2nd Mortgage Holders (Banks) Now to be Bailed Out Too – Breaking!
Posted on July 23rd, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
Our nations largest banks are being weighed down by 2nd mortgage liens (Home Equity Lines/Loans or HELOCs). You have heard this in many of their earnings calls recently. The home equity market is thought to be as large as $1.3 trillion.
For many banks this is their largest residential mortgage exposure. For example, Wells Fargo still carries $84 billion and Bank of America and Chase about $100 billion a piece. The banks were very touchy in their recent earnings reports on this topic. Wells Fargo actually changed the definition of ‘default’ from 120 days to 180 days to push out defaults further consequently hiding losses. See my report on Wells Fargo’s mystery earnings.
Real losses on 2nd mortgage portfolios will befall the banks, as values continue to fall and these newly unsecured loans default without the ability for the bank to foreclose. But now it looks as though the tax payers could shoulder much of the risks FHA will assume when doing all of these bailout, ‘underwater refis’.
How much can FHA shoulder when they admitted lately that they were on the brink after a $4.6 billion loss and have an 18% default rate. Mish wrote about it recently. Why would these loan perform any better than private sector subprime loans that have been modified in the past.
A recent report just came out that said 50% of all previously modified subprime loans are now in some stage of default. This is the ‘negative equity effect’, ‘borrowers never qualified in the first place epidemic’ and ‘public sector non-profit loan modification ignorance’ in full-force.
“Analysts at Moody’slast week said that 42% of all ARM subprime loans previously modified during the first half of 2007 are now 90-days or more delinquent by March 2008. That number goes up to 50% when looking at loans 60-days delinquent.”
One hope is that few will qualify because of the required full documentation or won’t want the ’deal’ when they realize that even with their principal reduction, that their payments will actually increase over their exotic interest only 2/28, 3/27 or Pay Option ARM. In most cases it still may be cheaper to walk away and rent.
Added last minute to the underwater refi, Fannie/Freddie, FHA, Wall St, Foreign Gov’t, Washington DC, bank and investment bank bailout was a ‘2nd lien provision’ making the 2nd mortgage holder an equity partner in your home as well. Remember, HELOCs are likely near total loss for the banks over time. Not any more.
Already in the original bailout proposal, banks get to turn their toxic first mortgages into FHA at a much smaller haircut (principal reduction) than these toxic loans are selling for on the street. Now, banks can give up their toxic 2nds in exchange for appreciation in your home and an ‘IOU’ that will probably have a higher value than the 2nd mortgage itself. Now you have two partners; the Gov’t and the bank! I can’t verify this but I bet if you have a first and 2nd mortgage, the ‘bailout’ will result in you getting the least percentage of the upside in the future.
2nd Lien Provision Added to Housing Bill – Source: National Mortgage News
“Second lien holders could benefit from permitting the refinancing of struggling homeowners under a special Federal Housing Administration foreclosure rescue program contained in a massive housing bill the House is expected to pass Wednesday. A provision added during final negotiations on the bill will allow second lien holders to share in a portion of future appreciation on the property. However, they have to agree to the restructuring and refinancing of the existing first mortgages, which would extinguish any second or subordinated liens”….
This is such a mess. So much of this ‘kitchen sink’ bill makes no sense.
The 2nd mortgage holders not agreeing to subordinate to newly bailed out first liens was a big problem with the underwater refi bill in the first place. But now it looks as though the banks will be forced to deal with it. But at what cost and to whom?
The 2nd mortgage holders are not just going to wipe out a $100k 2nd mortgage for a promise of ‘future appreciation’ unless of course that ‘future appreciation IOU’ or ‘negative equity warrant’ has some value. Remember, many of these 2nds are still being paid on time even if the borrowers are underwater. This does not make sense. There is something missing.
The first mortgage bailout makes sense because it allows banks to offload their riskiest loans to FHA at a much smaller haircut than they ever thought possible. Perhaps accounting standards or new account standards that will be put in place covering this will allow the banks to count these 2nd mortgage IOU’s as an ‘asset’ based upon a schedule of future appreciation on the home in order to offset the losses. There has to be something in there for the banks or they just won’t go for it. They rather wait around and let their home equity portfolio fall loan by loan for years than take a mark on it today.
One thing is for sure; the very fact that this 700 page bailout bill talks about 2nd mortgages, the provision was added last minute and 2nd’s are one of the bank’s largest risks, points to trouble.
Bonds have been telling us this whole deal is a mess for some time as Karl Denninger points out.
Second mortgages were mostly never sold or securitized so the losses are a direct hit. When these loans were originally made they were ’secured’ by the home but now values are down across the nation so much in such a short period of time, large percentages of these large loans are unsecured so banks can’t even foreclose if borrowers miss mortgage payments. They have to treat these like credit cards using more traditional means of collection.
The following is a Fitch report released a few months ago drilling down on the bank’s 2nd mortgage exposure; the very same banks at which this addition to the bill is aimed.
FITCH – BIG BANKS HOME EQUITY WOES fitch-home-equity-woes20080314.pdf
Below is my most recent report on the 2nd mortgage topic so you can catch up the the 2nd mortgage problem. The data is still fairly accurate other than many more are in a negative equity position meaning ultimate losses for the banks. -Best Mr Mortgage
HOME EQUITY LOANS – A BIG BANK KILLER. S&P STOPS RATING 2ND MORTGAGE RMBS!
Posted on May 2nd, 2008 by Mr Mortgage
Fresh news out…S&P pulled a slick one. They STOPPED rating second mortgage RMBS citing “anamolous and unprecedented” borrower behavior. Here is a little piece from Bloomberg that enhances the previous story very well, calling all Home Equity loans ‘junk’.
