This past week was a great step forward for struggling homeowners and been quite a week on the mortgage crisis forefront. Heads are starting to roll in the form of new indictments and investigations as Congress drills Ben Benake about what the Federal Reserve is going to do to exercise their power to assist struggling borrowers.
Take for instance this message to lenders from the FDIC this week:
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said “There was a gathering of political momentum for a more radical approach than the investment and home loans industries had so far countenanced.”
What she is saying is that her and many other government agencies and officials agree that if these lenders do not start really assisting borrowers and offering more loan modifications, well then they are going to FORCE them to do it their way.
I have been diligently studying what lenders were doing in regards to their loss mitigation efforts and also what our government was doing to place pressure on lenders and servicers. This week, by far I have seen more news and press about this subject than ever. It finally seems that our Government really gets what the hell is going on out there and they realize that the only way to ease the foreclosure crisis is to fix these damn toxic mortgages that are causing a majority of these foreclosures.
US policymakers are shifting towards a response to the subprime mortgage crisis that would require greater concessions by investors and financial services companies.
US Treasury officials also said on Thursday they supported calls for the industry to modify adjustable rate mortgages en masse.
Ms Bair has outlined a specific proposal that would freeze the introductory interest rate on the most problematic adjustable-rate mortgages for owner-occupied homes.
A US Treasury official said: “While we do support a more systematic approach and agree that there needs to be a better approach to reach more homeowners on more than a case-by-case basis, we have not said that we support the details of her plans because we aren’t clear on them yet.”
A federal banking regulator said: “There seems to be somewhat of an evolution in the way the Treasury is looking at this problem. There has been a slow progression from opposition to broad loan modifications to support for a systematic approach.”
The Treasury official said that the industry needed to define categories “that could be product-specific, loanspecific or a combination of some sort” and “move quickly on them”.
It finally looks like homeowners will see a lot more political support in regards to loan workouts and loan modifications in the coming weeks ahead.
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another bailout effort. again we subsidize borrowers who made imprudent decisions. what effect will this bailout effort and others like it have on home prices? if this effort gains momentum what would stop all borrowers from coming forward and asking to keep their lower teaser rates?
let’s just change the rules whenever we don’t like them. it’s not our fault we overextended ourselves and bought more house than we could afford. it’s the lenders fault for creating products that allowed us to buy more expensive houses.
Greedy borrowers bought too much house with the expectation, among others, of flipping in a few years. Yet they failed to consider the potential effects of rate resets, namely payment shock. Not everyone deserves homeownership. That popular notion should be dismissed. Regulation is not the answer. Product and secondary market innovations have made homeownership available to a broader audience (~60% in early 90s to ~70% now). While I don’t endorse homeownership for all, this demonstrates the positive contributions of recent innovations. More disclosure is not the answer. It’s incumbent upon borrowers to understand the terms of the loan and risks they are assuming. It’s absurd for an ARM borrower to say they didn’t understand that rate resets on ARM loans have the potential to cause payment shock. Flood the basement and send the keys to the bank. Maybe you’ll get lucky through further bailout efforts. Ultimately taxpayers will fund the bailout and your imprudent decisions.
Joe,
the teaser rates of 2% to 3% is not the main cause of this problem. It is the 3/1 adjusting that were originated in 2004.
And the rates for the 1st 3 years were not teser rates. They were an average of .75% below market rate, which calculates to a saving of only $51- a month per $100,000-.
What the lendrs didn’t tell the borrowers in 2004 was that the LIBOR (which few people even know what it is) was at an all time low of 1.2% – 2% that year. When they saw that their rate wss going to increase 3% over LIBOR the 1st adjustmnt, the impression the lenders gave the borrowers was that the rate wouldn’t change much.
These were not borrowers that bought more than they could afford. They have been making payments on their loans for 3 eyars with a rate close to 6%.
The pay option ARMS with the teaser rates allow the borower to continue to pay the teaser rate and negativly amortize the difference between that rate and the rate they are truly being charged, which is in the neighborhood of 8%.
Modifying a rate to a market rate is not going to cost the tax payers a dime.
What is costing everyone a lot of money is the lender not willing to do so.
Proprty values are decreasing rapidly causing everyone to lose.
Peoples homes are nothing more than stock options to investors. And once they start decreased in value, they cash them in.
Things aren’t always as the lenders are making them seem.
Joe,
In the securities business, we need to qualify investors and follow “prudent man” rules. the mortgage industry should do the same. while many homeowners knew what they were doing and speculated, many probably got duped by disclosure that was not thourough or misleading.
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