Fannie/Freddie – Come Get Your Loan Mod & Pay For Life

Posted on December 17th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

The Fonie & Fraudie loan mod push is on.  They are pushing some of the highly leveraged exotic loan programs ever created. These loan mods make Pay Option ARMs look conservative. Why in the world do they think they are helping people by locking them into long-term upside down financing that is orders of magnitude more exotic than the loan on which they are currently in default. These mods are even more aggressive than the FDIC’s (IndyMac).

This is an absolute disaster. I have written volumes on these terrible loan modifications and now this great experiment finally begins.  The story below should make you cringe if you are a homeowner or someone looking to buy or sell.  If this is widely accepted, the  implications are unknowable.  Coming to mind right away is permanent loss of a large portion of the US consumer base due to the massive leverage this program requires. Wide scale new loan defaults also come to mind as I foresee home owners looking for relief due to macro economic worries that may not really need. This will not end well.

Home owners!  Accepting this ‘solution’ means you:

  • acknowledge the full debt regardless of the value of the home;
  • waive all rights to fraudulent or predatory lending claims in the future;
  • turn your loan into a full recourse loan that could follow you for life even if you choose foreclosure down the road;
  • remain underwater, full-leveraged, renter for the rest of your life (in most cases);
  • will save no money at 38% housing debt-to-income ratio plus all other debts;
  • may not discharge any of this mortgage debt through any bankruptcy even after foreclosure;

If widely accepted by home owners, this will ruin the American consumer and make housing a dead asset class for decades. If you are in a serious negative equity position when signing these forms, as most are, remember that you will:

  • never be able to sell your home
  • never be able to buy a new home
  • never be able to rent your home due to owner occupant provisions
  • be responsible for the full loan amount even if the value of your home keeps dropping for the next 10-years.

The 38% debt-to-income ratio on top of all of your other debt means you will save no money and live hand to mouth to keep this underwater roof over your head.

For those of you who do not care about being underwater in your home but only wanted a lower payment, this is your green light to default. Your new terms are outlined below.

In my opinion, many of those who qualify for this plan would be better to walk away, which is precisely the reason they rolled this out. Please, please consult your financial adviser before doing anything of this sort.

Below are several recent stories I have done on loan modifications.

MORTGAGE DAILY FANNIE/FREDDIE LOAN MOD STORY HIGHLIGHTS

December 16, 2008

Streamlined Conforming Modifications Go Live

Fannie, Freddie release streamlined modification program guidelines

By MortgageDaily.com staff

-Fannie Mae and Freddie Mac have released details on the recently unveiled streamline modification program for conforming borrowers.

-All approved servicers are eligible for the streamlined program.

-The modifications temporarily run for three months on a trial basis then become permanent if the payments are kept current during the trial period.

-Qualified borrowers cannot be in litigation, in bankruptcy or on an existing workout plan and must be at least three months delinquent or in foreclosure on their owner-occupied first mortgages — including jumbo loans.

-the loan-to-value on a mark-to-market basis must be at least 90 percent. (EVERYONE UNDER 90% CAN GO THROUGH THE FORECLOSURE PROCESS WITH LITTLE LOSS TO THE GSE’S)

-Broker price opinions are acceptable for determining the current value, though automated valuation models are unacceptable. (BROKER PRICE OPINIONS ARE VERY EASILY MANIPULATED)

-Freddie noted that subordinate liens may be left outstanding and cannot be considered in the LTV calculation. (THIS MEANS BORROWER REMAINS EVEN MORE UNDERWATER)

-Streamlined modifications require a recent paystub and verbal income verification to determine that the proposed payment, including escrow, doesn’t exceed 38 percent of gross monthly income. (THIS MEANS 38% OF GROSS INCOME IS BEING USED FOR HOUSING DEBT ONLY. THIS IS MORE EXOTIC THAN MOST LOANS DURING THE BUBBLE YEARS)

-Under the plan, accrued interest, out-of-pocket escrow advances and costs must be capitalized. If this causes the payment ratio to exceed 38 percent, then the lender can extend the term of the loan to 480 months. (40 & 50-YEAR LOANS WERE JUST COMING IN FASHION AT THE END OF THE BUBBLE)

-If the ratio still exceeds 38 percent, then the interest rate can be reduced in 0.125 percent increments until the 38 percent ratio is reached.

-The lowest acceptable rate is 3.0 percent. (THIS IS A TEASER RATE JUST LIKE DURING THE BUBBLE YEARS)

-Rates reduced to below the current market rate as reported in Freddie’s Weekly Primary Mortgage Market Survey will only be in effect for five years then increased one percent annually until the market rate as of the modification date has been reached. (THEN THE RATE INCREASES EACH YEAR)

-If the extended term and lowered rate fail to reduce the payment ratio to 38 percent, then principal forebearance can be used to bring down the ratio. The deferred principal is interest free and due in full either at the loan’s maturity or the property’s sale. (THIS MEANS A HUGE BALLOON PAYMENT IS DUE IS YOU EVER CAN SELL)

-Principal write-downs and principal forgiveness are prohibited. (THIS IS WHY THIS PROGRAM WILL FAIL ON ALL FRONTS)

-Freddie said the program was effective yesterday for mortgage originated on or before Jan. 1, 2008.

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86 Responses to “Fannie/Freddie – Come Get Your Loan Mod & Pay For Life”

  1. More good news.

    Just kidding Mr. Mort.

    It is what it is.

    (I’m tell’in ya, they’re trying to cover the original cost of the loans, to cover the derivative’s leverage to project a winning hand somewhere down the road)

  2. THEY MUST BE SMOKING CRACK, CRIMINALS OR JUST PLAIN STUPID
    how do they think this is going to fly…. 2/3 of the things i just read are what got us into the mess we are in !!!!!!!

  3. You’re right on target here. Keep in mind that these Agency guides are derived from the FDIC policy that was instituted last month. While I don’t inherently believe that government bailouts will always (or should) be ineffective, it seems like this current course is doomed to fail.

    However, the silver lining to this debacle is that it creates significant deep value opportunities for private investors. The return to efficient markets will systemically reward funds that are willing to invest capital in distressed markets. This does not inflict undue damage on banks and investors currently holding these assets as they are simply holding unrealized losses on their books. As they seek to restore their liquidity and reduce Residential Mtg/Tier1 ratios these institutions will finally absorb their tremendous losses.

    The government plans will fail because they are attempting to mitigate these losses with contrived modification plans that should be profit-maximizing for the banks. Private investors, on the other hand, will create optimal workout strategies because they will be able to obtain assets at their true market prices and thus have greater room to negotiate settlements with homeowners.

  4. The loans will be extended beyond the homes useful life….just like 6-7 year auto loans. These homes will need major repairs/updates in 40-50 years.

  5. There is zero motivation for the homeowner to follow this path. The more people that follow these modifications, the worse the housing market will be longer term. It’s keeping people underwater and extending the life of the loan – what a horrible combination. I can only hope people actually understand what they are doing when they sign up for this type of “refi”

  6. Hahahahaha!! The fucking chickens, are coming home, to fucking roost. This is awesome!! Every greedy motherfucker is getting exactly what they deserve from the bottom on up. Let it burn!! YEAH!!!

  7. yes, the immiseration of the middle and lower middle class, as I anticipated in July 2007 in a blog post entitled The Sub-Proleterianization of America

    walk on two legs, as the pragmatists in the CCP used to say, in this instance it perversely means loan modifications that will permanently impoverish homeowners and the US economy as a whole, along with policies by the Federal Reserve and the Treasury that pour trillions into insolvent financial institutions so that they can survive by maintain outrageous spreads between the 0% percent money they get from the US taxpayer and the amount that they charge us to borrow it

    there’s just one catch: there’s no one around to borrow it

  8. This is absolutely terrible. This is like getting married, having your second half turn into a nightmare, and then waving your right to divorce. All the while, signing off on incremental increases of pain in the relationship! (your second half was likely a nightmare to begin with but you didn’t notice…)

    The problems with these banker fixes is they all start with the same criteria. “Whatever you do, the principle balance cannot be affected!”

    Here is the deal and why “fixing” will not work. People bought the damn houses as investments and not homes. They are trying to turn investments into homes which was never on the platter in the first place. They totally have to twist the mind of the buyer in order for them to accept this bad deal. None of the “greed” buyers will fall for this but the innocent “fear” buyers might.

    In order for them to entice investors into hanging on to their investments, they are going to have to produce a program that has recovery of investment that the borrower can see. Realistically by the time this is over and nobody will touch RE with a 10 foot pole, it will be 15-20 years to again match peak bubble pricing.

    The other problem is that nobody really expected their mortgage to last forever, they had move up or flip in mind when they signed the paper. Now they want to turn that into a non surgically removable wart.