Remember, this is a near $1.3 TRILLION market with the bulk belonging to very few banks such as BofA, Wells, Chase, CITI, Countrywide, WAMU, National City, GMAC and IndyMac. I put a couple of nice quotes below. This could turn out to be a fairly large story in the making.
Home Equity Lines of Credit and loans (HELOC, HEL’s, second mortgages) were the true ‘Home ATM Machine’ and could be a big wipe-out for the big banks. These loans were mostly used to avoid Mortgage Insurance on purchase and refinance loans over 80% LTV and went up to 100% of the house value in recent years. As a matter of fact, an appraisal or full documentation was often not required. These loans were very easy to get and primarily relied upon an electronic evaluation of the property value and credit score alone.
They are almost always a total loss when in default. This is because in many cases, the first and second mortgage add up to more than the property is worth, so the second mortgage lender does not get anything in foreclosure – it all goes to the first. As a matter of fact, most second mortgage holders do not even bother with foreclosure proceedings any longer, choosing more traditional means of collection.
A few months back banks began to freeze consumers out of accessing the available credit on the Home Equity Lines. Countrywide kicked if off by freezing 122,000 in one swoop and WAMU follow-up shortly thereafter with a 50,000 line freeze.
Since then, most large named banks have began to freeze lines originated prior to 2008 or with original combined loan-to-values over 80% in regions where property values are substantially dropping. This just so happens to be the regions where these loans were done the most.
This hurt thousands who were not prepared. Many use these lines for highly legitimate purposes such as running a business, college tuition, a rainy-day fund or that brand new Mercedes. Now, it looks as though the days of extracting all the cash out of your home through Home Equity Lines are gone for good. This is probably a good thing in the long run, but just as with Jumbo money virtually vanishing overnight, these loans vanishing overnight will reduce housing affordability further extend the housing slump and perhaps cause some real damage to consumer spending.
For those of you interested in seeing the Big Banks Exposure to Home Equity Loans, this is a link to the Fitch report. It is ugly. Many of these banks have not yet begun to take write-downs on these loans. FITCH – BIG BANKS HOME EQUITY WOES fitch-home-equity-woes20080314.pdf
PRIVATE SECTOR MORTGAGE MODIFICATIONS
I also urge that you read and watch my ‘Mortgage Modification Series’ featuring our sponsor, Green Credit Solutions. This is because when these bailouts go through you will get a modification and split your upside in the property with the US Gov’t and banks. Private sector loan modifications are real and a very good deal while you can still get them.
Now, the bill has passed the House and its moving on quickly…here is the summary. This is why I have been waiving my arms and screaming about private sector loan modifications for several months -Best Mr Mortgage
The centerpiece of the legislation is a program of up to $300 billion of FHA-insured mortgages to help refinance cash-strapped borrowers into affordable loans. The program would rely on lenders voluntarily writing down the value of a distressed loan for the homeowner to qualify for the new FHA-backed loan, and in return borrowers would have to share future price appreciation with the federal government.
Mr Mortgage onMortgage Modifications Part 2 – BEING FORWARD THINKING
July 23rd, 2008 2:52 pm
MEGA MEGA monetization of the debt.
Wow! wee! Talk about printing press orgy !
July 23rd, 2008 3:09 pm
It means a lot of inflation. I don’t care about the bullshit going on about oil prices going down. The morons don’t get it. Monetization of debt on that scale is hyper inflationnary.
July 23rd, 2008 3:13 pm
Hmm so this means second lien holders would be included in the calculation of the 10% limitation to loss provision? Is that provision even still in there?
If so it would indeed be a huge giveaway… similar to the Fed already taking losses on their Bear Stearns guarantees.
July 23rd, 2008 3:24 pm
I guess we’re at the point of making up the legal rules as we go. Contracts be damned.
Paper money and a democracy do not mix.
July 23rd, 2008 3:33 pm
New Reality…Renting is for idiots
- If anyone out there sat out the bubble and is currently renting, now is the time to buy YOU HAVE NO DOWNSIDE….
Taking advantage of the new reality for FHA financing, you can stretch your purchase to the upper end of affordabliity(buy a bigger/better house) – 45% DTI(maybe up to 50% with an exception), and put nothing(3%) down(financing the 1.5 mtg ins premium – down payments are for suckers). If your house goes underwater, you can either get your loan modified to a more affordable payment, or walk….Or you can also decide to slow pay your mortgage(pay 8-9 payments per year, pocketing the cash and putting it to better use)…in this environment you will not get foreclosed on(and you still get the interest deduction(and PMI deduction) improving whatever ROI you’re getting on the skipped payments)…..Your FICO will suck but you’ll have more cash at your disposal and may not need credit…Additionally, housing at some point will recover so all you need to do is just hang on…people will be gaming the system in no time…get in now….
If you rent and run into difficult times, more than likely, your landlord will kick you out in a heartbeat.
July 23rd, 2008 3:43 pm
you left off the other huge entity on these second mortgage liens,
credit unions, ouch
100 trillion is still the figure I use when I say what this entire bailout will cost us.
Starting last August with 30 billion to Bank of America for CW, to the open fed window for a year now, to the various stimulus packages, to 13 weeks of unemployment for everyone, the jp morgan bailout of stearns, the bailout of FHA, fannie and freddie and we are just in the 4th inning………….batterup
step up to the plate, wells, wachovia, wamu, suntrust, regions, lehman, citi,………….oh my gosh!
