March 26, 2008
HP-887Washington – Thank you for inviting me to address your Capital Markets Competitiveness Conference. We share a commitment to competitive markets, and Treasury will soon release a Blueprint for Regulatory Reform that proposes a financial regulatory framework which we believe will more effectively promote orderly markets and foster financial sector innovation and competitiveness.
As you know, financial market stress began last August and has led to significant de-leveraging and repricing of risk, and sentiment has swung hard to risk aversion. There have been, as there always are during periods like this, bumps in the road and unpleasant surprises along the way.
I am constantly asked how much longer will this take to play out and if this is the worst period of market stress I have experienced. I respond that every period of prolonged turbulence seems to be the worst until it is resolved. And it always is resolved. Our economy and our capital markets are flexible and resilient and I have great confidence in them. I am certain we will work through this situation and go on to new heights as we always do.
As we work our way through this turbulence, our highest priority is limiting its impact on the real economy. We must maintain stable, orderly and liquid financial markets and our banks must continue to play their vital role of supporting the economy by making credit available to consumers and businesses. And we must of course focus on housing, which precipitated the turmoil in the capital markets, and is today the biggest downside risk to our economy. We must work to limit the impact of the housing downturn on the real economy without impeding the completion of the necessary housing correction. I will address each of these in turn. Regulators and policy makers are vigilant; we are not taking anything for granted.
Orderly Financial Markets
For some months now, reduced access to short term funding and liquidity issues have created turmoil in our capital markets. In the midst of these conditions, Bear Stearns found itself facing bankruptcy. The Federal Reserve acted promptly to resolve the Bear Stearns situation and avoid a disorderly wind-down. It is the job of regulators to come together to address times such as this; and we did so. Our focus was the stability and orderliness of our financial markets.
Discount Window Access
As the Federal Reserve resolved the Bear Stearns situation, it subsequently took a very important and consequential action of instituting a temporary program for providing liquidity to primary dealers. I fully support that action. Taking this step in a period of stress recognizes the changed nature of our financial system and the role played by investment banks in the post Glass-Steagall world.
Such direct lending from the central bank to non-depository institutions has not occurred since the 1930s. Recent market turmoil has required the Federal Reserve to adjust some of the mechanisms by which it provides liquidity to the financial system. Their creativity in the face of new challenges deserves praise, but the circumstances that led the Fed to modify its lending facilities raises significant policy considerations that need to be addressed.
Insured depository institutions remain important participants in financial markets, but this latest episode has highlighted that the world has changed as has the role of other non-bank financial institutions, and the interconnectedness among all financial institutions. These changes require us all to think more broadly about the regulatory and supervisory framework that is consistent with the promotion and maintenance of financial stability. Now that the Fed is granting primary dealers temporary access to liquidity facilities, we must consider the policy implications associated with such access.
Historically, commercial banks have had regular access to the discount window. Access to the Federal Reserve’s liquidity facilities traditionally has been accompanied by strong prudential oversight of depository institutions, which also has included consolidated supervision where appropriate. Certainly any regular access to the discount window should involve the same type of regulation and supervision.
While there has been extraordinary convergence in financial services, one distinction between banks and investment banks remains particularly important – banks have the advantage that they issue deposits that are insured by the Federal government. A properly designed program of deposit insurance greatly reduces the likelihood of liquidity pressures on depository institutions and as a corollary, makes the funding base of these institutions more stable. The trade-off for this subsidized funding is regulation tailored to protect the taxpayers from moral hazard this insurance creates.
For the non-depository institutions that now have temporary access to the discount window, I believe a few constructive steps would enable the Federal Reserve to protect its balance sheet, and ultimately protect U.S. taxpayers.
First, the process for obtaining funds by non-banks must continue to be as transparent as possible. The Fed should describe eligible institutions, articulate the situations in which funds will be made available, and the magnitude and pricing structure for the funds. The TAF process is a good model for a structure that would provide relevant information to the marketplace.
Second, and perhaps most importantly, the Federal Reserve should have the information about these institutions it deems necessary for making informed lending decisions. The Federal Reserve is currently working to ensure the adequacy of such information. We suggest that the Federal Reserve, the SEC, and the CFTC continue their work of building a robust cooperative framework. Already, at the invitation of the SEC, the Federal Reserve is working alongside their teams within these institutions. These regulators should consider whether a more formalized working agreement should be entered into to reflect these events.
With this added information flow, the Federal Reserve will be better positioned to consider market stability issues like liquidity provisioning and the interconnectedness of financial institutions. The Federal Reserve’s participation could also allow for broader consideration of market stability issues by the SEC and the CFTC. This collaborative process will necessarily have a strong focus on liquidity and funding issues.
The combination of these steps should provide the Federal Reserve with a structure and the information that it would need to make liquidity backstop loans during periods of market instability to non-banks. They address the current situation, in which investment banks have temporary access to the discount window. Clearly, many difficult policy questions must also be addressed on a going-forward basis.
