Even a Stopped Clock is Right Twice a Day
CSPAN2 - Sen. Mary Landrieu (D) just said something I LIKE. The date is October 20, 2005, time is 6:15pm Central Time. Mark it down, people. This may never happen again.
She just said that she's going to be putting forth a bill that will defer mortgages for 6 months in the event of a serious disaster - be it a hurricane, terrorist attack, whatever. At the end of the 6 months you don't have to pony up the full amount - if you did, what would be the point? It's tacked on to the end of your mortgage. As a homeowner who was not in debt - we don't even have credit cards! - other than my husband's student loans, before Katrina, and now is very emphatically in debt to cover various daily life items and rebuilding costs, this sounds like a really fabulous idea.
However, I will spare a thought to Washington Mutual and its investors, and all the other mortgage companies. Can any of you financial gurus out there tell me if this will really hurt them, or will this be a minor blip to them? I love this idea because it will really bail us out of a bad situation, but I'm interested in opposing viewpoints if anyone has one.
Posted by Laura Curtis at October 20, 2005 06:31 PM
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|# October 20th, 2005 6:54 PM james|
|i can't say whether it will "hurt" a large company, but it will certainly affect their bottom line negatively - it's not getting money owed compared to getting the money as expected.
this proposed bill may also be an interference with the contract clause of the constitution - the government doesn't have the right to alter the terms of a legal contract entered into between 2 private entities.
that said, most mortgages in the US are owned or backed by the government anyway, thru fannie mae. i don't know how that changes things, but could see a few scenarios where it might.
my personal view is that this is not a good idea. at the least, it's an unamerican interference with private contracts. if not unconstitutional.
if the mechanics work out slightly differently, say that the bill specifies that the govt will pay the mortgage premiums to the lender and will wait for reimbursement, that's not different than me, as a taxpayer, underwriting an insurance policy.
the fact is, mortgage companies all offer insurance to cover certain situtations where you can't make your mortgage. i know that unemployment is one, and natural disaster may be another. why should i underwrite policies for those who refused to buy the insurance?
more importantly, what business does the government have driving these companies out of business by usurping their function?
|# October 20th, 2005 7:09 PM Laura|
|All good points. It's easy to get excited about a potential solution and overlook possible consequences. Your answer gives me plenty to think about.
I was not aware of insurance to cover mortgages - this is our first house, and frankly we were so overwhelmed with the process that I have no idea if we were offered that or not. Never occurred to me to ask our insurance agent about that, either. I know we have regular insurance and flood, but I think that's it.
|# October 21st, 2005 7:18 AM jagorham|
|I might be speaking out of the wrong orifice here, but one thing that might benefit financial companies under this scenario is the aging of their portfolios, and how it's perceived under regulations.
Speaking from personal experience, I once worked at a credit union. One of the things that NCUA was always on our case about (and deservedly so, given the actions of previous management) was how delinquent some loans were.
In the "six month deferral" scenario, it'd still be a current debt, not a delinquent one. That'd take the heat off the financial institution to collect something, come hell or high water (in the case of Katrina, both).
As far as them "not getting the money," that's irrelevent for the bottom line in the near term; they'd still accrue income from the loans, and increase the assets on their balance sheets (interest receivable).
Just my two cents.
|# October 21st, 2005 8:50 AM Laura|
|Frankly, I think this will pass if she puts it forward. From a political standpoint, they're going to make a whole lot of voters happy without raising the national debt, and it just sounds so good, helping the little guy with time, not a handout they can go buy a big screen TV with. No administrative fees for the government, etc.
I stand to gain a great deal if it passes, so I'm not exactly a disinterested party. But I do want to understand it better because if I need to call Landreiu's office and say I think it's a crappy idea, I will. Won't effect the outcome, but I like for her to know somebody's paying attention.
So aside from potential constitutional issues - which is like saying 'aside from that, Mrs. Lincoln, how was the play?' - jagorham, it sounds like this is not a completely terrible thing for the lenders.
My lender voluntarily deferred two months, as did the company we have our car loan with, which is why we were able to stay off of food stamps, etc. If they could voluntarily defer two, I wonder how bad 6 would be?