By Alison Vekshin
Jan. 23 (Bloomberg) — Senate Banking Committee Chairman Christopher Dodd proposed creating a federal program to buy “very distressed” mortgages at steep discounts as part of economic stimulus legislation being developed in Congress.
The Federal Homeownership Preservation Corp. would buy loans and finance them as 30-year fixed-rate mortgages to help keep borrowers from losing their homes, Dodd said today at a Washington news conference to outline the committee’s agenda.
Read the rest of the Bloomberg.com story here
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How can we find out if we qualify??
Helena,
There’s no program yet, it’s still just a proposal. It’ll be awhile before details come out if it does.
I think I like Poppy’s take on this better with her “These Loans Were Destined to Fail” posting. She’s calling for lenders and homeowners to work together in mutual interest, which makes sense (foreclosure means loss for the borrower and the lender). This post is more evil lenders talk. “It\’e2\’80\’99s amazing to me that this organization is even allowed to participate in these hearings…” Not very productive towards meeting mutual interests if you don’t invite one party to the table.
The banks suggestion that short sales are a good way of helping borrowers avoid foreclosure makes sense. For some borrowers a loan modification will leave them with another mortgage they can’t afford, so a short sale is a good option. I’m not saying the lenders are doing a wonderful job getting their act together to work with distressed borrowers, but I believe they recognize it is in their interest to do so. Yes the MBA admits they are looking out for their members’ interests. That’s what the organization was created for. But since their interests coincide with the borrowers….. I’m not saying trust them or take everything they say at face value, but I’m saying listen to them and evaluate what they say on its merits.
Now that I’ve defended the MBA, it’s time to trash them. Their mission statement:
“The Mortgage Bankers Association seeks to create an environment that enables its members to invest in communities and achieve their business objectives. The association creates this environment by developing innovative business tools, educating and training industry professionals, providing a gathering place for the sharing of ideas, acting as the industry’s voice on legislative and regulatory issues, and developing open and fair standards and practices for the industry.”
They let down their members. Failures include:
1) Achieve business objectives: like massive foreclosures that are crippling the industry
2) Invest in communities: communities are getting wiped out
3) Training industry professionals: it would take a whole post to cover everything that went wrong here
4) Industry voice on regulatory issues: like suggesting that underwriting standards should exist
5) And developing open and fair standards and practices for the industry: won’t bother elaborating here either. I’ll get too worked up.
Given the high ideals they outlined in their mission, it is clear they failed miserably.
One of the biggest failures, I think, was the rush to get on board with low-doc and no-doc loans, as well as get people into homes they ultimately couldn’t afford with ARMs by dangling ridiculous teaser rates. While this might promote big business profits in the long run, the loans were too risky (obviously). Responsible lending, and an organization that works to protect its members and encourage good business practices, would be a good thing. As Al points, the MBA failed miserably. Mortgage lenders should have verified income, and also made sure that borrowers could pay back the higher reset rates. Period.
I don’t comment to these posts on all the forms I read (seemingly all day long lately), but I felt I needed to put in my brief 2 cents on this one. While I respect your view that the Mortgage Bankers Association is the Big Bad Wolf in this whole mess, I must disagree a bit.
First, while I am not a member of the MBA, I want to disclose that I have been a speaker for the organization on the topic of Quality Control / Quality Assurance. I do know many of their members, as well as many of their leaders\’e2\’80\rdblquote mostly CA. That said, I know personally that the members are not interested in “Screwing” consumers or kicking Grandma to the curb as roundly suggested. While there are greedy, self-interested, and even criminal players in the mortgage industry, I’d hesitate to paint the MBA as even closely dominated by persons with such motives. Plainly wrong.
Your basis for argument that they shouldn’t be involved in the “solutions” or “what to do now” phase of the hearings in Washington rests on an assertion that the CRL is non-partisan and consumer-only based. Sounds nice. But I’ve been around just long enough to know that nobody’s completely “non-partisan” or disinterested in Washington. Everyone has an agenda, and while you may like one organization’s agenda more than another’s, to suggest that good can only come from the CRL is a bit optimistic at best.
When it comes down to it, the MBA needs a place at the table. It’s their industry–and their members tend to be the most capable of keeping the dream of home-ownership a reality\’e2\’80\rdblquote assuming that\’e2\’80\’99s the goal we\’e2\’80\’99re all in favor of. If I had to place a bet as to who has consumer’s best interest in mind I’d put my money behind the MBA before I would put it behind say the Mortgage Brokers (NAMB) or even the CRL for that matter. Not to say that either of those two organizations are \’e2\’80\’9cbad\’e2\’80\’9d, just my opinion. Let’s not forget that it’s their money (MBA member companies) we want access to we can keep mortgage loans available. If you swoop in with some third party new organization on the coat-tails of public opinion, chances are that while some good will come out of new policy, a lot of negatives may also result from overreaching or knee-jerk reactionary policy that will ultimately hurt the very consumers you are trying to help.
