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	Name:	MartiniMan -
	Subject:	You are still confused
	Date:	10/8/2008 10:51:25 PM

You act like all the borrower does is pay back the principal. I know you understand this but lets take your scenario and play it out so you really understand this as my earlier post assumed too much. I understand the scenario you played out was a worst case but I am willing to use that to illustrate the fallacious thinking.

Lets say they take the $90K loan for 30 years at 5% (my assumption from your scenario is the borrower comes up with 10% down in order to only have to loan $90K on a $100K home.....frankly I am still a little fuzzy on your math). Total principal and interest repaid is $173,000 plus the $10K down payment or a total of $183K. So under your worst case scenario the loss would $17K, a far cry from your analysis of a $110K loss. Remember, that is worst case to make a already discredited point. Now lets assume a more reasonable scenario where the same home price has dropped by 25%. So now its worth $150K with 10% down so its now a $135K loan for 30 years at 5% so now they repay $260K P&I plus the $15K down for a total return of $275K on a $200K investment. Not a good deal given the risk but still not a loss in the long run. I recognize I didn't factor in the time value of money but this was a simple way to explain this.

"It's the only way to do it in a timely fashion," really means it is a simple way to create liquidity very quickly versus other more complicated methods. What they are trying to do is create liquidity in the markets which will help to stabilize home prices. Is that clear now?