Thread: between now and christmas

Wonder who the government will find to finance NEW mortgages.

If government can "arrange" to cut the risk premium at will, who will be willing to buy mortgage bonds?

Don't price controls create shortages? I seem to remember something like that from Econ 101.

Hmmmmm...

Originally Posted by coach222

Wonder who the government will find to finance NEW mortgages.

If government can "arrange" to cut the risk premium at will, who will be willing to buy mortgage bonds?

Don't price controls create shortages? I seem to remember something like that from Econ 101.

Hmmmmm...

The one that get their rate frozen won't have to refinance. The ones that choose to refinance to a fixed rate, or other type of mortgage, I don't know, but I would think it will be with the same mortgage holder!

I was really only discussing new bond issues not existing bonds. But, if I were an ARM bond holder, I would seriously consider selling the bonds at a fire sale (even further erosion of home value) if the risk exceeded the ROI or if this "solution" only postpones the foreclosure.

I currently hold several mortgage bonds (all fixed at different maturity dates). I get paid interest based on the risk and maturity, But if I knew the "government" was going to interfere with the terms of those bonds (n/a in my case...yet...) I wouldn't have purchased them in the first place. The "government" is overriding my risk premium.

By fixing the interest rates (price control) they have taken away the premium for holding the bonds. Without that risk premium, I won't be purchasing any more bonds (shortage of bondholders). A shortage of bond holders equates to a shortage of money available for mortgages.

Econ 101 - price control = shortage

This solution won't fix the problem unless bond purchasers are willing to accept lower returns (more risk) for the money they are lending.

OH, Bonds! Makes sense to me and can cause big liquidity problems. If there is no money to loan we surely can't get credit. As you mentioned it isn't right that the bond holders lose money on this deal, but I surely don't know what their plan is on how to manage this part of the Bailout. GOOD Point!

I see a lot of lawsuits coming.

This is supposed to be a record year for capital gains distributions and special dividends in the mutual fund industry. Most will should be dishing them out around middle of December time. You can get an estimate as to how much you can expect by checking your fund's website. Can't wait to reinvest all of mine.