Farewell Post – House Sales & Mortgage Loan Default/Foreclosure Round-Up
Posted on January 30th, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
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Farewell Post – House Sales & Mortgage Loan Default/Foreclosure Round-up
- Endless Housing Inventory – Shadow Inventory
- The Pay Option, Alt-A, Prime and Subprime Default Waves
Housing – ‘Shadow Inventory’ & Defaults Provide Endless Supply
‘Why do values keep falling when sales have picked up and there is less inventory?’ I get asked that question constantly. Part of the answer is ‘shadow inventory’, which real estate associations, banks and FDIC don’t count.
Shadow inventory is REO on the shelves of banks and servicers not listed with a real estate broker. Because the ‘months supply’ figures are given out by the real estate associations based upon listed homes and most REO is not listed, the supply figures have been incorrect for over a year. To accurately estimate supply you must track the foreclosure market and add back in foreclosures as supply, listed or not.
The real estate associations do not do not add back REO inventory into the supply. As a matter of fact they take the present month sales, multiply by 12 then divide by the amount of known listed inventory. They then throw on some magic ‘seasonal adjustments’ to make everything ‘alright’. This leads to press releases like the CA Assoc of Realtors put out this week citing 545k annual home sales and 5.6 months supply in CA. This is as far from reality as any report I have ever seen on housing.
- C.A.R. reports 07 – 08 sales increased 84.9% (DataQuick shows 2.6%)
- Closed escrow sales totaled 544,580 in December (DataQuick shows 37.8k in Dec)
- Unsold inventory is 5.6 months vs 13.4 months at end of 07 (We show 21.8 and 11.3 mos)
- http://www.car.org/newsstand/newsreleases/dec08salesandprice/
On the REO front I have seen figures quoted by the FDIC many times that pins the total national bank REO in the low $20 billions. That number is light. This is because they only quote REO volume owned by the banks on balance sheet. They don’t count loans that they service. Given 65% +or- of all loans were securitized/sold relying on FDIC estimate of REO will also get you into trouble.
“The value of REO property on the books of FDIC-insured banks at the end of the third quarter surged 21 percent from the previous quarter, to $23 billion. That total — which includes single-family to four-family homes valued at $11.5 billion and another $1.5 billion in property purchased with FHA-backed loans securitized by Ginnie Mae — represents a 134 percent increase from a year ago, according to the latest quarterly report from the Federal Deposit Insurance Corp.”
I have kept a monthly chart with every aspect of the housing market including defaults and REO for two years. Below is annual summary info. When you look at the real data, you can see why housing prices keep falling and there seems to be endless supply – it is because there is!
CA REO Count and Dollar Amount
Below shows the annual and two-year REO totals by count and dollar amount. Based upon DataQuick data, which tracks the percentage of properties sold each month from the foreclosure stock, and our default and foreclosure data nearly half the 2008 REO is still in inventory somewhere.
CA Loan Default Count and Dollar Amount
In rough terms, CA makes up 35% of total loan defaults and 42.5% of the total dollar volume for the nation. Below shows annual and two year loan default totals by count and dollar amount. Over half of the 2008 defaults have not yet resulted in REO. There is a foreclosure/REO wave that was kept at sea due to SB1137, CA’s temporary foreclosure moratorium.
Defaults across the Pay Option, Prime, Alt-A and Subprime Universes
Below are several charts showing the Pay Option, Alt-A, Prime and Subprime default universes. If anything in which you invest is at all tied to the demographics in each loan type, knowing how each universe is performing in real-time is imperative. The following proxy charts are well ahead of ratings agency downgrades and have been a great predictor of many things other than bank implosions.
The charts show a two year default history for the respective loan types tracked through a method using proxy originators. These can be drilled down by originator even into individual securities in many cases. This is the closest and most real-time look you will get on the rate-of-change for each loan type.
Pay Option ARM Default Wave
Other than the SB1137 dip and despite many Pay Option holders on large-scale loan modification pushes, Pay Option defaults have not eased up.
Prime Default Wave
The same SB1137 dip is seen here and like the Pay Options, defaults are steadily rising.
Alt-A Default Wave
Unlike Pay Options and Prime, the Alt-A universe took a dip down in early spring but rebounded sharply mid-Summer. Since defaults have surged. The Alt-A default universe is absolutely unique. Moody’s released some interesting info this week.
“Moody’s noted that many loans were labeled Alt-A even though they were subprime. In addition, an increasing share of Alt-A loans included weaker documentation, non-owner occupied properties and two- to four-unit properties. Moody’s projects that cumulative losses will reach around 20 percent on 2006 vintage Alt-A RMBS and 24 percent on 2007 issuances.
While around 90 percent of Alt-A RMBS rated by Moody’s were downgraded last year, the New York-based ratings agency said it will again review its ratings on 2006 and 2007 vintages in light of its updated outlook. Transactions from 2005 will also be reviewed.”
Subprime Defaults
The power surge seen in 2007 eased off in early 2008, dropped late spring and has stayed flat. Other than redefaults on modified loans, I think the worst of Subprime is behind us. The problem is…’Subprime is such a small slice’. That is what they said two years ago when downplaying the entire mortgage/housing crisis. Now the same statement brings terror when such a small slice can do so much damage and the larger slices depicted above are acting much in the same way as Subprime did in 2007.
**If you are an investment fund looking for more information in our default/foreclosure related research including real-time mortgage default, foreclosure and loss tracking across large-named publicly traded companies, please email me at the address below. Looking ahead of the housing and mortgage market and into bank’s residential mortgage portfolios and balance sheets is now much clearer.
MrMortgageTruth@Gmail.com
January 30th, 2009 4:10 pm
Thanks for all the info you provided during your time here. Very useful. Looking forward to the new site.
January 30th, 2009 5:00 pm
MM,
Good post. Thank you. Just one note- the term “shadow inventory” has been increasingly used by others to describe would-be delusional sellers that are keeping their properties off the market until it magically rebounds. Of course, this isn’t really quantifiable and is irrelevant, the term “shadow inventory” has been attached to this pool of people/homes. Alternatively, I’ve seen the term “ghost inventory” used recently to describe what you’re talking about, which is the assets that the banks are accumulating and not putting on the market. You’ve always been very clear about this, I just wanted you to know that the phrase is used for something very different as well.
Any word on when the banks are going to dump the inventory? I believe last fall you said Jan-March time frame, based on your knowledge at the time. Any new thoughts or updates?
January 30th, 2009 5:07 pm
[...] is the original post: Farewell Post – House Sales & Mortgage Loan Default/Foreclosure … Post Date:January 31, 2009, Category:Uncategorized Author: admin, . [...]
January 30th, 2009 5:39 pm
Mr M;
Love your site… i would love to see a post regarding when it may be considered “safe” to purchase a home… i am just a renter trying to determine when to jump in, don’t want to “catch a falling knife”, etc… every time i think it may be good time to buy- i read something like your article. If it is true and the NAR is lying, if the inventory is two times what they advertise- lord help us all…
January 30th, 2009 6:39 pm
Thank you again for the detailed break down and analysis.
I know of one person looking for a house right now. He’s never owned a house before and thinks that it’s a good time to buy because rates are low. I’ve thrown a ton of information (including this blog of course) at him proving that prices will continue to go lower. He still thinks as long as his rate is low, that’s all that will matter for him over the next five years.
You would think that he would look at me as an expert since I sold at the peak (for my neighborhood). I declared to everyone (including him) that’s what I was doing, so it wasn’t a lucky guess in hind-sight.
I have nearly all my coworkers convinced that 2009 is clearly not the year to buy.
January 30th, 2009 6:49 pm
I too have heard the term “shadow inventory” used for those homes “for sale” but not listed, or “pocket listings”. . .those places that were taken off the market, but realtors have them “in their pocket” in case someone is interested.
I have many stories here in downtown SD of people who pulled their places off the market two years ago because they could not get their price – now they are doing short sales or in foreclosure. . .if they had put a realistic price on the place two years ago, they would have sold. . .my estimate is that 20% of existing condos in downtown SD are “pocket listings” or “shadow inventory”. . .everyone is waiting for the “market to improve.”. . .guess what – it may NEVER get back to 2005 in our lifetime (unless you are 20 years old).
Again – THANKS MM for the best site going. . .see you at your new site soon.
January 30th, 2009 7:02 pm
I wonder how long rates will be low. Think about this:
- FED has lowered short term rates to almost 0%.
- FED has been in the market buying Mortgage Securities driving long term mortgae rates lower.
Is it just me or is this insane? They lower short term rates which increases inflation. Thereby driving the long term mortgae rates higher.
Gold is close to $1,000/oz.
FED is buying these long term Mortgage bonds wasting money. No way long term rates will stay this low. This will really drive down housing values.
January 30th, 2009 7:17 pm
The gov’t has to be very nimble to avoid killing the value of the dollar. Knowing the government, I’m betting on inflation. Even when prices drop further, interest rates are going to have to go up. The inflation also has a lot of benefits… for example your existing million dollar portfolio can stay at a million, if a million dollars is only worth 650… and loans that are already booked with fixed rates will get paid back in full, once the million-dollar loans are paid with 650K worth of work. It devalues the foreigners’ investments without taking losses on paper. It’s not quite principal reduction, but it’s close.
January 30th, 2009 8:07 pm
Keep up the good work, Maiden Lane LLC & II. True Loan Modification is finally here, Why Sec 110 Thanks for Dodd’s loud mouth which forced Ben’s letter and statement.
January 30th, 2009 9:27 pm
I appreciate the % changes reflected graphically above, however I’m particularly interested in the absolute numbers with respect to POA. If you will, how many have blown up relative to number outstanding.
January 30th, 2009 11:47 pm
Thank you for the information and the ability to post my opinions.
May the sun shine on you in the morning and you see the beauty of it. (my grandma’s saying for enjoy your life)
January 31st, 2009 1:37 am
Serious question – do you mean “over on the right” the subscribe box underneath the Greencredit ad?
My father bought a condo in Oceanside in ’99, sold it in ’03 for a big profit & bought another then sold that one in ’06 for an even bigger profit. Now he’s thinking since Ca. prices are down (& it’s cold here in Ks.) it’s time to buy another.
I don’t think the bottom is in yet & am trying to get him to wait, at least, until Sept/Oct (after the prime selling season).
Because of this site, I opined that he should bail out of WaMu about 8 months ago; but no, he rode it all the way down.
I gained some credence after that call.
I know I can’t really tell him what to do with his retirement savings, but I need some “ammunition” to try & convince him to wait a bit longer.
The info from your site is the ammunition I need.
I want to keep up on Ca. RE & this is the best place I’ve found.
So, I’m already looking at my email address above this post – do I need to do something else to be able to find this great info next week/month or whatever?
January 31st, 2009 1:27 pm
Mark in San Diego:
“. . .everyone is waiting for the “market to improve.”. . .guess what – it may NEVER get back to 2005 in our lifetime (unless you are 20 years old).”
The signpost up ahead – do you see it? We’re traveling rather fast, so keep your eyes peeled – we’re going to zoom right past it. It reads:
‘Housing prices, 1990′s’
-C.C.
January 31st, 2009 3:04 pm
Wow, this looks like Stevo’s plan doesn’t it? I wonder if Fannie/Freddie execs read this blog? Still, its a good way to end the drain on the tax payer that is people squatting in houses for a year and paying nothing. 60 day foreclosure then they get to lease, nobody ends up on the street; win-win.
From Mish’s site:
Trying their best to stop the bleeding..
http://www.cnbc.com/id/28933621
Freddie Mac, the second-largest provider of funding for U.S. home mortgages, on Friday said it would offer leases to borrowers who lose their homes under foreclosure.
Tenants of borrowers will also be offered leases, a feature of a new plan implemented this month by Fannie Mae, according to statements from the two government-controlled companies.
January 31st, 2009 3:30 pm
On the shadow/ghost inventory. I have been calling Country Wide on a house that has been empty for 2 years. It does not even show up on RealtyTrac anymore.
The house was empty for a year when I first called CW, at that time they said they had accepted an offer it. 5 month later it was still empty so I call again and they say they never accepted an offer on it and it was not currently on the market. I asked who/where I could place an offer and she said “you can’t; if or when we decide to sell the house it will show up on the MLS”.
Two more I follow sporadicaly show up, then dissapear on RealtyTrac. RealtyTrac is one of the few places the average Joe can get a good idea of the REO picture, but even they don’t show all of them.
One very small nieghborhood I follow has total of 16 houses, (REOs, for sale by owner and realtwhore listed) on the MLS listed as being for sale.
There are 22 REOs plus 10 “hey I get to live in a McMansion for FREE”, never-ending preforclosures listed on RealtyTrac for the same nieghborhood.
22 REOs, 8 Realtor listed and 1 FSBO = 31 houses with just 16 listed.
Shadow inventory indeed!
January 31st, 2009 3:33 pm
Joan Jett, yep, they are just going to rent them out, month to month. I don’t call month to month a “lease”, I call it a rental. I suppose that they will be keeping the asset on the books at full value, regardless of what the rental rates suggest what the property is worth.
Here is what I want to know. Is this another bankers bailout plan that keeps Fannie and Freddie properties off the market while banks themselves are now relieved of REO competition on the open market?
January 31st, 2009 5:30 pm
Hi Realist – can’t give you that. Sorry. Its alot though. In Dec it the NOD’s for each were greater than 1500 and less that 10000. How about that. That’s for CA alone and only first mortgages.
January 31st, 2009 5:33 pm
MM-
Great information about the shadow inventory in Ca. I was wondering if you have a local break down of foreclosures/NODs? Specifically, I am interested in Sacramento, since that market is supposed to hit bottom first and lead the nation into recovery. Fortune magazine predicts Sacramento’s median to drop 22.2% in 2009, but rise 2.3% in 2010.
January 31st, 2009 6:23 pm
An idea about principal reductions. I heard on the radio about 2 neighbors who made an agreement to get their lenders to agree to a short sale, then they bought each others homes at or below market price. Afterward, they sold the homes back to each other, thus achieving principal reduction.
I am a renter now, so I can’t use this scheme, but I thought it was pretty clever and doesn’t depend on the government to bail them out. (if it works) One could potentially make a profit from setting up & managing such transactions.
February 3rd, 2009 3:21 am
That scheme seems plausible if the IRS doesn’t step in and kick their asses for the difference between the original appraisal and the current appraisal prices. I think Congress was thinking about temporarily forgiving the difference but I can’t keep track of all the legislation results and nuances.
Might have thrown their names on each others deeds and just quit claimed to save a step.
February 3rd, 2009 11:25 am
MM,
Very nice segment with David Faber this morning. Too bad they only give you a couple of minutes.
February 3rd, 2009 8:20 pm
Obama and his non paying tax buddies sure are doing all they can to help underwater and foreclosure home owners……NOT
Obama learning smooth talking helps you fool the people but it doesnt help you get results…full on collapse should be coming shortly
February 3rd, 2009 8:31 pm
Good stuff with Faber today Mr. Mortgage but you need to broadcast from a nicer place then a construction zone , or did someone in oakland steal all the fixtures…
http://www.cnbc.com/id/15840232?video=1020399709&play=1
February 4th, 2009 12:44 pm
Javagold,
Re: Above video.
Were Fucked!
February 4th, 2009 1:01 pm
I still have dial-up, too slow for videos. Can someone share some more details on the video?
February 4th, 2009 1:27 pm
Joan, From the video:
MM touched on the shadow inventory concept and shelved inventory.
REO’s are pushing prices down further
66 percent of foreclosures are still shelved. 35 % in CA
Sub-prime is contained (except redefaults), prime and sub-prime is about to blow.
February 4th, 2009 7:21 pm
Dick, your right we are F**K*D!!!
February 4th, 2009 8:28 pm
Dick, your right we are F**K*D!!!
I concur. My home/mortgage is fast becoming the last of my worries.
February 6th, 2009 3:43 pm
I heard that Patrick just ordered a new rug for his office. Apparently the one he had is all worn out from pacing frantically back and fourth over the past 2 weeks. In fact, rumor has it that he is in hiding awaiting all of the free bailout money from future tax payers of America coming his way. You see it appears that Obama’s warning that this country will have irreversible damage and is nearing total collapse if the future tax payer money isn’t stolen from our children and given to him immediately is really a hoax. Billions upon billions ($600 Billion) of this money is actually going to pad states budgets around the country. This is so they do not have to make changes in the way they operate or better said have cuts and sacrifices like the rest of us out here on Main Street must do. You see they all just got pay raises recently and they do not want to end their perks and freebies.
Examples:
Massachusetts state workers would have to (gulp) pay higher deductibles and co-pays for their insurance. Well I hope that doesn’t happen. I mean this is tax payer money after all and we all know that tax payer money is Government money and Government money is well Government money too right? Don’t e concerned that millions upon millions of these future tax payers will not even have health insurance never mind deductibles. Don’t worry that millions upon millions of these future tax payers will not have pensions either. In fact as we keep robbing from our future tax payers to pay Uncle Sam’s bloated pay packages, health coverage and pension plans we are not even sure that these future tax payers will even have social security at this point. I know I know that unless we sign this bill into law immediately we will all suffer a great deal. I don’t know about you, but Washington doesn’t appear to be suffering. Didn’t the Democrats just take a 100K retreat a couple days ago to relax and discuss this thievery? I mean they want to get it right because they don’t want to have to come back fro more.
As we look around the country we can see that welfare recipients in Tennessee (gulp) may have to pay for child care because they will lose their state funded child care programs. Say what? How about the tens of thousands of Tennessee workers unemployed right about now. They don’t get welfare and certainly not free child care. So Tennessee residents who don’t work and collect welfare now will have to stay home and (gulp) watch their own children until they find a job and then pay to have them watched like everybody else. That is so unfair isn’t it?
In Riverside CA some kids have been walking to school for a long time using the roadside to walk on due to no sidewalks being built. If this bailout bill doesn’t pass they will (gulp) have to continue to do so because future tax payers were going to (well they don’t know it yet) build side walks for them to walk on. The nerve of these parents to expect there kids to walk to school on anything but brand new sidewalks paid for by the future tax payers of America.
In fact 46 states will have to shutter some social (free) services now being offered to their states public if this doesn’t pass immediately. Infrastructure jobs are on hold because we cannot afford to do these jobs right now unless we rob the money from future tax payers to pay for them. Heck, they won’t know we robbed them for another 10-20 years and many of us will be long gone or won’t care by then. My favorite is the laying off of (gulp) Government workers will ensue without this future tax payer money. How sad is that? You mean the public sector will realize loss of jobs much like the private sector is doing. They will have to go find employment that doesn’t come with a nice hefty pension like their old public sector jobs did (well only if this bailout passes mind you). They may even have to pay part or even all of their health insurance like the private sector does. H the shame of it all…
These states have massive budget shortfalls due to excessive spending and lack of oversight. They have all of these social plans they have foolishly championed over the years of good times and now they can’t afford to pay for them. Their answer is to get our children and our children’s children to pay for it all. Why should these states have to make cuts, or worse to have to say we can no longer afford to do this due to current economic conditions? I shudder to think how these folks treat their (entitlement) children.
I guess Obama could be right and if we do not have some welfare folks in Tennessee pay for their own day care and we don’t have some state workers in Massachusetts pay for a portion of their own healthcare, and we don’t have kids in Riverside CA stop walking the way they always have to school by building sidewalks for them then our country could have irreversible damage and may never pull out of this mess. I know how much these things impact me personally as well as my family and friends. I mean just yesterday I was telling my wife that if we don’t steal some future tax money from our children to build these sidewalks then I fear we may be homeless in a matter of months. We could not even bring ourselves to discuss state workers paying for a small portion of their own healthcare because we have always had to pay a sizable portion since we entered the private work force many, many years ago. I do feel if these state workers are forced to pay a portion of their healthcare like the rest of society that I may have to sell my car or maybe get a border to help me get by. It would be totally devastating to me and my family after all. Won’t it be for yours too?
I don’t know but after looking at all of the spending of future tax payer money to bailout all of these public employees I just don’t see how I will survive if this isn’t done immediately. I will leave it to you to tell us how you feel however because I could in fact be wrong. Maybe some families will still eek by and be able to feed their families even though the children in Riverside don’t get a sidewalk to walk on? Maybe some families will do alright even though welfare parents will have to pay for their own children’s daycare. Maybe this won’t imapct all of our families in such a devastating manner, but hey call me skeptical…
February 6th, 2009 5:07 pm
STU, r u drinking so early?
February 6th, 2009 11:08 pm
Things to consider:
There were 19 Million VACANT homes are in this country at the end of 2008.
Many project a TOTAL of sales for all homes in 2009 will come in around 5–5.5 Million. Many project that foreclosures for 2009 will come in around 3-3.5 Million.
If we ONLY sold vacant homes to home buyers for the next 4 years and NO new homes were built and nobody moved from an existing home then we would exhaust the total supply of empty inventory. Off course we must add in the foreclosures and deaths to this number so realistically we would be another year away. That will not happen, but it shows how truly dire the situation is now, and it is only getting worse.
Result:
What will probably happen in the short term is that we will see these numbers worsen. This is due to massive unemployment not seen since the early 70’s and not a lot of new hiring going on to absorb these folks back into the work place. This will cause a continued massive strain on budgets across the board (State, City, Town, Home etc.). This along with tightened credit and cash needed to purchase will only dilute the anticipated home sales for 2009 as buyers continually get removed from the buyer pool. I suspect total sales will come in around 3 – 3.5 Million by years end. With the same number of foreclosures adding to the total we will simply tread water in 2009. So at that number you would be talking nearly 7 years in the above scenario to rid the country of vacancies. Off course we now have to add back into that number all of the new build and foreclosures during those 7 years which pushes it out another 2 years or more so we are now nearing 10 years or an entire decade. That is why we can logically look at this and understand we have a long, long way to go. We simply cannot absorb the inventory that exists today. Their just are not enough buyers to even place a dent in the overall numbers.
The real problem here is that the higher mortgage holders really have no way out. Unless or until principal write downs are done there is no answer for these folks. Most owe much more than their homes are worth on the open market, so they cannot refi as a result of this. So with no equity, no refi available what are they to do? Some are choosing to stay put and trying to ride it out. This is proving to be very difficult as job losses mount in this state. It is also difficult due to resets forcing payments higher than these folks are able to handle. Many were barely able to handle the payments they had and now a reset has simply blown them out of the water. As there homes fall in value and distressed sales pull down comps more of these underwater homeowners begin to emerge. A chain reaction develops of downward movement that acts like a run away train. This exacerbates the problem further and just piles onto the dire situation at hand. This then causes confidence to spiral further downward and thus creates an aurora of panic. Once panic sets in it is very hard to stop the momentum of fear.
We are getting close to that situation in my opinion across the entire country. Obama is the only hope left for this country at this point keeping things from totally unraveling. Once he fails, which he will and miserably, then all bets are off as to what takes place. Don’t get me wrong here because I would love to see Obama succeed for the over all good of our country, but he can’t due to the dire situation we are now in. He is powerless to control the scenario above and all the money he can possibly print will not fix this. It is about jobs, jobs and more jobs. It is about confidence, panic, and fear. It is about people deciding to spend rather than save and borrow at a time of distrust and uncertainty. That cannot be changed by a stimulus bill that really doesn’t even stimulate, but more importantly does nothing to change the situation at hand. A few temporary union jobs being created and some pork barrel spending will not help Main Street America one bit. Currently America stands opposed to this so called stimulus bill by a large margin (51%) vs. those that are for it (35%). That is because people down here in the trenches far removed from the ivory tower or power, can see real life in this country today and it is not a pretty picture they see. These same people realize that by spending our future children’s money on a problem created today will only impoverish them for what we created. How is that fair? How does that solve anything? It only pushes this down the road for them to deal with and at a much higher price tag. Do we really want to do this to our children and the country as a whole? I know that I personally don’t and neither do most Americans I talk to…
February 6th, 2009 11:34 pm
Stu,
i think it comes down to Black and White
February 6th, 2009 11:53 pm
It is happening and nobody in the MSM is even talking about it. I knew it, I saw it, and it is now here. Wells Fargo are not the only ones by the way as their are several more doing it now…
Wells Fargo Offers to Reduce Some Wachovia Mortgages
by CalculatedRisk on 2/06/2009 04:49:00 PM
From Bloomberg: Wells Fargo May Cut Loans for Some Wachovia Customers
Wells Fargo … offered to cut mortgage balances for some Wachovia Corp. customers by 20 percent … Wells Fargo mailed letters to those borrowers, asking for proof of current income and a 2007 income-tax statement, bank spokeswoman Debora Blume said today in an e-mail. …
“We are encouraged by the response we are getting to our outreach efforts, as it means we will be able to help more people with a solution that works,” Blume wrote.
… San Francisco-based Wells Fargo inherited billions of dollars in future losses when it bought Wachovia for $12.7 billion. Wells Fargo said last week that Wachovia’s option adjustable-rate mortgage portfolio has close to $60 billion of impaired loans.
The real cost of the Wachovia purchase was the pending losses on the Wachovia loan portfolio – and most of those losses will come from the $118.7 billion portfolio of “Pick-a-Pay” option ARMs Wachovia acquired in the Golden West Financial acquisition in 2006.
The Wells offer is probably mostly to ex-Golden West borrowers. We can be pretty sure that Wells thinks this will minimize their losses on these loans. Remember Wells is also receiving favorable tax treatment that makes this more palatable (a somewhat hidden bailout from the taxpayers).
February 7th, 2009 3:09 pm
STU.. all these home.. that’s great! soon I’ll be able to buy for cash! Just imagine, how much I’ll be able to stimulate the economy.. 70% of my income will be spent in economy! I might even get granite after I buy for cash.. and spil wiskey all over it!
February 7th, 2009 3:12 pm
Benzi.. sell your granite while you can!
February 7th, 2009 3:13 pm
Java.. I think it’s a bit of grey.. get used with it
February 7th, 2009 3:15 pm
Susan, MM.. all of you work in the mortgage industry! and you guys want to fix it the way it is to your advantage! NOT!.. not going to happen! Keep dreaming!
February 7th, 2009 3:20 pm
MM, you need to pay more to get profesional IT help, after all you’re national.. come on! do the pp a better service.. spend few hundreds.. help the economy!
February 7th, 2009 3:36 pm
Mortgage, Lenders, Investors, Banks..
You’ve blew it! Your best deal would have been in the H4H program, and all parties would have won! You could have changed the perception too!
Thanks to your greed we’re now screwed for some time!
February 8th, 2009 7:29 pm
Stu….tooo funny. I just skim through your giganta-posts looking for the words “principal reductions”.
Wells Fargo offering 20% reductions is EXACTLY the same as saying NO PRINCIPAL REDUCTIONS!
20% is laughable.
______________________
Dear Mr. Homedebtor:
In an effort to get you to live up to your contract we would like to extend to you a 20% reduction on your mortgage. This will be funded by my kids, your kids, gran-kids, etc.
________________________
Homedebtors response….
Dear Mr. Fargo:
My house is worth 50% of what I owe and by the end of the year even the brightest of expectations show it will be down another 20%. Please reduce my mortgage 50% now and an addtional 20% on 01-01-10. Scr@w the kids, I got Granite!!!!
PS: Please take you time as I am enjoying living in this stucco-mansion sans-mortgage payments.
February 9th, 2009 2:57 am
….or how about
Mr/ Ms Homeduped:
In an effort to make things right in the context of the housing crisis created by unbridled greed and negligence, we are offering you an opportunity to re-wright the contract you entered in good faith with us. As a recipient of one our defective loan products initiated between January 2003 and January 2007, we want to let you know we are recalling all loans written during this period. If you prefer, we will give you the opportunity to rescind the contract and walk away from the home at no risk to either your credit or your ability to obtain housing in the future. However, if you would like to stay in the home, we would appreciate the opportunity to discuss an equitable arrangement that would be amenable for both parties. This arrangement would be determined by a variety of factors and would be tailored accordingly. If you have any questions please contact us at your earliest convenience.
February 9th, 2009 10:27 am
Well now we have the proof (via youtube / soot and ashes) that Fannie and Freddie were and are indeed in the pockets of the Democrats… not that there was ever any doubt on my part.
Much of this housing problem we are in can be blamed on Fannie and Freddie so I guess they will be bailed out pronto so it doesn’t come back to bite the administration. Look for something in this massive stimulus bill, coming soon enough, to do just that.
http://www.youtube.com/watch?v=usvG-s_Ssb0
A stunning example of the incredible disconnect between the mainstream media and the blogosphere is this video of the interim Fannie Mae CEO, Daniel Mudd, addressing the Congressional Black Caucus, including Barack Obama, at their swearing-in ceremony in 2005. Although this video is spreading quickly in the blogosphere, you have yet to see or hear anything about it in the MSM. As you can see in the video, Mudd talks about the problems of Fannie Mae yet that didn’t keep Obama and other Democrats from taking large contributions from that organization or doing anything to try to fix it. Here is a transcript of CEO Mudd addressing the Democrats (emphasis mine):
Good morning members of the Congressional Black Caucus. I am humbled to come here today to reaffirm the friendship and partnership between Fannie Mae and the Congressional Black Caucus. Fannie Mae is determined to keep tearing down the barriers to deliver on the American dream and that means we need to work together with the CBC. So many of you have been good friends to Fannie Mae and our mission. You’ve been friends through thick and thin. We have indeed come upon a difficult time for Fannie Mae. There is much to be done inside my company and I humbly ask you to help us and to help me. If there are areas where we are missing. If there are areas where we could do better, we’d like to hear it from our friends and I’d be so bold as to say our family first.
It is true that Fannie Mae has lent more money to more minorities and more underserved individuals than any single company in history.
We will work hard inside our company to resolve the serious matters before us to put our house in order and to forge a new future. And all the while you will see Fannie Mae reaching out and listening to the caucus. Over a century of endeavor you have earned the reputation as the conscience of Congress. In many ways I want to tell you today you are also the conscience of Fannie Mae. Keeping us on course to serve those who need serving the most.
As of this writing, a check on Google News shows NO news outlet has so much as mentioned this video despite the fact of Obama being present and later receiving $126,349 from Fannie Mae. Ask yourself this, if the CEO of Fannie Mae had addressed a similar “family” speech to a group of congressional Republicans who had received big donations from that organization, do you not think the video would have already appeared on the nightly news of the major networks?
February 9th, 2009 3:21 pm
Benzy, Javagold, check your inboxes. Mr. Mortgage just sent out an email. First line: “Principal Balance Reductions Coming? I Have my Doubts”
That’s too bad. I guess people will actually have to pay back what they borrowed.
February 9th, 2009 3:47 pm
Kevin, they are already here. Several companies have been doing them this year already and many more are on board to start doing them right away. Obama today in his address in Indiana mentioned them and cram down legislation as well. They have arrived! I just hope they keep their grubby little hands out of my tax payer pocket and make the lenders do it at their expense. We shall see…
Recent article:
Mortgage Relief May be in Horizon for Distressed Homeowners
By admin · February 4, 2009 · Filed in Foreclosure Prevention News, Home Financing News, Loan Modification Plans, Loss Mitigation News, Mortgage Modification Tips, Mortgage Relief News
As more than 5 million Americans fall behind on mortgages, banks signal a new willingness to reduce the principal (outstanding balance on the mortgage). Some homeowners who are having trouble paying the mortgage may be getting genuine relief. An increasing number of lenders are now willing to do what they have long been reluctant to do: reduce the principal of a troubled loan. That shift is in part a recognition that home values have dropped sharply, foreclosure rates are soaring, and the political climate in Washington has shifted. Advocates for borrowers hope the new mortgage modifications work better than prior efforts, which were not that generous: A government report found homeowners who modified their loans defaulted a second time at a very high rate last year. The change in some lenders’ willingness to forgive and forget won’t come a moment too soon: Some 5 million to 6 million homeowners are now either behind on their mortgages or facing foreclosure. And over the next 12 months, the interest rates on $1 trillion in adjustable rate mortgages will be resetting at a time when the nation’s unemployment rate is climbing – factors expected to put more homeowners under financial stress.
The economy is now at a point where people can expect to see more restructuring of mortgages, says Alan White, a professor at the Valparaiso School of Law in Indiana. “It’s not too late to change course, and there are some indications we might be changing course.” For example, last week, Federal Reserve Chairman Ben Bernanke wrote Rep. Barney Frank, chair of the House Financial Services Committee, to inform him the nation’s central bank has a new policy to avoid preventable foreclosures on the $47 billion in residential mortgages taken over from troubled financial institutions. “This is important because the government will control more and more of these assets,” says Mr. White. On Jan. 26, Wells Fargo, which purchased Wachovia Bank, said it would try to work with 478,000 Wachovia customers to avoid preventable foreclosures. In addition to term extensions and interest-rate reductions, “In geographies with substantial property value declines, we will even use permanent principal reductions,” said Mike Heid, copresident of Wells Fargo Home Mortgage in a statement last week
February 9th, 2009 5:11 pm
Anecdotal cases, not across-the-board reductions.
February 9th, 2009 6:37 pm
Kevin, I thought you understood that I am not relying on any kind of PR.
I’ll say it again – If and when I am under, I walk, you pay for it, and I still make lot’s of money.
Taking some of C.C.’s advice (and apocalyptic paranoia) I have saved over 7K since January 1, payed off my one credit card (which had a negligible balance anyway) and am working on the last bit of student debt. My meager car loan is in the final 1.5 year so no need to do the bank a favor by paying that one off early. And I can sell both cars if need be for a hefty net gain.
By Q4 2010 I should have zero non-mortgage debt and 60K+ in cash.
What I’m trying to say, Kevin, is that it is one’s value that will determine their success. Unfortunately, “value” is irrespective of one’s involvement in the RE market – a fact which is starkly clear to you, since it is taking a financial implosion for you to have a chance in hell of moving up in life.
February 9th, 2009 7:37 pm
75K Benzy!! Don’t forget the 15K in the stimulus plan coming your way…
February 9th, 2009 8:07 pm
75K Benzy!! Don’t forget the 15K in the stimulus plan coming your way…
If prices tank as much as Kev-O is hoping, then yes, with Wife’s good credit (she’s not on the current loan) and income, and our 60k in savings we should be in a great position to buy a 250-300 home.
Since we file a joint return, that 15K credit will definitely be coming my way! Can you say 250 sq’ of granite?
I just really hope home values fall to Kevin and Joan’s affordability level so I can out-bid them the fuck back to their ghetto-plex rentals.
February 9th, 2009 8:37 pm
Benzi.. you’ll need to live 2 years in it to get the 15K, this is not for speculation.. I’ll rent/pay 1/5 th of your mortgage now.. so you can move in the new one to get your 15k, k? and I will only spil wiskey on the granite on the weekend,k?
btw, great to see you pay some credit card off.. mine are paid of since october last year.. and saving too.. we’re ALL SAVING.. with exception of the government now.. that’s betting all on red, or black? there’s a 49% chance they get it right.. there’s also the 00
February 9th, 2009 8:59 pm
Benzi,
I thought BO’s statement was clear today:
- plan to go see a judge
- or refi (they’re working on allowing refi for underwater owners)
no check sent to your mailbox
February 9th, 2009 9:03 pm
scratch that.. the judge seeing your high income, may not reduce it a lot..
btw, is your job safe few months from now?
February 10th, 2009 10:32 am
It sounds like the wonderful stimulus bill will include principal reductions. Oops, I meant deferments. Sorry, you still have to pay what you owe!
February 10th, 2009 10:51 am
Kevin,
The phony stimulus bill that must be passed immediately or the world ends is just for the massive creation of more Government. Off course a couple hundred thousand union jobs will be created and a few jobs for those unemployed today I suppose… just a few though.
The bailout proposal for the banking buddies of the new treasury secretary also only serves to assist these CEO’s and board members to keep collecting their bloated salaries and bonuses. It is designed to allow the “too big to fail” banks to stay in business even though they are all bankrupt by law at this point.
There is no homeowner piece to the NON-stimulus bill Obama is rolling out. There is also no homeowner piece in the bank BAILOUT bill being announced today at 11:00. According to the NY Times today the homeowner principal write down aspect will be rolled out separately next week.
N.Y. Times:
A separate $50 billion initiative to enable millions of homeowners facing imminent foreclosure to renegotiate the terms of their mortgages is to be announced next week.
February 10th, 2009 11:28 am
STU,
That’s right
renegotiate the terms of their mortgages = refi @ lower interest
February 10th, 2009 11:30 am
They actually get a better deal that the ex-owners.. I should be upset!
February 10th, 2009 12:17 pm
Agreed that the stimulus bill is a bunch of garbage. Mostly pork with some “stimulus” in the form of make-shift jobs. Complete waste of taxpayer dollars.
This is the only place where I hear any rumblings of principal reductions. Mr Mortgage himself just said it’s not likely. Boohoo, people will have to pay the money back that they borrowed. Life is unfair.
February 10th, 2009 1:07 pm
Did anyone hear from Mr.Mortage lately? Where is his new place?
February 10th, 2009 1:35 pm
Kevin, I know your heart broken over this, but they are happening already by many banks all over the country. Fannie, Freddie, Wells, Goldman, Citi etc. are all doing them and the plan (due to be announced next Wedensday) is for the FDIC to start doing them on banks they take over. $50 billion will be used for write downs initially with more money as needed depending on the success of the program. So far their has been over whelming success and it seems to be the only thing actually working to date. Look for more and more of this to happen over the coming months. In fact this will be the talk around the water cooler by home owners all over the country by Q2.
WSJ 2/5/09:
Litton Loan Servicing LP, a large servicer of subprime mortgages, is stepping up principal reductions as part of an effort to keep financially distressed borrowers in their homes.
Litton, which services about $70 billion in mortgages, has changed its strategy for modifying troubled loans to further reduce borrowers’ monthly payments. Litton, owned by Goldman Sachs Group Inc., in November began reducing mortgage-related payments to 31% of borrowers’ monthly incomes.
February 10th, 2009 1:42 pm
Mr. M. is currently being captured on “The Big Picture” under Barry’s CAFE area. He has not posted anything as of yet, but he is set up to do so. His site won’t be up for a few more weeks by the looks of it…
February 10th, 2009 1:50 pm
Stu, BS. SHow just one actual documented case of PR. As I have said many, mnay times they are just paying lip service to it.
Mr. Treasury Tax cheat’s speach said nothing of PR. As a matter of fact he commented often on the anger Americans are expressing over the way the bailout funds have been used so far. The Gov. lemmings are feeling the heat. They know this heat is nothing compared to the heat they will get if they steal tax dollars to pay down stucco-gamblers bad debts.
To play devil’s advocate, let’s assume they had decided to do PRs. Throw in the heat they will get from those who would be told NO, while their nieghbor gets a PR, and we will have riots fast.
February 10th, 2009 2:05 pm
Joan, if you read the press release the $50 Billion to start principal write downs is another agenda. It is not contained within the treasuries $1 Trillion money bomb to bailout Wall Street. It is also not contained in Obama’s $1 Trillion non-stimulus bill. It is being rolled out next Wednesday on its own merit and with its own funds.
To date many, many write downs have already taken place in 2009 and lenders like Goldman (see above) and Freddie (see WSJ) and Wells (See Bloomberg) Citi (see recent articles) are now stepping up their efforts due to the success they have had or see others now having.
I just hope they LEAVE their hands out of my pockets and allow the lenders to continue doing this on their own. Obama mentioned cram downs in his speech yesterday as also another piece of his much larger over all plans which basically takes all of these individual plans and rolls them up into one MASTER PLAN!!!
They can sneak more by this way and the public won’t even notice what is happening. Some other key parts in his master plan are as follows: A 15K tax credit to buy a house, The White House taking over the census bureau and some new appointees to the high court (more to follow). These will help to ensure that the future is more easily controlled by having those in control on the same page as your future vision would entail. He is good I will give him that!!!