    Here is my other objection. Only dumb people would sign something like this. We pass laws in this country called consumer protection laws to protect the less sophisticated. This plan protects the sophisticated that screwed up and takes advantage of those that require our protection. This should never be allowed to happen.

    What needs to happen is that the sophisticated bankers that caused this problem in the first place need to take principal reductions to save their long term balance sheet as well as taxpayers.

  9. As an appraiser I find it scary that quality appraisals are no longer required. Instead you can just substitute a BPO from a realor with just a few months experience for a value that the homowner will have to live with the rest of their lives. No that is a setup for failure!

  10. Since 60 minutes just warmed America up to the problem advancing upon us, maybe 60 minutes could have Mr. M on to show how this this problem should be attacked? There is no shortage of ammunition for a 20 minute segment. Nor is there a shortage of failed fixes to harp upon. Americans need to be warned of these toxic fixes and warmed up to what a workable fix is. Plus it is a great time to remind those that said “Nobody saw this coming” that there was indeed yet another blogger that says “That just ain’t so”.

  11. WOW just when you thought the Treasury and the Fed might be moving in the right direction Fonie and Fraudie (love that name) come out and prove how we got into this mess in the first place… mainly because they don’t have the homeowners interests in mind which makes them look really stupid but they aren’t. What they are is making a choice (albeit a dumb choice) between helping homeowners thus fixing the problem and helping the banks and more importantly the securitizers who stand to lose if they allow write downs. I saw this program a couple of days ago and when I read it I literally laughed out loud, what a feeble attempt to stop foreclosures.

    But here is the problem, most people don’t read this blog, most people are stupid and for the same reasons they took out a 2% teaser loan or a 3/1 I/O arm they will want this program. Americans don’t look much past the next paycheck and they have a very short memory they just want what they want and on the surface with the lenders controlling the sales pitch on these mods its gonna sound pretty good. They get a lower payment and they are in fear and in desperate situations. Desperate people do desperate things…wait a minute that sounds alot like Paulson and Bernake not your average homeowner.

    Bottom line our leaders are stupid, greedy ego maniacs that have sold most of us down the river for their own gain or to save their own asses. I have no confidence in anything they are doing or have done if they would just get out of the way and let the market fix itself this would be over a lot faster and at this point with much less pain.

  12. MR. MORTGAGE I HAVE BEEN IN YOUR CORNER SINCE DAY ONE BUT I HAVE TO ADMIT, WHAT I AM SEEING IN THE MOD REQUESTS IS ABHORRIBLE! I UNDERSTAND HARDSHIP LOSS OF JOB, DEFERRED INTEREST, SHORT TERM RESET ADJUSTMENTS THEY CANT AFFORD, CREATIVE LENDING OPTIONS NO LONGER AVAILABLE. BUT WHEN I SEE APPLICATION AFTER APPLICATION FOR MODIFICATIONS FROM PERSONS SUCH AS LAW ENFORCEMENT AND STABLE CARREERS WITH ADEQUATE INCOME REQUESTING PRINCIPLE REDUCTIONS ON EVERY APP IT DISGUSTS ME, THERE IS NO HONOR, NO INTEGRITY, NO HONESTY. JUST PEOPLE TRYING TO MAKE EXCUSES OFTEN TO EITHER BENEFIT THEMSELVES OR MITIGATE OBLIGATIONS. THE SENATE HEARINGS THAT FEATURED THE MBA CHAIRMAN WERE SOOO TRUE AND ON IT WHEN “HE” (THE CHAIRMAN) SAID THAT PEOPLE WHERE LINING UP FOR BANKRUPTCY FILINGS. LOOKING TO UNLOAD THEIR OBLIGATIONS. NO ONE WANTS ACCOUNTABILITY, I HAVE EATEN CROW, HAVE AND HAD AND CURRENTLY AM UNDERGOING
    HARDSHIP EVEN NOW AND PEOPLE JUST WANT A HAND OUT.

    ALL THE HYPE MEDIA IS JUST THAT, IDLE TALK! YOU CANT INTERFERE WITH GRAVITY, NOR CAN YOU IN THIS MARKET. FAILURE IS ESSENTIAL.

    SHAME ON THOSE WHO TRY, PROMISE OR LIE.
    IT IS THESE B.S. SCENARIOS THAT ARE COUNTER PRODUCTIVE AND MAKING THOSE THAT ARE REASONABLE TO ADJUST ALMOST IMPOSSIBLE.

  13. As you can see, IM PISSED!

  14. “One Streamlined Personal Supersized Japanese “Lost Decade” Special to go please!”

    Just surreal. How can anyone call this program any kind of help with a straight face?

    Most borrowers were so desperate to ‘get in to something’ back in the height of the madness that they would take ridiculous terms if it got them what they wanted on the way up. I’m sure that they’ll be equally desperate on the way down too. Sad, really.

  15. It is amazing how irresponsible you can be with a handful of other peoples’ money and good intentions….

  16. If someone were to accept one of these mods, the only way out of it down the road would be a fire.

  17. Unfortunately this plan will work in my opinion. If millions upon millions of people allowed themselves to be duped into buying an over priced home with a mortgage that was a ticking time bomb, then this will be like shooting fish in a barrel. Think about it this way:

    People are losing their homes. In many cases their most precious possession. They can afford to stay with a lower payment and stability in that payment (excluding the balloon which most won’t even worry about) which is what this plan touts. It is all about the monthly payment to most who bought over the past 5-7 years or they would not have bought to begin with.

    The flippers, investors and speculators will not fall for this program, but they are a very small percentage of homeowners. The millions of people who are at risk of being a potential foreclosure will however. People who bought 10, 20 years ago who refinanced during the boom will. People who are 50 and up will because they figure they won’t be around long enough to worry about it. People who are under 25 who just started out and don’t want to be viewed as failures by their friends and family members will. People who still believe in the potential negative social impact it would cost them will (if in those type of circles). In fact I think it will be a huge success for these reasons and many more.

    Don’t get me wrong, I do NOT approve of this and think it is borderline illegal in some ways, but it is what it is. The constitution has been trashed by our Government and all laws and rules pertaining to their actions have been mostly tossed aside until things recover. The sad part is many people and their families will be more hurt by this than if they allow themselves to be foreclosed on. In fact they will be hurt a LOT MORE by this.

    So the Government will dupe as many of the Sheeple as possible and then come out with a new plan. Debt slaves are wonderful for social programs and the Democratic machine coming to power soon. This to many in Washington is just what the doctor ordered and a splendid opportunity to get the ball rolling. If they play their cards right they could snare a good portion of homeowners in this country in just a few short months. They will then have snared the homeless, most people that are unemployed, a decent percentage of homeowners (a real prize) and all of the unions in their pockets. All this before things really start getting bad would be hitting a virtual home run for this Government!!!

  18. Ding ding ding!! You hit it Stu.

  19. This is heartwarming for us prudent types who didn’t buy the hype. Every time a new bailout comes along to “keep people in their homes” at all costs, I get mad until I look at the plan and realize it’s a bunch of carp. They’ll be lucky if 100 people sign up for this stinker.

    The only thing I do worry about is that every bad program is just the camel’s nose under the tent, the first slip down the slope, so they have to come back later and explain why it didn’t work and why they need to loosen it up even more. Once we’ve accepted a bailout, any bailout, we can’t go back and say it’s unfair.

  20. On the issue of mods, it seems to me that the resolution of the lawsuit: Greenwich Capital v Countrywide/BA will tell us the future of mods. If Greenwich prevails, servicers will lose less money in a foreclosure than if they are caught violating the terms of their securitization contracts and doing modifications. That would mean no more mods – unless FNMA/FHLMC/GNMA MBS pools allow for modifications to a greater degree that the polls that are referenced in Greenwichs’ class-action suit (I can’t claim to know). I’m rooting for Greenwich. Where the F does Countrywide think they get off modifying loans willy-nilly (agreement with state attorneys general notwithstanding) and cramming down the losses on their investors in contravention of their contracts? There are legal procedures in foreclosure situations. Servicers shoudln’t be able to just craft their own ad hoc “solution” and then “assign” losses to their investors.

  21. Stu, I disagree. Simply because a good number have been walking already – the math does not work. One can easily bank on another 15 – 20% decline easy. Walking and saving for a new down 3-5 years down the road puts you back in with equity in the property with a significantly reduced debt. If you accept another teaser rate fix, you are not paying down principle, thus you are actually putting off home ownership in the true sense of the word. A teaser rate front end is more like a lease with a commitment to buy.

    The whole idea of buying a house is that you are chipping away at the principle every month.

  22. BertDilbert, you are obviously older such as myself and are looking at things from your own perspective. I agree many have walked away, but much less than you probably realize. That is a rather large step to take and has finality contained within the decision. Most don’t like to make those sort of decisions. While it is indeed happening, I think on a large scale it is not. It is more than likely contained to the real bubble states currently in my opinion.

