host, comments on your post #39
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flstf, I think that I can answer your question. The "lenders" are in denial to the point that they believe their own BS. They only look at "this quarter" as far as their "bottom lines". This "bailout" might negatively impact anticipated revenue increases from ARM "resets" in the near term.
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It is hard to believe that lenders would rather take a large loss and forclose instead of taking a smaller loss and freezing rates, but I have not read a better explannation than yours.
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The "lenders" are not even the actual "lenders"...investors and funds own the actual mortgages, and they cannot gauge the "health" of the tranches that the mortgage they hold are packaged in, especially if they were rated AAA-prime. Underwrites who once enjoyed unlimited warehouse credit lines, such as Countrywide, choked on mortgage loans they kept issuing that couild no longer be packaged by Bear, Lehman, et al, into tranches. They had to eat them, and this caused their credit lines to become illiquid, and then reduced and closed, and then came margin calls when the large providers of the credit lines demanded higher collateral (margin) in cash....to cover the increased risk caused by the "Countrywide level" in the chain, being stuck with mortgages no one wanted to repurchase, and no cash to make new loans and maintain the stream of underwriting profits.
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If I understand the situation correctly then those of us who hold these mutual funds in our 401Ks and IRAs will be the biggest losers in this mortgage mess. Also those who are upside down in their mortgages and are forced to sell at a loss.The biggest winners should be the prospective house buyers who have already sold and can wait for prices to bottom out.
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This is about an attempt to "save" the world economy and fiat paper currencies, the US dollar being the most in peril and consequential. I predict that "the save" it will not succeed, and I know that everyone who can sell their house now, for whatever they can fairly get for it, will come out ahead of those who attempt to sell five or six and maybe longer, years from now. My opinion does not apply only to folks who are "upside down" on their loans, it applies to every homeowner.
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I really do not understand how our currency works and why we accept this fiat money in exchange for things of value especially since its value is based on the actions of whichever polititians happen to be in office. But that being said, if the fix does not work and the attempt to save fiat paper fails wouldn't it be better to hold something of value like a house instead of a bunch of this paper?
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It is a valuation bubble that the bailout attempts to preserve, or appreciably slow the deflation of. It cannot be done except by allowing anyone who can fog a mirror to qualify for a 100 percent loan, fed by warehouse credit lines of mortgage originators. Feeding some sheeple bagholders into the combine by letting them "keep their homes", ain't gonna help any of them....or "save" "the system".
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I agree that prices are going to fall further but also think that those able to ride this downturn out will eventually make out OK unless prices never recover. Just like many of us do not sell our portfolios everytime the market takes a dive.
I don't know what to make of your comparison of house prices from the 1930s and today. Like Ustwo said houses are much larger today. I grew up in the 50s and we had a 1/2 acre typical suburban house, 3 bedrooms one bathroom, with mom, dad, 4 kids and a grandma. Today my wife and I live alone in a 3200 sq. ft. house with 4 bathrooms. Back then we had one car and today most families have 2 or 3. I'm not disputing your analogy just pointing out that things are much different now.