It is what it is Joan so please don’t fight it, but rather embrace the new world order. It is much easier on yourself that way… trust me.
February 10th, 2009 3:46 pm
Yeah right Stu. That $50 billion isn’t for PRs, it’s for covering the amount lost on killer deal interest rates and interest lost on deferred portions of the mortgages. Tax Cheat Treasury Secretary knows they cannot do PRs without violent riots shocking the nation. So does Barney Fat-ass Frank. Mr. Mortgage knows this isn’t going to happen, and so do we. People are going to have to pay back the amount they owe. Gee how truly terrible.
But please feel free to follow up Joan’s challenge for proof of PRs.
February 10th, 2009 4:40 pm
…let’s assume they had decided to do PRs. Throw in the heat they will get from those who would be told NO, while their nieghbor gets a PR, and we will have riots fast.
It didn’t go unnoticed that renters are not a part of your “riot” scenario. I betting that’s because most renters will take advantage of tax-deductible auto loan interest.
Nothing like something shiny in the carport to distract most renters.
February 10th, 2009 5:56 pm
Kevin, I already provided proff and their is much more on the internet if you so choose to do some research yourself. I know they are happening so I don’t require more proof than I already have.
Also people NEVER have to pay back what they owe as they can walk at any time, guilt free, and straight by the book without penalty. That is the system we have and that is good enough for me until they change it some day.
I don’t make the rules, but rather just play by them.
P.S. they are now talking about principal write downs on CC’s and Auto Loans. This is a tad easier because they are recourse in nature, but Judges already have the power to do cram downs on this type of debt. It will be next and I say within 6 months or so you start hearing a lot of talk about it. First they have to get a handle on the mortgage principal write downs. They will soon enough though…
February 10th, 2009 9:02 pm
TRILIONES.. pretty soon zimbawe style..
February 10th, 2009 9:03 pm
CAN YOU SAY GRRRRANITE
February 10th, 2009 9:05 pm
tHiS SiTe Is cOmInG sOoN? problem solved..
http://www.financialstability.gov/
February 10th, 2009 9:08 pm
MM.. enjoy the vacation!
February 11th, 2009 12:46 pm
Yo Benzy!!
I had to take a peek out of my cheap plastic window blinds (G-damned landlord won’t upgrade them) to see what was going on lately! It’s tough sometimes for us renters – damned near tripped over that F’ing orange carpet again too this morning on my way outside to get something out of my graffiti-sprayed storage locker in the carport that has a leaky roof.
Awe well. One of these days I’ll be able to afford a pot to piss in. Right now I just have a broken window to toss it out of. Shucks…
Well anyway, speaking of things ‘shiny’, I’ve been buying and storing these little, round 1 oz. jobs of the yellow/shiny variety since – oh, about 1993. Damned boxes are getting heavy too! Well, at $900+/oz. it’s slowing me down a little bit. But since I don’t own any credit cards or have any car payments, cash flow has rarely ever been a problem for an apocalyptic paranoid nut-job renter like me. It’s a matter of personal choice I reckon.
In any event, if there are those of you out there who have the means, I would highly suggest you think about diversifying into some bullion. The kind you buy, hold and take home with you. It is becoming quite evident that trust in the system is fading. Trust from our own citizenry should be fading as a direct consequence of being royally hosed and misrepresented for so many years by a two-party plutocracy, but that is not where the consequence rests. It rests with our foreign creditors – of whom are holding our debts, of both the now-failed MBS variety and newly-minted treasury-debt issuance to fund the $9T bailout packages.
It’s almost enough to make yer head spin – if’n it ain’t skrewed on straight to begin with. In any event, worry-on about your PR, but save a little time in between all the hoopla to get prepared for the smack-down that’s coming. You & your family will be glad you did.
Peace -
C.C.
February 11th, 2009 2:54 pm
C.C.,
I wonder where do you keep your “yellow/shiny variety” and how are going to make anything out of it if things get nastier? I’m afraid if everything goes the way you predict it, there will times when you will be scared to even think that you possess some of those or about anything valuable…In the dark times there are always guys who just come and take it without asking permission…
February 11th, 2009 3:56 pm
http://finance.yahoo.com/news/Stimulus-pared-to-789-billion-apf-14325858.html
Working to accommodate the new, lower overall limit of the bill, negotiators effectively wiped out a Senate-passed provision for a new $15,000 tax credit to defray the cost of buying a home
sorry Benzi.. scratch that too!
.. there goes the demand..
February 11th, 2009 7:34 pm
MM, is there any way to sector out the NOD’s by loan amounts???
February 11th, 2009 9:02 pm
The PRESSURE mounts…
Foreclosure fix: Heat is on Obama team
Lawmakers and regulators push for moratorium until administration’s plans unveiled. Federal officials confer on housing crisis.
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See all CNNMoney.com RSS FEEDS (close) By Tami Luhby, CNNMoney.com senior writer
Last Updated: February 11, 2009: 5:53 PM ET
Foreclosure Town, U.S.A.
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NEW YORK (CNNMoney.com) — A day after Treasury Secretary Tim Geithner said it would be a few weeks before he unveils a solution for the housing crisis, regulators and lawmakers pressed financial institutions to suspend foreclosures until the plan comes out.
Geithner, who laid out a broad overview of the Obama administration’s plan to attack the financial meltdown, said Tuesday that the federal government would commit $50 billion to preventing foreclosures by reducing monthly payments. Details would be forthcoming, he said.
Until that loan modification plan is released, foreclosures should be halted, some say.
“I would ask all of you now to please make sure that we have a moratorium in effect,” Rep. Barney Frank, D-Mass., told top bank executives at a hearing Wednesday. “It would be until we get that program, and until you know if people can qualify. Having someone suffer foreclosure because two weeks hadn’t gone by for this program would be unacceptable.”
Meanwhile, the Office of Thrift Supervision urged the more than 800 institutions it regulates to suspend foreclosures until the administration’s plan is finalized.
“OTS-regulated institutions would be supporting the national imperative to combat the economic crisis by suspending foreclosures until the new plan takes hold,” OTS Director John Reich said.
Several institutions — including JPMorgan Chase (JPM, Fortune 500), Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) — had put foreclosure moratoriums in place while they’ve gotten their loan modification plans up and running. Some states, including Massachusetts, have instituted short-term foreclosure bans. Even Obama during the transition called for a moratorium.
Taking industry pulse
Treasury and federal housing officials met Wednesday behind closed doors for 90 minutes with industry representatives and community advocates to discuss the housing plan. The administration listened to proposals for how to address the mortgage meltdown.
A number of people at the meeting stressed the need for a standard model for streamlined modifications, according to participants. They also suggested the administration use part of the bailout funds to help delinquent borrowers get into affordable mortgages by subsidizing interest rates or forgiving principal.
“They are moving at a good clip to get it done, but they want to make sure they get it right,” said John Dalton, president of the Housing Policy Council and a founding member of Hope Now, a coalition of servicers, investors and community groups focused on foreclosure prevention.
Still, many in the industry and on Capitol Hill are surprised at the time it’s taking the administration to announce a foreclosure fix, particularly since Obama blasted the Bush administration for delay on the issue.
“One thing I’m determined is that if we don’t have a clear focus program for homeowners by the time I take office, we will after I take office,” he said on “60 Minutes” in mid-November.
Housing advocates, lawmakers and others want him to stick to that commitment. Elizabeth Duke, a Federal Reserve governor, on Wednesday stressed the need to move quickly.
“It is equally important that the government decide how it wishes to move forward, and then do so,” she said in a speech. “As long as uncertainty exists as to the scope and terms of the additional steps that likely will be offered, borrowers, lenders, and servicers will continue to hold out in hope of securing a better deal.”
Frank on Tuesday said that he’s concerned about the level of resources the administration is committing and the time it’s taking to debut a plan.
“First, I’m concerned that $50 billion to reduce foreclosures understates the amount that we will need, and we need some assurance that, assuming this works as we hope it will, there will be more money available,” Frank said. “Secondly, the secretary said the administration would present details of their foreclosure reduction plan in a few weeks, which is too much time.”
Many housing advocates are urging the administration to come out with its fix quickly. They say the economy cannot be revived until the housing crisis is addressed.
“Foreclosures should be Treasury’s number one priority, not something to be done when we get around to it,” said John Taylor, president of National Community Reinvestment Coalition. “Within the next few weeks, we will see tens of thousands more homeowners go into foreclosure. Treasury must take control of these toxic loans at a discount and modify them so that people can stay in their homes.”
Financial institutions need to be more aggressive about modifying loans en masse, advocates say.
Lenders and loan servicers need to reduce payments to no more than 28% to 31% of a borrowers’ income, which may entail forgiving part of the principal if need be, said Marietta Rodriguez, director of the national homeownership program for NeighborWorks America.
“They need to modify loans so financially the family has room to deal with other expenses in their lives,” Rodriguez said.
February 11th, 2009 10:33 pm
STU,
They’re pushing for a moratorium.. but it’s not mandatory one.. it’s up to the bank…
February 11th, 2009 10:36 pm
100 year loans!
February 11th, 2009 10:38 pm
NUMBER ONE IS JOBS!!!!!!!!!!!!!
February 12th, 2009 2:28 am
With all the pay cuts going on, government workers now make 30% more on average than private sector workers, 40% including benefits. How long will the “liability” of government worker wages trump the “asset” of the private sector? This bitch is going down. This business model cannot work.
February 12th, 2009 12:06 pm
” The Office of Thrift and Supervision (OTS) today asked the banking institutions it regulates to halt foreclosures on all owner-occupied properties until the Financial Stability Plan’s loan modification program is in place.”
February 12th, 2009 12:08 pm
Bert Dilbert, you got that correct!! Some of them just received a pay raise for crying out loud. It is funny that they are yelling at bankers for taking bonuses and having big salaries when they screwed up so badly, but yet the politicians get bigger and bigger salaries and perks while they have run up a deficit much larget than all of the banks put together and have never made even a penny of profit.
Idiots…
February 12th, 2009 3:36 pm
Stu, while government want banks to give out loans, if they’ve received bailout money… they’re also stating/urging to (voluntarily) stop forclosures for now.. so why would a bank continue to give out more loans? (if they don’t get payments back?)
this would push more owners to stop making payments.. since government won’t allow forclosures.. great catch 22 for banks!!
February 12th, 2009 3:37 pm
What type of message is that?? go buy now and don’t make payments?
keep messing with the model, and nationalization is around the corner..
FORCLOSURES IS A MUST IN OUR PRESENT MODEL, IN ORDER TO PRESERVE..
February 12th, 2009 5:20 pm
Your guess is as good as mine Ex Owner, but I summize Citi and BofA will be nationalized before too long anyway so I guess it really doesn’t matter much.
This is such a boondoggle with all of the Government interference and manipulation affecting the markets. Nobody trust what anyone is saying or doing. Until we have TRUE transparency we will not see things turn around. With this administration that isn’t about to happen anytime soon I am afraid. It is business as usual as they say…
February 12th, 2009 6:05 pm
Another update on principal write downs…
Mortgage-alteration plan under consideration
Plan would require troubled homeowners to undergo an affordability test
By Ronald D. Orol, MarketWatch
Last update: 4:50 p.m. EST Feb. 12, 2009 (only partial)
WASHINGTON (MarketWatch) — A program that would subsidize mortgage payments for troubled homeowners subject to an affordability test is being considered by the Obama administration, according to a media report.
This approach would be different from other assistance programs, according to
Reuters news service, because borrowers would go through a standard eligibility test and could be approved before their mortgage becomes delinquent.
Most other mortgage-modification programs under consideration, such as legislation that would allow bankruptcy judges alter home loans, require a default to take place before modifications are made.
The program could employ Fannie Mae and Freddie Mac in a supporting role, the report said. Henry Sommer, a director at the National Association of Consumer Bankruptcy Attorneys in Philadelphia, said he believes that the approach makes sense for homeowners who receive a significant payment increase but aren’t able to pay it. “With such an approach, a borrower could work out a modification with their lender before they went delinquent,” he commented.
Treasury Secretary Timothy Geithner said on Tuesday that he plans to use $50 billion of the remaining $350 billion in the bank-bailout program for mortgage modification, but he hasn’t released details.
Sommer contends that private investors should be supportive of modifications because it means the underlying mortgages they own are less likely to default.
Without modifications, he said, housing prices will continue to drop.
“Other mortgages in their portfolio are likely to be helped by modification,” according to Sommer.
February 13th, 2009 12:45 am
if anyone watched david fabers house of cards special tonight, you still want to argue about how responsible the ratings agencies were in this housing ponzi scheme !!!!
February 13th, 2009 12:23 pm
Sommer contends that private investors should be supportive of modifications… “Other mortgages in their portfolio are likely to be helped by modification,” according to Sommer.
But what will this do to the price of gold in a shoebox? That’s where the “prudent” investor will looking for consumer confidence marker.
February 13th, 2009 3:13 pm
I kind of new deep down that it would happen at some point, but I was really, really hoping it wouldn’t. I am now on board with Kevin, Joan and anyone else on modifications. The NEW Obama plan sucks!!!
They should call it hope for the near homeless plan because this is what it now appears they are looking to do.
Take TAX PAYER money (now I am pissed!) and send it directly to the homeowner that is struggling. As Minyan Andrew Jefferey put it:
“Washington cutting checks to borrowers who can’t make their mortgage payments sounds like a benevolent act attempt to reach down to struggling families — and in some cases, it may certainly help. But it also fosters dependency on the federal government and incentivizes bad behavior”
“It now appears we’ve reached a point in this crisis where differentiating between those worthy of help and those left to pick up the tab is determined primarily by how poorly one managed their personal finances. The worse the decision, the greater the federal assistance – and it’s true for government bailouts of bad choices on the part of individuals and institutions alike”
“The message this sends to the rest of us – those who are still living up to their obligations and trying in good faith to eke out a living during tough times: Throw in the towel”
I don’t like the sounds of this at all…
http://www.minyanville.com/articles/index/a/21137
February 13th, 2009 3:47 pm
Further moratoriums on foreclosures, this should help the walkaways pocket more bucks!
http://finance.yahoo.com/news/JPMorgan-Citigroup-halting-apf-14356039.html
The biggest danger to the US is congress. These guys don’t even have an economic plan, just a keep spending plan to bail out the government and screw ups. If the USA was a company, would you buy stock in it? LOL
February 13th, 2009 5:58 pm
Stu, I told you our taxpayer dollars would have to pay for PRs. It’s simply impossible for banks and lenders to afford them.
February 13th, 2009 7:49 pm
It’s simply impossible for banks and lenders to afford them
Banks can’t afford the coming PRs or foreclosures. They are on schedule to own 20% of the homes in Santa Clara County.
With all the “prudent” renters dedicating their resources to hoarding gold in shoe boxes, there is nobody left to buy the inventory.
I mentioned this weeks ago, but a formal or informal foreclosure forgiveness lending program is going to be in play. By 2011, FICO scores will be irrelevant – merely a measure of whether you bought between 2003-2007 or not. Of course there will be the aberrations, but for the most part, if you have a foreclosure you’re in.
I’m all ready seeing rental ads on craigslist that read “Foreclosures not a problem”.
February 14th, 2009 5:36 am
Hello all,
Are you ready yet for a plan that doesn’t cost you the taxpayers over 9 Trillion Dollars? I have been asking you to decide who you want to protect, Main Street or Wall Street? As you see, without your overwhelming comments that Main Street should be a priorty instead of Wall Street, the government is electing to protect Wall Street at Main Street expense (cost/loss).
Homeowners delinquent but underwater are eligible for a principal reduction to appraised value subject to sufficent income to qualify at 33/41% with a 6.5% FRM, if owner occupied/citizen or resident alien/mortgage payment is lowered. There is no appreciation profit realized for the first 7 yrs. If not qualified, they are foreclosed on (eliminates speculators, liars,underqualified or stupid people and bad decision makers, that should satisfy everyone).
Homeowners who are underwater but pay their mortgage at eligible for an automatic principal reduction to the current appraised values at the 5.5% FRN with no income documentation. The same three basic underwriting criteria remains, o/o/, citizen or r/a and mtge pymt is lowered.
They are rewarded for being a good credit risk, eliminating moral hazard.
Homeowners who have equity are eligible to refinance up to 80% LTV at 4.5% FRM subject to the same three conditions. All 3 groups stablize the market, increase spending and savings power and protect the customer.
Homes on the market and foreclosed on would be sold at the current appraised values to the public at 4% FRM. Due to the number of foreclosed properties, former homeowners would be able to rent the “homes” equal to rental prices to avoid vacancy and homelessness for up one yr on a 3 month period lease. If the REO’s were unable to be sold due to the diminished potential qualified borrower pool, the goverment would offer subsidized forgiveable grants for 10 years to qualified lower income borrowers at an internet auction to first time homebuyers.
The cost to the correct is 1.2 Trillion Dollars to the entire financial sectors including banks, investors, GSE’s and private holders of mortgages.
The cost to the taxpayer is zero, they already allotted 300 Billion Dollars to H4H that only 157 applicants applied. If you wanted to state on the high end , 10 Billion Dollars for salaries to 10,000 employees to oversee the mandate and up to 50 Billion Dollars in subsidies if all 7.5 % of delinquences were foreclosed on and a 10% subsidy was given off of the decreased prices.
Participation in the mandate allows banks to “know” what their losses are, moves a L3 asset to L1 asset, lowers capital resereve requirements, gives them a 3x capital loss benefit for balance sheets/tax porposes.
Benzy- the decrease in housing values is a direct result of Reo’s being discounted and undersold in the market lowering surrounding areas values with the direct prior knowledge of the banks that their actions would financially harm some existing customers. A GOVERMENT MANDATE NEEDED TO PROTECT CONSUMERS IN A RECALL, REDUCTION, AND REPLACEMENT OF THE DEFECTIVE MORTGAGES DUE TO THE BANKS ACTIONS. It does not matter when purchased but if the mortgage becomes defective due to the banks actions of creating negative equity . Without intervention, the values will continue to decline to ? 2000, 1997, 1995 pick a date.
All I am asking is to stop and think, do we want to invest over 7 Trillion Dollars to protect the financial sectors gambling or do we protect ourselves?
February 14th, 2009 6:38 am
Hello all,
Most of the banks itself can afford the losses,but they don’t want to. If their overhead was reduced, namely salary expenses were lowered to “suggested” levels for all employees and not inflated to obscene numbers there will be more money to cover said losses.
Seriously what amount of the “toxic” or underwater mortgages does all the banks own versus the GSE’s, pension, life insurance, investors and private holders of said mortgages?
10%, 20% or 50%, it can’t be over 50%, but lets say it is 100% of all negative equity mortgages.
There is 12.1 Trillion Dollars of outstanding mortgages and if 25% are considered underwater, that means a little over 3 Trillion Dollars.
That 3 Trillion Dollars of negative equity mortgages are split between “delinquencies” and “paying customers”that we are saying the banks owned outright, no GSE’s or investors involved. ( 1.2 Trillon Dollars to correct all negative equity for all homeowners for the banks without regard to any other entitlies like the GSE’s, or private investors )
Right now the lenders and the government are only concerned about the delinquent borrowers because Wall Street is losing their cash flow from them. A big concern is the moral hazard of why would a homeowner continue to pay the higher principal balance and monthly payment if they reduced the principal and monthly payment for delinquent homeowners to improve their own cash flow, what is the benefit to the paying homeowners? Maybe we should try to do it without publicity , maintaining that we are not really address it yet, because every month we get away with not addressing it , we earn more money. ( as you see this is already happening to a certain degree with individual banks reducing a percentage not to appraised values)
The attitude of the banks is so what the economy, mainly Main Street loses, the government will eventually come to the rescue, the financial sector is too BIG TO FAIL and we are what makes the world go round.
Listen to CC, we the American public allowed a phony financial system to dicate to us what made our world go round, we borrowed instead of saved, we were consumers instead of producers, we lived and consumed for today without regard for tomorrow, over leveraging ourselves. While I agree with his philosophy, I disagree with his outcome that we have to have a depression to change.
I truly believe that if we follow Capitalism guidelines and allow some banks to fail based on their past business decisions with MANDATING that the financial sector has to correct the “wrong created of negative equity” from their own actions, we will prevail. ( besides we don’t need the banks we have the Federal Reserve to protect our deposits as a back up)
Personal note to ex renter: under my plan if your previous mortgage was foreclosed upon for unaffordability due to job loss, medical , high ratios , adjustable payment change anything besides for inflating your income to qualify originally, you would be eligible to purchase with a FHA mortgage after 2 years to help stimulate the economy. Now if you state and can prove that now you have savings for a down payment of 3.5% of the purchase price, low monthly charge and loan debts and sufficent income to “qualify” under 33/41% ratios for a home, I would want you to purchase one of the ‘reduced appraised value” homes if 2 years have expired.
February 14th, 2009 2:18 pm
Hi Susan, unfortunately I must suggest that you give up your plan idea as I did. This group of corrupt politicians is not worthy of your intelligence. Mostly because it is obvious that they do not want and are not seeking a so called plan to help Main Street. They want to crush Main Street by saddeling the middle class with decades of debt.
It appears to me at least that our Obama led Government is looking to create a situation where as the majority and not the minority become dependent on them for survival. Hey, we voted for change and we are certainly going to get it. By the time this whack job liberal Obama gets through with us we won’t recognize the country I am afraid.
Democrats will stay in power for life it would seem due to the socialist nature of change being accomplished and the hidden agenda to gain a 51% majority in the voting populas. Through unions, education, Government jobs, Acorn and many other areas of which some we do not even know about yet they will position themselves like royalty in Europe did centurys ago.
The non-bailout has all sorts of money for education, welfare, food stamps, oil assistance programs and tax credits and tax rebates for the poor and lower class. It does very little for middle class Americans other than to place the debt burden squarely onto our shoulders.
The only hope we have now is that this sort of change was not what the majoity of Americans were advocating when they elected Obama. If it was then we are doomed to fail as a nation and the true middle class will continue to shrink until we have the wealthy (2% of the population with 80% of the money) and the dependent on Government unwealthy (80% of the population with 20% of the money). Once this goal is reached and there is no more money left for the wealthy to obtain we go under. A self defeating plan if I ever saw one, but that appers to be their objective to me. So until I see something or actually anything change from the road that we are traveling down, I give up!!!
February 14th, 2009 8:47 pm
NO PR! u know it, we all know it.. some help with lower interest/40 year loan.. is the right thing to do! (if you want to keep your home)
STOP THE INSANITY WITH THE BAILOUTS (SUSAN).. we don’t have the (tax payer) money to do it.. we need to borrow it (from China, etc).. we’ve got to stop borrowing it! (we’re paying interest on it too.. it’s now at 450 + billion per year!)
This bailout (that Obama just passed) better do the trick, or we’re screwed!
February 14th, 2009 8:53 pm
Susan, good posts. You plan is bold and sweeping and I’m afraid nobody in our legislature has the balls to consider anything of the sort.
I found this an excellent summation of our core problem:
The decrease in housing values is a direct result of Reo’s being discounted and undersold in the market lowering surrounding areas values. Without intervention, the values will continue to decline to ? 2000, 1997, 1995 pick a date.
A topical glance of the problems facing us would have most believe that falling home values only imply more affordability. This is an effortless conclusion- that the only variable to change is housing costs. Even with the economy at large crumbling around us there are those on this forum and elsewhere who dream of personal earnings remaining static while personal spending power blows through the roof.
To the contrary.
Where do you think consumer spending (70% of the US’s natural economy) is going to end up once people who bought homes in the 90s find their home is worth what they payed for it 15 years ago?
If people are receding their spending today, wait until the foreclosure snowball drills prices down to 90′s levels.
It would be nice and convenient to subvert the bubble buyers, teach them a real nice lesson, then buy up their homes for pennies on the dollar and continue to work our high paying jobs in safe and kept communities with all of the public services.
The reality is that bubble buyers will in all actuality be the least effected. They’ve lost 2-5 years of growth. They’re not as accustomed or invested as those who have lived in their largest investment for 15-20+ years. Bubble buyers get to walk from a short lived relationship. And they’ll probably be the first to recover.
So, I agree, Susan. Pick a date. Your guess is as good as mine. It’s probably the date that home values on average would have to sink for our entire economy to collapse. THAT’S when our elected officials will redirect their efforts and our own tax burden from Wall St to Main St.
February 14th, 2009 9:06 pm
Benzi,
If I was presented with 4% interest instead of 7.5%, I would have kept the home! yes I would.. I have a family to support, and would have been no where close to sell it (for years!)
Think of it.. 3% reduction at 400K, (or 500K, 600K, etc?)
how much more money does the owner have??
Let’s take 400K… that’s $12,000 more per year!
February 14th, 2009 9:13 pm
you want comunism???
- no pay for medical service
- no pay for university, schools
- no increase in home prices (price control), but possibly decrease
- you have more than home, government takes it!
- you don’t work in Newport Beach? well then you can’t buy a home in Newport Beach!
- you’ve got too much money? government takes it (literally, out of your bank account).. hideen under the blanket? well they come and take it if they find out..
- no more pay based on merit (established low end and high end)
Are you sure you want to give up your freedom? Our capitalist way??? GREED and FRAUD is messing up our system.. don’t let GREED change it to COMUNISM.. get it?
You’ve got a fair choice:
- walk away (and suffer renting, save up again)
- get some reduced interest.. and keep the house, while you have more $$$ every month
(it’s not your right to speculate, and sell 5 years from now.. after your PR/with tax payer money.. and you pocket it… GREED!)
February 14th, 2009 9:19 pm
How would you like if you had 5 homes.. the government takes 4 away?
What if you had 300K .. government takes it?
What if you want to buy in Huntington Beach? but you work in Temecula? can’t do.. you got to buy where you work?
What if all home are priced the same? and there was a waiting period to buy.. based on your job location, and number of the list?
February 14th, 2009 9:29 pm
Susan, you’ve got 1/2 right..
It’s the mortage payment (this can be lowered by lowering the interest!!! but not PR)
February 14th, 2009 9:46 pm
Susan, and all
Yes, my wife lost her job (lost of income), and no I didn’t lie about my income. As I’ve said I’ve decided to walk (within 30 days of stoping payments – due to the fact I didn’t expect help, and wasn’t right to stay without paying)
Before I’ve stoped, I’ve had 20K of credit card debt, gas was at 4.50$, and the monthly budget was in a minus…
The FHA loan for people like me exist today.. 2 years wait, considering credit improved since, paid of debts, and can aford the new mortgage..
I’ve paid my credit cards off! I’ve improved my credit 100 points since forclosure! I’ve got the 3.5% percent now… but I’ve got to wait up to 2 years to buy.. is that fair to me? Probably.. so I’m going to ask for my bailout.. I’ll keep saving, and get back in either with bigger down payment (sooner) or wait for 2 years.. and get an FHA loan.. get it?? there are more people like me, that already suffered! We didn’t have an option of 4% interest.. I WOULD HAVE TAKEN THAT (no credit ding, no shame, no wories, no moving, etc)
DON’T BE GREEDY!
February 14th, 2009 9:57 pm
don’t you think it’s a bit greedy to ask:
- NO CREDIT DING
- PR
- LOWER INTEREST
wow! While the rest of country pays for that crap (with interest!)
- renters
- owners that bought long time ago
- owners that bought cash
- ex owners
- young pp that just started working
- future generations
February 15th, 2009 4:55 pm
Who payed for your loss when you bounced, ex-owner?
- renters?
- owners that bought long time ago?
- owners that bought cash?
- ex owners?
- young pp that just started working?
- future generations?
If my lender was a credit union, maybe I’d have a different ethic. My lender was WaMu. After the fraud perpetrated by them, they are lucky to have a borrower like me in their portfolio.
I have a threshold: If and when I am under more than I can save in 3 years while renting, I walk. If the MBS investors don’t like that, then they can work with people like me.
February 15th, 2009 9:11 pm
The FIRE economy is dead and was dumb anyway.
Our economy is trying to find a new route of sustainability. Fake housing wealth and crazy, stupid and clearly insane appreciation will not return, just as the Tech Bubble never returned.
The reality of mortgages that are like car loans (ie. your loan ammount is double the value) is the reality for the bubble-era speculators. See Japan for a real world example.
Obama needs to be very careful. The anger is growing across the country. There will be no way to avoid full scale riots if BO tries to start deciding who in America gets a $250k PR and who does not.
The only way to avoid that would be to admit that if one person gets it then everyone gets a PR. Then the bubble sitters, responsible renters and those living in non-bubble areas will become inflamed and the only way to appease them will be provide some sort of $250k gift to them as well. If this policy of giving everyone’s tax dollars away is pursued then it will have to be spead equally.
Who in 90% of America will sit still and watch BO give a tax payer funded $250k gift to Joe specuvestor in Riverside CA, or Florida while the rest of America gets nothing but the bill? There is simply no way to justify it.
So lets give $100k to everyone? Joe Specuvestor gets $100k, the resposible hard working couple in Iowa with a $40k mortgage gets $100k and the renters get $100k.
Joe Specuvestor would complain that $100k is not near enough to pay down his mortgage that is $250k underwater. The scale of gross greed that compeled bubble-nuts to gamble so crazily means that $100k is chump change. The scale of the bubble-nut mess is mind boggling.
In what whacky reality does a guy who grossly and stupidly over paid for a house deserve tax payer funded gifts and other Americans deserve only to pay for his gift?
February 15th, 2009 11:27 pm
Benzi,
I’ve paid close to 80K in payments over 2 years, invested 10K in the house, and lost my 80K savings. The bank lost 80K amazingly since they were able to sell it.. so far almost even, but I’ve acutally lost more and besides $$ too.
While certain banks can go down and will go down, we can start new banks.. buy at new lower price… it’s a must for forclosures to take place..it’s healing the market.. don’t extend this great recession to a 10 the biggest depression..
You’re a big boy.. do the math.. and make a decission, don’t react.. be pro-active!
JOAN, I’m with from you from beggining, 100K for everyone!
or none to all.
Where’s my bailout?????
February 15th, 2009 11:29 pm
I’ll use the 100K for a down payment on a house, and stimulate the economy with the rest!!
February 15th, 2009 11:37 pm
BENZI.
You must be greedy and a speculator.
As I’ve said, if I had a 4% interest offered instead of 7.5%… I WOULD HAVE STAYED!
February 15th, 2009 11:38 pm
NO CREDIT DING
PR
LOWER INTEREST
3 OF THOSE ACTIONS FOR SPECULATORS LIKE YOU IT’S NOT THE FIX FOR THE COUNTRY
February 15th, 2009 11:40 pm
real owners would take the lower interst in a heart bit, I know I would have.. I just HOPE the government really helps people like me and others that have a family to support get back in sooner than later.. PEOPLE THAT ALREADY LOST…
WHERE’S MY BAILOUT???
February 15th, 2009 11:46 pm
bail everyone out or none!
I’m assuming I won’t get a bailout.. so I’m bailing myself out:
- saving
- geting educated
- working harder
- being a better parent, husband
- spreading and sharing knowledge which ever way I can
HOUSING IS DEAD FOR 10 YEARS..and has not reached bottom yet.. is that a good threshold for you BENZI?
February 16th, 2009 2:13 pm
ex-owner,
It seems that you foreclosed at a time when your lender could wield their last swath of power. It’s a different day. So, forgive me for leveraging my new sense of empowerment.
I don’t expect a hand out, but at the same time, I am not going to ever extend my obligations just to make right by WaMu/the taxpayer/renters/ex-owners or what ever “prudent” puppy dog group you think I should be be considering when leveraging my families future.
If my lender want’s to make a deal with the MBS world and find a way to keep prime borrowers on their books as a positive asset, then great. If they can recover more from a foreclosure, then no complaints from me.
But lenders are going to have to consider this dynamic, as many prime borrowers in my region are certainly thinking the same thing I am. Justifiably, ethically and legally so.
February 16th, 2009 2:24 pm
Benzy, you said
“lenders are going to have to consider this dynamic, as many prime borrowers in my region are certainly thinking the same thing I am. Justifiably, ethically and legally so”
That is the key to this entire mess… legally! I saw principal write downs as a way for the lenders to keep people in their homes at less expense to themselves over all. A smaller performing loan is better than a larger foreclosed loan was my thinking.
Now it appears as though Team Obama is just going to toss our tax payer money at the worst performing and under water loans. That is not what I had intended and it will end in disaster im my opinion. So far this administration has been laughable at best.
February 16th, 2009 3:19 pm
Stu, you’ve even said the 50b from the stimulus package is a temporary stopgap. The lenders will work with some and see how this one plays out. Perhaps the economy will rebound in time, unemploment will subside and an equilibrium will keep them a float. But not even remotely likely.
Banks see the writing on the wall. It’s 99% a done deal; 20-40% of Californians who bought after 2000 are underwater and most of them are going to default.
I admit, it’s a game of chicken. But all I have to lose at this point is a FICO score. In my case, WaMu, et al is on schedule to lose 80-100k in principal + costs associated with foreclosure by 2012 (and I’m a conservative case, many are under 200K+).
The lending industry to their detriment will also experience downward pressures on the rest of their RE portfolio realized from yet another foreclosure hitting the market. This is bad for them, but good for everyone from Joan to Kevin to you and me.
I have no qualms about taking a hit for three years only to bounce back with 80k in hand ready to by a home similar to the one I live in now for 100k less than I owe today. Net gain: a loan principal of close to 180,000 less than I owe today all on the backs of the lenders.
THAT’S what I mean by Empowered.
In short, lenders chewed up and spit out the subprime crowd with impunity. I have a pretty good feeling that the Alt-A and prime borrowers aren’t going down so easy.
We’re going to kick the lenders in the balls on our way out. The only shame is that our new president is acting as a de fact groin cup for the banks. He and his party will get their walking papers soon enough.
February 16th, 2009 3:35 pm
Joan:
If you read my proposal, it cost the taxpayer zero to give a principal reduction to appraised value. It is a recall of a defective mortgage product ( part of it is no longer secured by Real Estate= negative equity part is an unsecured loan not a mortgage), reduction and replacement mortgage at the cost of the financial sector for lowering the values intentionally financially harming their existing customers.
The mandate is a new governmental law created protecting homeowners from the actions of the banks creating negative equity (defective mortgage), it is between the bank and the homeowner, not you nor any other person, homeowner or renter.
The suggested mandate is a way for banks to be responsible for their own actions while avoiding the homeowners right to legally walk away from an underwater mortgage, which right now our, that is yours and mine, government has spent, outlaid or guaranteed over 9 Trillion Dollars of taxpayers money to avoid having the all banks share their individual business losses totalling 1.2 Trillion Dollars.
To protect the banks and avoid giving a principal reduction to homeowners who were financially harmed by the banks action, you would rather the government extend/spend over 9 Trillion Dollars of our tax dollars we really don’t have instead?
Basically that is what you are saying, correct?
There is no middle ground, one or the other, Wall Street or Main Street?
February 16th, 2009 3:44 pm
Number one reason for foreclosures is negative equity or better yet, unable to sell/refi out of a “situation”
Soon to be replaced by in-affordability as a result of unemployment.
February 16th, 2009 10:04 pm
stu.. i’m with you.. this will get much worse
first fear of being left out of the market..
now fear of not geting help.. will cause more late payments even from pp that can pay.. for every 1 geting help.. 10 to 100 will stop making payments.. we’re now in a vicious down circle.. that the government won’t be able to save..
I would imagine the down side now (add umemployment) will be much worse than anticipated the tax payer just can’t pay for it..
ARE WE GOING TO BE TAXED 75% soon?
I may never buy again and strongly thinking of moving out of cali, maybe out of ussa..
February 16th, 2009 10:15 pm
WOW.. watching House of Cards..
pp lived from equity and kept refiying, pp with little salaries buying San Clemente,Yorba Linda.. just amazing.. they deserve to keep those homes.. in rich neighboorhoods.. act like they make 200K.. sure!
and now BO will make sure they keep it all and aford it..
what’s next.. FINE COMPANIES FOR LAYING PP OFF! FINE PP THAT HAVE MONEY..FOR NOT SPENDING??
CONFISCATION OF YOUR CASH!
February 16th, 2009 10:25 pm
GOVERNMENT WILL BE ABLE TO SAVE US ALL! I’ve got to drink tonight to that.. wiskey anyone?? granite/or not.. have one!
February 16th, 2009 10:29 pm
we’ve got nothing to fear.. but greed itself!!
they’ve sold homes (securitized)… until wall street stop buying..
what’s next:
the government helped people keep their homes (with more debt)… until our debt can’t be sold anymore..
HELLO MOTHER OF ALL… HYPER DEFLATION/HYPER INFLATION AT THE SAME TIME!
February 17th, 2009 9:57 am
Ex Owner, you said:
“I may never buy again and strongly thinking of moving out of cali”
Well in Cali I would NEVER buy. Your state currently has a $42 Billion deficit (that is a “B”) through 2010. That is unbelievable and pretty scary for the future of your state. As a result of this fiscal mess your state is meeting today to bang out your budget which will likely include TAX INCREASES totaling $14.4 Billion (that is another “B”). Good luck collecting all of that money from the people losing their homes and jobs. That just means more tax increases are probable down the line as well as massive cuts in all sorts of services. Your state will be a shell of its former self by next year at this time.
Just this year alone you have an $11.2 Billion (yet another “B”) shortfall that keeps increasing every day. Your state is bleeding money like the auto manufacturers. If California could go bankrupt it would! You are holding back tax returns from the people and payments to suppliers for services (totaling $3.5 Billion (the last “B”). How long before that all changes. People will smarten up and increase their deductions to receive the money in their checks each week which will just hurt the states revenue stream that much more. Also suppliers will simply stop shipping supplies until they get paid. Your state is in a world of hurt and one big hell of a mess right now, and I don’t see it getting better anytime soon.
I for one would not want to own anything in Cali anytime soon for any amount of money quite frankly. I think you can safely ask Pelosi to turn out the lights when she gets tossed out of office next election. Nobody is home any longer in California…
February 17th, 2009 2:52 pm
Susan Day Minerly Said:
February 16th, 2009 3:35 pm
Joan:
If you read my proposal, it cost the taxpayer zero to give a principal reduction to appraised value. It is a recall of a defective mortgage product …”
The only thing defective about your mortgage or any of the other bubble-nuts is that your gamble turned out wrong. You made a bet, you lost, there’s no defect there. You can either pay as you promised you would or walk away and leave the our kids and their kids to pay for your failed gamble, capiche?
February 17th, 2009 3:00 pm
CNBC “House of Cards” has put a face to all of my comments about Californians, Nevadans, AZns, FLdns living absurdley rich lifestyles that the rest of America will now pick up the tab for.
Every single person (victim) they showed was a below average earner living in a huge, new, beautiful 3 car gargage stucco-mansion in an upperclass neighborhood.
Hey CA, the rest of the country knows that is not an “average” house. Be prepared for some serious anger coming your way.
I could just see Joe average middle America twisting in his seat as he watches Mrs. CA bubble victim get interviewed from the nicest, biggest house he’s every seen!!
This needs to end badly or it will end badly in another way.
Hey Idaho…Obama wants to tax you so lower income earners in CA can live in mini-mansions, how’s that feel?
February 17th, 2009 4:15 pm
Has anyone read Karl Denninger’s blog entry (he’s linked from this site) re. potential reasons why Wall St. has so far blocked all attempts to halt foreclosures or do PRs? He says that the tranch/securitization structure underlying many contracts, esp. ALT-A and HELOCS, contain a “fine print” provision of equally spread losses in the securitization chain if forced modifications occur:
“…but this nasty little clause means that instead of the loss being absorbed by the lower elements in the structure first in the event of a mass-modification movement – which is outside of the control of the securitization owners or the servicers – everyone up and down the line will take the hit equally – that is, pro-rata – across the entire structure!”
