If Paulson and the government leave the mortgage meltdown alone and let those who need to be foreclosed foreclose what are the consequences?
Housing prices will drop dramatically to a level that more people or the same number can buy a house.
The banks and Wall Street will get hit hard.
The investors, many of them foreign, will get hit hard.
Some banks and hedge funds might go under.
Some of these Wall Street billionaires might have to give up a few bucks.
The average homeowner will be unaffected even if foreclosed.
If there are huge numbers of persons with bad credit the industry will simply come up with a product that will offer credit so these people can again buy a house. Just because someone has been foreclosed does not mean they cannot get a loan. Sooner or later someone will seek them out and offer some sort of mortgage product. They will be buying at a much cheaper price. They might be charged more interest but the overall cost will be much less since the house will be much cheaper.
If half of the country has a foreclosure on their record don't you think the mortgage industry for self survival will figure out how to work with that and loan money anyway? If they don't they are not interested in making money.
So in my case, for example, I might just take a big equity hit and sell if I could move into a much nicer house for an equivalent payment. Instead of paying the big down payment on the next house I would just pay off the loan on the current one. The next one would have a small down payment, relatively.
For example, if I want a million dollar house that used to be 2 million and I am upside down on my current one by 100,000 but I have a job and cash flow a creative mortgage product would simply pay the 100,000 and finance the million. The monthly payment would still be less than the payment had I paid a full 2 million for the same house. The problem is that people are walking from their houses because they have no equity of their own. The houses are not worth the huge amounts paid for them. A creative product has to figure out how to make a home buyer put some skin in the game. The problem with this pyramid was that no one had any skin in the game except for the buyers of the bonds and the stockholders. Those buyers did not do due diligence. Chuck Prince sure did not have skin in the game. I did as a Citi stockholder but not Chuck Prince.
By supporting people by holding down the rates artificially it seems Paulson and the government are simply trying to maintain artificially high house prices and trying to maintain the portfolios of the big Wall Street players. The problem is that the prices of houses are way too high in comparison to the earning of those who have to pay the mortgages. It is the cash flow of the average home buyer that is the issue.
Should the average citizen care if the Wall Street moguls don't make millions per year? Should the average citizen care if these individuals have no job? Does anyone think that Chuck Prince deserved the millions in pay he received? Is there any small businessman in America who could create losses like that and expect to be rewarded with millions of dollars and set for life? This mortgage meltdown rescue plan looks a lot like heads I win and tails I win....if you are a Wall Street mogul. And if you are Joe Average....it is heads you lose and tails you lose........
