On Wed, 18 Feb 2009, Jordan Hayes wrote:
> Word this morning of a new administration initiative aimed at helping
> slow the rate of foreclosures. The details aren't out yet, but I
> thought I'd write up My Plan, should they see fit to adopt it.
I very much like the goal of My Plan, namely to nationalize the mortgage sector:
> Ok, so now (via the GSEs), the government owns the mortgage market; they
> are already some percentage of the way there; My Plan seeks to increase
> this percentage from somewhere around 30% to somewhere around 80%.
But I don't understand the first principles of this plan. The mechanics seem well worked out, but it's the starting assumptions I don't get.
> Under My Plan, any bank can apply for the program. They can sell their
> entire[*] mortgage portfolio to the government (I think it needs to be
> all-or-nothing to avoid cherry-picking).
Now here's the first thing I don't understand. When you say "mortgage portfolios," are you talking about actual mortgage loans or their collections of MBS? If the former (buying mortgages), the ones presently held by banks seem to be only a small minority of the problem mortgage loans outstanding. (The majority are owned by investors in securitized pools and wouldn't be touched by this.) If the latter (buying MBS), I'm not sure what you mean by getting them to "exit the home mortgage market" (never buy MBS again, never sell them, never package them?) and not sure how this purchasing process would gives the government any more control of the underlying mortgages than they had before.
> In return, they will get:
>
> - A Lump Sum of principal that represents some calculated percentage
> based on their portfolio and home values based on that zip code research
> that's so hot these days (so maybe 20% down? 30%?) [Plus special
> treasuries making up the rest]
So does this mean the government is offering to buy their portfolios at actual current market values? If so, I like that as a price, but I don't understand at all the inducement of banks to sell. This seems like no inducement even before you add the ban.
I'm sure I'm totally misunderstanding. But that's the point of asking for clarification.
Helen Thomas