Link at http://market-ticker.denninger.net/archives/P3.html, “White House Rallies Markets – For how long?” scroll half-way thru article for the housing discussion.
Anyone able to comment? What contract clauses is he specifically referring to and why hasn’t the MSM reported on this…it wouldn’t surprise me in the least to know that Congress and/or the rest of DC is still aiming to protect Wall St. and the big-$$ bondholders above Main St. at all costs.
Hope this is ok to post here since I can’t read/post to Mr. M’s temp site. Hope he’s back online in his own space soon!
February 17th, 2009 5:06 pm
Hey CA, the rest of the country knows that is not an “average” house.
Hey Idaho…Obama wants to tax you so lower income earners in CA can live in mini-mansions,
Joan,
The average home in my Bay Area, CA county is 1437 sq’ and we have moderate high-density compared to most other counties.
And, for every one dollar CA sends the fed’s way, we get back 75 cents.
You are so dearly wrong on even your core positions.
February 17th, 2009 5:16 pm
This needs to end badly or it will end badly in another way.
It already has, Joan. You’re not coming up on the carnage. It’s time to accept that. Unless you earnings are independent of consumer activity, you and your children will suffer just like the rest of them.
And considering your uninspiring disposition during times of prosperity, I am willing to bet this downturn will compromise people such as yourself even more than the average Joan.
Its time you start worrying about yourself and leave write down/PR negotiations up to people who are actual players in this game. Sorry for you, that does not include angry renters, capiche?
February 17th, 2009 6:18 pm
benzy, no, that is not capiche. us renters have EVERY right to be outraged and voice our outrage. PR is like giving every irresponsible deadbeat a winning lottery ticket.
February 17th, 2009 6:31 pm
Jesus, Mel. Denninger’s post is a sure confirmation of a further financial meltdown, PRs or not.
I’m curious about MM and Susan’s take on this securities food chain, since they both have been in favor of PRs.
I knew a deal of a century would have to be made with MBS investors, but if Denninger has it right, then a lost decade is inevitable, as homeowners default in masse and hoard their earnings in CD, mattresses, shoeboxes – anything detached from securities.
February 17th, 2009 6:35 pm
Kevin, I’ll say it again. I am not interested in a PR. I walk, you pay and I still earn lots of money.
February 18th, 2009 2:11 am
Benzy:
Thank you for asking. The food chain as you politely put it, is handled the same way. The MBS pool has the option of receiving the new mortgage and future cash flow at the appraised value as a replacement or full payment of the old mortgage at appraised value, one of the reasons for the creation of the Consumer Protection Agency is to handle the mortgage payoffs accordingly.
MBS pools are handled by servicers collecting the payments. I can assure you that as soon as the government issues the mandate, the “investors” of said pools are going to decide what is better for them, to take an immediate loss or a drawn out loss. It will be based on time the pool was issued, the older the pool the lower the immediate dollar loss but long term dollar loss of cash flow could be less but would be offset by a number of factors below vs. more recent pools, take a immediate larger dollar loss but the possibility of increased long termed cash flow is there to offset the loss plus the majority of defaults are in this group. The owners of the MBS pools will be advising the “servicers” of their decisions.
Please remember that some of the “pools” we are discussing are a few years old, and the highest interest is paid at the beginning of a loan. The pools already received the benefit of being paid the higher interest ratio once, and will receive it again with the mandated refinance not modification.
Second thing to remember is the “problem” loans that have re-set were mostly adjustables with lower interest payments that will be changing to a fixed rate of 5.5% or 6.5% increasing the interest portion of the payment ( suggested rates) based on whether the client was current or not, which should also increase the cash flow portion.
The lower you are on the food chain, the less say you have, the more risk you took as an investor that you were and still are receiving more for.
The investor has the same tax advantage in the mandate of taking up to 3x the dollar amount of the loss whether it is paid off or replaced at the time of the individual refinance.
Bottom line is the actions of the banks/investors financially harmed their existing customers by discounting the massive influx of Reo’s in the market, lowering values creating negative equity,THIS was outside the homeowners control, but at the control of the banks/investors. They should pay on a pro-rata bases, Capitalism.
The alternate is to foreclose. In an area that has decline by 40%, take another 10% for foreclosure cost off, and then discount it at least another 10% to sell it before other homeowners can and the investor will receive a MAXIMUM of 40 cent on the dollar, if the foreclosure was amiable and the house was kept in move in condition.
I just shown you how to price the banks “toxic” assets. That would be the maximum price that should be paid.
Of course the banks want almost 100%, though they are leaning toward agreeing to 85 cents on the dollar and the distress sale buyers want to purchase it for 10 cents on the dollar with the government (taxpayer) paying for any losses between the purchase prices, here is the kicker we the taxpayers are loaning the 10 cents on the dollar to the “distress sale purchasers” to invest in said toxic mortgages. The new investors risk 10 cents on the dollar and receive ALL the upside including cash flow. (TALF program)
Question of the day: If a properties mortgage is worth a maximum 60 cents on the dollar to match appraised value, why would the government pay over that amount? And why would they accept a drastically lower price?
Wall Street or Main Street?
Let me clarify Wall Street is it not the investors of the MBS products, it is only the banks, that is why we allowed investment and charge card companies to become commercial banks backed by taxpayers.
February 18th, 2009 3:27 am
The total lost or cost to cure the housing industry is 1.2 Trillion Dollars to be shared by all mortgage holders including banks, pension funds, GSE’s and private investors.
The problem is not foreclosures and declining values, that is what is affecting Main Street,
IT IS THE AMOUNT OF MONEY BEING LOSS ON WALL STREET BY CREDIT DEFAULT SWAPS, DERIVATIVES, the SHADOW BANKING INDUSTRY, (call it whatever you want). THE FINANCIAL SYSTEM OVER GAMBLED AND THERE IS NOT ENOUGH MONEY TO PAY THE BETS OFF. THERE IS ENOUGH FOR THE ACTUAL LOSSES BUT NOT THE BETS. ( the banks ponzi scheme is disappearing)
(CDS are the reason we loaned AIG the $85 Billion Dollars and covered $29 Billion in losses for Bear Stearns to JP Morgan. Citi, Band of America , you get the idea)
If the American Public thru our government does not ante up, banks will fail based on their bets.
We are only postponeing the outcome. We do not have the funds available or the ability to borrow sufficient amount of funds.
Simple math again:
12.1 Trillion in outstanding mortgages
versus
a shadow banking industry that was over 65 Trillion Dollars and supposely has been reduced to 30 Trillion Dollars by netting each other out.
A credit default swap is an bet/insurance issued for a premium (withdrawal of profits before due) that a product will pay or will not pay. There is no regulation or amount of times a CDS can be issued on the same product with different outcomes, you don’t even have to have an underlying interest in the product to bet on it, or capital to cover your bet.
Example- I bet against JoanJett that she will not buy a house for 5 yrs with Kevin and he pays me $500 a yr premium, then Benzy bets me (insures) that she will because prices are coming down and charges me $400 a yr premium, then Stu gets involved and bets again with MM that Joan won’t buy a house for 5 yrs and receives another $500 premium, then I get re-involved with Stu and bet him he is right for $200. premium (hedging). Now Kevin gets nervous that his money is on the line and re-insures it 4 times for a partial counter party risk for a mere $300 each CDS And on and on it goes.
Now if you followed it:
I made $300 a yr net premium for nothing.
Stu made $300 a yr net premium for nothing
Benzy made $400 a yr net premium for nothing
Kevin nade $700 a yr net premium for nothing.
What did any of us have to do with whether Joan purchased a house or not within 5 yrs?
Basically the above 4 “people (BANKS)” took $1700 out of a system that wasn’t there or risked the long term profits of someone elses account, since Joan didn’t buy a house yet.
If Joan doesn’t buy the house, we all made money and the someone else’s account is none the wiser because eventually it will be replaced, hopefully.
The problem becomes if Joan buys a home within the time frame allotted, the insurance payout is “at ten times the premium paid. or
I, Susan end up paying $7000 in losses
Kevin ends up paying $7000 in losses
Stu ends up paying $3000 in losses
and Benzy ends up receiving not only his premiums but $4000 in “insurance”
Since we all “borrowed” from someone elses account at 10, 20 or even 30 times the leveraged allowed, there is no money to pay the losses but remember we all earned money anyway!!!
Taxpayers to the rescue.
February 18th, 2009 4:23 am
And before you ask, yes this is also in my proposal.
All credit defaults swaps will stop until they are regulated thru a central clearing house (transparency) and only allowed with sufficient capital reserves from outside of commerical banking institutions.(basically the re-instatement of the Glass Stegall)
Any open CDS that were issued without an underlying capital interest in the product for the buyer, will be eliminated (netted out) after the premium is returned by the seller, neither should have been involved, it was just a way to increase their profits today, without regard for tomorrow.
Washing out or netting of CDS between banks will be continued and encouraged.
Only if an underlying capital interest in the product was present and a CDS was issued from an outside issuer/insurer will the issuer be expected to “perform” as the insurance agent on an open CDS, if no other CDS were present or netted out. All counterparty risk should be erased, if they also had no underlying capital interest, see above. This was a risk they took, you can not benefit from insurance placed on your neighbors house, can you? Why should they?
It is the governments fault that CDS or the shadow market was allow to grow so big, there were no “watchdogs” or regulations to conform to.
CDS are the real reason, some banks will fail not the current losses in mortgages. All banks under the mandate can afford to cover their share of dollar losses, but not the BETS and neither can the taxpayers.
Note to Joan, Kevin and who ever else is against principal reductions:
Are you still concerned that a homeowner might recieve a principal reduction to appraised value avoiding a depression greater than the “depression that American has experienced”?
For the mandate to work:
you have to have homeowners to agree to be reduced to 100% loan to value after owning for ? years and paying over what a rental would have cost for that same time period, agreeing to start paying more interest than principal again, that the lenght of time since purchasing is forgotten, the replacement mortgage starts at 30 years again, accept the fact that home prices will not increase for at least a decade, pay more for a mortgage than renting without home prices appreciating for a decade, basically instead of blasting the homeowner you should be thanking him.
I was always of the opinion that the survival of the fitness is what prevails. Does Wall Street or Main Street prevail?
I can not see jealously,envy or fear getting in the way of “combining the forces of the mass” to reclaim our middle class status.
February 18th, 2009 11:02 am
CDS, MBS, WALL STREET.. CAN ALL BET ON PEOPLE LIKE ME, AND MANDY OTHERS.. GIVE ME MY 100k BAILOUT.. AND I’LL GO BUY.. I PROMISE, YEAH?
February 18th, 2009 11:04 am
WALL STREET=LEGALIZED GAMBLING
February 18th, 2009 11:05 am
AND THEN SOME PEOPLE SAY.. WELL.. DON’T GIVE ME THE CASINO SCENARIO.. WHERE ONE GOES.. BETS IT ALL.. AND THEN WANTS HIS MONEY BACK..
pp.. THERE IS NO FIX… get it??? time.. we can do it quick/we can drag it out… CHOOSE ONE!
February 18th, 2009 11:09 am
SUSAN.. I said two things before:
- you’re in the business .. the fix can’t come from people like you.. you guys messed up
- you only have 1 daughter.. you can’t understand what it means to have 2 kids.. and just reward 1 but not the other..
THE DROP is hapening fast.. people chose to fix it quick.. not drag it out like Japan.. KEEP IT UP.. 1 YEAR 1/2 TO GO.. otherwise.. 10-20 year
February 18th, 2009 11:19 am
Susan,
Nice analysis. I would like your take on this:
My understanding was that CDS were insurance bets taken mostly on mortgages. If this is the case then:
Steve buys a house and takes out a mortgage with XYZ bank for 200K. As a result of this event:
1. XYZ bank buys insurance from AIG to cover their cost. ($1,000/yr)
2. Kevin and eight other betters are allowed to buy insurance from AIG and any other player willing to sell a “policy” – each paying a premium. (The roulette wheel is spinning and everyone gets to place their bets.)
3. The loss would be $2,000,000 if Steve defaults.
If I’m good to this point then:
If Steve pays off the mortgage in 3 years, what happens? Betters have put down $30K. Mortgage did not default. No payoff from any of the insurers. Is this the end point for the 10 CDSs that were “bet” on Steve defaulting?
My understanding has been that CDSs were attached to something – sort of like life insurance is attached to your life = if you live to 70 nobody collects.
So, if I’m right to this point, then why not “get rid” of the mortgages. If the government buys Steve’s mortgage and rewrites it, doesn’t that kill the CDSs attached to the XYZ bank mortgage?
How Steve’s mortgage is “gotten rid of” could be variable. Even a re-fi should take care of this? Anything to wipe out the CDSs. The $2,000,000 liability based on Steve’s mortgage would be off the books of AIG et al. That would free up reserves that could be put to work and that should loosen up credit and get us out of this slump that we’re in?
For this to work, CDSs would have to be only available to a lender with skin in the game and only up to the amount of the loan. (No more side bets.)
Are there still CDSs being written today or have the AIGs stopped writing them?
This seems too simple. What am I missing here?
February 19th, 2009 3:43 am
Steve, as I understood from reading AIG’s annual report, if the note defaulted AIG would have to pay off on the whole thing and take the mortgage.
The problem is that the loans came with a prepayment penalty to make up for the discounted interest at the beginning of the crap loan. So if the note holder refied, a prepayment penalty would be due from the homeowner. Secondly, you can’t refi the loan when the collateral has dropped 50% in value as the loan would no longer be 100% asset backed.
Under your CDS fix, someone would have to take care of the prepayment penalty and rewrite a loan which may only be 50% covered by collateral.
February 19th, 2009 3:45 am
Steve:
You almost got it right except for:
in the “factors” is a percentage of early payoffs and/ or foreclosures that doesn’t affect the premium or payment of “insurance”, which is one of the reasons for not writing down the losses correctly.
You have the fiqures right but not the recipents payouts, the “insurance payments” is due to the policy holder who has no skin in the game nor enough capital to cover the “bets” if the market actually changed. It was all just a way to earn higher profits by charging premiums for insurance on ” a winner” over and over again.
In your scenario, AIG would love it, they issued 1 policy to XYZ to cover 1/2 of the losses, and would recieve 8 separate insurance payments to cover maybe 2 or 3 times what they would have to pay out, BUT now what happens when AIG can’t pay unless all 8 at least 6 of their policies pay them ( they didn’t have sufficent capital themselves to place the bet that is why they counterparty the risk), XYZ still has to take the loss or maybe XYZ can delay taking that loss until AIG can actually pay them and until they do, XYZ is not loaning anymore money out or trusting any other policy holder because they also might be fudging their balance sheets to delay real losses. (do you hear liquidility and credit crisis here, it has nothing to do with the public but each other, which is the reason the Federal govenment came in with over 2 Trillion Dollars to interbank loan to banks, this is taxpayer money giving banks more chances to earn profits)
There are still CDS being issued or side bets, if you prefer being made improving the “profit” margin today instead of taking this time to de-leveraged themselves by netting each other out. The financial industry is contracting, there is not enough business for everyone, so company profits which they are too used to has to be made some way and this is their last big hooray.
And you are right in one regard, foreclosures, refinancing or modifying above the “factors” calls into play the CDS insurance that is still in effect. Since it is an unregulated market with no apparent paper trail, no one actually knows when or how much is still in effect or what players are in play (JP Morgan is one of the biggest players) or when principal reductions can occur to minimize the loss without affecting Wall Street power or income.
Remember a 40% principal reduction to 25% of all outstanding mortgages would only equal 1.2 Trillion Dollars, the banks have already almost written down that amount combined without reducing one homeowners mortgage AND that is without counting it the pension and life insurance funds, GSE’s (half of all mortgages) plus your private investors.
1.2 Trillion Dollars divided into holders of mortgages (MBS or private whole mortgages), if FNMA and Freddie own or service half of them, that means the MOST over 8500 banks in the USA could lose is 600 Billion Dollars without any other entity being involved.
Hell, TARP could have taken care of that itself with another 150 Billion Dollars throw in as a sweetner. (850-150=700-600=150 additional sweetnerer)
February 19th, 2009 4:22 am
Ex owner
Yes I am in the business, I am one of the “***” mortgage brokers. I did not make the rules but if I did not follow the guidelines issued by Wall Street I made no money. Truthfully, I should have made alot more but I have been in the business over 30 years and I couldn’t get away from my own mentality that LOCATION is the key. The programs issued took away that fact, location, location, location.
Like minded and income producing individuals purchased and lived in similiar locations. Needless to say, everyone wanted to live someplace “better” whether they could afford it or not, termed McMansions. The previous programs had let them afford it for a limited time.
My proposal takes it back to reality, if your paying you can afford it, if your not you have to prove it. There is no free ride. YOU, of all people should appreciate the necesiarty of this.
Look at “Obama’s” new housing fix, all previous Alt A, Prime and “responsible” individuals that made a down payment including the no income or high ratio’s of 50% that previously QUALIFIEDS for a mortgage UNLESS you are delinquent, continue to pay because you are stuck in your mortgage, we will help the people that lied or never qualified first, IT DOES NOT MATTER THAT YOU ALSO ARE UNDERWATER, you are not the problem yet, they are.
You are being financially responsible to Wall Street before you or your families well being, and we appreciate it.
The problem is the delinquent underwater homeowenrs and we don;t want to force the banks to actually take the loss, even though it is their problem.
See, our best economy has been when the public borrowed to spend, and we want that back.
February 19th, 2009 10:37 am
Susan,
Thank you for your response. I’m still confused here so I hope you can bear with me for a couple of questions.
On the CDSs: I might still not be clear on who is putting down the money and who is liable.
1. Mortgage A exists.
2. Bank XYZ wants to cover a possible loss/default/foreclosure
3. Bank XYZ goes to AIG and AIG writes a policy to cover a possible default
This is simple to this point. Bank XYZ pays a premium to AIG. AIG makes money. Bank XYZ CEO sleeps well at night cause “he’s covered”. Simple insure a performing asset contract.
Now to become a CDS, does AIG sell pieces of the risk to a bunch of others? This would be like AIG doing a re-insurance of the liability. In a default, they would all have to pay?
Or, does AIG let disinterested parties put up a premium on the mortgage = insure the same mortgage multiple times? Now, when the homeowner defaults, AIG owes everyone?
My understanding was that it was the second one and that is why AIG got a bazillion $$$$ from TARP.
If I am right, then the Troubled Asset Relief Program, if it did what was intended and relieved assets (bought loans), it would have unwound enough of the CDSs to make the credit crisis go away. Instead it seems we put the money in AIG to pay off bad bets and not really “clear the table”.
Why do I get a feeling that some of the people who were making up the rules and allowing these bad loans to be made were the same people betting against them? If that were the case, they made money when the loan was made and then made money when it defaulted (which they knew it would do). If TARP bought the loan, their downside bet wouldn’t have paid off.
Brokers lose.
Homeowners lose.
Workers lose.
Taxpayers lose.
Economies lose.
Those who made the rules and knew the game win twice.
Do I have it mostly right or am I just being a little to paranoid?
February 19th, 2009 2:16 pm
benzy Said:
February 17th, 2009 5:06 pm
Hey CA, the rest of the country knows that is not an “average” house.
Hey Idaho…Obama wants to tax you so lower income earners in CA can live in mini-mansions,
Joan,
The average home in my Bay Area, CA county is 1437 sq’ and we have moderate high-density compared to most other counties.
And, for every one dollar CA sends the fed’s way, we get back 75 cents.
You are so dearly wrong on even your core positions.”
Joan said:
Thanks for clearing that up Benzy. I was under the assumption that CA was broke, my bad. False alarm America, CA is fine and you won’t have to support us, Benzy said so.
And Idaho, disregard what I said, you won’t pay for Benzy’s greed because appearantly CA has the dough to cover it.
Benzy you really should step aside and let the people who rode the big bus participate in the discussion.
February 19th, 2009 3:22 pm
Joan, dear. Let me explain this really fucking simple for you to understand:
We pay federal and state income tax. For every dollar we send to WDC, we get 75 cents back (are you still with me?).
For every dollar we send to Sacramento, our state democrats spend 1 dollar and 15 cents.
Is that clear, honey?
February 19th, 2009 5:48 pm
I came across this and I just had to share!!
John Kennedy once said to a assembled group of scholars in the White House * I think this is the most extraordinary collection of talent, of human knowledge, that has ever been gathered at the White House – with the possible exception of when Thomas Jefferson dined alone.”
The quotes below could prove his point.
When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe
Thomas Jefferson
The demo cracy will cease to exist when you take away from those who are willing to work and give to those who would not.
Thomas Jefferson
It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.
Thomas Jefferson
I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.
Thomas Jefferson
My reading of history convinces me that most bad government results from too much government.
Thomas Jefferson
No free man shall ever be debarred the use of arms.
Thomas Jefferson
The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.
Thomas Jefferson
The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.
Thomas Jefferson
Very Interesting Quote:
In light of the present financial crisis, it’s interesting to read what Thomas Jefferson said in 1802:
Banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.
Doesn’t this sound eerily familiar to what is happening in America today?
February 19th, 2009 6:52 pm
Steve:
It sounds as if you got the shadow industry down pat except a CDS starts with #2. And banks or Wall Street traded in the issuance AND recievorship of CDS, betting whether a product will fail, it was not insurance (no regulation, rules, investment, ownership or capital needed)
In AIG place, it issue ( charged a premium) too many CDS bets (overleveraged themselves by over 30, heard it was more like 50 to 1) without hedging(receiving or paying the premium) the same number of bets to wash out. When the underlying mortgages itself started to default, the bet lost and payment ( agreed upon odds) was expected.
No, Paulson (former exec of Goldman) couldn’t buy the toxic loans, because they are on the balance sheets as insured and the CDS’s still wanted to be paid reducing all capital in system, hence reason for recapitalization of banks thru TARP.
There is no “change” business remains the same here in the USA.
I
February 19th, 2009 7:14 pm
Hi BertDilbert and Stu:
I liked both of your post about AIG and T.Jefferson. I didn’t know either.
What do you think of the “New Plan” President Obama is projecting?
I don’t believe it will help and be a waste of our money. One component of it is very similiar to the FHA refinance though, you can have a rate and term refinance up to 97% of the current market value already, no matter who the current mortgage holder is.
It does not address the issue, negative equity.
February 19th, 2009 7:21 pm
The people who rode in the big bus are all Americans, first the homeowners with negative equity, then the balance of homeowners with the rear of the bus occupied by the renters.
I included the renters, since the drivers seat is switching from banks to government. If it goes back to banks, all renters are to get off, it doesn’t pertain to them.
If the government remains, renters may stay as they are a part of the “taxpayers” needed to correct the situation caused by the banks.
Joan, you still don’t like my suggestion of the mandate needed to not cost taxpayers money?
February 19th, 2009 7:44 pm
It does not address the issue, negative equity.
But, Susan. $1000 per year for performing borrowers!
It appears these CDSs have these mortgages leveraged so much that if 1 in 20 borrowers stick around and pay then the plan is worth it to the investment boys club.
It is still unbelievable that Joan is so wound up about petty PRs. Are we not talking about a 300k mortgage being derivatized up to $6,000,000 and sitting in somebody’s pension ready to go boom.
But, go for it Joan. A 50k PR is the problem, and the PR recipient is the “greedy” one. Yeah. You got it right there, Joan. Santelli, he’s on the side of the prudent people! The renters!
February 19th, 2009 9:49 pm
One of the details that has leaked from the Obama plan seems to be that people who are upside down and have a mortgage owned by Fannie or Freddie (50% of the paper), will have the ability to modify if they are current.
This seems to be no PR but extending the term and lowering the rate for the most part.
I am doing a similar thing with my own mortgage without a bailout. I am in the process of refi-ing my loan, on the open market, to get the current rate (4.875%) and save 3/4% from my current rate of 5.625%. I have a 15 year loan that is one year old and will go back to a 15 year (extending the term). I am current on the present loan and I will save quite a bit/month with this “modification”.
I am very much in favor of doing this sort of modification for anyone who is an current and has been on-time with their mortgage payment for the last year. This should give these people a break and not cost anyone anything. It would be a virtual re-fi that should be a low risk. These people have done the right thing. They love their homes and have no intention of walking away. It’s not their fault that their house went upside down. They have proven that what the house is worth doesn’t concern them. They’re not walking away.
Unfortunately it seems that this can’t happen unless the house is no more than 95% LTV. This seems like a lot of people who could really use the help and it wouldn’t cost the taxpayers, won’t be getting help.
Example, a friend of mine married a woman with a house and mortgage she got from her ex. The rate is around 7%. The house is upside down by 25%. They have 4 kids. The kids are in school and they have no intention of leaving the house. (She loved it so much that she allowed her ex to walk and stick her with the loan.) He’s a struggling contractor and she works when possible. They are current and keep making their payments. They would be perfect candidates for being allowed to mod but they’re too far underwater. Rewriting their loan at current rates (5%) and resetting the clock back to 30 years would save them a fortune and not cost any taxpayer.
And it should get rid of 50 CDSs betting that he’s gonna default.
February 19th, 2009 10:20 pm
I am very much in favor of doing this sort of modification for anyone who is an current and has been on-time with their mortgage payment for the last year. This should give these people a break and not cost anyone anything. It would be a virtual re-fi that should be a low risk. These people have done the right thing. They love their homes and have no intention of walking away. It’s not their fault that their house went upside down. They have proven that what the house is worth doesn’t concern them. They’re not walking away.
[Joan]Steve, these people are greedy and should be punished. They had no business living in these homes unless they were willing to pony up at 7,8,9% APR and weather 50% depreciation in a global financial crisis. Your friend probably cashed out equity to buy granite, limeaid and fresh mint and had parties where they made renters feel insecure.[/Joan]
February 20th, 2009 12:04 am
benzy,
these people are actually paying their mortgages, on time, every month. Albeit, with some difficulty. I would not describe that as being “greedy”. They have not used the house as an ATM. They have been living in the house, raising the kids and making the payments. This doesn’t seem to qualify for punishment.
My point was that there are a whole lot of people out there who are caught up in this lousy economy, but they’re still making their mortgage payments (93%).
Under normal circumstances, their houses wouldn’t be underwater and they would be able to take advantage of the normal dip in interest rates. It wasn’t their fault that CDSs going bad pushed down the value of houses. (Actually, in my example, how important is the value of the house if there is a history of on-time payments at a higher rate?)
Now we have a $75 billion package that won’t help a lot of people who are doing the right thing. Those are the people who wouldn’t re-default and who are just looking for the current interest rate – something that will cost taxpayers nothing.
I’m afraid that with this package out there, a bunch of the people who are going to get “rescued”, are those who should be punished. There are things that could be done that will cost taxpayers nothing and these things won’t get done (such as letting my friend re-fi). But with such a large pile of money on the table, you know it’s going to go to some people. So if those who don’t deserve to be punished aren’t getting it, who do you think will get the dough? My guess is that the money is gonna help out a lot of those that probably deserve the punishment the most.
February 20th, 2009 12:53 am
Steve, I’m pulling your leg. I have total sympathy for your friend with 4 kids and I hope they find a way to re-fi that house.
February 20th, 2009 2:14 am
Hi Steve,
Pres. Obama was trying to find a way around moral hazard and there is none. The banks are relying on the 93% of homeowners to keep on paying and there is no reason for them to correct a bad situation they themselves created.
To protect the economy from sinking further, the foreclosures must stop. Even nationalization for the banks, will not help the housing industry.
The plan as submitted on White House Website invites moral hazard, penalizing the responsible and rewards the banks and delinquent homeowners with taxpayers money.
February 20th, 2009 8:56 am
Hi Susan, I oppose any plan by anyone that uses TAX PAYER money for anything. I have opposed every single plan in place by this administration to date as well as TARP 1 and all the silly loan programs being offered up by the Fed and Treasury. It sickens me to see our future TAX PAYER money being used to prop up these ailing companies when we have things in place already to address their needs. It is called bankruptcy and the FDIC. In my humble opinion I think all of these companies should have gone the way of Lehman. Now my children and their children will be forced to pay for all of their losses that do not get paid back to the TAX PAYERS via our moronic Government. Their wasteful spending will surely cause issues down the road for our country and its citizens. I find them all shameful and pathetic and next election, as I have every election for over a decade now, I will vote against every single incumbent running and do a write in for those unopposed.
The saddest part of all of this is that the population over all could obviously care less about our country and its future or they would get off of their duffs and vote for starters and also stand opposed to this crap the Government is doing. Our children’s future is being robbed right in front of our eyes and our country is leaning sharply towards socialistic agendas and yet people like Biden, Kennedy, Frank, Dodd, Pelosi, Kerry, etc. get overwhelmingly re-elected every election.
It is SINFUL!!!
February 20th, 2009 9:04 am
We need MASSIVE cut backs in spending by all Government agencies starting with the House and Senate. Cut their pay, their benefits, and their pensions immediately. We also need MASSIVE tax cuts if we are ever going to be able to move forward as a nation in my opinion!!! People need to be able to keep more of what they make. It is their money after all. Lastly we need MASSIVE tax incentives for investing. We must address the lack of manufacturing in this country and we need to do it now! You don’t spend your way out of a problem created by over spending, but rather you produce your way out of a problem such as this. We are clearly going in the wrong direction as a country and something needs to change that as soon as possible. Obama was elected on the platform of “change” but to date has not only given us more of the same, but much, much more of it. Look at his appointees and you see a who’s who of career politicians in action. I have not seen anything that even remotely resembles change as of yet…
February 20th, 2009 10:56 am
Stu,
Your vision for America would work. But as they say: “We have seen the enemy and it is us.”
We moved away from making things because we got lazy and we didn’t want the factory anywhere near our little home.
Put a factory somewhere and a big “buffer circle” develops around it where no one lives. Factories have bad breath and they’re usually ugly.
We got lazy. Some gave up their guns and outsourced their security to the police. We outsource our kids’ learning to the schools. We want everything done for us. So taxes go up, and up, and up.
You’re right. We got to change. But what do we have to offer to the world?
We have raw materials: iron, copper, wood. We can sell i-beams, wire and boards.
We have food. We can feed the world from our valleys. We can set up fish farms. We can raise livestock.
We also have what’s left of our collective intelligence. Our engineering skills can be used here and around the world.
We’re trying to save the auto industry to save jobs? The only jobs that people need to do with their hands right now are construction or service jobs. Most of the “stuff” that gets made in this country is almost fully automated. There’s a bakery that used to employ 1500 bakers. It now employs 3 people: one to pour the stuff into the hopper, one to watch the monitor, 1 to load the packaged bread (that was untouched by human hand) that comes out the back into a truck.
We are in the middle of an industrial revolution the likes of which will make the early 20th century seem tame.
When we come out of this, many of the old jobs will be gone but there will be other things for us to do on this little planet of ours.
February 20th, 2009 11:49 am
Where is MM and his articles? Are you in hybernation, did you have to forclose MM? lol
How long does it take to get a site, or post again to this one… something fishy…
ex_owner
February 20th, 2009 11:52 am
collective bailout ~~ comunism
February 20th, 2009 11:55 am
I’m ready for FHA to reduce waiting to 1 year to buy again, for pp that lost due to circusmstances out of their control (lost of job, etc).. and that repaired their credit.. in between… everybody else that can’t pay.. walk away and start all over.. NO BAILOUTS!
MUSICAL CHAIRS ANYONE??
February 20th, 2009 11:57 am
we will be out of this mess within 1 year!
STOP THE BAILOUTS.. USE YOUR BRAIN! COMMON SENSE!
ARE YOU LISTENING OBAMA?? (I’m puling a rick santeli)
February 20th, 2009 11:59 am
FIRST WAS… WE CLEAN YOUR TOILETS!
NOW… WE PAY FOR YOUR TOILETS!
MUSICAL CHAIRS IS THE BEST OPTION.. WITHOUT GOING IN DEBT FOR GENERATIONS.. AND WE LEARN A LESSON TOO!
February 20th, 2009 12:19 pm
Benzy thanks for posting for me in my absense, I could not have said it better myself, what with the granite and limeaid thrown in for dramtic affect
Riots, like I said. This may not look like a riot in the traditional sense but its just the beginning.
“Brandon Creighton, the State Representative from…. Conroe, has filed a 10th Amendment Bill in the Texas House claiming state sovereignty over non-enumerated Constitutional powers. The libs are in an uproar, and Creighton is literally being stopped in the hallways of the Capitol by other legislators who want to sign on as co-sponsors.”
http://www.campaignforliberty.com/blog.php?view=11398&cpg=1
The rest of America is not going to be forced to pay for CA’s greed. CNBC’s “House of Cards” sealed the deal for CA. People are super pissed at Obama wanting to use their tax dollars to keep lower earners in mini-mansions. America has seen the face of the CA bubble-nut and she has a 3 car garage.
So the sensible states will just refuse to go along with the bubblenut wellfare program. The Constitution never intended Obama to be able to force Texas or Tennessee to pay for Stucco-palaces for the masses in CA.
So, we can talk all we want about PR or changing contracts to more favorable terms. Obama can make all the proclamations he wants. The states will just sue and not pay!
February 20th, 2009 12:44 pm
“Companies that service mortgages will get $1,000 for each modified loan, and as much as $1,000 for three years when the borrower stays current, the government said. Homeowners also are eligible for $1,000 annually for five years for remaining current on their loans, according to the plan.”
So we are going to bribe the debtors $1,000 a year for 5 years to make their payments on time??????”
Dear Texas and Tennessee, Idaho, Ohio, etc., please include an extra large additional contribution to DC each month this year. Its gonna cost $250 billion to keep McDonalds workers in granite encrusted stucco-palaces out there in CA. Unfortunately that will entail a lot of work too, and people need to be paid for their work. So there will be lots of $1000 checks going out on top of the $250 billion. Keep up the good work, thanks for staying sane during CA’s bubble party. All good parties need someone to clean up the mess.
Yours truly
Obama
February 20th, 2009 1:22 pm
Dear CA,
I have enlisted the aid of our more fiscally responsible states (read boring) to shore up the stucco-palace deficit out there in the sunshine state. It has come to my attention that there are some responsible people in CA who did not participate in the bubble party? Wow, that’s some self control there huh?
Anyway, as you know we are taking valuable tax dollars from responsible states to pay for the CA party clean-up, so it’s only fair that the few dozen folks in CA who were responsible take some of this medicine too. I cannot have other states thinking that only their responsible citizens will be paying for all this and I cannot have any cracks in the “rewards for the irresponsible, punishment for the responsible” program I have carried on from GW.
A good litmus test is to check to see if Jet-Skis are in the 3 car garage. If there are no Jet Skis and no 40’ toy hauler, resplendent with ATVS in the driveway then we have a potential contributor.
Also, I have sent a radon meter to each Gov agency in CA. The more granite the more radon, so please use the meter to determine the amount of tax payer dollars to be given freely to each of your party goers.
Sincerely
O
February 20th, 2009 1:25 pm
Its gonna cost $250 billion to keep McDonalds workers in granite encrusted stucco-palaces out there in CA.
Actually, Joan. Those in peril on my block are a chemical engineer, a clinical psychiatrist, electrical engineer and a commercial painter.
I can imagine your frame of reference is skewed coming from whatever chicken-fucking backwater shit hole state you live.
February 20th, 2009 1:27 pm
Riot/tea party?
Poll: Would You Join the Chicago Tea Party?
CNBC Poll: Tell Us What You Think
Would you want to join Rick Santelli’s “Chicago Tea Party?”
* 214338 responses
Yes
94%
No
4.9%
Not Sure
1.5%
Not a Scientific Survey. Results may not total 100% due to rounding.
http://www.cnbc.com/id/29301208/
I predict more anger! 214338 voters, 94% are pissed! This is not a poll on some bubble blog, this is on CNBC.
February 20th, 2009 1:31 pm
Benzy, I forgot this is the internet. I can play make believe too.
I live in a neighborhood of NASA employees and Nobel prize winners. They all pay their bills and are disgusted by trolls like you who beg off the public tit whenever their stupid bets go bad.
February 20th, 2009 2:17 pm
Joan I’ve voted no as well!
February 20th, 2009 2:27 pm
Benzy, a heartfelt picture from America to you and a nice story:
http://dailybail.com/home/2009/2/19/insane-america-obama-wants-you-to-bailout-the-asshats-who-li.html
February 20th, 2009 3:24 pm
Mr. Mortgage speaks from beyond…
————————————————————————————————————–
2/17/09
Good Morning,
There are several new ‘plans’ that have been hotly debated and speculated upon over the past couple of weeks that are supposed to be aimed directly at the housing market. Obviously everyone is excited and hopeful that this first tranche of money directed at the root of the problem will be substantial enough to bring permanent and quantifiable results. Hope is running pretty high that this time, the administration gets it right and announces a bailout that the market can sink its teeth into – gotta have that bailout!
All that we know now is that whatever the plan or plans are, the relief is specifically aimed at preventing defaults and foreclosures by making ‘payments’ more affordable. It’s too bad that affordable ‘payments’ means ‘to lever up’ which is what got us here in the first place.
How long before the administration learns that when you leak out information without a quick follow-up announcement that almost invariably you set yourself up for disappointment? At the very least, Paulson leaked rumors at the exact time the market needed support then followed up quickly with something that sounded powerful when announced. However, by the looks of this market Geithner has as good of a shot as he will ever get at beating expectations.
As always please forgive my occasional grammatical errors – obviously I am not a writer or copy editor.
The Plans (Buy Loans, Modify Loans, Refi Loans, 4% Rates) The ‘Kitchen-Sink’
In this report I will attempt to confuse you further. Plans like this hit right at the heart of my research, which is addition to real-time aggregate and lender-specific mortgage default and foreclosure data, dives heavily into every aspect of the ‘new breed’ of high-leverage mortgage loans made primarily from 03-07 in addition to the behavior of those that took them out. This is sometimes daunting as even 30-year fixed, 20% down, full-doc loans during the bubble years were high-leverage loans.
Perhaps all of the plan rumors circulating are one in the same being reported differently across the media. McConnell with his 4% proposal has been quiet for the past week and a half – maybe this is a ‘kitchen-sink’ plan that makes him happy as well. Or perhaps this only has to do with GSE-owned or FHA insured loans. The market would have a problem with that.
I have never seen such excitement about $50 – $100 billion being spent – especially when the there has been $9.5 trillion committed, the mortgage market is $11 trillion and last month alone there were $30 billion in loans that went into default across the nation. If this is going to be painted as the ‘kitchen sink’, they had better throw a sizeable, targeted amount at it or the market will be disappointed.
One of the plans is being reported as more of a pro-active loan modification. It targets payment using government subsidization while another has the government buying distressed mortgages at a discount and refinancing them through FHA or the GSE’s. Perhaps these two plans are one in the same. Either way none address negative-equity, which is the leading driver of loan default across grades higher than Subprime.
Feb. 14 (Bloomberg) — The White House is willing to spend more than the $50 billion already pledged to stem home foreclosures and intends to focus its efforts on reducing monthly mortgage payments, rather than principal, said Lawrence Summers, the president’s top economic adviser.
Unless negative equity is addressed, all that’s left are underwater, over-leveraged zombie-homeowners unable to sell, move-up, refi, save or shop. If the plan is just one big loan ‘mod in a box’ that assists the banks and investors with losses then I think we are being set up for another disappointment.
