Sunday, May 3, 2009

Final Chapters, New Themes

Fuji (Alberto Fujimori) is in jail for 31 years after a multi-year, twelve post campaign here at As Good As News. He's probably in jail for the wrong crimes, but that is the Peruvian way. We are not prepared to spring him just to demand that he be tried as a kleptocrat. What more can As Good As News really do?

The Texas succession movement is firmly and successfully launched, thanks to innumerable posts here and the timely intervention of Texas Governor Perry. The vision of a republic where public school classes in creationism are taught by evangelist ministers packing concealed six guns is so irresistable that Texas independence is now only a matter of time. As Good As News's work here is done, although we may be unable to resist an occasional progress report.

Norm never really caught the blogging public's eye, while Andy got more attention than he wanted. Both are quiet now, although the Norm & Andy series still garners an occasional comment from an Andy ex.

Doc Gurby's banking system escaped the financial crisis unscathed, in fact the financial crisis provides Turkmenistan with the opportunity to create a banking system. As Good As News will proudly remain the official blog of Turkmenistan, but don't expect much until the campaign for election to gengesh heats up this Summer.

What does it all mean? Time to create some new recurring themes. Watch for future posts on news developments in these areas:

1. Dump the Preakness. It's too close to the Kentucky Derby. A three year old needs more rest between starts. It's too short. If the best horse is boxed in, a mile and 3/16 doesn't offer enough time to escape. It's in financial trouble. Most importantly, no one really likes " Maryland My Maryland".

How can you replace a tradition like the Preakness? Move this triple crown classic to a track that's even older - Saratoga Springs. Adjust the racing season and race schedule slightly so the Jim Dandy becomes a triple crown event, run at a mile and 7/16 on the last Saturday of July. Pimlico has had a great run, but one visit to Saratoga Springs will convince doubters that the Baltimore track will make a nice shopping mall.

2. Let's Get Serious About Restructuring Mortgage Loans - Toxic securities comprised of bundled mortgage loans are toxic because of uncertainty. How many of the underlying mortgage loans will go into default, will we be able to cost effectively foreclose on the mortgages and sell the properties for anything resembling a reasonable price? If the owner of the toxic security can keep a high percentage of those mortgage loans performing by dropping payments to a level the borrower can afford, then you can value the suddenly not so toxic assets without even trying to guess at the cost of foreclosures, carrying costs and fire sale prices in a disastrous market, not to mention the benefits to the homeowner/borrowers, who will have a roof over their heads.

Why is the banking industry fighting to the death on a bankruptcy law amendment that would allow bankruptcy judges to adjust the terms of mortgage loans (as they now do with other loans)? There are valid concerns, but so far the banking industry, which certainly understands the benefits of a performing loan, doesn't seem to be mobilizing a successful mortgage loan renegotiation campaign on its own. Maybe the bankers should stop fighting and let the bankruptcy courts help them out.

Here's one approach that would help in a bankruptcy plan or a private renegotiation of a mortgage loan. If the borrower can't handle the payments without a principal reduction, then give him a principal reduction - at a price. The borrower must commit to pay a kicker, an agreed portion of the sale proceeds, to the bank if and when the house is sold.

For example, Borrower A bought his home for $200,000 in 2007 with a $170,000 loan from Bank. Now A is working only part time and the home is worth $130,000. Borrower can refinance at a lower interest rate, but he still can't afford the payments and he is ready to walk away (or stop paying and hang out for free for many many months until the sheriff shows up following foreclosure). Bank agrees to reduce the principal amount of the loan to $120,000 but only if Borrower agrees that when he sells the home he will pay-off the (reduced) mortgage loan and pay the Bank a kicker equal to 50% of any sales proceeds over $120,000. The kicker can be capped at $50,000 (the amount of the mortgage reduction) plus interest. Borrower stays in the home, Bank has a loan that is worth less, but it's a performing loan that it can value for financial reporting purposes, not a toxic unknown. Bank and Borrower will both benefit if the real estate market recovers, and even the value of the kicker (which would be very small initially) would show up on the Bank's books.

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