By Moe Bedard and Aaron Krowne
It has been 4 months since President Bush announced a new refinancing program called the FHA Secure. This new refinancing product was touted as a foreclosure prevention device and viable alternative to homeowners stuck in adjustable rate mortgages as a way “out” of their toxic loan and into a 30 year fixed FHA insured mortgage.
When it was announced, FHA had estimated that would assist approximately 80,000 borrowers.
An article by Patrick Rucker from Reuters came out today and I was alerted to it by my good friend Peter G. Miller of FHALoanpros.com (thanks Peter), that the FHA Secure has helped only 266 borrowers since its inception back in August.
If you do the very simple math, they are currently helping approximately 60 plus homeowners a month and on track to complete just over 1,000 FHA Secure mortgages within a 12 months period.
The way the FHA Secure is going, it would take 80 years to help 80,000 homeowners!
So, what’s the big hold up and hold out by lenders? Why haven’t there been more of these FHA Secure refinances accomplished?
The biggest issue that I see is that lenders are simply not offering this mortgage to borrowers. What people fail to realize is that the FHA Secure Loan is being securitized in separate GNMA pools, so HUD can track its performance. The major problem is that no investors wants to buy a higher risk GNMA pool. That’s why the lenders don’t want to write these mortgages.
Why? They can’t sell them on the secondary market.
As one reader put it;
Well now we have another bogus fix to add to FHA secure. The subprime freeze. If you examined details, it’s obvious that almost nobody will qualify for the freeze (its voluntary anyways). But they did manage to hammer the mortgage backed bond market with that announcement, as investors were afraid the government was about to start retroactively modifying mortgages. That led to a a big jump in rates. So we have the FHA secure that no one wants to buy, a subprime freeze that didn’t freeze anything and higher rates.
I hope they don’t try to help us anymore…..
The underlying theme seems to be that the government, in taking a little-to-no public funding approach, is failing to jawbone the private market into funding formerly-high risk mortgages — even though they are publicly-insured and hence “risk free”. We would suggest that general capital flight from US markets, both from the credit crisis and due to the falling dollar, have eliminated a large fraction of the funding that would otherwise be available (perhaps half).
More on the status of the program from Reuters:
WASHINGTON, Dec 17 (Reuters) – A program unveiled by U.S. President George W. Bush in August that is trying to save tens of thousands of homeowners from foreclosure has aided just 266 borrowers so far, according to government data released on Monday.
Officials behind the new initiative, called FHA Secure, said it is on track to move 60,000 delinquent borrowers into stable, fixed-rate home loans.
But between September and mid-December, only 266 such borrowers have cleared all FHA hurdles, according to data compiled by the Department of Housing and Urban Development that was provided to Reuters.
FHA Director Brian Montgomery said the program was off to a slow start but is overcoming bureaucratic challenges and gaining momentum even as the national mortgage crisis worsens.
It is on track to help 60,000 homeowners? You are joking right?!
More from Reuters;
The number of lenders willing to process the new loans has more than tripled to over a thousand in the last month, Montgomery said of FHA Secure.
“We stand by our estimates, at the end of the day. These numbers (of borrowers) are increasing every week. Not quite doubling but close to it.”
Officials at the U.S. Department of Housing and Urban Development note many of the 3,200 delinquent borrowers who have applied for a new loan since September but have not won final approval may yet be accepted.
MORTGAGE PROS HAVE DOUBTS
Still, some of the mortgage brokers and lenders who must sell the new program say it too cumbersome and narrowly focused to help many borrowers.
“I think the concept is great but I’d like to see the people who are even doing these loans,” said Yamila Ayad, a mortgage broker in San Diego, California.
FHA Secure cannot reach most southern California borrowers whose home prices have slipped but are still valued higher than $362,000, the upper limit of loans FHA can insure, she said.
Before FHA Secure can succeed, some mortgage professionals said, it must gain wider acceptance within the industry.
“We do not have a book of subprime business to identify these subprime borrowers,” said Dave Greige, an FHA loan specialist in St. Louis, Missouri. “The subprime mortgage servicers out there need to let their borrowers know about this program.”
Here are the current loan to value ratios that are acceptable under the FHA Secure.
Maximum Loan to Value Ratios for the FHA Secure
States With Closing Costs at or Below 2.1% of the Sales Pirce
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98.75% for properties with appraised values equal or less than $50,000
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97.65% for properties appraised in excess of $50,000 and not greater than $125,000
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97.15% for properties appraised in excess of $125,000
State With Closing Costs Above 2.1% of Sales Price
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98.75% for properties with appraised value equals or less than $50,000
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97.75% for properties apprased in excess of $50,000
Highlights of the FHA Secure Initiative:
To qualify for the new program, being called FHA Secure, a borrower will have to prove the original loan was being repaid until it reset to a higher rate and they must have 3 percent equity in the home. The FHA does not supply the mortgage loan but it guarantees loans extended by banks and other lenders.
Quote:
| 1. The mortgage being refinanced must be a non-FHA ARM that has reset. |
This means that you cannot currently be in a FHA mortgage and it’s for non-FHA mortgage holders.
Quote:
| 2. The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments. |
In order to qualify you CANNOT have any prior lates prior to the adjustment on your loan.
Quote:
| 3. If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments. |
Not quite sure how to interpret this but I’m assuming that this means that in order to qualify with late mortgage payments then you need to have sufficient equity. Unfortunately, this will most likely cut 90% of homeowners out of the picture because their equity is dropping by the second and also many of the subprime mortgages were near 100% loan to value. So I’m assuming this will not help them in any way. I’m trying to remain positive about this but I also know the reality of what is REALLY going on in neighborhoods everywhere.
