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Ask the Expert

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We need a pro-active Congress

Posted: October 4, 2008 9:14 p.m.
Updated: December 6, 2008 5:00 a.m.
 

Regarding the imminent banking collapse disaster: It seems to me that Congress needs to me more proactive, rather than reactive, on a solution to the problem of the banking disaster.

Reactive solutions refer to bailout moneys, etc. The taxpayer is paying the burden.

Since the banks got into this mess by using bad underwriting and issuing variable-rate loans that the mortgage brokers knew the borrowers would not be able to afford after the end of the honeymoon interest-rate period, the banks need to take responsibility for these bad loans.

Borrowers were told by the mortgage brokers, “Sure the loan is 3 percent now and in two or three years, it will go up to 10 percent, but don’t worry. At that time all you need to do is refinance to get a lower-rate loan.”

The problem is, when the borrowers tried to refinance when their rates jumped, they were unable to refinance.

This was because of a myriad of reasons: Home equities were down, borrowers couldn’t qualify for new loans, lower interest rates were not longer available on new loans, and the most important, through the banks’ arrogance, the banks were unwilling to re-write or convert the loans to a more reasonable rate or more reasonable terms.

It’s almost as though the banks would rather take the huge loss of foreclosures and face bank failures rather than take a smaller loss by renegotiating their existing loans and retain some but a smaller cash flow to stay in business.

I do not believe that the taxpayers should shoulder the burden of the banks’ arrogance!

My solution would be to force the banks either through the FDIC or the Federal Bank, or both, to renegotiate the trouble loans before they get to the default stage to a lower interest rate or more favorable terms or both.

By doing this, the 117 or so banks that are in apparent in trouble will not fail. They will merely make a less than expected profit rather than have a complete collapse.

The FDIC will not need to cover the failed banks savings accounts. The bank stockholders investments will be safe, and most of the bank bailout will not be necessary at all.

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