    I picked out certain groups of people for the very reason you are disagreeing. The people you speak off (the large minority) will not go anywhere near a deal such as this, but that is not the targeted group. Also it is not being sold as a “teaser” rate to the masses, but rather a “work out program” and one that brings their monthly payments in-line with what they can not only afford, but keep their precious home. The people that call their property a “home” vs. a “house” are more apt to bite on this.

    Your statement, while ringing loud and true, about principle does not apply to those that will take the bait on this deal. This offers continued “home” ownership with no money involved and merely a new contract to sign. Folk’s will be lining up for this deal regardless of the consequences down the line. remember the target audience and realize it is not you and I they wish to dupe…

  23. “I’m from the government and I’m here to help”

    So the program rolls the negative equity back into or creates a balloon on the existing loan? So now we have a 40 year? or 50 year mortgage? Why stop there? Just go for the 100 year loan!

    —-
    excerpt from

    http://anotherfuckedborrower.blogspot.com/2005/12/40yr-mortgageis-it-for-you.html

    $400,000 loan at 6% 30yr fix = $2398.20 . . . . .total pmt = $863,352
    $400,000 loan at 6% 40yr fix = $2200.85 . . . . .total pmt = $1,056,408
    $400,000 loan at 6% 100yr fix = $2005.04 . . . . .total pmt = $2,406,048
    —-
    Wow! What kind of inflation would it take to make these numbers actually pencil out? Ouch.

  24. Chase: currently 4 – 6 weeks for a negotiator to be assigned, then 30 days (at least) for resolution – given a complete package. This is only the beginning. It is only going to get worse. I can see this as a 4 – 6 MONTH long process, given that they are depending on the borrowers to put their own package together and their systems for logging things in are horrendous.

    Probably a good thing in that people may smarten up or get fed up and just walk. Funny, our best hope will be that the banks screw this up so bad that they can’t “help” anyone.

  25. Loan modification is a process whereby a home owner’s mortgage is modified and both the lender and homeowner are bound by the new terms of the new mortgage.

    The most common loan modifications are listed below:
    • lowering the mortgage interest rate
    • reducing the mortgage principal balance
    • fixing adjustable interest rates within the mortgage
    • increasing the loan term throughout the mortgage
    • forgiveness of payment defaults and fees
    • or any combination of the above

    Check out this Public site at
    http://LoanModificationLMortgage.org

  26. Well heck. Last month I was wondering if multi-generational loans were coming. Does anyone know what will happen to these loans when they are inherited by the next generation? It seems like these would end up wiping out anything a person manages to put aside for their heirs. Does anyone know how this worked out for Japan?

  27. Unbelievable, the sad part about this “deal”, is that there will be many that will be talked into accepting the terms, most of the people that have been in the business know what I’m talking about. Bottom line, some people will sign anything you put in front of them.

  28. The New Boston Tea Party….

    RUN RUN from your loan.

    I beleive homeowners are not really that stupid.

  29. If you take a longer term view, massive inflation will soon hit America. There is no other choice.

    Over 5 years inflation will be 100% at a minimum and so then payments will look more like this:

    400,000 loan at 6% 30yr fix = $2398.20 . . . . .total pmt in 2008 dollars = $431.56

  30. Again a short term solution people will jump at. All these short term loans and solutions do not solve any ones problems let the banks eat some of their mistakes(principal reductions). They will get their money back eventually. The problem is the US public like they did when they took these loans do not see past 5 years. Blind optimisim it will get better. Well what if it doesnt, start thinking of your future.

  31. When I see all this nonsense, the Fed going ZIRP and the market rallying…All I can say is that the bottom’s gonna be one ugly mutha.

  32. I can’t believe the government is pursuing this. It’s almost predatory but there is no predator because it won’t benefit the government! Idiots! It will do no good because anyone uninformed enough to get into one of these loan mods is not making a viable financial decision and since they are upside down, they need to think. It’s the blonds leading the blonds!

  33. Most people who are underwater will just walk. That’s the rational thing for them to do.

    Principal reductions are HIGHLY unpopular considering that the vast majority of the country either rents, owns their home outright, or are nowhere near being underwater.

    I think these Sheila Bair style plans are about all the public can stomach. If they start giving people tens, if not hundreds or thousands of dollars in lottery winnings (i.e., principal reductions) there will be one seriously pissed off electorate.

    Here’s some evidence that politicians know which way the winds are blowing (Barney Frank in yesterday’s Washington Post):

    “Frank acknowledged, however, that concessions had to be made to make the program palatable to the American public. This is why borrowers who take part in it must share any gains from appreciation in home values with the government.

    ‘You’re not going to get a program approved that helps people refinance loans on their homes and then allows them to turn around the following year and make a profit on that home,’ Frank said.”

    And that’s fine with me. Here in bubble central (So-Cal) people will just walk. That’s because the majority of them are speculators at heart. They believe it’s their divine right to realize substantial tax-free capital appreciation from their homes. Take that away from them and watch their enthusiasm for getting a loan mod dwindle to zero.

    The real threat to the prudent will come in a year or two when confiscatory inflation returns with a vengeance. Once we get past this pesky bout of deflation, that is. Timing is everything, I guess.

  34. Coast is Toast

    you said in your post…

    “Frank acknowledged, however, that concessions had to be made to make the program palatable to the American public. This is why borrowers who take part in it must share any gains from appreciation in home values with the government.

    The truth is that if incomes determine home values and income increases are in line with inflation, then housing values will smoothed out over time be in line with inflation. If your property increases with inflation, then there was in fact no real gain. If it slightly exceeds inflation, the bulk of the gain really wasn’t.

    If the government wants to take your “gain” at some point in the far off future and the property’s value is not inflation adjusted prior to the determination of a “gain”, then this could be the cruelest joke ever played.

    Suppose you had a house for 400k now and in 20 years that house was worth 800k. In that same time period let’s say that inflation adjusted, your dollar purchasing power was cut in half. In inflation adjusted dollars, the house would be worth the same 400k but the government would be claiming you had a 400k gain! The government would be wanting to take a gain that in reality never really was.

    I know that there are a lot of inflation opinions and future house prices out there. This is just an example for explanation sake!

    Do you guys see the total rip off of this type of government “profit sharing” program? Guys, if there is any part of loan mod program that makes you want to puke, this should be it!

  35. Didn’t you take Fhonics in grade school? You misspelled Fhonie. :-)

  36. of course this is going to work! Why not? Do you think the idiots that got the original exotic mortgages they had no chance of paying back ever, have somehow acquired a brain, all of a sudden?

    YEA RIGHT.

    This is gonna go like hotcakes, you just watch.

  37. It’s good that the principal would be deferred and not just written off. I know people/homeowners that bought more than they could afford want to profit off of our tax dollars, but I think they’ll have to accept the already sweet deal of zero interest on large chunks of what they’ve borrowed.

  38. BertDilbert:

    I agree that 30-year future money will have very little value given the Government’s plan for above-trend inflation once we print our way out of this deflation threat (see the end of my post). HOWEVER, none of that makes a lick of difference to HGTV bedazzled So-Cal homeowners. They will walk. They are walking. If they walk they can buy back in in two or three years at much lower prices in the hopes of capturing 100% of the future appreciation (using FHA as the new subprime lender of last resort). If they stay in their heavily underwater homes they’ll be debt slaves. They all figure this out pretty quickly.

    Look at HOPE-for-Homeowers. How many were supposed to be helped? 400K? How many have actually signed up? Less than 1K? (312 was the last figure I saw).

    Principal reduction isn’t going to happen en-masse. Read the Barney Frank quote again. He’s basically saying it’s politically impossible. Which makes perfect sense. Remember, Frank is the poster child for principal reduction advocacy. He would give away free homes to the poor in a heartbeat if he thought he could get away with it. If he thinks no-strings-attached principal forgiveness is not gonna happen, it ain’t gonna happen. And the strings make a difference. People are greedy and want the biggest slice of the pie they can get. Same as it ever was.

    And again, the vast majority rent, own outright, or have low LTVs. They have no interest in mass principal writedowns. It’s political suicide.

  39. BertDilbert:

    Ok, I just re-read your post and think we’re probably closer to the same wavelength than I originally thought (damn speed reading). All except the principal reduction part. I have no problem with private banks deciding to do principal reductions if they are in the best interest of their investors. My problem is with idea of mass principal reductions undertaken as a result of either coercion or edict by Uncle Sam. And when I say it will never happen, I’m refering to such Government “sponsered” modifications.

  40. That’s right. The Dems are in control and they will never allow principal writedowns. It would be too good of a solution. The pols just want to appear that they are helping. Remember, they have no money so they can’t really help. In fact they have less than no money like a lot of upside down homeowners!

