David Ader, RBS Greenwich Capital:
It’s a big deal, maybe, but we’re holding judgment as to whether this staves off the economic repercussions of the problems already created. We don’t know how many are impacted. We don’t know how you unravel the homeowner from the long change to the mortgage owner. We don’t know how covenants come into play. Let’s say there’s room for skepticism, but the headline offers up a bit of flattening potential.
Nouriel Roubini, RGE Monitor:
So after wasting almost a year in supporting a case-by-case approach to loan modification and realizing that only a paltry 1% of such mortgages had been modified as lenders and servicers did not have either the skills or the human resources or the physical resources to modify one by one millions of loans after a dragged out negotiating process with the debtor, both the mortgage lenders and the US Treasury have now gotten religion and accepted an approach that they had vehemently opposed before: i.e. move from a case-by-case to an across-the-board approach to loan modification. Even Paulson finally got it that.
Yardeni Research:
Interest rates are set to reset next year on $362 billion worth of adjustable-rate subprime mortgages, according to Banc of America Securities. An additional $85 billion in such mortgages is resetting during the current quarter. The estimates include loans packaged into securities and held in bank portfolios. Ms. Bair observed that borrowers she would target are typically already paying between 7%-9% at their starter rate! (2/28 mortgages are fixed for two years at the teaser, then adjust every year for the next 28 years.) Will the farewell to ARMs end the credit crisis? Not by itself, but it is certainly a move in the right direction.
We view an informal industry agreement…as likely to have a modest impact. At the margin, it will hurt the mortgage finance industry but help the economy in the short run by stretching out foreclosures and slowing the rate of home price declines (but not the end point.) Even if the loan modifications merely delay foreclosures, the push for loan modifications will probably help the economy a little in the short run if they slow the increase in foreclosures that would result in a shaper fall in home prices. Of course, home prices need to fall considerably to reach a new equilibrium… In a sense, voluntary loan modifications under regulatory duress is a softer version of the ‘cram down’ bankruptcy bill being considered in the House Judiciary Committee. It imposes soft pressure to modify instead of forcing lenders to do so as the bankruptcy bill would. If the voluntary loan modification approach doesn’t produce the hoped-for results, Treasury may be paving the way politically for the bankruptcy bill as it is based on a similar rationale.
Paul Krugman, The New York Times:
Kudos to the Bush administration. Yes, you read that right — although I need to see more detail before giving a thumbs up. But as of this morning, it seems that Henry Paulson is being much more proactive on the housing mess than I expected.
(as compiled by the Wall Street Journal)
