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Author: Milligram46 Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459905  
Subject: From The No D'uh Department, Bailout Won't Work Date: 10/5/2008 12:07 AM
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...until the cost of real estate stops it's decline. I personally don't see the market settling down until 2011, bailout or not.

NEW YORK — Washington's financial bailout plan is now law. So the credit spigot will start flowing again, banks will resume lending, and an economic recovery can begin, right?

http://www.foxnews.com/story/0,2933,432763,00.html

Wrong. Experts say the most important thing that needs to happen before the $700 billion bailout even has a chance of working: Home prices must stop falling. That would send a signal to banks that the worst has passed and it's safe to start doling out money again...
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Author: solarae100 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 257684 of 459905
Subject: Re: From The No D'uh Department, Bailout Won't W Date: 10/5/2008 12:19 AM
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I don't think it's the actual price of a home, but rather the monthly payment. The real estate bubble started when interest rates got so low that the payment on a 30 year loan was very affordable for many folks. Then the ball started rolling...

Edy

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Author: PeterRabit Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 257688 of 459905
Subject: Re: From The No D'uh Department, Bailout Won't W Date: 10/5/2008 3:53 AM
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Edy I don't think it's the actual price of a home, but rather the monthly payment.

Isn't this exactly the thinking that got us into this fix?

It doesn't matter what you pay for the house because it will be worth more later. All that matters is the size of the monthly payment.

In terms of toxic debt, I think what matters most is how many mortgages are underwater. Many people will walk away from their mortgage if they owe more than the house is worth. As long as this is happening, prices will fall and more mortgages will go underwater. Vicious cycle.

Peter

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Author: Slapdiddle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 257689 of 459905
Subject: Re: From The No D'uh Department, Bailout Won't W Date: 10/5/2008 4:00 AM
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The Treasury Department is authorized to "guarantee" home mortgages, essentially becoming a kind of co-signer, to reduce the number of foreclosures. If the home owner stops paying his or her mortgage, taxpayers would be on the hook. The Treasury Department can also eliminate a "reasonable" amount of a home owner's mortgage debt, under section 109 of the new law, which would likely delay the process of house prices falling.

http://news.cnet.com/8301-13578_3-10057618-38.html?tag=nl.e4...

Sounds to me like the bill might be able to slow the decline of home prices. And I bet there's more where this bill came from.

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Author: WilliB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 257698 of 459905
Subject: Re: From The No D'uh Department, Bailout Won't W Date: 10/5/2008 6:42 AM
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Home prices need to fall (relative to wages) because most homes are just too darned expensive. If people can't buy them, no one can sell them.

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Author: Milligram46 Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 257745 of 459905
Subject: Re: From The No D'uh Department, Bailout Won't W Date: 10/5/2008 12:41 PM
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Home prices need to fall (relative to wages) because most homes are just too darned expensive. If people can't buy them, no one can sell them.

Bingo! I caught a soundbite from Sarah Palin in the VP debate that eluded to this very point. Basically she said people were convinced that they could get a $300K mortgage when all they could afford was a $100K mortgage -- ahhh -- but appraisers and the real estate industry inflated the values of property so much and so quickly as the flippers and investors gobbled up property that the $300K mortgage payment that they got talked into to buy a $300K house, that is probably only worth $150K. Now it doesn't change the fact that being able to only qualify for $100K means they shouldn't have bought a house in the first place, but for those who bought the $300K house and do the right thing, cut slash, and find every extra penny to keep paying are screwed out of $150K, that maybe at 2% growth per year, which is more normal for real estate they may get back in 2043 they do what most other people would do.

Walk. Or what is going on in California, put their house up for sale, buy the $150K foreclosed home right next door contingent on the sale of their over priced home, default, and call it good on the new property. The law protects them in their new home.

All the bailout bill does is delay this drop in pricing and it will make the recession work. That is why I keep saying we have close th $5 trillion in bad mortgage debt, not just in subprime, but on the massive of over priced home debt that is out there.

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 257761 of 459905
Subject: Re: From The No D'uh Department, Bailout Won't W Date: 10/5/2008 1:49 PM
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The Treasury Department is authorized to "guarantee" home mortgages, essentially becoming a kind of co-signer, to reduce the number of foreclosures. If the home owner stops paying his or her mortgage, taxpayers would be on the hook. The Treasury Department can also eliminate a "reasonable" amount of a home owner's mortgage debt, under section 109 of the new law, which would likely delay the process of house prices falling.

http://news.cnet.com/8301-13578_3-10057618-38.html?tag=nl.e4......

Sounds to me like the bill might be able to slow the decline of home prices. And I bet there's more where this bill came from.


Anything that delays the decline of house prices will only make things worse. (But a bit later, which is important to politicians.)

Nothing can stop the decline. Except inflation, and that can only stop the nominal decline - not the real decline.

Given that the government is determined to interfere (I'm opposed), a rational approach would be to protect mortgage lenders from some percentage (but not 100%) of their losses on short sales and foreclosure sales related to mortgages issued prior to enactment of the interference. But even there, to avoid manipulation, we need some restrictions. The protection should only apply to short/foreclosure sales at a price reflective of a NORMAL relationship, for the area, between rental and purchase prices. As it happens, the average of that relationship from 1990 to 2000 is a good approximation of the long-term average.

Help for the borrowers? That any mortgage this guarantee is applied to becomes non-recourse: after the foreclosure or short sale, the borrower owes nothing more on it.

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Author: desertdaveataol Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 257832 of 459905
Subject: Re: From The No D'uh Department, Bailout Won't W Date: 10/5/2008 10:07 PM
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That bears repeating:

All the bailout bill does is delay this drop in pricing and it will make the recession work. That is why I keep saying we have close th $5 trillion in bad mortgage debt, not just in subprime, but on the massive of over priced home debt that is out there.

Not that anyone in Washington is listening.

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