Despite the fundamental changes in our financial system, it would be premature to jump to the conclusion that all broker-dealers or other potentially important financial firms in our system today should have permanent access to the Fed’s liquidity facility. Recent market conditions are an exception from the norm. At this time, the Federal Reserve’s recent action should be viewed as a precedent only for unusual periods of turmoil.
As we work through this period, we will learn through this experience. And the Federal Reserve will learn as it works with financial institutions as they come to the window. It is appropriate that we evaluate that experience in the coming months, and use the lessons of that experience to inform a path forward. Very relevant to this issue is the fact that bank regulation, which applies to institutions with an explicit taxpayer-funded backstop, is fundamentally different from non-bank regulation, which applies to institutions that are not supported by federal deposit insurance. The President’s Working Group on Financial Markets will evaluate these issues and their implications for regulation of bank and non-bank financial institutions.
Housing and Mortgage Markets
The housing downturn and the surrounding uncertainty are significantly impacting our financial institutions and capital markets. However, we should not lose sight of the fact that this downturn was precipitated by unsustainable home price appreciation which was particularly pronounced in a relatively few regions. A correction was inevitable and the sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth. Having stability in housing markets will in turn contribute to better conditions in credit markets for mortgage-backed securities.
Data releases every month create headlines about declining housing sales, starts and prices. Yet, declines are exactly what we should expect during a correction. It takes time to work through the excess inventory – and we are. The question many are asking is how deep the correction will be and how long it will last. The Case-Shiller index of home prices in 10 major metropolitan areas showed an 11.4 percent decline in home prices over the 12 months ending in January, and the futures market is predicting that the index will decline another 13 percent in 2008. But we do not have a national housing market; housing markets are regional – and there is considerable variation in adjustment, with prices changing the most in areas that had the greatest overbuilding.
Amid this correction, there are many calls to “do something about housing.” When people say this, they are urging any number of possible things – minimize foreclosures, make affordable mortgages more available, improve the secondary market and liquidity for mortgages, improve the mortgage origination process, prosecute fraud, reduce the inventory of homes for sale, or help communities hardest hit by foreclosures.
The `to do’ list tends to get conflated. We must sort through each of these shared and desired outcomes, carefully choosing policies that minimize the impact of – but do not slow – the housing correction.
Availability of Mortgage Finance
Turbulence in the financial markets has disrupted and reduced the availability and increased the cost of mortgage financing. The secondary mortgage market is still facing liquidity and pricing issues. We are taking steps to increase the availability of affordable mortgage financing. The Federal Reserve’s temporary lending facility for non-banks will help in this area, as will the Federal Housing Finance Board’s decision to authorize the Federal Home Loan Banks to increase purchases of agency mortgage backed securities, which could provide over $100 billion in new MBS market liquidity.
Another helpful step is the agreement reached last week among Fannie Mae, Freddie Mac and OFHEO, their independent regulator, to inject more capital into the mortgage market.
Fannie and Freddie, two of the nation’s housing Government Sponsored Entities or GSEs, have been playing an important, countercyclical role in supporting the secondary market for mortgage finance. The GSEs’ market share has grown substantially from 46 percent of all new mortgages in the second quarter of 2007 to 76 percent in the fourth quarter. It is very important that the GSEs remain positioned to play this critical role. That is why I was pleased that the GSEs committed to raise significant capital. A stronger capital base will better enable them to support more home purchases and refinancings through their securitization activities. Additional capital not only increases the availability of mortgage financing, but also strengthens mortgage market fundamentals.
The Economic Stimulus Act of 2008 also temporarily raised the conforming loan limit, which should reduce costs for homebuyers seeking a jumbo mortgage.
The subprime mortgage market accounted for a large portion of housing purchase growth before the downturn, and the market for subprime mortgage financing is now largely closed. Last August, President Bush launched the FHASecure initiative, an important new solution for subprime homeowners. To date, FHASecure has helped more than 130,000 families refinance their mortgages and stay in their homes. That number is expected to reach 300,000 by year end. More can be done. Secretary Jackson continues to examine administrative tools to make FHA mortgages more widely available. And it is essential that Congress pass FHA modernization that would provide FHA the authority to help as many as 250,000 more homeowners at this critical time.
We will continue to look for solutions that expand mortgage access and availability for all borrowers, including financially-able subprime borrowers.
Foreclosures
Home foreclosures are also a significant issue today. Foreclosures are painful and costly to homeowners and, neighborhoods. They also prolong the housing correction by adding to the inventory of unsold homes. Before quickly reviewing our initiatives to prevent avoidable foreclosures, let me observe that some current headlines make it difficult to put foreclosure rates in perspective. So let me try to do so.
First, 92 percent of all homeowners with mortgages pay that mortgage every month right on time. Roughly 2 percent of mortgages are in foreclosure. Even from 2001 to 2005, a time of solid U.S. economic growth and high home price appreciation, foreclosure starts averaged more than 650,000 per year.