Quote:
| 4. Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2), the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing. |
This means that your existing loan may have penalties or fees that FHA will not allow to be covered under the FHA Secure, so your lender will have to cooperate and waive those non-allowable debts. FHA will allow an approved second on your home.
Quote:
| 5. Lenders must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage. |
In order to qualify you must prove that the ONLY reason your were late on your mortgage was because your loan adjusted. No hardships will be allowed. No lost jobs, no illness, nothing of the sort.
Quote:
| Additional Information about the FHA Secure Initiative: |
Quote:
| What May be Included in the FHA Secure Mortgage Amount: FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount. Subordinate Financing under the FHA Secure Initiative: If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHA Secure first mortgage and any subordinate lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Educate Borrowers Regarding FHASecure: The FHASecure initiative will take effect almost immediately through administrative action. Counselors should understand this new opportunity and knowledgeably present it as a viable alternative for delinquent borrowers struggling to pay higher interest rates. HUD will soon publish a Mortgagee Letter providing additional and more detailed information regarding the new initiative. |
I am following this very closely and I will post any new emerging information that I find.
Moe, did you miss the part where it is stated secondary market is NOT buying FHASecure pools as well as the fact plenty of people including me predicted “rates jumped” due to fear that government is going to meddle with existing contracts. If it turns to be true there will be NO secondary money at low rates for any of work outs or refinances, you can bet on that. And believe me US needs foreign cash flows otherwise hello double digits interest rates. And you know that interest rates inversely correlated with home prices. End result: all of those who made stupid decisions will end up with in foreclosure anyway. Just like I said: we will end up in the same end state with much worse market environment.
Where did President Bush get his information when he said on tv FHA Secure had done 35,000 refinances since the program was announced.
Yes, Alan, I wrote it, so I didn’t miss it.
I correct you Alan, all those that MADE stupid loans will eat their loans when this is all said and done.
No matter what you wish for, the only way for this mess to be cleaned up is not a natural cleansing as you wish for, but the purging of banks and lenders from running the “mortgage” show and the power will be put back in the peoples hands.
If we do it your way Alan, our country and quite possibly the world will go into a massive recession and there will be no markets, chaos.
This market is to out of control and we need to get these jokers that contributed to the mess, out of the clean up.
Evelyn, that was for “ALL” FHA refinances. Remember he is just a mouth piece from a prepared speech. I have watched all his televised appearances lately and he needs to get more of a grip on what’s happening with homeowners and these mortgages because he doesn’t seem to have a clue.
This is the biggest issue on our shores, by far.
Doing your way is going end up just the same. Do you really believe that mortgage will continue to be available ? Remember if secondary market doesn’t buy MBS those substandard borrowers present and future can bid farewell to homeownership. They were able to get into homes only because MBS were sold to investors at the time and as you noted when loan is unrolled the new one must be made and if it can’t be made, then what ? As you can see even govies for those subprime borrowers are not taken up by the market. Who is going to finance that new loan at the single digit rate that’s lower than the current note ?
FHA, yet another infringement on our rights by the gov’t. Add it to the ever-growing list of violations:
They violate the 1st Amendment by opening mail, caging demonstrators and banning books like “America Deceived” from Amazon.
They violate the 2nd Amendment by confiscating guns during Katrina.
They violate the 4th Amendment by conducting warrant-less wiretaps.
They violate the 5th and 6th Amendment by suspending habeas corpus.
They violate the 8th Amendment by torturing.
They violate the entire Constitution by starting 2 illegal wars based on lies and on behalf of a foriegn gov’t.
Support Dr. Ron Paul and save this great country.
Last link (unless Google Books caves to the gov’t and drops the title):
http://www.iuniverse.com/bookstore/book_detail.asp?&isbn=0-595-38523-0
Did anyone in goverrnment actually think that FHA Secure would assist 80,000 homeowners facing foreclosure? Does anyone really believe that 80,000 homeowners involved in this mess will actually qualify for FHA Secure financing even though everything can be included except for the foreclosure notice.
Sub prime borrowers either werre mislead by mortgage brokers who falsified income information or the borrower just lied about earnings.
I have a great idea let’s verify with a 4506 form. How many borrowers can actually provide paystubs and W-2 forms to qualify for such a loan?
answer 266 in for months.
I’m sorry but as a Mortgage Banker, I knew that this program would fail to be the fix that the government thought it would be. But when you are pulling at strings trying to find a solution especially in a political year, politicians will try almost anything.
Next to fail – Rate freeze
And let us not forget to give both Senate and Congress our heart felt thanks for their excellent work on the new FHA guidelines. This will only add to the horror stories already. But hey why not do what the NAR has requested. Raise FHA linits. So screw the consumer and taxpayer.
just another bailout.
I have been an FHA originator for 25 years and I can tell you that the FHASecure is a joke. In order to qualify, the borrower must be diliquent on his mortgage, but all of his other credit must be paid on time. Who in their right mind will pay their Sears loan for a refrigerator on time and go dilinquent on their mortgage? What are they going to do, put the ‘frig in their car after the foreclosure? Common sense tells us that the credit cards will go bad before the mortgage. I am surprised to find there are 266 people in this country that fit the requirements of this program.
Then why the hell is our government coming out with these programs that do nothing? Is it to buy time for lenders? Are they trying to clean this crap up behind closed doors another way?
Why did FHA go out of style during the subprime hey day?
Alan, maybe we need this to happen, but we need something to be done to stabalize the markets and our housing crisis. Hence, why I started this blog, LOAN MODIFICATIONS. They need to be done and if after that, a borrower defaults, then, they suffer their fate.
