T Nation

Gov't Renegotiating Principles

Serious question: How will renegotiating the principle on home loans stabilize the economy? Is this likely to increase or decrease values?

My first reaction is that it won’t do a thing. To me it seems like propping up the system of keeping people in homes they can’t afford. That obviously hasn’t worked out so well. If principle values are increased then people have equity magically pop up into their investment. Smart ones will not touch that, but most people who are in over their head would probably be likely to borrow against that and spend more than they should again. Whats the deal?

I am so dumbfounded by this principal. I keep thinking this whole mess is just a dream and I am going to wake up soon. I just can’t believe the crazyness we have decended into and can’t admit that it’s actually happening.

I agree with both of you. In addition, isn’t the idea of changing the principal on a loan just outright illegal???

I’m no Economic expert…but it seems like intervening to artificially “set” prices on things seems like a recipe for disaster.

Mufasa

Bad idea. I would personally benefit from this but it is still a bad idea imo.

The only way I can see this working - and I am not at all in favor of bailing out idiots who signed a mortgage for more than they could pay back - is if the Fed paid the bank for the difference in what was loaned and what the FMV on the house is.

Then when Billy-Bob Dipshit gets ready to sell the house, any money received over the reduced principle amount goes to the taxpayers.

I wonder if is too late to get in on some of this. I’d love to own a 8,000 - 10,000 sq. ft. home and only have to pay $150K for it.

SWEET!

E-mail me if you can work me out one of those deals, RJ!

You’d have a client for Life, brother!

Mufasa

The more I think about it the more this appears to be another open ended middle class welfare entitlement program

What I fear will happen is that the goverment will renegotiate the mortgage based on what the homeowner is able to pay not what the actual value of the home is.

This is really terrible. If I were Obama I would say - yeah this program sounds great, I’ll promise the same thing. Why not, its a liberal program anyway.

There is no way the government can renegotiate the principle of a home loan without disrupting the supply of homes for everyone else.

If a person knows that he may never see the profit from a real increase in home prices because he owes it back to the bank (or taxpayers) then he has no reason to to ever sell it. That could artificially push the price of homes up until the supply is stabilized.

[quote]Mufasa wrote:
SWEET!

E-mail me if you can work me out one of those deals, RJ!

You’d have a client for Life, brother!

Mufasa[/quote]

Just start buying up foreclosures and short sales. all the shit that’s going on now should create and nice little minibubble for housing.

[quote]LIFTICVSMAXIMVS wrote:
There is no way the government can renegotiate the principle of a home loan without disrupting the supply of homes for everyone else.

If a person knows that he may never see the profit from a real increase in home prices because he owes it back to the bank (or taxpayers) then he has no reason to to ever sell it. That could artificially push the price of homes up until the supply is stabilized.[/quote]

Wanna bet?

Sit back and watch, junior.