jcaraway_IHB
New member
Any thoughts on McCain's summer break on federal taxes for gasoline. I think it's would be very effective and result in substantive savings for the lower and middle class. Oh, and tomorrow is not oppisite day.
your thoughts on interest rates and government bailout programs
- Thread starter financeguy_IHB
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IrvineRenter_IHB
New member
[quote author="jcaraway" date=1208317595]Any thoughts on McCain's summer break on federal taxes for gasoline. I think it's would be very effective and result in substantive savings for the lower and middle class. Oh, and tomorrow is not oppisite day.</blockquote>
Sounds like a massive subsidy and handout to the oil industry. I am surprised Bush didn't come up with this idea.
Sounds like a massive subsidy and handout to the oil industry. I am surprised Bush didn't come up with this idea.
mediaboyz_IHB
New member
When we were in Las Vegas, gas was 30 cents cheaper than SoCal. Maybe they should ditch the state gas tax ?
hh:IrvineCommuter_IHB
New member
[quote author="mediaboyz" date=1208344564]When we were in Las Vegas, gas was 30 cents cheaper than SoCal. Maybe they should ditch the state gas tax ?</blockquote>
Nevada gas tax is only 13 cents cheaper than California. (64 cent v. 51 cents). California also has stricter emission standard than Nevada and thus there is a supply side issue with the California gasoline.
<a href="http://www.nevadagasprices.com/tax_info.aspx">http://www.nevadagasprices.com/tax_info.aspx</a>
<a href="http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html">http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html</a>
Nevada gas tax is only 13 cents cheaper than California. (64 cent v. 51 cents). California also has stricter emission standard than Nevada and thus there is a supply side issue with the California gasoline.
<a href="http://www.nevadagasprices.com/tax_info.aspx">http://www.nevadagasprices.com/tax_info.aspx</a>
<a href="http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html">http://www.energy.ca.gov/gasoline/gasoline_q-and-a.html</a>
MalibuRenter_IHB
New member
[quote author="etheran" date=1208252683]Banks makes money on net interest margins - the differential of their borrowing costs and lending rates. Higher interest rates does not necessarily mean higher net interest margins. Net interest margins will be high only if the long-term rates are much higher than short-term rates. Bank essentially lend long and borrow short.</blockquote>
Yes. Not only do banks typically borrow short and lend long, take a look at the existing inventory of loans and RMBS. If interest rates drop, bond prices go up. The same is true of loan portfolios. Even if a bank or bondholder doesn't liquidate, those who are borrowing short now to finance long term mortgage lending from 2004-2007 will be better off. Keeping those rates low helps keep some banks from going insolvent.
If you look closely at the Federal Reserve policies and Federal legislation, you can see several objectives:
-Keep interest rates low to provide a cushion to both banks and homeowners with adjustable rate mortgages. This helps keep the lenders' spreads higher than otherwise, and reduces some of the damage done by high defaults.
-Keep homeowners from defaulting for a few more months. Why is this important? 1. There is so much foreclosure and default activity at the moment that many banks can't competently handle the volume. They are staffing up, but every little bit helps. If you jam banks with too many foreclosures too fast, they either slow down immensely on processing them, or they take bottom-basement firesale prices. For federally insured banks, that means taxpayer money if the FDIC pool isn't big enough. 2. Many subprime pools have a fairly hefty expected default rate built in, and have a high average borrowing rate. If you can maintain the interest rate spread for a little longer, you can tolerate more ultimate defaults. The thing bondholders and lenders don't want is a lot of defaults very early. I personally view this as a false savings. I think that in a rapidly declining market it's better for a bank to get a house back sooner rather than later. If prices are dropping 10-20% per year, you either want to move really fast with short sales and foreclosures, or hope to push the defaults several years into the future. 3. Accounting numbers can look better if default rates are lower.
-Try to keep sentiment from going overwhelmingly negative. Oddly, introducing an assortment of legislation can make lots of people slow down and wonder if things might not be so bad. There are a number of banks and homeowners out there who keep hoping something new and different from the federal government will actually help.
In my humble opinion, there are some things which could help a lot. You can form your favorite theories about why these are not being proposed:
1. Push the Fair Issac and the FICO-scoring mechanism to give extra credit for mortgage holders whom an automated underwriting system shows as continuing to make payments despite being underwater.