Last year there were about 1.5 million foreclosures started and estimates are that foreclosure starts might be as high as 2 million in 2008. These foreclosures are highly concentrated – subprime mortgages account for 50 percent of foreclosure starts, even though they are only 13 percent of all mortgages outstanding. Adjustable rate subprime mortgages account for only 6 percent of all mortgages but 40 percent of the foreclosures. So we are right to focus many of our policies on subprime borrowers.
There are approximately 7 million outstanding subprime mortgage loans. Available data suggests that 10 percent of subprime borrowers were investors or speculators. This figure is likely higher, as some investors misrepresented themselves to take advantage of a cheaper rate, and others speculated on a primary residence, expecting prices to continue going up.
Other subprime loans were very poorly underwritten and borrowers simply can not afford the home they bought. Almost 18 percent of adjustable rate subprime mortgages underwritten in 2006 were in foreclosure six months before the initial rate was scheduled to reset. Subtracting the speculators and those who took on more than they could handle leaves us with our target population of subprime borrowers for whom we are seeking a solution – those who want to keep their homes, have the financial wherewithal, but are facing challenges making their monthly payments.
We are focused on private sector and government efforts to help these borrowers avoid foreclosure.
The HOPE NOW alliance has announced that, since July, more than 1 million struggling homeowners received a work out, either a loan modification or repayment plan that helped them avoid foreclosure. HOPE NOW’s work-out efforts are accelerating more quickly than the foreclosure rate. In the month of January foreclosure starts were up 5 percent while the number of mortgage workouts grew 19 percent.
HOPE NOW and the American Securitization Forum together have implemented a protocol targeted specifically at subprime borrowers facing mortgage resets. Through the protocol, those who made their initial payments and want to keep their home should be fast-tracked into a sustainable refinancing or loan modification.
We are closely monitoring the implementation and results of HOPE NOW and the ASF efforts. Responsible homeowners who have been making their payments and want to find a way to stay in their home should not go into foreclosure merely because the volume of people seeking help overwhelms the system.
Homeowners with Negative Equity
Much attention has been given to the fact that an estimated 8.8 million households may currently have negative home equity. We can expect that number to rise as the housing correction plays out, and to begin to reverse once the correction has run its course. The best outcome for these homeowners is to work through this correction as quickly as possible.
Homeowners with negative equity are more common in this housing downturn because lending practices changed dramatically in recent years. In 2007, 29 percent of mortgages were originated with no down payment. Some of those mortgages went to speculators; others to responsible borrowers who were able to buy a home because of expanded access to credit.
But let me emphasize that we do not need a system-wide solution for the vast majority of loans where a homeowner temporarily has negative equity. Negative equity does not affect borrowers’ ability to pay their loans. Homeowners who can afford their mortgage payment should honor their obligations — and most do. They know that there are housing cycles, and they bought more than houses. They bought homes to become part of a community, and they bought them as places to live, not as investments. And if they live in them for the long term, they are likely to become good investments.
Let me also emphasize that any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator. Washington can not create any new mortgage program to induce these speculators to continue to own these homes, unless someone else foots the bill.
The people we seek to help are those who want to keep their homes but can’t afford the monthly payment because of an ARM reset. If they also have negative equity in their homes, refinancing becomes almost impossible and so workouts become even more important. Secretary Jackson is examining the potential for FHA to be a solution for these borrowers.
Conclusion
In summary, there is bipartisan interest in bolstering our economy, maintaining stable and orderly capital markets, and helping struggling homeowners. New ideas and solutions can come from either side of the aisle. The Administration and Congress demonstrated how well bipartisanship can work when we quickly passed and enacted an economic stimulus package earlier this year. I am hopeful we can demonstrate this again by quickly concluding the FHA Modernization bill, and I am working hard to make progress on comprehensive GSE reform legislation because stronger oversight is essential for these large, critically important financial institutions.
I know Members of Congress have outlined other ideas, but most are not yet ready for the starting gate. FHA Modernization and GSE reform are well on their way to the finish line – let’s complete this important legislation now, so we can implement them and help homeowners and our economy.
Timeliness is critical for adding confidence in today’s markets. I continue to focus on additional steps that the Administration can take without delay – things that don’t require congressional action and will immediately impact the availability of affordable mortgage finance.
We are obviously well aware that the housing market correction was not only a precipitating cause but continues to be an underlying factor in our capital markets’ stress. Both are disrupting our economy right now. We will continue to pursue policies that strike the right balance: that do not slow the housing correction, yet also help avoid preventable foreclosures and unnecessary capital market turmoil.
{ 34 comments… read them below or add one }
You better get a clue and break out the loan modification papers with big principle write downs soon or else!
I think your article misses a big point: how do you determine who “deserves” a writedown and who doesn’t? This is just a bailout in disguise: once you set some criteria, everyone will strive to meet it so they can get a writedown too.
There’s nothing wrong with the existing foreclosure process; if banks start selectively writing down principle, they’ll come to regret it rather quickly.
As it should be, although I bet a GOP Bush administration is working on sliding some anti-consumer legislation in place ASAP.
We cannot give those wage slaves any freedom or liberty, that would be anti-American.
