By Moe Bedard
The Treasury and the banks have seen the light and it looks like they finally realized that only an across the board approach would work even if this approach implies an indirect government interference – via moral suasion – with the “free market” process and an effective mortgage relief to the borrowers rather than a massive bailout of reckless lenders.
Can one can say, better late than never?
US Secretary Henry Paulson , the Bush administration and major financial institutions are close to agreeing to a massive loan modification campaign plan that would temporarily freeze interest rates on certain troubled subprime home loans.
Exactly which borrowers will qualify for the freeze and how long the freeze would last are yet to be determined.
There has been much debate about our government interfering with mortgage backed security ”contracts” that are protected by law. They don’t have the authority to force lenders and servicers to modify loans. But it appears that our government has taken the “peace pipe” approach and said “Let’s all sit down and see what we can do to work this trillion dollar mess.”
At a meeting at the Treasury Department yesterday, coalition members told Mr. Paulson and other regulators that they are on track to announce the new industry guidelines by year’s end, according to a senior Treasury official.
Mr. Paulson, who spent 32 years at Goldman Sachs Group Inc., has been on the phone nearly every day in recent months with the heads of financial institutions such as J.P. Morgan Chase & Co., Bank of America Corp. and Lehman Brothers Holdings Inc. He has talked to chief executives to find out what they’re doing to help borrowers and get their take on the extent of the losses and accompanying credit crunch roiling Wall Street.
As the Wall Street Journal put it:
According to Treasury officials, financial institutions will likely set the criteria that divide subprime borrowers into three groups: those who can continue to make their payments even if rates rise, those who can’t afford their mortgages even if rates stay steady, and those who could keep their homes if the maturity date of their mortgages were extended or the interest rates remained at the teaser rates. Only the third group would be eligible for help.
The proposal for loan modifications now supported by the Treasury and the coalition of lenders takes a similar approach with three groups of borrowers. First, interest rate resets will be frozen for a while (possibly up to seven years) while face value of the loan will be maintained for selected group of sub-prime borrowers who qualify. Second, those who can afford to keep on paying their mortgages would not receive the interest rate relief. Third, those who cannot afford to service their mortgages even at frozen reset rates should not receive the relief but should be allowed to default.
Lenders and servicers are likely to look at whether the borrowers have equity in their homes, despite plunging home values and whether they have sufficient income to support their mortgage for the long term.
Paulson told The Wall Street Journal last week that it would be impossible to “process the number of workouts and modifications that are going to be necessary doing it just sort of one-off.”
Apparently investors are starting to get a clue that if they do not cooperate in mass loan modifications, that the glorious returns that they “hoped for” they were going to incur by investing in risky subprime mortgage backed securities will be nil.
So, it would be in their best interests to give Paulson their blessings and bite the subprime bullet.
While an across the board approach is not totally fair to investors, lenders and even the renter that has been holding out or homeowner that didn’t take the subprime risk. It is the only feasible approach to deal with the need to rapidly restructure millions of mortgages.
Critics of a mass loan modification campaign continue to push for a case-by-case approach to mortgage restructuring . But it has become clear to all that, with the exception of very large corporations or financial institutions, the across-the-board approach is the only feasible way to effectively deal with our mortgage and housing crisis.
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What a Prime Example of the damage done with the help of industry Insiders to those that had no idea what was going on.
http://www.pe.com/reports/2007/wealth/
Victims’ Website:
http://www.coreclient.110mb.com/
The perpetrators of this crime are still operating…are still writing loans and stealing money from victims. Check out the named businesses carefully.
Have you heard of any of these guys or done business with any of them??
Hello, I am not sure who I should contact for this but I am interested in knowing if anyone has the phone numbers for all loan modification and loss mitigation who are in Spanish. I host a Spanish Radio Show in Northern California and I want to get this info out to my listeners. Please advise.
I can’t believe what I just saw. Countrywide is advertising a no fee, no appraisal refinance here in New York.
It sounds like Christmas has come early!!!
It sounds like Countryfried is offering more “free” money.
It sounds like loan modification time to me!
