Write Down Rent with Risk

New York    Pinch me, I can’t believe it is happening!  

    The Chairman of the Federal Reserve is everything but calling for write downs of the loan principle by the big banks and others to prevent foreclosures.  Which is to say that in these broad hints, Bernanke is actually trying to open the door wide enough for serious reductions in loan amounts by the big banks to keep them from having to write off even more billions because they are stuck with foreclosed property that they can not sell.

    Is this America?  Who would have believed the day would come in our country founded on property rights above all else, where somehow a homeowner could borrow $250,000 for a house and end up only owing $175,000 because the lender and borrower are both stuck holding the bag?  

    Recently a writer referred to a lot of the situations where borrowers were paying “interest only” on loans like option ARMS or minimal amounts on other exotic propositions as “rent with risk.”  Why?  The borrower had made the loan with no down payment in many cases.  They were not paying down principal, and in some cases many cases were planning to either refinance or flip the house when the value went up so that essentially they would never have “skin in the game.”  Seems a lot like rent doesn’t it?  

    Meeting with a lot of bankers and servicers and listening to our own housing counselors, we frequently hear their surprise that borrowers are paying their credit cards off before their mortgages.  That’s certainly not typical of the normal profile of a home owner, but it sounds a lot like the way that renters operate.

    The Administration does not have the stomach or more importantly the votes for Bailout II (the old savings and loan was I), so they are going to keep putting a sheet over this mess and hoping for the best.

    In the meantime keep paying your “rent” and let’s see how low this all may go.

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