On the charge or goals of the MBA’s agenda…Not certain that consumers, or guaranteeing that they won’t be foreclosed on, should really be the only criteria used to judge their merits. After all, it paints “consumers” as helpless and violated when they may be far from…Some are. Others are definitely the type that gamble their retirement checks at Indian Casinos, or lease those expensive lifestyles they felt were a \’e2\’80\’9cright\’e2\’80\’9d. Should Grandma be able to keep that house she refinanced at 125% to pay for her cruises to Hawaii or her “pretty” things, and now can’t cover her payments with her monthly social security check? I’m not sure I can say for certain. It is convenient to paint her in “helpless victim” status when you want to use her to promote your agenda though…
Look, there’s enough blame to go around everywhere–I’m not delusional–I just think that unless you want to see secondary market financing evaporate like it did in August 2007 (which effectively halted all mortgage financing even for Prime borrowers), the MBA should at least be able to offer their solutions along with everyone else that has a horse in the race. I still think that giving consumers a choice when it comes to their futures is a lot better than forcing them into state mandated programs that are run by politicians\’e2\’80\rdblquote or the likes of Ralph Nader types\’e2\’80\’a6Just my two cents.
Everyone wants to really complicate this whole mess on why we are in the crisis we are in currently in the mortgage industry. The blames is shared by all in reality. Everything smelled like roses as long as we were all making insane amounts of money.
What happened is simple. Wall Street and the Execs at all the lenders got greedy and started looking for ways to originate more subprime loans. So they came up with 100% financing on “No Income” Loans. They came up with Neg Am loans where a borrower can pay less than the interest on a loan that is until it resets.
That is it in a nutshell. I don’t know the figures but I would venture to say that more than 75% of the loans that are defaulting now fall into one of the categories I mentioned above. Those were just bad loans that were being issued because at the time Wall Street was buying everything and anything so that they could make loads of money.
Hopefully lesson learned. Now we need the correction to happen unfortunately. Anything we do now is only postponing the inevitable. The correction needs to happen and the sooner we let the sooner all of us can get back to making money hopefully in a more sensible way.
We all seem to agree that not documenting borrowers’ income helped create the problem. Interesting, then, that neither congress nor the Fed has yet mandated that borrowers’ reasonable ability to pay be documented. Barney Frank’s HR3915 seems to have done that, but it’s only passed the House. The Fed’s 12/18/07 proposed rules …
http://www.federalreserve.gov/newsevents/press/bcreg/20071218a.htm
only require documentation of ability to pay on so-called “higher-priced” loans (which are practically non-existent), thereby leaving open the ability to do stated-income Option ARMs.
First rule of holes: when in one, stop digging. People should be required to be able to pay their loans, since we’re now discovering that when they can’t, we all get hurt.
When people say, “we need to let the correction of the market happen” I personally, on a realistic level would like to know what allowing that correction to happen will entail.
Will it be people being forced out of their homes, children displaced, bankruptcy filings and the creation of a new class of working poor?
If that is the correction people are saying needs to happen, no, I don’t think that needs to happen.
I think that the market can be allowed to correct itself while also buffetting the American families from being devestated by the loss of their homes.
Security, after all, is a basic need for every human being.
Owen: “People should be required to be able to pay their loans,”
How can you require a person to be able?
Either they’re able to or they’re not.
“Interesting, then, that neither congress nor the Fed has yet mandated that borrowers\’e2\’80\’99 reasonable ability to pay be documented.”
I agree that this should be mandated, but you have an interesting way with words. Who are you putting the onus on, the borrower to document their ability to pay or the LOs?
In many cases the income was presented and it was the mortgage professional who went stated anyway — that seems to have been where the money was.
This mortgage situation is deeper seeded than everyone realizes. First you had Enron, well that was a drop in the hat compared to the havoc of dishonest individuals on every level of the mortgage industry. Even the Ma and Pa mortgage brokers got into it. WAMU and First American are named in a lawsuit file by the NY Attorney General due to appraisal fraud. It basically says our society does not have ethics it used to. That is what we should be concerned about.
Everyone wanted to beat the system, from the homeowners to the traders on Wall Street who put the bundled packages together for sale. I saw fraud on many levels, payoffs to employees, it was sickening.
I have worked in this industry almost 40 years, and cannot believe what has happened. However, since I was always above board, my conscience is clear. Course jobwise it is not that great, but other than that, I am glad this came out, it could not continue as it was. I am just surprised it took so long.
The MBA probably didn’t help, but for the record in the 1980s they were very involved with education, and if you go to their site today, there are many courses to take. I took their “underwriting” correspondence course, and it was very informative.
RC’s post is the most level headed and sensible post Ihave seen in sometime. Please take the time to read it.