July 23rd, 2008 3:44 pm
The thing that caught my eye was minimum investment on FHA’s going up from 3% to 3.5%. It’s fine if they want to kill off Nehemiah’s (which are smoke & mirrors), but they should have cut the minimum investment from 3% to 2%, not raised it to 3.5%.
July 23rd, 2008 4:17 pm
IMOHO the HELOCS and 2nds are still toxic waste. Sure you can refinance into FHA. But refinance what? FHA is not going to loan 120%+ of the value. It will help good borrowers that got behind the eight ball. Those that could never afford a house or whos house is underwater will still be left out in the cold (as they should). Most of these HELOCS and 2nds are wiped out not from liquidity, but from value.
July 23rd, 2008 4:19 pm
Hey ! FREE MONEY ! Godamn politicians.
What a bunch of stinking whores.
July 23rd, 2008 4:22 pm
Who cares about value. Just print it and give it to the bankers. What a fantastic business model !
July 23rd, 2008 4:38 pm
I’m sick of just calling my congressmen about these issues. They are part of the problem. They are just as corrupted as the bankers. Some of them are plain ignorant. They are part of this! How can we expect them to really vote against it?It’s a joke.
It’s time to do more. For example:
1) Get somebody to write a very nice letter. Then, we can get organized and get each of us to print 1,000 and distribute them. We can lso ask that others do the same. We could get a nice chain letter out there. We need to wake up the sleeping american sheep NOW!.
or
2) We can just go to the streets.
If anybody knows of any serious organized active movement out there let me know:
boulderusa _at_ hotmail.com
July 23rd, 2008 4:45 pm
Can you imagine commercial paper falling apart in Q4 OR Q1 of 09′ unlike RMBS this paper is extremely toxic, though delinquency is relatively high the main focus has been housing, but CMBS is the real bank killer, the knockout punch, a category 6 tornado! and unfortunately it will occur after elections, that’s when the shit is going to hit the fan, just imagine housing X 100, will see who’s sober than. If BOA, JPM Chase or struggling Citibank can weather the storm than I should be able to win the lotto Friday night the odds are relatively the same.
July 23rd, 2008 4:47 pm
Jim Bunning gets it
Never thought I’d agree with a republican from Kentucky.. but I do.
July 23rd, 2008 4:57 pm
Fred the problem is that BOA, JPM Chase and Citibank control you. You, yes you, your blood, your sweat and tears, are their property and their collateral. They won’t go bankrupt. You will. Slave merchants never go bust.
July 23rd, 2008 4:57 pm
isn’t this a way for 2nd lienholders to get on board with the 1st being refi’d? It doesn’t sound like their losses will be limited. It sounds like they are throwing a bone to the 2nd lienholders so they won’t hold up the 1st trust deed from being re-worked.
July 23rd, 2008 4:58 pm
Going to be a good time to buy gold. When the smoke clears, the dollar will crash after this fiasco.
Hyperinflation here we come. ..
and down the road hyper-deflation.
It’s going to be a roller coaster ride.
July 23rd, 2008 5:03 pm
If the 1st and the 2nd are with different lenders, there is no reason for the 2nd lienholder to be helpful. This provision (getting some of the appreciation) gives them some incentive. I wouldn’t call that a bailout of the 2nd’s.
I do think something will be done by the govt. though if(when) the defaults on 2nd’s start to really take off. All the big bank hold a pile of CA 2nd’s and high CLTV 2nd’s.
July 23rd, 2008 5:04 pm
There is a word that starts with a C and ends with a T which was invented to describe Cunning Behavior.
These Bankers, Shills and Polticians are a bunch of dripping CTs.
What a World of Metro (Homo) Sexuals this is not your father’s America.
What will it take?
July 23rd, 2008 5:08 pm
This is why finance is not taught in our schools. So they can get away with this crap.
July 23rd, 2008 5:11 pm
I am just sick to my stomach that the officials elected to protect taxpayer interests have ALL been bought and paid for by the GSEs. WHERE IS THE OUTRAGE??!!!
WHERE are the class-action lawsuits from responsible, financially-prudent people that are being FORCED to pay for the bad bets of banks, who should have KNOWN BETTER????
THIS IS SOOOOOOOOOO ethically and legally WRONG!!!!!!
July 23rd, 2008 5:15 pm
Did anyone actually read the article?? The 2nd will get wiped out. Sharing in future appreciation is a pipe dream for those 2nd lienholders.
July 23rd, 2008 5:34 pm
Spend your money before it becomes worthless. It’s already worhtless NOW. Hyperinflation. Hyperhyperinflation.
Believe the hype ! on inflation that is to saw.
July 23rd, 2008 5:38 pm
Mr. Mortgage,
Why are you calling this a bailout of 2nds?
Thanks.
July 23rd, 2008 5:43 pm
What I see here is this new FHA program making “buy and bails” somewhat easier to perpetrate. A homeowner with a $1million mortgage in a property worth $750K can now only slightly downsize into a $625K property with only 3.5% down. Whee!
I talked to an appraiser friend today that told me the mortgage mod thing has taken his role full circle. 2 years ago, every lender wnated him to push push push value. Now, the calls are for as little value as possible. Lets face it, in California, there can be as much as a half million dollar discrepancy in high end home values.
This thread and its constructive sharing of ideas to be completely wrecked by anti-semitic conspiracy theories in 3….2….1…
July 23rd, 2008 6:03 pm
the Puzzle Dave.. the PUZZLE..
lol.
Too funny
July 23rd, 2008 6:09 pm
Marc Authier… Francais?
I live in Strasbourg, France.