It is just senseless to let foreclosures to continue at the pace they are.
On December 3, 2007 HUD published the following news release. You can even check on their website at http://www.hud.gov/news/
“WASHINGTON – In response to the Bush Administration’s plan to help families avoid foreclosure, tens of thousands of homeowners are refinancing their exotic subprime loans with HUD’s new government-backed mortgage product. HUD Secretary Alphonso Jackson today announced that more than 33,000 borrowers have already refinanced their subprime home loans with FHASecure, a government-insured foreclosure avoidance initiative created in September. An additional 20,000 are in the pipeline for approval this month, bringing the total to more than 53,000 in a four month period.”
I don’t know where you guys are getting you information. FHASecure has helped 33,000. Unless, of course, you are claiming that HUD is flat out lying about this. In which case, Alphonso Jackson has committed suicide. Do you really believe that?
If you understand that most people make their monthly mortgage payments, it is not hard to understand that there are many people that qualify. It is just a way for them to get a fixed rate despite their credit score.
In addition to being a Mortgage Broker, I am an instructor for a well respected Real Estate and Mortgage Training School in New York. I train Real Estate Agents and Brokers as well as Loan Officers and Processors. It seems that many people don’t know enough about FHA insured loans. If you did, maybe it would make more sense to you. The greatest limitation on all FHA programs are the mortgage limits. Because of that, homeowners of higher priced homes (loan limit is $362,760 for SFR) will not be able to take advantage.
That’s great Ben. So, you believe that FHA has refinanced 33,000 borrowers in 4 months? Well, actually FHA is saying that. Wow. Yes, they aparantly do not know what’s going on or made a typo.
There is no way in hell that they have processed and closed 33,000 FHA Secure loans in 4 months!
I have attempted to refinance approximately 15 customers off their current subprime loans to FHA or FHA secure. The problems are numerous – judgements which cannot be paid, defaults on student loans, income that cannot be counted, late payments before and after the reset and paticularly disturbing for me is the inability to do cash outs on FHA loans in Texas. If we want FHA Secure to work, then they should probably add .25% or .5% in rate (or maybe an additional .25% in MI) and allow judgements under $10,000, no more than 2×30 day lates in the past 12 months regardless if the loan has reset or not (if you are able to reduce payment by 25% why not?), waive the federal debt delinquency requirement and allow cash-outs in Texas – and charge the people who need these loans a higher rate to pay for the extra risk – is that so hard to see? Then we could do some decent numbers. So far, from what I have seen, these borrowers could not have gotten an FHA to begin with for all the reasons listed above – all the reasons why subprime made sense to begin with. We need a responsible, national subprime program and FHA is the mechanism. Unfortunately, we do not have the collective insight, IQ or willingness in current leadership on EITHER or BOTH sides of the isle to bring about much needed reform and new programs. For what our elected officials are paid, you would think a few of them could figure this out.
Andrew,
Does it surprise you ? These borrowers should have never been given loans to begin with, no one would have lent them money even FHA that caters to bottom part of credit worthy pool. These borrowers getting loans is the reason homeownership rate grew from 63% to all time high 69% in last few years. It’s about to go back to long term average of 60% and those 9% will lose homes because they simply never had capacity to be homeowners. No one would have lent them money and if anyone did they wouldn’t have been able to repay loans. As it was posted on CalculatedRisk few weeks back absolute majority of foreclosures on ARMs is happening even before rate adjusts while it’s still in fixed period. Last few years was an accident waiting to happen. Well, it happened.
Thanks for he input from the FHA industry vets for your candid comments.
These foreclosures you speak of are from fraud Alan. Majority, broker or loan officer or lender or everyone. Yes, some homeowners definitley played the fraud game. We all know this.
Majority as you say, are actually speculators, investors and fraudsters.
Now, there are a tremendous amount of foreclosures, so there are people that may be in the minority, 1,000,000 or so people, that should have their loans modified.
Can you agree to that Alan?
The following testimony was submitted by Paul Gallagher, Economics Co-Editor, EIR News Service and Executive Intelligence Review to the Pennsylvania House Government Affairs Committee, November 29, in Harrisburg, PA. :
1. What the United States faces now is not a “housing crisis,” but a dollar crash and a banking crisis, triggered by the meltdown of a hyperinflated mortgage bubble the size of which the world has never seen before, and will never again. The country also faces economic depression if the real economy, the depository banks, the households, are not protected from the collapse of this bubble by actions of government.
HR 418 supports an emergency legislative action which could be called “the first firewall” to protect the people and the real economy, from an unstoppable collapse of vast mountains of mortgage-asset-based debts. As a call from Pennsylvania’s legislature to its elected officials in Congress, HR 418 can be a historically timely action toward saving the United States from very hard economic times and the social chaos of mass home foreclosures.
Look at this mortgage bubble (Chart 1, mortgage originations in the United States): It was called by housing economist Robert Shiller, in testimony to the Joint Economic Committee of Congress, a bubble unlike anything in the history of the United States and world economy; and its collapse, unprecedented both in terms of its domination of financial investments, and in how far home prices will fall before it’s over.
You see that in a sudden eruption after 2001, some $14 trillion in new mortgage debt was issued in a few years in the United States–leaving aside that the process was quickly repeated in the UK, Ireland, Spain, the Scandinavian countries.
On top of this, some $7 trillion in mortgage-backed securities were issued in the same few years–a mortgage debt bubble, thus, of over $20 trillion blown up in such a short time, vacuuming in investment capital from all over the world–all this driving a stupendous escalation of the price of homes, which doubled after inflation since 2000.
