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Getbig Main Boards => Politics and Political Issues Board => Topic started by: MB_722 on February 18, 2008, 11:48:20 PM

Title: Peter Schiff 2/13/2008 on mortgage principal writedowns
Post by: MB_722 on February 18, 2008, 11:48:20 PM

Title: Re: Peter Schiff 2/13/2008 on mortgage principal writedowns
Post by: Straw Man on February 19, 2008, 12:07:39 AM

Lenders are not going to just write down the balances on the loans (i.e debt forigiveness).   It would be way too complicated and what happens when/if the owner manages to retain the property and sell if for a gain down the road?

What they might do (and I think are doing) is trying to find a way to restructure the debt to get the payment to something that the homeowner can manage.   The majority of subprime loans were written as 2 year fixed with automatic conversion to 6 month Libor ARM. 

Libor has dropped from ~ 4.5% in January to ~ 3% in February so all the lenders have to do is give the borrower a reasonable margin over Libor (say ~ 2.25 to 2.50%) and the borrowers will have a rate in the mid 5% range.   Maybe the lenders will offer to freeze this rate for 2-5 years.   

Most subprime loans have margins @ 3.5%+++ so just lower the margin will help and the reduction of rates at the short end of the yield curve helps too.

I don't expect to see debt forgiveness from lenders unless the specific property is sold in a short sale.