A Band-Aid, And Not A Very Big One At That
Readers suggested yesterdays proposal as a topic. “I think a good topic is the bailout now being pushed by president Bush.”
One replied, “I really don’t know of anyone who supports any bailout encouraging greed and fraud. This extends from my ‘Rush Limbaugh’ Father-in-law to my ex Hippie friend. However, upon closer scrutiny I do think that the bailout is meant to help the Lending Institutions who don’t want a bunch of FB’s returning their keys.”
One is skeptical. “Ain’t gonna be no bailout. Don’t worry folks. Any of these politicos can say whatever they want, but it won’t change reality, which is there’s no money to bail anybody out. It’s already been spent, packaged, exported, whatever.”
Another points out the speculators. “They discuss the events as though it has only been people with primary residents that drove themselves into using sub-prime loans to purchase a home. They fail to mention the multitudes of people who have been following the ‘get rich quick with realestate approach.’ These fools including the fools who lent the money to them should be prosecuted.”
“The amount of money required to bailout the $600B in resets that will be coming out will be staggering. Tell you representatives no bailout and no rate cut.”
One saw this. “I heard on CNN that he wants to eliminate the tax on a short sale. That’s going to help out the idiot flippers.”
A reply, “True. But it will also help accelerate the decline of prices. Since they are now less underwater, they will be more incentivized to dump the aligators. More sales means faster prices motion.”
One sees a downside. “I want every FB who mails the keys, short sells or bails on a recourse HELOC to get 1099′d. After all, they didn’t have any skin in the game in the first place, and their FICOs were already lousy, so what’s the penalty? At least if they get a 1099, this little lesson will follow them for years in the form of a non-excusable tax burden.”
Another pointed out, “The vast majority FBs will never have to pay any extra taxes even without changing the rules (therefore, this rule change will be worthless). ‘There’s a very important exception to the debt-relief-equals-taxable-income rule. Although lenders must send 1099-C forms reporting taxable income whenever cancelled debt is $600 or more, the tax bill itself is forgiven if the homeowner is bankrupt or insolvent.’ Link here.”
“How many FBs aren’t insolvent? What real assets do they have?”
The Palm Beach Post in Florida. “‘Locally, I don’t expect the proposal from the White House to have much impact on area homeowners,’ said Jim Sahnger of Palm Beach Financial Network in Sewall’s Point. ‘As many subprime borrowers who originated loans in the past few years did so at elevated home prices, many will be unable to qualify, as they won’t have enough equity for the (president’s) program.’”
“In Palm Beach County, one in every 542 households was in foreclosure in July, according to the county clerk’s office. Foreclosure actions quadrupled compared with July 2006.”
“Most of the local real estate experts hit at speculators - so prevalent in Palm Beach County and the Treasure Coast in the boom years - and applauded Bush for saying the federal government wasn’t responsible for rescuing them.”
The Bradenton Herald in Florida. “Shortly after Bush’s announcement, Turner Matthews, an attorney who has specialized in bankruptcy and real estate law for almost 30 years in Manatee County, said he was skeptical whether the plan was truly meant to help the homeowners.”
“‘You can be sure, at the bottom of this, it isn’t helping the borrowers,’ Matthews said. ‘My question is: Why should the government have to be the one to bail the lenders out?’”
“‘If you have ever had to try and reach a mortgage lender or a mortgage company, it is impossible,’ Matthews said. ‘In fact, the attorneys who are representing these companies in foreclosures, they can’t even get them to respond to them and they are their attorneys.’”
“The number of Manatee foreclosure filings this year continues to significantly outpace 2006, with approximately 1,342 filings already. The county’s previous highest annual foreclosure filing record was 901 in 2002.”
“‘Most of these people that are in these situations, they just got duped. And they are not equipped to deal with these lenders,’ Matthews said. ‘Every time you get on the phone with them, you talk to somebody different.’”
“‘That is what the industry is like,’ he added. ‘So I don’t see how Bush’s plan is going to help anybody. It sounds great on paper, but that is because nobody really understands the problems these people are going through.’”
The Monitor in Texas. “More than 27 percent of all McAllen-area loans are subprime, the highest rate in the country, according to LoanPerformance. In Brownsville and Harlingen, the rate is close to 22 percent, the sixth highest in the nation.”