They have the audacity to put this commerical on the air during primetime and to give their own customers the runaround when it comes to loan modification!!!!
My layman’s opinion is that they are TRULY strapped for cash and still looking to sucker anyone they can into more ARM loans — what else couuld they be offering with no closing costs, no appraisal, no fee whatso ever???
Oh, I am in Southern California. We have those commercials all day, for that last 6 months.
My big question, since I am a skeptic is how the hell are they going to do all of these loan modifications? They can’t even handle what we have now.
So this will be the next issue, which I am sure is being addressed now.
Moe,
The federal government could solve the problem by making the interest paid on home loans tax free to the lender, and passing a law that the maximum interest on first mortgages to owner occupied dwellings at 4 1/2 %. It is a win win situation.
Moe
My concern is that the focus has been on subprime and those who are in the worst financial position. What about the millions of homeowners who are holdinbg ARM loans that are out there that will be resetting?
The vast majority of people who signed for ARM loans did so on the belief that housing values would continue to go up and that in 2-3 years when there loan came due to adjust, they would simply refinance. Probably the vast majority of peolple were told by there loan officer that when it came time for the adjustment, that they would be able to refinance to a different mortgage. This is the game that has been done for a number of years. Well, the game is over. No one thought that we would see falling home values. This reality will shake the whole mortgage industry maybe more than the subprime crisis.
The skeptic in me thinks that the arangement the Fed’s and the mortgage companies work out for subprime homeowners will be nothing more than a good PR campaign. I believe the whole housing crisis is much more deeply rooted.
The vast runup in home values in the hottest markets during the building boom years is now dealing with falling values to bring homes back to equilibrium. It’s simply getting the market back in balance to incomes.
My belief is that the whole housing/mortgage crisis we are dealing with today is all about bringing housing back into balance. Houses are built to provide us shelter, a place to raise a family, to give us a feeling of security and comfort as well as owning a piece of the American Dream.
The heated frenzy in new construction that took place between 2000-2005 was driven by money, profit and greed for more. In some of the hottest housing markets in the country it was being driven by speculation. Outside investors and individual homeowners were buying homes to be built with the intention to sell it once it was completed at a profit. It has been reported that up to 30% of the new homes being built in some areas were speculative homes. There really wasn’t a buyer for the homes that were being built.
Once the market became saturated with homes for sale the fast escalating in values stopped, speculators began unloading there properties. With holding costs eating at their profits, speculators began dropping their prices to unload their homes more quickly. Then the major national builders began reducing the prices on their homes to reduce inventory and cut their holding costs.
And thus the whole downward spiral has been set in motion. With the many homes that were built for people who really didn’t qualify under past lending standards, began to default on their teaser rate subprime mortgages, this began added foreclosed homes to an already saturated housing inventory.
So how do you stop this snow ball that is gaining in size and speed as it heads down the hill? That is the question that everyone is seeking the answer to before we have an even bigger crisis due to loss in home equity. For the 70-80 million single family homeowners throughout the country, their house is the biggest single asset they posses. When their home goes down in value, what happens? They stop spending.
Since 2000 home equity loans have increased in value approximately $50 billion a year, peaking this past year at about $800 billion. For 2007, they are expected to decline approximately $80 billion. If home values continue to fall as they have, this downward trend will continue.
We have been living in what I consider a false economy. Consumer spending which accounts for 70% of the GDP has been funded by home equity loans. Homeonwers have been taking money out of their home ATM to use in buying cars, sending kids to college, remodeling, buying second homes and the vast majority of all discretionary spending. The economy has not been driven by increases in personal incomes.
The Fed’s and mortgage companies move is a start in doing something to slow down the number of houses going into foreclosure. But in my opinion, it’s to small and to late to have any major affect to what has been set in motion.
Our whole economic and social system has gotten out of balance and we will need to go through this time of correction to get back to some common sense balance where their is equality for all. As a society, we have been moving further towards the haves and the have nots. The haves, due to GREED, have taken advantage of the have nots to a point where people living on main street are further disconnected in beliefs from those living on Wall St.
