Mortgages Generate Cash Every Month

Everybody is forgetting that mortgages generate cash every month. About 95% of mortgages nationwide are performing. That means large quantities of cash are being received by mortgage holders every month. The fact that there is no market for mortgages does not mean mortgages do not have value. Any private financial firm or government entity that does not have to mark-to-market every quarter or meet debt-to-equity requirements, and has deep pockets, can collect that cash flow every month. When and if the market improves, those mortgages can be sold at a profit. There is more value here than just buying low and hoping the market improves to sell high. You are paid as you wait. Some smart people have figured this out, like Jamie Dimon, CEO of JPMorgan Chase.

The method of calculating the present value of a future stream of payments is called a Discounted Cash Flow model and is taught in every business school in the nation. With conservative assumptions on default rates and recovery values, a reasonable present value of a group of mortgages can be estimated. As long as the Federal Government does not pay more than a reasonable value, with a margin for error, the Government should recover its investment in the mortgages it buys under the proposed program. Lawrence Kudlow agrees that between the cash generated each month and the Government's selling after the market improves, the Taxpayers could come out ahead. See, http://www.ibdeditorials.com/, "How The Plan Turns A Profit For Taxpayers," posted 9/29/30, and appearing in the 9/30/08 edition of IBD.

This program should not cost taxpayers anything. That is as long as politicians do not add to the bill any of their pet projects, pork or give-backs to their favorite lobbying groups. For example, the word is out that some Democrats want to set up a fund that would generate money for left wing organizations like Acorn. To read about this ploy, go to http://www.ibdeditorials.com/ and search on September 26, 2008 for "Rescuing ACORN". This discredited group continues to register phony voters, as documented by John Fund of the Wall Street Journal in his recent book "Stealing Elections". There was also a story about Acorn’s voter fraud activities on Fox News today.

What do you think about these issues?