“Most locally based lenders already specialize in government-insured loans, said Valerie Cardenas, head of the lending department for IBC Bank in McAllen. Those kinds of loans require more stringent income verification and often are smaller than subprimes, but still appeal to low-income borrowers with low credit ratings.”
“Many also note that FHA loans have always been available to low-income borrowers and say that expanding the program won’t provide any new options for borrowers.”
“‘Those loans were available all along,’ said Sam Saxena, owner of Rapid Mortgage in Edinburg, who brokered some subprime loans for area lenders, as well as government-insured loans. ‘FHA is essentially a product that has been around for decades.’”
The LA Times in California. “To qualify, applicants must prove that they have been making their payments and landed in trouble only when the so-called teaser rates that enticed them into their mortgages expired and the loan reset at a higher rate. The payment increase must occur between June 2005 and December 2009. The borrower must have at least 3% equity in the house and a history of sustained employment.”
“The program also wouldn’t apply to mortgages larger than $362,000, ruling out many homeowners in California and other high-cost states. ‘It’s not enough,’ Peter Morici, a University of Maryland economist, said. ‘We have a lot of people whose mortgages are greater than the value of their houses, and this program won’t do anything for them.’”
“‘It’s a Band-Aid, and not a very big one at that,’ Morici said.”
The Mercury News in California. “Bob Cooley, mortgage broker in Walnut Creek, said that Bush’s plan is too small and too slow to make much of an impact on those facing foreclosure. ‘But let’s see the details. And how fast can this be turned around?’ he said.”
“Cooley said he and his partner have done fewer than 10 FHA loans in the past year because few homes are priced that low in the East Bay. Prices are dropping, however, especially in high foreclosure areas.”
The San Francisco Chronicle in California. “In the Bay Area, where the median home price in June was $665,000, highest in the continental United States, fully 61.9 percent of mortgages taken out in the first half of 2007 were above the $417,000 level, making them ineligible for FHA guarantees even if the limit is raised, according to DataQuick.”
“‘Based on the median home prices in the Bay Area, this FHASecure refinance program would not appear to be appropriate for most people,’ said Rick Harper, director of housing services for Consumer Credit Counseling Service of San Francisco.”
“Between April and June, 2,206 homes in the nine-county region were lost to foreclosure, a ninefold increase from the comparable period in 2006. Another 7,696 Bay Area residents got notices that they were in default on mortgage payments.”
The Press Enterprise in California. “Chapman University Economist Esmael Adibi said that he objects to a proposal to bail out lenders that made a lot of money making risky loans. ‘I have no doubt some homebuyers bought homes without knowing what kind of mortgage they were getting into but at the same time I have no doubt that the lenders were fully aware,’ he said.”
“Gene Wunderlich, president-elect of the Southwest Riverside County Association of Realtors and an agent in Murrieta, said he agrees with Bush’s idea that the government should not save individuals who knowingly bought houses they could not afford.”
“‘What I am not in favor of is a general bailout because people were greedy or stupid,’ Wunderlich said.”
From KVBC.com in Nevada. “There could be some help on the way for thousands of Las Vegans facing foreclosure on their homes. That’s if President Bush gets his plans approved.”
“Christine Young of Henderson, refinanced her four bedroom, nearly 2,000 square foot home more than a year ago. And at the time was convinced she was getting into a fixed mortgage. ‘It wasn’t fixed. A year later, our arm came up and now we can’t make our arm payment and it’s $700 more than what we were paying and it’s due September 1st.’”
“Christine blames predatory lenders for signing her up on a mortgage she tried so hard to avoid in the first place. ‘I thought this guy was the nicest and most honest guy.’”
“There are thousands of people across the country already in default, facing foreclosure. Nevada is the number one state for foreclosures, up 93 percent from this time last year.”
“To avoid foreclosing, Pam put her house on the market several months ago. She’s hoping to sell before they lose the house or lose out even more. ‘We started at $389,000 and now at $299,000. So we lost $90,000 on what we were counting on,’ Pam said.”
‘More than 27 percent of all McAllen-area loans are subprime, the highest rate in the country, according to LoanPerformance. In Brownsville and Harlingen, the rate is close to 22 percent, the sixth highest in the nation.’
I’ve read these type of numbers before, and it is still hard to believe. These are some of the lowest paying counties in north America.
“These are some of the lowest paying counties in north America.”