I wonder sometimes if Moe is truly that disconnected or just enjoys seeing the resulting posts that occur with these type statements.
As a homeowner and not someone in the industry I don’t know the ins and outs of the acronyms. But what I can tell you is this. Buying a home is an investment, at least that’s what most folks tend to think; and if the Mortgage Bankers Association gets a seat at the table, be it good or bad, I hope they realize that in order for “Granny to borrow that 125% and lease her lavish lifestyle” the premise that the ‘helpless victim’ is under is that there debt is reasonably secured by the value of the asset.
In the here in now, unless you’ve been living under a rock, this is no longer the case. Just because a home generally carries a 30-year mortgage doesn’t mean everyone’s on a 30-year plan. As a guy who entered the market on the five-year plan, now looking at a perfect credit score going straight into the crapper (by the way as a military guy who has spent 4 of the last 7 years deployed overseas – that ain’t real easy to pull off) – I wish I’d have played the ‘greedy granny’ role when I refinanced (just for a better rate/no cash. At least I’d have something to show for this debt pool – even if it were a disposable cruise to Hawaii – or some ‘pretty things’.
Unfortunately, I lack the background to address the issue but Moe generally tends to be a straight shooter.
The ‘industry’ IMHO needs to take responsibility for all of this ficticious equity they artificially created.
Those are my two cents.
Here’s a novel idea from an outsider. In a foreclosure proceeding, assuming the market is always going to creep up slowly – should the market value of the home (when foreclosed) be less than the loan value at 100% LTV of the appraised value when funded – any deficiency judgement cannot be for more than the current fair market vale. Since the market should always rise, even if only gradually and with inflation, lending institutions shouldn’t be real opposed to such a thing. It might even promote an idea formerly known as business ethics – in fact I think this should be retro-actively instated as to a year or so ago. Maybe there’s a seat at this table for me, but that would probably be a conflict of interest as well.
Additionally, even folks not having problems and paying their loans on time without the need for a modifications – are now going to be SLAVES to their homes and loans. They can’t get out or move if they want to in some cases. Now markets always go through cyclical changes due to natural disasters or other business related ventures such as large geographical employment centers, etc. Nonetheless, this market failure was engineered by the folks manipulating the market – quite a different ballgame.
I hope some good comes of this and folks can get their head out of the clouds and look at the real issues – and not just see the extreme cases of idiocy in this mess we’ve seen in some of the news stories. There are real people with real problems in this mess, and many of them haven’t even figured it out yet. Give them time and another 20% depreciation, in California my guess is that’s about a year from now.
I got my tax assessment papers today — my property has depreciated 50K below what it was appraised for to get me refi.
That’s going to be everyone’s issue, whether you need a mod or not, if you’re life changes and you need/want/would even like to move that’s not an option because you’ve become an indentured servant to your loan service (I don’t want to say lender b/c I don’t think any of us actually have one of those). You could have a perfectly affordable loan, even a cheap one if your income grows, but you wont see this artificially injected equity reappear for a long time.
At the rate the market is going down the tubes, unless someone comes up with solutions – dumping now (while prices have only begun to drop) will result in less of a deficiency judgement should that apply. I don’t think we’re near the bottom. You don’t have to have a PhD in mathematics to figure that out. Not that I’m suggesting anyone should do that without looking deeply into it.
One of the main components that are still prevalent to this debacle exists. Greed. Everyone look back in their history books. This is a cycle that has repeated itself before. As a solution evolves from loan modifications, foreclosure, people just walking away from there homes, i.e., things will naturally tighten up. Unfortunately the pinch will hurt many.
The powers that be will systemically make money even during this recession or depression or whatever you want to call it at the cost of the consumer. Now its real estate, tomorrow it will be something else. The consumer is the Ginny Pig each and every time. Education and accountability solves that.
If little ole granny \’e2\’80\’9cknew\’e2\’80\’9d what was happening, she shouldn’t keep her home if she did all of that and can’t make her payments, but even if the loan was free of charge, little ole granny should not have been given that loan either………….even if she knew.
By the way grannies are coming in ages from 29 and up now. Grannies aren\’e2\’80\’99t that old anymore. Lack of education is the result of foolishness like this
There is a segway between what the borrower wants and what the borrower needs. Then, there is a segway between what the L.O. should be doing and what he/she shouldn’t be. It\’e2\’80\’99s that segway where right and wrong gets lost every time.
JacMac
Don’t feel too bad, in Atlanta, property values are dropping in the hundreds of thousands. This “catastrophe” happening here is by design. None of this is a fluke. Follow the C-A-S-H and you’ll see who’s controlling the market and its outcome. It’s a pimpish move to say the least but in the end watch from the bushes emerges the cash heavy investor gobbling up everyone’s property for dirt cheap selling it back to us like we are at a pawn shop. Remember my “blue dust” theory?