  41. “sponsered” == “sponsored”

  42. Where is the full text of this Streamlined Modification Program?

    I’ve looked for 20 minutes online and can’t find it. I want to see with my own eyes that non-recourse loans would be made recourse. I find that hard to believe, as that would violate state laws in many cases.

  43. Coast is Toast

    Here is my opinion. You could come up with the most masterful plan that end game, saved the taxpayer money and would be the quickest recovery to the RE market, banks bottom line and overall economic recovery. From a logical standpoint, it could contain the genius of 10 Einsteins.

    Yet it has to pass step number two. Step number two is that it is going to have to have politicians stand behind it. We have already determined that this is an explosive issue of opinions from all sides. Therefore, while principal reductions may be logical, they are as you say, and as Congressman Frank acknowledges, is political suicide.

    That is why what I refer to as “My Plan” is the only way. That is to deal directly with the bank either by yourself or loan modification expert for your principal reduction. This plan is already approved by the Federal Government in the form of unlimited bank bailout. Let’s call it the “Silent Principal Reduction Program Not Officially Sponsored By Government”. (SPRPNOSBG)

    My analysis at this time however, says that in many cases, walking is the better option due to expected continual downside. Even with SPRPNOSBG, you probably have to miss payments.

  44. FYI: Mr. Mortgage, you might be interested to know that I’ve sent out two e-mails to friends in the last couple of weeks with links to numerous articles that you have posted on this subject

    both are professionals, and they find themselves having difficulties because of reduced income, job loss and unanticipated health problems

    that’s a lot of people for me, my circle of contacts is not very large these days as I spend most of my time at work or taking care of my 20 month old son

    things must be getting really bad out there

  45. Thats right Rich – I have a 16 month old. Its fun huh?

  46. BertDilbert, sometimes ultimate plans to “fix everything” are disgustingly immoral which is why they have decent men stand in their way. Sometimes nobody stands in their way. Even Barney Frank knows that it’s an awful idea. I for one would go apeshit if my neighbors started getting principal reductions.

  47. If Obama pursues the “cram-down” rule for BK-13’s, the banks will begin allowing for principal writedowns. Notice how they suddenly became proactive with mods once he was elected.

    The secondary market will go to hell in a hand basket, but that’s another story for another day… unintended consequences and all.

    I can’t tell whether I’m laughing hysterically until I cry, or whether I am crying until I begin laughing hysterically.

  48. Kevin

    you said…

    “I for one would go apeshit if my neighbors started getting principal reductions.”

    Well you can go ape if you want, but a workout between a bank and a homeowner is a matter between two private parties in which you have no say. If two private parties deem it to be in their best interest, then let it be so.

    At the same time, you would likely get mad if bank owned signs went up all around you and lower class elements started moving into your neighborhood, tagging your cars and mailbox. Would you then sue the bank for degrading your house value? Flip a coin.

    Now you could run to the courthouse and file but exactly why would it be any of your business? You would get thrown out. You have no standing.

  49. When I heard the modification was a 40-year mortgage, I thought two things: (1) who wants to be indebted for 40 years of their life? and (2) the total paid for the house after all that time could be several times its actual value. So a homeowner could end up being completely impoverished by retirement age and owning a house whose cost cannot ever be recovered (and which is probably in desperate need of repair). I can’t imagine too many people agreeing to this.

  50. If you believe as I do that the worst is yet to come (Alt-A, Pay-Option then Prime defaults en masse) then I believe you need to prepare yourself to witness mass numbers of principal reductions being granted. That is where the end game occurs. It is really the last arrow in the quiver to stop a massive army of charging foreclosures.

    Anyone who thinks that most people who are deeply underwater are going to overlook that fact and sign on for a new loan that ties them to a block of concrete sinking toward the bottom of the ocean is going to be sorely mistaken. People are going to take a Mulligan – take a walk, wipe the slate as clean as possible and start over. Simple as that. In fact I think you may be surprised at the percentage of people who really just want out of their home. Many didn’t buy it because they loved it, they bought it because they were scared s&*tless about being “priced out forever”. Now they just want out – out of the bad idea and being reminded of it by waking up there every day. I think there are alot of those people out there.

    What do you think the Fed is going to do with the $500 billion of securitized mortgages they are going to buy? And the additional $500 billion they will buy after that? And so on…
    If the Fed owns the paper the Fed can write down the principal wherever and whenever they wish.

    Whoever owns the paper faces the ultimate choice – write down the balance or foreclose. That’s what it will come down to in many cases. Either way the paperholder takes it on the chin. And you are kidding yourself if you don’t think some of that loss is going to get passed on to you Mr. Taxpayer, regardless of whether the principal is reduced or a foreclosure occurs. Either way, you pay. So do you want the foreclosure bus rolling down your street every weekend, vacant houses, dead lawns, and all the other fine side effects of foreclosures, or do want to keep the houses occupied and just move on. Don’t kid yourself, you are paying either way.

  51. Mr. Mortgage,

    With your permission:

    Karl Denninger has a great piece out today from his blog which you link to on the side bar of your main page:

    The Idiocy of Bernanke’s Bubbles and CNBS

    It’s about a 10 minute read, but well worth it. Karl’s stuff gives a bit more seasoned insight into the mechanics of the gears turning at the top, and how they will ultimately affect everyone. Right now, I surmise those gears are turning fast & hot. The grease is boiling. Any self-respecting gent who knows a thing or two about gears, understands what happens when excess heat combined with dangerously high rpm’s spin out of control…

    Not pretty, but we need this kind of info. to keep pace and hopefully, gain a step or two in front of what’s coming.

    Peace –

    C.C.

  52. Hello All,

    If 31% of the population is renters, then 69% of the population are homeowners. * these percentages are changing due to defaults though

    Out of that 69% of homeowners, 24% owned their house free and clear.

    The remaining 44% of the population have a mortgage.

    Since everyone agrees with the above statements so far, lets discuss who wants principal reductions and doesn’t, and who does it hurt.

    The first group is the 31% of renters want the values/prices to come down to AFFORDABLITY, REASONABLE, or IS IT BARGAIN PRICES?

    Nationally the prices have decreased anywhere from 23%, what they are admitting to,and reality of up to 57% based on location.

    Under my plan, the maximum mortgage loan would be 97% of the current true value as obtained from an appraisal for the LOCATION regardless of what the borrowers income is.(being current with your mortgage payments is an automatic qualification/approval, if the NEW payment is lower, ///and deliquent homeowners must qualify with ratio;s, they are a poor credit risk.

    Principal reduction would be 125% of the reported and verified decrease from the market peak, stablizing the market, with safequards and stopguards in the plan. This eliminates borrowers who over bought and never qualified for the property or planned on selling for a profit and the two trillion dollars of outstanding adjustable rate mortgages. I hate to use the words stupid, greed or wishful thinkers in the same sentence as a homeowner, but they are eliminated in my plan.

    * Are these renters hoping the market will OVER_CORRECT itself for them to get a house for pennies/dimes before buying?

    The problem with letting the market correct itself, is it has a REAL POTENTIAL of Over correcting affecting a larger percentage of homeowners, both with or without a mortgage.

    The second group is the 24% of homeowners who own their house free and clear, should definately want prices to stablize or they will lose more equity/money as prices continue to fall. It is financial suicide for them to oppose refinaced principal reductions that stablize house values/prices.

    ***there has been extensive research done by governmental and non governmental aqencies, that for EVERY foreclosure on the same block, the entire block is reduced by a miminum 3% in value THIS AFFECTS ALL 69% OF HOMEOWNERS. (Most homeowners know this to be true, and KNOW and believe the actual cash loss in value to be higher, whether on the same block or ten blocks over).25 of a mile reduces your value by 2% according to the experts.

    Letting the market fall, and fall hard is not the talk of any homeowner but an investor who expects the government to bail them out with taxpayer funds, or a delay tactic.

    The third group is the MOST IMPORTANT GROUP because they are who is paying the income for the investors, banks and GSE’s.

    The third group represents 44% of homeowners who have a mortgage and are almost evenly divided into two groups, those that still have equity and those that are underwater or close to it.

    The half that is underwater certainly would want principal reductions, whether they are deliquent or current (which most of them still are and my plan would help them, before going deliquent and decreasing values more)

    ***this percentage of homeowners have the potential of increasing their numbers, decreasing housing values overall, and scare the living pants off of the government. THE OVERALL ECONOMY HAS DECREASED, and THE GOVERNMENT IS LOOKING FOR WAYS TO INCREASE IT.

    The remaining half or less than 22% of the population that have a mortgage and is not underwater still benefits from the stablization of the market and under my plan the lowest interest rate. THIS IS WHERE THE GOVERNMENT IS LOOKING TO INCREASE THE BORROWING ABILITY OF THE ECONOMY to substain it at its present growth by borrowing.