But millions of homeowners gave up equity, in favor of more debt, even as the price bubble inflated. Mortgage-backed debts have been used as “assets” to generate much more leveraged debts by hedge funds, private equity funds, money-center banks.
Outright mortgage frauds have proliferated, and one of the most dramatic frauds hit nearly 1,000 households in one Pennsylvania County.
We have also seen, this month, a series of Federal court decisions in Ohio’s Eastern District which are potentially a broad shock to mortgage-backed securities. Three judges have stopped foreclosures because the investment trusts foreclosing on the homes could not show they owned the mortgages. The suspicion has been raised in these cases, that the same home mortgage loans may have been used in multiple “pools” of mortgages being made into securities.
This immense bubble of mortgage debt apparently has produced, as of now, a very small but real drop in American homeownership. From the standpoint of the generation of “financial products” by London and Wall Street investment banks and mortgage lenders in this bubble–mortgage products, mortgage-backed securities products, leveraged debt and derivatives products–WHAT WAS BEING SOLD WAS NOT HOMES, BUT MORTGAGES: AS MANY, AS LARGE, AND AS HIGH-INTEREST AS POSSIBLE.
Consumer debt, which was 25% of GDP in 1960 for comparison, has ballooned to well over 95% now.
Look at the dependence of the assets of the U.S. banking system (Chart 2) on mortgage debt–49% as of 2006, 48% as of now, according to figures from the FDIC; and 35% dependent on residential mortgage debt. Now, housing economists such as Dr. Shiller have told the Joint Economic Committee that home prices–we cannot say “home values,” but home prices–are in the process of declining rapidly by perhaps 20%, perhaps more. This is uncharted territory. One study by First American Core Logic found that with just the first 10% drop in median home price, 25% of mortgages originated in 2005, and 39% of those originated in 2006, go “upside-down,” wherein their mortgage debt is greater than the sale price of their home.
This process drives both mass foreclosures and massive bank losses.
[Chart+3] 2. That foreclosures must be stopped by legislative action, is becoming very clear. Nearly half a million homeowners will have lost their homes to foreclosure actions during 2007 (Chart 3, foreclosure actions).
The prospect in 2008 is much worse: Nearly 2 million adjustable rate mortgages will reset to higher rates and payments (Chart 4, ARM resets);
homeowners’ equity will fall with price declines; the loss of well-paying jobs could accelerate under the impact of the dollar collapse.
[Chart+4] You are meeting here, in part, because no Congressional action has been taken to stop foreclosures. The “great hope” of Fannie Mae and Freddie Mac expanding dramatically to buy up and refinance subprime mortgages, has been proven a delusion: Both are actually shrinking, due to growing mortgage losses, which in Freddie Mac’s case, already threaten its core capital. EIR News Service called this $150 billion expansion of the Government Sponsored Enterprises (GSEs) unworkable, when it was first proposed. And it was the wrong way, the bailout way, to deal with hyperinflated mortgages and mortgage securities.
Other mortgage reform measures which have passed in the U.S. House of Representatives only look to the future, and not to stopping this mass foreclosure wave. Appeals to the mortgage industry or to bankruptcy courts to reform mortgages are not slowing down that wave either, and cannot deal with the national plunge in home prices which is only still gathering momentum. What remains urgent, is for Congress to stop foreclosures by law–by a national mortgage foreclosure holiday during the mortgage/price collapse; a state determination of fair-market rent equivalents to be paid to participating banks by homeowners with problem mortgages; and Federal protection of Federally chartered and state-chartered banks which are suffering rapidly growing losses in the mortgage bubble collapse.
My colleague Richard Freeman will demonstrate how this has been done historically under the American System and the General Welfare principle.
3. Banks are taking and will take great losses no matter whether Congress Acts or not. Outside of the huge losses of the money-center banks in London and New York, the example of National City Bank in Columbus, Ohio, a large regional, Federally chartered bank, shows what is happening–in the third quarter 2007, National City reported nearly $775 million in impaired mortgage assets in three categories; a $160 million loss; and a layoff which has reached 1,500 of its staff.
The Financial Times warned on Nov. 25: “The projected size of this year’s credit shock is now rising rapidly. The U.S. government initially forecast $50 billion losses on subprime securities. However, investment banks now expect $500 billion subprime losses–and additional massive losses in other debt markets, such as credit card loans.” It has been clear that the big money-center banks do not know, or are continuing to hide, their real losses. A well-informed banker in Denmark has estimated to EIR, that the money-center banks’ unrealized losses are actually $2-2.5 trillion.
On Nov. 25 the European Central Bank, which has made a full $1 trillion in weekly liquidity injections into the British and European banks since early August, announced it would step up that pace of cash injections through the end of the year. On Feb. 26, the Federal Reserve announced that it would do the same, to try to bring down interbank lending rates and liquefy securities markets. This attempt is now four months old, and intensifying, not diminishing. Federal Reserve liquidity injections recently through the Fed Funds window have been over $40 billion each week.
Treasury has released, that in August and September there were large, net capital outflows from U.S. securities, totaling $165 billion as Asian banks and investors in particular dumped the dollar. This is shocking, after years of net capital inflows routinely $70-100 billion a month.
The mortgage meltdown and bank crisis have triggered a U.S. dollar crash, destabilizing international monetary and trade relations. Goldman Sachs chief U.S. economist Peter Hatzius has just made a projection that these massive bank losses will cause a drop in banks’ ability to lend, of $2 trillion. For comparison, in 2006 total U.S. bank lending to households and financial and non-financial corporations was about $3.24 trillion, according to the Federal Reserve. Mr. Hatzius called the result, with dramatic understatement, “a substantial recession.”