Please answer this question Moe. If a homeonwer was to rob one of the national banks involved in this mortgage swindle at one of it’s local branches, would the homeowner likely go to prison? So what will happen to the bankers who have been robbing from the homeowners? Will they go to prison?
Sorry for the long thread. But I do feel better getting this off my chest.
I haven’t seen any discussion of what this plan would do to mortgage-backed securities and related derivatives. Most mortgages are securitized — and often securitized again into collateralized debt obligations, or CDOs. CDOs are basically claims on the cash flow of a package of loans. They are typically divided into tranches, with the senior tranche having first claim on cash flows, and lower tranches being entitled to payment only after the senior tranche holders are paid.
The senior CDO holders are entitled, by contract, to their share of the full cash flow from the underlying loans — including the increased cash flow after ARM resets. If rates are frozen, and the increased cash flow from the upward-adjusted interest rates doesn’t materialize, the only way to get them this money (and, since they’re first in line for payment, they have to be paid in full before anyone else gets any money) is for the lower tranche holders to get less money, or (likely) nothing at all.
Poof. You’ve just rendered billions of dollars’ worth of CDO securities completely worthless.
There will be absolute flood of litigation over this. The junior tranche holders aren’t going to take this sitting down.
But why would you keep on paying a loan on an asset worth less than you borrowed for it.
The problem is not the rate but the value of the asset as a collateral.
Also, why would the prudent who took a higher fixed rate not enjoy federal handouts whereas the gambler who took a low rate and enjoyed huge savings would be now rescued at everyone’s expenses.
That sounds like some form of socialist deresponsabilisation….from a republican administration!!
The Ron Paul people are gona vote Hillary!!
I don’t see enough definition so far of who would qualify. Will we get a wave of people currently holding fix-rate mortgages suddenly refinancing into ARMs so the government will then freeze the “teaser” rate? Who’s going to monitor whether its only the primary residence versus the 12 speculative investment properties purchased neg am by buy the crazed flipper? In the end, it seems like the goverment/investment banks are sacrificing some future interest income now to stave off the true horror…foreclosures leading to across-the-board home value depreciation which will decimate the asset base earning that future interest income. I read that all US mortgage balances equaled 6.5 trillion in 2000 versus 13.3 trillion in 2007. We are all in huge, grotesque trouble.
The PLAN is madness. If you are an investor with an MBS, your MBS has just become unmarketable (would you put your future pension into one of these modified and untrustworthy MBS’s, no I think not!!!). Thus, unless you plan on carrying the MBS directly from the borrower to get the 6.5% return, who in their right mind would ever invest in an MBS again? It follows that if a current or future MBS has no mark to market value, and that no one wants them going forward, then there is no pool of money for MBS. No MBS money means no mortgage loans. No mortages, no NADA. This is exactly what the Japanese did 20 years ago and they are still having massive deflationary economic events.
It would be far better to cut out the cancer in one shot, take our 12 months of chemo, and walk away smarter for it all.
instead we are going to walk into a slow moving train wreck. Plus, it still won’t prevent the credit market seizure occuring right now.
I for one, expect that if this passes, that I can get a similar break on a very low interest loan. Why should irresponsible buyers get a huge inteterst break and not buyers with good credit and payment history
If I dont get a very good rate, then I plan on suing.