This IMO is what makes the whole subprime scam so morally repugnant — it involved super-rich hedge fund and IB investers tempting the lowest class, marginally qualified, financially unsophisticated households to put themselves on the path of future financial disaster. The IBs and hedgies should pay the price for the predatory lending. LEAVE ME AND OTHER NONPARTICIPANTS IN THIS SCAM OUT OF THE BAILOUT!
Take a look at the campign contribution lists of congress and you’ll see why the ibanks and hedgies are being bailout out. Then you have former Goldman Sachs boss Hank Paulson running the Treasury Dept. We are owned by the ibanks and hedge funds.
Who was Bu$h’s former college roommate at Yale? That’s right, Mr. Schwarzman of Blackstone. The odds of the hedgies having to give back their ill-gotten fruit is highly unlikely.
The system is broken.
Very broken…
Hedge funds, Wall St boys, etc that set this scam up deserve to “rot in hell” but of course they won’t. Friends in DC is what matters. Sad but many are debt slaves for life while their masters, “we will do all we can to help” while they enjoy their riches. Better not display their wealth too much, riots could result as that is the only thing left once joe six-pack sees how this unfolds.
Fair enough. Many have commented here that Dodd is a tool of the hedge funds and Wall Street interests that fund his campaign. SHOUT IT FROM THE MOUNTAIN TOPS — SENATOR DODD IS A TOOL.
Here’s a list of Senator Dudd’s top contributors from opensecrets.org:
1 Citigroup Inc $198,550
2 Bear Stearns $186,350
3 United Technologies $169,850
4 American International Group $121,378
5 St Paul Travelers Companies $112,100
6 Credit Suisse Group $103,250
7 National Westminster Bank $96,400
8 Hartford Financial Services $92,750
9 Morgan Stanley $91,200
10 Goldman Sachs $72,200
11 Merrill Lynch $68,650
12 Lehman Brothers $68,000
13 JP Morgan Chase & Co $63,800
14 Deloitte Touche Tohmatsu $56,750
14 KPMG LLP $56,750
16 Royal Bank of Scotland $55,000
17 General Electric $48,630
18 Prudential Financial $41,850
19 Pfizer Inc $37,275
20 E*TRADE Financial Group $37,250
Time to get out that DVD of the Truman Show
In order to bail something out, you must have resources to put up. The US gov’t only has the constitutional authority to borrow. Granted, consitutional authority hasn’t seemed to mean much for quite a while, but it seems like folks are beginning to put more thought into those principles, and beginning to demand those principles be followed.
That said, the only power the gov’t has to bail anything out is through taxes, or through inflation. Taxes appear to be a non-started if a politician wants to stay in office. Inflation, based on the way our monetary system is designed, only happens through additional borrowing. However, someone has to want to purchase those IOUs. Less people seem to be willing to float the debt, so inflation doesn’t appear to be much of an option. That pretty much nixes those two options, so I would expect an option beyond the constitutional authority. It would appear that everyone (worldwide) is trying to figure out what option the gov’t is going to exercise.
It will be interesting. The age old option of producing something that people want (something of exchangeable value) has somewhat disappeared for a while, but I think it will make a comeback.
“The US gov’t only has the constitutional authority to borrow.”
Who has the authority to print liquidity, though?
I think we can all agree that the constitution is no longer a guiding light to this crowd in Washington, nor apparently to the citizenship at large. Although I don’t believe they’ll (administration) elude the law of economics.
Just realized that many of the naive buyers thought a 4% mortgage rate increase meant a 4% increase in their payment…Man, ya gotta love our education system. Where do we require basic lifeskills prior to handing out a GED…or high school certificate?
I been saying this for a while. This is exactly how it was explained to people.
Buyer beware. Always.
To understand the magnitude of this debacle you need to look at it through the prism of Enron. There are many behavioral parallels but on a much larger scale.
Like Enron, IBs created a new under-regulated market to trade mortgage securities. Credit rating agencies functioned like Arthur Anderson. Mortgage brokers behaved and were rewarded like Enron energy traders.
What is more, Enron was a billion dollar problem. Hundreds of Enron like entities were created to fuel the subprime lending boom. The Housing Bubble is at minimum a trillion dollar problem. It is too big to bail.
Hey, I worked at Enron and was thinking the same thing. And like Enron, once started the collapse comes fast. No slow leaking of air from the bubble - it it popping.
Too big to fail, yet too big to bail. Quite a conundrum there!
