Paulson’s Project Lifeline: The Non-Plan Plan

I’ll say it again: Rates are not the primary reason people are walking away from mortgages. Get that? It’s not rates, not rates, not rates. Yes, I know that is the implication in all the nattering about adjustable-rate mortgages — rate resets are hurting people — that’s not the main cause of foreclosure.

So, what is it, at least at present? It’s declining home prices. When people find home prices falling, especially when the value of their mortgage exceeding the value of their home, they walk away and the homes are foreclosed. Freezing mortgage payments, as Henry Paulson’s goofy Project Life non-plan plan announced today does in some circumstances, is irrelevant, sort of like hoping that fixing your car’s broken window will cause the tires to re-inflate.

Now, the deeper question is this: Is there anything politicians can do to cause home prices to stabilize or go back up? No, blessedly, and that’s a good thing in the long run.

Related posts:

  1. Updated: Mortgage Uptick Hits Search Markets
  2. Housing: Difference Price, Same Market — No Arbitrage
  3. The Silicon Valley of Subprime
  4. Do Homeowners Know Their Mortgages?
  5. Cross-National Comparison of Mortgage Markets

Comments

  1. Thomas Jefferson says:

    Of course there is something the politicians can do. And they will do it — again. They will fill the weak demand for housing by increasing immigration rates. More buyers will create demand and stabilize prices.
    I agree the issue is not rates but falling prices. Prices fall because of supply / demand imbalances. Unlike Japan, who went through a real estate bust, the United States is willing to turn the immigration flow up. We’ve used immigration to stimulate growth throughout the history of the USA. We will do it again particularly if McCain is elected, (for better or worse).
    Isn’t it just a little more than a coincidence that the rejection of the immigration bill las year is closely timed to time the air started to go out of the housing market?. Gee. I guess that actually enforcing the borders might have hurt the demand for housing. After all, look at the regions where housing is declining and there is clearly a correlation.
    How did that happen in the first place. Here is the formula.
    No Doc Loans = No Doc Workers
    How convenient for the bankers. I don’t particularly care either way. But faster immigration or an immigration bill will help solve the problem sooner.

  2. Nasim Shah says:

    The best way the lender bring the rate down to 3.5% any mortgage for the 2year. ccuz most of the lender seeks help from federal and get the money at 0%/ zero percent. some of the commercial properties owner can repair the building or get off /out from the business.
    Single family would be able to pay tution fee as as mortgage.

  3. Nasim Shah says:

    The best way the lender must bring the rate down to 3.5%, any mortgage for the 2year. ccuz most of the lender seeks help from federal and get the money at 0%/ zero percent. some of the commercial properties owner can repair the building or get off /out from the business.
    Single family would be able to pay tution fee as well as mortgage.

  4. Jon Smirl says:

    There are homes all over south Florida that have gone up 300% in five years. I just walked by a direct oceanfront that is on the market for $9.36M that was bought for $2.1M in 2002. It’s probably on the market because the property taxes are $180,000 a year now and the person that paid $2.2M can’t handle them. They were $40,000 before the run up.
    With 20% down that’s better than a 150% after tax annual return over five years.
    These valuations are impossible to sustain. You also have to wonder if some bank was dumb enough to give him $6-7M cash out from the equity “increase”.

  5. Frank Leahy says:

    Huh? Assuming that a person’s circumstances haven’t changed (e.g. they haven’t lost their job, or they’re not trying to move), then the only reason they’re defaulting on their loan is because they can no longer afford the payments. Ergo, the primary cause of the default is the rate reset, not the value of the house. (It may be that they can’t get a new loan because of the reduced value of their house, but the value of the house had nothing to do with not being able to pay their mortgage.)
    Example: I bought a house two years ago. If my house payments went up by 50% right now because of a rate reset I would no longer be able to afford the payments, regardless of whether the house value was higher or lower. Luckily I have a 7 year variable rate mortgage that does not reset this year. But if it did reset this year, and I couldn’t get a new loan at a rate I could afford, my problems would be caused by the fact that the rates had gone up, not that my house value had changed.