Banks and servicers are already being very aggressive re-levering defaulted homeowners through teaser rates, extending terms, negative amortization and balloons etc. Presently, banks and investors are taking the hits on their own and from what they reported to the Senate last week are modifying millions of homeowners.
Perhaps the reason the plan is so small at $50 billion to the taxpayer is because it is redundant fluff that has no guaranty it will produce any results – other than sharing in $50 billion in losses with the note owners.
“The government will subsidize interest-rate reductions by working with the servicers that handle mortgages, the person said. That way, servicers can lower monthly payments for households without shortchanging investors.”
Going forward economists are going to have to discount homeowners with modified mortgages because they will not be part of the housing or mortgage markets or likely the macro US economic equation for years. Once they receive a mod, they are debt-slaves to the full amount of the mortgage for life. Most mods contain pro-lender language whereby the borrower waives all rights to future predatory lending claims against the original lender and acknowledges the full amount of the mortgage with full-recourse provisions. Welcome to the Hotel California! You can come if you want to — but you can never leave.
Do people love their home that much they are willing to commit for life to a mortgage that is 50% above the present value of the home?
I was there during the bubble years when all of this was happening around me. This gives me the borrower, lender, investor, bank, GSE, appraiser, insurer and Realtor insights few that weren’t there have. In 2003 everything changed. There is no way to replicate the period even through loan modifications. There is no way to get homeowners ‘rejuvenated’ about this investment that has caused them so much pain. When in default the home once again becomes a place to live — just like the rental down the street at half the cost and with no maintenance.
With values down 20% – 70% across the nation, even if they were to find a way to successfully and permanently re-lever the borrower, it is too late for most due to house-price depreciation alone. To date all money thrown at this problem has been wasted. I am afraid the plans we are hearing trickle out now will end the same way.
FDIC and GSE ‘Mods in a Box’ – Copycat with a Twist?
We already have high-leverage FDIC and GSE ‘mods in a box’, which are now industry standard and have reported default recidivism rates of over 50%. Now it looks like we will now have one from the White House deemed ‘new’. The present mods already rely upon lowered interest rates to achieve their target results but many are temporary.
Perhaps the primary difference between the present ‘mods in a box’ and the new White House program is that it makes the interest rate reduction permanent.
“Like earlier efforts from the Federal Deposit Insurance Corp. and housing industry groups, the new plan will make use of interest-rate reductions, loan extensions and so-called principal forbearance, in which part of a mortgage’s principal is deferred to the end of the loan’s term.”
If this is a permanent rate roll-down that targets borrower debt-to-income ratios they got it half right. But to permanently solve the default and foreclosure crisis and make these homeowners an active member of the economy once again the relief must come in the form of an income-targeted principal balance reduction. Anything short turns the homeowners into zombies and just kicks the can down the road.
Bloomberg reports that the Gov’t will split the cost of a loan mod with the bank or mortgage bond holder to make it more palatable. But since FDIC and the GSE’s put out their ‘mods in the box’, most banks and servicers have already adopted that as a template for their own programs. ‘Mods in a Box’ workouts are very common and easy on the borrower. The primary problem is that ‘Mods in a Box’ leave the borrower an over-leveraged, underwater renter unable to ever sell or refinance which is why over half re-default.
With an income-targeted principal balance reduction, even a 5.5%-6% market rate puts the borrower in a better position than with a re-levered loan that keeps them underwater. Why spend billions lowering rates when it could be targeted elsewhere and actually have a shot at working?
Lower rates may put a few bucks in the consumer’s pocket but most will remain underwater, over-leveraged renters for life. They surely won’t spend any money on home improvement and likely use what little relief they receive to pay bills or replenish savings.
Understanding Debt-to-Income Ratios as Part of the Plans
When evaluating the plans as more information comes out remember there are TWO debt-to-income ratios i.e. 28/36. The first is total housing debt to income; the second it total debt including housing to income. All of the plans tout the housing-debt ratio because it is lower and makes the plan sound less risky. But total debt ratios are more important. As a matter of fact when it comes to getting a new mortgage loan the total ratio has always been more important than the housing ratio for obvious reasons.
“All these measures will be used to help homeowners reach an affordable monthly payment, the person said. That monthly housing payment, compared with their income, will be the focus of the program, rather than achieving a target interest rate.”
What good is it if a borrower is brought down to a 31% housing ratio but with their SUV, boat and credit cards they are at 65% total DTI? When the home is viewed as an investment and the majority of a homeowner’s monthly outgo is to that massively depreciating asset the best investment decision and quickest way of de-levering and maintaining lifestyle is to walk.
New Plan is ‘Voluntary’ – Will Banks Actually Give it Away?
Just like the Hope-For-Homeowners FHA refinance failure, the new program(s) is voluntary for lenders and investor meaning is may not fly simply due to that — especially if they target non-delinquent borrowers. Presently, most bank/servicers will not work with a borrower until they are late. If this is aimed at current borrowers, when was the last time you have seen a bank give something to someone that will incur a loss that didn’t have to?
“The new plan, which isn’t final and could change, would be voluntary for lenders and investors, the person said. It is aimed at loan modifications that have a positive net present value, meaning that the cost of a foreclosure would be higher than that of adjusting the loan terms.”
If they proactively go after non-delinquent home owners the total funding per home owner becomes very small. Additionally, there is a fairly significant moral hazard issue which I probably should not even
be concerned about at this point in time. With 10% or 5.5 million mortgage loans presently delinquent or in the foreclosure process, $100 billion (50/50 gov’t/note owner) gives each $18k in assistance.
$18k applied towards an interest rate reduction on a $225k loan could easily buy down a 5.5% – 6% market rate to 4%. Perhaps this is why you have not heard much about McConnell’s 4% rate plan as of late. But at least twice that many are likely ‘at risk’ therefore the amount of assistance per homeowner will be less – still $9k can do a good job of buying rates down considerably from present levels. On a $225k loan going from 6% to 4.5% saves a home owner $200 per month.
If indeed this program is simply ‘another’ mod that keeps the borrower fully levered to the total mortgage debt and relies upon bubble-years lending ‘creativity’ it will not be the great ‘solution’ that most hope for. It will help some for sure, which I suppose is better than none. But with 5.5 million mortgages with over $1 trillion presently in trouble and 10 to 15 million mortgages worth approx $2.5 trillion in a negative equity position, $50 billion will not go far.
With gov’t splitting the loss, perhaps the borrower will get a little more relief or a permanently bought-down mortgage rate of 4% in contrast to the trash they get now with the note owner eating it all. But the end result still leaves homeowners in the same zombie state. Additionally, with the default and foreclosure crisis now in full effect across higher grades that together dwarf Subprime, the note owners know that if they do not ‘volunteer’ for this that before too long the government will eat the entire enchilada. Already changes are being made to the Hope-for-Homeowners FHA program to make it easier on the note owners.
Mods Done Right – Debt Forgiveness through Targeting Income
The force-delevering of the home-owner or massive asset /income inflation the likes we have never seen before are the only way out of this. Take your pick.
To date all plans just lower that rate, do not address the negative-equity levers them further. The housing market will ‘fix’ itself over time and constant meddling only prolongs the inevitable.
The Subprime Implosion is on the mend all on its own. The problem is — like CNBC’s Dennis Kneale loved to say throughout 2007-08 – that ‘Subprime is such a small piece of the pie’. It is small and look at what it’s done. The impending Alt-A, Pay Option, Jumbo Prime and Prime implosions occurring in rapid succession in 2009-11 will make Subprime look like a walk in the park.
The only way to ‘fix’ the housing and mortgage markets and consumer’s balance sheet is to undo 2003-2007. To ‘undo’ means to:
· a) force de-lever the home owner/consumer through mortgage principal balance reductions based upon what the borrower really earns using market-rate financing
· b) make it so home owners can freely refinance and sell their homes
· c) make it so the vitally important move-up buyer comes back
· d) significantly reduce defaults and foreclosures without making home owners underwater, fully-leveraged, renters for the rest of their life as the present FDIC, Fannie/Freddie and bank mortgage modification plans do
· e) allow home prices to fall to attractive multiples of rents and incomes without exotic loan programs or artificial, temporarily, government induced low mortgage rates
This can all be accomplished quickly through a broad scale income-targeted mortgage debt relief program. With $7 trillion (31 million mortgages) in suspect loans originated from 03-07, 85% of which are owner-occupied primary residences ($6tt/26 million), the cost of getting America’s housing crisis under control quickly would be around $2 trillion. This is $77k mortgage debt forgiveness per home owner and will make a difference.
Add on a $500 billion tax break for those who did not do anything wrong and $2.5 trillion pales in comparison to what will be spent before they figure out this would work. Spending $2.5 trillion in the right place would eliminate several trillions for programs already in place. Immediately these home owners
would be productive members of the economy once again and able to sell their homes or refinance. The debt backing these borrowers would actually rise in value.
I hate to say this because my macro-economic beliefs are totally the opposite — but a ‘trickle up’ solution for housing is far more effective because it gets to the heart of the problem. If you cram household debt down to 28% housing and 36% total debt the home because a place to live again and far fewer will default if values fall further. The 26 million at-risk bubble-years mortgagees would be free to sell their homes, refi, save and shop. They would do all of it. Taking care of this 26 million would put a floor under housing that would benefit the other 60 million homeowners.
Cram-Downs – The Right Solution with Too Great of Unintended Consequences
Part of Obama’s solution may include cram-down legislation where judges have the power to grant principal balance reductions. While this is half right allowing judges to re-write contracts is a big problem. The error and fraud will be tremendous. It could also force a mass liquidation of distressed assets at prices that are truly ‘fire sale’.
At present the distressed note and housing market is not illiquid – there is just a price dislocation due to sellers holding out for higher prices than the buyers are willing to pay. With bailouts coming ever week and talks of bad banks buying this stuff at above market prices, why shouldn’t the sellers hold out for a higher price?
But there are also other serious unintended consequences to this plan not many know about. Not every mortgage backed security deal is the same – language varies greatly. But most of them have language that say in the event of a bankruptcy the principal loss is taken from bottom up in the cap structure — Not rated, BBB, BB, B, AA, AAA. The same with a foreclosure, jingle mail etc.
But with BK Cram-Downs where principal loss occurs, the loss can be spread across the cap structure evenly. The language that allows this is more prevalent in non-Agency deals such as Alt-A and Jumbo Prime.
As soon as a hit occurs across all tranches, the ratings agencies terminology will assign a ‘D’ rating to that Bond. When that happens, the capital requirements will go from 25% to as much as 100%.
Insurance companies, mutual bond funds, pension and hedgefunds are the largest owners of this stuff. Due to the downgrade, they would have to sell bond at massive loss and put pressure on market or raise capital.
Residential Rents to Continue to Fall – Could Get Ugly
I have been arguing with folks for a long time over why rents will fall as defaults/foreclosures — that put people out of their homes and in need of a rental — increase. The latest report out of Forbes citing Las Vegas and the ‘emptiest city in the nation’ shows exactly why this will happen.
In addition, as home sales in the bubble states increasingly go to investors and prices fall – in CA 60% of all sales were from the foreclosure stock and 60% of those sold to investors – they will be able to rent them for less to achieve their target cap rates. This could actually start a mini-default wave on its own from inventors who jumped too early, which was any month since summer 2007. The investors who bought the property closest to the peak have to charge the greatest rent and are getting squeezed by those who bought more recently.
America’s Emptiest Cities – Forbes
…empty neighborhoods are becoming an increasingly daunting problem across the country. The national rental vacancy rate now stands at 10.1%, up from 9.6% a year ago; homeowner vacancy has edged up from 2.8% to 2.9%. Richmond, Va.’s rental vacancy rate of 23.7% is the worst in America, while Orlando’s 7.4% rate is lousiest on the homeowner side. Detroit and Las Vegas are among the worst offenders by both measures–the Motor City sports vacancy rates of 19.9% for rentals and 4% for homes; Sin City has rates of 16% and 4.7%, respectively.
America’s Emptiest Cities
Las Vegas
Detroit
Atlanta
Greensboro, N.C.
Dayton, Ohio
Phoenix
Orlando
Kansas City
Jacksonville, Fla.; Indianapolis (tied)
Best Regards,
Mr Mortgage
February 20th, 2009 3:25 pm
Hey Joan, some Mayors are already refusing the money!!!
February 20th, 2009 3:30 pm
Santelli, the new champion of “prudent” renters and solvent homeowners! I like how the lowest common denominators across the board are backing this guy as if he was talking to them and not the shadow bankers.
What did that skid mark say mid-video, “how bout some aid to derivative investors”? He’s fuming pissed that homeowners have the nerve to bounce on their underwater loans. Livid that the CDSs aren’t backed.
Santelli can give a shit if you buy a home on the cheep, or rent and live within your budget. It’s like your eating your own brain, Joan.
Like I said, I walk, you pay for it and I still make lots and lots of money in my sector totally detached from consumer spending. I just hope I can time the bottom so greatest loss is extended to the regarded bankers.
February 20th, 2009 4:09 pm
Santelli is a hero to the American taxpayer. He speaks for the majority of us. People that live responsibly and don’t want to be on the hook for the minority of deadbeats with their hands out. Pack the losers up and put them in tents. Take away their SUVs and BMWs they bought with their equity and sell them to people that can afford them – at discount.
Or maybe we should just make all loans recourse. If the govt can modify legal contracts, then modify them all so that the home “owners” are forever obligated to pay their debts. Refinance them into a term they can afford, be it 40, 50, or 60 years. Make it like student loans so they cannot even ween themselves away from it with bankruptcy. That’ll curb foreclosures real fast.
February 20th, 2009 4:27 pm
Or maybe we should just make all loans recourse. If the govt can modify legal contracts, then modify them all so that the home “owners” are forever obligated to pay their debts.
Kevin, however ridiculous I think this is, it is the only way to preserve Sanelli’s army of soon to be window-jumping shadow bankers. We must legislate slavery.
There are millions such as myself who can afford our homes at 5,6 and even 7% but have very little reason sans emotion to continue to pay these banks. We must be, uh, compelled to prop up our phony capitalist economy.
February 20th, 2009 4:29 pm
Benzy, they gave you the money, you signed the papers. I don’t know what makes you think you’re not entitled to live up to your obligation, but that deadbeat attitude echoes the loss of integrity in this country.
February 20th, 2009 4:39 pm
Looks like Kevin and Joan have found another venue to spew the vitriol. The Daily Bail seems to be a good platform for venting on the “foreclosure people”. Heaven knows they deserve the scorn and denigration that society can heap on them. Boy this is getting ugly
February 20th, 2009 4:39 pm
kevin, you’re cheering-picking parts of MY contract with MY lender to suit your argument.
Oh, that’s right. I should be “responsible” to WaMu despite the documented fraud and illegal activity they invented and propagated through the mortgage industry. Fraud that will go down in financial history books.
Maybe I should send the skid mark a check too to compensate for his losses as a derivatives investor.
February 20th, 2009 4:47 pm
Oh I get it. Because the lending institution has committed “fraud” against somebody (not you), you shouldn’t have to pay them back. Of course, that makes perfect sense.
February 20th, 2009 5:00 pm
Benzi.. do your self a favor and walk, ok? I’m tired of your threats! you sounds like a kid… if you don’t get what you want.. you start screaming?
PP like you need to be IGNORED! .. same as with breaking habits with screaming kids!
NO BAILOUTS! UNLESS EVERY CITIZEN GETS IT! GET IT??
100k TO EVERYONE!
February 20th, 2009 5:02 pm
there is a model in place! pay or loose the home!
February 20th, 2009 5:04 pm
PRICES ARE GOING BACK TO 1998! maybe 1996!.. they should have never gone up that high, nor should they stay at today’s prices… and we don’t need the debt for generations!
February 20th, 2009 5:04 pm
Well, Kevin. They sent an appraiser who said the house was worth $30,000 more than I paid, so I don’t see the problem.
They should fare just fine. Especially since 100% of the loss in value so far has come out of my down. But, trust me. I’m waiting long enough for them to share a bit as well.
And since they were the kings of sub-prime, I’m just going to assume that some of those foreclosures due to default flooding the Bay Area were loans made by them.
So, yes, kid. The fraud is real, an it was directed against people like myself.
I’ll tell you what. I’ll prep the house real fucking nice for you and WaMu before I leave. You should get a fantastic deal.
February 20th, 2009 5:13 pm
No you won’t. You’re going to keep paying. You go on your little tirades acting like you deserve something and are going to stop paying, but in reality you’re a pussy and will keep doling your cash to WAMU like a chump.
But if I’m wrong, please go right ahead and stop paying. If your house is worth more than you paid, then the bank will make a profit when you walk. That sure would be ironic.
February 20th, 2009 5:18 pm
I have a few questions for renters, since I’m about to join the herd of the prudent.
Do I get to send my kids to the same schools even though as a renter I will contribute nothing to the property tax rolls? See, I’ve been sending 8,000 to my county every year to help educate the children of all those renters in the high density dwelling down the road, an obligation that will be eliminated once I become prudent.
Do you think a landlord will take an applicant with a 520 FICO and six months advance rent, or will three months advance be all it takes for the landlord to sell out his stringent standards?
When the furnace goes boom, does it take the landlord 5, or 10 days to return your calls?
Are there 30-year rental programs where I will not have pay rent during my elder years?
What’s the renter’s credit, $250? Is that enough to pacify the prudent?
Is a 1-year lease too long? I mean, who knows where I will be in 1 whole year?
Are blank white walls the new taupe? When you leave the rental, do you really get charged $50 for every nail hole you put in the walls? Can you even hang pictures when you’re prudent?
February 20th, 2009 5:21 pm
in reality you’re a pussy and will keep doling your cash to WAMU like a chump.
As long as it’s cheaper than being prudent.
February 20th, 2009 5:51 pm
Yeah dude, I have large framed posters of Paris and NYC in my living room. a quick putty-and-paint will cover them up nicely. Costs about $3. Speaking of being prudent, the heating system in my place broke again last night. Last time that happened, only cost the landlord about $150. I think this one will be much more. Good thing I don’t own the place, maintenance is a biiiiaaaatch.
The rental market is waning, rent is dropping like a rock. Pretty easy to rent a place for cheap with a landlord that doesn’t give an eff what your FICO is. A lot of people these days seem to be doubling down. Going to move in with family and friends who won’t judge them based on FICO and could use the extra rent money.
If FICO is your big concern, then either find your rental before you go FICO suicidal, or have somebody else with good credit sign the lease instead.
Wait – I have a novel idea. Why don’t you just SELL your house and walk away with the profits rather than being a whiny self-entitled quitter?
February 20th, 2009 7:20 pm
Steve & Susan – is there any way we can cancel out the CDSs? They’re semi-illegal aren’t they (no regulation, no transparency, insolvent etc.)? Can’t they just be crammed down or wiped off the books somehow? especially if there’s no underlying collateral for most of them, they’re mostly just side bets. If doable it would solve some of the problems. Is the big banking industry simply unwilling to give them up – I understand they’re still dabbling in them as we type here.
February 20th, 2009 8:49 pm
Mel,
As I see it, those side bets were placed by people who had a pretty good idea that they would pay off. I suspect that those were the people who had inside information about what was in the mortgages that the bets were placed on. I also suspect that those who were involved in getting those mortgages to happen were betting against them defaulting.
IE: if I write a mortgage for a deadbeat that I know can’t possibly make the payments and if I have the chance to bet that the deadbeat will default, I’d be a fool not to take the bet.
There’s a lot of pressure to not buy those mortgages and re-fi them. Where does this pressure come from? Could it be from those people who made a side bet? (If I were going to get $200,000 on a side bet that a mortgage was going to default, would I want that mortgage wiped out leaving me with nothing?)
I believe that there are a lot of Santillis out there who are set to profit from defaults. If I were them, I’d be screaming: “Not a dime for homeowners; billions for AIG”. Where is the AIG money going? To the side bettors, of course. What happens if a mortgage doesn’t default? In that case, the side bettors lose.
I think you’re right: If people want to yell about not helping homeowners because they lied on their mortgage apps, then let’s be consistent here: since the CDS bettors weren’t working on level playing field (really, really inside information), then maybe they (CDSs) should be canceled out.
February 21st, 2009 2:21 am
Stu:
I hate to say it, but it looks like you are right, we are going to hell in a hand basket with these new spending plans. Pork is the new word of the day, taking over from yesterday’s word of bail-outs or was it socialism.
I will say it again, if negative equity is not addressed and corrected the problem will continue. The banks created negative equity by discounting their massive Reo’s into the housing market lowering values that they knew would intentionally financially harm their other existing customers.
It is not the market correcting itself, nor that the market is coming back to reality to match 3x the incomes, Why would anyone think that the market had “guidance”, “greed” and and “manipulation” on the way up but not down?
I totally disagree with Pres. Obama and MM about it is lowering the payment to match the borrowers income, real estate and mortgages was always about location and then the monthly payments or the income had to matched the location. The former mortgage programs allowed the incomes to match the locations under unaffordable guidelines (50% debt to income).
My proposed mandate does not benefit the homeowner who really can’t afford the property, or should have purchased a smaller/cheaper one, or maybe should have remained a renter, these homeowners will be eliminated correcting the unaffordablity of the prior ratio’s. It DOES corrects the financial harm that was done to them by the banks, it does not reward them for purchasing the American Dream during a “bubble” but neither does it destroy them. Unfortunately, it does destroy the novice speculators who purchased high with the intention of refinancing to a better payment later or selling for a profit , the investors who focused on short sales to sell, the same for flippers and the recently unemployed, who for the last I do feel sorry for.
If the borrower purchased or refinanced during the “bubble” years “responsibly” meaning they were able to afford and pay the mortgage (93% still pay), but realize it is not financially smart to continue paying for a losing proposition, they should default under the current plans. (and the BANKS know it)
Under the Obama Housing Cure, the taxpayers will pay the delinquent homeowners a $1000 yr for 5 yrs to pay down the mortgage OWED to the bank sounds crazy right? And the same to the servicers, for a grand total of %10,000. or is it only $9,000. of taxpayers money going to the banks for every delinquent homeowner. It is called a funnel. The homeowner is not getting the money or benefiting, the banks are.
The banks needed something to entice homeowners to continue to pay them on the unsecured loan they themselves created that had changed the terms of the homeowners mortgage essentially making it defective and undesireable to enforce.
A mortgage is a conveyance(lien) of an interest in (equal to or less than ) the collateral (property) as security (pledge) for the repayment of money borrowed.
If 30-40-50% of the mortgage/lien is unsecured, the banks don’t want to enforce the “security of the collateral” being returned/foreclosed, they want a bail out on the 7% that is not paying them, or as MM says “kick the can down the road”.
Or another way of looking at it is , the homeowner gets the $5000 off their overinflated principal balance that can’t be sold for the same principal balance by THEMSELVES OR THE BANKS for at least 10 years but closer to 20 yrs for the priveledge of paying the UNSECURED portion of the defective mortgage that the banks created.
I definately agree that there has to be an incentive to get the delinquent homeowner to continue to pay the banks for their intentional actions that caused him financial harm but it should NOT be taxpayers money.
A government mandate that recalls, reduces principal to 100% of the TRUE appraised value with a replacement mortgage. That is penalty enough for the homeowners who purchased the American Dream, all past paid mortgage payments made was an outright gift to the banks
February 21st, 2009 2:57 am
Mel:
Thank you for thinking I knew enough about CDS to answer your question intelligently. What I know is only because I recently started reading up on the subject.
But when Lehman was allowed to collapse, the CDS market was able to net each other out mostly with a very small percentage being paid to bettors/bettees from an auction that was held.
I read an article recently that Mr. Sommers, Obama’s economic advisor stated that if the CDS would net out, there would still be 15 Trillion Dollars worth outstanding on MBS’s. That is more than the total sum of outstanding mortgages (12.1 Trillion Dollars) I wonder if that is what is holding back the correct and moral way to deal with defaults?
February 21st, 2009 9:19 am
Susan said:
Why would anyone think that the market had “guidance”, “greed” and and “manipulation” on the way up but not down?
Absolutely.
There are lots of people making money on the way down. Those are the people who “shorted” everyone else’s mortgage by placing a bet that those that couldn’t pay, wouldn’t pay.
Could those people be the same ones who wrote/bought the notes? Absolutely.
If the current mortgage market were to unwind on its own there would be a massive transfer of wealth from homeowners/taxpayers to the bettors on mortgages.
The time to yell about letting the market work on its own was before WE poured money into the leaky pail called AIG. The more that got poured in, the more that went out. As soon as Paulson decided that the losers were not going to be the bettors, he had to find another loser with deep pockets: taxpayers. When there’s no more money going into the leaky pail, the pail will stop leaking. But by then, everything that was poured into that pail will have gone from the taxpayers to the bettors. (Homeowners are just collateral damage.) (I wonder if the taxpayers will ever get a “thank you” card from the bettors? I guess not.)
It would have been nice to let the bubble correct on its own, but it’s too late for that now. The new plan seems to attempt to put gum on a few of the holes in the pail and slow down the leaking. I suspect that the plan won’t get all the holes and the pail will end up emptying just the same, but just a little slower.
If this were a casino, the CDS bettors would be “the house”: odds are stacked in their favor and, in this casino, they can see most of the cards; homeowners would be the players (“the house” is going to clean them out); the money comes from “the investors” (in this case, taxpayers, you and me). Whatever money is “invested”, regardless of how the cards come out, “the house” is going to win. If the bet somehow goes against them, they go back to “the investors” and get more money, loan it to the players and then take it back on “the next hand”.
February 21st, 2009 9:53 am
Susan said:
when Lehman was allowed to collapse, the CDS market was able to net each other out mostly with a very small percentage being paid to bettors/bettees from an auction that was held.
Wouldn’t that have also happened with AIG?
It might have been a longer process. There would have been a lot more crying.
But, in the end, where would we be today?
February 21st, 2009 9:57 am
Susan said:
there would still be 15 Trillion Dollars worth outstanding on MBS’s. That is more than the total sum of outstanding mortgages (12.1 Trillion Dollars)
I suspect that to be a treasury secretary you have to be mathematically challenged.
February 21st, 2009 10:40 am
“A government mandate that recalls, reduces principal to 100% of the TRUE appraised value with a replacement mortgage. That is penalty enough for the homeowners who purchased the American Dream, all past paid mortgage payments made was an outright gift to the banks”
Penalty? Those idiots bought overpriced housing. There’s no “penalty” for electively borrowing massive sums of money to purchase a house and fund a lavish lifestyle. That is greed and irresponsibility.
February 21st, 2009 11:34 am
Susan, I am no longer as angry as I was about Fraudbama’s homeowner bailout plan. After really digesting it we are pretty safe. You were right on with your numbers. Here is Fraudbama’s plan in a nut shell:
Plans Budget Amount = $75 Billion
Plans Term = 5 Years
Plans Amount of Homeowners To Be Helped = 9 Million
Plans Amount Per Homeowner = $8,000
Plans Amount Per Homeowner Per Year = $1,600
As Wilber Ross said on CNBC’s Squak Box “Does anyone really think that all it takes to keep 9 Million people from losing their homes is $1,600 per year? I don’t think so”
Side note:
60% plus of ALL foreclosures are in 4 states (California, Florida, Arizona and Nevada). The prices have fallen so far in these states (anywhere from 30% to 60%) that virtually none of the homeowners in these states will qualify for assistance.
So with 60% gone from the equation, and I suspect half of the remaining 40% won’t qualify or are not interested, that only leaves 20% to deal with.
This plan is a sham just like Fraudbama and will not amount to anything thank goodness. I also have not seen whether or not these homeowners new loans become recourse or not. That could wipe out 18% or so of the remaining folks left bringing the number down to 2%. I guess I should have known better coming from these clowns in Washington. They have total lack of vision, are corrupt as a day is long and leadership that is hollywood in nature.
Some advice for Fraudbama…
1. Get your damn face off of the TV unless it is Hugo Chavez that you are looking to aspire to become, and if that is the case then just own up to it and tell us.
2. Call your plans what they are because you are not fooling anyone and in the process your looking like a moron.
3. Stop bailing out companies that are insolvent. Yes, this means all of the auto manufacturers, all of the big banks, and anyone new that comes knocking on your door.
4. Break upo and disolve Fannie and Freddie as they are a giant boat anchor strapped to your leg and they will pull you down long term. The sooner the better for you and us tax payers.
5. Close up shop at the lending wndow and get these companies off of welfare. Give a defined date so they can all prepare themselves to be on their own again.
6. Cancel all of the bailout funds not put into motion by 12/31/2009. Anything ear marked after that is useless to our country and can be discussed in 2010 or beyond. In fact I would strongly suggest cancelling any funds that do not create a job in 2009 as well.
7. Stop listening to Pelosi. She is a cancer to your administration and soon will be voted out of office leaving you holding the bag for her incompetence. Equally try to keep Frank and Dodd off of the TV as they are making a mockery of our Government and bringing into question your leadership or lack there off.
8. Stop borrowing money from abroad and stop lending to states and the federal Governemnt. Force states and most of all the Federal Government to make massive cuts in spending first and then massive tax cuts next. Then see what is required for assistance and use the word essential as a bench mark for any money you do provide.
9. Pay attention to the stock market. It is screaming that you are making major mistakes and you are not listening. What good will a stimulus do if we don’t have jobs and homes to live in. You are making matters worse and your either too blind to see it, getting moronic advise by those around you or just plain don’t care. I hope it is the advise your getting because that can be fixed.
10. I could go on and on but if you can’t get past 1-9 then it really doesn’t matter what 10-100 are now does it?
God speed Mr. President
February 21st, 2009 11:40 am
Mr. Mortgage speak from beyond:
Feb 20th 2009
- Jan CA Home Sales & Prices Plummet – Jan CA Home Sales Report p. 1 – p. 2
———————————————————————————–
Good morning,
I hope all is well. This report with a chart that I am unable to email will be posted in the Barry Ritholtz Café by Monday. Mr Mortgage
Jan CA home sales were released this morning from DataQuick. Typically the national Existing Home Sales number due out next week tracks this closely so I expect that to be significantly lower as well. The real estate associations will try to compare the results to 2008 and not Dec 2009 or previous January’s in order to pad the results.
CA Jan 2009 home sales fell 22.1% from Dec and were at the lowest level years. The median price hit $224k, down 10% from last month and 53% from the peak. 60.4% of total sales came from the foreclosure stock. This is now a categorical wipeout.
Next, is for the mid to upper end homes to follow in expeditious fashion accelerating the Alt-A, Pay Option, Jumbo Prime and Prime Implosion. This will make the ‘Subprime Implosion’ look like a walk in the park.
With rates slamming down in late November everyone assumed that home sales in January and beyond would up-tick as Dec contracts rolled through. This may be the first sign of proof that rates are not as important as ‘price’ when the majority of purchases come from the foreclosure stock in distressed regions.
People want a ‘deal’ on a house. In the bubble states where 60%+ of all sales come from the foreclosure stock and three exact properties within a one-mile radius can be listed for 15-20% apart — depending upon if the seller is a bank, servicer or individual and their required respective selling price – price being the driver vs. rate makes sense.
In the latest DataQuick report out this morning, they compare 09 to 08 showing a 52.9% up-tick, which is not a good comparison. This is because as most exotic loan programs went away in q3 and q4 2007 values were still near all-time highs. This immediately forced home sales down by 60% overnight — 08 is a very easy target to beat. As values declined some 50% at the median in 2008 and mortgage lending became more stable throughout the year, sales gradually increased. But sales are nowhere near as robust as they should be with low rates and values down as much as they are. In past years when total sales were much greater by count, organic sales were 98% of total sales – those were robust markets.
CA Home Sales – Previous January’s
Jan 04 = 47,138
Jan 05 = 42,300
Jan 06 = 38,937
Jan 07 = 32,425
Jan 08 = 19,145
Jan 09 = 29,458
Are we running out of buyers? Where will they come from? Homeownership going into this crisis was at an all-time high, credit is tight and the all-important market-moving move-up buyer is gone. Prices are falling so fast and rents closely behind that we could conceivably see a default and foreclosure crisis among investors who bought foreclosures too early thinking they were getting a good deal a year ago. The investor today can rent the home for much less than the one who bought nine-months ago putting pressure on past buyers.
CA Homes Sales and /Default Foreclosure Stats
Let’s analyze all moving parts of the CA housing market. In January, new loan defaults led the pack at 36,600. Then came total sales at 29,458. Of those, foreclosure-related sales were17,850.and the all-important organic sales came in near an all-time low of 11,600. There were 14,500 taken back as REO. Finally, a whopping 3k new homes were sold on the West Coast in January. Organic sales being at an all-time low shows home owners are trapped in their homes unable to sell – or at least unable to sell for the amount needed for the down payment now required for a purchase money loan. Move-up buyers have always been the largest segment of the real estate market and now they are not to be found.
What is significant is that loan defaults were once again greater in January than Total Sales. Total new inventory coming in the form of defaults and REO stood at 51k — 73% greater than total sales, 400% greater than organic sales and 200% greater than foreclosure-related sales.
I don’t think there is any argument as to why home prices are falling – they are too expensive relative to income and rents given today’s sensible lending standards. Additionally, supply is everywhere in the form of defaults, foreclosures and REO.
Supply Everywhere
Then there is the ‘pent-up’ organic supply that after a 53% fall in median home prices dwarfs all other forms of supply. Values fell so fast that organic sellers were taken out of the market before they had the time to fill out their sales agreement or hold and open house. As values fell below the price they needed in order to pay off their mortgage, get the down payment necessary for a new purchase with tighter underwriting guidelines etc, they pulled the listing from the MLS.
So on the way back up what do you think will happen? First of all, housing is down over 50% at the median so it has to increase 100% to ‘come back’. That won’t happen. If by any stroke of luck house prices were to pop 5-10% organic sellers that wanted to sell and who were flushed out of the market will re-list their property very quickly in order to ‘finally’ move. This ‘pent-up’ inventory will keep a lid on home prices for years.
Many will argue that the reason house prices are falling so fast is because the data are skewed to the lower end areas where most of the default and foreclosure have occurred. They may be right…so far. The higher-paper grade –high loan amount — loans are now defaulting to a much greater degree than Subprime and show no signs of easing up. Across the Alt-A, Pay Option, Jumbo Prime and Prime universes it looks like Subprime did in 2007. The ‘Subprime Implosion’ will repeat up the paper grades, incomes, and house prices. We are already seeing a significant house price compression from the upper end and rents falling fast.
This Spring/Summer selling season could very easily bring this all to a head. Banks, that have been holding on tight to much of their distressed note and REO inventory awaiting the big taxpayer bailout that would buy distressed assets for 100 cents on the dollar, may decide Obama’s plan was more of the same and bring a flood of inventory to the market right before the buyers show up in March. Those looking to buy this Spring/Summer should have a lot to choose from.
Have a super weekend!
Best Regards,
Mr Mortgage
February 21st, 2009 12:57 pm
Two more great reports, Thanks MM!!!
MM said: Are we running out of buyers? Where will they come from? Homeownership going into this crisis was at an all-time high, credit is tight and the all-important market-moving move-up buyer is gone.
Joan said:
In My area houses are still way above 3x earnings. When houses return to historical affordability I think we will see buyers. Its too early to say there are not enough buyers. As long as housing is still too expensive for true affordability then people will keep waiting. The banks are still over-pricing their REOs probably hoping for the Obama bailout at 100% you mention. Numbers like -50% or -60% sound great but if the houses are still not affordable for the average area wages then its mute.
MM said:
Prices are falling so fast and rents closely behind that we could conceivably see a default and foreclosure crisis among investors who bought foreclosures too early thinking they were getting a good deal a year ago. The investor today can rent the home for much less than the one who bought nine-months ago putting pressure on past buyers.
Joan Said:
I’ve been saying this all along. People that have been buying up to now are enough to keep the banks from reducing to 3x earnings. Banks know what the affordability level is. The wanna-be landlords that have been over-paying, buying up REOs at 50% off think they are getting a deal. Not if prices went up 200%. Just like with the bubble, these knife catchers are screwing up the market and they will be back at the public teet in two years looking for a handout.
I laughed when people were telling me their new REO purchase would cashflow back in July 08. Same dumb people making same dumb mistakes. The next time they belly-up to the teet they will claim they need a bail-out because nobody told them rents could fall or rental inventory could rise. Geez!
February 21st, 2009 2:21 pm
I just heard that Obama is going to announce a new plan on Monday called “The fairness for America” plan.
The plan will provide $250 billion for rental relief. Anyone who’s rent is more than 31% of their income will get a rent reduction.
Because renters were not able to take out HELOCS the fainess plan will include all credit card debt when calculating the 31%. In the plan, credit card debt is equal to HELOCs when comparing the renter/homedebtor situation.
Every renter will get $1000 per year if they pay their rent on time. Every landlord will get $1500 for their inconvenience.
February 21st, 2009 5:19 pm
“Stop listening to Pelosi. She is a cancer to your administration and soon will be voted out of office leaving you holding the bag for her incompetence.”
Stu, that is something you and I can both agree with. Question: are you mad because they’re using taxpayer dollars to bail out the losers (like I said would be the only way since the banks cannot afford it), or are you mad because they aren’t doing enough bailouts for losers?
February 22nd, 2009 12:41 pm
Kevin, I am mad about ANY bailout using Tax Payer money for any purpose. I was totally against TARP 1 and Tarp 2 is no different. A bunch of wasteful pork barrel spending that has ZERO to do with job creation and EVERYTHING to do with growing bigger Government and adding largr amounts of reliance on the bigger Government.
It is sickening to watch our freedoms be destoyed by Obama, Pelosi, Reid, Dodd, Frank et al. I look at what this administration is doing against the majority of the nations wishes, as a dirrect slap in all of our faces. Our Government which is supposed to represent “We the people” is doing whatever the hell they want and at our expense and on our future Tax Payers dollars. They are so pompus, egotistical and self serving that they have forgotten not only who they are supposed to work for, but also who pays their salaries, pensions, perks and benefits.
This country needs to really pull their collective heads out of their as%$# and vote these embarassing, self absorbed, arrogant talking heads out of office ASAP!!!
February 22nd, 2009 1:37 pm
Initial response to Obama’s plans to keep homedebtors paying a reduced mortgage has received a cool response from the 3% of the population that Obama’s plan seeks to entice. “Just $1000 per year is offensive” said one mortgage reduction recipient.
The new president’s administration is reacting quickly to this news and has feverishly been working on additional incentives.
Corporate sponsors have offered to kick-in and help. Pizza Hut will offer 2 free pizzas per week to the chosen few for as long as they continue to pay their new reduced mortgage payments. Wal-mart will offer free oil changes every 3000 miles and a weekly 10% off coupon. Supercuts will give half price hair cuts.
Communities are going to pitch in as well. The Boy Scouts will give free car washes every Saturday to those receiving tax payer funded mortgage reductions. The Girl Scouts will clean houses twice per week in an effort to keep those payments flowing. Scouting representative said Scouts will get a merit badge for every mortgagee they entice to stay current on their mortgage for a year.
Still, reactions are tepid at best from the mortgage reduction crowd, dubbed “The 3%”. They counter that cold hard cash talks louder than free car washes or free maid service and weekly pizzas. A spokesperson for the 3% said they hope to iron out a new revised amount of $10,000 per year with the Obama administration soon. They are also requesting more corporate contributions.
Said the 3% spokesperson:
“This will not be easy for our members to pay the reduced mortgages on time each and every month, but we are committed to doing our part provided the Government gets realistic about the incentive compensation”.
February 22nd, 2009 2:03 pm
Hey Joan, even Biden himself said “paying taxes is patriotic” so he could possibly be a spokesperson for the 3%’s. Now Fraudbama is looking to raise the taxes on the most wealthy and also to raise taxes on corporations. He is clearly listening to these people and making the decisions needed to be able to address their concerns for a bigger pay check.