IMHO, the real target of the proposal is to soothe the fears of mortgage investors. Mr. Bush wants the foreigners, hedge & pension funds, etc., to feel more confident so they can come back into the market and start buying up those loans again. The message is: “hey, please come back into the MBS market; if things go sour the US government will bail out your positions.”
Of course, in doing so he’s going to cost the American taxpayer a lot of money.
The water is already disappearing into the sand and I haven’t read about any taxpayer hits. From the LA Times piece:
‘Although this episode appears to have been triggered by heightened concerns about sub-prime mortgages,’ Bernanke told his Jackson Hole listeners, ‘global financial losses have far exceeded even the most pessimistic projections of credit losses from those loans.’
Oh my. The black boxes failed? The quants didn’t do it right? Didn’t hedgefundanalyst tell us they were covered at both ends?
Now it looks like they were exposed at both ends — particularly the rear one!
These A-school MBA’s and their little formulas make me laugh.
Watching the totally surprised reaction to the meltdown from the Warren Buffet/Jim Cramer/Sec. Paulson/Bush/ibank/hedge fund crowd of people, it occurs to me that these guys are so utterly disconnected from the reality of ordinary people who have jobs and have to live under a reasonable budget, that they simply have no clue how hard it is for these “borrowers” to make their mortgage payments, car payments, student loans, credit card payments, etc. It’s like they are living in another world. Most of the borrowers deserve plenty of blame too, of course, but I wonder how much of this debt is going to pay for things that a normal middle class person could have in the past without giving much thought to, such as a modest house, health insurance, college education, etc., and without going into extreme amounts of debt. In other words, has home equity become the last (and fast dwindling) bastion of access to a middle class standard of living?
A co-worker went to work for a hedge fund. I asked him how they were doing about 3 weeks ago. “We will be fine. Our guys know what they are doing and they hedge their investments.” I almost pi$$ed myself laughing at that one.
And if so, putting on my tinfoil hat here, in whose interest is it to mask the fact that our earning power and standard of living has dropped so precipitously? Hmmm?
““We will be fine. Our guys know what they are doing and they hedge their investments.”
- Some hedge funds have actually been shorting the market for the last year.
If they’ve been doing that, they’re not doing very well.
They should only be shorting the housing and financial sectors. The broader market is not ready to follow yet.
Watching the totally surprised reaction to the meltdown from the Warren Buffet/Jim Cramer/Sec. Paulson/Bush/ibank/hedge fund crowd of people
They aren’t surprised at all, they are only acting surprised. All the big players knew this debacle was coming years ago. Buffett sold his CA beachfront house in 2005 and even said RE was overpriced.
The reason they are acting “surprised” is that they hope that J6P believes that they were just innocent bystanders, rather than the perpetrators of this debable.
Why are there any losses? I thought all of the potential problem securities were hedged with credit default swaps.
“IMHO, the real target of the proposal is to soothe the fears of mortgage investors.”
Yep. It is a targeted message to the ABCP market. The response from the ABCP market, however, is game over. Confidence is lost. Unless the securities are government guaranteed, no one is buying.
“Unless the securities are government guaranteed, no one is buying.”
Which I guess is the reason to expand the FHA’s low-income housing mission into the area of high-income lender bottom-line protection?
Yes. However, it’s like promising to pee on a forest fire tomorrow. It’s not enough and the fire started yesterday.
Fiscal conservatives in the house.
“Fiscal conservatives in the house.”
How about that Contract with America?
Don’t miss this if not already posted
http://www.investorsinsight.com/otb_va_print.aspx?EditionID=576
“Now consider that the underlying cause of the recent turmoil has not been addressed. Estimates put the PEAK of the sub-prime resets that started this all somewhere between Q4 2007 to Q1 2008.
As we have learned, sub-prime resets result in a large number of delinquencies within about 60 days. Foreclosure proceedings often begin some 90 to 180 days after that. ”
Therefore, the peak # of foreclosures will occur sometime in the spring/summer of 2008. IMO we’re standing at the edge of the Grand Canyon and we can’t see the bottom. And most people think it’s going to be OK. They have no *&^^%$%^ clue.
I hope everyone just walks and let the lenders and investors take a cold bath. F them all for stupid lending practices.
It should be pointed out that there will be a second peak in 2010 at about 80% of the levels 2008. This will not be over until 2010-12 if there is not a chain reaction worsening the situation.