We need to keep bailing out the banks because Wall Street executives provide a huge economic service by spending those $100 million bonus checks.
I think you hit the nail on the head. The banks need to take the hit because they were the ones that caused the run up in values. had they not lent money to everybody, the amount of borrowers would have stayed at historic past and the value would have increased at the historic past.
On the subject to how to figure the amount of writedown and to who should get it. First look at property values prior to the boom (1999). Then look at the historic rate of growth for each area prior to 1999. Then add that rate of annual growth to the value at 1999. Value in 1999 + 9 years annual growth = new value of home. Then set everyones and I mean everyones princples back to that adjusted value.
And finally for those people that site capitalism as a reason not to right down principles, they must not be aware that we do not have true capitalism in our country anyway.
Max, I really think that this has come down to the point that if they do not do this for everyone in the future, that Bob in his 30 year fixed 5.375% sees Bill get bailed out, will say, hey what about me? and if he doesnt get help, then he bails.
Our country has turned into a what is fair nation as opposed to a what is right nation like our country was founded on.
What started out as the banks ruling the people and the nation, has turned into a classic case of “KARMA”. Before they had so much money that they could fight off the karma Gods with buckets of cash.
The problem now is that that cash is drying up and the people sit in their homes saying, “Yeah, so what, what are you going to do about it, foreclose? Fuggit about it!” hahahaha
First they will ahve to fix these loans and then everyones 401 ks if they want to prevent a run on the banks.
A RUN ON THE BANKS WILL COME IF THE GOVERNMENT DOESN’T STEP UP FOR THE CONSUMER WHO IS STARTING TO WAKE FROM THEIR 40 YEAR GOVERNMENT INDUCED AND BANK SPONSORED TV SLUMBER.
I don’t know why people insist on using blame or terms like “deserve” when arguing their point. It doesn’t matter when you debate the solution. Even if it did matter, whatever blame home buyers deserve, the lenders knew far more and took a larger risk for increased interest income. The loans that have soured were bad because they became unaffordable. What underwriter grants credit that has a covenant that causes it to become unaffordable? One that is told to by a Credit Manager who’s bonus is tied to the interest income earned by the lender. Sure some brokers and borrowers lied, but the majority did not.
Regardless of fault, write downs may become a reality. If you write down a loan, you forgive the balance down to market value, but have no additional costs or legal battles, and you continue to earn interest income. If you foreclose, you loose the balance down to the COMPETITIVE value because you have to actually SELL the house, which is likely less than market in areas with competing default sales. Not to mention real estate agent or auctioneer’s comissions, and upkeep and misc. costs. Not only that, but GAP accounting requires that the lost interest income be written down too! Then add in the unmeasurable cost of the destroyed PR image of your company now that they are taking more homes than they are lending for…..
Regardless of your moral arguement, this is a business decision for the banks, and is becoming the same for homeowners for what is the first time for many. Write downs may be the best option for both parties. Forclosures lead to vacant houses, increased crime and further damage to property values. The low priced short sales and foreclosure sales lead to decreased property taxes and lost local and state revenue. While savvy borrowers would obtain both a write down and a property tax break, it would not be the given that is present with a new low ball sale price.
I think you are missing at least one important point. they CAN’T write down the loans.
If they do they will be insolvent. At least now the fed will turn a blind eye while they overvalue this garbage on their books.
what about a means test? should we be bailing out the home equity usurper with the new mercedes in the driveway? everyone says subprime caused this-BULL. all of the increased equity was due to the SP’s, no complaints during the boom, but now they whine. Sure give tax breaks to the builders who made their millions, what a bunch of crap. As for the the value of homes owned, their homes went up five fold and now they want to be bailed out by me. I lost my home, my fault, too late to join the ride, I lost $100,000 and now i have to taken my hit and moved on. I will be there when houses bottom out and will take the ride next time, although it wont be the ride that was that we had before.
All in all…The BANKS who OWN the money (not the feds nor the people) are who generated the guiedlines for EVERY loan that is out there right now…EVERY loan now in default that bank “A” is blaming “Bob;’s Mortgage Company” and “Bob the Broker” is at fault for where they are right now. And in further reading today Fannie and Freddie are “uping” the guiedlines to “punish” borrowers for even a more extended time after a foreclosure just creates more headaches in the banks future..Hell the 100 thousand homeowners can’t repurchase another for home 5 to 7 years now..WOW wonder what this will do for the economy for the next 10 years…The banks did this and the banks are who should make right what went wrong with THIER OWN PAPER!!!
Toot, toot on Robyns horn……..
Ladies and gentleman, I think we have exited the housing crisis. It is officially the housing circus.
I predict a run on the banks once everyone finds out their 401k’s are going to be worthless and then a mass exodus.
Could Thomas Jefferson be right?
“I believe that banking institutions are more dangerous to our liberties than standing armies. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
I propose a different solution..many of the homeowners who are going into foreclosure are due to their arm resets..I think that the banks should FREEZE the arms at the rate that they were at the beginning of the loan..just as loan programs such as “assumable no qualifying” got phased out so will these… homeowners who will stay in their homes until it is feasible for them to move(job retirement so on..) This would limit the amount foreclosures that would come into the market in the future and save some homewowners today…Some may say this is not fair..but is it fair to the guy doing the right thing to watch his property value go down the toilet?