Hey the workers in America have got to learn what their role is in this new Fraudbama society. No more lolly gagging around people! Work more days and longer hours, we have famlies to feed for crying out loud!!!
February 22nd, 2009 8:14 pm
Enforcing a government recall of all defective owner occupied mortgages mandate takes away:
Greed- to want to own a home for a long term investment in your future, bettering your families lives. Historically, If a young couple bought a home, after 7-10 yrs, they sold, based on inflation and equity paydown after expenses a profit was available to purchase another larger home for the family they now had, got a new mortgage with the down payment they made from the sale of their previous home, paid every month for 30 yrs and when they were able to retire and move to a smaller home or retirement community, in the WORST scenario they were able to sell it for the same amount paid. Long termed investment, since some of the posters feel homeowners invested.
Now your arguement was, the homeowner only purchase the property with Greed in mind. Wake up, the speculators/investors including subprime borrowers that purchased with the idea that they could buy, hold a month or year or two and sell for a quick profit—have already walked away from the properties resulting in the initial massive foreclosures that occurred. It was a business decision on their part.
The mandate is for OWNER OCCUPIED HOMEOWNERS, proveable by a drivers license to the property address with receipt of US Postal Service mail delivery.
Without a mandate forcing banks to reduce principal mortgages to current appraised values, the banks will only delay taking any loss keeping them solvent until the US government assumes all current and potential losses for them reducing said mortgages anyway but just for the truly delinquent leaving the responsible homeowners out (this will be the governments attempt to continue to prop up housing values) .
Your typical greedy homeowner took a loan for $500,000. on January 1, 2004 under a 100% financing for a 5 yr adjustable at the initial interest rate of 2%.(very low interest rate not the standard) with $500 a month real estate taxes and homeowners insurance, that made his monthly payment $2,673. ( broken down with $1848 for principal and interest with an additional $325 PMI insurance) With the reasonable expectation that he would be able to refinance prior to the “payment change date” or if he wasn’t able to afford the future payment, he could sell the house for the outstanding mortgage balance. A personal household decision made in good faith, maybe they didn’t see the bubble.
Fast forward 5 years, and he now still owes the same $500,000 on a property that is worth $250,000. with a new changed mortgage payment of only 2% higher to bring him/her to $3212.
It is not greed to make a personal household decision that yes you can afford the $3212. (maybe with a struggle maybe without) but why would you lock yourself and your family in a losing transaction (long termed investment) for the next 30 years, without any hope that you can recover 50,40,30,20 or is it 10% of the money you paid. When you can walk away from the home with negative equity (you did not create it), rent a much cheaper home or apartment to live in and have some additional money to spend on your family, that is personal responsibility talking.
That means for the last 5 years or for the last 60 months , they have paid a mortgage payment of $2673. If the payment was equal to what a rental would have cost, great, if it was more they over-paid. They made a mistake in trying to obtain a better life for themselves, a mistake with consequences.
Those consequences should be on the homeowner yes, but it should also be on the banks not taxpayers.
There should be no free lunch for either side, but it is truly an outrage that Pres. Obama is siding with Wall Street against Main Street with Main Streets money and their children’s and we the sheeple are letting them get away with it.
Stop complaining where is your bail out, no one deserves one, especially the banks.
BUT, insist on equal fairness and treatment for all in any government interference or legistature.
Write or call your government officials with your opinions and your suggestions that has a chance of succeeding instead of complaining. STATE THE ONLY THING THAT MATTERS TO ANY GOVERNMENT REPRESENTATIVE OF THE PEOPLE, I WILL NOT VOTE FOR YOU AGAIN UNLESS YOU LISTEN TO THE MAJORITY NOT THE ELITE.
February 23rd, 2009 12:27 am
STATE THE ONLY THING THAT MATTERS TO ANY GOVERNMENT REPRESENTATIVE OF THE PEOPLE, I WILL NOT VOTE FOR YOU AGAIN UNLESS YOU LISTEN TO THE MAJORITY NOT THE ELITE.
The only thing I’d add is the only thing that matters to our esteemed lenders are performing mortgages and deposits. The former is the most valuable tool the middle class has to hold over their heads, and the latter will have to be paid at a major fucking premium in the coming years.
People have much more power than they realize once they overcome the emotional attachment to their homes.
February 23rd, 2009 11:35 am
Obama HURTS 100 Million to Help 9 Million
February 22, 2009 · 3 Comments
Dear President Obama,
HI!, yoo-hoo, over here, we are 100,000,000 men, women and children who rent and we seem to be invisible to you and the media (including NPR, New York Times and the Wall Street Journal) but clearly our numbers make us important. We are wondering why you are helping 9 million people at the expense of me and my 99,999,999 friends, neighbors and fellow countrymen.
http://watchingmarcitz.com/2009/02/22/obama-hurts-100-million-to-help-9-million/?ref=patrick.net
Let’s see, we have 100 million waiting to buy the houses spread amongst the 9 million Obama is trying to bailout with my money? The idea that there will not be enough buyers for the bubble-gambler homes is absurd.
February 23rd, 2009 11:43 am
Susan, you write lots of words but all anyone reads is:
“Make my house payment for me!”
It’s over, the fantasy that somehow the rest of America would stand still for bailing out deadbeat gamblers is toast. Give it up.
Be happy if in the end you are not punished for your part in bringing America to its knees.
February 23rd, 2009 12:10 pm
Let’s see, we have 100 million waiting to buy the houses
100,000 qualified borrowers! It says so in a blog! It says so in a blog!
Most people rent for a reason, and at the top of that list is that they are losers.
February 23rd, 2009 12:14 pm
Be happy if in the end you are not punished for your part in bringing America to its knees.
Well, as long as you hold deposits in any of these lending institutions, you are culpable.
You should take the punishment with grace, Joan – If there’s one thing losers like you are fully aware of, it is the punishment received from a life spent on their knees.
February 23rd, 2009 12:16 pm
100,000 qualified borrowers!
Of course I meant Joan’s ridiculous statement of 100,000,000 qualified buyers, not 100,000. Though I doubt there are even 100,000 qualified buyers in this country who aren’t already in.
February 23rd, 2009 7:38 pm
Joan,
1- I own my house free and clear and have no intention of selling or moving. I do see the reason for stablization to occur, and deleveraging also to occur. Read the papers, listen to the President, without both to the American Public, we the people are headed for a depression, not just a long recession.
2- Why would you prefer to pay AIG’s or any other financial companies gambling debts at the expense of your job or a family members or even just your tax dollars? The majority of homeowners did not gamble, they purchased a home to live in.
3- If you thought I was vocal before, wait. My daughter just told me I will be a Grandma again and needs to sell and buy a larger house. As I previously stated she purchased 6 yrs ago with 20% down with a McMansion Mortgage of $232,000., almost exactly what her house is worth now.(New York)
4- Renters should not be included in any plans for the housing market, they didn’t participate unless government money is used. Call the White House and tell them to make the banks take the losses, would you do me that favor? No taxpayer should have to pay for the banks actions and losses.
February 23rd, 2009 7:59 pm
I own my house free and clear and have no intention of selling or moving.
Susan, that doesn’t matter to Joan and Kevin. Their scale is ever sliding and eventually you will fall under their definition of greed.
At one point, it was the sub-prime borrower who leveraged themselves in 2007 at 70% DTI with an option-ARM.
Then it was the the Alt-A borrower who put zero down on a interest-only.
Then it was the the prime borrower who put 20% down on a fully amortized 5/1 ARM at <28% DTI (that’s me, I’m greedy!)
Soon it will be the prime borrower who had the nerve sign a mortgage under any terms.
In any case, you are competition to their fantasies of constant earnings AND high purchasing power. Take note, there are 100,000,000 million of them. They will inherit the block.
February 23rd, 2009 8:00 pm
Just thought I’d check in. Looks like nothing much has changed in the last few weeks.
Benzy appears to be losing it.
Joan is slowly learning to express her true feelings
Stu actually appears to have mellowed out some.
Susan still has chronic Logorrhoea. Or she’s a super genius. Not sure which it is.
Anyhow, does MM have his new site up yet? Link?
February 23rd, 2009 11:01 pm
Susan, Benzi, all
Lowering PR is greed! The homeowner if he can’t pay then he looses the house. Other will jump back in and buy that house. The homeonwer (now ex owner.. like me) will come later and buy again.
You weren’t born a homeowner! It’s not a right to own, but a priviledge.. a 5% ARM is pretty greedy (own the home, and pay little interest too.. and as it goes up, you can sell.. refi.. Benzi, why didn’t you take fix interest?
I’ve lost my house, but when I bought It.. I was advised to get 2/28.. I said no.. what if in the future it goes up.. I’ve paid more in fixed interest of 7.5%.. Other circumstances have made me give up on it..
There are 100,000 renters.. and many like me ex owners, many that sold at the top, and rented, many that saved and never own.. many that are just starting out in life..
Personally I know people with 60K, 200K, and 300K just waiting.. personally I’ve got my 3.5% downpayment ready for an FHA loan TODAY.. or I’ll keep saving for a bigger downpayment.. few years from now when we bottom out..
PR would only keep the prices up, which is not good for the long term of the economy.
The market had already dictated.. and prices are going down .. as it’s the only thing that makes sense!
If you can’t aford it.. then you know what you have to do..if you put a big downpayment.. weill you’re not lossing much.. you can make it through… if you refied non stop out of it.. well you definately know you messed up!
BTW, there will be a Santeli tea party this friday/saturday in San Diego.. WE’RE NOT PAYING FOR YOUR EXTRA BATHROOM!!!
DO YOU SEE ME AFTER LOOSING MY HOUSE (DOING THE RIGHT THING, AND LEAVING WITHIN 30 DAYS) PAYING YOUR HOUSE PAYMENT?? ARE YOU f*^)&^ INSANE?
February 23rd, 2009 11:09 pm
I couldn’t aford my house.. but I’m going to help you aford yours?? HAHA.. THIS MUST BE A JOKE!
NO WONDER SANTELI LOST IT.. I THINK IT’S JUST A START.. MORE PEOPLE WILL SNAP AND GET VERY VOCAL EVERYWHERE!
February 23rd, 2009 11:11 pm
Susan,
You work in the industry.. why did you guys advise those loans in ’06? the 2/28? Any particular reason??
February 23rd, 2009 11:16 pm
Susan,
I’ve got way more say in this.. (as bought in 06 and i’m RENTER) then someone like you that bought long time ago.. and paid in full.. and in regards to your daugher.. she won’t get much sleep.. and she’ll need the new born very close by! no need for extra room.. for a while! (no offense)
February 24th, 2009 2:39 am
Santelli is/was a derivatives trader.
February 24th, 2009 10:09 am
Here we go again today: AIG is looking for another $60 billion (possibly $100) to pay off CDSs.
Where is Santelli? Why wasn’t he screaming this morning? Isn’t this money going to be put on the backs of taxpayers and of our grandchildren?
Why no outrage?
Why should I, after they took away half of my IRA, pay the losses on Wall Street?
February 24th, 2009 10:42 am
ex_owner_now_renter,
PR is a real lightning rod. It makes a nice rallying slogan but I got a feeling that, what we actually see is going to be a lot different than what is feared.
There is a group that says: “ONLY way to fix the housing mess is PR.” I feel they will be disappointed.
It’s the math: $75 billion for 9,000,000? PR? No way. The math don’t work. Unless there’s a real lot more money, there won’t be PRs.
The market is fixing itself. With prices today announced down below 2003 (Mark Haines on CNBC & Case-Shiller this morning), affordability is hitting a lot more people. The $75 billion will probably go to lowering interest rates. Throwing in a big blip down on interest rates will make houses more affordable.
Since there’s not anywhere near enough to do PRs in the program, I doubt we’re going to pay for those 5,000 sq. ft. mini-mansions. They’re so far underwater it would be hopeless. Either they back the truckload of cash up to the lender or they walk. We can’t afford to bail them out.
I feel that I’m going to be one of winners. I bought what I could afford. I’ve made my payments on time every month. I have a high FICO score. As rates have come down (the market correcting itself), I’ve played by the rules and re-fied all the way down. I am currently re-fi-ing at 4.875%. If the government lowers rates, I’m gonna re-fi again. I’m not taking a dime from the government, but the government is making the market work in my favor.
(Interesting fact: The people at the bank I’m working with on the current re-fi are working 7 days a week/80 hours/week. They are inundated with re-fis.)
Bottom line: Affordability will bottom some day when a combination of the rates and values hit a bottom. Who knows when this will happen next week? 6 months? a year? 5 years? When we look back on that bottom 10 or 20 years from now, we’ll all declare it was a “window of opportunity”.
February 24th, 2009 1:50 pm
ex-owner, I agree, with the caveat that backing off and letting foreclosures persist is just shuffling the chairs on the deck. The banks and investors still lose big time, PR or not.
There are simply not enough angry renters who are qualified to own these homes at any price. Most renters are losers like Kevin who won’t see personal success in any market.
This leaves the investors, move-up buyers, ex-owners such as yourself and soon to be ex-owners such as myself as making up the bulk of RE transactions in the coming years.
Backing off and letting the market dictate prices is a de facto principal reduction. The only difference in no tax payer dollars are used to achieve it, and many take a credit hit.
Good luck with your FHA loan, ex-owner. Since you walked in 2006 you should be well ahead of those who are still in as far as repairing your situation and putting yourself in the position to own again. There is no reason you should have so much fear at this point, PR movement or not.
February 24th, 2009 6:45 pm
Benzy:
Just one correction to no taxpayers dollars are used to acheive it. We. the taxpayers have already spent, outlaid and guaranteed over 9 Trillion Dollars for a 1.2 Trillion Dollar problem that is being paid directly to the banks.
February 24th, 2009 7:38 pm
Benzi
I didn’t walk in 06.. I bought in 06.. I’ve walked in 08.. bottom is not now.. it’s about 2 years from now (+1/-1 depending on many factors) maybe longer..
February 24th, 2009 7:42 pm
One thing I do know for sure.. that the bottom will have to stay flat for some time.. and it will be abvious when we’ll be at the bottom.. so the rush won’t be there.. I think some people learned, some are learning and some will learn! When it’s all and done.. will have a lot to teach our kids..
February 25th, 2009 12:08 pm
I didn’t walk in 06.. I bought in 06.. I’ve walked in 08.. bottom is not now.. it’s about 2 years from now (+1/-1 depending on many factors) maybe longer..
ex-owner -I was mistaken. I didn’t know it was that recent, though I’m still surprised you couldn’t sell in 08 for even money.
You keep on hammering this notion of me being greedy for not taking a 5% loan. If a lender is offering 5 or even 6 percent on a “conforming” jumbo at 100% LTV then tell me and I’ll sign tomorrow.
My scenario limits my options. In 2010 my rate will drop, but I predict soon after, say in 2011/12 a refi rate for a ~490k loan will be very high because of a negative LTV. In fact that rate will probably be the same rate someone with a foreclosure 3 years back will be paying.
Keep in mind that I consider the present and future depreciation of my home the consequence of fraud perpetrated by institutions other than my family, so I will try to minimize the effect the outcome has on my household.
My options then are…
1. Pay the inflated rate on a 490k mortgage, or
2. Rent for two years then pay that same inflated rate on a 300k mortgage.
Now, before you hammer accusation of greed ask yourself if you’d work the same job for half the pay?
February 25th, 2009 2:22 pm
MAGNETIC MESSAGE
WorldNetDaily Exclusive
‘Honk if you will pay my mortgage’
Hot new bumper ‘snicker’ is a sign of the times
–WND
A brand new bumper sticker is making its debut on the highways and byways across America – “Honk if you will pay my mortgage.”
No word yet on any concrete offers to those displaying the permanent, removable, magnetized original offering from the WND Superstore. But it is making Americans chuckle from coast to coast.
Maybe this one should be called a “bumper snicker.”
http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=89958
February 26th, 2009 4:14 am
Something that could really resonate.. “700 billion to the banks and all I got was this lousy bumper sticker” or “Honk if you’re a bank and haven’t been bailed out yet”
February 26th, 2009 12:14 pm
ooops “Honk if you’re a banker and haven’t been bailed out yet”
February 26th, 2009 3:00 pm
House backed off from voting this morning, as scheduled, on the “Cram Down” bill. Speculation is that they may not have had the votes required to pass this and Team Fraudbama can’t afford any negative press right now. Not until he gets done with more important issues like socializing healthcare coverage, raising taxes, Nationalizing banks, Bailing out the Auto Manufacturers, increasing welfare and doing away with previously passes laws making it harder to get, Assisting the group ACORN and increasing food stamp and oil subsidies. Oh, I almost forgot about more wasted spending on education too…
February 26th, 2009 4:50 pm
“Pull the ‘next stop’ lever if you’re a renter”
February 26th, 2009 7:10 pm
TOPIC WARNING: THIS REPLY HAS NOTHING TO DO WITH MORTGAGES.
Stu,
You need to take a breath. You sound like you’re going to drive yourself to a heart attack.
I’d like to know where you got that list of things that you attribute to Obama. Some of those things I never heard of.
One thing: you mention “socializing healthcare coverage”. This is a big red herring. We already have a very large socialized health care system that should be working fine since it’s been financed for years out of payrolls, except that our elected officials have thought it was ok to just spend the money collected for the “premiums”.
Most people with private health insurance don’t come anywhere near using a minute fraction of what they pay for insurance. One of the reasons this country is in such bad shape is because of health insurance. People feel trapped in their jobs for fear of losing coverage. People can’t get jobs because a lot of small businesses can’t afford the cost of healthcare.
Here’s a solution: We need to redo the whole system that we have in this country. My solution would be to have 3 kinds of insurance: Part 1: Wellcare: this would cover annual physicals, blood tests, mammagrams, etc. Part 2: Limited Sick Care: accidents, minor hospitalization, prescriptions, etc. This part would have a limit. Once the limit is reached the Part 3 would kick in: Medicare.
Now before you blow a blood vessel, let me give you the benefits.
1. No longer would the employer be responsible for health care. Parts 1 & 2 would be totally on and owned by the insured. This would immediately increase the number of people hired by small businesses. This would solve a lot of problems. Someone who wants to move to another job, takes the insurance with them cause it’s theirs.
2. Cost of parts 1 & 2 would be fairly inexpensive. Insurers will bid on these two coverages. The premium costs would be low since there is no mystery as to how much it would cost the insurance company. Let the market set the premiums. If a limit of say $25K were put on Part 2, I’d guess that parts 1 & 2 would cost less than $2K/year.
Since everyone would have to get this, the number of insured would increase drastically and you and I wouldn’t have to pay for all those uninsured. That is where the real socialized medicine is and it’s forced on us.
Paying for the coverage could be through health savings accounts, payroll deduction, whatever. When filing out taxes, people would have to show proof of coverage or the state/feds could take the money from a refund or attachment. Everyone would pay.
What happens with Medicare? – Not much: first, most of the medical care in this country is given to people over 65. They already have Medicare from the first $1. They would go to Parts 1 & 2. That would automatically save Medicare a lot of money (similar to the way a deductible works). 95+% of people from 0 to age 65 would never kick into Part 3. If someone does kick into Part 3, that expense would be shared by the whole country instead of making a big profit for some insurance company.
Money paid into the Medicare pool would be off limits to congress. The money that they have already spent would be paid back into the pool. With a 4% expense rate, Medicare can provide the most cost efficient health care to anyone who needs it.
My plan would actually be a move away from the socialized medicine plan that we have in place now. It would free up people to change jobs and not worry about health care. People who want to try starting a venture on their own, would not hesitate because he’d lose his coverage. Everyone would have to get coverage instead of just going to a hospital and getting treated for cold and having you and me back charged for their treatment.
The yelling and screaming about “socializing healthcare coverage” is coming from insurance companies who have a vested interest in keeping the socialized medicine system that we have in place. They project massive costs, increase the premiums and rip off the public with premiums that grossly overinflated. One someone who pays for someone who can’t, that maybe socialism. One someone lies and takes money from someone, that is a felony. I don’t care what it’s called, I’m pragmatic. I want the system that rips me off the least. The felons are costing me a lot more than it would cost if we made everyone get insurance and we paid for the “Terry Schibeau” cases from a bigger pool.
February 26th, 2009 9:42 pm
Steve
“TOPIC WARNING: THIS REPLY HAS NOTHING TO DO WITH MORTGAGES.”
Get lost then.
February 27th, 2009 11:25 am
Steve, with all due respect come back and debate this when you have a much better understanding of what socialism is…
Back to housing!
It appears as thought hey are looking to vote on the “Cram Down” bill next week (possibly Thursday). There are two things to note about this. 1. Bankruptcies have surged recently 2. Prime loans are getting downgraded by the 100′s of Billions and a big spike in defaults are expected as a result. These two things will be the reason for swift passage by the Democrats in my opinion. They have the house and only need the same 3 liberal Republicans to swap party lines and they can do whatever they want to do. This is very, very dangerous!!!
February 27th, 2009 12:01 pm
Olick had a good entry about bankruptcy v foreclosure.
A bankruptcy will stay on your credit rating for a decade. A foreclosure, on the other hand, is much less of a credit hit and goes away after a few years… is keeping a house is really worth destroying your financial future?
http://www.cnbc.com/id/29412511
February 27th, 2009 12:55 pm
I like Olick as she is a no nonsense reporter of which there are few left in my opinion. Mostly we have far left liberals in the MSM spewing their rhetoric. Olick is a fine chnage of pace to that bunch!
It has been my understanding that a foreclosure last 3-4 years if you keep everything else current. With that being said, most feel that this downturn will last into 2010-2011 at the earliest. So if you foreclosed in 2008 then when you would be ready to look to buy again more than likely, it will all be swept under the radar. Even when the bottom is reached many feel we will be flat for 2-3 years longer. If that is the case then everyone that forecloses in 2009 will be safe as well come the time they are ready to buy again.
February 27th, 2009 4:18 pm
Re Bankruptcy cram down legislation: This is emblematic of the strategy flaws. Keeping people in a home at any cost irrespective of the financial consequences really bad advice. Especially if you are talking about taking it to the bankruptcy level.
I can only imagine now that the plan is to sacrifice the homeowner for the good of CDS and investment liability. The more who stay in regardless of their own personal detriment, the better for the investor. By the way, who’s becoming the largest shareholder in Citi? Oh, that right. USA.
So in 4 years Barack can hail the success of his banking policy from the perspective of returns on gov owned stock in Citi, BofA, et al. while the homeowner as a class is decimated.
I’ll say it again. Homeowners have the single greatest concentration of power on the planet – the threat of mass default.
If people lose the emotional attachment to their homes and look at their mortgage as ransom against the banks, then the level of concessions made by these crooks would trump Obama’s mortgage relief by magnitudes.
February 27th, 2009 5:57 pm
I couldn’t agree more Benzy!!
The entire problem rest on having to protect foreign investors out of threat they won’t buy our treasuries and as a result Fraudbama will have to print massive amounts of money above what they are already printing. This will cause mortgage rates to spike and buying power will diminish greatly. As a result they will in affect have stopped there own stimulus package from working by the very act of implementing it. Talk about your self defeating attitude being clearly in play…
This is what happens when you have the likes of Fraudbama, Pelosi, Reid, Frank, Biden, Dodd, Timmy, et al running the show. They don’t have an agenda where this plans success or failure matters. It is the creation of it for later down the line, and not the actual affectivness of it now, and that is why we are in big time trouble in my opinion.
February 27th, 2009 7:18 pm
Stu, I am well right of center, but man I have a hard time coming at this from a partisan wing. This is way more of a class issue – those who have a metric ass-load of wealth, and those who don’t.
Anyway, Bofa’s next.
Who would think that moon walking would become the most patriotic act a middle class man could do.
Joan, Kevin. Do you still think it is responsible to keep paying a defective mortgage? And if so, responsible to who.
Is it not becoming clearer and clearer that we are in the same boat more that you could imagine, and one’s involvement in the RE market is extremely fucking trivial at this point.
February 28th, 2009 3:30 am
Unemployment in CA hit 10.1% a 16% increase in one month. That is what I call acceleration.
The Obama worst case????
The “adverse” scenario assumes GDP will drop 3.3 percent, unemployment rising to 8.9 percent and home prices falling 22 percent this year.”
I got news, GDP came in a neg 6.2% and CA home prices dropped 10% month over month. Looks like all the worst case will be blown out of the water.
February 28th, 2009 11:42 am
BertDilbert,
We need to bring back the debtors’ prisons/work camps. It would solve the problems.
Walking away from a deal you gave your word on is unAmerican. To allow people to just not pay, makes us a country of contract breakers and liars.
Since CA seems to be the biggest problem, if we started debtors’ prison/work camps and made people work off their debt it would solve a lot of problems:
1) foreclosures would drop because of new disincentive to walking away
2) GDP would rise because debtors would be assigned to work: ie: assigned to migrant camps to work on the farms, etc.
3) the illegal alien problem would be less: there would be no jobs on the farms or landscaping the lawns of those who did the right thing since the debtors would be assigned to do that work
4) it would be the end of unions – with a mass inflow of new cheap labor, the unions would have no bargaining power and would disappear
5) CA could lower its deficit by replacing overpaid state paid sloths with lower paid, non-unionized, debtors
6) if a debtor has a skill, that could be used to lower prices and create competition and bust the unions: ie: staff charter schools with “debtor teachers”; or: plumbers, electricians, etc. could work in State prisons and public buildings and save millions over inflated union wages
7) since at least some of these debtors would come from the ranks of the unemployed, then unemployment would drop along with the tax dollars needed to support these people
Debtors’ prisons/work camps would solve all the problems you mention:
- lower defaults on houses
- raise GDP
- lower unemployment
and, as an added benefits:
- lower taxes
- lower influx of illegals
- lower prices
- break the unions’ stranglehold
- make America a nation where the people don’t lie and go back on their words when they make a contract
February 28th, 2009 12:49 pm
Bertdilbert, do not forget however that Obama’s secret GDP weapon is that all of this stimulus will be counted and the shell game of military budgets whether done on supplemental budgets or part of the military budget can also be included. He is manipulating the GDP through artififcial stimulus and not real growth. Looks good on paper, but not in reality…
This is about growth in Government and the dependency from the public on that bigger Government as a result, in my opinion. This is not about Main Street or the middle class as we are just getting in the way of his master plan. It is about manipulating and controlling the banking and housing industry along with the media outlets and better gun control.
You must control these 3 things to control a society.
1. Free Speech via the main street media and controls like the fairness docturine.
2. The ability to own a weapon and purchase bullets for that weapon.
3. Money and the control of how it is being spent.
They control the banking industry now for all intensive purposes. They are passing weapons laws to gain tighter controls right now and some of it was linked to this last bailout bill, and they voted on a bill like a fairness docturine yesterday. Motions are slowly being out into place to continue down this path and ACORN was no mistake being added into the stimulus package. I know it sounds like I am a conspiracy theorist, but when it walks like a duck, talks like a duck and looks like a duck… it is probably a duck!!!
February 28th, 2009 1:20 pm
Steve: Sounds like a great idea. We could get all the unemployed mortgage folks to be the “road bosses” and wardens and the bankers could shift some of their great organizational and fiscal skills to prison governance.
February 28th, 2009 1:22 pm
daaaang, mr. mortgage guy is good!
February 28th, 2009 1:34 pm
Like I’ve said before, Steve. The initiative of the angry renter is to make people pay. Nothing more.
Call your legislator and ask them to add full recourse provisions to future mortgage agreements (they’re not by any sense “contracts”). I’d love to see where that takes our RE economy.
It’s a shame that we fight amongst ourselves as the bandits meddle. There is definitely a me vs the world sensibility brewing.
My money is on those who have any earnings or marketable skills having bought or refi’d a house in the past 10 years. That means the majority of the relevant class in America is going to be underwater.
Walking away from a deal you gave your word on is unAmerican.
Steve, you want to make a nation of slaves, which in a sense is very “American”. Take pride in that, you patriot.
February 28th, 2009 1:58 pm
Benzy,
The mortgage people are listening. I heard Sheila Bair on the CNBC special and she boo-hooed the idea of principal reduction. She was talking: rewrites to the current (market) interest rates and extending the time. People would pay what they promised to pay when they made the deal.
“nation of slaves”? – oh, contraire – slaves were grabbed and had no say. If you make a deal and don’t live up to your end of the bargain, then there are consequences. Is Bernie Maddoff going to be “a slave”? What about the guy that robbed the bank down the street and is now cleaning up the highway. Nobody asked him to rob the bank. Just as nobody asked people to borrow money and make me pay. What’s the difference? If you do a crime, you opted for the punishment. We just need to get the law changed so that if you steal for a mortgage (by walking away), it’s just the same as stealing from a bank.
Try to “steal” from the IRS. You go to jail and pick up litter on the sidewalks. IRS is the federal government. Fannie and Freddie is the federal government. Rob from a bank and it’s a federal offense. So what’s the difference between taking money from a teller with a note or walking away from a note?
I think it would be unfair to just let debtors in a work camp just sit there. They should be allowed to work off their debt and that was what I was proposing. Money they earn could go back to the federal government (the people) (to lower my taxes)) till their debt is paid. It would be unfair not giving people the chance to repay their debts. Those who opt not to work, can just sit there and rot.
If you hire someone and refuse to pay them for what they did, you’re in court. If you say you refuse to pay, do you just get to walk away?
America needs to wake up and find that old moral compass: you owe: you work till you pay. No country wants to deal with us if we become a nation that doesn’t honor our words or contracts.
February 28th, 2009 2:41 pm
Steve, if the bank made a bad loan by not being diligent, the bank employee is the one that should go to the debtor’s prison, not the person taking the loan the bank knew they could not pay. In the case of non recourse loans, they should keep the banks honest in making sure the asset is valued properly. In a heated market, the banks should increase the down payment from say 20% to 30% down to cover the heat portion of the price.
A friend of mine just refied a house. He said it was insane what he had to go through. They wanted to see proof of how they paid every bill. We were talking on cell and had a bad connection and ended the call early. What he said was that if this is what he had to go through with good credit, he did not understand how someone with lower credit would make it. This however is the banks doing their job as they should have done in the first place.
“If you do a crime, you opted for the punishment. We just need to get the law changed so that if you steal for a mortgage (by walking away), it’s just the same as stealing from a bank.”
There is no crime, the bank is living under the terms of the loan they issued, you don’t pay, they take the house and sell it to cover the cost of the loan. If the banks created an inflated market by lowering lending standards and crappy loan products, then they created the inflated price from which were not able to recover once the banker created bubble burst. Home buyers did not create the bubble, it was loan standards and products.
February 28th, 2009 3:38 pm
If you make a deal and don’t live up to your end of the bargain, then there are consequences.
Yes. You lose the home and take a credit hit. THAT’s the agreement. That’s the law. THAT’s the difference, you moron.
Now, if you want to change the law to satisfy your anger and pacify your fear then like I said, contact you representative.
And I sure as hell bet the mortgage people are listening. The little power they enjoy today is quickly eroding. The people are holding the lever. Tip it, and it’s all over.
In short order this country will be back in the hands of the middle class. High money politicking, money access requisites to policy making, senators worth more than my entire neighborhood, gone.
We’re market bears. Bankers are frightened declawed little kittens. Nice of you to defend them, Steve. The little guy. You should be proud.
February 28th, 2009 3:43 pm
BertDilbert said: “if the bank made a bad loan by not being diligent, the bank employee is the one that should go to the debtor’s prison”
Why take the responsibility away from the borrower. The bank employee isn’t a debtor. He/she never promised, never gave their word, that they would pay anything. The only one with the debt is the homeowner. They promised to pay and they should keep their promise.
BertDilbert said: “There is no crime, the bank is living under the terms of the loan they issued, you don’t pay, they take the house and sell it to cover the cost of the loan.”
I beg to differ. Right now, given the way some of the notes were written, the only punishment to walking away is getting your credit destroyed for 7 years and losing whatever you put into the property. This needs to change. This is an unAmerican crime against what this country stands for. This crime gets rachetted up because now it’s the government who owns the property. Debtors prisons/camps added to the contract would add the reality of people owing the taxpayers and not just some local bank.
If they can pass a law allowing cram downs, they can pass a law requiring debtors to pay one way or another: cash or working it off.
And I still contend that this will be a great benefit to the 3 biggest hit states in more ways than one.
BertDilbert said: “they created the inflated price from which were not able to recover once the banker created bubble burst. Home buyers did not create the bubble”
Home buyers did create the bubble. Without the buyers clamoring for mortgages, there would have been no bubble. No borrower had a gun put their head to take the loan. The borrowers are not the innocents – they are the guilty. They should not be let off the hook. Give them market rates, give them a deferred 2nd mortgage, give them a longer term to pay – but don’t ask me to pay off a debt they took on.
Before I’m tapped for a donation, the debtor should be given “an opportunity” in debtor prison/camp, to pay off what they borrowed. We get more of what we reward and less of what we punish (B.F. Skinner). If we want less defaults, then we need punishment for that behavior.
BTW, Thanks for reiterating the liberal mantra: debtors are victims and need to be reimbursed for the crimes of the big bad bankers.
February 28th, 2009 3:59 pm
benzy said: “Yes. You lose the home and take a credit hit. THAT’s the agreement. That’s the law. THAT’s the difference, you moron.”
benzy,
Thanks for the name calling. I know that’s the way it is today. So do you like the idea of paying someone else’s debt? I’d like to see the law changed to make sure nobody gets to walk away and leave me with the tab.
benzy said: “Nice of you to defend them, Steve. The little guy. You should be proud.”
I’m not defending the bankers. Bankers are like bakers. If I go to donut shop and buy a dozen donuts and get fat, is the baker at fault? Should I make you pay for my gym membership? I work it off or have a heart attack. But no one but me was responsible for eating the donuts and no one – not the baker – not the kid who sold me the donuts – not the farmer who grew the flour – not you, benzy – no one but me is to blame.
Now maybe under the new paradigm I might get “bailed out”, but why should that happen?
February 28th, 2009 4:09 pm
Steve, your missing the point, I am not liberal. Home buyers did not create the bubble. Banks created the bubble by raising demand. Demand was raised by making more people able to “qualify”. You are trying to levy the most responsibility on those who have the least responsibility in the matter. Under your rules of life, this could happen again at any time because you are counting on the home buyer to set the rules of the game. If you concede that such an idea is stupid, then you have to place responsibility on one party. Is it the banks or the home buyer who is the more responsible party in the transaction?
February 28th, 2009 4:14 pm
Like I said, Steve. If you feel strongly about this you should contact a lawmaker. Attach a surname and a face to it.
February 28th, 2009 4:16 pm
Steve, the doughnut shop guy takes the money up front for the doughnut, I have yet to see a doughnut shop take credit. Thus there would be no caring on his part about a gym membership.
However if they doughnut shop did loan the money for the doughnut, he likely would not extend credit beyond what the doughnut eater could pay….
February 28th, 2009 4:22 pm
And, I really don’t see a problem. Before my bank lent me a single dollar, they hired a professional appraiser to attach a dollar value to the home. The result was the home was worth 30k more than I was paying for it.
Who’s problem is that? Surely not mine.
The banks need, and certainly are going to take responsibility for their mistakes. And their losses are are proportional to their culpability. That is the beauty of a purchase money mortgage agreement, specifically the non-recourse portion of it – it compels the lender to not engage in rampant fraud.
Unfortunately for them, and the morons who derivatized these loans, it did not force them to not engage in fraud.
February 28th, 2009 5:02 pm
benzy and BertDilbert,
There is plenty of blame to go around. Some mortgage originators did not do due diligence when they made the loan.
Some have learned their lessons as BertDilbert said: “He said it was insane what he had to go through. They wanted to see proof of how they paid every bill. … he did not understand how someone with lower credit would make it. This however is the banks doing their job as they should have done in the first place.” This is a good thing.
Even though the banks/ml didn’t do what they were supposed to do, that doesn’t mean that the debtor is absolved from paying (unless the debtor can prove fraud (not in what the debtor thought he/she heard the originator say but only in what it says on the note the debtor signed)).
Look at the number of MLs listed on ml-implode 336 are no longer with us because of their stupid actions. The only ones that did survive were the ones that did what was right (or were owned by the taxpayers)
What we have now is whole bunch of notes that say if you don’t pay, we take the house and you get bad credit. I doubt even my representative in congress could stop this snowball’s roll down the hill. This doesn’t make it right, it just seems to make it inevitable. Unfortunately, I don’t feel I should be part of the payoff. There’s enough bad behavior here. Leave me out of it. Work it out with those with skin in the game and those who benefited or thought they would benefit. I was never part of this bad deal and I don’t feel I should pay for others’ bad behavior.
Future notes need to be like BertDilbert’s friend: good LTV, big downpayment, proof of assets, proof of income, etc. And, if the loan gets sold to taxpayer owned entity, there should be a provision for making sure the last dollar is paid. Debtors’ camps work fine for this.
February 28th, 2009 5:20 pm
Steve, no matter what you do, a certain percentage of the population will be unemployable No matter what you do, another portion of the population will be greedy and stupid. Banks passed these loans off to someone else and thus thought the liability passed along with it. Unfortunately the loss on those loans affected the value of collateral they held when those loans went bust. One can blame the tightening of credit standards and lowering the pool of potential buyers as part of the problem but if the banks create an economic catastrophe, should the person swept up in the catastrophe resulting in job loss or pay cut go to prison as well?
In hindsight we can say a ounce of prevention is worth a pound of cure so who was in charge of prevention? The Federal Reserve. Who owns the Fed? The banks. In this case, self regulation did not work to well. Now the Fed is trying to fix a problem they did not see in the first place.
February 28th, 2009 5:47 pm
I was never part of this bad deal and I don’t feel I should pay for others’ bad behavior.
Steve, I borrowed at a 4x LTV with 21% down and 25% of my gross going to fully amortized P&I. So, I share your sentiments and there are millions like me.
But you want to put me in “prison”? Name calling is the least you should expect if you are to attach your name to this ridiculous self serving emotion-born idea of yours.
But, by all means. Contact a legislator.
February 28th, 2009 5:59 pm
“I was never part of this bad deal and I don’t feel I should pay for others’ bad behavior”.
Unfortunately there are many instances where we all pay for the shortcomings of society. Look at the costs of trying to maintain “security” in all it’s different forms. We all pay for various types of insurance premiums that reflect a risk factor of “bad behavior”. Safeguards have to be put in place so we minimize the extent of possible harm to ourselves. This was obviously lacking in the current housing mess we find ourselves in. There’s plenty of blame to go around, but that’s not going to get us where we need to be.
February 28th, 2009 6:01 pm
BertDilbert said:
“a certain percentage of the population will be unemployable No matter what you do”
If so, then they need a debtors’ camp to teach them a skill. I don’t think that any of those total “unemployables” ever owned a house or took a note. They could at least sign their names. Good enough to pick fruit or pick litter from the roadside.
You also said: “if the banks create an economic catastrophe”.
Here’s where we disagree. The banks did not create the catastrophe, greed, more specifically buyers’ greed, created the catastrophe. Like a casino, the banks were the dealers of the cards – the players were the borrowers. When a player loses at a casino, who’s fault is that? the dealer’s?
I say the fault is with the player. You want the dealer to pay part of the loss and me, who didn’t even go to the casino, to pick up the rest of the tab.
(I like to imagine the player borrowed the money from Harry the Legbreaker. Guess who would pay?)