2. Push lenders to explicitly do the opposite of the Universal Default provisions built into many credit cards. For homeowners who pay mortgages on time despite being underwater, they should get lower rates on their other consumer finance. Just think of the power of this approach. Find the people who try especially hard to make their payments. If you are the mortgage lender, try to get them into your lower interest credit cards, student loans or auto loans. Ease their debt service cost and get an especially conscientious client for other financial products. Make sure they know the reason why they are getting the other credit at lower interest rates. Make those other low interest rates contingent on continuing to pay the mortgage on time (refi or sale of the house are also fine). When you follow this approach, you will usually find that car loans have less than 5 years left, credit cards can be paid off in less than 3 years at reasonable rates, etc. When you get to the end of that 3-5 year period, your customer has even more capacity to make mortgage payments.
3. Try to get localities to temporarily relax zoning regulations regarding what can be done with areas now zoned for single family homes. Some of those rules are prohibit uses which can produce significant income for the homeowner.
4. Force (yes force) banks to rent out a portion of their REO portfolio that has been on the books for more than xxdays. Something like 180 days sounds good to me. Many of the problems related to foreclosures arise from houses being empty. I still haven't heard a really good explanation of why lenders keep houses empty in this type of environment. Even if the rent is only paying half of what the prior mortgage payment was, it beats zero. It also beats having the house trashed or sat on fire while vacant.
Yes. Not only do banks typically borrow short and lend long, take a look at the existing inventory of loans and RMBS. If interest rates drop, bond prices go up. The same is true of loan portfolios. Even if a bank or bondholder doesn't liquidate, those who are borrowing short now to finance long term mortgage lending from 2004-2007 will be better off. Keeping those rates low helps keep some banks from going insolvent.
If you look closely at the Federal Reserve policies and Federal legislation, you can see several objectives:
-Keep interest rates low to provide a cushion to both banks and homeowners with adjustable rate mortgages. This helps keep the lenders' spreads higher than otherwise, and reduces some of the damage done by high defaults.
-Keep homeowners from defaulting for a few more months. Why is this important? 1. There is so much foreclosure and default activity at the moment that many banks can't competently handle the volume. They are staffing up, but every little bit helps. If you jam banks with too many foreclosures too fast, they either slow down immensely on processing them, or they take bottom-basement firesale prices. For federally insured banks, that means taxpayer money if the FDIC pool isn't big enough. 2. Many subprime pools have a fairly hefty expected default rate built in, and have a high average borrowing rate. If you can maintain the interest rate spread for a little longer, you can tolerate more ultimate defaults. The thing bondholders and lenders don't want is a lot of defaults very early. I personally view this as a false savings. I think that in a rapidly declining market it's better for a bank to get a house back sooner rather than later. If prices are dropping 10-20% per year, you either want to move really fast with short sales and foreclosures, or hope to push the defaults several years into the future. 3. Accounting numbers can look better if default rates are lower.
-Try to keep sentiment from going overwhelmingly negative. Oddly, introducing an assortment of legislation can make lots of people slow down and wonder if things might not be so bad. There are a number of banks and homeowners out there who keep hoping something new and different from the federal government will actually help.
In my humble opinion, there are some things which could help a lot. You can form your favorite theories about why these are not being proposed:
1. Push the Fair Issac and the FICO-scoring mechanism to give extra credit for mortgage holders whom an automated underwriting system shows as continuing to make payments despite being underwater.
2. Push lenders to explicitly do the opposite of the Universal Default provisions built into many credit cards. For homeowners who pay mortgages on time despite being underwater, they should get lower rates on their other consumer finance. Just think of the power of this approach. Find the people who try especially hard to make their payments. If you are the mortgage lender, try to get them into your lower interest credit cards, student loans or auto loans. Ease their debt service cost and get an especially conscientious client for other financial products. Make sure they know the reason why they are getting the other credit at lower interest rates. Make those other low interest rates contingent on continuing to pay the mortgage on time (refi or sale of the house are also fine). When you follow this approach, you will usually find that car loans have less than 5 years left, credit cards can be paid off in less than 3 years at reasonable rates, etc. When you get to the end of that 3-5 year period, your customer has even more capacity to make mortgage payments.
3. Try to get localities to temporarily relax zoning regulations regarding what can be done with areas now zoned for single family homes. Some of those rules are prohibit uses which can produce significant income for the homeowner.
4. Force (yes force) banks to rent out a portion of their REO portfolio that has been on the books for more than xxdays. Something like 180 days sounds good to me. Many of the problems related to foreclosures arise from houses being empty. I still haven't heard a really good explanation of why lenders keep houses empty in this type of environment. Even if the rent is only paying half of what the prior mortgage payment was, it beats zero. It also beats having the house trashed or sat on fire while vacant.