beethovengirl said:nycll said:I don't have a problem with lowering paying homeowners' monthly payments. Lenders are not short changed because prepayment risk is inherent in every mortgage loan.

This could be the perfect carrot in a "carrot and stick" solution. The real problem is that we don't have the stick side of the solution.
If they're going to allow refis up to 125% LTV, the loans need to be recourse loans and typically non-dischargeable in bankruptcy, like student loans. Those are the only terms under which I would support 125% LTV refis on the taxpayers' dime. Otherwise, this is just a hand-out to banks holding worthless option ARMs and the like.

I just noticed tjtv's post above, and I hope he's right, in which case this is a reasonable policy IMO.I hope he is right, too. And his interpretation is consistent with my understanding, although I didn't spend any real effort to verify it due to lack of self interest.

I am also assuming refinance is for people who have been paying, because otherwise the lowering of rates would be called modification. If someone has been paying his 125 LTV 9% loans, I'd think he will continue to pay for the same outstanding principal at 6%.

beethovengirl said:
If they're going to allow refis up to 125% LTV, the loans need to be recourse loans and typically non-dischargeable in bankruptcy, like student loans. Those are the only terms under which I would support 125% LTV refis on the taxpayers' dime. Otherwise, this is just a hand-out to banks holding worthless option ARMs and the like.
Why? Freddie and Fannie already own these loans. The point is to allow people to refinance into a safer product or to lower interest rates, both of which will lower the chances that people will default on the loans THAT ARE ALREADY OWNED BY FREDDIE AND FANNIE. If they don't qualify for the refi, then that is a different story because they will need a loan modification.

well maybe they were inspired by the saying 'fight fire with fire'

Shandril said:
Consider the two loans you're looking at. The original loan which was certainly below 100% LTV and the refi at 125% LTV. You got 7% on the original loan. Why would anyone give you even the same rate considering they're exposed to $80k minimum default risk on the refinanced loan. I don't know which private lender would underwrite this nonsense. It's completely disregarding default exposure. Even in most favorable no cashout refi allowed.

As far as taxpayer dollars are concerned, assuming no cashout refi, if you default or need to sell for any reason, agreed you're the same loss with either loan. But currently, you're paying 2% extra which helps a bit compensate for that risk. A private lender would definitely not offer you better than 7% for the loan in the current conditions. So why should taxpayers sponsor your lower rate despite the higher risk than when loan was first originated? If loan was non-performing due to hardship and cutting rate would help you stay current, there might be a case but not for performing loans. You're NOT due the lowest rate regardless of lending risk. In short, doing this, does not make any sense from lending standards point of view, especially knowing by experience now what trouble we got into when relaxing lending standards.
...but, if refinancing the loan saves the homeowner $200-$300 a month or more, don't you think that increases the odds of them not defaulting on the loan? Plus, they are also looking at that extra $200-$300 per month in people's pockets to help stimulate the economy.

brettdoyle said:Incarnate said:

...but, if refinancing the loan saves the homeowner $200-$300 a month or more, don't you think that increases the odds of them not defaulting on the loan? Plus, they are also looking at that extra $200-$300 per month in people's pockets to help stimulate the economy.

I have a better idea. Why not just have everyone holding a fannie or freddie mac loan pay $0 on their mortgage and keep the house for free, government subsidized.

This would save homeowners thousands a month or more, don't you think that increases the odds of them not defaulting on the loans? Plus, those trillions of dollars they have free can be used to stimulate the economy on things like granite countertops and plasma tvs.

They had better be careful. If they continue to make it more and more attractive NOT to pay and to get bailed out, they will reach a point where most homeowners default on their loans just to get the government assistance.

Incarnate said:beethovengirl said:
If they're going to allow refis up to 125% LTV, the loans need to be recourse loans and typically non-dischargeable in bankruptcy, like student loans. Those are the only terms under which I would support 125% LTV refis on the taxpayers' dime. Otherwise, this is just a hand-out to banks holding worthless option ARMs and the like.
Why? Freddie and Fannie already own these loans. The point is to allow people to refinance into a safer product or to lower interest rates, both of which will lower the chances that people will default on the loans THAT ARE ALREADY OWNED BY FREDDIE AND FANNIE. If they don't qualify for the refi, then that is a different story because they will need a loan modification.

If refinancing increases the time to pay off it increases risk.

dsru said:EvilCapitalist said:Incarnate said:beethovengirl said:
If they're going to allow refis up to 125% LTV, the loans need to be recourse loans and typically non-dischargeable in bankruptcy, like student loans. Those are the only terms under which I would support 125% LTV refis on the taxpayers' dime. Otherwise, this is just a hand-out to banks holding worthless option ARMs and the like.
Why? Freddie and Fannie already own these loans. The point is to allow people to refinance into a safer product or to lower interest rates, both of which will lower the chances that people will default on the loans THAT ARE ALREADY OWNED BY FREDDIE AND FANNIE. If they don't qualify for the refi, then that is a different story because they will need a loan modification.

If refinancing increases the time to pay off it increases risk.

Not necessarily, it is only one factor. A longer term could lower risk if the payment is more sustainable for the borrower.

Jesus, no wonder we are in this mess:

1) It IS GUARANTEED that a longer term increases risk
2) It CANNOT BE NOT GUARANTEED that a lower payment OVER INCREASED DURATION decreases risk.

Class dismissed.

What happens when struggling financees default on loans 25 percent higher than the original amount?
What are you talking about? Its not for 125% of the original ammount. Its for 125% of the currently appraised value. The problem is that people can't refinance out of higher interest rate, or higher risk loans because they no longer have 80% LTV due to housing values dropping. This plan does NOT allow you to take a $250,000 mortgage and turn it into a $312,500 mortage. You can't take any cash out when you refinance with this plan. It simply allows people to refinance who are now underwater in their mortgage.

Here we go again. This must have passed the "dumber" and entering the "dumbest" stage.