    Principal reductions should be a financial decision ACCEPTED for all homeowners who represent the largest percentage of the population, if values stablizes at reduced values, it benefits everyone from losing more equity/money.

    The loss of equity had already been absorbed and accounted for by ALL homeowners.

    The balance of the principal reductions should be the responsiblity of the banks, investors and GSE”S to retain a stablize housing market.

    The problem is the GSE’s were told by our government officals to increase their holdings encouraging borrowing of homeowners to maintain the economy.

    **Now the GSE’s ,under taxpayer funds, currently hold over 1.6 Trillion dollars of “alt a or adjustable” mortgages, making the losses the taxpayers if values are acknowledged to have decreased.

    Polictial suicide is only because homeowners were and are not being protected, the financial system was and is.

    FYI- the H4H program won’t work not because of appreciation sharing(everyone knows the values can’t increase like they have) between the homeowner and the government but the equity sharing.

    That means for every dollar the homeowner pays off/down of his principal mortgage balance the government gets half,regardless of whether the property increases or not, that is “Frank’s” and others contribution to the program.

    Simple example, the house’s value remains at $250,000 for the next 30 years,you pay off the mortgage,then you die, and your heirs only get $125,000 because the government is entitled to the other $125,000. that you paid off, Equity sharing!!!

    It doesn’t take a genius to compare the differences of how the government is attacking the pay of “blue” vs “white” collar workers, to see who they are protecting. They should have BOTH been made to decrease, not just the union workers,it didn’t take 10 Einstein’s.

    Did it take 10 Einsteins to formulate a plan that accomplishes reduces the supply inventory, creating more jobs,stablize the housing industry and most important place the accountability where it belongs.

  53. Susan.

    You are a very smart person. You are a very logical person. You are 10 Einsteins. What we are lacking is putting wisdom into the equation.

    Let’s see how this works in real life. Logic and Einstein says that nuclear power plants are the way to go. Wisdom says you can’t build one.

    This is how government works. You have a bunch of people sitting on committees that don’t know jack. To keep themselves from looking like total idiots and making asses of themselves, they consult advisers. These advisers are people who are involved in the industry that they are in charge of.

    Let’s suppose that we have the Committee of Farm Tractors. On that committee’s list of advisers, we have manufactures of tractors, manufacturers of accessories for tractors, regulators of tractors, dealers of tractors, financiers of tractors, large farmers and various associations.

    What we end up with is a bunch of big fancy names that look as impressive as hell and the congressmen think they have all the bases covered. After all, they have listed the captains of industry.

    One key element however is left out. Not present, is anybody that currently sits in the driver’s seat of those tractors all day long. I know this to be true because I am one of those “advisers” to a government program.

    My observation from the programs so far is that they are missing two key ingredients. Actual homeowners holding debt paper and consumer protection advocates. Why? Because when we look at the current programs it is apparent that the people who came up with these look like idiots and don’t know jack.

    Now let me ask a couple of starter questions.

    1. Is your proposal primarily designed to appeal to the bankers rather than the homeowner? If it doesn’t pass them first it is dead on arrival.

    2. What is your presentation plan to pass through this nuclear power plant level of emotion surrounding this issue and make it acceptable to the public?

    3. Assuming that you are able to pass 1 and 2, how do you expect to get votes for it to pass, considering the primary benefactors are the citizens in CA? Logic says that the overall cost to taxpayers would be less by doing so. This however may be where logic does not apply.

  54. “Well you can go ape if you want, but a workout between a bank and a homeowner is a matter between two private parties in which you have no say. If two private parties deem it to be in their best interest, then let it be so.”

    True, but not with my tax dollars. I just am floored that these selfish losers that bought at the market’s peak are pissed that Freddie/Fannie want to defer chunks of the principal and not completely forgive it. These folks are the lowest forms of life and really need to die.

    “At the same time, you would likely get mad if bank owned signs went up all around you and lower class elements started moving into your neighborhood, tagging your cars and mailbox. Would you then sue the bank for degrading your house value? Flip a coin. ”

    I’ll try to ignore the blatantly condescending and snobbish tone of that remark and just say that I’d prefer to have neighbors that are responsible. That means people that can afford their houses. During the bubble runup was when people were cramming 15 per household on nodoc liar loans. So your “lower class people will hurt you” scare tactic is both bogus and insulting.

    I cannot stress it enough: bailing these idiots out does not solve any problem and is so morally repugnant that I can’t believe we’re even talking about it.

  55. Susan.

    1. You may be 11 Einsteins.
    2. I respect that you have a plan when most everyone else is complaining.
    3. Reading your plan was difficult for the simple reason that it’s another way of trying to govern (spend) our way out of this mess.

    Nobody is being made homeless here, when they can walk away or be foreclosed upon and instantly be able to rent the same for much less than their mortgage was. Period.

    Too much time is being wasted trying to artificially keep home values up via various ‘plans.’ Many (most) people bought these homes as investments first and as a place to raise families, etc. second. If you can’t (or don’t want to) fulfill your obligation to the bank, go rent, save and buy at a later date.

    I was actually disgusted to learn that over 500,000 CA residents have either broker’s or realtor’s licenses. (somebody correct me if I’m wrong) Isn’t that like one in 70 Californians?

    How many escrow officers? Title people? Home Depot, Lowes employees. Mortgage brokers? Appraisers? Builders. All for us to do the “I’m a Homeowner” dance, put in a granite counter-top and tap dance on it.

    Flip this house? …to be followed by “Home Improvement”

    To borrow a phrase from Mr. M – WTF?

    People losing their homes is not sad. It is sad that it seems we have had nothing better to do.

  56. How surreal have things got?

    While attempting to find more details on this program on FHA’s website I came across a link under “current hot topics” (left hand side of page)
    which takes you to youtube and FHA’s 10 Tips to Avoiding Foreclosure.

    http://www.youtube.com/FHAHUD

    If you can stomach the presenter…

    Are they for real? This is advice?
    Sell your stuff and avoid the gym?

    OMG

  57. While attempting to find more details on this program, on FHA’s website I came across a link under “current hot topics” (left hand side of page)
    which takes you to youtube and FHA’s 10 Tips to Avoiding Foreclosure.

    http://www.youtube.com/FHAHUD

    To be honest, I initially thought this can’t be right…these are gag videos right? I am from the “school” of how an advisor addresses one’s audience is indicative of how much they respect that audience.

    If you can stomach the presenter…

    Are they for real? This is advice?
    “Sell your stuff and avoid the gym, don’t be stupid?”

    A sad testament.

  58. Susan said: The problem with letting the market correct itself, is it has a REAL POTENTIAL of Over correcting affecting a larger percentage of homeowners, both with or without a mortgage.

    My comment: So, markets are only allowed to deviate from the mean to the upside?

    Susan said: if values stablizes at reduced values, it benefits everyone from losing more equity/money.

    My comment: (I smacked my forehead)

    Susan said: THE OVERALL ECONOMY HAS DECREASED, and THE GOVERNMENT IS LOOKING FOR WAYS TO INCREASE IT.

    My comment: Really?

    Susan said: Did it take 10 Einsteins to formulate a plan that accomplishes reduces the supply inventory, creating more jobs…….

    My comment: Nope. Just one “Susan.”

    Susan, I have read, re-read, read again, printed out, highlighted, crossed-out and tried to understand your plan. So I feel I have some small right to be critical.

    That sucked.

    BTW I’m a homeowner, no mortgage and my house is off 50% from peak. Can’t sell.

  59. It is a no brainer that the government can’t fix this problem. When consumers screw up their situation by overspending, whether on credit cards or home mortgages, there is simply no way for a bunch of bureaucrats to remedy it. All their efforts will prolong the problem and in a couple of years we will be worse off. Let the market work!

  60. BertDilbert:

    First, I am not “10” Einsteins, nor an advisor but I am a taxpayer and a homeowner. I would say that my logic comes from being a parent and grandparent, knowing that if one child is favored over another, you won’t have a happy home, the fighting/resentment will continue.

    It doesn’t take 10 Einsteins to fiqure out that the initital problem with the massive foreclosures and the deflationary cycle MUST have started with the underlying mortgages that were issued as being the problem.

    There has been so much written on subprime, exotic, adjustable mortgages combined with lax underwriting criteria had created a CREDIT BUBBLE in housing which was the core of the problem, agreed ?

    The only solution is to fix the problem and its affected parts, agreed?

    To answer your questions though.

    Numbers one and two should be reversed. The government is supposed to be the consumer protection for its people, the majority or Main Street, whatever you prefer.

    1- I already stated that stablizing home prices at 125% of the decrease from the market peak value benefits the 31% of the renters with lower values and the 69% of the homeowners protecting their asset, which is the majority of the population.