Already dramatically contracted for months, is interbank lending, the reason for the Fed’s and ECB’s escalating cash injections to the banking system. The failure of a few big banks, could take hundreds of smaller regional and local banks down with them.
4. We should stop the massive bailing out of non-banks, non-depository institutions typified by Countrywide Financial Corp. or by the hedge funds and investment banks securitizing mortgages; stop the attempt to bail out the “value” of these securities.
THE COUNTRYWIDE CASE IS EXEMPLAR. IT RECEIVED A $22.5 BILLION CREDIT LINE FROM 40 BANKS ON AUG. 25, HOURS AFTER AN EARLY MORNING FEDERAL RESERVE INJECTION OF $20 BILLION INTO THE BANKING SYSTEM.
IT LATER RECEIVED AN ADDITIONAL $11 BILLION CREDIT LINE FROM A GROUP OF BANKS. IT HAS BEEN LOANED THE ASTONISHING TOTAL OF $51 BILLON SINCE SEPTEMBER BY THE FEDERAL HOME LOAN BANK–ANOTHER OF THE GSEs ALONG WITH FANNIE AND FREDDIE–PROVOKING SEN. CHARLES SCHUMER OF NEW YORK TO PROTEST ON NOV. 26 THAT:
“COUNTRYWIDE IS TREATING THE FEDERAL HOME LOAN BANK SYSTEM LIKE ITS PERSONAL ATM
WHEN CONGRESS CREATED THESE BANKS, IT NEVER INTENDED FOR THEM TO BE USED TO PROP UP MORTGAGE LENDERS . . . AT A TIME WHEN COUNTRYWIDE’S MORTGAGE PORTFOLIO IS DETERIORATING DRASTICALLY, FHLB’s EXPOSURE TO COUNTRYWIDE POSES AN UNREASONABLE RISK.”
WHAT HAS COUNTRYWIDE DONE WITH ALL OF THAT BAILOUT CREDIT?
SHRUNK IT’S MORTGAGE LENDING BY 40%; SHRUNK ITS EMPLOYEES BY 17,000; AND BOUGHT BACK, EN MASSE, FROM HEDGE FUNDS AND OTHERS, ITS MORTGAGE SECURITIES–IN EFFECT, BAILING OUT THOSE SECURITIES AND THEIR HOLDERS.
The loans to mortgage lending companies through the FHLB alone have totaled over $150 billion since September. I have already noted the trillions injected into the banking system by the Federal Reserve and ECB since August, for similar purposes.
If Congress simply put chartered depository banks, and those only, under protection, as called for in H.R. 418, far smaller amounts of Federal credit would be necessary, for much better purposes of protecting the economy, that in these attempts to bail out the hyperleveraged, speculative instruments based on mortgage-backed securities.
http://larouchepac.com/news/2007/12/02/eir-correspondants-advance-hopes-homeowners-harrisburg-pa.html#Paul%20Gallagher
Testimony submitted by Richard Freeman,
Economics writer, Executive Intelligence Review
The ongoing systemic breakdown of the world financial system, including the $20 trillion U.S. housing bubble of mortgages and Mortgage-Backed Securities (MBS), is contributing to the tsunami-wave of U.S. home foreclosures. People and all their worldly possessions are thrown out on the street. My colleague Paul Gallagher showed in a graph, that in 2007 by year’s end, based on projections of the first eight months of this year, there will have been 2 million American households in one stage or another of foreclosure.
However, EIR projects that America is staring at a catastrophe– that 7 to 10 million households, representing more than 20 million people, will likely permanently lose their homes over the coming few years. Some people are so terrified that they want to deny reality; but it is true.
People have proposed three responses to this crisis.
The first is to do nothing.
The second response is to support a plan that would have the secondary housing market giants, Fannie Mae and Freddie Mac, buy up the radioactive and failing mortgages. This bail-out plan, which in addition to producing a disaster, as my colleague Paul Gallagher has already shown, is also ridiculous: Fannie and Freddie are experiencing melt-down, and are in no position to bail out anyone else.
Foreclosures are not statistics; people live in these homes. We must stop the foreclosures while erecting a firewall that protects the banking system. The only response worth considering is the adoption of Representative Harold James’ House Resolution 418. Pennsylvania would join other state and local legislative bodies to compel the U.S. Congress to adopt immediately the Homeowners and Bank Protection Act. This is the only proposal that would work.
In recent weeks, in direct proportion as HR 418 has gained support and endorsers, questions have been raised and criticism has been hurled at the resolution. Three basic questions stand out, that this presentation will respond to: first, the critics claim that a plan, such as the Homeowners and Bank Protection Act, has never been adopted before in history; second, they claim that it violates the law: and third, they claim that the proposed legislation is a way to bail out banks that are not entitled to be bailed out.
To answer the criticism we look at history,
READ THE REST OF THIS TESTIMONY HERE:
http://larouchepac.com/news/2007/12/02/eir-correspondants-advance-hopes-homeowners-harrisburg-pa.html#Richard%20Freeman
I can agree that there are probably 30-40% of borrowers who are collateral damage of the ponzi scheme. Unfortunately for them: they overpaid. Bankruptcy code needs to be modified per proposal again that I read on CalculatedRisk that would allow principal amount of primary residence mortgage crammed down to something reasonable, mortgage debt in excess of crammed down amount shall be converted to unsecured debt and shall be treated the same way as any other unsecured debt like credit cards. Establish some pay out plan and discharge after few years.
Bankruptcy process is a existing legal instrument that allows debt amounts reduced, it’s been there from the start when lender/investor gave the loan and so risks should have been priced in. Lender/investor will also be able to dispute anything before the judge and they will know they got the best they could.