Ritchie
July 23rd, 2008 6:14 pm
I think he is Canadian.
July 23rd, 2008 6:51 pm
The provision is really a non-event:
” “(B) SHARED APPRECIATION.–
“(i) IN GENERAL.–The Board shall establish standards and policies that will allow for the payment to the holder of any existing subordinate mortgage of a portion of any future appreciation in the property secured by such eligible mortgage that is owed to the Secretary pursuant to subsection (k).
“(ii) FACTORS.–In establishing the standards and policies required under clause (i), the Board shall take into consideration–
“(I) the status of any subordinate mortgage;
“(II) the outstanding principal balance of and accrued interest on the existing senior mortgage and any outstanding subordinate mortgages;
“(III) the extent to which the current appraised value of the property securing a subordinate mortgage is less than the outstanding principal balance and accrued interest on any other liens that are senior to such subordinate mortgage; and
“(IV) such other factors as the Board determines to be appropriate”
And don’t forget the FHA gets to share in appreciation too for any property put into the program
July 23rd, 2008 7:17 pm
OK, OK, OK, can somebody answer me this?
For years the politicians said that we need affordable housing. They voted and funded programs to make housing more affordable.
Now they are acting to keep housing from becoming more affordable! I swear that they talk out of both sides of their mouths. I want to know what they have against more affordable housing….
July 23rd, 2008 7:56 pm
This truly is the turning point for our country in my opinion. If this Bill passes it will once and for all state so very, very clearly that the Government could really care less about it’s citizens. It will scream that our Government has finally been taking over by the 54,000 + Lobbyist that control them as puppets. Sad as it may seem, we will have reduced ourselves to that of a nation run by the rich and powerful and freedom is what they say it will be. How very sad…
We have come so far as a country and will have been literally taken down to our knees in just 5-7 years because of a run away and completely out of control government that we elected into offcie OVER and OVER again mind you.
We got exactly what we deserve, so NOW we have a choice…
VOTE EACH AND EVERY INCUMBANT OUT OF OFFICE IN 2008!!!
July 23rd, 2008 8:03 pm
a negative equity warrant is an asset, which will limit and offset any losses banks were going to take. In addition, allowing underwater refi’s and basically any subprime borrower to easily refi through FHA will come at a great cost. Split appreciation? Housing prices keep falling and in states like CA values are dropping faster despite being in the sales months and sales actually picking up a bit.
The good news is that few will qualify being these loans are mostly full doc and few will want to get out of their nice interest only 2/28, 3/27 or pay option to go into an fha fixed rate loan with higher payments despite the principal reduction.
This whole thing is a mess.
July 23rd, 2008 8:22 pm
OK… I have had enough already!!! The House, as expected, has passed this bogus and literally criminal Bill against the overwhelming majority of Americans!!! We as a nation are totally against this bills passage!!! The fact that this bill has legs at all is a total slap in the face of each and every American alive today!!! Our (I use that term extremely loosly) Government has totally let us down as a country, and as spokesman for the people whom they supposedly work for and represent as a nation. They have now become THIEVES!!! We have no choice now but to take matters into our own hands as a nation and use the power of a vote to change things moving forward.
VOTE EACH AND EVERY INCUMBANT OUT OF OFFICE IN 2008!!!
July 23rd, 2008 8:44 pm
Good luck. The people haven’t had power in this country for a long, long time. The last president to beat the banks was Jackson.
Obama and McCain are just going to do nothing. Get used to the high taxes.
Sorry.
July 23rd, 2008 8:47 pm
Giving up is NOT an option!!!
SPREAD the word!!!
July 23rd, 2008 8:52 pm
Français du Québec, Ritchie. I was in Strasbourg two years ago. Nice town. Et maintenant vous avez le TGV. Très belle ville superbement bien aménagée. Hey USA what are you waiting for “le très grande vitesse” would be nice between Montréal and New-York.
Stu How can you vote them out of office ? All the bums will be voting for the crazy bailout. Almost all of them.
I would opt for a more radical solution with some of your elected MOBSTERS.But since I still believe in democracy, I can’t.
The best way would be occupy a TV network for a couple of hours and demand that the voice of ordinary taxpayers be heard.
July 23rd, 2008 8:55 pm
LOL. You’ve watched V for Vendetta too many times.
July 23rd, 2008 8:57 pm
Stu, not enough people in this country care enough to do anything. I was completely ashamed to learn that only 2000 people showed up for Ron Paul’s march on the Capitol.
July 23rd, 2008 9:17 pm
My last post:
A good video:
http://www.youtube.com/watch?v=TeWJZiJGc2s
July 23rd, 2008 10:02 pm
I want to see some public hangings in the town square. No matter what your political leaning – you must withhold your vote in the fall from any legislator that voted for this.
July 23rd, 2008 10:25 pm
At this point would it not just be better to just walk away and crash housing values since the government is just going to give you the money again to buy back cheaper?
Who is going to want to share upside? Does that not take the whole point of owning away? If all of this places us in heavy inflation, does not having the upside spoken for mean that as inflation progresses that you in fact own less house? How much down is going in on these new loans? Oh zero down? LOL This is really getting sick and I don’t mean sick in a good way.
Derb
July 23rd, 2008 10:28 pm
From what I have read of this bill it does not appear to be a silver bullet to end the credit crisis. The biggest objection for the Bush administration was the hand outs to the local communities, and not the backstopping of the GSEs or changes to the FHA programs. I don’t think this will do as much as people think. There are too many “ifs” to consider. If the lender will cooperate. If the borrower can qualify. If housing prices continue to fall. If the borrower doesn’t walk away after six months. The big “if” of course is moral hazard. If you are upside down on your house, but making payments, what will you think of your neighbor getting a price cut on his? Will you feign insolvency to do the same? Too many unanswered questions.
