Poking holes in the Dodd-Frank mortgage rescue plan

Congress appears to be heading toward approval of some version of the Dodd-Frank plan to write down, refinance and then guarantee as many as 1 million mortgages. What's not to like? Plenty, according to this report from CNN Money, which highlights several arguments against the write-down rescue plan:

-- Robert Shiller, the Yale economist who has long argued there was a bubble in home prices, said the plan will do little to stop the slide in housing prices -- he argues prices have further to fall to reach historical norms.

-- If Shiller is right, and prices continue to fall, "the FHA would be left with a large portfolio of loans backed by houses worth less than the mortgage... the government (and hence taxpayers) would be on the hook for billions of dollars in bad loans."

-- It might not be in the best economic interests of homeowners struggling to meet mortgage payments.  MIT professor William Wheaton "argues many of the homeowners now facing foreclosure could be better off renting the same home at current market prices, rather than trying to refinance the mortgage.... For this reason, he thinks the government would be better off giving tax assistance to companies willing to buy foreclosed properties and then rent them to the current occupants."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[Steve]

Another Bush joke and a huge complicated waste. The most simple and quickest solution is to simply force banks/mortgage companies to lend money at the true cost of funds, 5% or less now. If you could get a fixed rate mortgage at 4.5% this market would turn around in a day and foreclosures would be down by 50% in a month. Yet, this is way to simple for the morons in Washington and typical they have to justify their existance with this obsurd program that will cost tax payers billions. I guess the postive on this is the Feds will screw this up so much they will need to print more money then ever and inflation will soon rival the 70s, 15% plus annually. If you own RE you will win again like in the 70s. Way to go Bushie

[MyLessThanPrimeBeef]

First, we had the perfect storm.

Then, the tsunami.

Now comes the ever more dangerous hybrid. No, it's not the perfect tsunami.

It's more than that. It's beyond that like supraluminal is beyond light and transfinite is bigger than infinite.

It's the pluperfect tsunami.

Tiny little Dodd-Frank is not going to do a thing.

[mike]

they have already proven they can't pay their rent. that is all they were doing was renting. capitilism is a boom and bust scenario. let the market shake out the losers and restart itself. this is not the first time we americans have been through this. the only difference is that now we can all communicate about it real easily.

[Robert Laughing]

Leave it to the kooks in New England - by the way, where is Kennedy whining? Bad enough we have Bush, Cheney, Delay, Rove, Cunningham, but the freaks of the Far OUT Left is which destroys the Dem Party. We have the Freak Far Right Neo-Cons worried about Wall Street Billionaires, and the stupid Left concerned about shoveling tax dollars to the terminally stupid or brain-dead, with NO 'SKIN' in the game....who among these twits deserves to be re-elected?? NOT A ONE!!

[Geek Seek]

Prof. Wheaton thinks that tax breaks for companies that buy foreclosures will keep rents down. Some informed posters have stated, however, that rents have followed home prices down during housing recessions, so why would this be different?

Surely we have a much larger relative supply now. Sounds like a lot of hooey paving the way for some large "white knight" companies to swoop in and buy up our properties using, once again, tax dollars. Prove your inflating rent theory, please, professor.

I'm not seeing it... not seeing inflating rents. I'm seeing landlords who might want everyone to think rents are holding. We've been shopping for a new apartment and just signed a new lease. The managers we've dealt with are extremely eager to make a deal and rent concessions were thrown at us at high velocity

[fred]

This is just going to be a big ol' mess that the middle class is going to be paying for for the next 10 to 20 years. Thanks.

[tbgpalisades]

Oh, I'm so tired of this 'crisis'...why can't Washington just say, "look, people, you signed the note, now pay the mortgage!"

End of crisis.

[Jason]

Yup, make the responsible tax payers pay the penalty yay!

[JohnnyB]

Obviously, it's not a home "owner" bailout (most debt holders of the last few years don't own any equity), it's a bank/lender bailout.

If you didn't know, Dodd and Frank are completely corrupted by the finance/banking industry. Completely and utterly. They simply have no credibility when it comes to crafting financial regulatory legislation that BENEFITS THE LOW/MIDDLE CLASS.

