Comments on: Housing crisis datapoint of the day, tax-relief edition http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: NancyFarley http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-45599 Fri, 18 Jan 2013 07:46:51 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-45599 Great! Nice post. Hope to read some of your post in the future.. Serviced Offices Manila

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By: TFF http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-42295 Sat, 04 Aug 2012 16:48:45 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-42295 Heinlein believed in a social contract, not a free lunch. That is part of what is implied by his TANSTAAFL. There is a duty owed both ways.

He didn’t invent TANSTAAFL, however. That dates back to at least the 40s.

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By: Kaleberg http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-42288 Sat, 04 Aug 2012 03:10:07 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-42288 But Heinlein always did believe in a free lunch if you read his stories. The Moon is a Harsh Mistress was a Marxist parable, Battleship Potemkin in Space. His Farmer in the Sky was a Stalinist fable.

The “moral hazard” argument is usually just an excuse to do something nasty and say your doing it for the victim’s own good. That’s why it’s popular in HR circles. The guys arguing against giving small fry borrowers a tax break on loan forgiveness are the first ones lining up for a bonus when their bankruptcy cancels their firm’s debts.

We really only have so many choices. Americans used to have a reputation for doing what needed to be done, but now the Republicans and their ilk are arguing ideology like French philosophers.

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By: Curmudgeon http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-42263 Thu, 02 Aug 2012 23:01:35 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-42263 >> . . . they should of course not incur a massive tax bill.

Um, why? And why is this obvious? The need to pay tax on the principal reduction seems to me to at least have the potential to reduce the moral hazard. As Robert Heinlein famously wrote, TANSTAAFL (there ain’t no such thing as a free lunch).

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By: Eericsonjr http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-42259 Thu, 02 Aug 2012 19:53:22 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-42259 Yeah. There were a lot of TV numbskulls in 2007 talking about a “soft landing” but anyone who had been paying any attention was talking about a 10-year cycle, at least. Not much on TV though. Dominated there by re-litters.

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By: Harpstein1 http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-42255 Thu, 02 Aug 2012 18:06:33 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-42255 Many folks anticipated this dragging on for quite a while. I remember several well-known blogs I read in the finance/investing world, and I believe even Case-Shiller, saying housing will be a 10-12 year ordeal to reach a firm bottom. We’re half-way there!

I would be interested to hear folk’s thoughts, or links to thoughts, on what happens when the Fed stops supporting long-term rates? It seems to me that housing will again fall nation-wide, because higher rates mean higher monthly payments. And I’m not talking inflation, I’m looking at just Fed intervention. Right now as I understand it there’s a gap between what the market would charge for long-term loans (5-6%?) and what is actually being charged due to the Fed’s intervention in buying long-term stuff.

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By: kentwillard http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-42252 Thu, 02 Aug 2012 17:47:26 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-42252 If principal forgiveness is a good idea, then why not do it on FHA loans? After all, FHA now has more 90+ day delinquent mortgages than Fannie, but produces only a third as many modifications per month as Fannie.

Make HARP mortgages a 1-mo ARM with a 1-2% interest rate (easily done if indexed to 1-mo CMT) and a 4% lifetime rate cap. That drops the payment by 40% for a 5.5% mortgage. Direct most of that lower payment into paying down the principal faster either by setting up an option ARM with an artificially high teaser or simply a 20-year amortization term (easier to service, but can create more payment shock).

You have to use a short-term ARM (low rate cap for payment shock safety) in order to get the interest rate low enough to pay down principal quickly. Simply refinancing people into fixed rate 15-year terms helps those with 8% mortgages to build equity without payment shock, but most negative equity borrowers already have rates below 8% (remember that most Alt-A were hybrid ARM’s indexed to now rock bottom LIBOR).

This enables borrowers to reclaim their equity without forgiveness, lowers credit loss, reduces future foreclosure volume, improves house prices, and requires no Treasury payments. But this issue is about politics rather than economics, competition rather than compassion, and blame rather than solutions.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/08/02/housing-crisis-datapoint-of-the-day-tax-relief-edition/comment-page-1/#comment-42248 Thu, 02 Aug 2012 17:13:46 +0000 http://blogs.reuters.com/felix-salmon/?p=16799#comment-42248 Seriously? Just $10B to $15B of write downs? Somebody slipped a decimal point, or is betting that a very small proportion of the remaining loans will be adjusted.

And Felix, the reason it has been slow to resolve is because so many actions have been taken to ease the drop. The homebuyer tax credit delayed things by at least a year. We still haven’t seen the second leg of the decline, when interest rates rise again.

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