July 23rd, 2008 11:33 pm
In So Cal, I don’t see this bill having much effect. EVERYTHING was I/O at best and option ARM at worst. The ones that need the help won’t be able to qualify for a fully amortized, full doc loan.
This provision isn’t going to help the 2nd lienholders. It is going to help the 1st lienholders. Without the shared appreciation(good luck with that) provision, many of the loan mods would have been help up by the 2nd lienholder. The govt. is trying to remove as many roadblocks as possible for the 1st lienholder.
Very inaccurate title of the article though. 2nd lienholders are going to lose their shirts and they will recover very little thru the shared appreciation provision.
July 23rd, 2008 11:42 pm
can someone explain something to me? as we saw last week with WFC extending the time period needed to classify a loan as delinquent, can’t we basically assume that all “current” mortgages/2nd liens are marked at par on bank balance sheets? why in the world would the bank want to mark that stuff way, WAY down just to get it off the books? i would guess that a lot of CA/FL/NV loans marked at par would have to be sold to the government at 60-70% of original value. additionally, doesn’t this mean that the banks are going to have to look at a pool of performing loans and “guess” which ones are likely to default? what if they guess wrong and give all the good ones to the government and keep all the ones that end up defaulting? unless i am completely misunderstanding the bill, this sounds like a lot of hot air…why would banks submit a single loan to this program?
July 23rd, 2008 11:51 pm
1st time responder/long time lurker:
Took me a while to read thru the Fitch report, but this seems kinda scary.
Do the values reported take into account both current (reudced) property values & CINA (phantom income accounting)?
I’m not very sophisticated econ. watcher, but I do know some accounting basics & it seems that this may amplify losses in the future due to restatements of past income.
Have I missed something?
July 24th, 2008 12:21 am
I don’t like the bail out anymore than the rest of you. However, if we allow the housing market to correct or overcorrect under its own weight, we may face a great depression. Which would hurt all of us more than any bailout.
If we instead allow the banks to fail, we are still on the hook with FDIC. We are bailing it out at the mortgage level or at the FDIC. Pick your poison! Try and look at how you can take advantage of it, and profit from it.
July 24th, 2008 12:25 am
Already in the bailout banks get to turn their toxic first mortgages into FHA at a much smaller haircut (principal reduction) than toxic loans are selling for on the street. Now, banks can give up their toxic 2ndsin exchange for appreciation in your home and an ‘IOU’ that will probably have a higher value than the 2nd mortgage itself. Now you have two partners; the Gov’t and the bank! I can’t verify this but I bet if you have a first and 2nd mortgage you will get the least percentage of the upside in the future.
July 24th, 2008 1:16 am
Should the homeowner get any of the upside if govt. cuts them a deal to keep them in their house? It’s bad enough they are getting bailed out.
July 24th, 2008 1:56 am
Mr. M, does this signal us to buy more gold?
July 24th, 2008 2:47 am
Mr. Mortgage,
My rent in Los Angeles is still less than property taxes on a crappy 80 year old beach shack.
Please explain to your readers again the difference between “owning” a home and “renting” a home from the bank and government (FHA) through a mortgage.
Anything in this bill that will help us renters?
The only thing I can imagine is that if we do see hyperinflation, then buying a few homes this falls as a leveraged anti-inflation hedge may work better then Gold?
I would purchase homes in LOW property tax states and only purchase new construction or perhaps purchase land or commerical property?
Hard to get correct entry point for houses as an asset class.
July 24th, 2008 3:23 am
Holy crap.. listen to the comments from Bush on the subject… he’s laughing about it..
“Now watch my drive”
http://www.huffingtonpost.com/greg-mitchell/banned-bush-video-surface_b_114363.html
July 24th, 2008 3:36 am
Dear Mr Mortgage brilliant stuff as usual. Couple of mission things on this occasion. 1) Need to draw out implication that first mortgages are non -recourse and Helocs etc are. 2) What is the implication of all this for all the mortgages that were securitised.
July 24th, 2008 3:42 am
Thanks Marc.
Yes we moved here from the UK 2 years ago. When we moved here the real estate market was at it’s peak. I think many of the wealthy people in Strasbourg have sensed impending DOOM and recently there have been a glut of very expensive houses and whole apartment blocks for sale. Too late in my opinion.
Living 28 years in the UK and then the last two in Strasbourg (border with germany) allows for insights into the cultures and economies. France and Germany isnt really seeing the effects as yet. They are around 6 months from being hit by the wave..however the early warning signs are there.
The UK is now being hit for sure with credit card bills spiralling as people rush to pay debts. In the UK we have had liar loans and but overall less exotic products. In Europe lending is quite strict, it has to be.
Long term fundamentals remains in place. The currency movements will be very interesting to watch as inflation differential kicks in.
Cheerio
Ritchie
July 24th, 2008 3:48 am
Errors Corrected
Dear Mr Mortgage brilliant stuff as usual. Couple of missing things on this occasion. 1) Need to draw out implication that first mortgages are non -recourse and Helocs etc are recourse. 2) What is the implication of all this for all the mortgages that were securitised. No one ever mentions them and yet they are hugely important.
July 24th, 2008 10:29 am
People please… this “Bail Out” bill is NOT about helping homeowners stay in their homes at all. This “Bail Out” is intended to help and assist lenders and banks and keep the charade of homeownership as an American dream alive and well. Unfortunately this is all a giant nightmare and when everyone wakes up once this “Bail Out” bill is passed, they will quickly realize how little help it is for the “Tax Payer” and how much it will actually cost us (Tax Payers”) all in the end.