Virtually all of this loss could have been side stepped if we could have only created a mortgage reserve fund for borrowers who refinanced their current loan. Every loan funded has a clause for a 1st payment default, but it is actually 6 months. Up until approx 10 months ago, nearly all borrowers took cash out for home improvements, etc. If every one of these transactions put 6 months payments into a reserve fund the weight of daily life would have been eliminated from these borrowers. The problem is that if a borrower is 1 X 30 in the 1st 6 months, the funding bank has to buy the loan back from the investor. Approx. 192 lenders choose to close their doors rather than pay back all of the money they made and sit there holding a 200K loan paid for with their profits. Holding a 1st payment default from a company that shut its doors means that many of the CDO’s became worthless. Mind you, these are the same banks that created and gave 1% loans with massive compensation due to the brokers for putting a 3 year penalty on the loan. And the realtors loved these loans as they could get the borrower into a larger home and make a larger commission. Lets not forget to mention the number of local governments who choose to overbuild on nearly every available corner in the hopes of generating more revenue with the record number of building permits that were issued. Supply and demand at it’s best, local governments created the supply, wall street is demanding a cure. At the heart of this is the Neg Am Loan which managed to virtually drop Texas on it’s knees is the 80’s with mass forclosures due to default because of the extremely high fully indexed rates. If that was not a good enough lesson, the banks did it again. When American Home Mortgage shut its doors, it was qualifing borrowers at 4.75% even though their fully index rates could have been as high as 9%. These types of loans are only good for about 4 years at which point they “recast” into the fully index rate. Try making that payment on a $500,000 loan, and you get a W2. But that did not matter because your credit was 680 so they waived all of the income requirements and gave you the loan with a 3 year penalty. Call it a ticking time bomb loan. I have even heard them referred to as “Toxic Loans”
If you really want my opinion:
Do not allow any lender to go out of business, create a mortgage reserve fund for borrowers who refinance and fine every investor on wall street who was looking for a quick buck by buying a 2/28 with a 3 year penalty and, oh yes, those neg am loans. All of these were guaranteed to drop us to our knees if the property values ever slowed and bring in the local governments aggressive building departments to help us with that and they put the nail on the wood.
The final driving of the nail is every one of those aggressive realtors who can create an instant sale by dropping the price below market value and take out everyone else living in the neighborhood. How is it that virtually every division of lending, banking, securities, etc. are governed yet any realtor across America has the right to distroy neighborhoods by dropping their listings all for that quick 3% commission? Where is the next place to invest? Ask a realtor, pay the commission and in 1 – 2 years you can pay them again to sell your home at a substantial loss. Why is it that we need realtors again?
Good luck to all,
I’m glad someone pointed out the fact that the re-set issue is not just a sub-prime issue.
The media and the government dont seem to realize that many A paper borrowers (myself included) are facing rate re-sets on loans that they can no longer refi out of due to the tightening of the guidelines.
My rate is going from 5 to 7.50%, I lose the Interest Only option and it will re-ammortize into a 27 year loan upon rate re-set.
Our payment will go up $1000 and we will buck up and pay it.
But many cannot do that.
I have a borrower whose 5.5% rate is going into the 7’s as well.
The difference with the sub-prime borrower is that they started out with higher than market rates, usually in the 7’s and 8’s that will re-set as high as 10 and 11%.
And contrary to popular belief they were not put into sub-prime loans so the mortgage broker could get a higher commission.
A-paper loans pay the best commission.
Sub-prime loans should have been used only when absolutely necessary, as a band-aid during credit repair.
People just arent able to refi out of them into A paper like they could have in the past.
The lending investors over-reacted when they cut the loan parameters a 2nd time in August and we are all paying the price for it.
Remod, I am going to address your issues shortly. I have to go on a confrence call. But I wanted to post some specifics on the new deal.
The proposal for loan modifications now supported by the Treasury and the coalition of lenders takes a similar approach with three groups of borrowers.
1. Interest rate resets for borrowers will be fixed for a certain “undetermined” amount of years (as of this writing, that time period has not been defined) the current balanced owed on the mortgage would remain the same for borrowers who qualify.
2. Borrowers who can afford to keep on paying their adjustable rate mortgages would not receive any relief.
3. Borrowers who cannot afford to continue paying their mortgages even at “courtesy” fixed rate will not receive any more relied and will be allowed to default as needed.
I feel that’s fair but what about the homeowners who are currently “stuck” in the foreclosure system? Will they just suffer their fate?
I hate to play devil’s advocate, but that’s pretty screwed. But it looks like there is no “perfect” solution to such a complicated problem. However, I feel that delinquent homeowners that can prove their ability to pay their mortgages at a “reasonable” rate should be allowed to qualify for mortgage relief.
I have yet to verify if relief will be given or not to already delinquent and defaulted homeowners. Based on the reports and the preliminary plan thus far, it doesn’t appear that it will. As soon as I do hear something, I will report that here.