    Who does my plan hurt? Not the 31% or the 69%. Yes there will be a small percentage from both groups injured either from not having values lowered to ROCK BOTTOM prices enabling any person to obtain a mortgage regardless of their income or from present homeowners who purchased a house without regard for monthly payments, the “I can sell and make a profit” homeowners and/or speculators and the “I am entitled to live in this Mcmansion mentality” homeowners. The plan does hurt them but it stops the hurt for the large majority of homeowners whose house is their long term investment, not short termed.

    2-The proposal definately would have appealed to the banks in a true capitalist free market society since it has a bottom line of losses to be experienced correcting their mistakes made and a way to continue to make more money.

    THE PROBLEM is exactly what your reserval of numbers reveal, that banks do not have to have responsibility or accountability since the government has bailed them out and will continue to do so.

    The emotion factor you speak of is really the result of the governments decision to show the public that they are and will be the financial markets protectors at the taxpayers expense.

    3-If indeed our government “reverted” and I use that word loosely to being Main Street protector and not Wall Street’s pocketbook, all states would benefit not just CA or any bubble state.

    The cost to the taxpayer is approximately 10 Billion Dollars to employ 10,000 people for five years overseeing the plan. This cost would be lowered when offset against the benefits of increased revenue to the government and the increased spending power in the economy from employees and homeowners affected maintaining more jobs/businesses.

    The actual loss is paid for, absorbed by the banks, investors and GSE’s as a cost of doing business in a capitalist society, just like the profits were earned and retained by them in the same capitalist society.

    What has been done and continuing to be done, is ONLY the losses are being passed to the taxpayers of the present and future instead of remaining with the holders of said mortgages where they belong. YOU are right, there is no consumer protection.

    There would be no bailouts for any industry, there could be loans issued, if there is sufficent evidence that there is a probality of the loan being repaid, oh d*mn that sounded like sound underwriting criteria.

    I do believe that something like my plan will have to be done eventually but at what cost to society if the government waits to long in realizing:

    1-that for capitalism to work there has to be losses not only profits experienced by the business themselves. Some financial entities will fail, just like some homeowners will fail, both should be based on their own actions.

    2-that the power a industry holds should change with the economy. (the credit bubble has burst)

    3- deleveraging has to take place on a PRIVATE as well as corporate level. With this deleveraging the GDP will be reduced or slowed, to match actual cash spending not borrowed/credit spending, and the amount of profits a company earns will be reduced to reflect the slowdown.

    4- jobs need to be created that replace where the bursting of bubbles WERE by the government and private investors/business owners .

    5-political suicide SHOULD BE the result for the “representatives of it’s people” that don’t protect the majority of its people.

    Well I think I said enough, but thank you for the compliment of being logical and I will hopefully get older and wiser. Enjoy you day, it is snowing here.

  61. I think if one were to make this really simplistic all you would need to do is look at who these homeowners are.

    They are tax payer’s people!!!

    If they default then they as well as the rest of us will pay. If they walk then they as well as the rest of us will pay. If the lenders write down their principle then the lenders pay.

    Off course we tax payers now own roughly 75% of the mortgages out there, and ultimately take the hit for the loss the lenders write down anyway. Who do you think owns Fannie and Freddie? AIG? Who has 100’s of Billions invested in the top 10 banks in the country?

    B-I-N-G-O… The tax payers which is you and I!!!

    We are all going to pay one way or another so all of this nonsense about trying to do it without the tax payer footing the bill is just that… total nonsense.

    As Mr. M. stated “It didn’t have to be this way” and that is so true, but big brother made sure it was going to be this way. They hood winked us into being debt slaves through either our homes or massive tax increases for decades to come.

    Either way we are all going to pay dearly for the mistakes of big government and big corporations in this country. Privatize the losses (see Wall Street bonuses and Government pay and pension plans) and socialize the losses (see tax payers take it up the $%# yet again)!!!

  62. JALLEN:

    Thanks for the compliment but if my plan sucked, how do you rate the governments “plan”?

    I am also a homeowner, free and clear, not looking to sell in NY, where there has also been a 25% decline in values. Well, we are not interested in selling while my other half is still living (retired). We bought our home for the long term investment of living in it.

    What are your suggestions?

    Do they cost the taxpayers less than the 10 Billion Dollars my plan calls for?

    Letting the market work itself out, has cost ALL taxpayers over 7.4 Trillion Dollars with what has been spent or guaranteed to the financial sectors already, not including the losses in equity and jobs still to come.

    I respect your right to an opinion different than mine.

  63. Stu, your argument is absolutely absurd. If they default, the bank pays. Certainly not the borrower who took out a massive loan they never paid back. Notice the operative words DOES NOT PAY.

    I assume you advocates of principal reduction are speaking solely from situations that this strategy would be self serving. That’s awesome. I’d like to start a movement that would reward me with hundreds of thousands of dollars, all I need to do is make an astronomically stupid financial investment it seems.

  64. Just a side note…Why isn’t there any Big Home builders going bankrupt or out of business? Is that the next wave? Also, if some of these Big Home builders fall are we looking at another 10% to 15% fall in home prices? Would love to hear any comments.

  65. Kevin, no I am completely fine in my current situation. I don’t want or need anything in the form of a bailout.

    This is what you said: “If they default, the bank pays”

    Kevin, with all due respect WHO do you think owns the mortgages? Are you aware that the tax payers of this country TOOK OWNERSHIP of Fannie and Freddie this year? Are you aware that we the tax payers OWN these mortgages. Seriously, if your going to speak on what could, should or will happen you need to know what the landscape looks like and not what it appears to be. You obviously listen way too much to the MSM spin. We the people (that is YOU too) are 100% responsible for Fannie and Freddie debt and defaults (didn’t we just commit $100 Billion of tax payers money to both of them as a result). Last I checked Fannie and Freddie were responsible for 5.1 Trillion worth of mortgages in this country and that represented 50% or more of ALL MORTGAGES. WE OWN THE DEBT ALREADY!!!

    We will pay one way or another. If we pay through Fannie and Freddie defaults and eventual failure or we pay through principle right downs and subsequent banks losses (again which we own as tax payers as a result of our tax dollars as investments in the top 10 banks in this country) then what difference does it really make. We own $35 Billion plus in toxic garbage from AIG alone and that is already a done deal. We already purchased that Kevin. We already owe the difference on what we paid for it (.50 on the dollar) and what it is worth (.10 on the dollar many say). The tax payers have already lost .40 on the dollar of $35+ Billion. How much is that Kevin for every tax paying adult in America?

    We must have principle reductions or the walk always and defaults will crush this country. The Government, SEC, Financial World all made their errors and we all must now pay for it. With the implicit guarantee from the over $2.5 Trillion in bailouts, and reckless lending to everyone who came up to the window and asked for money from the various lending programs us tax payers are now on the hook for any and all losses. The principle write downs will stall and hopefully stop the foreclosures in this country to assure prosperity is reached once again down the road for this country. Without them we will continue to add to the 4+ million homes for sale today, and even eat into the 12+ million empty homes of which many are not on the market today, but could be forced to be. It is the only way to get home prices where they need to be and place homeowners in a position where they can afford to stay and equally prosper down the road once again. Anything short of that won’t get it done and only exacerbate the problem further.

    Their is no solution to this problem now that the Government screwed it all up. We only have the selection of the best way to handle it as a result of those screw ups. Principle reductions are the ONLY thing that meet that requirement in my opinion and if or until someone shows me a way to get the same results, I stand by that belief.

    No Susan your plan will not produce the desired and needed results this economy and us tax payers require to move forward and not have the Japan lost decade that we are heading toward. Unless we all except the necessary evil of principle reductions we are in big time trouble for a long period of time in this country. Barney et all would love to do principle reductions and as soon as they figure out a way to sell it, do it without the tax payers knowledge, or enough of the population understands it is really the only solution so they have the needed approval percentage to announce it, we will continue to struggle, throw money away on silly ideas that won’t work and get further in debt which only makes it much more likely it will get done eventually. Just at a much larger cost as a result.

    Last straw has Obama changing the laws to allow judges to do so and that will be not only another stripping of our rights and freedom as a country, but a huge blow to us globally as far as trust goes. Socialism is alive and well in America!!!

  66. The list of people signing onto this modification is priceless!

    The ultimate sucker list, some programmer in Fannie or Freddie could get rich selling this list.

    On the other hand, those refusing are poorer prospects, but they did buy into real estate only goes up.

  67. Susan said: JALLEN: Thanks for the compliment but if my plan sucked, how do you rate the governments “plan”?

    My comment: My hope is that the government is simply trying to look like they’re doing something, while doing very little to stop the unwind. If that is the case, they are being quite successful. I would add to this an even more aggressive and public display of bringing fraudsters to justice.

    Susan, again, you should be commended for actually proposing something.

    P.S. Does anyone know why the FDIC has just rented 200,000 square feet of office space in Irvine?