Only if you have leverage can you apply and receive a modification of your rate or loan amount.
If your home is worth $500,000 and your balance is $250,000. You got no leverage. The bank will say if you don’t make the payment as they are, we will forclose and you lose most of the remaiing $250,000 to the expenses incurred by allowing a foreclosure.
If your home is worth less than the existing loan amount, you have the leverage to have the bank do something to lower the rate and/or the loan amount.
[quote]I predict a run on the banks once everyone finds out their 401k\’e2\’80\’99s are going to be worthless and then a mass exodus.[/quote]
Why will everyone’s 401k be worthless?
I just said this earlier on some website. The people are in agony and misery trying to figure out how to pay these loans I said the banks have said go to hell when you asked for help and now they are trying to terrorize people into staying in the house and the house is eventually going to go into foreclosure anyway. These people know they are not going to go before a firing squad. The people are telling the bankers LOL no you go to hell. I didn’t have anything before so I didn’t go far from where I came from. Let the bankers loose some profit. They have been ripping people off for years. When a banker makes 100 million a year salary that money didn’t come from the money fairy. The biggest ponzi scheme ever is credit cards that is why they don’t want you to pay that balance off every month otherwise they’ll charge a fee if you do. They aren’t making any money off this sucker. So when they start to tank, oh well. I think it’s sorta caveat emptor(?)let the buyer beware. But the new spin is all the banks who bought these worthless loans ignoring thier own advice. I hate that gas and everything else is so expensive but until people learn you can’t depend on people to make sure you have a six figure salary with a high school education that is the price the world will pay.
Actually a Ponzi scheme is when you pay off an investor with another investor’s money and declare that a return on investment. When someone decides to take out credit at 23 to 30% rates then that is their mistake, not an illegal activity on the lender. Why dont borrowers take some responsibility for the fact that they signed on the dotted line and if they didnt understand what they were signing, then maybe they have some responsibility
GUYS STRAP in this is just the beginning, you and I are already the owners of the largest subprime company on the planet. YOu bet the big boys are caving, they now get that 38% of the WORLD’S INVESTMENTS ARE BACKED BY COLLATERAL THAT JOE BLOW PUBLIC IS WALKING AWAY On.
That collateral is going to 50% value, good bye Joe and the biggest rub, there is no pain to walk away…………….
YOU CAN BET THE GOVERNMENT IS GOING TO NATIONALIZE THIS CRAP AND SOON AND WHEN YOU GET YOUR NEXT MORTGAGE, YOU WILL NEVER BE ABLE TO WALK AWAY WITHOUT THE IRS UP YOUR BUTT FOREVER, you wait this is their only fix, all these people are walking and there is nothing anyone can do…………..
actually the people at the bottom pay for the people at the top. you need to quit being so specific. People have not and will never ever be responsible. So asking for it is a wasted wish. I am not one of the people who is in the housing problem. I bought my house 15 years ago with a good ole 20/80 and have no credit cards. (yes there are 3 of us) (170,000 in California 10,000 sqft lot 2500 sqft house no seconds no HELOC 1100 a month 2300 tax bill so I hope you didn’t mean me) But a blind man can see easy money created this problem and trying to inform the world of a ponzi scheme correction (i still think I am right) does not mitigate the fact the people at the bottom (housebuyers) gave money to the people at the top (bankers). Pyramid scheme if it makes you feel better. If anyone is interested and not so specific and can handle some intriguing information check out leap2020.eu/GEAB. It will tell you all about the coming collaspe of the 401k (of which I have one Steven but I didn’t do anything to cause this mess but will be paying up the ying yang)as well as the coming collaspe of the whole US economy by Sept 2008. Please don’t come on and start debating the information like with anything take everything with a grain of salt but at least someone may warn you of impending doom and you knew before rather than later. Oh by the way I knew this housing issue was a rip off back in 2005 because I remember the housing crash of the 80’s and I was right when I said all those people are gonna loose their houses and rejected any suggestion of a subprime/interest only loan although it was marketed like the coming saviour. My payments are the same and I don’t have to worry about my payment changing like the weather.
The bottom line is whether a person got a good loan or a bad loan, most people have a tolerance to how far under water they are ready to go before they bail.
In my neck of the woods there are neighborhoods where people paid $840K (sounds like alot, but we are in CA and this didn’t buy you a mansion by any stretch in 2005) for homes now selling for $440. If you were committed to doing so, and hadn’t taken a paycut in this current economy and were therefore able to continue to make the payment of $4725 (90% LTV interest only, plus tax & ins) for the next 5 years (for a total out of pocket of $283,500) you would be able to sell and walk away with $0 if, and only if, the market appreciated at 20% each and every year starting ….now.