Lenders and servicers are likely to look at whether the borrowers have suffecient equity in their homes, despite plunging home values and whether they have adequate income to support their mortgage for the long term.
Tracy, you are right. That is a huge isue and yes, it isn’t just subprime, but ALT-A and Prime non-conventional loans.
My qustion to all readers is how the hell are they going to handle all these loans mods, when they can’t handle what they have now?
Thomas, so they aren’t going to take this sitting down? Well, if they don’t comply their investments are going to be worthless.
You litterally have millions of people now, sitting in upside down loans in their homes. They can either walk away, where investors get zilch or insuance pay outs or you can modify their loans and get “something”.
Let’s all face reality, the glorious returns that were promissed on these MBS’s was akin to snake oil. They never existed in the first place because they were “crap” investments anyways. Investors need to sue ther fricken brokers who sold them “junk” because they did not do their job and proper due dillengence as did the investor.
Investors need to take it in the shorts and deal with reality and stop making comments from their ivory towers that are about to crumble.
Word is that Hank Paulson was in constant communication with his chief economic advisor on this one: Robert Mugabe.
9 most dangerous words:
“I’m from the government, and I’m here to help.”
I’m a Realtor here in the Tampa Bay area and the Tampa Bay Area is number three in the state in foreclosures. Our State had over 30,000 foreclosures filed in October and here in Central Florida we have over 41,000 homes on the market. Everywhere you look you see vacant homes that are in Foreclosures. In my neighborhood I know of at least five people that got loans on their property in 2006 and never made more then one or two payments. In reality they sold their homes to the Mortgage Company. I don’t think a bail out will work. The only way out is the let the market shake it’s self out. Being a Realtor I can tell you I have never tried to get anyone to lower their price but sometimes you have to lower the price to get the home sold. The market will sink to it’s level.
If all these homes were on fire, with flames and smoke, reaching into the air, across the country, — you would see more of an immediate reaction to the immense disaster that is underway in the US economy.
A helicopter shot would show miles upon miles upon miles of burning homes across California, Colorado, Florida and other states with citizens screaming for help and assistance in the streets below as communities are destroyed.
At the same time, news comments would issue that nameless, faceless, “investors” were the true victims of such a disaster and that they are having endless conversations among themselves, and the FEds, as to wheather or not this is a moral issue of making a blanket decision to stop the “fires” from errupting any further down the line.
As everyone as commented above, — it is an example of endless talk. A loan modification is a simple 1 page form that states the new rates, or the sme rate, and the payment amount. A homeowner would then do everything possible to stay in the home with the same payment . They will do it — every single article and conversations leaves out the convinction of the homeowner to stay int the home if they can.
The lender, on the other hand, hold the kerosone and the light.
For some reason — everyone has forgotten the immense power of homeweowensrhip when you know you can own it. If I cant anymore — and the flames are burning off the roof — then Im walking away from it. If not — then Im stayiong put and working to keep the home. That is a compelling force that outweights the “moral ” discussions the lenders and the FEDS are having among themselves. They have left our the homeowner in the equation. In fact, I think they have painted the image that the hard working family is the villian in this financial mess.
I see flames and smoke across the state of California and nobody – I MEAN NO ONE — is looking to put the fire out before a portion of the state is destroyed. And 49 others states.
Did anyone see the San Diego fires?? Yes — that is exactly what is happening every day across the country. Yes. it is.
if the loans can be done on a one by one basis why can’t the modifications. When the loans are reset to an extended teaser rate this will automatically devalue ABS’s and many of these securities will need to be immediatley sold due to violation of investment covenants held by the investing entity.
CREDIT CRUNCH
You all really ought to go study what that means, and how they play out over time.
And yep, you can be “investors” aren’t going to like this (and that would be people like… hmmm. ME, and your “Pension’s” and municipalities – take a look at what’s going on in Florida with the counties short term investing…). That means they aren’t going to fund ANYTHING connected to it for a very long time. Think you’re having problems refinancing now? It’s gonna get even better – and if this stuff goes through it’ll be dead in the water for years.
