Take this opportunity to write your own blog post in the comments section below about what this tells you.  I am curious to hear what is the first thing that comes to your mind when seeing these numbers. Have fun. -Best Mr Mortgage

More Mr Mortgage

• Low Mortgage Rates to Spur New Wave of Defaults (101)
  Posted on December 26, 2008 4:46 PM
• Pay Option ARMs – The Implosion Is Still Coming Despite Low Rates (42)
  Posted on December 23, 2008 1:57 PM
• Morgan Stanley – It’s Big Part in the Great Housing/Mortgage Crisis (61)
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The failed $300 Billion Hope For Homeowners (H4H) program that the markets heralded when it was announced this summer is getting revamped. This is because it was a bad idea in the first place – only 100 applications have been submitted as of Oct 1st. Hear that?!? 100 applications. 100 freaking applications! Its no wonder why there is no faith in the solons actions.

Remember Dodd and Schumer pumping this with all they had?  If they would have just called me, I would have told them it was fundamentally flawed – I wrote about it several time.  Now this is just more tax payer money already ear-marked that they will spend however they want. Their choice is to spend the money on more bad loans. Remember, borrowers who participate in this program are in default already at other banks.

Part of the new plan is to buy worthless second mortgage paper from the banks. This is because part of the reason H4H was not successful is because second mortgage holders don’t want to write down their loans in order to make the new first mortgage work. Humm – so how do they fix this little problem??? You got it – pay off the banks.

Second mortgages are basically unsecured credit cards and widely unsecured by virtue of the home prices falling below the amounts of the total first and second loan amounts. I am sure the banks love this one especially if FHA pays face value. Even Bernanke told the House these loans are worth as little as a nickel. FHA buying second mortgages from banks balance sheets opens the doors right up for massive problems.

The reasons for the H4H failure are simple – banks do not want to participate because they have to write first mortgage principal balances down too much and waive second mortgage liens. Getting a bank to waive principal is next to impossible as you know. That is the primary reason that every foreclosure prevention plan brought forth has failed thus far. Additionally, borrowers simply don’t qualify without exotic-type loan programs.

FHA WILL NOW BE THE BIGGEST EXOTIC, HIGH LTV and HIGH DEBT-TO-INCOME RATIO lender around.

Actually folks, because FHA is a government agency you and I are taking the hits for all the losses to come from this program.  If this style of lending caused the great mortgage and housing meltdown in the first place, why would issuing new loans in the same manner to previously defaulted borrowers have a different outcome?

Once again the government is changing the rules to bailout the banks – see underlined sentences in bold below. This program does waive principal which I condone, but with high housing debt-to-income ratios, 40-year terms, and near 100% LTV’s allowed, borrowers are better off renting.  When the value of their homes drop another 25-50% in the next two years, they will walk away and rent anyway.

The mortgage and housing crisis can be solved. It will be a painful and expensive process but it is far better than the alternative and throwing $300 billion of sh** against the wall every month to see if it sticks. I write about it in yesterday’s The Great Mortgage Modification PUMP – GOD SAVE US ALL - Best Mr Mortgage

FHA Help for Homeowners Changes:

Source: Housing Wire

“Clearly, meaningful changes were needed,” Preston said. “These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD’s Federal Housing Administration.”

“Expanding the eligibility criteria and making the program less expensive for both the borrower and the lenders will allow us help more borrowers,”

“These changes, including increasing the loan to value ratio, extending the term to 40 years, and allowing for upfront payments to subordinate lien holders, are all improvements which should make the program more accessible and attractive,”

• changes include increasing the loan to value ratio (LTV) from 90 to 96.5 percent
• reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lienholders (banks)
• Another change to the program involves simplifying the process to remove subordinate liens by permitting upfront payments to lienholders (buying second mortgages from banks)
• change will allow lenders to extend mortgage terms from 30 to 40 years, possibly reducing borrowers’ monthly payments enough to make it possible for them to qualify

More Mr Mortgage

• The Great Mortgage Modification Pump – GOD SAVE US ALL! (173)
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• For Many, 20% Down Payment Is All That’s Left (30)
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To be honest, I don’t track these every day but do go in once a week or so. I used to post ABX prices regularly because they seemed to be a leading indicator to credit market disruptions. So I went back and reviewed this yesterday to see if Paulson’s speech yesterday abandoning the buying of distressed assets for now had any impact. Why, yes it did. The ABX made a clean sweep low yesterday.