Otherwise, at an appreciation rate of 5% per year it would take over 16 years to be able to sell and break walk away with nothing. This, when you could rent for about $2500-3000/mo in the same area.
The sooner everyone who is thinking of doing so walks away and we work thru the resulting foreclosures, the better we will all be.
The banks do not own your loan, FNMA and FHLMC do not own the majority of the loans sold to them. Most loans are in securites. Who owns the securities? Who wants a fixed rate income for 10+ years, your life insurance company, your pension fund, state teachers funds which by the way have a nice feature if the teachers fund invests badly say in sub-prime guess who is on the hook the taxpayers.
Thanks to all you deadbeats few will ever again be able to buy a house without making a significant down payment. Why don’t you consider the consequences of your actions? oh wait, that’s why we’re here in the first place. because you didn’t consider the prospect of house price declines, rising interest rates or whether you could plain afford a house. None of you are willing to accept the consequences of your actions, always blaming someone else for your circumstance, always a victim of your circumstance…blah blah blah.
What did everyone expect when they turned housing into investment vehicles for the get rich quick society. Housing should never have been turned into the next scam. When I buy my next home it will be for ever and not to make a profit. Houses just like any other comodity should depreciate in alue over the years not appreciate. Yes in some areas they will appreciate for specific reasons, but it’s shouldn’t be the norm. I don’t buy cars expecting to sell them in 3 years for 5k more than I payed. It’s a scam all the way and the world was consumed by it.
When this is all over people will buy houses to live in and not to flip or resell for profit. Atleast for a few years anyway until the memory of this debacle fades.
People are walking, but I know a lot of people are hanging on to their homes and memories. Lenders are offering loan modifications in greater frequency. However they need to get real with their offers and start reducing principles.
This is not banking 1.0 anymore. This is banking 2.0.
The consumer has some power now and you need to acknlowledge this or have your asses handed to you on a foreclosure platter when this is all said and done.
Hope Now needs to be, “PLEASE STAY, CALL US, PLEASE!” Their will be key & pet drop offs at fires tations before this is all said and done.
Homeowners that stick it out and ride the foreclosure wave will be incentivised big time to stay in their home in the near future. So, I still say if you can, ride it out for a little while and you may get help and a killer loan modification. If you don’t, tell em to take this house and shove it.
I’m a real estate agent in the middle of the real estate mess in south florida and I have to say, the majority of the people going into foreclosure refinanced or got home equity lines at the top of the market. They have spent the money and are now walking away from a home they have nothing invested in. The resets are a minority of the problem.
It was the Lenders, Investors and Banks that wrote the guidelines for loan approval. As well as the programs that were offered, Stated / Stated , No Doc, NINA and all the other ones. Now they want to blame the Brokers and Loan Officers, and you all want to blame the borrowers. Unless your in the motgage industry as a borrower you have no clue to what goes on behind the scene in getting your loan approved. All you know is that your dream has findly come true ” Own Your Own Home “Your loan officer tells you about all these great programs out there where as long as you have okay credit and the lender can confirm you have a job you will qualify. The rate not bad and you can afford the payment if you stop going out to dinner and a movie, buying a few new clothes a few times a year. And in two years when my rate adjusts they said I can just come back in and they will do my refinace, after all look what I gain, my own home , something you can be so proud of. Besides truly the Bank / Lender would not loan me all this money if they did not think I could afford it. I gave them my pay stub and bank statements. AND what do you think the Bank and Lenders did ? they all looked the other way. They saw the application that stated the borrower was working as a medical clerk in Riverside, did they really believe she was making 6-7 thousand a month. Come on what did they think was going to happen. I don’t feel one bit sorry for the lenders, they have been making a killing for the last two years on interest rates off the Sub Prime Programs, and I don’t blame the borrowers for walking away if that same Bank or Lender won’t work with them now, they put them in this mess as well as themselves. I had my own Mortgage Company and many times I had Reps. from Lenders come in to introduce their products and they would train the loan officers how to commit fraud. I had to ask many of them to leave and would inform the companies , nothing ever got done about it. The lenders should have taken more control over the Appraisals s well. I saw so many homes being purchased by real estate investors who said he was going to live in home to get the lower rate and maybe put $2000.00 of new carpet into it and turned around and sold the property for $100,000.00 more then he bought it for within 45 days, now you tell me why or how a property that had just been appraised and sold less then 45 days ago could now be worth $100,000.00 more. And how can the same lender who had just funded the loan on the first sale now approve the loan on the second sale. How many of you think the Appraisers have some blame in all this mess as well. Although we did not complain then did we, That just meant our property was now worth more too. It’s only going to get worst people, a lot worst before it gets even a little better. We have not even started to deal with the borrowers that received their ARM loan when all this mess started. We will be very lucky if we have our heads above water in four years and thats just so we can take a breath of air. But by then we will have the same problems with those who did not take out a Mortgage Loan but has lost their jobs due to those who did. I had to close my company because of it, and many others have had to as well. I can no longer afford the Nail Shop, The Coffee Shops and so on, look around we are all going to suffer. Maybe we should ALL stop making our morgage payments in protest that the lenders do something NOW. Yes they are approving a few modification, but not nearly as many as they should. And why does it take them 60-90 days to approve one. It doesnt take a brain surgen to figure out debt to income. There are still many lenders out there that wont even consider it unless your three months down, Okay lets lose more money !!! that makes a lot of sense
I see it much more simplistically
A collusion of semi-liars worked in unison to attach a value to a property. They then convinced a buyer that the property had a long term future and value.