Why don’t you all go take a look at how well this worked the last time the Fed did such a thing bet most of you didn’t even know they put a “moratorium” on Foreclosures in the long, dark past – did ya?) – Might want to start that research in say… 1928.
Juan I submitted your story over at our other blog.
http://iamfacingforeclosure.com/blog/2007/12/01/did-anyone-see-the-san-diego-fires-yes-%e2%80%94-that-is-exactly-what-is-happening-every-day-across-the-country-yes-it-is/
REMOD – That was a well thought out great comment.
As far as this market being forced back into balance, I would have to say it’s going to go beyond balance if it is not stopped, like REALLY FAST! Hosuing values are going down much further then what is being reported in the media.
What is something worthe anyway? It’s worth what “someone” will pay. No one truly can predict where this will end up.
You said, “If a homeonwer was to rob one of the national banks involved in this mortgage swindle at one of it’s local branches, would the homeowner likely go to prison? So what will happen to the bankers who have been robbing from the homeowners? Will they go to prison?
The homeowner would go straight to prison.
I definitely feel that there were some shady things that went down in the lending industry. Most of these loans should not have ever been made. Enormous profits and questinable pay outs. No due dillegence to blindness caused by greed. Mass fraud.
Who these players are have yet to be named. Where the laws were violated and who broke the laws to be announced.
With that said, I think we will see AG’s pursuing criminal indictments on some big players sooner rather than later.
That will be the next phase of the continuing saga.
This is an OUTRAGE!!
I don’t care how BIG and MESSY this problem is–the govt. has NO business meddling around in the mortgage market and fixing rates for people that LEAST deserve to be in a damn home in the first place!!!!
For those of us who make good money, but have NOT jumped in because we still didnt think it was prudent, and we made responsible financial decisions, WE are being penalized, no we are being completely SCREWED. I have lost all faith in the Govt. in this point and hope there are massive lawsuits about this.
The markets need to work themselves out, NOT be artificially pumped up even more…havent we learned our lesson that this dosent WORK?? This problem will only be worked out when an average family can buy a home with a conventional fixed product, and prices have to drop dramatically for that to happen.
This will never work and we will have only delayed the inevitable!! Where is the voice of the American people??? I feel like I live in a dictatorship right now….God, this is SICK!!
Moe,
You think these banks are going to share their inside information with Paulson, a GS partner-for-life? No way. They’re just playing along. Meanwhile, they’re close to the real solution.
We need a governmnet fund that will offer nice terms to NEW buyers of foreclosed-upon homes. The people who are in trouble now should be allowed to fail, and the rest of us should be given an opportunity to pick up the pieces. Let prices drop back where they should be, then find new buyers who get the deal of a lifetime.
Just establish a giant mortgage fund, quasi-Fannie, that will offer good, gov’t backed lons to folks who didn’t get greedy. The people who are foreclosed upon deserve it, they’re the suckers. Those who didn’t take the bait should be rewarded with a chance at a deal. After all, aren’t these the folks who should be in homes, the scrupulous and wary who didn’t fall for the sales pitches? I don’t believe that people didn’t read their contracts, I think they just didn’t care because they were going to flip it anyway.
My plan solves a lot of problems, but it doesn’t bail anyone out. Plenty of failures, plenty of pain, but not the ruination that we’re headed for.
What do you think, Moe?
In regards to the “sub-prime bailout”; I live in Texas, the amount of stupidity, malfeasance, corruption, and general incompetence in dealing with all of the problems created by Katrina was staggering. The government tried several different ways to help those who had lost their homes and possessions, in many cases everything. The government handed out prepaid credit cards that were used for everything you can imagine, not just food and shelter, many times not even food and shelter. That was discontinued. Mobile Homes were purchased by the government and many never used. People were moved into apartments with the Govt paying the rent. Timelines were created, but everytime a date was reached to discontinue payments people sued, courts ruled and the payments continued. The fiasco is still going on and people are still suffering (people who need help and the taxpayers). There is more, but the point is, are these the people you want saving the banks and financials and your money?
I have many offers for a limited time zero interest credit cards. I don’t own a house but I guess I can max these cards and when the interest on these cards reset, I can ask for a 7 year extension of the zero interest.
