI to those who keep bringing up the fact that people can already supposedly get a 125% LTV fixed rate loan, that does nothing for responsible buyers who want to lower their rate.

    I called about that supposed program. I have a 5.4% 30 year fixed that I got when I still had 70% LTV in 2008, and when rates were 4.5% I was told that now that I was more than 80% LTV my rate would be more than 5.4% because of the risk, AND I would then have to pay PMI on my loan! So if I refinanced under that “program” my payment would go UP more than $300 a month.

    There are zero options for responsible buyers with decent incomes.

    I try to just be thankful, at least I do have a good fixed loan, at least I pretty much break even compared to renting and I am in my own home. And as to the tax benefits, I was so stupid I bought an inexpensive, highly affordable home, so even with the interest deduction it’s barely more than the standard deduction for us. In a couple years it will be none existent.

  56. Carse says:

    So, the legal definition of reality needs a change from fixed value to variable value.

    Variable valued mortgages that vary in value as the market value of property oscillates over the life of the mortgage.

    Sounds cool to me. Imagine this: you buy a house for a sum certain of $300,000, the property valuation varies with market value, and so does the mortgage value, but limited high end at the contract value of $300,000. And yes if you pay $150,000 over 15 years on the mortgage and the market values falls to 150,000, then you own the property. Just like the options market.

    The mortgagor should not be burdened with all of the risk.

    I believe this is what the article is abstractly attempting to get at. This way the government does not have to guarantee price in market based reality. And the tax payers do not get screwed.

  57. TakBak04 says:

    BR: I’m with Morgan-Stanley for my 401-K…and their NEW FOCUS is IDIOTIC to me. They send their reports and I have to read with one eye open because the other is snoozing.

    Before the “BAILOUT” we had an open “Personal Acct.” with MS that they were competing with low price “buy and sell orders” or our Indy Stocks to compete with “E-Trade.” Our 401-K was with another group we were forced into dealing with who lost us some Big Money in the ’08 Crash.

    So we moved our money from the INDY to all with Morgan Stanley…until we found out that Morgan-Stanley is now charging us $169.00 if we want to put a “Stop/Loss” or “Buy or Sell” a stock in our Porfolio.

    I think “M-S” has lost us… WHAT WERE THEY THINKING? And their current reports for where the market (THEY THINK) is headed just doesn’t seem real to savvy readers of Financial Blogs like we are.

    Bad Stuff. We are probably going to switch over to a “low trade” broker…but this is getting to be so complicated for us older investors that it’s like switching your Cell Phone Provider or Cable Access Operator.

    In Other Words…..The Choices for Investors are Getting Less and Less and the FEES are going HIGHER AND HIGER. Just “My Personal Experience,” of course.

    But thought I’d put it out there in case anyone else of your readers have seen the CHANGE with how “Morgan-Stanley” is operating, doing business these days and they want OUT!

  58. TakBak04 says:

    BTW: As a SouthEast Coaster…I’d be wary of Morgan-Stanley because they have High Exposure to High End Housing Market in “Gated Communities–Golf Coast Stuff” in the SE during the BUBBLE YEARS.

    Believe me….I’ve visited those Gof Course Community Areas and “M-S” was financing from the “Gold Old Boys way past 2007…and the SouthEast was late to the game.

    Much stuff coming down road in Obligations for “M-S,” IMHO! But, …again…it’s just my “Humble Opinion.”

    You all do what you want. “Morgan-Stanley” might be as good an investment as “Goldman.” While we all hold our breath…and if you are a “Trader” who is not a “Day Trader.” ….Time Frame for “M-S” until the “sh*t hits the fan………

  59. TakBak04 says:

    Sorry…typo’s, rushing. Morgan-Stanley in with the “Good Old Boys” who have money in Southeast….and they over-leaveraged thinking the Boomers were all going to ritire with Big Bucks down there.

    I’m not saying Older Boomers aren’t going to fulfill “M-S’s DREAM”…but I think it might be a longer time coming that “M-S” thinks it will be and there might be trouble for them in the interim……

  60. jeff in indy says:

    to put the total blame on the person that originated the loan is a bit of a fallacy. short of fraud, the originator can only sell what’s available in their toolbox. which, around 90%+ of the time meant a F&F automated underwriten loan. hell, in the “peak” years i had AU results come back approve/eligible at 85% debt-to-income ratio on 85% ltv’s NOT requiring income to be documented with pmi accepting the AU results for pmi.

  61. Carse says:

    Since people want to speculate on property values then we ought to make it possible to speculate on longs and shorts, and discard the fixed value mortgages theory on property, it’s obviously not working out.

  62. dhan says:

    *FUME*. These supposed experts make me mad when they propose idiotic schemes to advantage of people’s ignorance. Debt reduction should be the top priority for most debt-laden households. Stimulating a market segment in this manner just postpones the inevitable pain.

  63. robertso2020 says:

    FNM/FRE have approx. $5T loan portfolio. The Fed already owns $1.25T of the loans. Somehow the Govt would have to come up with $3.75T (assuming everybody does the refi which would be unlikely). How would the Govt do this? Issue more debt? The typical MBS investor would not touch an agency bond at 4.5% if they couldn’t do prepayment analysis…so the private market would not be an option. Plus, a new homebuyer would be subsidizing an old home buyer in the form of higher mortgage rates…unless we completely nationalize the mortgage market (which could happen). If that’s the case then the taxpayer would take on 100% credit risk of every conforming mortgage loan ever written…past and future.

    Oh and the Fed’s plan to sell their MBS holdings in this lifetime…put that on hold for the Apocalypse.

    Does David Greenlaw have any idea what he is talking about? He just had his Wizard of Oz moment. Would love to know his salary.

  64. robertso2020 says:

    correction to the 4.5% Agency bond…it would be 4%.

  65. DeDude says:

    Tom Lawler has a good take down on this proposal over on calculated risk

    http://www.calculatedriskblog.com/2010/07/slam-dunk-stimulus-ms-missing-something.html

    It turns out that HAMP is already kind of sort of doing something like this. Closing cost will eat a big chunk of money reducing the actual savings, and F&F themselves not just guarantee but also own some of those older more expensive mortgages so they would be the ones to lose income.

  66. [...] Actually to paraphrase his non rebuttal “Actually, I think it will work out just fine”. Check out the comments here. Who thinks these guys and gals even understand the [...]

  67. [...] a few specific examples of what they described as “frickin’ crazy”: -A major Wire House (and TARP recipient) suggestion we abandon loan to value standards to allow more refinancings of homes likely to default as [...]

  68. [...] Morgan Stanley: More Irresponsible Mortgage Lending, Please (July 28, 2010) PERMALINK Category: Credit, Real Estate, Really, really bad calls, [...]