When Paulson was pressed by Senator Bunning as to WHO was going to pay for all of this, Paulson clearly uttered the words “The American Tax Payer”
We were already told that Fannie Mae and Freddie Mac are insolvent by general accounting standards. That means they are broke! Paulson says there is a 50% chance the Government will have to utilize the back stop provision. Realistically there is a 100% guarantee we will have to use it. If they are insolvent then they must be helped out… period. This back stop is done via a blank check to the Treasury so it doesn’t have to be counted as part of our deficit number until it is used. It is not a finite number because nobody really knows what it will cost us (Tax Payers) all in the end. Billions upon Billions to be sure, but how many is the question. The cost of this “Bail Out” bill will be added to the already bulging burden on the “Tax Payer” for the overwhelming debt that currently exists today. The crux of the plan is for the American “Tax Payer” to assume all the bad paper that Fannie and Freddie currently hold. That means our Government is going to take our (“Tax Payers”) money and buy bad mortgages with it. You and I in essence will be buying the loans that RE speculators and flippers purchased for example. You and I (“Tax Payers”) will become instant homeowners on millions of the worst mortgages being held by banks and lenders across the country. Should make us (Tax Payers”) all proud huh?
The $3.9 Billion provision is for cities and towns that were worst hit, to be able to use Tax Payer money to buy foreclosed houses from banks and lenders. So take areas like Las Vegas, Los Angeles and Phoenix for example. Now find the worst neighborhoods possible with the most poverty and the most foreclosures in them. These are the homes we (“Tax Payers”) will be buying with our (“Tax Payers”) $3.9 Billion dollars. This will help the lenders and banks get a lot of the crap off of there books. This is mostly in L3 accounts today on the lenders and banks books so they really would like to move it on out before they have to move it onto there actual books at L1 or L2 and take the write downs for such a move.
There is a workout provision to assist lenders in trouble and already in arrears or about to be, but it is such a small amount of homeowners that will actually qualify. Most of these folks if helped will lose their homes later anyway. In fact it is a fool who takes the Government up on this deal anyway. It is a scam of sorts when you look at it realistically. Here is who will qualify and what they must do in order to take full advantage of this so called deal.
1. Your home must be your primary residence.
2. You must have received your home loan between 01/05 – 06/07.
3. You must be currently spending 40% of your gross income on household debt.
4. You must be able to prove you can no longer pay your mortgage.
5. You must retire all other debt on the home (heloc, 2’nd mortgage, etc).
6. You will not be able to take out any loan against your new mortgage for a minimum of 5 years moving forward.
7. You must get a new appraisal on your home.
8. You must agree to pay a 1.5% yearly fee to the FHA as insurance.
9. You must agree to pay a 3% exit fee if you ever sell or refinance your home.
10. You must agree to pay all profits and proceeds above what is owed to the FHA if you sell within 1 year of getting the new mortgage. This fee drops to 90% in year 2, 80% in year 3, etc. until you get to 50% where it will stay for the life of the loan.
So after reading this laundry list of things you must do and / or agree to, how many people will this “Bail Out” bill actually help? The banks and lenders have no such provisions and can just put their hands out to collect the money and put it right in their pockets.
Oh, buy the way, this is all a totally 100% voluntary program of which the banks and lenders can decide once they get their money to NOT participate in. How about that? Once we give the GSE Billions upon Billions of dollars of our (“Tax Payers”) money and once we (“Tax Payers”) buy back all of these dumps that were foreclosed on in the areas hit hardest by speculation… I meant foreclosures the banks can just say thanks but no thanks!!! We just don’t have the resources at this time to help you (“Tax Payers”). What a JOKE of a “Bail Out” bill. How stupid are the Sheeple in thinking this will help or assist them.
I give credit to Paulson though… he is certainly loyal to his buddies in the financial world. I only wish the Treasurer of the USA worked for… well the “Tax Payer” and not the banking and lending industry. This is going to hurt folks… really, really hurt!!!
P.S. There is also a little last minute revenue provision tossed in that nobody is talking about. It is bill saying all CC or Electronic Payment Processors (PayPal for example) that do over 200 transactions and break the level of $10K must start reporting to the IRS. This provision is expected to raise roughly 10 Billion in new taxes over the first 10 years. How nice they are to already start taxing us (“Tax Payers”) before they take our (“Tax Payers”) money and use it “Bail Out” their banking buddies…
July 24th, 2008 10:59 am
I am happy to report Ron Paul did in fact stand up to this bill on the house floor. While it did pass in the end and is on the way to the Senate now, I am happy that Mr. Paul stood up for the American “Tax Payer” and made it very clear to anyone that would listen that this bill is as he says “The Mother of ALL Bail Outs” He disagrees with the entire bill and thinks that it will only serve to create additional inflation and more pressure on the dollar. This in turn will hurt us even more in the long run than just leaving things alone to correct themselves. We would feel pain in doing so, but a whole lot less pain than will be felt if this “Bail Out” passes in the Senate and gets signed into law. He estimates it will cost us about 800 Billion or so initially. He also thinks we as Americans need to tighten our belts and suck it up instead of pushing bills to add to our deficit and cost us “Tax Payers” more and more money which only serves to keep us in this spiral of high inflation, and a weaker dollar. At some point we will fail as a nation if this continues…
July 24th, 2008 11:07 am
Well, folks, the S*** is finally gonna Hit The Fan.