You also said: “the Fed is trying to fix a problem they did not see in the first place”. That is wrong. They saw it coming. People wrote about it way before 2007. I remember commercials in 2005 and 2006 that offered to finance 125% of the value of a house. I knew bad was going to happen. I remember the late 1980s. There was a ton of evidence that we were making a bubble. People were blinded by greed and wanted to get their piece just like their friends and neighbors. They had the “it can’t happen here and it won’t happen to me” attitude. They placed their bets and lost.
I don’t think that I can be convinced that me and other taxpayers should foot the bill for someone else’s deal gone bad.
February 28th, 2009 6:17 pm
Would you not pay your health insurance because of the disproportionate amount of unhealthy people making your rate higher? You could always just not pay your taxes.
February 28th, 2009 6:28 pm
Benzy said:
“Steve, I borrowed at a 4x LTV with 21% down and 25% of my gross going to fully amortized P&I.” “you want to put me in “prison”?”
Benzy,
The operative phrase here is “I borrowed”. Looks like a normal loan. Sounds like you knew what you were doing.
What were you thinking when you said: “I borrowed”? Did you intend to pay it back? Or was it, I want the loan but only if my property values rise? If values drop, I take back my promise to pay.
You sound like you no longer own the house. If you were forced to walk because you lost your job, that’s one thing. People forced to lose their homes because of job loss or other catastrophe is a different thing. I still don’t think they should not be responsible for difference at foreclosure, but if they can avoid it, I don’t blame them. I’d just rather see something in place to make sure this never happens in the future.
But, for those who walked just because their house lost a little value and they still have their income. Yes, they belong in a debtors’ camp paying back their debt to society (since taxpayers are absorbing the brunt of their decision)
February 28th, 2009 6:33 pm
Dee said:
“There’s plenty of blame to go around, but that’s not going to get us where we need to be.”
How right you are. The only thing that will probably get us to where we need to be is a whole lot of cash.
We both probably agree where we need to be. I just don’t feel like paying for it and I feel the parties to the deal should pay or work off the debt.
I really don’t care where the money comes from as long as it isn’t my tax dollars.
February 28th, 2009 6:47 pm
Dee said:
“You could always just not pay your taxes.”
That would be as irresponsible as walking away from a house because its value allegedly dropped.
My taxes are part of the “deal”/”contract” that I make as an American citizen. In a democracy, we agree to go along with wishes of the majority. Paying taxes is similar to taking a mortgage. It’s my responsibility as a citizen to pay. Even though there’s no “note”, I still have that obligation. (And if I don’t pay, I will end up in prison for my debt.)
Everyone has a choice, after their taxes are paid, to move to another country. If one decides to stay here, they should play by the American rules.
Re you mention of insurance. It’s not truly analogous. Insurance spreads the risk. I pay because I may someday need to benefit. I’m one of the bettors. There is no debt because the insurance premium is the total amount of the “bet”. Most importantly, I am a party to the insurance. I’m paying what it cost for the coverage. I’m not asking you or the feds or anyone else to cover me. So insurance is lot different than a mortgage.
February 28th, 2009 6:50 pm
Steve, you are still trying to place the responsibility on the buyer. If the buyer fails the taxpayer pays, thus it is not a worthy system. Under normal circumstances the 20% down covers the cost of foreclosure and thus you have a non recourse loan. The banks created a situation where they did not charge enough margin on the trade and thus became subject to loss. Had the bank required 50% down we would not have a problem now would we? The fact remains that banks were lending on inflated collateral.
February 28th, 2009 7:03 pm
BertDilbert said:
“you are still trying to place the responsibility on the buyer”
You are correct. It was a deal between two parties. A borrower and a lender.
I don’t care if the “banks were lending on inflated collateral”. Just because they exhibited a whole bunch of bad behavior, shouldn’t make me responsible. Either the bank takes the heat/loss or the borrower takes the loss – not me.
I can’t see how the banks’ bad behavior means that anyone not part of the deal should pay.
If property values were still rising, would the bank or borrower be sending me a check?
Then there’s the argument: “for the good of the system”. Why is it good for the system if bad behavior on the part of both parties gets rewarded with my taxes? And who was it that decided what was “good for the system”? Paulson and Berneke? “good for the system” means “good for our friends” to them.
February 28th, 2009 7:55 pm
Steve said:
“So insurance is lot different than a mortgage”.
My point was that you will pay your taxes and your elected officials will decide how to spend them. If the current situation is deemed to warrant your money going to stabilize the economy so be it. You have some options, but as you indicated one of them could end you up in jail. The government is in effect an insurer. If a product is unsafe it’s their job to protect it’s citizens and correct the problem. This is especially true with the mortgage industry with all the regulations that have been put in place. Because the government allowed these toxic products into the industry, there has to be an accountability that extends beyond just these two entities (lenders and borrowers) as we have seen. The entire economy is involved and helping the banks hasn’t been enough.
February 28th, 2009 8:47 pm
Steve, when a buyer walks from a property they are exercising their right under the contract. If you don’t like the contract the bank wrote, take that up with the bank.
Is it the buyers fault that the bank wrote the contract? Was someone holding a gun to the head of the greedy banker when they signed the paper?
February 28th, 2009 9:40 pm
Dee,
Where does it end? Shall the government put a floor under everyone? Shall the government come to everyone’s rescue when there’s a problem? Have we become a nation that takes away all freedom to fail? Are we creating a society with no consequences?
You say: “helping the banks hasn’t been enough”. So what is “enough”? Do we expand the welfare system to include everyone who ever made a mistake?
Looks like a very slippery slope here.
February 28th, 2009 10:27 pm
BertDilbert wrote:
“when a buyer walks from a property they are exercising their right under the contract”
I’m not sure I’d call it a “right”. They are really “defaulting” (read: breaking) the contract. And as such they take the consequences for doing that.
(Try this as an analogy: Ask any woman if, when their husband/boyfriend cheats on them whether he’s just exercising his “right” or whether it’s more like a “default”.)
I agree with you that the instruments were defective. Money was loaned on fake assets or assets that went bad. So the bankers should have sucked it up and foreclosed and called it a loss. Then onto the next project. Go after the borrower as far as you can. Reach back through the banking system and grab as much as you can from those who got big bonuses for the lousy stuff. Don’t come to the taxpayers looking for cash. We weren’t there for the conception of the loan. And, please, learn from your mistakes. No more non-recourse loans. Push for legislation to start debtors’ camps and put that in the mortgage note.
But for the present: What would happen if we did nothing? What if we don’t spend that $75 billion? (That’s too small to fix the mess we have right now anyway.) If we do nothing, will I be able to buy a vineyard in Napa for $100? If we do nothing, will we never hit a bottom?
One of the most powerful forces of economics is supply and demand. Building has decreased to below 500,000 units/year. Every year we lose 900,000 to 1,000,000 units to fire, flood and insects. At some point, with negative growth in units and increasing growth in families, the demand has to exceed the supply. And so starts the new bubble. Hopefully with better written notes, no derivatives, no non-recourse and debtors’ camps to keep the whole system honest.
March 1st, 2009 3:50 am
BertDilbert wrote:
“when a buyer walks from a property they are exercising their right under the contract”
I’m not sure I’d call it a “right”. They are really “defaulting” (read: breaking) the contract. And as such they take the consequences for doing that.
That is correct, they take a credit ding, aside from which, nothing more is owed. You didn’t pay and you exercise your right to give the property back. You call it defaulting, I call it taking advantage of the lifetime guarantee offered by the bank.
You would be a fool in this market not to take the bank up on their guarantee.
March 1st, 2009 11:09 am
BertDilbert wrote:
“I call it taking advantage of the lifetime guarantee offered by the bank”
That’s the way it was supposed to work. In normal times, when someone walked, the bank sold the property and recovered its loss. The LTV of 80% was supposed to give a 20% buffer. So anyone planning to walk would try to sell to recover their own downpayment.
I like that scenario. Two parties doing the deal and keeping me out of it.
When there’s a temporary downturn and the banks find themselves not being able to recover their losses, they come to me. They forgot how capitalism works: You make a deal and live with the result. If you’re a good capitalist, you make a profit. If you’re not good at it, you become a gopher for someone who is good at it. When you bring me in to provide capital welfare, you’ve just changed the rules from capitalism to socialism. Darwinism be damned.
I realize that anyone who walks or takes a principle writedown is doing so out of selfish motives. They don’t really care where the money/loss is coming from. They are just concerned with how the deal works for them. And that was fine, motive and all, until the whole game got changed from capitalism to socialism. Changing the rules in the middle of the game is not right. Especially since there are ways of lowering the payments and keeping people in their homes (if that’s what they want to do) without asking me to take the loss. (ie: Sheila Bair’s market rate/longer term/no appraisal re-fi for anyone current (still capitalism/I’m not part of the deal/costs me nothing/good behavior rewarded without changing the whole system)).
Then we need to go back and fix the system to make sure the next bubble doesn’t happen. No more no docs. No more exotic products with high LTVs. No more option-arms. Resource loans with criminal penalties (work camps for borrowers/prison for bankers)if taxpayers are at risk. (Fannie and Freddie should go away and banks should take back loaning. Keep the taxpayers out of the loop and borrowers can avoid work camp.) Let’s get back to capitalism.
March 1st, 2009 12:36 pm
They don’t really care where the money/loss is coming from.
Oh, contraire. I am adamant that this loss comes directly out of the bank’s profits with an eye toward the CDS backer paying dearly. And it it my intention to wait until this loss is maximized for them, since as a consequence of their fraudulent behavior, I have lost a six figure down payment.
Additionally, they are going to have to pay a hefty premium in the future to have my hard-earned money to lend to others.
March 1st, 2009 1:24 pm
“Is it the buyers fault that the bank wrote the contract? Was someone holding a gun to the head of the greedy banker when they signed the paper?”
Is it the taxpayers’ fault that the buyer signed the contract? Was someone holding a gun to the head of the greedy buyer when they bought their house?
March 1st, 2009 1:36 pm
Kevin, you realized the obvious irony. Now go fuck off.
March 1st, 2009 3:06 pm
benzy said:
“I am adamant that this loss comes directly out of the bank’s profits with an eye toward the CDS backer paying dearly.”
That would be great. How are you going to make this happen?
The reality is that Paulson, Berneke, etc. have a different take on this. They are adamant that their friends don’t take the hit. They are making sure that CDSs get paid (most of them were the toxic assets at AIG). They are making sure the bankers don’t get hurt. (I haven’t heard of one of them going to jail.)
All of this is funded by the deep pockets of the American taxpayer.
I’m dying to hear how you’re going to get Paulson’s friends to take the loss instead of me.
March 1st, 2009 3:22 pm
I’m dying to hear how you’re going to get Paulson’s friends to take the loss instead of me.
Denninger has a damn interesting approach as well as a essay on culpability.
March 1st, 2009 3:24 pm
Broken link above, See:
http://market-ticker.denninger.net/archives/838-REMEDY-FOR-The-Underlying-Fraud-In-Banking.html
March 1st, 2009 4:27 pm
Benzy,
I read the links. Interesting. Lots of guilt. Lots of laws broken. Lots of lies.
But, I still don’t see how you, or any other individual, is going to go about making sure that me, or any other taxpayer, isn’t going to pick up the tab for all the losses.
The link sort of just explained the opposite: even though those in charge were supposed to do what was right (basically foreclose on the banks) and legal, they instead decided to make the taxpayers take the hit.
When the banks lose, their reserves drop, no problem = go to taxpayers for a bailout.
When the homeowner feels he’s losing, they are under water, no problem = go to the taxpayers for a PR
When the CDS bettors lose, AIG ain’t got enough $$$, no problem = go to the taxpayers for a piece of TARP
When a borrower feels he should walk away because, even though he can still afford it, owning his home doesn’t make “financial/investment” sense to him, no problem = walk and the bank will go to the taxpayers for some of the latest candy.
It doesn’t seem that who has the problem matters, there’s always the same answer for the solution.
Benzy, I’m dying to hear a step-by-step on how anyone can change this and throw the solution back on the guilty parties?
March 1st, 2009 7:51 pm
Steve, devising a step-by-step plan to mitigate a financial crisis is above my pay grade.
March 2nd, 2009 3:37 am
Hello all:
It was interesting to read some of you are actually changing your views to mine,Capitalism
My suggestion of a government mandate that forces the bank to recall, reduce and replace all defective mortgages at the cost of the mortgage holder is capitalism.
Capitalism is the ability to make a profit while having the potential to experience losses based on your own business decisions and actions.
Remember a mortgage is defective if it is no longer just a secured lien that was agreed to by both parties but has an UNAGREED to- unsecured personal loan attached to it as in negative equity. The terms of the mortgages were unilaterally changed.
The deflationary cycle was created by the banks intentionally discounting their REO’s to sell (supply and demand theory), each discounted REO is a comparable that reflects the surrounding areas values, since it was lowered (discounted) it lowered the surrounding areas values. This action was done for the banks benefits with full prior professional knowledge of the financial harm it would do to other existing customers.
The same comparables “rule” was utilizd in the upswing by the banks when they changed their guidelines to increase the supply of available purchasers allowing for the demand of higher sales prices. (supply and demand theory)
I am not arguing the sales price, it was agreed to between the seller and purchaser, with the blessing and guidance of the lender. Sale Prices could never have been over-inflated if there was not a sufficient amount of available QUALIFIED borrowers to obtain a mortgage driving the price up. I am not arguing the type of mortgage, it was agreed to and APPROVED between the borrower and lender, no one held a gun to either parties head. I am not arguing that some borrowers should have remained renters except for the mortgage programs available to them enabled them to become homeowners.
What I am argueing is that banks made the mortgage loans to these homeowners and them changed the terms of the mortgages issued.
The American public is being lead to argue between ourselves about who is at fault. In a capitalist country, such as ours, if you made a bad business decision, you take the loss, not try to pass your losses on to the taxpayers.
It is not the taxpayers fault that banks took out CDS (derivatives) that increased their own profits margins and now they are losing money. It is the losses on the CDS they can’t pay, not on correcting their own mistake with housing.
Read over my mandate again, you will see that if you over-bought or were looking to make a quick buck, you lose. But if you are legally entitled to own that house you live in, you are entitled to a principal reduction eliminating the unsecured personal loan that was attached without your permission.
The total cost to correct is 1.2 Trillion Dollars. There is 12.1 Trillion Dollars of outstanding mortgages with approx. 25% of them having negative equity, if all 25% had to be reduced by 40% to match the current appraised value, the loss is 1.2 Trillion Dollars to be shared by all mortgage holders (banks, pension funds, GSE’s and private investors).
I read an interesting article today that the median sales price of a home in 2002 was $187,600.(US Census Bureau) and according to NAR for 12/08 the median sales price has decreased to $180,100. Now according to the US Census the median family income for 2006 was $69,716. Do you still think the market will stop correcting without intervention?
March 2nd, 2009 3:45 am
Steve:
Obviously your intelligent, but if I told you that because of other outside investments(bets) I made that I need you to continue investing in my firm losing money for the next 10 or 15 years, would you even though when we originally agreed 4 or 5 years ago, it might have been profitable or at least break even?
March 2nd, 2009 4:30 am
What the government is doing is telling the homeowners to be “responsible” to the banks not to themselves or their families. Responsible is “code word” for paying the mortgage on time.
Where is the responsibility and accountability of the banks? They created the “situation”.
The mandate ensures responsibility and accountability of both parties of the transaction without taxpayers footing the bill.
Just an example:
A homeowner purchased a home for $500,000 with a Pay option arm at 1.75% for qualification purposes, the initial monthly payment including all taxes and insurances would have been $2,436., the income needed to qualify for this loan would have only been $5,000 a month gross. Much too low, but approvable and the BORROWER was notified that the payment would increase at the end to the initial period to by ___x amount of dollars.
($5000 times 28% with holding taxes equal $3,600 minus the $2,436 leaves $1,164 for all other living expenses including food, transportation , utilities (heat, electic, water, sewer, oil or gas) ,phone oh wait I am out of money, a foreclosure most likely already occurred for this homeowner.)
But if it didn’t and they are CURRENT obviously since more money than reported or mentioned above is coming into the household, their monthly payment would be reduced to $2,128. at a 5.5 % fixed rate for the reduced principal balance of $300,000. (estimated 40% reduction to appraised value_) regardless of the initial program they purchased under, no income etc..
Now if they are delinquent, their monthly payment would only be reduced to $2,321. and they would have to prove sufficent income to support the payment of $7,000 a month. If they didn’t have sufficent income to qualify, they will be foreclosed on.
Regardless of whether they just lost their job, or expected their income to increase enabling them to refinance before the higher payment occurred, or expected to be able to sell with or without a profit. If they can’t or don’t qualify, they are foreclosed on. No one gets a free lunch at taxpayers expense.
If you agree with the “solution” , call your representatives or email me at sue806@aol.com for a copy of my proposed mandate that I am distributing for signatures.
March 2nd, 2009 9:59 am
“My suggestion of a government mandate that forces the bank to recall, reduce and replace all defective mortgages at the cost of the mortgage holder is capitalism.”
No it is not. Government intervening with a contract between two independent parties is the DEATH of capitalism. Why can’t you get that?
March 2nd, 2009 12:58 pm
I have seen this plot a dozen times. But looking at it in the context of the dow below 7k and falling, I have no illusions about where we all are headed.
Every vertical bar on that graph represents a block of homes with purchase prices higher than the preceding bar. So, for every succession of resets, the difference between purchase price and actual value is getting greater and greater. This translates to the likelihood of borrowers walking increasing exponentially.
And this ignores those who purchased well before the bubble who as a tangential effect of the overall economy are now either unemployed or are disinterested in servicing a loan on an “asset” that’s value is decimated beyond recovery.
A plan similar to Susan’s is the only way to stop the bleeding and set our economy on a path toward finding a natural bottom. At our current pace, we’ll fly by that bottom by mid-year. And I say this staring at the clear evidence that nothing else is working.
If your employment relies on people buying stuff, you’re finished. If your employment relies on services that are not related to necessities or survival, your finished. If you are a state or municipal employee, you will make serious wage concessions.
Happy Monday. In the time it took to type this, the Dow dropped another 22 points.
March 2nd, 2009 1:00 pm
Susan said: “Remember a mortgage is defective if it is no longer just a secured lien that was agreed to by both parties but has an UNAGREED to- unsecured personal loan attached to it as in negative equity. The terms of the mortgages were unilaterally changed.”
Not true. That may be a PERCEIVED defect, but just because the value of a house goes underwater doesn’t mean that there is anything defective about the agreement.
Using your logic, every single new car loan is “defective” as soon as the person drives out of the dealership. If I buy a new car today for $20,000 and take out a loan/mortgage on that asset, I am underwater as soon as I drive away. My asset is automatically worth less than I could sell that car for. Should we declare all car loans bad and give everyone a principal writedown on their car loans?
I don’t see much of a difference between giving a PR for a car loan and giving a PR for a home loan. We have made a house some sort of holy asset. It’s a box on a piece of dirt. There’s no mystical significance here. Just like what happens to the value of car has nothing to do with what happens to a car loan, so too, what happens to the value of house should have nothing to with the house loan.
Now if you want to contend that houses are different and that there is some sort of higher priority, or whatever other logic you want to apply here, to the value of a house. And if you want to contend that this somehow changes the loan, then fine, sell that to the the parties involved. I really don’t give a damn what the parties do with the loan. But the loss needs to stay with the parties.
Unfortunately, we now have a trickle down system where the loss is set to be picked up by the taxpayers. You, me and every other taxpayer were not part of the deal. We didn’t have skin in the game. Not our loss. We should not be forced to pay for the loss.
I really don’t care how the loss happened. I don’t care who lied. I don’t care who is losing value. I do care if my money is going to be used to fix a problem that I had nothing to do with.
Also, the whole argument that it will affect the whole economy doesn’t make that much sense. Markets will find a bottom. By messing with the markets we have postponed the inevitable.
Susan also said: “Obviously your intelligent, but if I told you that because of other outside investments(bets) I made that I need you to continue investing in my firm losing money for the next 10 or 15 years, would you even though when we originally agreed 4 or 5 years ago, it might have been profitable or at least break even?”
I agree with the first 3 words. Your analogy has two parties. If it stayed at 2 parties, then fine. PR tries to drag me into the mess to pay for someone else’s mistake with my tax dollars. Unfair.
Susan also said: “What the government is doing is telling the homeowners to be “responsible” to the banks not to themselves or their families. Responsible is “code word” for paying the mortgage on time.”
Isn’t paying one’s mortgage on time the honest, responsible thing that he said he would do when he took out the loan?
Susan also said: “Where is the responsibility and accountability of the banks? They created the “situation”.”
I have no idea where that is but I do know that I’m not the responsible party in this situation. I have no problem with an irresponsible bank being held to account for their misdeeds. If there is any proof of this, we have a system – the courts – to solve this problem. If banks can prove that the borrower defrauded them, let them take the borrower to court. Just leave me out of it.
Susan also said: “The mandate ensures responsibility and accountability of both parties of the transaction without taxpayers footing the bill.”
No so. Because of all the money that has already been allocated, the taxpayers are going to take a hit. Where is all that TARP money going to prop up the balance sheets? To the banks. Where did that money come from? The taxpayers. Why do the banks need to be propped up? Because they wrote bad paper and took losses.
If we have a true capitalistic deal, lender and borrower make a deal. Lender gives borrower a $200K loan. Borrower defaults. Lender takes collateral and sells it for $100K. This should be the end of it. Let the borrower and lender lick their own wounds and case closed. It stops being a capitalistic deal when the bank comes to the government and wants the taxpayers to reimburse them for the $100K that they lost. Just as, if the borrower wants the taxpayers to subsidize a paper loss they have with a PR. That’s not capitalism, that’s subsidized housing.
Sorry for being so long.
March 2nd, 2009 1:08 pm
Benzy said: “A plan similar to Susan’s is the only way to stop the bleeding and set our economy on a path toward finding a natural bottom.”
So, Benzy, the ONLY WAY to fix the mess we’re in is to throw taxpayer money at it?
March 2nd, 2009 1:13 pm
Benzy, yes that graph is quite compelling isn’t it…?
I have argued for almost a year now that PR’s had to get done for the good of the country, but that was before this administration got silly stupid in their actions.
I wanted the banks to do so with support from the Fed. Too late for that now and they have actually messed things up so bad now that nothing I am afraid will work short of tax payer bailouts for everyone. I as you well know, am not at all a fan for that to happen.
I think we are all in a world of hurt and Fraudbama and friends are going to make damn sure that they pull us all into the abyss!!! It is almost as if it is planned which would be wicked if true, but it sure does appear like they are doing this on purpose.
March 2nd, 2009 1:14 pm
Benzy said: “In the time it took to type this, the Dow dropped another 22 points.”
A buying opportunity, if you think it’s going back up. A shorting opportunity if you think it’s going down further.
Either way you place your bet, you and you alone, take the gain or loss. Another example of capitalism at work.
March 2nd, 2009 1:24 pm
Either way you place your bet, you and you alone, take the gain or loss. Another example of capitalism at work.
Therein lies the problem, Steve. The homeowner has taken the loss they are contractually obligated to take. The remaining loss in going to come directly out of our overall financial structure.
Barring any law legislating your definition of financial morality, is this what you mean by capitalism at work?
March 2nd, 2009 1:48 pm
Steve, we will all pay to clean this up. ALL OF US! You and your children, if you have any, and their children if they have any, I will and Benzy will too. ALL OF US!!
The rules are as follows:
Banks:
Banks lend on good faith to who they deem as the most risk free and capable of paying the loans back. They ask for capital called a down payment to assure there is skin in the game on both parties. This ensures the two parties will cooperate and work together through the life of the loan in good times and in bad.
Borrowers:
Borrowers take what they can get from the bank for money and purchase a property. The moral obligation is to pay back the money on this loan plus interest throughout the life of the loan
Outcome:
Banks shirked their responsibilities in a major way to their own detriment due to greed. They failed to make sure the borrowers were risk free. They failed to make sure the borrowers were capable of paying the loans back. They failed to ensure that both parties had skin in the game to make the need for both sides to work together in the event of bad times.
Borrowers with no skin in the game and no ties to the lenders are using the law to its fullest degree and walking away. Not a matter of being immoral mind you, but a matter of pure survival.
Who’s fault? I would have to say in order the following:
1. Congress – Ultimately there role to monitor and make sure this doesn’t happen.
2. Ratings Agencies – They looked the other way once Congress did.
3. Regulators – They looked the other way once Congress and the Ratings Agencies did.
4. Appraisers – They doctored the paperwork to get them to go through to appease Congress, Ratings Agencies and Regulators.
5. Lenders – They looked the other way seeing as how everyone else was too.
6. Borrowers – Couldn’t believe what was going on but hey if a lender says I am qualified as a bus driver to have a $500K mortgage then I must be qualified.
All in the name of GREED!!!
As a result WE ALL WILL NOW PAY!!!
March 2nd, 2009 2:18 pm
It’s hard to wrap your mind around, but the wealth never existed. The salary you pull even with minimal training or credential. The value of your home. The value of that public company you hold shares in. The value of everything was (and still is) inflated.
RE is a faction of the phantom wealth, a tentacle of the octopus. An very good argument can be made that our economy has had a static real baseline since the 80′s, and this last bubble was a short transfer of wealth before all indicators had to be reset.
What you are asking for, Steve, is for the middle class to make due payment on this phantom wealth, to prop up a phony capitalistic economy and keep the wealth flowing to the most guilty parties.
You make idealistic and moral pontifications that would stick at any other point in American history. While as simple as it is to make these moralistic arguments, the actions needed to sustain them are unachievable at this point in history.
Perhaps at times end we will finally realize that taxpayer intervention only prolonged the inevitable reset. That Banks were in all likelihood poised to make the “borrower and lender lick their own wounds and case closed”, as you say, but saw no incentive as long as the great bailout was enforced.
But, not for one moment do I expect the homeowner to consider this macro picture when negotiating their personal financial peril. And they wont.
Dow down 242.
March 2nd, 2009 3:16 pm
benzy said: “The remaining loss in going to come directly out of our overall financial structure. Barring any law legislating your definition of financial morality, is this what you mean by capitalism at work?”
That is exactly what I am decrying as unfair. What you are calling “our overall financial structure” has been translated: “taxpayers”. The “remaining loss” needs to be on the banks, not on me.
March 2nd, 2009 3:20 pm
Stu said “The moral obligation is to pay back the money on this loan plus interest throughout the life of the loan”
Our moral compass seems to be broken. We are turning into a country of immorals.
March 2nd, 2009 3:29 pm
Stu said: “Banks shirked their responsibilities in a major way to their own detriment due to greed. ….Borrowers with no skin in the game and no ties to the lenders are using the law to its fullest degree and walking away.”
Then Stu goes on to blame:”1. Congress –
2. Ratings Agencies – 3. Regulators –
4. Appraisers – 5. Lenders – 6. Borrowers” All in the name of GREED.
Great summary, Stu, now can you explain to me how it is logical:
“As a result WE ALL WILL NOW PAY!!!”
I’m missing something here. I didn’t make the blame list.
(BTW, even if you want to throw blame on Congress, that doesn’t mean “taxpayer” and “I did it because I wasn’t regulated” is not a legal or any other kind of defense.)
March 2nd, 2009 3:40 pm
benzy said: “What you are asking for, Steve, is for the middle class to make due payment on this phantom wealth, to prop up a phony capitalistic economy and keep the wealth flowing to the most guilty parties.”
I am obviously not being clear. That is exactly what I am NOT saying.
There was a bubble.
Two party deals caused the bubble.
The deals that were bad need to disappear and the parties need to take the hit.
TAXPAYERS WERE NOT ONE OF THE PARTIES. TAXPAYERS SHOULD NOT BE GIVING MONEY TO EITHER THE BORROWER OR THE LENDER – UNDER ANY CIRCUMSTANCES: TO PR OR TO PROP UP A BANK THAT TOOK A HIT.
Leave the deals alone. The borrowers and lenders made deals, now live with them. Take your hits and go away. Mr. Taxpayer shouldn’t reward the bad behavior of either of you with any money.
March 2nd, 2009 3:45 pm
I am obviously not being clear. That is exactly what I am NOT saying. TAXPAYERS WERE NOT ONE OF THE PARTIES.
Then take it up with your government. But, that’s not what you argued for, Steve is it? You wanted a debtors prison. You wanted to alter contracts as a means of enforcing the contracts.
Asking for the middle class to make due payment on this phantom wealth IS EXACTLY WHAT YOU ARE SAYING!
March 2nd, 2009 4:11 pm
Benzy said: “You wanted a debtors prison. You wanted to alter contracts as a means of enforcing the contracts.”
That was a wish of mine, but since a contract is a contract, that can’t happen retroactively. I would love to see debtors prisons added to the language of the future contracts and put into the regulations. That would definitely keep these problems from happening in the future.
What you seem to be having a hard time getting your mind around is the fact that these contracts are being altered. Contracts are supposed to be between parties (in this case 2 parties). Somehow I got added as a party to these contracts. I got forced to pay the banks for their losses and I am probably going to get forced to buy parts of McMansions. But I am not getting anything in return.
When someone gets forced to pay and not get anything in return, isn’t this called theft, a felony, etc.?
If taxpayers are forced to pay on a contract that we didn’t make, shouldn’t we be entitled to something in return? Why should I be charged for someone to walk away from a deal that they made and get nothing in return?
At least with debtor camps, I pay less for strawberries.
March 2nd, 2009 4:48 pm
Steve:
Read the mandate again, it is a government intervention forcing the bank to take the loss with the homeowner, if they can qualify.
The loss has already been taken by the homeowner, not it is time for the bank to take the loss, NOT YOU OR ME.
But the government is only concerned with band aiding the housing losses to stop the CDS losses for which YOU AND ME have already agreed to pay with our governments actions.(Bear Stearns, Citi, BofA and the big one, AIG with no end in sight, all that is besides for TARP funds that were divided up between the banks)
If you really are hot about not paying for other peoples mistakes, call your government representatives and let them know to STOP BAILING OUT BANKS, INSURANCE AND THE CAR INDUSTRIES.
March 2nd, 2009 5:10 pm
Susan,
Government mandates have all translated into throwing money at the problem – my money.
If the government gets out of the way and stops giving money to the banks to “fix” bad mortgages, the banks will have to take the hit. That would be your stated “mandate”. It’s real easy to accomplish. But the government seems hell-bent and determined to throw money at bad mortgage deals.
If a house is only worth $200K, why is the government determined to give someone $$$$ because their note is over $200K? It’s worth $200K because your neighbors walked away. That’s no reason for me to give someone $$$$.
Re: the others: I was against Paulson’s 3 page plan to bail AIG et al. What would really have happened? Paulson used scare tactics to scare congress out of money. And the others? Who said we need 3 “American” automakers? Most of what they sell is made in Brazil and Mexico. Want to Buy American? Then you need to buy Honda, Subaru, Hundai, Toyota – made in America as much as (if not more) than the little chevys and fords.
March 2nd, 2009 5:11 pm
Better yet, call or write your President about your disagreement about having taxpayer funds pay for gambling debts, under the pretense of stablizing the financial system for the American Public.
While your at it, give a few suggestions to stop the losses from continuing to occur, avoid Naturalization or really socialization of banks ( we will pay the gambling losses) and why not include a benefit to the suggestion like a natural stimulus that does not cost the taxpayers any money.
Read President Obama’s housing plan, it covers the banks losses, not the homeowners, with taxpayer money.
We, the taxpayers, have already spent, outlaid, promised or guaranteed over 9 Trillion Dollars to NOT correct a 1.2 Trillion Dollar problem that should be the banks cost/loss in Capitalism.
March 2nd, 2009 5:20 pm
Steve, you said:
“Our moral compass seems to be broken. We are turning into a country of immorals”
This is the exact point where you begin to stray. Where you start to not understand what is going on in this country. It is based on this upfront point that you lose yourself along the way due to not being able to apply this to what it truly happening in this country at this point in time.
We are not at all losing OUR moral compass. In fact it is our new and very corrupt administration that is losing their way. Fighting to allow Timmy to get nominated to be the head of the IRS after he was a self admitted tax cheat. Talk about immoral…
People are dealing with these buffoons in office and trying like crazy to get out from under their thumbs. We can’t do it however, because they are making matters worse with every passing day. The middle class is getting crushed by these errors the most and being forced to make some very hard choices that they may not make if given more options.
Do you see anyone at all going to jail for crimes agaist the American people? Do you see indictments? Do you see perp walks? Do you see anything at all happening to the heads of companies such as BofA, CITI, AIG, Fannie, Freddie Etc? Are they and all of their coherts getting pensions, bonuses, huge paychecks etc? You want to talk about morals then address these first. Call your Senators and tell them to come clean. We are being led by a bunch of immoral and corrupt individals and you want us to behave? Have we not behaved enough and now understand that unless we want to be piniattas then we must take matters into our own hands.
WALK AWAY people in DROVES!!! The more the better and the sooner the better you stop sending your mortgage payments in if you cannot afford your home any longer. It is legal and to utilize one of the Government plans will make you a debt slave for life. They will attach you=r paycheck if needed, but they will get their money after you make a so called deal with these devils.
You asked “Great summary, Stu, now can you explain to me how it is logical”
Who do you think is going to pay for all of these bailouts Steve? C’mon you cannot possibly be so naive to think you will skate by without paying your fair share too? We aLL pay because WE ALL OUR the tax payers in this country. This BS about people not paying taxes is just that. Don’t they purchase gas, food, etc. EVERYONE pays taxes and you along with the rest of us will pay to clean this up. In fact they are using FUTURE YET UNCOLLECTED TAX PAYER MONEY to pay for all of this. Our future tax payers didn’t even have a say in the matter…
March 2nd, 2009 5:27 pm
The government is not getting out of the way, our pocketbook has opened and we lost the latch to close it. We, the people as a LOUD collective voice need to voice, write or petition that we do not want our tax dollars to go to the banks, let them fail after correcting their own actions.
My mandate is not your money nor mine, it is the banks and investors money, with most of the original homeowners on the “hook”.
Because it is a recall, reduction and REPLACEMENT mortgage issued to current appraised value mandate, it is a way for the banks to EARN money and lower their required reserves enabling them to pay TARP funds back to the taxpayers.
The toxic mortgages were trading at 22 cents on the dollar before the banks stopped the trading themselves because they were losing money. The mandate gives them much more than 22 cents on the dollar with a renewed potential cash flow on a performing asset.
March 2nd, 2009 5:28 pm
Steve, have you thought of quantifying your losses as a taxpaying contributor to a govenement funded PR program compared to your losses as a 401k investor with the Dow at 4000 and a tanked bond market? How about if you factor in a 1 in 5 chance you will be unemployed?
March 2nd, 2009 6:21 pm
Susan,
Why would any bank voluntarily agree to something that it thinks would make it less money?
If it is beneficial to the banks, why aren’t they doing it now?
Is another mandate really going to do anything? We’re already telling banks how to lend and how much they need in reserves. You want to “let them fail after correcting their own actions”? Isn’t that like asking the bank to dig their own grave?
March 2nd, 2009 6:27 pm
Benzy said: “you thought of quantifying your losses as a taxpaying contributor to a govenement funded PR program compared to your losses as a 401k investor…”
Sure, but not germaine to the issue of mortgages/contracts. Try as I might, I can’t see where rewarding a behavior that cost me money is the way to go to fix my IRA.
When I did my IRA I took a chance. At the present time, I’m losing. That’s because that’s the way the rules are. I’m not going out and asking you to give me the money that the market took away.
March 2nd, 2009 6:40 pm
If it is beneficial to the banks, why aren’t they doing it now?
TARP.
March 2nd, 2009 7:05 pm
TARP = Taxpayers’ money
As long as the money is there and banks can get any of it, there will be no incentive for them to fix the situation with their money.
March 3rd, 2009 3:24 am
Well I guess that I got tired of typing the entire proposal over, there is no access/availability/guarantee to any governmental funds whatsoever without full participation in the mandate, including the fed window (overnight banking) and the newly created Talf.
No action(participation) is an automatic, FDIC recievorship, shareholders are wiped out on day 1. Do you really think shareholders will go for that instead of a chance to earn profits at a later date?
There will be total participation especially from the banks that aren’t involved in the loss, it is a way to earn profits. refinances are rotationally doled out to equal the playing field based on number of employees required and necessary to proceed with the mandate. ( that is a major problem today, the homeowners apply and go no where, 19 day underwriting turn around)
From the banks involved in the loss, isn’t it better to recieve the appraised value, approx. 60 cents on the dollar versus a max of 22 cents on the dollar, WITH a continued guaranteed cash flow for up to one year.
The benefit to the public is increased spending power fueling other parts of the economy BUT I want to explain that the mentality of “frugality” will remain and savings will take place instead of un-necessary spending, Corporations will have to adjust and allow for a lower profit margin in the new society, we can no longer borrow to spend. ( that is the main problem with the current government interventions, they expect borrowing to continue fueling the “growth” of the economy, it must contract.
The CDS/derivatives are washed out from each other. The CDS that were placed without an underlying security interest in the product, is null and void, for both parties, premiums are returned. Since CDS are unregulated and unlisted, there is no clear answer, if any CDS are actually in play that HAVE an underlying interest and wouldn’t be washed out with each other.
Bottom line- purchasing a home while considered a long termed investment is also considered a safe investment and this was based on past performance. As the purchaser, you have a legal reasonable moral right to expect your mortgage company to not harm you financially and retain a SECURE LIEN against your property in leiu of foreclosure.
Deed in lieu of: means the mortgage holder accepts the deed in lieu of absorbing the cost of a foreclosure and actually performing one. It usually in the worst scenario was a wash in value.
I can not believe the American People are falling for the “headlines” without realizing that they are being duped to cover gambling bets, not of homeowners (already foreclosed) but of the banks and insurance companies. Business as usual.
March 3rd, 2009 3:31 am
The government is relying on its citizens to hold animosity/envy/jealously against each other instead of realizing that the banks are really the only ones benefitting from any of the “programs” proposed.
There has been over 9 Trillion Dollars of taxpayer money spent, outlaid, promised, or guaranteed without reducing ONE SINGLE homeowners mortgage, it all was for the “financial system” to cover CDS.
March 3rd, 2009 3:36 am
Any math majors out there, who could tell me if the government mandated(insisted) on the reduction to appraised value of 25% of homeowners and allowed approx another 3 Trillion Dollars to be refinanced at 4.5%, exactly how much money would be returned to the GDP yearly, monthly to fuel the economy without a dime of taxpayer money being spent?
March 3rd, 2009 3:37 am
That is cash money, not borrowed.
March 3rd, 2009 9:04 am
Susan,
Your proposal has a lot of presumptions and actions that will lead to disaster or just won’t happen.
1. “No action(participation) is an automatic, FDIC recievorship, shareholders are wiped out on day 1.”
That’s quite a stick. Where is the FDIC going to get the $$$$ for this? Why would the thousands of banks who just loan in their own little communities, (most of which around the country don’t have a foreclosure problem) want to get involved in any way?
“it is a way to earn profits”? They’re already doing ok with what they have. Do you really want to kill performing banks for the sake of a mandate?
2. “From the banks involved in the loss, isn’t it better to recieve the appraised value, approx. 60 cents on the dollar versus a max of 22 cents on the dollar, WITH a continued guaranteed cash flow for up to one year.”
If that presumption is correct, if it is better for the banks, why don’t they just do it now? Nobody’s stopping them. Their current inaction tells me the answer to your question is “no”.
3. “Corporations will have to adjust and allow for a lower profit margin in the new society”
Our whole economic infrastructure is built on growth. Perceived slowing of growth is what’s causing the current market crash.
4. “The CDS/derivatives are washed out from each other. The CDS that were placed without an underlying security interest in the product, is null and void, for both parties, premiums are returned.”