If Congress comes out with uniform legislation that would stipulate the way cram downs must be calculated (to remove subjectivity of judjes) it’s way better approach than anything like mandatory modifications. After cram down the comps in neighborhood will be lower (cram down amount will be another price point record) and so incoming new buyers won’t have to pay overinflated price. Those who overpaid and went through bankruptcy won’t be able to refi/cash out for a long time. Lets see if they can be weaned from credit needle.
If Buyers should suffer the stigma and ramifications of Bankruptcy, than what should the shiesty LO, mortgage brokers and banks suffer?
Here’s a radical suggestion, as per Lyndon LaRouche:
“Write Off Speculative Debt Obligations”
“The Act states that it would explicitly write off speculative debt obligations. The legislation incorporates the idea that there will be time provided for a “shakeout [that] may take several years,” during which time the valuation of U.S. homes and of mortgages will come down. The understanding is that during this interim, no branch or agency of the U.S. government should be permitted to purchase any of this mortgage paper at currently inflated values.
Rather, worthless pyramided speculative paper should be written off the banks’ books, and these banks should “resume their traditional functions, serving local communities, and facilitating credit for investment in productive industries, agriculture, infrastructure, etc.” Thereby, the banks would have real loan assets on their books, which are of far more real value than a large volume of speculative assets which are disintegrating before one’s very eyes.
Between 1930 and the end of 1932, throughout the USA, 5,100 banks, or one fifth of those that existed at the outset of 1930, failed. On March 4, 1933, President Roosevelt was inaugurated as President. On March 6, Roosevelt closed all of the banks through his executive order of a National Bank Holiday. The Emergency Banking Act legislation was introduced to Congress on March 9, at noon, and was signed by President Roosevelt at 8:37 pm. The whole affair, from start to finish, had taken less than 9 hours, showing that Congress can be spurred to act swiftly, when a good kick is administered. Banks reopened on March 13, and one month later, 76% of U.S. federally-chartered banks were up and operating.
Lyndon LaRouche has called for a bankruptcy reorganization of the thoroughly bankrupt and collapsed banking system. ”
In my mind, this proposal sounds a lot better than a punitive bankruptcy solution that actually punishes homeowners for being unfortunate enough to be preyed upon and swindled.
Ron Paul is calling to repeal the Federal Reserve Act and do away with the IRS. Seems to me this is getting more to the ‘root causes’ of the hideous manipulations of what should be our ‘free markets’. These central bankers have been allowed to control our country and the world for almost 100 years now. When you think about it, doing away with the Fed is really not extreme. What is extreme and radical was that this Act was past in Congress around this time before Christmas 1913, when few members attended. In the new year of 1914, as journalists were making noise about it to the people, WWI was declared (manufactured?) in the nick of time. Nice distraction. These bankers are masters of distraction! Since then our entire world is becoming ‘monopolized’ to serve the selfish interests of a few at the expense of the many. This is the worst kind of tyranny since before 1776! In 1789, it was the ‘Storming of the Bastille’. Perhaps in 2008, it will be the overthrow of the cancerous central bankers and their ‘Federal Reserve Bank’, that is anything but ‘Federal’. We desperately need to clean out our government of these thieves and their agents. I support Ron Paul. He may be the very first ‘real’ leader since General Washington. Someone who is principled and would never betray the Constitution and the American People. But likewise, on the other end we need the American people to uphold our Law in word and deed as well, and forever be vigilant against the ‘enemies from within’. We live in interesting times. Keep in mind government means ‘to control the mind’, latin, ‘guber mente’.
Anisha, I read your post with interest. You raise a lot of alarming and very true points. As I see it, as long as human beings have the propensity to be dishonest and cruel, we will need government, but then who governs the government?
We’re supposed to have a system of checks and balances here in America, but so much is thrown in as you say to distract from that and thwart it, it hardly ever works.
I do believe there is a movement to create a World Central Bank, and that this what is fueling the undecipherable logic behind the latest crisis in the mortgage industry — but don’t get me started with conspiracy theories. Thanks for the comment — it was refreshingly different.
[...] data indicates that only 266 borrowers have successfully refinanced using the FHA Secure. We then reported these figures on Wednesday. After the post we had many people point out the HUD press release and [...]
[...] working with Moe Bedard over at LoanWorkout.org, we showed that the total number of loans refinanced during the entire month of November amounted [...]
I am actually shocked that anyone has qualified under FHA Secure. To me, there was never any real intention to help any deliquent borrower. Why do I say this? Simple common sense. One of the qualifications is that a borrower not have any consumer lates. Who gets behind on their mortgage but pays their Sears card on time? Gimme a break. The Hope Now program has some similar “loopholes”. Both are just meat to protect the image of banks and investor interest.
I had a client approved under this program then the investor shut down! I was able to fund it with FHA but not using the secure program
I am puzzled? Since when has anybody thought that the government would tell the truth?
FHA is shameful to report the grossly overestimated numbers of borrowers that have been helped by their “Secure” loan, but to say FHA is practicing bait-n-switch is board line incompetent. There are no other products FHA would have to offer a delinquent borrower. The major hurdle that most borrowers trying to obtain a FHA Secure loan have is proving the ability to repay the loan (debts/income). Our government would need to implement the FHA “Sure you make $100k a year” Secure loan to have any major impact on our problems. Inflated home values, stagnant middle class income and teaser mortgages are too big of problem for FHA to solve.