The ‘Hidden Hand’ (Zionist Banksters) has turned the Fan ‘ON’. The Fan is facing just about all Americans!
Mazel Tov, America!
“We, the (Talmudic) Jewish people (Zionists), control America and the Americans know it.” (A. Sharon).
Now we ALL know it, right?! Do YOU know it?
July 24th, 2008 11:09 am
The game has been rigged. You can’t beat the ‘House’. It’s gonna take a heckuvalot more than a petition to make the ‘House’ fold its cards and leave the game voluntarily. What did Thomas Jefferson say?
Every once-in-a-while “…the tree of Liberty must be watered with the blood of Tyrants and Patriots”.
This is such a time!
July 24th, 2008 1:08 pm
The mitigating factor to the hyper-inflationary policy is the collapse of real estate values, i.e. a dramatic deflationary cross-wind. Which force will prevail? Most vote for inflation.
July 24th, 2008 1:25 pm
The wheels of economic activity are gonna come to a screeching halt (no oil). Easy credit will be replaced by NO credit. RE will go into cardiac arrest. Prices will decline because demand will reach life-sustaining levels for ONLY the bare necessities of life. The demand for heads-to-roll will inflate into the ‘mother of all bubbles’ – and then EXPLODE! Invest in guillotines!
The financial markets will degenerate (even more) – into a frenetic search for ‘Greater Fools’. Sorry – they are selling apples and flipping burgers now – IF they’re lucky!
In other words, there will be a GRAND DEPRESSION!
July 24th, 2008 1:31 pm
PS Oooops……I almost forgot: The GRAND DEPRESSION is being brought to y’all by your Zionist ‘friends’ from Israel (who also brought you 9/11 – with its 3000 dead Americans and the ‘War of Terror’ – at a price of Federal Bankruptcy). And that’s not the half of it!
July 24th, 2008 1:34 pm
PPS Oh, Yes – there will be an ample supply of heads-to-roll for some time to come!
July 24th, 2008 1:39 pm
PPPS NEVER AGAIN!
July 24th, 2008 3:17 pm
Look people we are facing literally “the mother of all bubbles” the collapse of the planetary eco-system. I could name a hundred converging factors. This will drive the whole economic system completely haywire. How long can a house stand without its foundation? Inflation, deflation, We are going to get transflation, omniflation. What is that? I don’t know. The labels we are using do not translate. The only solution as far as I see it is a radically new foundation for our sharing and valuing resources of all kind, a foundation that is not pyramid based, that is the concentration of power to fewer and fewer.
The system we have is fated without a doubt to implode and collapse and devolve. This is physics, math, obvious to anyone with any intellectual honesty. Now at this point there is also a real possibility that the whole will re-organize upwards. That is shown to be possible through the phenomenon of dissipative structures when a complex system is at a bifurcation point. But this can only happen with a new root paradigm that replaces the pyramid paradigm.
July 24th, 2008 5:51 pm
Since we don’t own the Federal Reserve-it’s privately owned and always was -by the same guys that own the BIG BANKS.. I refuse to pay for their pozi schemes. PERIOD!
July 24th, 2008 6:50 pm
Ponzi is a pyramid scheme and you do pay for it everyday and every minute one way or the other.
July 24th, 2008 8:14 pm
The banks will get a complete bail out and the little guy will still eventually lose his home , just to have the same bankster buy back the houses for pennies on the dollar, then the banks will rent out their properties to the little guy viva Section 8, government subsidize rent. G-d bless America.
July 24th, 2008 9:27 pm
can’t they just make those loans illegal- force the baks to give what people should have gotten at the time?
July 24th, 2008 9:31 pm
sorry i meant banks- and this should not cost taxpayer money- if you can’t afford the house no financing will help you. I was just stupid and our broker- or should i say the joker lied and cheated- we just want the rate we could have gotten with good credit in 2004.
July 24th, 2008 10:43 pm
“…there is also a real possibility that the whole will re-organize upwards.”
That’s an interesting comment, Adam. I especially like the word ‘upwards’ – as, in the direction of Heaven (a Higher, Spiritual Dimension).
Think of the coming Paradigm Shift as a Paradigm Flip. The pyramid will be inverted, and instead of having 1% at the top, we’ll SEE! 99% at (or near) the top. “The first shall be last and the last, first.” or “Those who try to save their life, will lose it.” Weird, huh?!
Be on the look-out for 2012!
July 24th, 2008 11:53 pm
Eternal Optimist, a specific comment for you.
I had an idea once quite a while ago about Christ and Anti-Christ. Instead of Anti-Christ, Ante-Christ (before Christ). Humanity has been moving through time from a base of survival up the “chakras” from Hunter-gather root, Agriculture, Industry power center, Market the fourth or heart, telecommunications throat, brow computers and finally crown or whole system organization We can see we are at the limit from a base of survival. We transcend make the leap and connect to the Soul of the Whole, Christ and reorganize from the top down soul/spirit-based until we have “Heaven on Earth”.
By upwards I mean also dimensionally.
July 25th, 2008 3:04 am
PPS You might have something there about me being rigid – my wife thinks so, too. Perhaps even a little too rigid – from time to time. On the other hand, I’m very flexible when it comes to understanding the many ways of God. I just love wordplay.
July 25th, 2008 3:21 am
PPPS With regard to “where that all came from”, I suppose you are referring to Holy Scripture. ‘that all’ came from God, Himself, transcribed by ordinary men under His watchful eye, so that not 1 word would end up in the wrong place or be misunderstood. If I were to tell you that I can ‘prove’ that, beyond the shadow of a doubt and using natural reasoning, what would you think?