  68. What is your “real” interest rate? Something to think about with your current debt obligations…. Please note that Bernanke mentions that deflation of a “significant magnitude” may result in an interest rate of zero. Let’s assume that the Fed’s recent trip to zero then is an admission that we are now in a period of deflation of a significant magnitude….

    From a Bernanke speech in 2002….

    However, a deflationary recession may differ in one respect from “normal” recessions in which the inflation rate is at least modestly positive: Deflation of sufficient magnitude may result in the nominal interest rate declining to zero or very close to zero.2 Once the nominal interest rate is at zero, no further downward adjustment in the rate can occur, since lenders generally will not accept a negative nominal interest rate when it is possible instead to hold cash. At this point, the nominal interest rate is said to have hit the “zero bound.”

    Deflation great enough to bring the nominal interest rate close to zero poses special problems for the economy and for policy. First, when the nominal interest rate has been reduced to zero, the real interest rate paid by borrowers equals the expected rate of deflation, however large that may be.3 To take what might seem like an extreme example (though in fact it occurred in the United States in the early 1930s), suppose that deflation is proceeding at a clip of 10 percent per year. Then someone who borrows for a year at a nominal interest rate of zero actually faces a 10 percent real cost of funds, as the loan must be repaid in dollars whose purchasing power is 10 percent greater than that of the dollars borrowed originally. In a period of sufficiently severe deflation, the real cost of borrowing becomes prohibitive. Capital investment, purchases of new homes, and other types of spending decline accordingly, worsening the economic downturn.

    Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation. This burden arises because, even if debtors are able to refinance their existing obligations at low nominal interest rates, with prices falling they must still repay the principal in dollars of increasing (perhaps rapidly increasing) real value. When William Jennings Bryan made his famous “cross of gold” speech in his 1896 presidential campaign, he was speaking on behalf of heavily mortgaged farmers whose debt burdens were growing ever larger in real terms, the result of a sustained deflation that followed America’s post-Civil-War return to the gold standard.4 The financial distress of debtors can, in turn, increase the fragility of the nation’s financial system–for example, by leading to a rapid increase in the share of bank loans that are delinquent or in default. Japan in recent years has certainly faced the problem of “debt-deflation”–the deflation-induced, ever-increasing real value of debts. Closer to home, massive financial problems, including defaults, bankruptcies, and bank failures, were endemic in America’s worst encounter with deflation, in the years 1930-33–a period in which (as I mentioned) the U.S. price level fell about 10 percent per year.

    http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

  69. You know what….I don’t need to go into detail here…JUST FIX IT! Im one of those in concern over my mortgage! I didn’t take out more than I can afford, I put down over 20%, I pay way more monthly on my mortgage than my payment to continue reducing principle….and guess what? I have the potential of becoming “under water” by 2010, if all things are held constant.

    The ONLY MISTAKE I made was take a 5 yr balloon that matures June 2010. So I am worried like mad. Was it a mistake, yes, but hindsight is ALWAYS 20/20. So, am I a bad borrower because the entire market screwed up my structure now? NO! Had I been in a 30 yr fixed I would not be having this conversation. We are PRIME borrowers, and even if our mortgage tripled we would be fine…..so WHAT ABOUT us? what about folks like us who are screwed because of the market? not necessarily because of our actions…one can argue the balloon….

    Would 5% entice you as well? SURE IT WOULD, so STOP CALLING all people stupid or blaming the folks….some of us are WELL qualified, put a LOT into it and are still potentially getting screwed….the banks, the underwriters and wall street are just as much to blame…the point it like I said above, with that said, FIX IT!

    Come up with CREATIVE solutions…..principle reduction sounds good…..and to all those that have their mortgage paid etc….well TOO BAD, were all in this together now….It sucks, its wrong, but IT IS…..thats the point…..

  70. So with that said…enough of the banter, enough of the complex so called “solutions.”

    PLAIN AND SIMPLE ANSWERS……how about that….isnt it the severe complexity of the entire mortgage system that got us into this mess in the first place as well??????

    People like Susan Day are making more sense yes, but again, the approach needs to be COMPLETELY less complex, more tangible, and DIRECT.

    Make things simepl……I would love to hear a leader say something like “ok, things are really broken now, we finally admit it. What we will do is do x,y,z. Here is how it will help you DIRECTLY.”

    DONE.

    No more dissertations like above from all the ranters, no more BULL shite. No more tit for tat, just help the folks out. Mistakes were made yes, but are you going to burn Rome for a small percentage? I definitly think that the John Stuart Mill approach applies here.

  71. Walked away last summer. Purchased 2500 sq. ft. home for 420,000 w/ 10% down in 2006, payment was 3000.00 with taxes and ins. Last summer had it appraised for 285,000. Now renting 2400 sq. ft. for 1600 per month. It would take 14 years at 3000 per month to reach break-even. 14 grand per year times 14 years equals 196,000 in my pocket. No brainer

  72. Hello again,

    Why wouldn’t the proposal work? Did I forget about any percentage of the population?

    The proposal places homeowners into 3 groups:

    Group A- are homeowners who own more than 20% of their home at the discounted value, or a loan to value of 80% or less. This includes homeowners who have no mortgage. They would be entitled to EITHER a refinance at the lowest rate available, say 4% OR a tax deduction taken over a 3 yr period equal to one half of the “equity loss” proven by an outside appraiser with the plan.

    Group B- are homeowners who are current but are or near underwater. They would be entitled to a refinance WITH A PRINCIPAL REDUCTION leaving them at no less than 90% loan to value,most though would be at 97%, based on their credit score the interest rate would range from 5% to 5.75%. The loss would be taken by the banks/investors and allowed to be written down by 3x over the same three year period for tax purposes and balance sheets. The penalty involved would be there would be no chance of obtaining a profit for the same three years, or the government is entitled to the full profit.

    Group C- are homeowners who are deliquent and underwater. They would be entitled to a principal reduction refinance at the interest rate of 6.5%, subject to qualifying ratio’s.
    Again, the loss is taken by the bank/investor and allowed to be written down/deducted by 3x for tax purposes over the same three year period.
    There is a penalty involved of the homeowner would not be able to obtain a refinance or sell and obtain a profit for 7 years, any profit would go to the government.

    If you wanted a group D- they are the renters, who would be entitled to the full range of interest rates based on their credit scores and underwriting criteria for all houses at the DISCOUNTED NEW VALUE.

    The current inventory of homes for sale would be greatly reduced. The current REO”S would have to sell at the NEW DISCOUNTED VALUE, not less to ensure that the deflationary cycle ends. The government/taxpayer could have an auction/lottery of REO”S still on the market to qualified potential homeowners every three months that would be subsidized.

    Thanks again for your input.

  73. Here are some plain & simple answers:

    Like I’ve mentioned before on this forum: Those of you who Need/Deserve/Demand relief, are going to get it – one way or another. The political elite are going to see that their constituencies obtain mortgage-debt relief – in what ever permutation it happens to take – whether it’s borne out of a blog forum or gets a senators name-stamp on it so we can spend more tax dollars for a monument in his/her honor for being such a righteous egalitarian leader-of-the-people, or both.

    As the wave of re-sets begins in earnest next year, Rioting will be the result if the political establishment doesn’t ‘do something’, if not before then.

    And you know it.

    It may not be in the form of your perfect wish or calculatory machinations for equality and fairness, but it won’t matter. You will not have to shoulder the responsibility of being upside-down as a direct result of not-knowing, not-understanding, being-screwed by an unscrupulous lender, I’m a victim of the ‘market’ etc., etc.

    However… When Federal aid comes – and you can bet your sweet Arse baby, it ain’t coming from the States, as they don’t have a pot to PISS in or a window to toss it out of, it will come with a Price. A Huge price.

    What matters is that you get your debt-burden reduced, so that you can then return spending dollars back into the economy so that you can then resume the contribution of being a good Consumer and as a direct result, create jobs.

    Many on this forum have absolutely no idea or foresight into what lies ahead for this nation – and themselves as direct result of what the ‘bailout’ mentality has spawned, because they are so caught up in their own personal debt-hell. What’s good for Wallstreet and GM should be good enough for you, right? After all, it’s only fair.

    Peace –

    C.C.

  74. So much for waiting for Obama to get into office… Frank is set to release the next $350 Billion it appears. I wonder what they have up their sleeves for this next round of tax payer give aways. Principle write down support for the top 10 perhaps? Assist AIG some more? Bailout MBIA & Ambac perhaps? How about another $100 Billion thrown at the banking industry? It is sure to be long gone before January 14’th that is for sure.

    When Obama gets into office he is not going to like the looks of the landscape. He is slowly being left financially powerless of the massive stimulas he declared he plans on under taking. Rates at zero, 2.5 Trillion in additional debt and nothing has changed. In fact most I think would agree it has gotten even worse. He just isn’t going to have the ability to toss another $2.5 Trillion at things. At some point the Government will have to do what they should have done all along and that is to allow things to simply fail.

