New at Reason: Jeff Taylor on the Mortgage Mess

Jeff Taylor wonders if the next president will use the U.S. Treasury to refloat lending. All signs, unfortunately, point to yes.

Read all about it here.

Comments

TWC | August 28, 2008, 2:16pm | #

I wish Jeff would write more stuff for Reason.

P Brooks | August 28, 2008, 2:22pm | #

You've got it all wrong. The government stepped in to correct a market failure. We just need to do a little fine tuning, and then everyone will have a home of his or her own, with a chicken in the pot, and a flying car in the garage.

And a, you know, pony out back.

J sub D | August 28, 2008, 3:05pm | #

Don't worry. The government will get it right this time. A few more regulations, a few more directives, many more taxpayer billions and then everybody gets a home loan that they won't default on.

And a pony.

Robbie | August 28, 2008, 3:08pm | #

Well written and logical, always love an article from Jeff Taylor. I second TWC that he should do more articles for reason.

DannyK | August 28, 2008, 3:15pm | #

The alternative is to permit market forces to allocate capital from private sources without direction from officials Washington or New York.


"Market forces" don't allocate anything, people do. And the people with the money aren't allocating it, probably because they don't want to lose it.

The alternative to government action is Hooveresque stagnation. I don't know anybody other than Amity Schlaes that really wants to "purge the rottenness from the system" for the next 5 years. Even Jeff Taylor didn't take the pledge, at least in this article.

Invisible Finger | August 28, 2008, 4:48pm | #

I 99.9% agree with Jeff, but the FDIC was overwhelemed by the sheer number of bad mortgages at IndyMac.

The FDIC is supposed to be preparing IndyMac assets for sale. Foreclosure is a drawn-out process and requires lawyers - the FDIC would deplete its funds just on legal fees going through the forecolusre process. Then selling the REO parcels would either require time-consuming piecemeal sales or selling in bulk below market value.

If this were a few hundred bad mortgages, the FDIC would just foreclose and get it over with. But we're talking thousands of bad mortgages - the FDIC would be foreclosing for years or would burn through 10 million in legal fees to get it done faster. Seems like the FDIC is just doing the math and figuring the better value for the FDIC is to fix up as many mortgages as they can and will be able to sell the loans at a higher return than foreclosing-and-selling-REO would return.

Personally, I think the FDIC is in for a shock when they see how few borrowers are going to accept or qualify for the FDIC's workout terms. Then the FDIC will have little choice but to foreclose. And another issue is how much volume the state courts can handle at a time. The foreclosure line might be over a year long now. (Welcome to Sapce Mountain!) If they're trying to sell assets as qucikly as possible, loan workouts might be the only choice.

Yeah the FDIC talks about "keeping people in their homes" but bureaucracies always put a bullshit face on their real intentions. And yeah it sucks, but they might have to write down a loan from $700,000 to $450,000. Then again, the house was really only worth $450,000 anyway except for some insane blip. I don't think anyone is going to come away with buying a house properly valued at $450,000 for $350,000.

DEA talking points | August 28, 2008, 5:01pm | #

..."Then the FDIC will have little choice but to foreclose. And another issue is how much volume the state courts can handle at a time."

There would be plenty of court capacity if cannabis was re-legalized and the war on some drugs was ended.