This surely does not look like a market about to be bought anytime soon. Asset prices are continuing to tumble and this market continuing its downward trajectory.  All of these prices are simply amazing.-Best, Mr Mortgage

Below are two charts of the above data. The top is second half 2007 AAA highest grade paper at 41.83 cents and and the second is BBB- lowest grade at 4.27.

Source: MarkIt

More Mr Mortgage Research

• For Many, 20% Down Payment Is All That’s Left (24)
  Posted on November 11, 2008 6:35 PM
• FanFred’s NEW PLAN Keeps Borrowers Underwater in Neg-Am’s & Teasers (25)
  Posted on November 11, 2008 3:23 PM
• Banks Giving 1-2% Teaser Rates as Modifications (16)
  Posted on November 11, 2008 12:26 PM
• Bubble-States Awash in Negative-Equity (11)
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Meredith Whitney Estimates LEH 2008 Loss at $3.34/share – Bloomberg. Since Whitney had previously estimated that the bank would make a profit of $1.58/share, this is a BIG SWING! I like Whitney, but no analyst has any business trying to guess the brokers’ earnings right now. As we have seen, they release what they want to.

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CITI, Merrill, UBS Face Monoline Losses, Meredith Whitney Says - Bloomberg. Way to go Bill Ackman of Pershing Square and Meredith Whitney. Both of you were ridiculed for sticking to the truth and are now being proven right. In this story, I do think Whitney is going easy on the loss estimates, however.

SEC May Ban S&P, Moody’s and Fitch From Structured Finance Consulting – Bloomberg . HAHAHAHA. This one takes the cake. Now that they are running scared, they are actually making some great calls and many downgrades. You should have been looking at this 5-years ago, SEC. Geez.

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National City Under US Scrutiny -Wall St Journal . Another leading Home Equity Loan/Line lender is in trouble. This is not the kind of trouble you want to be in. Along with BofA, Chase, CITI, Countrywide, Wamu, Wells., Rescap and IndyMac, Nat City was in the top-10 for years running. One thing Nat City does not have is the balance sheet of most of their top competitors. By the way, that list is fairly close to their actual origination standings during 2006-2007, however, Nat City ran about 7th place.

US Household Wealth Tumbles - Bloomberg. Again, I am sure glad we are not in recession or this type of news would really suck.  U.S. household wealth fell in the first quarter by the most in more than five years and borrowing slowed as home values and stock prices plunged and lenders restricted credit, Federal Reserve figures showed. Net worth for households decreased by $1.7 trillion from the previous three months, the second straight decline and the biggest since the third quarter of 2002, according to the Fed’s quarterly Flow of Funds report today. Real estate-related assets dropped by $328.9 billion, the most since records began in 1952.

Unemployment Rate Rockets to 5.5% and Payrolls Fall - Bloomberg. For a year, nobody could explain how jobs did not fall off a cliff. This was a lot of catching up in a single month. The U.S. lost jobs in May for a fifth month and the unemployment rate rose by the most in more than two decades, signaling that the world’s largest economy is stalling.

Holyfield in Foreclosure – AP. What do ya say about this…first the ear, now the house. This poor guy. HOW THE HELL DO YOU SPEND ALL THE DAMN MONEY? Come on Evander…or MC Evander I should say. Geez. “His $10 million estate in suburban Atlanta is under foreclosure, the mother of one of his children is suing for unpaid child support, and a Utah consulting company has gone to court claiming the boxer failed to pay back more than a half million dollars for landscaping.”