I think I should qualify for this bailout since I won’t be able to make the monthly payments.
Sounds like a plan for me and those who can no longer get a subprime loan.
One of the worst ideas the US Gov. has ever come up with! Hello 2nd Great Depression in the US!
I think we’re all in agreement that tampering with the rates would just complicate the impending disaster instead of solve it. It got me musing on what other crazy solutions might be suggested. Perhaps cutting all mortgage balances in half!!! Sure it would piss the investors off, but so would modifying the rates. I’d bet nearly all foreclosures would be avoided which would please the homeowners that the politicians are courting. It would hurt badly, but not kill. Good fun
The rules of fairness dictate that those who take risks enjoy their benefits but also and endure their pain.
The people who bought homes in the late 90’s made huge profits which are exempt of tax up to $500K per couple. Those who bought homes and are loosing should just accept their loss and stock blackmailing the country for a rescue.
Let the market adjust….do not privatize the gains and socialize the losses!! Washington should remember that this is not your money but ours. If this is what we get from Republicans, what are we gona get from Democrats. This is not a socialist country. Those who want to share their losses with the public were not willing to share their profits.
The check is in the mail, I’m from the goverment and I’m here to help, and you know the third. Homeowners can’t pay the mortgage and the gov’t can’t pay the national debt. Advise your readers to bend over and kiss their collective butts goodbye. Time to pray is now.
I knew the Iraq war would be a disaster.
I knew Greenspan’s 1% interest rate would be a disaster.
I know this bailout will have unforeseen consequences
Buy gold. Vote Ron Paul.
HEY, I THINK I HAVE THE SOLUTION FOR ALL THIS…
LETS MAKE WORLD SAVINGS AKA WACHOVIA BUY ALL OF THE SUB-PRIME MORTGAGES. AS I REMEMBER THEY USED TO ACCEPT BORROWERS WITH 500 FICOS AND PUT THEM INTO NEG-AMS AND START THEM WITH THE 1% INTEREST.
THEY ARE STILL MAKING TONS OF CASH WITH THIS LOANS…. WHO NEEDS THE GOVERNMENT WHEN YOU HAVE BANKS LIKE THIS.
1. How can anything be done across-the-board if it involves verifying income, appraisals or new appraisals, or any details of the borrowers situation – the work was shoddy or non-existent here when the loan was first made – how is it going to be any better the second time around? Are they going to do a computerized re-computation of the existing loans using the fantasy data that is on the original applications? Income was probably fake, appraisals are 20% lower in the high foreclosure areas, etc.
2. Ditto for those that say that if this comes with any coercion, it will have to freeze the MBS markets even worse than they are now frozen. Even if it is completely voluntary for MBS/CDO holders, it cannot be good for the market for these securities. One good lawsuit might be able to prevent the government from doing this by force.
And it formalizes the fact that the lower traunches are
completely wiped out.
3. Falling prices are a big hammer which is not being addressed – who will to stay in an $800k loan on a
$500k and falling property and for how long regardless
of the payment?
4.
As MarkK wrote December 1st, 2007 at 7:14 pm, this will close down the Credit Markets to the tune of 5 or 10% of current levels.
Those Investors are some big bad man smoking a cigar, more likely they are:
-A Florida Schoolteacher. Her pay comes from the general Fla Fund, which had a run on it this past week. Her pay was met because they borrowed short term to make payroll. When you borrow money to make payroll, you aren’t solvent.
-See all those Micro Credit Loans that give $100 to someone in Jakarta to open a restaurant? Those won’t be bundled, sliced up, marked to market and converted to AAA Tranch Paper, because no one will buy the notes if they can be downgraded by a government via legislative fiat. All of those people won’t get their chance AND those who bought their notes will not be repaid.
-Do you have a Pension? 401K? Ira? Own any investments? Then you lose, too.
-Did you rent and save the past 7 years? What if, Like ME, you could see this was a Ponzi Scheme, and waited to buy? There were 2 or 3 times in the past 2 years I looked ready to jump in, and each time I looked at local income support levels and the home prices simply did not make sense. So I waited.