They ACTIVELY observed, analyzed, participated and perpetuated this mortgage-backed, derivative-based, Ponzi scheme. And, they made millions.

The idea that so many (lay person) citizens could understand how bad the numbers and trends were but they could not is simply not credible.

Now, the finally slap in the face to middle class taxpayers... an enormous bailout of already mega wealthy bankers at our expense.

Since it’s legal, let's "water board" some truth out of these liars. Public canings and confessions from financial terrorists would be good for the public (mob) at this time. I could say Frank would probably volunteer for that, but I won’t.

Look, with all due, these are highly intelligent, accomplished leaders that have seriously and profoundly disappointed. When it really matters, they are blatant con men and crooks.

[Gorefan]

In the CNNMoney article, experts seem to agree that home prices need to drop further, but they never say by how much. If historically, home prices are related to rents and income, how much further do home prices need to fall to be back in equilbrium?

[Lou]

Dodd-Frank is the biggest joke since the Iraq War. Dodd-Frank is proof that Dems are just as out of touch as Reps.

[Edgar]

For some reason the addition of the "Digg" tool is just killing performance of your site. My browser (Internet Explorer) is constantly hanging when trying to visit the site. It is making it untenable to come here and I would not be surprised to see a significant drop in traffic. Please consider removing it or politely asking Digg.com to fix their code.

I love your blog.

[Geek Seek]

Good grief. We're turning ourselves inside out trying to fix the mess, and here, on the blog, yesterday... a big banner ad at the top of the page advertising a $180,000 loan for six hundred and something dollars payment. If the lender doesn't require you to pay something like $10,000 in points for a $180k loan, then what exactly are they selling?

[firesale]

"For this reason, he thinks the government would be better off giving tax assistance to companies willing to buy foreclosed properties and then rent them to the current occupants."

THERE ARE NO SUCH COMPANIES.

[puckhead]

"For this reason, he thinks the government would be better off giving tax assistance to companies willing to buy foreclosed properties and then rent them to the current occupants."

THERE ARE NO SUCH COMPANIES."

There will be if companies can get favorable tax treatment and can make a buck. Private equity firms are swimming in money and if they smell a buck, they'll invest in it.

[Tex]

Peter, saw you on CNN this morning. Looks like this mortgage situation is making you a star! It's great that CNN, a major media outlet, is finally devoting some time to the other side of this story. Thus far, it seems the anti-bailout sentiment has either been ignored altogether, or portrayed as a fringe position held by a vocal minority of moralistic, xenophobic, hard-right freaks. Hopefully the mainstream media and the government will come to realize that is NOT the case, especially in California, where the lack of affordable housing has harmed people of all political persuasions.

One of the points made by CNN is that politicians want to say they are in favor of home ownership and that is why they are pushing this bailout package. But why not take the position "I am in favor of home ownership, so I support allowing the market to correct so everyone who works hard and saves can afford a home?"

[Laker]

firesale wrote: "...THERE ARE NO SUCH COMPANIES...."
My friend, these companies exist. They are many cash specu-vestors that are just waiting to scoop houses and rent them. If they get incentives from the government, they will sure do it with higher numbers. The good thing, is that the smart ones can actually calculate the RENT vs Mortgage AND add the other expanses. So all they wait is to have a positive cash flow. However, positive cash flow will only happen (in LA) if house prices get down to 3 times incomes...or if government will send nice "rebates" to "these companies" to make it worth while.

The other comment that bothers me for a long time is the phrase "houses lost to foreclosure"
What do you mean by that? No houses are ever lost, to my knowledge, the foundation is usually strong enough to keep the house still, earthquake might move it a little, but it would still be on the same street. Houses are not lost, and in fact are found by well deserved buyers that can qualify and afford them.

[alan]

I am very cynical about the Dodd-Frank plan. I would expect that by the time this is passed and started only a small percentage of homeowners will ever take part in it. The vast majority will not be affected by it so that it is more a way of congressmen showing that they "care" to their consitutants and remain "in-touch" with the issuse when they come up for re-election rather than accomplishing anything; however misguided their effors are.

[RZ]

Thank you Robert Shiller! Hopefully Congress will listen to him...

[otherangrybitterrenter]

moralistic, xenophobic, hard-right freaks.

Perfect!