2:30pm EST – S&P Lowers MBIA and Ambac Ratings…Finally! No link to the story yet because it just happened. All I have to say is kudos to you Bill Ackman of Pershing Square! You’ve been ridiculed by analysts and CNBC commentators for months about being “a short who is lying.” Now we know who the liars and deceivers are. Now they’re ganging up on David Einhorn over his views of Lehman. He will be proven right as well.

5:21pm EST – Read about the downgrade here. <>

Mortgage Applications Fall 15.3% Last Week – Bloomberg. So what. This is just how it has been for years leading up to the big bubble pop. During the ‘good times’ from 2004-2007 whenever the economy would show signs of weakening, bond yields would take a run and rates would fall with the 30-year fixed going into the mid 5%’s, and refi’s would pick up dramatically for a couple of months. Then as people got their loans, many would cash out, the economy would mysteriously show signs of improvement, bond yields would rise, rates would follow and shoot over 6% and all refi business would dry up. In the mortgage business in latter years of ‘the big boom,’ mortgage players would make most of their money in 4 months of the year. Now, what has happened in the past few weeks? Rates popped back above 6% and refi’s have gone away. Same pattern different year. But it still goes to show how people have no use for rates above 6%.

Wachovia Bank CEO’s Story – Yahoo News. I will sum it up for you. How stupid do you have to be to pay $26 billion to enter the Pay Option ARM market at the height of the housing bubble and inherit $120 Billion in Pay Option along with it! Enough said.

Einhorn Vs. Lehman’s Callan – NY Times. This is a goodie.

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Bradford & Bingley Must Buy $4.1 Bil in GMAC Loans - Bloomberg . GMAC is strong-arming them even though the performance of GMAC loans is dismal. GMAC originated loans are “materially worse quality than Bradford & Bingley’s self-sourced book,”. B&B have pared back their buying to the bare minimum required by their contract.

 Chinese Fund Managers Told Not to Dump Stock, or Else - SCMP.com . One would think that over the past two months, US fund managers were told to do the same.

GMAC’s Rescap Needs 3x the Amount of Mney Initially Thought - ML-Implode . What a surprise! I am just tired of the lies. I actually hope that they are lies because if corporate American is this freaking stupid, we don’t have a chance.

 LEHMAN Issues Statement Regarding Recent Capital Rasing Rumors - http://www.tickerforum.org . This is from my buddies over at TF.

Wachovia CEO is Out! - Bloomberg. This is payback from the Board of Directors for not understanding how Pay Option ARMs are so toxic they will take any bank down, no matter how strong, eventually.

Spike in Foreclosures Goes Beyond Subprime- Barry Ritholtz.  I have written about this too many times to mention. Look through the blog.

In Foreclosure Capital, 3 of 4 Home For Sale is a Foreclosure – MSNBC/Blown Mortgage . Actually I thought this would be worse. We already know that 38% of all home sales last month were out of the foreclosure stock and that number keeps rising every month. America’s residential real estate is being marked to market overnight by lenders dumping homes at massive discounts. See my April Foreclosure Report for more on this topic.

Wall Street Says -2 + -2 = 4 as Liabilities Get New Bond Math- Bloomberg. One word…’crooks’.

S&P Lower the Rating of the Major Brokers…Stocks Tumble - Bloomberg. This one just really confused Dennis Kneale on CNBC. He just said ‘I thought the credit crisis was getting better’. The guest said ’so what, these companies will never earn what they used to and they are all in trouble’. This one wasn’t to tough to figure out. Heck, even I said last year that with securitizations, IPO’s, and revenue from every acronym under the sun suddenly gone, where are they going to get their revenue from??? Day Trading?

Another Stated Income Loan is Discharged in Bankruptcy – Conglomerate. This one is from CA. The lenders thought that they could push off fraud to the borrowers and judges across the nation are not seeing it that way. “She questioned whether industry guidelines on stated income loans were objectively reasonable.  The minimal verification for stated income loans suggests that they’re essential asset-based loans–loans made in reliance only on the value of the collateral!”