    Alt-A is now imploding at a rapid pace along with CRE coming to a head. My guess is that we see principle write downs before the end of the year in some form. I am certain that Fannie and Freddie will some how be involved in whatever they are planning to do. Something is up however if they release that 2’nd batch of funds it is for a reason to be sure.

  75. Chicagoman, you have been responsible, therefore you will be screwed. However, if Susan’s plan is adopted, you will fall into group A.

    Then, Chicagoman, (under group A) you would be entitled to a tax deduction. You’re still screwed for being responsible.

    The operative words here are ‘entitled,’ and ‘responsible.’

  76. JAllen, anyone responsible is not screwed with principle reductions. They are screwed without them. The foreclosures and walk aways are crushing home values everywhere now. The ONLY real solution to avoid and/or stop that is priciple reductions. The only way to stop values from plummeting much further is to stop foreclosures and walk aways.

    Every single plan to date has failed miserably because they do nothing to place the mortgage at its true value. This allows for people who were helped to get back into trouble as prices collapse further. This is clrealy evident from the re-defaults we see. Walk aways are the people too smart to fall for these silly plans that are offered. This recent Fannie and Freddie plan will snare its fair share of folks, but the next plan will be principle reductions in my opinion. It has to because it is the only real solution to the problem.

    As a result of principle reductions we will see prices stabalize and that is good for people who will eventually be underwater with out price stability. This helps the responsible people. Distressed sales crush responsible people as they get dragged down along side the irresponsible.

    Mark my words that before Obama gets into office or shortly there after we will see principle reductions take place. Before the end of the year they will start being dicussed. Frank is drooling while waiting for this oppurtunity to emerge. Paulson is open to just about anything from what I can see and the money is about to become available to do it. We shall see soon enough…

  77. Susan

    You said: “Why wouldn’t the proposal work? Did I forget about any percentage of the population?”

    You left out the banks and pension funds and insurance companies and Warren Buffet. This is going to have to involve the “Enhanced Evergreen Tax Credit” which the bank would be able to place on the balance sheet in the asset column in exchange for the principal write down. I am not going to go into how that mechanism would work because I believe that capitalism should prevail, bad behaviour gets punished and good behaviour is rewarded in kind.

    Your explanation for renters is a kick in the teeth.

    “If you wanted a group D- they are the renters, who would be entitled to the full range of interest rates based on their credit scores and underwriting criteria for all houses at the DISCOUNTED NEW VALUE.”

    What discounted value would that be? Your proposing to prop the market and then let them have what they are entitled to with no action on anybodies part. By disallowing the natural clearing mechanism of market forces, you are not allowing them to pick up a house at the lowest possible price. It is the renters that burn down the city when they get pizzed off, they are the ones that don’t have a vested interest.

    Your proposal leaves the lowest class of society out and moves the balance due onto their balance sheet of the Federal deficit which they will be responsible for later. This is kind of like communism reversal, not sure they have a name for it.

    I have an idea on how you could include the renter in on the program. Anyone accepting aid from the government on a principle write down has to “adopt a renter”. Under this program, all the renters would be thrown into a giant raffle drum and randomly selected to be paired with the receiver of the government assistance. The renter would then be entitled to any future upside on a formula based on % of principal reduction.

    The homeowner then also has the freedom of choice. They can take the government aid, reject it and keep the home if possible, or dump the home and throw their name in the raffel barrel.

    This way, everybody gets something and you have a greater chance that the renters don’t burn your house down later when the riots start.

  78. It’s quite simple really, America’s wealth was based on the equity of real estate and the paper written against it. Investors saw a way to tap into that equity. Savey investers started a refi market that has never been seen before, then they could apply these exotic loan programs to purchases or was it the other way around? I can’t get the picture out of my head of W on TV stating how wonderful that home ownership was at it’s highest levels ever. I foged the mirror, now give me the money. Reminded me of the time he was giving such praise to “Brownie” from FEMA for doing such a great job after Katrina. Or was it after he was in his flight suit with the banner “Mission Accomplished” in the back ground? Do not be opptumistic, it will take 8-10 years for this market correction to work out. These programs will slow the process further and prolong the recovery even more.

  79. I am one of the lucky few I believe. I saw these troubling times coming several years ago. I sold my house and land, which was paid for. Cashed out my 401k. Now I own nothing, in the USA, and am free to go where I choose. I believe that things are going to get a hell of a lot worse and more people will have no choice except to walk away. I would not buy ANY house in this market. No matter how “good” the deal.

  80. [...] Big Part in the Great Housing/Mortgage CrisisPandora’s Box – Prime Mortgages May Get TransparencyFannie/Freddie – Come Get Your Loan Mod & Pay For LifeCalPERS Devastates Itself & Will Charge TaxpayerMillions of Small Business Owners With Toxic [...]

  81. This Mod Program is horrible. Its also very sad to see people taken advantage of like this. The loan programs which got us into this mess allowed for up to 50%DTI, 100%LTV(sometimes125%LTV), 580 credit score, NINA, stated income, stated asset, silent seconds, teaser rates, 40year terms, and even sometimes a compensating factor which allowed one to waive a lien on credit to be paid off to name a few. Although it was up to individual banks and secondary investors to pick and choose their own criteria they would like to lend or invest on, these programs were backed by Fannie and Freddie. Thus giving these investors a vehicle to unload their under performing paper on.
    The secondary market investors is the main reason for this collapse. They took these pools of loans and hedged them allowing them to make millions over months rather than years. This is where the GREED comes in. I have yet to see any of the media scum reporting on how much CITI made hedging their mortgage backed security pools. Go online and serch, I bet you wont find one search regarding the companies who pulled out of the secondary market, not one. Now if the liquidity in the secondary caused lenders to loose the ability of paying off their warehouse lines. Why is this not part of the discussion?
    The loan mod itself is easy to fix. Apply simple underwriting techniques to a persons financial/property situation. If the existing princilpe doesnt work in regards to LTV and DTI then take it down til it does. Keep the amortization at 30yr and make it so people have the ability to make payments. Because $1 is better then no dollar. Now I do nt think we should allow people to capitalize on these loan mods. if you are modifying the original loan then your locked in for ten years, you must O/O and you can only refinance at the original princilpe loan amount as the LTV. For instance, if your original princilpe was $150,000 and it needs to be set to $135,000 but the FMV jumps to $200,000 then you only have the ability to refinance at the original principle $ amount. This will insure the LTV’s stay in line until we get the scum bag secondary lenders back in the game.
    I have one more point about GREED. $150,000 loan @6.5% for 30 years will cost you $341,316.73, which you will pay $191,316.73 in interest! Is their really a need for this much interest paid on a home loan? Why should the investor make the $150,000 back twice plus $41+k? This is over a full 30yr term. Assuming someone refi’s in 10yr’s, look at the interest plus principle paid back when the new note holder takes over! ITS GREEDY ASS SHIT!

  82. [...] Fannie/Freddie: Come Get Your Loan Mod and Pay For Life [...]

  83. [...] of the mortgage loan modification “fix” programs are pretty crappy, trying to turn underwater homeowners into indentured slaves: Home owners! Accepting this ’solution’ means [...]

  84. [...] to Mr. Mortgage here are some potential consequences for accepting the terms of a Loan [...]

  85. [...] to Mr. Mortgage, here are some potential consequences for accepting the terms of a Fast Track Loan [...]

  86. naca.com
    is a non profit organization ,
    I would definitley not try doing a modification yourself , Iworked with chase bank after going over by bill statements to get under the 38% THEY ACTUALLY TRIED TO CONVINCE ME OF GIVNG THEM DIFFENET INFORMATION , SO THEY COULD DO A MODIFICATION. FOR EXAMPLE MY HEATING AND POWER BILL ON ITS AVERAGE, THEY SAID WELL CAN YOU GET THOSE DOWN ABOUT 50 A MONTH AND GET YOUR GROCERY BILL DOWN A 100 , WE HAVE THREE PEOPLE IN OUR HOME THE AVERAGE BILL PERSON IS 12 A DAY WE ARE MUCH LESS THAN THAT , YET THEY WANTED OUR TOTAL FOOD BILL FOR THE MONTH TO BE AT 400 . I IMEDIATELY DID NOT COMPLY AND WORKED WITH NACA.COM
    I HAVE HAD EVERY INTENTION OF TRYING TO GET THE LENDER TO PARTICIPATE WITH H4H PROGRAM WHERE THEY REFINANCE THE LOAN AT 90% percent of the value , but it will be fixed at a 7% rate, although i will not decrese the value that i owe , it is most likely my loan will deducted to 3.5% interset rate for a set 5 years , this will make my payment much smaller for and affordable .
    good luck with yours

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