Why IN HELL, should I pay someone who lied, or misled on their 1033, and have to subsidize THEIR MORTGAGE that they cannot afford?
This penalises the wise at the benefit of the foolish, and penalises savers at the benefit of consumers who recklessly spend themselves into a 6-figure negative net worth.
This is he worst financial blunder by the U.S. Government since Wage-Price freezes or Smoot-Hawley.
There is a simple way to have equity and interest rate relief at the same time.
The interest rate relief is optional for the homeowner. If the homeowner chooses interest relief, then the homeowner loses, to the lender, a certain amount of ownership in the house. I don’t know exactly what the numbers would be, but something like this: if the homeowner chooses to reset to 6%, then the homeowner loses 20% equity in the house. If the homeowner chooses 5%, then the homeowner loses 100% equity in the house (i.e. becomes a renter).
Note that the homeowner can still be held in default if payments are not made at the new level.
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You can’t focus on blue sky.
NONE OF THIS SHOULD HAVE HAPPANED IN THE FIRST PLACE! Alan Greenspan is an idiot and is the root of the problem.
The housing boom was all manufactured by Greenspan to bail us out of the tech fall out and Sep 11.
It served its purpose for a couple years then took on a life of its own. The gov watched what was going on for years, without ever regulating any of the “exotic mtg products.”
Everyone was in on it: banks, realtors, fed, the whole global economy. GREED.
Fed needed to act 5 yrs ago; it was not rocket science to forsee any of this, but the Fed Gov. decided to sit back and play stupid.
I HAVE BEEN WAITING TO BUY A HOUSE FOR 5 LONG YEARS. What thanks do I get for having a brain? Why should anyone get bailed out, this is a free market set up by the fed.
I don’t see any bail out ever happaning. Too much red tape and too hard to sift through who is going to eventually pay.
REGARDLESS, even if you can pay, why would you pay on a house that you are 150k upside on.
Let it play out – time for millions of middle americans to learn a very hard lesson in economics.
DougInSpokane and Lee have both made excellent points. We are watching a train wreck in slow motion. A government bailout in the form of a rate-freeze would create a cluster F of a whole new order. Like it or not, CDO’s and MBA’s have been leveraged past the point-of-no-return. By freezing rate’s on ARM’s the government will be devaluing the assets underlying the mortgage backed securities. What a stupendous idea, let’s destroy the mortgage back securities market! Also remember that even though home values are precipitously declining, they are still not where they “should” be. A plan to “save” homeowners will only artificially inflate or slow the deflation of the housing price bubble because all of those homes that should be dumped back onto the market as a result of foreclosure will be “saved” and this will only drag out the already long overdue price correction. On top of the moral issue mentioned by Lee in his post. This is a terrible idea and if you think this is just about foreclosures you need your head examined….
I don’t like the vibe I’m picking up from the goverment (Paulson, Schumer, etc.) that I have to pity the distressed homeowner so much that I’m willing to pay for a bailout. I have empathy for what must be an emotionally hard situation (foreclosure), but it was their choice to gamble and gambles often result in losses. I don’t like the vibe I’m picking up from Wall St. that I have to pity the investor so much that Im willing to pay for a bailout. I have empathy for the distressed investor, but this also was a gamble. Borrowers and investors have always have in large part been naive, but there was regulation that helped protect them. With exotic mortgage products and “structured finance” (SIV, CDO) going into bold new areas this decade the regulation was “gamed” for lack of a better term. ***BTW, I have always had a pet peeve with people blindly putting money into managed funds (including and especially retirement) and not asking any questions or doing any monitoring besides rate of return. These fund manager are not good-willed fairy godmothers concerned about your future***
I for one have a 6.34 30 year fixed loan…why should I keep paying at that rate if all these fools who got caught up in the subprime BS get a bailout, i am being a responsible payer and never refied my home..since purchase in 1993..and i am losing equity everyday….not that i care i work for my money…nothing is free in life folks…nothing..oh and do me a favor…stop with the Subprime stuff…its a credit crunch…not a subprime crunch.