Regarding comment about FHA wanting to do “ol bait and switch”. FHA does not have another mortgage option for people behind on their mortgage payments. The numbers used by FHA could have been the total of all their refinances including reverse mortgages. The FHA reform bill S2338 just passed in the Senate 93 to 1. Could those numbers have been used to help the Senate pass this reform. Many of the Senators spoke of the need to help the subprime borrower. One important part of the bill is the new loan limits. The House/Senate conference committee still has to compromise on the new loan limit. It could be between $417,000 to $750,000. This could dramatically help the FHASecure borrower. But again, FHA does not have an alternative option for the subprime borrower who it behind in payments.
You busted them, I just knew those numbers quoted were a train full of cowcrap…so it seems like even more lgov sponsored propoganda, when will we take our country back?
While I agree that the FHA Secure program is far from the answer to every sub-prime problem I would like to remind everyone that we don\’e2\’80\’99t really want FHA buying loans that will ultimately end in default. Secondly, I agree that the program is over hyped and that HUD should not be making unsubstantiated claims to cover FHA shortcomings but it is not \’e2\’80\’9cbait and switch\’e2\’80\’9d.
Bait and switch implies that one product is advertised in order to steer the consumer to another product with a higher profit margin and therefore not the case with FHA Secure. Lets not forget that FHA Secure IS the higher priced option not the loss leader, and at the risk of sounding like I\’e2\’80\’99m defending FHA, it\’e2\’80\’99s the Lenders who have only just recently \’e2\’80\’9crolled out\’e2\’80\’9d the new guidelines.
My guess is that even if the \’e2\’80\’9cSecure \’e2\’80\’9c guidelines weren\’e2\’80\’99t so hopelessly tight we still would have a supply chain problem. Over 60% of the loans closed nationally are closed by the same Mortgage Brokers that everyone has seen fit to vilify as of late and most of them are not set up to do FHA loans.
Either way Secure is crap, how does FHA justify buying a loan from a borrower with Fico\’e2\’80\’99s in the low or even sub 500\’e2\’80\’99s or a DTI over 60% but they wont take a loan from borrower who, up until the reset, made every payment in their life on time but now has a DTI in the high forties. Yet another fine example of how woefully ill-equipped our elected officials are when it comes to \’e2\’80\’9csolving\’e2\’80\’9d this problem that they created.
Its a lot of BS in my personal (yet highly accurate) opinion.
Fine by me. The fewer bailouts the better.
Once upon a time there was a magical kingdom where people lived and worked and saved, far out producing every kingdom in the land. One day a sly old man came and said to the king \’e2\’80\’9c what right do your people have to be so prosperous when there are so many that go without in other lands?\’e2\’80\’9d
The King answered the kindly old sole \’e2\’80\’9c the people in this place are free to choose what they do with their time and their money and we believe that all people everywhere can prosper as we do if they will assert their God given rights of life, liberty and the pursuit of happiness\’e2\’80\’9d
Well the crafty old man was wicked hating the idea of a government chosen by the people and knew that this place would not be taken by force because everyone who lived in the land owned a gun or two and if need be would defend their country with a well armed militia of over 200 million soldiers.
So one day the old man went to work sending merchants to the magical kingdom to sell to the people their goods but instructed the merchants \’e2\’80\’9c sell your goods but bring nothing out of the land except gold and silver\’e2\’80\’9d.
Then the old man sent scholars to open collages to train the teachers of future generations but instructed the Scholars \’e2\’80\’9ctrain the teachers in a way that will destroy the core values of the family so that future generations will be unable to tell right from wrong\’e2\’80\’9d \’e2\’80\’9cthis is important\’e2\’80\’9d he said \’e2\’80\’9c the future generations must believe that there is no God\’e2\’80\’9d \’e2\’80\’9c If they believe that their rights are given to them by the government rather than given by God then they will not fight when their rights are taken from them in the future\’e2\’80\’9d
After a good long while the old mans treachery started to work its way into the fabric of the thoughts and behaviors of the people living in the magical kingdom. The people no longer saved money, instead they would borrow from evil merchants who would happily lend for a small 18% yearly fee. The people had been taught in school that because they lived in a free country that meant they had to tolerate all things even if those things were wicked. All things were tolerated except any mention of God of course, all references to God were eliminated from public view, in all fairness there were some who were offended by the very mention of God and well after all Tolerance is a virtue\’e2\’80\’a6..Isn\’e2\’80\’99t it?
The old mans plan would soon be done, good had become evil and evil had become good all that was left was to somehow get the people of the magical kingdom to willingly borrow more money, secured by their homes, than they could ever hope to repay and then at just the right moment he would stop lending to them. All the wealth of the kingdom would be gone and the people would have become his willing slaves working 10-12 hours a day to keep paying their loans in hopes that he would continue to lend so that they could continue to buy, trying to fill the hole in their hearts that was left when they threw God out.
The kingdom was nearly destroyed soon the people would give up all of their God given rights for a \’e2\’80\’9ccold roll in a cage\’e2\’80\’9d
To be continued\’e2\’80\’a6
Linda- I hate to break it to you but there has been not a single bailout of a homeowner yet, no not one. The bailouts are for the banks only not for the homeowners. Havent you been paying attention NOBODY QUALIFIES TO BE BAILED OUT its a pretty neat trick really. They keep you looking at their right hand while their left is flushing money down the crapper. OMGWTFBBQ do you believe everything you hear people say. Good grief I hope your at least good looking.
CTAN- Per the FTC:
Bait and Switch
How does the FTC define \’e2\’80\’9cbait and switch\’e2\’80\’9d advertising?
It\’e2\’80\’99s illegal to advertise a product when the company has no intention of selling that item, but instead plans to sell a consumer something else, usually at a higher price. For more information, ask the FTC for its Guides Against Bait Advertising.
They key here is “usually”.
