The sub-prime mess – Do you ever just wonder why…..

the obvious solutions aren’t even considered?

I was just thinking….if a homeowner had one of those ARMs that were ratcheting up, up, up, and as a result had to “default”, wouldn’t it make sense as a lender to go back to all your ARM holders and FIX the rate to the level where they could afford it? Wouldn’t this save the dislocation of many and save billions in written down debt due to foreclosure sales worth pennies on the dollar??

OK – I’ll get my head out of the sand – the original originators of the loans sold them to become repackaged as mortgage-backed securities. So, it is really a big giant impersonal mortgage machine that is so systematized that it would never be able to use common sense or logic to unravel the mess. There are actually California banks that own foreclosed homes in New England and admit they have NO IDEA WHAT they own!!

Somehow I think going back to the days of a community banker that kept the loans on their books might be a better way. They are involved with the people, understand the market and have a vested interest. Look at the Berkshires – there are very low foreclosure rates from the local lenders and why is this? While during the boom they were chastised as VERY CONSERVATIVE because they required potential homeowners to produce a 10-20% down payment, they are now proving to be prudent lenders. I think I’ll stick with the bank where when I enter the lobby, they know me by my first name!!


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