>>VIDEO:
CNBC -
Subprime Borrower Bailout (Subscription Required)
Clients of Tavakoli
Structured Finance also have access to video
via TSF
CNBC Thursday
April 12, 2007: Diana Olick with Senator Charles Schumer
and others is followed by Liz Claman, who interviews Janet Tavakoli
of Tavakoli
Structured Finance.
Janet Tavakoli said she is all for helping honest homeowners who
were misled with bad mortgage products, but not the lenders
(mortgage bankers, investment banks and investors) who enabled the
problem
in the first place.
She said that it is a difficult situation, because there has been
fraud by borrowers in addition to fraud on borrowers. There has also
been speculation by people who thought home prices would rise forever.
But she advocates helping honest homeowners who were misled into
bad mortgage products.
Ms.
Tavakoli advocates a temporary moratorium on subprime foreclosures
followed by mortgage restructurings. Where appropriate, homes should
be reappraised to lower values and the mortgages restructured to
affordable fixed rate mortgages. In some devastated zip codes, the “zip
code Katrinas,” the reappraised values will be drastically
lower, and the mortgage terms radically different.
Estimates are that each foreclosure costs combined stakeholders $80,000.
This would mean
losses would be born by subprime mortgage bankers, investment banks
that provided financing to the mortgage bankers, and to the investors
in subprime
mortgages and CDOs backed with subprime mortgages. There is no reason
for US taxpayers to bail out these sophisticated financiers. [JT
Follow-Up: This was written April 2007 and it was my long-held
view, but as the problem fesetered and the crisis wore on, by February
2009, there was no choice
but to use US taxpayer money, at least until money could be clawed
back.]
Ms. Tavakoli believes US taxpayers should not foot the bill.
Ms.
Tavakoli's proposal
1) allows
honest homeowners the dignity of paying for their homes in a rational
way,
2) allows
investigation into mortgage practices so as not to reward borrowers
who gamed
the system, and
3)
does not compensate sophisticated finance professionals for
risk they themselves
enabled.
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