The issue I have with this advertsising is atht they are clearly stateing that they have refinanced 40,000 plus homes with the FHASecure and tha there are another 20,000 FHASecure loans in the pipe and they even go as far to say, “Thousands Have Switched to FHASecure to Keep Their Homes – Why Not You?
Misleading? well yes…….
Wait here is more: That will mean that in the first 4 months of the program, FHASecure will have helped 53,000 families and received more than 127,000 refinance applications from families whose loans are current or past due.
Deceptive, well yes!
More Truth in Advertising from the FTC;
What makes an advertisement deceptive?
According to the FTC\’e2\’80\’99s Deception Policy Statement, an ad is deceptive if it contains a statement – or omits information – that:
Is likely to mislead consumers acting reasonably under the circumstances; and
Is \’e2\’80\’9cmaterial\’e2\’80\’9d – that is, important to a consumer\’e2\’80\’99s decision to buy or use the product.
I believe they are using the FHASecure as bait and switching them to other FHA products.
Like I said, FHA and HUD are great agencies and they do a tremendous amount of good, but shouldn’t they abide by the same rules that govern everyone else and especially when it is as sensitive of an issue as keeping homeowners in their homes?
I stand corrected; I guess I just don\’e2\’80\’99t feel as though it is FHA’s intention to bait borrowers into getting an automated FHA product by dangling FHA secure. FHA Secure is
1.\tab Higher interest rate
2.\tab Manually underwritten
3.\tab Not at all liked by underwriters as they still must put their \’e2\’80\’9cSeal of approval\’e2\’80\’9d on it so to speak and HUD has never said that underwriters would be held harmless from the \’e2\’80\’9cSecure\’e2\’80\’9d approvals that have gone bad.
Even the FHA Mortgage Letter states that an attempt should be made to get a \’e2\’80\’9cScore Card\’e2\’80\’9d accept before trying to underwrite \’e2\’80\’9cSecure\’e2\’80\’9d. Maybe you\’e2\’80\’99re right, as I type I feel like I\’e2\’80\’99m further proving your point.
However I still think that the attempt to defraud here is really our \’e2\’80\’9cFearless Leaders\’e2\’80\’9d wanting to look as if they are not completely impotent when it comes to being able to stem the tide of the looming foreclosures.
We were trying to refinance the home. Countrywide mortgage took us thru a series of nothingness. Since Oct 2007 to Dec 19 2007 they said they were trying to help us. Well the housing market kept going down…
Dec 12th they put us in for FHA they did a new appraisal and now they said your house has dropped in value too low. Now they can’t refinance.
We paid 400 to get an appraisal in Nov 2007 and it was approval and they did not go thru with it. It seems they wanted us to not be able to refinance. Now we have to try to get a loan modification with our lender…. We thought we were preplanning and handling this situation.
Moe,
Out of curiosity, significant portion of bait & switch, well is “switch”. Just what product FHA is switching them into ? You see, that’s not a bait and switch because these folks are too deep into debt hole. If there is no product to help these people that’s not bait & switch, because there is no switching going on at all. Get your terminology straight.
Alan, it definitely appears they are making false claims. I have more than backed up my claims and you will still find something to pick at me with. Did you folllow all this blue links? Well, those are links to my claims and they speak for themselves.
Most homeowners have no idea what the FHA Secure is, but a fancy new name that is boasted as saving 40,000 homeowners. They are baiting them on false claims and the fact that most homeowners are completely to what the FHASecure is and what it will do for them.
And directly from the FHA website they say they are saving thousands with the FHASECURE and that 40,000 have been helped with the FHA Secure.
They should fix it and make a public apology because it is wrong to make those claims when millions are at risk of losing their home and this is serious issue for consumers.
Alan, GET YOUR TERMINOLOGY STRAIGHT!
No matter what you comment. I have won this debate hands down. Fold your cards, throw in the hand and have a Merry Christmas!
CTAN- They may not be baiting and switching, but they are definitely making false claims. Thanks for your thoughtful comments.
Yvonne – sorry to hear your stressful story. There are millions facing what you are. My heart goes out to you and keep fighting!
Wellitisntallbad – huh? haha
Someone is a moron- you are correct
Baiting means promising something and that stuffing into different loan. For example those teaser rate ads that imply fixed rate loan but in reality option arm bombs. FHASecure is not baiting them if borrower calls and denied it ain’t baiting since he/she is not being sold into another product. Borrower simply doesn’t qualify. Misinformation from HUD, sure. But baiting it ain’t.
Misinformation. that’s about all I can get from you…….I’ll live with that.
international adoption agency ohio…
I find this article interesting. Please take a look at mine….
As a Realtor and Loan Consultant there is an problem that has not been addressed. There are a tremendous number of undocumented homeowners who are walking away from their mortgages. It is easy for them because they can start over with another identity. There is truely and underground economy but its not talked about in terms of foreclosures. I work homeowners to modify their mortgage to allow them to keep their homes. Alot of them do not have social security numbers but were able to get a loan. I don’t believe the foreclosure mess is an accident because Congress changed bankruptcy laws not allowing judges to restructure loans. The major reason prices are dropping in not just because there is a lack of credit but lenders have been taking 3 or more months to make a decision on a short sale. Lenders eventually take less because the initial higher offers don’t stick around. Just like with anything else, the longer its on the market the more the value drops.
[...] helping homeowners face foreclosure. Past performance: FHA Secure: Projected to help 80,000 Actually helped 266. Hope for Homeowners: Projected to help 400,000 actually helped 312. Projections for President [...]
[...] helping homeowners face foreclosure. Past performance: FHA Secure: Projected to help 80,000 Actually helped 266. Hope for Homeowners: Projected to help 400,000 actually helped 312. Projections for President [...]