The buyers, who are usually the weakest link in the financial chain, are obliged to keep feeding the semi-liars, so the suckers need some help in “bad times”
Sure they say, but in good times the buyers make a big profit. True, but the Semi-liars usually end up to be Moguls and Billionaires not merely with just “profits”
Mortgages should be pegged to the “Moral Value” of the property, up or down. Then this should be tied in as a ratio of the income supporting it. Fair is fair.
Socialism 101 never works when applied to the Human species, but it shuts the whiners up.
I have read some of the comments of borrowers taking responsibility of their actions. Well, I know many borrowers who did do the right thing and put 10% to 20% down. Their mistake might have been that they got into a fixed period adjustable ARMs for 5 or 7 years. They were all fully documented loans. However, they see their house values tumble. Some who paid 20% down in 2005 (peak) are left with no equity or some are upside down. It’s heart wrenching for them because they lost all their down payment closing cost and still will end up owing the bank. They have been talking with banks to modify their loans and the banks will not budge. In my opinion, these borrowers deserve remodification the most because they did not lie about their income, they put substantial money down and they truly do not want to walk away from their property. However, as one of the commments earlier pointed out, these people have no leverage. The banks do not however see that many of these people that I know are now considering foreclosure as they continue to see their house value plummet to a point where they cannot realistically refinance within the next 10 to 15 years. It would only take 5-7 years after foreclosure to rebuild their credit and possibly buy another house. This makes more sense than paying their mortgage payments for 10 to 15 years and refinancing.
Mike, I agree. There is too much hype over the sub-prime loans. Some borrowers couldn’t afford to refi on a conventional 30-yr fixed even at today’s much lower values. If lenders would do principal reductions for those whom can, however, it would keep a good number of foreclosures from happening.
I realize that in doing principal reductions lenders will start requiring large downpayments in the future, but I remember when we bought our first house two options: 3% FHA or 20% conventional. Can you imagine where we would be if that hadn’t changed?
are banks insured for default up to 50% on loans below 80% if so they have no reason to work with the homeowner they can forclose and sale the house for half the value and recover close to 100% is this true
From Ann – “many of the homeowners who are going into foreclosure are due to their arm resets.” You could not be more wrong on this. Scratch the surface of these ‘borrower as victim’ stories and the truth is there. The vast majority of these homeowners are defaulting for the same reasons as homeowners have always been defaulting – job/income loss, health related medical expenses, and divorce are just three reasons. We don’t even have to talk about fiscal irresponsibility. Go to good buddy Moe’s other website – loansafe.org – and read the stories. Even there you’ll see story after story of people in trouble long before their ARMs ever reset. Some of them have failed on multiple workouts and even loan modifications. They are in over their heads, always have been, and probably will never change their behavior. Do some research and you will find that not even modification is the answer – a majority will end up in default within a few years of the modification and/or workout. I also suspect that if you give them principle reductions they will find a way to borrow against that restored equity. As a matter of fact, one of these foolish people has plans to get a loan as soon as her modification comes through so she can do isome “home mprovement.” You can’t fix/help these people. All you can hope for is that if they fall hard enough and far enough, the message will finally get through. You can stop their enablers though – the banks, brokers, realtors, etc. The true tradegy of this entire mess is this: Homeownership in this country is approximately 67-69%, of those 27% own their homes outright, and only 2% are actually in foreclosure with another 5% having delinquent mortgages – so a very small number of people (with the help of banks, etc.) have managed to trash our economy. I resent the crap out of that and blame you all – from the bottom to the top and I am willing to “cut off my nose to spite my face” to see that you all pay.
Brother,
We’re all paying, one way or another. Have you gotten gas or bought a gallon of milk lately? It’s getting harder and harder to find that 12 pack of sodas for $2.99 also.
I have an upside down house in SoCal, its a real doozy. Currently listed for sale, short-sale for almost $200k less than the amount owed – and no I never took out any home equity loans either. The bank seems anxious to sell it, in fact my short sale rep at the loan servicer says every application she submits is approved. Problem is, prices are still probably higher than they should be – there are too many homes on the market – and no one is all that interested in buying them afraid of losing their own precious equity in the short-term. Foreclosure costs the banks/investors more money in the long run in the form of legal fees and a lower sale price in a vanilla world, but the complexities of the securities issues with their servicing agreements, bond insurance companies, hedgefunds etc. add webs of complications to be untangled. The bank loses in both ventures, they just stand to lose less if they come to some sort of agreement; sooner rather than later would probably be the best bet of shoring up the economy at an accelerated pace.