After we gave away billions through that GSE called AIG? How would re-fi wipe out CDSs without an underlying security? The time to wipe out the CDSs has passed, the money is gone, getting it back will be neigh to impossible.
5. “Bottom line- purchasing a home while considered a long termed investment is also considered a safe investment and this was based on past performance. As the purchaser, you have a legal reasonable moral right to expect your mortgage company to not harm you”
A house is not one of the unalienable rights listed in the Declaration of Independence. You have that “right” if you keep your side of the bargain. There is no more a “right” to a house than a “right” to a car. A house is something that you buy. If you borrow on it you give up your “right” to that asset till your debt is paid. Just like you give the title of car to the bank when you borrow to buy the car. Miss one payment and meet the repo man. Houses are essentially no different. (and now with some houses selling for less than a Ford pick-up, the similarities are getting more real.)
6. “I can not believe the American People are falling for the “headlines” without realizing that they are being duped to cover gambling bets, not of homeowners (already foreclosed) but of the banks and insurance companies. Business as usual.”
The banks and insurance companies own the media. The public hears what they want it to hear.
7. “There has been over 9 Trillion Dollars of taxpayer money spent, outlaid, promised, or guaranteed without reducing ONE SINGLE homeowners mortgage, it all was for the “financial system” to cover CDS.”
That was TARP money. It went to Paulson’s friends. There wasn’t any money in the first half of the TARP for any homeowners. The new $75 billion (from part 2 of the TARP) is allegedly going towards some sort of foreclosure solution (details to come out soon allegedly).
And I still ask: Why PR? Sheila Bair said they found that the most effective way to do a mod was to lower the payments. The loans she did, that worked, lowered the rates and extended the term. I say, if we want to do anything, take the Fannie and Freddie loans that the government owns (at least half of all loans) and 1. cut the losses on the hopeless ones – foreclose. 2. mod the others with lower interest rates and longer terms (if necessary)
(Fannie and Freddie should put all the performing loans on the market and get out of the mortgage business. With mods in place, just about all of the loans should be performing and worth something on the open market.)
8. “without a dime of taxpayer money being spent?”
How can you believe that if the government is involved in any solution, that they can do it without spending taxpayer money? I’d like one example where the government did anything without taxpayer money being spent.
March 3rd, 2009 9:04 am
Steve, you said:
“As long as the money is there and banks can get any of it, there will be no incentive for them to fix the situation with their money”
Exactly!!! Maybe you get it more than you lead on… This is what happened to borrowers at the peak. As long as borrowers could get 100% or even 110% of the loan lent to them why on earth would they use their own money.
Now they can legally walk away with a ding to their credit for 3-4 years and because the lenders are insolvent but being recklessly propped up by the Government via tax payer money, we will all have to pay for that choice. I still don’t blame the homeowner however, because why would they not do that? If my home was 100K – 150K or even more under water I would be living rent free until they came and kicked me out. Saving every penny I could to place myself and my family into a much better financial situation down the road. I certainly would not entertain any help from the Government and I may consider / allow a principal write down if I felt it was the best option for me and my family.
The situation is being created by our Government making very poor choices with not only our money, but for our country. This new administration is taking us down a very bad path of self destruction. Fraudbama and his band of thieves are causing all of this to take place by manipulating the currency, the stock market, interest rates, investments, etc. and as a result of this we are self imploding.
With no transparency, trust, or faith in our economic system as a result of this manipulation, we will continue to crumble until they either change their policies or we reach zero. With the total lack of leadership in place I fear to say it will be the latter that takes place. It is very sad for our country to have this happen, but it is happening just the same…
March 3rd, 2009 9:27 am
Steve, I had such hope for you…
1. Where is the FDIC going to get the $$$$ for this? >>> Taxpayers
2. Why would the thousands of banks who just loan in their own little communities want to get involved in any way? >>> CRE
3. If that presumption is correct, if it is better for the banks, why don’t they just do it now? >>> They would have to take the write downs and they are insolvent so that is not an option for them.
4. Our whole economic infrastructure is built on growth. Perceived slowing of growth is what’s causing the current market crash. >>> Yes it was and it is called greed. Chasing bigger and bigger profits is exactly what caused this.
.5. After we gave away billions through that GSE called AIG? How would re-fi wipe out CDSs without an underlying security? The time to wipe out the CDSs has passed, the money is gone, getting it back will be neigh to impossible. >>> While I would agree with this, the proposal was before these errors were made by Fraudbama. We could dissolve these entities of which you speak immediately however so we do not continue to lose more tax payer money propping these insolvent companies up.
6. You have that “right” if you keep your side of the bargain. There is no more a “right” to a house than a “right” to a car. A house is something that you buy. If you borrow on it you give up your “right” to that asset till your debt is paid. Just like you give the title of car to the bank when you borrow to buy the car. Miss one payment and meet the repo man. Houses are essentially no different. (and now with some houses selling for less than a Ford pick-up, the similarities are getting more real.) >>> Wrong Steve! A car loan is recourse as are CC loans. A home loan is and always was designed to be an agreement between the lender and the borrower for a long term commitment. When the lenders looked the other way for greed and lost site of their role in the purchase, the homeowner lost site as well. Remember nothing happens without the capital offered up by the lender. If they don’t want to watch how the lend then this is what happens. The lenders were fools in my opinion and many will falter as a result.
6. The banks and insurance companies own the media. The public hears what they want it to hear. >>> No they don’t. The public can be misled I agree, but they are not as stupid as you suggest. If this were the case they would all be taking up the Government offer to rewrite their loans into recourse and become debt slaves for life. They are much smarter than you are giving them credit for. Many more will walk too because they are smart enough to do so.
7. That was TARP money. It went to Paulson’s friends. There wasn’t any money in the first half of the TARP for any homeowners. >>> Steve that is exactly what TARP 1 was designed for. The fact that the Fed and Treasury didn’t use it for this and the fact that Congress sat on their hands and allowed this to occur is sinful and quite frankly fraud by every sense of the word.
8. How can you believe that if the government is involved in any solution, that they can do it without spending taxpayer money? I’d like one example where the government did anything without taxpayer money being spent. >>> Chrysler bailout made money for the tax payer and not that I advocate back stopping, but done correctly it can work. We could have back stopped AIG and allowed them to fail for example without an ounce of tax payer money being spent. We chose to not do that and become owners instead. Once you guarantee losses and at the same leave those that caused those losses to stay in power you have sent the message that it was ok to do so. Moral hazard Steve and it was done and continues to be done and all of it at tax payer’s expense. This administration doesn’t care about the losses to the tax payers as long as the intended goal is reached.
That goal is total dependency on big Government by the majority of the people. This assures re-election and continued dominance by big Government over its people and if you don’t believe me then look around at what is happening. We are being duped right before your eyes Steve…
March 3rd, 2009 10:30 am
Stu said:
:Now they can legally walk away with a ding to their credit for 3-4 years and because the lenders are insolvent but being recklessly propped up by the Government via tax payer money, we will all have to pay for that choice. I still don’t blame the homeowner however, because why would they not do that? If my home was 100K – 150K or even more under water I would be living rent free until they came and kicked me out. Saving every penny I could to place myself and my family into a much better financial situation down the road. I certainly would not entertain any help from the Government and I may consider / allow a principal write down if I felt it was the best option for me and my family.”
I don’t blame the people who walk away. Everyone, with 2 choices, picks what they perceive will bring themself the greatest pleasure/benefit/reward. (Psychology 101).
It’s the “propped up” part (read: “taxpayers paying”) that bothers me. If the government stayed out of it and let the deals and banks work it out themselves, like it had done in the past, then the markets would probably already be closer to stablelized.
But when a bank can’t figure out what is best for them since their being told, “foreclosure moritorium”, “plan coming”, “details to follow”, “new plan coming” – that causes all sorts of confusion.
March 3rd, 2009 10:39 am
Stu said: “Where is the FDIC going to get the $$$$ for this? >>> Taxpayers”
I mistakenly thought this was true myself. FDIC is a government agency that is paid for by “insurance premiums” paid by the banks.
They have not had to take money from taxpayers. If they had to do BoA, then they would need taxpayers $$$$.
One of the reasons for the TARP was so that money could be given to banks and not upset the working of the FDIC.
The FDIC may have borrowed during the S&L crisis, but that money was all repaid with interest. It looked like they were going to choke on IndyMac, but they seemed to have gotten away without a fatal wound.
March 3rd, 2009 10:43 am
Why is MM hiding? IT’S BEEN A MONTH!
March 3rd, 2009 10:47 am
Stu said: “They would have to take the write downs and they are insolvent so that is not an option for them.”
They are insolvent because mark-to-market makes them hold a $100K mortgage on their books at $20K. If they foreclose and sell the house for anything over $20K, then isn’t it better for them? If the owner has walked, the house is empty, the loan non-performing, then there’s nothing left. They are already holding reserves to cover bad loans. If they can get the loans off the books that frees up reserves and turns the house into a cash asset which may be more than mark-to-market and not need to have reserves.
March 3rd, 2009 11:43 am
Steve, you said:
“It’s the “propped up” part (read: “taxpayers paying”) that bothers me. If the government stayed out of it and let the deals and banks work it out themselves, like it had done in the past, then the markets would probably already be closer to stablelized”
“But when a bank can’t figure out what is best for them since their being told, “foreclosure moritorium”, “plan coming”, “details to follow”, “new plan coming” – that causes all sorts of confusion”
I totally agree Steve, and it really pisses me off too, but it is what it is now thanks to Fraudbama and his merry band of thieves.
Steve, you said:
“I mistakenly thought this was true myself. FDIC is a government agency that is paid for by “insurance premiums” paid by the banks”
Not exactly Steve, but you are sort of correct. The premium to the FDIC is to allow for the lender to participate in FDIC Insurance. It has nothing to do with paying for the FDIC. They are backed 100% via the FED via tax payer’s money.
“They have not had to take money from taxpayers. If they had to do BoA, then they would need taxpayers $$$$”
Well actually they already did and will be taking more. You see the FDIC actually has what is called a credit line from the FED to be drawn upon when needed to cover the cost of insolvent banks that are allowed to fail. The FDIC must cover, what is now, up to 250K per deposit if there are not enough funds left after the assets are sold off. Now we both know that not one bank that exist today due to over leverage has enough assets to cover deposits. As such every bank that is allowed to fail the FDIC will have to bailout.
“One of the reasons for the TARP was so that money could be given to banks and not upset the working of the FDIC”
Not exactly Steve. TARP 1 was by definition (Toxic Asset Relief Program) set up to buy the marked to model L3 assets off of the lenders books thus allowing them freed up capital; to lend to potential home buyers. It had absolutely nothing to do with the FDIC (although the FDIC does report to the FED). The money was never approved by Congress or the Senate to be given to anyone and if not for the, agreed upon by Congress afterwards, the freedom to use the money however they deemed fit after the fact, then it would not have been and should not have been allowed. Our inept Congress did not want to take the heat for a bad decision so they passed the buck of responsibility to an appointed office instead of the elected offices of which the American public voted in to do this sort of thing. You know… GOVERN!!!
“The FDIC may have borrowed during the S&L crisis, but that money was all repaid with interest. It looked like they were going to choke on IndyMac, but they seemed to have gotten away without a fatal wound”
If you want to call it that I suppose, but in reality IndyMac cost us tax payers more than any other lender bankruptcy in our countries history. The FDIC is an agency underneath the FED by the way and doesn’t borrow anything. They are 100% backed by the FED via tax payer money and have unlimited cash (printed if necessary) to cover as an explicit guarantee all deposits up to 250K per account amongst other things.
Steve, you said:
“They are insolvent because mark-to-market makes them hold a $100K mortgage on their books at $20K. If they foreclose and sell the house for anything over $20K, then isn’t it better for them?”
No they are not. I think you meant to say mark to model by the way. Anyway, the lender has the 100K mortgage on their books at 100K located in L3 which is an asset or part of capital. In order to move that loan onto L1 and sell it they would have to mark to market that loan at 20K which is its true value. That is the problem because they then must take the write down to their capital of 80K. Multiply this by 1,000’s of loans and you can quickly see how that would force lenders to go bankrupt pretty quick. If not severely capitally impaired which would force their hand eventually due to down graded ratings and hence the cost of borrowing money would be prohibitive to allow them to survive.
“If the owner has walked, the house is empty, the loan non-performing, then there’s nothing left. They are already holding reserves to cover bad loans. If they can get the loans off the books that frees up reserves and turns the house into a cash asset which may be more than mark-to-market and not need to have reserves.”
It doesn’t work that way Steve. They would have to take the loss and their reserves are leveraged 30, 40 or even 50 to 1. They do not have nearly enough reserves to cover all of these losses and would again go bankrupt pretty damn fast if they did this. That is why the lenders are doing a few things to hold this off. 1. L3 assets are growing 2. Mark to Model is alive and well 3. Foreclosures are not being dumped for sale 4. Waiting on the bailout from tax payers before they move forward on anything 5. Hoarding cash 6. Not lending 7. Tightening guidelines for loans etc.
Lenders know they are insolvent as does the Government and the tax payers. It is a huge problem to be bailing these lenders out over and over again. The losses will be heaped onto the tax payers for decades to come. CITI has a market cap of $30 Billion for example, but yet the tax payers are already on the hook for $330 Billion. Not a pretty picture if you see what I mean. Now CITI is worth something so our losses are not $300 Billion, but they are massive and the same goes for AIG, BofA, Fannie and Freddie too!
March 3rd, 2009 11:46 am
Ooops…
Steve, you said:
“It’s the “propped up” part (read: “taxpayers paying”) that bothers me. If the government stayed out of it and let the deals and banks work it out themselves, like it had done in the past, then the markets would probably already be closer to stablelized”
“But when a bank can’t figure out what is best for them since their being told, “foreclosure moritorium”, “plan coming”, “details to follow”, “new plan coming” – that causes all sorts of confusion”
I totally agree Steve, and it really pisses me off too, but it is what it is now thanks to Fraudbama and his merry band of thieves.
Steve, you said:
“I mistakenly thought this was true myself. FDIC is a government agency that is paid for by “insurance premiums” paid by the banks”
Not exactly Steve, but you are sort of correct. The premium to the FDIC is to allow for the lender to participate in FDIC Insurance. It has nothing to do with paying for the FDIC. They are backed 100% via the FED via tax payer’s money.
“They have not had to take money from taxpayers. If they had to do BoA, then they would need taxpayers $$$$”
Well actually they already did and will be taking more. You see the FDIC actually has what is called a credit line from the FED to be drawn upon when needed to cover the cost of insolvent banks that are allowed to fail. The FDIC must cover, what is now, up to 250K per deposit if there are not enough funds left after the assets are sold off. Now we both know that not one bank that exist today due to over leverage has enough assets to cover deposits. As such every bank that is allowed to fail the FDIC will have to bailout.
“One of the reasons for the TARP was so that money could be given to banks and not upset the working of the FDIC”
Not exactly Steve. TARP 1 was by definition (Toxic Asset Relief Program) set up to buy the marked to model L3 assets off of the lenders books thus allowing them freed up capital; to lend to potential home buyers. It had absolutely nothing to do with the FDIC (although the FDIC does report to the FED). The money was never approved by Congress or the Senate to be given to anyone and if not for the, agreed upon by Congress afterwards, the freedom to use the money however they deemed fit after the fact, then it would not have been and should not have been allowed. Our inept Congress did not want to take the heat for a bad decision so they passed the buck of responsibility to an appointed office instead of the elected offices of which the American public voted in to do this sort of thing. You know… GOVERN!!!
“The FDIC may have borrowed during the S&L crisis, but that money was all repaid with interest. It looked like they were going to choke on IndyMac, but they seemed to have gotten away without a fatal wound”
If you want to call it that I suppose, but in reality IndyMac cost us tax payers more than any other lender bankruptcy in our countries history. The FDIC is an agency underneath the FED by the way and doesn’t borrow anything. They are 100% backed by the FED via tax payer money and have unlimited cash (printed if necessary) to cover as an explicit guarantee all deposits up to 250K per account amongst other things.
Steve, you said:
“They are insolvent because mark-to-market makes them hold a $100K mortgage on their books at $20K. If they foreclose and sell the house for anything over $20K, then isn’t it better for them?”
No they are not. I think you meant to say mark to model by the way. Anyway, the lender has the 100K mortgage on their books at 100K located in L3 which is an asset or part of capital. In order to move that loan onto L1 and sell it they would have to mark to market that loan at 20K which is its true value. That is the problem because they then must take the write down to their capital of 80K. Multiply this by 1,000’s of loans and you can quickly see how that would force lenders to go bankrupt pretty quick. If not severely capitally impaired which would force their hand eventually due to down graded ratings and hence the cost of borrowing money would be prohibitive to allow them to survive.
“If the owner has walked, the house is empty, the loan non-performing, then there’s nothing left. They are already holding reserves to cover bad loans. If they can get the loans off the books that frees up reserves and turns the house into a cash asset which may be more than mark-to-market and not need to have reserves.”
It doesn’t work that way Steve. They would have to take the loss and their reserves are leveraged 30, 40 or even 50 to 1. They do not have nearly enough reserves to cover all of these losses and would again go bankrupt pretty damn fast if they did this. That is why the lenders are doing a few things to hold this off. 1. L3 assets are growing 2. Mark to Model is alive and well 3. Foreclosures are not being dumped for sale 4. Waiting on the bailout from tax payers before they move forward on anything 5. Hoarding cash 6. Not lending 7. Tightening guidelines for loans etc.
Lenders know they are insolvent as does the Government and the tax payers. It is a huge problem to be bailing these lenders out over and over again. The losses will be heaped onto the tax payers for decades to come. CITI has a market cap of $30 Billion for example, but yet the tax payers are already on the hook for $330 Billion. Not a pretty picture if you see what I mean. Now CITI is worth something so our losses are not $300 Billion, but they are massive and the same goes for AIG, BofA, Fannie and Freddie too!
A lot of this money we the tax payers will never get back and have to pay via higher taxes down the road. That is the reality of what Fraudbama and his merry band of thieves is doin to our countries future!!!
March 3rd, 2009 12:05 pm
Steve, you said:
“The FDIC may have borrowed during the S&L crisis, but that money was all repaid with interest. It looked like they were going to choke on IndyMac, but they seemed to have gotten away without a fatal wound”
Just so you know and to correct this statement. The S&L crisis cost American tax payers roughly $150 Billion dollars.
It was not borrowed by anybody and it was never paid back to anyone. The tax payers had their taxes raised (taken from) to pay for it and that was that. The tax payers never saw .01 penny come back to them from that crisis.
March 3rd, 2009 12:07 pm
“The FDIC derives its funding from the deposit insurance funds”
http://www.fdic.gov/bank/analytical/banking/2006mar/article1/index.html
March 3rd, 2009 12:15 pm
Interesting take from Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_wasik&sid=anqZRPJQTe5A
March 3rd, 2009 12:58 pm
Steve, the FDIC is a Government agency reporting ultimately into the Treasury. The funding you speak of is the cost to run the agency and that is collected via fees to be a member of the FDIC (that little sticker on banks windows) and has little to do with bailing out lenders who go bankrupt. They are by law leveraged 100 to 1.15 and have no where near enough money via those fees to do what it is they are chartered to do.
The FDIC has unlimited borrowing authority to cover the explicit guarantee of deposits given by our Government and supported by the agency called the FDIC. In the past they have always held a credit limit of $30 Billion to draw on and as they use it up and fall less than $1.15 to 100 they must go get some more money and provide a 5 year plan of restoration to the Fed / Treasury. A law passed last year by Congress however has raised this limit from $30 Billion to UNLIMITED BORROWING AUTHORITY.
Enough of that however, but I want to be sure you understand who is ultimately paying for all of this and to also understand that ANYTHING the Government pays for we the tax payers are ultimately paying for. The Government does not make any money. They print money and they borrow money and they tax citizens for money and that is it. ALL of these bailouts and all of these agencies and their explicit guarantees are backed up by the American Tax Payer period. Little fees by lenders are insignificant to all of this. The fees are in the 100th of a percent area I think.
Currently the Government is broke and in the hole, but yet Fraudbama is spending more and more money like a drunken sailor. This is why China and Japan are getting nervous and I dare say afraid we will not be able to pay our debt. You know US! WE! The American Tax Payer! They are scared that our Government has tossed us into bankruptcy as a country which means the tax payers do not have the capacity to pay back what our Government has borrowed. Sure they can print away, but that dilutes the value of the dollar and ultimately means these countries will only receive a portion of what it was that they loaned to us. They will then have to take Billions upon Billions of losses on their books as a result of our ineptness to run our country. Japan had around a 25% savings rate by their people during their crisis and a budget surpluss. We have a massive budget deficit and have had a 0% savings rate for the poast two years as a country. Not exactly stable figures considering the mess where in right now are they?
As our country falls further and further into the abyss it is becoming obvious that were are becoming unhinged from reality in terms of expectations. People expect to get bailed out now and that cannot continue to happen. The moral hazard of bailing out Fannie and Freddie set the stage for AIG and then the banks and finally the Auto Manufacturers. This has got to stop and fast or we will run ourselves right into the ground. This is some serious stuff going on and something has got to give…
March 3rd, 2009 1:11 pm
Steve, I had been advocating for principal write downs for a long time now, just like Mr. M. and for many of the same reasons this article from Bloomberg points out. Things have changed however and now it is too late to do this without the tax payers footing the bill.
Say CITI does $300 Billion in principal write downs on their loan pools. Who do you think is paying for that? We had our shot at this back in 2007 but they were only subprime borrowers and I think the industry felt that they were not worth saving to be honest. That some how the Alt-A and above borrowers could decoupled from them. Well with all of the manipulation by the Government it is way too late to do this now, so Fraudbama is advocating taking $75 Billion (not nearly enough mind you) and doing just that. He is prepared to write down mortgage principal on homeowners in trouble and is paying for it with tax payer money!!!
The “Cram Down” legislation is the same thing except the banks write it off and go to the tax payer discount window and borrow more money from us. That or they go with hand out to Fraudbama and he hands it to them via a bailout using tax payer money. You see how this is going? That is exactly why anyone well under water would be advised to walk away. Your going to pay via taxes anyway so why let them get you twice and make you a debt slave for the rest of your life at the same time?
Fraudbama has this notion of a distribution of wealth. He wants the top wage earners to pay for all of the lower wage earners bills. Whether it be food stamps, heating assistance, bailouts on mortgage principal, etc. He feels like it is our patriotic duty to do this. We are living in very scary times my freind…
March 3rd, 2009 1:23 pm
Housing wire has a good article today. Here is an excerpt with my comments following:
” The government as of market close Friday had lost another $5 billion in value last week from an original $306.1 billion in capital investments through the Troubled Asset Relief Program, according to data released by business ethics think-tank Ethisphere Institute. The decline in value of preferred stocks for the week ending Feb. 27 brings the total loss to $112 billion to date.”
So TARP 1 has already racked up losses to the Tax Payers of this country $112 BILLION DOLLARS from an original $306.1 Billion dollars they originally took from us!!!
How lovely for us to have lost 35% of our money. We could have just sent that money to every single man, woman and child in America and got more than nothing out of it like apparently we just did.
P.S. We have yet to pay for this by the way, so this is really an IOU we are giving to future generations to deal with. You know the old borrow from Peter to pay Paul trick. You know the trick we all used to get ourselves into this mess. Yeah, we are doing it again and making an even bigger mess out of things. BRILLIANT!!!
March 3rd, 2009 7:52 pm
Has anyone got more articles from MM..? would U like to share with us? or is MM retiring… I liked his articles.. what r we going to do without some insight?? MM r u there??? still vacationing?.. did u change professions…what’s up! (I realize having a new baby..takes a lot of time.. but give us something WHEN/AS you can!)
THANK YOU
ex_owner (or ex_renter.. how Susan likes to address me..
March 4th, 2009 11:36 am
As has been said, “The devil’s in the details”
Here’s the details:
http://www.financialstability.gov/
“There is no requirement to use principal reduction” (page 8)
March 4th, 2009 11:37 am
That was supposed to say page 8
Seems that 8 followed by a ) comes out as a smiley.
March 4th, 2009 11:45 am
Here’s a new wrinkle, from front page of ml-implode:
http://www.npr.org/templates/story/story.php?storyId=101386052
Banks walking away!
How bad a deal was it when nobody wants the house?
March 4th, 2009 4:07 pm
There’s a 105% LTV max for the Freddie/Fanny version but NO LTV requirement for “Home Affordable Modification” version. LTV requirements make it a race against equity drops, which are still well in play.
No LTV req will certainly expand eligibility, but I have a feeling that many applicants (maybe half, maybe more?) had stated their incomes to qualify for the purchase money.
I think this is a reasonable amount of tax-payer funded meddling considering the trillions spent treating the secondary symptoms of the root cause. And the bulk of concessions will be taken by the lenders/MBS arena anyway.
And, Skid Mark Sentelli and his buddies will have a few less claims on his default swaps.
Personally, I’ll see no direct benefit since my mortgage and foreseeable rate increases until Q3 2011 will keep my DTI still below 31%. But indirectly, I see perhaps some stabilization in the RE market in my region (nod to Jackie Speier).
Additionally, this will perhaps lay the foundation for a standardized modification strategy that can be applied to a broader group.
March 4th, 2009 4:55 pm
Benzy said: “many applicants (maybe half, maybe more?) had stated their incomes to qualify for the purchase money”
Looks like there are going to be a lot of applicants to this program who will be trying to lower their incomes to qualify for a bigger break.
If you’re going for a mod, why not go for the biggest break you can get?
Interesting line in the plan’s guidelines:
“If the Front-End DTI Target has not been reached, forbear principal. If there is a principal forbearance amount, a balloon payment of that forbearance amount is due on the maturity date, upon sale of the property, or upon payoff of the interest bearing balance.”
Sounds to me that principal reduction = balloon payment.
March 4th, 2009 5:48 pm
principal reduction = balloon payment
I caught that too. The balloon is deferred and interest free though. If one lives in their home for 20 years, that deferred principal will be negligible (assuming *some* rate of inflation).
I think there’s some good safeguards against income fraud. I see two obvious holes:
1. If someone in the household were to get a second job between filing their federal returns and applying for the program and don’t reveal this. I think the trend is in the opposite direction, ie people loosing jobs.
2. In a 2 income household where one job’s income is borderline to pay the PITI, say 40% DTI but two jobs is comfortable, say 20-25% DTI. Then one earner could conceivably quit before they “apply” and they may qualify. I fall into this category, though trust me I don’t roll like that.
March 4th, 2009 6:20 pm
Can Obama make my downpayment so I can buy a house? I didn’t get any help during H4H program??
I’ve got a credit ding
I’ve got to wait for an FHA loan
I’ve lost my house
ARE YOU LISTENING OBAMA??? where’s the help for those that LOST ALREADY???????
March 4th, 2009 6:25 pm
SO I LOOSE MY HOME.. AND THEN I PAY FOR OTHERS TO KEEP THEIRS… THANK YOU OBAMA…
JUST TAKE MY WALLET.. IT’S FASTER..BEFORE I MOVE OUT OF COUNTRY…
March 4th, 2009 6:45 pm
give me a 20% dowpayment at 0 interest to be paid when I sell the home…and calculate the remaining 80% for a loan within my income..so I don’t pass 31%.. that would be fair to all ex-owners!
ARE YOU LISTENING OBAMA??
March 4th, 2009 6:46 pm
THERE ARE 19 MILLION EMPTY HOMES! SOMEONE’S GOT TO BUY THEM!
March 4th, 2009 7:01 pm
ex_owner_now_renter,
You can’t have any money because this money is going to Fannie & Freddie – not really homeowners. It’s covering F& F’s asses.
$75 billion/9,000,000 = $8333
Fannie and Freddie rewarded all the bad behavior by buying mortgages. Foreclosure costs a bundle. Fannie needed to stop paying for foreclosures. If this works then it’s going to be cheaper than foreclosure.
Seems that $5,000 of that $8333 is going to homeowner ($3k for paying on time but going towards principal) and $2K for F or F. (Does that leave $3,333 for overhead?)
But don’t we, the taxpayers, own Fannie and Freddie? And didn’t Fannie and Freddie buy the mortgages outright? So don’t we own these mortgages that are being modified? So, since we’re paying ourselves to basically rewrite some paper, is this anything more than a shell game?
March 4th, 2009 7:31 pm
Investors doing principal reduction/mortgage rewrites at lower rates and making $$$$?
http://www.bloomberg.com/apps/news?pid=20601109&sid=aoXvQxGD5ChU&refer=news
Are these guys out of their minds or is there a major opportunity here?
March 4th, 2009 9:35 pm
Steve- how did they buy the note? doesn’t the lender have to agree to the sale? Do you think she ends up having to give up any future equity now that the loan is lowered?
March 4th, 2009 9:51 pm
bought at the wrong time said: “how did they buy the note?”
I was wondering the same thing. Is there a market for mortgage notes? Where is this market? Can I buy someone’s note?
One hears that notes are worth 20 cents on the dollar so there must be some way that these notes get valued?
It doesn’t make a lot of sense, for instance, why would there still be mortgages given when the note is only worth pennies on the dollar? I’m gonnna loan you $100 so I can have a note worth $20?
re: “future equity” – there was no mention in the article and it seemed that future equity was not given up.
Seems that by making the deal and lowering the principal, the holder of the note got a more realistic mortgage, but she was paying and hadn’t lost her job. So why did he offer her the deal?
I was hoping that there was someone here who could answer some of these questions.
March 5th, 2009 12:32 am
Steve,
Sounds like someone took my idea, and turned a lemon into juice for themselves or a non performing loan into a performing loan that makes money, which is what the mandate would do. Equity and monthly payment is the keys to homeownership and banks profits.
Working man’s defination of a mortgage: every month that I pay my mortgage payment I own a little more of my house (equity buildup)and a little less on my balance(debt), now if I have to sell my home in 5, 7 or 10 yrs, I must sell it for more than my mortgage balance to make a profit ( long termed investing for the anticipated appreciation profit, which is not guaranteed but usually is there based on past history ) in the worst scenario, if there was no appreciation in my area, I can just sell it for the original mortgage , whatever I have already paid down will go for closing cost and moving expenses, it is still better than renting.
The above is the idea behind mortgages for banks, homeowners and realtors. Understand the banks changed the rules many times but the cardinal rule is that they financially harmed existing customers with their discounted REO’s.
There is no equity pay down for underwater homeowners , there is only a monthly payment made on a UNSECURED loan for the banks benefits, there is no moral obligation to pay, harming yourself financially for the banks benefits.
HOUSING VALUES ARE DERIVED FROM CLOSED SALES, IF THE BANKS CLOSED SALES WERE DISCOUNTED TO ATTRACT THE BARGAIN HUNTERS,
WHY WOULD SOMEONE PAY $100,000 MORE FOR YOUR HOUSE WHEN THE BANK IS SELLING A SIMILIAR HOUSE FOR $100,000 LESS NEXT DOOR, I KNOW WHICH HOUSE I WOULD BUY,
LOWER SALES PRICES MEANS ALL VALUES ARE LOWERED IN THE AREA, IF ALL VALUES ARE LOWER AND MY MORTGAGE IS HIGHER, I WAS FINANCIALLY HARMED BY THE MORTGAGE I AGREED TO CHANGING WITHOUT MY PERMISSION BY THE BANKS ACTIONS.
A Total secured lien ( mortgage) that the homeowner had the prior ability MONTHLY to pay down equity to a unsecured lien having to be paid first before the equity pay down portion of the secured lien I agreed to comes into play, the banks changed the mortgages to be DEFECTIVE and the government is aware of it.
They are trying to hold the homeowners to the full term of the ” pay down equity schedule” stating exactly your words, you agreed to pay us x amount of dollars regardless.
Regardless, is not true, the homeowner can and should live in the house mortgage free until the bank forecloses and evict them unless the mortgage is reduced to be under the current appraised value without a mandate operating, since the values will continue to drop.
March 5th, 2009 12:40 am
Susan,
You’re asking for a lot. It’s not a fair world.
some pp will pay more (while now pay less), and some people will pay less while they now lost more.
Personally, I’ve lost a lot more, but I think in the future, I’ll have a lot more and less to pay.. Get it??
March 5th, 2009 12:40 am
Steve:
Purchasing the mortgage notes is the private/public agency that S.T. Geithner wants to initiate. The taxpayer will give you a low interest rate loan to buy the banks bad loans, at higher than 22 cents on the dollar (last reported trade amount), you work the loan to become performing earn the profits, if the loan doesn’t perform, the taxpayer will pay you. You can’t lose more than your original amount paid, which the “taxpayer” loans leverage for you, so only the taxpayer loses again.
Are you sure you don’t like my mandate yet?
March 5th, 2009 12:41 am
You can’t have your cake and eat it too.. people have a lot to learn, and then a lot to teach..
March 5th, 2009 12:47 am
Everybody wories about creating the botom aka stop the forclosures.. in our model, where suply and demand.. nobody is worying about the demand…
THERE ARE A LOT OF EX-OWNERS that could use some help to help you/the economy… WHERE’S OUR HELP? nowhere…
I’ll keep saving..there will be a time, begging for people like me (ex-owners) to get back in…
March 5th, 2009 12:49 am
WHERE’S MY BAILOUT OBAMA???????
ARE YOU LISTENING????????
I’ll keep saving… what other option do I have?
March 5th, 2009 1:01 am
I think Obama has a lot to learn.. P/E is price (per earnings) not profits..
http://campaignspot.nationalreview.com/post/?q=NDM4YzlhNmYyODk4OTAwMDIwMmM0Mjc4MTcwNmMzYjc=
He beter understand the present real estate model.. or else.. droping another 20-30% this year… are you ready to bail us out (ex-owners) so we can help the economy? …since everyone seems to think… problem started with real estate ..and must be fixed by creating a bottom..first
THERE IS NO BOTTOM WITHOUT BUYERS!
there are lots of 100K salaries
March 5th, 2009 1:02 am
THAT CAN’T BUY CAUSE WE FORCLOSED LAST YEAR! OR YEAR BEFORE!
March 5th, 2009 1:12 am
Susan, your thought has a flaw:
“WHY WOULD SOMEONE PAY $100,000 MORE FOR YOUR HOUSE WHEN THE BANK IS SELLING A SIMILIAR HOUSE FOR $100,000 LESS NEXT DOOR, I KNOW WHICH HOUSE I WOULD BUY,”
- because you can’t buy once you forclose, not right away
unless you got CASH?
- you have to choose: loose, shame, move, learn, save, and buy later FOR LESS?
- or pay less now, keep the house, no shame, you think you got a deal, no move, learned nothing, you’ll pay more later
March 5th, 2009 1:20 am
Ex owner now renter:
I apologize for changing your name, I really didn’t realize I was doing it.
No, it is not a fair world, but it doesn’t mean it can’t be more fair.
My mandate proposal is not a bail out like we have been doing to the banks, it is forcing the banks to actually take the loss that their actions caused.
It will not benefit homeowners who should have remained renters or bought a lower price home in a different area.It will stablize the market for qualified paying homeowners and potential purchasers, it will also stimulate the economy without borrowing.
March 5th, 2009 1:30 am
Susan,
apology accepted
If you want more fairness.. really the focus should be now on ex-owners so they can get back in now and help our real estate model..
without buyers.. we’re going down, down, down..
Just like we’re helping existing owners (in which ever way due to being over leveraged).. we should consider pp that lost already due to same reason.. and help them participate.. get back in now…
there are a lot of empty homes there, u know it, I know it.. and it’s about to hit the market..we need buyers! and we don’t need speculators, or outsiders.. we need to get past this.. and eventually inflate, so we can pay our debt a lot easier..
IF NO BUYERS..WILL CONTINUE TO DEFLATE (IN HOUSING).. R U WITH ME??
March 5th, 2009 1:33 am
AT 40% DROP IN ONE YEAR IN CALI.. WE DON’T HAVE MUCH TIME!
March 5th, 2009 1:39 am
TO CREATE A TRUE BOTTOM.. YOU’VE GOT TO HIT FROM BOTH SIDES (BESIDES THE JOB FACTOR):
- STOP FORCLOSURES
- INCREASE DEMAND (THIS IS YOUR EX OWNERS..THAT CAN’T BUY YET)
..but will eventually anyway…
The gov can help now with a 20% downpayment (at 0 % interest.. same as with the ballon payment in bankruptcy)
and garantee no more losses.. versus no help…and PRICES KEEP GOING DOWN..due to lack of DEMAND.. money spent to stabilize.. out the window.. as prices continue going down..forclosure won’t stop.. due to greed.. why should I pay more.. when it’s less next door… THIS NEEDS TO STOP
March 5th, 2009 2:42 am
Ex owner now renter:
It is a numbers game. There is two games being played.
1- There was almost a 70% homeownership rate, and that 70% borrowed either in purchasing or refinancing to fuel the economy’s GDP. (fueling that GDP, resulted in more jobs and profits for everyone, even though it was borrowed and leverage to the hilt) The remainding 30% of the population are the renters. Out of that 30% of the renters population, 13% are at or near poverty levels and can’t afford a home at any price. The 2 or 3% that already foreclosed aren’t in either group yet, they are held in abeyance. So we have 67% percent that are homeowners and around a 17% POTENTIAL borrower pool, the frightening word here is POTENTIAL.
Truthfully, half of your short sales are being sold to family members of that potential 17% pool of borrowers moving(reducing) them from that group at the same time of moving a prior homeowner to the “waiting” group, but “saving” the home for the family at a reduced principal mortgage balance and payment.
2- Out of the 67% of homeowners still remainding, not all have mortgages. We are truthfully only worried about the 9% that are delinquent. If 1 out of every 5 homeowners is UNDERWATER that the government is admitting to, that is 20 out of every 100 homeowners. But only around 7 or 8 out of every 100 homeowners is delinquent with negative equity ( 1 or 2 is from job loss and can’t be helped) that means 91 homeowners are paying the full monthly mortgage payment to the bank, including 11 that are also underwater but they obviously can afford it still, so we will leave them until they become a problem.
Now we really only have to work on getting those 7 or 8 homeowners out of 100 back to paying the banks to maintain the leverage we allowed. This is a short term fix, not long termed.
We can not allow prices to go down, we need them to go back up to cover the CDS made, we, the taxpayers, have invested too heavily in various companies to let them continue dropping.
President Obama’s housing plan doesn’t really change anything. Homeowners who have equity, under the existing and prior FHA programs were always allowed to refinance up to 97% for a rate and term refinance, 95% cash out with appraisals based on resales not REO’s, so values will be slightly higher anyway equaling his 105% refinance program. The problem for current paying homeowners is the same, if they initially purchased under a no income or with higher ratio’s that were allowed, they still may not qualify on paper, but they are current and pay.
Under no program, do you receive a bail out. My suggestion to you is the same that you are doing, rebuild your credit, save and wait, your time is coming.
The economist are predicting another 20-22% decline in home prices for 2009.
According to the US Census Bureau, the median income of a married family income was $69,716 and for all households $48,201(includes the poverty level we spoke about)
The median price in 2006 was $246,500. and in December 2008 it was $180,100 ( under the 2002 median price) Another 20% decline would mean the median price of a home in the USA would be $144,000. ( equal to 3x the income of all households median income for 2006 or 2x the income of married family incomes)
Numbers game at play, but for the benefit of the banks not the public.
The American consumer has returned to the “pay as you go” scenario or ” save for what you want” and the GDP has gone down and will continue. As the GDP goes down, the 70% of the GDP that is made up from small businesses is hurt first, they close. As they close, more homes are foreclosed on for inability to pay, not being underwater. More Reo’s, lower prices, though less of the public with money because they are afraid of their own jobs, right now it pays to have a city, state or federal job or one that is an absolute necessary for people to live ( food, utilities, etc..) This is the cycle that we are in, that is why some economist are saying that dreaded word, depression or lost decade.