July 25th, 2008 3:27 am
I do not have anything more to say after this. This has not much or anything to do with the article.
First of all there are many type of idea sources, induction, deduction, “channeled”, etc. Yes I am a Creative Being. Every being is creative.
I have been around and am considered “a sharpshooter” when it come to my incisive perceptions.
I do not have a spiritual master. I do not need an intermediary, a “special priest”.
No doubt? How do you really know? Probably by Faith. It was revealed to you… That is convenient and kinda easy.
If you believe the poorly translated statement as literal “No one comes to the Father except through Me”, I do not think you are very flexible when it comes to understanding the many ways of God. I guess by the above statement in your interpretation, Buddhists, Wicans, Hindus, ancients, Islams, Jews, Gnostic Christians, Atheists are all deluded and even , right?
July 25th, 2008 3:38 am
OK, one more comment,
why don’t you read the writing of Timothy Freke and Peter Gandy – Jesus and The Lost Goddess The Secret Teaching of The Original Christians and their book, The Jesus Mysteries. This is real research in real history and would give you an appreciation of the wealth of knowledge of early root Christianity the stuff brutally suppressed by the Roman Church.
BTW, the identical Christ story was been found in many many cultures dating back many thousands of years. That is a fact! It is nothing new.
July 25th, 2008 11:11 am
How did this turn into bible study?….
July 25th, 2008 5:17 pm
yeah- whats up with this? I asked a question between chronicles and john
July 25th, 2008 5:54 pm
What’s out here for all to read (written mostly in the inspired wee hours, when you were all sleeping) is a heckuvalot more meaningful and useful (if mostly ‘off-topic’) than kicking around the mortgage mess football – just for fun. Just relax and mix (serious) business with pleasure.
July 26th, 2008 3:05 pm
My only hope now that our elected officials have once again chosen to SCREW responsible, tax paying citizens– is for this list to circulate far and wide in the blogs, where millions of Americans are now so pissed off, they don’t know what to do!!
Every single person that voted YES has been bought and paid for by the massive lobbyist efforts of the GSEs, and should be voted out of office ASAP!! Let’s start a nation-wide movement to remind them WHO they really work for by truly voting them ALL OUT…
Here is how the Senate Voted. Only 13 Republicans opposed the Bank/irresponsible borrower Bailout bill of 2008:
Grouped By Vote Position YEAs —72
Akaka (D-HI)
Alexander (R-TN)
Baucus (D-MT)
Bayh (D-IN)
Bennett (R-UT)
Biden (D-DE)
Bingaman (D-NM)
Boxer (D-CA)
Brown (D-OH)
Brownback (R-KS)
Byrd (D-WV)
Cantwell (D-WA)
Cardin (D-MD)
Casey (D-PA)
Chambliss (R-GA)
Clinton (D-NY)
Cochran (R-MS)
Coleman (R-MN)
Collins (R-ME)
Conrad (D-ND)
Craig (R-ID)
Crapo (R-ID)
Dodd (D-CT)
Domenici (R-NM)
Dorgan (D-ND)
Durbin (D-IL)
Feingold (D-WI)
Feinstein (D-CA)
Gregg (R-NH)
Hagel (R-NE)
Isakson (R-GA)
Johnson (D-SD)
Kerry (D-MA)
Klobuchar (D-MN)
Kohl (D-WI)
Landrieu (D-LA)
Lautenberg (D-NJ)
Leahy (D-VT)
Levin (D-MI)
Lieberman (ID-CT)
Lincoln (D-AR)
Lugar (R-IN)
Martinez (R-FL)
McCaskill (D-MO)
McConnell (R-KY)
Menendez (D-NJ)
Mikulski (D-MD)
Murkowski (R-AK)
Nelson (D-FL)
Nelson (D-NE)
Pryor (D-AR)
Reed (D-RI)
Reid (D-NV)
Roberts (R-KS)
Rockefeller (D-WV)
Salazar (D-CO)
Sanders (I-VT)
Schumer (D-NY)
Sessions (R-AL)
Shelby (R-AL)
Smith (R-OR)
Snowe (R-ME)
Specter (R-PA)
Stabenow (D-MI)
Stevens (R-AK)
Sununu (R-NH)
Tester (D-MT)
Voinovich (R-OH)
Webb (D-VA)
Whitehouse (D-RI)
Wicker (R-MS)
Wyden (D-OR)
NAYs —13
Barrasso (R-WY)
Coburn (R-OK)
Corker (R-TN)
Cornyn (R-TX)
DeMint (R-SC)
Ensign (R-NV)
Enzi (R-WY)
Grassley (R-IA)
Hatch (R-UT)
Hutchison (R-TX)
Kyl (R-AZ)
Thune (R-SD)
Vitter (R-LA)
Not Voting – 15
Allard (R-CO)
Bond (R-MO)
Bunning (R-KY)
Burr (R-NC)
Carper (D-DE)
Dole (R-NC)
Graham (R-SC)
Harkin (D-IA)
Inhofe (R-OK)
Inouye (D-HI)
Kennedy (D-MA)
McCain (R-AZ)
Murray (D-WA)
Obama (D-IL)
Warner (R-VA)
August 14th, 2008 10:28 am
[...] Mr Mortgage Post on FHA Bailout and Second Mortgages. [...]
August 27th, 2008 4:46 pm
here is a presidential candidate who gets it “gets it”.
http://www.youtube.com/watch?v=raAtB1FONmg
http://www.youtube.com/watch?v=raAtB1FONmg
i’m not for “campaigning” for a candidate but we need someone who gets it.