Nonetheless, the damage has already been done and the banks need to get proactive with their borrowers in need and quit waiting for more government handouts. This reminds me of a line from an 8-ball pinball machine from the 80’s: “Quit talking, and start chalking!”
Ding, ding, Proud Homeowner, correct answer. Tom, you are a tiny minority, fiscally responsible with head screwed on correctly on the shoulders.
Do go over loansafe forums and story after story is from people who shouldn’t have been buying anything, they are fiscally illiterate and irresponsible. Bailing out people like that is exercise in futility, that’s like putting tweaker in the rehab for two weeks with the hope of straightening out for life, but we all know 95% of the time that crack head is going into relapse within next 12 months.
That’s exactly how I feel about these debt addicts: crack heads by their own choice. True there were street corner pimps and narco barons but those crack heads should look first and foremost in the mirror to see who is to blame for their own sad state of affairs.
Loans were to easy to get, too many people got loans they wouldn’t have if loans were not so easy to get, home prices became inflated because of increased competition in the housing market due to the availability of funds. When the price of homes in an area exceeds the median income of an area it is just not logical that the trend can continue. Who is responsible? Banks that made the funds so easily available, yes, and people who saw everyone around them buying houses or bigger houses or second houses (and in alot of cases stuff other than houses) and wanting to do it too. It’s like someone said earlier – the parents left the liquor cabinet unlocked and the teenagers (knowing better but seeing all their friends do it) drank up. We’ll all feel better after the hangover is gone. And in time it will be. Nothing lasts forever…
Tom,
I am with you…
We are in So Cal as well; we didn’t buy to impress, we bought for better schools & more room for the growing kids and in-need mother moving in; we didn’t do sub-prime, we did a conventional loan; we went stated because that’s what you have to do when you own a business and don’t get a W2, and we didn’t exaggerate our income (that’s fraud as far as I know); we put money down; we had the six months of savings and small college fund set aside. We made prudent decisions – at the time the decisions were made.
The housing market devastated our business. My husband eventually took a job (and is darn lucky he was able to, many of our friends are unsuccessfully looking), I still run the business but make 1/2 what I used to, we’ve gone through all our savings and even the college money (kid is a senior this year so that really hurt), and we borrow money every month to stay current. The thinking was “it will get better”… you just don’t throw in the towel at the first sign of trouble, right?
Our house, like yours, is worth $200K less than what we paid. We could do a short sale and go rent for much less but I really would rather stay – we just don’t make the money we did two years ago. The ironic thing is that our current budget would allow us to buy the house next door for $200K less than our current loan balance, but of course carrying this loan we’d never qualify. So, unless some miracle happens yesterday we will be losing our home and the bank that lent us money will lose far more when that happens than they would by reducing principal and letting us stay. And our neighborhood will be more negatively affected by having yet another foreclosure on the block. This is not fun stuff and we are not taking it lightly.
For those of you out there saying we all got what we deserved – I am happy you aren’t where we are and sad that some of you have such hatefulness running through your veins.
It surprises me that nobody has commented on the social toll this takes on the community either. Do you think a neighborhood full of families waiting to move grows close? Do you think people strive to display pride of ownership when they are on their way out? Do parents become involved in their kids’ classrooms when they probably won’t be there in a few months? There is so much more being lost than money. It just breaks my heart.
What about homeowners who have dilligently prepaid their mortgages in hopes of actually paying off their house and owning it free and clear. I’ve been prepaying my mortgage for years to save on total interest at the end of the day. I have significant equity in my home and to see people walk away makes me sick. It makes me feel like a fool! If any plan is put in place to write down principal it should apply to everyone, not just those who gambled big and got in over their heads! I want my principal written down too!
I bought my house in 2005 for $329,000 I put 20% down and have 816 credit score. My house is now worth $182,000. I have very sick Dad, that I need to sell, so I can go and take care of him. I can not sell, I can not refinance, and I can not rent for the amount of my mortgage. I would be moving to a small town, so I would not be able to pay the left over portion of the mortgage. If I sold the house I would be left owing the bank an additional $85,000 not including Realtor fees and the amount that I put into the house after purchasing and my down payment of $67,000. Even if I could refinance why would I, it would not help my situation. I still could not resell my house and leave, maybe in 10 to 15 years which does not help me now. So I refinance and pay $5,000 to $10,000 to refinance at the 50% higher price than the one next door.
I am so distraught and feel so trap that I have tried suicide 3 time. unfortunately not successful, the 3 time I was extremely close but not close enough.
I have worked so hard for everything I have, which is now worth nothing. So not all people that are going to lose their home were irresponsible.
The banks are big contributers to the falling prices, every time a new foreclosure come on the market, they mark it lower than the last. So if they are going to create the new price, they should write down the loan, as they reset the price. I can not wait 10 to 15 years for my house to hopeful be worth what I once payed.
The banks state they do not want to write down loans, as if the price keeps falling they will be asked to write them down again. Well if they wrote them down they would not have the foreclosures. And as they are the ones killing the prices that would stop, which would then stabilize the market.