My mandate while it doesn’t help you personally, does stop that cycle by stablizing the market to the current appraised value and lowering the monthly payments of homeowners, stimulating the economy with monthly cash savings.
Actually it does help you, wouldn’t you rather purchase a home that doesn’t lose value?
March 5th, 2009 2:47 am
I miss Mr. M too, even if I disagreed with him on the means to obtained the same outcome.
Congratulations on your expected baby I read about above.
March 5th, 2009 9:32 am
Steve, you said:
“But don’t we, the taxpayers, own Fannie and Freddie? And didn’t Fannie and Freddie buy the mortgages outright? So don’t we own these mortgages that are being modified? So, since we’re paying ourselves to basically rewrite some paper, is this anything more than a shell game?”
Correct!!
This is purely a shell game that starts with a tax payer as a financial back stop to a few companies and ends with the tax payer footing the bill for what is left over and still owed after all is said and done.
The lenders don’t have the money for the added losses so the Government is telling them the tax payer will back stop your losses for you if you play nice. For the lenders this is a no brainer.
We are currently bailing out Fannie and Freddie with Government (i.e. tax payer) money directly from the Fed to the tune of $200 Billion each in the form of bailouts. With all of the heat on the Government right now to slow down or stop these bailouts they now are simply going to just hand it to them directly to make up for losses which in essence is the same thing… As Steve said… A SHELL GAME!!!
March 5th, 2009 12:16 pm
Stu says above: “The lenders don’t have the money for the added losses so…. ”
In this case, are there any “lenders”? Seems that there’s just taxpayers.
The rocket scientists in Washington, DC decided that they wanted EVERYONE to own their own home. We weren’t getting there fast enough so they ramp up Fannie and Freddie and push them to heat up the market. (If there’s money to made in writing mortgages, go mortgages or bad mortgages, then people will write mortgages. It’s about volume. More mortgages = mor $$$$.)
So Fannie and Freddie, run by government straw idiots, bought anything they could get their hands on. Homeowners saw free money and entered into the feeding frenzy. Those 337 ml-implodes that are now belly-up were there to or were created to keep this going. Then pop goes the bubble:
Fannie and Freddie stop buying and everything unravels.
The LENDERS are now us. We took back F & F. We are backstopping ourselves. If we can get 9 million of our mortgages to become “good” (DTI, equity) then our little venture (F & F) will stop being a drain on taxpayers and can become profitable and sold again (but this time with REAL regulation).
The DTI is easy to fix for a lot of mortgages. I think Washington realizes that equity needs to fix itself. The new plan works on DTI but does little for equity. Except, if you get 9 million loans securely performing, eventually, as people pay, their equity will rise relatively. The tradeoff is that allowing a 30 year loan go to a 40 year loan postpones the date that the property will finally have the first dollar of equity through paying.
March 5th, 2009 12:41 pm
ex_owner_now_renter Said:
“Everybody wories about creating the botom aka stop the forclosures.. in our model, where suply and demand.. nobody is worying about the demand… THERE ARE A LOT OF EX-OWNERS that could use some help to help you/the economy… WHERE’S OUR HELP?”
You’re in the penalty box. The clock is ticking. Doesn’t look like they’ll let you out till your time is up.
The amount of supply is growing. But if you look at the REDC-type auctions, they have lots of buyers. Some new/first timers; some looking to get back in. These are prequalified buyers. They have their own entry points and won’t jump till they get what they want. The system is now favoring these buyers over you.
As long as construction shrinks and homes get destroyed, this effect on supply should shrink. Foreclosures and REOs are now the largest supply into the system.
So, if the current plan can stop 9 million units coming onto the market via foreclosure, that should slow down the supply flow.
If you can stop or slow supply, eventually demand has to surpass the supply. ( 9 million units is a “normal” 9 years of building with very low growth) Out of the ashes should eventually come the equity.
In the meantime, ex_owner_now_renter, they seem to be saying they don’t need your help. If they decide they need your help, they know where you are and they know they can always let you out of the penalty box when they feel like it.
March 5th, 2009 4:50 pm
You’re in the penalty box.
Not a bad place to be, considering the carnage in the rink.
March 5th, 2009 8:53 pm
Steve,
This is playing with fire:
- what do you mean by homes being destroyed? buldozed?
- there are many REDC auctions, where they don’t clear the pool of homes..
- I see many “investors” jumping in, and turn around and try to sell for a 30K profit, but some I see now, trying to just sell it at a 30K loss (within 1 month!)
- the job losses increase
- the lawsuits over modifications are hapening
- the inmoral attitude to help those that are hanging on to a last straw is there, but those that already lost..are in penalty box?
AM I MISSING SOMETHING? with 40% loss in 1 year, and they don’t need our help? (ex-owners?).. I think they don’t realize that they do need our help!.. but by the time they do.. I’ll be out of the penalty box anyway..and homes drop 80%… gee, and I was trying to help the market! I guess.. I’ll keep saving.. thanks Steve.
March 5th, 2009 9:32 pm
ex_owner_now_renter,
There are approximately 900,000 homes destroyed every year. By heat: lightning & fire; by wind: tornadoes and hurricanes, by erosion: beach homes falling into the ocean, by insects and mold. Some of these homes show up in the construction permits pulled; others just never get rebuilt ie: Galvaston Island after Hurricane Ike, inner city houses that get burned down oft times never get replaced because of location/potential rent/value. That’s why we need to build 1 million houses/year to keep inventory static. We overbuilt for a few years = current excess of relatively new homes on the market.
“there are many REDC auctions, where they don’t clear the pool of homes..” There are two worlds out there: the four states that have most of the REOs and the other 46 states. Pools of homes in REDCs auctions in those 46 either do get cleared or come close. It’s still location, location, location. A home in beautiful downtown Detroit or Cleveland may not have any bidders but there are a lot of desirable locations out there. Granted, a nice home in a ghost town in FL or CA may not get cleared. But those 4 states have problems greater than just too many empty houses.
Re: “need our help”: There is still seems to be a major political agenda to house certain classes of people: young, first time home-buyers, etc. People with low FICOs, foreclosures or bankruptcies need to sit out 7 or 10 years (in the penalty box) before they’re allowed to play.
Just one question: in this falling market, would you actually consider getting into a house, even if you weren’t in the box?
I would think that anyone’s who not in right now, and who believes that there’s more downside, should just sit on sidelines and wait till the bounce along the bottom.
March 6th, 2009 4:14 pm
Steve,
Are you offering me a loan?
This is not about me.. it’s about the country… there are LOTS of ex-owners!
March 6th, 2009 4:19 pm
we’re all in a box.. this will get a lot worse…
I still think jobs first, housing second..
But in regards to housing.. you need demand!
March 6th, 2009 4:26 pm
Personally, I’ve got close to 700 FICO, and I’ve got my 3.5% downpayment (for a FHA loan) today!.. I alone can’t make the market turn around, nor can I get a loan..
WE NEED ALL EX-OWNERS BACK IN!
March 6th, 2009 4:32 pm
the reason housing is down, going down further:
- less demand (due to high prices, loss of jobs, can’t aford payments, pp seem to walk away if home loan is 20% over home value)
- no loans available
- economy going down
- lack of leadership
- perception!
You still think ex-owners can’t help create a bottom in housing? Give 20% (0% interest) loans to ex-owners, and they’ll buy today… result:
- banks get more money, will make more loans
- perception changes
- bottom in housing
- jobs pick up (contruction, financing, etc)
- pp stop walking away, cause it’s bottom!
- gov gets their 20% back later (upon refi, sell, etc)
STOP THE BLEADING!
March 6th, 2009 5:29 pm
ex_owner_now_renter,
Looks like your timing was bad (not that you could have helped it or known). Here’s the latest twist from Freddie.
http://www.cnbc.com/id/29533069/for/cnbc/
If this works, the inventory on the market will begin to dry up. Freddie will have cash flow. Freddie will be able to hold on for years (read: till the market comes back). I bet Fannie gets on this bandwagon soon.
I wonder how many will opt to stay as renters? Take a $250K note, if it’s modified @ 4% for 40 years the note is about $1,050/month. Add taxes & insurance and you got $1,500/month. (go to 2% and the note is $750/month) How low do you think Freddie will go on the rent? If someone can’t qualify for a mod, how could they pay the rent (unless it were really subsidized).
March 6th, 2009 5:46 pm
Did I just hear someone on CNBC arguing the same point I was saying?
EX-OWNERS coming to your help soon!
March 6th, 2009 5:59 pm
Steve,
Fredie is doing only month to month lease (and they have a reason for that!) not empty, get some money, will sell it when they have an offer.. it’s not like they’re not going to list it…
Is Fanie doing it too? FHA? the other 1/2 of the mortgage companies too?
Are you sure all that home owners (soon ex owners) loosing are willing to stay and rent same property?
You’ve got to use some common sense… banks will have to choose between who gets the house.. people that forclosed (and repaired credit since) or people that do bankruptcy
I see no end in housing price bottom without ex-owners! not with high number of homes siting empty, available for sell
If all the REDC actions are so good.. and all this new time buyers coming in.. howcome janauary droped 10%? IT’S ACELERATING.. nowhere close to a bottom…
Steve.. I’m only trying to help our economy!… I may buy in the future or not… but having ex-owners (forclosed) coming back in with repaired credit and buying at lower prices is SUSTAINABLE! THUS BOTTOM IN HOUSING! (SINCE THEY’LL COME IN HIGH NUMBERS)
March 6th, 2009 6:26 pm
ex_owner_now_renter Said:
“Fredie is doing only month to month lease (and they have a reason for that!) not empty, get some money, will sell it when they have an offer.. it’s not like they’re not going to list it…”
If the house is in one of the 4 states, they can list it till the cows come home. There’s too much inventory in those states and in the depressed cities like Detroit. If an owner agrees to rent in those places, they’ll probably be there for at least a few years.
“Are you sure all that home owners (soon ex owners) loosing are willing to stay and rent same property?”
The numbers don’t make sense. I think they may be grasping at straws. If the owner can’t qualify for a mod at 2% for 40 years, I can’t see how they could afford the rent.
“I see no end in housing price bottom without ex-owners!”
There may be some ex-owners out there who are ready to jump back in to ownership ( Why I can’t figure, with “janauary droped 10%? IT’S ACELERATING.. nowhere close to a bottom…” ) but most of the ex-owners should never have been given a loan. A lot of them were and still are deadbeats.
“having ex-owners (forclosed) coming back in with repaired credit and buying at lower prices is SUSTAINABLE! THUS BOTTOM IN HOUSING! (SINCE THEY’LL COME IN HIGH NUMBERS)”
Really? What sort of numbers do you figure? How many ex-owners do you think are out there “with repaired credit”?
Truly repaired credit, according the current rules, is no foreclosure within the past 7 years: ex-owners who lost the last house since February, 2002. If we say the market cracked and large quantity of foreclosures started in 2007, then the first wave of ex-owners with repaired credit should start in 2014.
March 6th, 2009 6:35 pm
Steve,
I may have been wrong about the timing… but that’s the problem in the system now.. it’s all about time.. when you buy, when you sell, when you loose…
If we’re going to allow those that can’t make payments stay in their homes (for the good of the housing/economy), why not allow those that coudn’t make payments (last month, last year,etc) and forclosed already.. get back in a home? (for the good of the housing/economy)
WHAT’S THE DIFFERENCE? TIMING? YOU CAN’T BE SERIOUS..
March 6th, 2009 6:54 pm
Steve,
curent rules have been broken due to a housing buble, a bad recession..that’s about to become a depression..
I’m saying if ex-owners lost during since recession started.. maybe a 1 year before too.. and didn’t walk out on other debts (cars, credit car payments, medical, etc) they qualify!
March 6th, 2009 6:56 pm
ex_owner_now_renter said:
“WHAT’S THE DIFFERENCE? TIMING?”
No. The difference is that, right now the system says: “If you get foreclosed on, your credit takes a hit for 7 years.”
Has nothing to do with renting to the foreclosed ex-owners.
Leaving the foreclosed ex-owners in the house really helps out the bank. When nobody’s in the house, it becomes more difficult to sell the house: first the curb appeal is destroyed because the lawn gets out of control, or the vultures come in an take the plumbing, doors, granite, cabinets, etc, or the kids move in and start partying or doing drugs. Pretty soon, all equity that the bank had is gone. Even if the bank has to rent to the ex-owner for 5 years, at least there will be something to sell when the market comes back.
March 6th, 2009 6:56 pm
bankruptcy law?
loan mods?
Did you call this “curent laws” last year?
March 6th, 2009 6:59 pm
Steve,
You are aware that ex-owners can get a mortgage again through FHA 3 years after forclosure.. or 2 years after.. if it wasn’t their fault..and with repair credit since forclosure..
I’m saying start it sooner..1 year! I don’t want to make this too easy too.. but think of the good of whole country!
housing needs demand..stoping forclosure only it’s only 1/2 of the fix.
March 6th, 2009 7:01 pm
I don’t mind buying at 80% off peak price… think as whole! I think that’s the thinking in loan mods, primary home bankruptcy.. and ex-owners will get help too!
IT’S COMMON SENSE!
March 6th, 2009 7:06 pm
Steve,
You’re not coming with a solution for the demand part, and you’re costing tax payers dolars .. with all this forclosures by Fanie, Fredie, FHA..and soon taking over banks…
This is not about being politically correct.. but to do stop the bleading for good of the country…
March 6th, 2009 7:07 pm
ex_owner_now_renter Said:
“if ex-owners lost during since recession started.. maybe a 1 year before too.. and didn’t walk out on other debts (cars, credit car payments, medical, etc) they qualify!”
With the way the banks have gotten so gun-shy about loaning to anyone without a FICO near 800 and no blemishes, who is going to change the rules to allow the ex-owners to qualify? Banks won’t do it without backup from Fair Issac. Congress would have to pass a law to allow what you’re talking. Could you imagine the outcry if they tried to do so? (“Damn Liberals trying to….”)
I’m gonna ask again: even if we only go back 1 year from the foreclosure, how many people do you really believe got foreclosed and stayed current on every other debt and over the past year have managed to save enough for a DP?
I’d think that would be a very small cohort – certainly not enough to have any real effect on this cascading waterfall.
March 6th, 2009 7:13 pm
Steve, you said:
“who is going to change the rules to allow the ex-owners to qualify”
Umm.. FHA? Fannie? Fredie?
btw, I believe the person I saw on CNBC was Chris Thornberg
March 6th, 2009 7:16 pm
Steve,
you asked:
“I’m gonna ask again: even if we only go back 1 year from the foreclosure, how many people do you really believe got foreclosed and stayed current on every other debt and over the past year have managed to save enough for a DP?”
http://mortgage.freedomblogging.com/2008/09/18/oc-folks-pay-credit-cards-skip-mortgage-payments/
I’m thinking a lot!
March 6th, 2009 7:24 pm
ex_owner_now_renter Said:
“You’re not coming with a solution for the demand part”
I don’t think anyone’s doing anything for the “demand” part other than trying to slow down and shrink the supply side.
Demand is there in most places, but not at current value. At current value, supply is much greater than demand.
The stimulus may be intended to help demand, but that’s gonna take a lot of time and in the meantime we’re losing 600K+ jobs over and over.
Construction’s way down = less supply
This week’s mod program = designed to cut supply by 9 million
Leave ex-owners to rent = less supply (phantom inventory not on MLS)
If no new buyers jump into the market, demand will have to eventually go up if all the “programs” can catch up with and overtake the new foreclosures coming onto the market.
March 6th, 2009 7:29 pm
Steve,
I never said perfect credit (no forclosure in the record), I said repaired credit
I was close to 800 points.. 2 car payments, 20K in credit card debts, wife lost her job, my monthly budget was in minus – when I’ve decided I coudn’t pay anymore…and walked away within 30 days.. lost my downpayment, my investment in landscape, improvements to it..
Since forclosure, I’ve “repaired” my credit.. 0 balance on credit cards, car payments made on time (one almost paid off), living one one salary..and saving! This is what I mean by repaired credit.. and I’m now close to 700 points..I was in the mid 500 after.. should I only buy a home.. when forclosure disappears in 7 years? and I have 900 points??
I garantee you, I’ll be buying for cash..way before that time!..as I said 80% off the peak.. doesn’t seem that crazy anymore.. at the rate we’re going! with no demand..
March 6th, 2009 7:37 pm
Steve,
Lets hope you’re right..and it helps 9 million, (and no new 9 million want help as well besides the first 9) … as you can tell H4H was such a success!
Will see at what point Benzi walks.. or others! Will see at what point Kevin buys or others… THIS IS NO TRUE BOTTOM..lip talk.. I’ve sugested what could be real.. ok, I’ll keep saving.. having pop corn on the side!
March 6th, 2009 7:39 pm
eventually=7 to 10 years
March 6th, 2009 7:44 pm
ex_owner_now_renter Said:
“I’ve “repaired” my credit.. 0 balance on credit cards, car payments made on time (one almost paid off), … I mean by repaired credit.. and I’m now close to 700 points.”
You may have “repaired” your credit according to you and the FICO is getting close to the 740 where a bank would normally lend on a house. Congratulations.
But, I haven’t heard of any bank willing to loan in this environment with the foreclosure still on the CR. I don’t know about FHA but something tells me they may tighten as the government runs out of money bailing out AIG and everyone else.
I read the link. That was 9/2008. You may be right. There may be more than I figure there’d be. But all the ex-owners who still have that on their CR are probably going to find it hard to get back in. I don’t think it’s on Fannie’s, Freddie’s or FHA’s agenda. If everyone in that boat started lobbying for a change, that may be the only way something will happen.
March 6th, 2009 7:49 pm
Well, lets hope someone in goverment is thinking pro-actively (this time around).. and we don’t end in depression!
March 6th, 2009 7:50 pm
Hope we can belive in! ARE YOU LISTENING OBAMA?
March 6th, 2009 8:07 pm
ex_owner_now_renter Said:
“ARE YOU LISTENING OBAMA?”
I doubt he’s listening here. He’d probably be receptive to your suggestion. This sounds like part of a liberal agenda.
If you’re going to make any headway, you probably need to start getting the word to congress and get a letter writing campaign going. If this is going to go anywhere, you’re going to need to get the Republican Senators on board. If this gets proposed and pushed by the Democrats, the Republicans will kill it.
March 7th, 2009 2:04 pm
Steve,
I’m not sure if it’s liberal agenda.. not sure what you call loan mods for people with low credit, low income.. just to keep their house…IS THAT NOT LIBERAL? Is is REPUBLICAN? DEMOCRATIC? … IS IT AMERICAN?
AGAIN THIS IS ALL ABOUT TIMING! If you lost your home last month, you’re screwed..wait 7 years! but if you’re about to loose your home.. you may be saved (FICO doesn’t matter)
..YOU MAY ALSO BE RIGHT ABOUT FHA increasing time to wait to get a loan after forclosure…
DOES THIS MAKE SENSE? THE WHOLE FHA IDEA FROM 1930s.. WAS TO HELP PEOPLE BUY AGAIN AFTER THE DEPRESSION… to recover..
SO MUCH FOR EX-OWNERS’S RECOVERY… we will be saving and not helping the housing market any time soon!
I’ll be MAYBE buying 2012-2014!… I’ll get to eat a lot of pop corn… to watch our depression become bigger than 1930! …
March 7th, 2009 2:06 pm
I’m going to vote with my walet… SPEND 0! 401k IN cash! buying only necesesities… eating out.. I’ll be cuting from twice a month to once!
THANK YOU OBAMA!
March 7th, 2009 2:15 pm
How’s the government helping those that lost already their house.. isn’t that a depression those that lost?? It’s not the happiest thing, u know?
- first you can’t sleep, wories
- then you have to move, shamefull, telling everyone
- change in life style, can’t buy again for 7 years
- now get to pay for those that got the timing right!
DISCRIMINATING.. and this will not end up pretty..
personally (now) I hope home prices drop 80%-90%.. so I can buy with cash then!… Isn’t that what happen in the 30s????
March 7th, 2009 2:16 pm
I get 0 help, then I’ll help with 0!
0 SPENDING in our 70% consumer based economy!!!!
March 8th, 2009 2:46 am
Steve:
A borrower whose previous residence or other real property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for an FHA insured mortgage. However, if the foreclosure of the borrower’s main residence was the result of extenuating circumstances beyond the borrower’s control, and they have since established good credit, an exception may be granted. This does not include the inability to sell a home when transferring from one area to another.
March 8th, 2009 9:58 am
ex_owner_now_renter Said:
“extenuating circumstances beyond the borrower’s control”
Can you give an example of an extenuating circumstance?
I can think of some such events, but they would result in massive class action suits and any foreclosure would be overthrown in court immediately. Two examples I can think of off hand would be the houses that a builder built in FL with sheetrock from China. Beautiful houses except for one thing: the sheetrock gives off gasses that make the house uninhabitable and the sheetrock destroys the copper wiring and piping. People had to move. The suit is proceeding. Also, I can think of a whole area (again in the Sunshine State) where Habitat for Humanity got sold (snookered to buy) a tract of land to put up a lot of affordable housing. Within a year the houses were splitting open or tilting: the former landfill below wasn’t finished settling. Again, people had to walk, could possibly be called “extenuating circumstances” but I would call this “class action suit” instead of “foreclosure that would ding a CR”.
Other than a “warranty” issue on the structure, like the two examples above, I can’t think of such “circumstances”. I’d be interested in any light you can add to this.
March 8th, 2009 11:14 am
Besides (yours, and others) and the obvious: death, sickness, loss of job…
What about WE ALL RECOGNIZE.. THAT IS WAS A HOUSING BUBBLE?? could that be considered?? (for the good of econonmy?)
March 8th, 2009 1:58 pm
ex_owner_now_renter Said:
“death, sickness, loss of job”
I could see where either of those could qualify for “extenuating circumstances” but are they? I have never heard of a future lender taking either one of those circumstances into account. Maybe they do, I just have never heard of one doing so.
I tend to think that with all the publicity out there, any loan is going to be looked at with “guidelines”. I’m sure there are the standard guidelines: income verification, LTV, 20% down (or less for FHA) & FICO. Then, when the CR gets pulled, do the guidelines say: “no foreclosure on the CR”? I don’t know. I don’t know how underwriters are looking at a foreclosure on the CR. I would think that would be a big red flag that gets someone the “Sorry, we can’t lend to you. Come back in 6 years” letter.
“could that be considered??”
Could be but I doubt that it is.
March 8th, 2009 2:20 pm
Oh Joy!!!
Look what us Tax Payers have to pay for next!!! Thank you Pelosi, Dodd, Frank et al for making sure my children will be in debt up to their asses forever as a result of your incompetence!!!
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/07/AR2009030702257.html?referrer=emailarticle
Excerpt:
This decade’s housing boom rendered the agency irrelevant. Americans raced to aggressive lenders, seduced by easy credit and loans with no upfront costs. But the subprime mortgage market has crashed and borrowers are flocking back to the FHA, which has become the only option for those who lack hefty down payments or stellar credit. The agency’s historic role in backing mortgages is more crucial now than at any time since its founding.
With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency’s overall growth in new loans, according to a Washington Post analysis of federal data.
Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.
If a loan “is going into default immediately, it clearly suggests impropriety and fraudulent activity,” said Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, which includes the FHA.
The spike in quick defaults follows the pattern that preceded the collapse of the subprime market as some of the same flawed lending practices that contributed to the mortgage crisis are now eroding one of the main federal agencies charged with addressing it. During the subprime lending boom, many mortgage brokers and small lenders milked the market for commissions and fees by making as many loans as possible with little regard for whether they could be repaid.
Once again, thousands of borrowers are getting loans they do not stand a chance of repaying. Only now, unlike in the subprime meltdown, Congress would have to bail out the lenders if the FHA cannot make good on guarantees from its existing reserves. And those once-robust reserves are showing signs of stress, raising the possibility that taxpayers may have to pick up the tab for the first time since the agency was established in 1934.
More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to the Post analysis. The pace of these instant defaults has tripled in one year. By last fall, more than two dozen FHA home loans on average were defaulting this way every day, seven days a week.
The overall default rate on FHA loans is accelerating rapidly as well but not as dramatically as that of instant defaults.
March 8th, 2009 4:44 pm
Stu,
Later in the article:
“The Palm Hill Condominiums project near West Palm Beach, Fla., exemplifies the problem. The two-story stucco apartments built 28 years ago on former Everglades swampland were converted to condominiums three years ago. The complex had the same owner as an FHA-approved mortgage company Great Country Mortgage of Coral Gables, whose brokers pushed no-money-down, no-closing-cost loans to prospective buyers of the condos, according to Michael Tanner, who is identified on a company Web site as a senior loan officer.
Many of the borrowers were first-time home buyers and were unable to keep up their payments. Tanner said he complained to his company that extending loans without any money down lured borrowers who either didn’t understand or take seriously the payments they’d have to make. Great Country’s owner, Hector Hernandez Jr., could not be reached for comment.
Eighty percent of the Great Country loans at the project have defaulted, a dozen after no payment or one. With 64 percent of all its loans gone bad, Great Country has the highest default rate of any FHA lender, according to the agency’s database. It also has the highest instant default rate.”
This is criminal. This is an example of a company frauding the system and trying to leave the taxpayers with the bill. Hector needs to go to jail. There is a paper trail on Hector and I’m sure the FHA can narrow down where these other loans are coming from. The FHA needs to shut off the “FHA lender” title and stop accepting loans from people scamming the system.
In a lot of cases there should be a “reach back”: find out who got the check at closing and go and get the cash from them. This is a common technique in fraud cases and this sounds like fraud: (If it sounds like a fraud, if it smells like a fraud, if it looks like a fraud, then call it a fraud and get the money back. Let the fraudster/profiteer prove it wasn’t a fraud.)
FHA has been in business since 1934. It’s made and guaranteed a ton of loans. I’m sure there are still FHA lenders who are honest and do due diligence and the loans they sell to FHA are performing. In this case, FHA is doing what it’s been doing for years.
Easy solution here: Part 1: your loans default then we take no more loans from you.
then the second half of the solution: your loans default and you are before the judge, immediately, looking at 10 to 20.
I still like the idea of Hector doing work camps for that time. I hate spending $30+K/year/prisoner and not getting anything in return.
March 8th, 2009 5:11 pm
Joan, that’s just ugly, scary, fraud and greed!
.. the more I think of.. I’m not even sure I want to buy (even if I could) anytime soon… 80% off the peak.. may becom reality
9200 FHA loans without a single payment?
Steve,
Not all people that lost to forclosure, scamed the system!
(personally I’ve made payments for 2 years, at 7.5% interest, and lost downpayment, and investing in landscaping. etc)
What I was saying, is PP that repaired credit after forclosure and waited at least 1 year, made a budget, followed it and save, didn’t walk of rest of debts(made payments on the previous home.. more than 1 year) that bought at the top.. have a downpayment, and buying within a payment of no more of 31% of their (new) payment loan.. should probably get help..
It’s just too bad, our system doesn’t look at 1 by 1 scenario.. and one size fits all.
March 8th, 2009 5:13 pm
Sorry, meant Stu (not Joan).. eye opening article on FHA loans!
March 8th, 2009 5:34 pm
ex_owner_now_renter Said:
“Not all people that lost to forclosure, scamed the system!”
I never said that.
Those, for instance, who lost their homes because they lost their jobs, had no intention of ever losing either.
They didn’t scam the system, they got burnt by the system.
There are always cases where people had an unfortunate turn of events and just couldn’t keep the home. That has happened since Fred Flintstone took out his mortgage on his cave.
But, we’re in the situation we’re in now at least partly because of scammers. Prime example is the Option Arm. They barely qualified at partial interest – they knew they couldn’t make the full payment. (“Let me live the good life till I get found out.”) Other examples: Brokers who inflated incomes, anyone who lied on an app, etc.
To a lesser degree, those who honestly thought a house was an investment. So, like a stock, when the investment started losing, they just cut and run. Maybe they were not technically “scammers”, they’re just playing by the rules that were there for them and worked for them, but the result was the same: we’re all paying for their bad “investment”.
March 10th, 2009 6:51 pm
still nothing from MM?? Is it that bad??
March 12th, 2009 7:22 pm
Freedom of Speech Diatribe #1
OK, I have had just about enough of this Government BS and manipulation of the markets. I mean seriously WTF!!! They are literally STEALING our childrens money to pay for their bloated pension plans and perks. While the politicians live high on the hog so to speak, us middle class workers who PAY THEIR SALARIES are getting shafted BIG TIME!!!
What will it take to WAKE UP AMERICA??? We are literally being robbed blind from these corrupt so called leaders of our Government. They are looting our future to pay for their spoils of riches today.
VOTE EVERY INCUMBANT OUT OF OFFICE IN 2010!!!
We need true change and that is not the Fraudbama non-change we are seeing. We need to DECREASE the size of the Government!! We need to LOWER TAXES!! We need to let people work hard and keep their money so they can decide what to do with it. We out number them!!!
WAKE UP PEOPLE!!!!
VOTE EVERY INCUMBANT OUT OF OFFICE IN 2010!!!
March 13th, 2009 10:47 am
stu, i think u and i are finally on the same page. welcome to my world of sheer outrage.
March 13th, 2009 12:48 pm
It didn’t have to come to this Kevin, but I am happy to jump on board this cause. I am so infuriated over the past 50 some odd days and what I have had to witness. This is the worst I have ever seen in my lifetime. It is one mistake, one stupid comment, one BS move, after another. This administration is making a mockery out of our once great and proud country!!!
March 16th, 2009 1:03 pm
Kevin, For you, it was always about the middle class homeowner taking a lashing, not dismay at government meddling. I heard no complaints at the first 9 trillion dumped into our finance arena, so why the change of heart? Finally figured out that you ain’t getting that 2500 sq’ home in Marin for 200k? I suggest that you cordially go fuck yourself.
Stu, AIG is too big to fail, so stop complaining and pay your mortgage on time like a good “responsible” American.
Don’t worry about the retention payments and bonuses payed out to AIG’s finest. Just worry about your mortgage payment. Don’t be a “loser”, as Kevin and the skid mark have called you in the past.
March 17th, 2009 5:10 pm
At the top of this article:
I AM MOVING as of today…I will be delivering reports via email for a couple of weeks until the new site is up
Has anyone got anymore reports via email? care to share?
It has been 6-7 weeks now..where’s the new site? anyone know?
March 17th, 2009 8:28 pm
I came here today to see if MM has posted or given any updates on his new site. I haven’t gotten an e-mail since 2/20 & had been getting about 1 per week. I am wondering what this means & starting to worry that he has been bought off or taken out somehow. I’m sure that he has become popular enough to be considered a threat to some.
March 17th, 2009 8:36 pm
The last e-mail was about the Jan sales report, so I am thinking if he is just too busy we should here soemthing when the Feb sales report comes out.
March 17th, 2009 8:41 pm
The last e-mail was about the Jan sales report, so I am thinking if he is just too busy we should hear something when the Feb sales report comes out.
March 17th, 2009 8:50 pm
ex owner-
Here is the last one…
Mr Mortgage – Guide to the TRUTH!
Feb 20th 2009
- Jan CA Home Sales & Prices Plummet – Jan CA Home Sales Report p. 1 – p. 2
———————————————————————————————————————
Good morning,
I hope all is well. This report with a chart that I am unable to email will be posted in the Barry Ritholtz Café by Monday. Mr Mortgage
Jan CA home sales were released this morning from DataQuick. Typically the national Existing Home Sales number due out next week tracks this closely so I expect that to be significantly lower as well. The real estate associations will try to compare the results to 2008 and not Dec 2009 or previous January’s in order to pad the results.
CA Jan 2009 home sales fell 22.1% from Dec and were at the lowest level years. The median price hit $224k, down 10% from last month and 53% from the peak. 60.4% of total sales came from the foreclosure stock. This is now a categorical wipeout.
Next, is for the mid to upper end homes to follow in expeditious fashion accelerating the Alt-A, Pay Option, Jumbo Prime and Prime Implosion. This will make the ‘Subprime Implosion’ look like a walk in the park.
With rates slamming down in late November everyone assumed that home sales in January and beyond would up-tick as Dec contracts rolled through. This may be the first sign of proof that rates are not as important as ‘price’ when the majority of purchases come from the foreclosure stock in distressed regions.
People want a ‘deal’ on a house. In the bubble states where 60%+ of all sales come from the foreclosure stock and three exact properties within a one-mile radius can be listed for 15-20% apart — depending upon if the seller is a bank, servicer or individual and their required respective selling price – price being the driver vs. rate makes sense.
In the latest DataQuick report out this morning, they compare 09 to 08 showing a 52.9% up-tick, which is not a good comparison. This is because as most exotic loan programs went away in q3 and q4 2007 values were still near all-time highs. This immediately forced home sales down by 60% overnight — 08 is a very easy target to beat. As values declined some 50% at the median in 2008 and mortgage lending became more stable throughout the year, sales gradually increased. But sales are nowhere near as robust as they should be with low rates and values down as much as they are. In past years when total sales were much greater by count, organic sales were 98% of total sales – those were robust markets.
CA Home Sales – Previous January’s
Jan 04 = 47,138
Jan 05 = 42,300
Jan 06 = 38,937
Jan 07 = 32,425
Jan 08 = 19,145
Jan 09 = 29,458
Are we running out of buyers? Where will they come from? Homeownership going into this crisis was at an all-time high, credit is tight and the all-important market-moving move-up buyer is gone. Prices are falling so fast and rents closely behind that we could conceivably see a default and foreclosure crisis among investors who bought foreclosures too early thinking they were getting a good deal a year ago. The investor today can rent the home for much less than the one who bought nine-months ago putting pressure on past buyers.
CA Homes Sales and /Default Foreclosure Stats
Let’s analyze all moving parts of the CA housing market. In January, new loan defaults led the pack at 36,600. Then came total sales at 29,458. Of those, foreclosure-related sales were17,850.and the all-important organic sales came in near an all-time low of 11,600. There were 14,500 taken back as REO. Finally, a whopping 3k new homes were sold on the West Coast in January. Organic sales being at an all-time low shows home owners are trapped in their homes unable to sell – or at least unable to sell for the amount needed for the down payment now required for a purchase money loan. Move-up buyers have always been the largest segment of the real estate market and now they are not to be found.
What is significant is that loan defaults were once again greater in January than Total Sales. Total new inventory coming in the form of defaults and REO stood at 51k — 73% greater than total sales, 400% greater than organic sales and 200% greater than foreclosure-related sales.
I don’t think there is any argument as to why home prices are falling – they are too expensive relative to income and rents given today’s sensible lending standards. Additionally, supply is everywhere in the form of defaults, foreclosures and REO.
Supply Everywhere
Then there is the ‘pent-up’ organic supply that after a 53% fall in median home prices dwarfs all other forms of supply. Values fell so fast that organic sellers were taken out of the market before they had the time to fill out their sales agreement or hold and open house. As values fell below the price they needed in order to pay off their mortgage, get the down payment necessary for a new purchase with tighter underwriting guidelines etc, they pulled the listing from the MLS.
So on the way back up what do you think will happen? First of all, housing is down over 50% at the median so it has to increase 100% to ‘come back’. That won’t happen. If by any stroke of luck house prices were to pop 5-10% organic sellers that wanted to sell and who were flushed out of the market will re-list their property very quickly in order to ‘finally’ move. This ‘pent-up’ inventory will keep a lid on home prices for years.
Many will argue that the reason house prices are falling so fast is because the data are skewed to the lower end areas where most of the default and foreclosure have occurred. They may be right…so far. The higher-paper grade –high loan amount — loans are now defaulting to a much greater degree than Subprime and show no signs of easing up. Across the Alt-A, Pay Option, Jumbo Prime and Prime universes it looks like Subprime did in 2007. The ‘Subprime Implosion’ will repeat up the paper grades, incomes, and house prices. We are already seeing a significant house price compression from the upper end and rents falling fast.
This Spring/Summer selling season could very easily bring this all to a head. Banks, that have been holding on tight to much of their distressed note and REO inventory awaiting the big taxpayer bailout that would buy distressed assets for 100 cents on the dollar, may decide Obama’s plan was more of the same and bring a flood of inventory to the market right before the buyers show up in March. Those looking to buy this Spring/Summer should have a lot to choose from.
Have a super weekend!
Best Regards,
Mr Mortgage
March 17th, 2009 10:03 pm
Sold2soon – thank you!
ex_owner
March 17th, 2009 10:19 pm
I guess nothing changed in February.. exactly the same price and volume for So California..as January..
with exception that volume yoy (to feb 08) increase is 41.3% in February, versus 53.9% in January (yoy..to Jan 08) .. to me that looks like a decline in %..rather than doing better..as spring is starting.. anyone care to comment?
I suspect the percentage gain could drop in the next few months (compared with last year) versus January yoy’s gain.. and prices should then start droping again..
ex_owner
March 17th, 2009 10:37 pm
but It’s not like I (or other ex-owners) are going to buy any time soon.. and people I know with cash.. they’re still waiting on the side.. hmm
Are we seing a price bottom now? without these buyers? There must be lots of investors (aka speculators, oportunitists? buying at REDC.. and trying to turn around to sell for anywhere between 30K-600K profit.. all within 1 month).. .. this is not healthy for the market..is it?
Steve, do you still think all these REDC bidders are first time buyers? they’re going to keep the home?
I guess there are no rules in our model.. to tell someone.. hey you just bought, can’t turn around and sell! it’s a housing mess.. don’t you know? we don’t need another listing..
March 17th, 2009 11:30 pm
Steve,
Not to mention that lots of these REDC flippers are not succesfull selling for the visualized profit.. and keep changing/lowering their price.. some trying to sell just bellow their purchase price.. just to get out..not a pretty picture!
March 17th, 2009 11:36 pm
Stu,
you said:
They are literally STEALING our childrens money to pay for their bloated pension plans and perks
I would like to correct you… it should be:
They are literally STEALING our childrens’s children’s children money to pay for their bloated pension plans and perks
March 18th, 2009 10:15 am
ex_owner_now_renter said:
“Steve, do you still think all these REDC bidders are first time buyers? they’re going to keep the home?”
I’m not sure who the buyers are. But apparently there are buyers out there. What I’ve heard reported on the news was that the auction in my area had about 400 homes and they all sold. The examples of the deals were around 50% of the bubble peak price.
There is allegedly a $7500 tax credit (that gets paid back $500/year for 15 years) and this is enticing some young firt time buyers, like a friend’s daughter, that I know are trying to buy.
I friend of mine who has bought and sold a lot of real estate and has been out of the market since early 2000, bought what he is calling a “flipper”. He bought it with a short sale, put some $$$ into it to upgrade it (heating system, new baths, paint, etc.) and he’s moved in. His time horizon is 3 to 5 years. He plans to grab the $250K tax free cap gain on this (his primary res). He’s also looking for really low priced condos that will give him immediate positive cash flow at 80% market rate rent. He found 1 after the bank’s own auction failed he went directly to the bank and threw them a very low-ball price and they took it.
“Not to mention that lots of these REDC flippers are not succesfull selling for the visualized profit”
If there are any real “flippers” out there right now at these REDC auctions, I’d suspect that they’re getting their heads handed to them. “Flipping” like my friend is doing – with some sweat equity upgrading – and a long time horizon, should work when the market comes back, especially if, like my friend, you get it for a very low price and it’s in a great location. It should work for him.
April 11th, 2009 7:28 pm
MM’s back:
http://www.fieldcheckgroup.com