READ MY LIPS — NO NEW BAILOUTS! WATCH OUT FOR YOUR WALLETS, AMERICA!!!
George Sr. said “Read my lips”
George Sr. said “Kiss my hips”
and where’s the beef
George Jr. said “I don’t read.”
“Many also note that FHA loans have always been available to low-income borrowers and say that expanding the program won’t provide any new options for borrowers.”
Not true. If the FHA loan limits are raised (currently ~206K in TX for example), then some of the Alt-A types can get back into the market who are currently frozen out (full doc with maybe credit scores in the mid 600s) and buy some of these short sales. That will at least cause transactions to happen. Prices will be reset lower of course which is a good thing. I am all for that. It will have the effect of causing to happen what we all want. Lower prices.
Isn’t FHA for first-time buyers only?
I don’t think so.
No, you have to qualify like any other loan though the guidelines are a little easier. They appeal to first timers for the what once was relatively low down payment for purchase compared to normal loans. Now that the zero down loans are gone, they will come back in favor.
> . Now that the zero down loans are gone,
What about those of us that can get VA loans?
Even though i am a loyal HBB’r for the last two years, I have no problem with those that have served our country borrowing 100% ltv + letting them roll the closing costs in to effectively make it 103%ltv at purchase. These people are grossly overcompensated even if you dont believe in the reason they are fighting.
Did you mean overcompensated or under?
I read yesterday that VA loans are going to have higher limits starting today. Did anyone else see that article?
There is no such thing as a loyal HBB’r. At least I hope there isn’t. When that day happens I ditch this blog. That same sort of groupthink got us into this mess!
Net / Net, however, this measure will not create additional housing demand. The wheels will turn but the market will not advance.
I don’t know. Here in the Los Angeles area FHA is for 2 income levels. Under $50k and under $85k. Something close to that. Then the cap is about $400k. The only problem with this is that they actually verify income and will not go past 35% if what you make to mortgage. I actually got one of the bank guys excel spreadsheets for this and was able to mess around with it myself. I have no clue how raising this will help anything in Southern California. Unless there is a huge drop in the interest rate for FHA programs, which were pretty close to what E-loan would do, except e-loan got rid of most of the closing costs involved, whereas FHA charges everything possible. If you really look at the FHA program and match it up to basic standards that are being talked about on here, its almost impossible to do unless there is a realistic downpayment (more than 20%) involved.
The Roger Lowenstein article I referenced yesterday turns out to be a very short one. Nothing major.
http://www.nytimes.com/2007/09/02/magazine/02wwln-lede-t.html?ref=magazine
But the picture at the top which sort of looks like a bunch of houses made out of multi-hued jello is kind of cool.
Pretty! Pretty jello houses! You know, that gives me an idea. I enjoy baking, making candy and desserts and stuff, I bet I could come up with a variety of pleasing party dishes commemorating various aspects of this ongoing implosion. ‘Hedge Fund Manager Meltdown’–that seems like it’d need tons of gooey chocolate over multiple tricky layers of something thin and nut-laden.
‘Subprime Surprise’–sSomething with candy sprinkles, obviously, and little plastic monkeys in the frosting, and perhaps even lit sparklers, since I favor the dramatic approach.
Man! This is gonna be great! Then I can display wrath AND eat! Two good things!
You know, this blog used to be GOOD for my diet.
Big bailout might be inevitable LA TIMES, Tom Petruno, 9:40 PM PDT, August 31, 2007
——————-
…”As envisioned by the Center for American Progress, a new Home Owners’ Loan Corp. would invite homeowners who meet certain criteria to apply for loan relief. The agency then would go directly to the lender or investor holding the loan and make an offer to refinance at some amount that would require the holder to take a haircut.”
… “Only a federal agency “would be able to negotiate on a mass scale because it would bring considerable powers of persuasion to induce the loan holders to the bargaining table,” he said.”
… “In any case, history — and the approach of an election year — suggest that Washington will come riding to the rescue, and on a greater scale than what the White House has proposed.”
The Depression-era Home Owners’ Loan Corp. paid lenders for loans by issuing government bonds that earned 4% tax-free interest. Therein is the taxpayer cost, although much or all of it could be recouped over time if most people who are saved make good on their new loans held or guaranteed by Uncle Sam.
How do you negotiate with the bond holder when the loan was sliced and diced and shipped overseas in CDO’s? If the government voids the terms of those bonds, investors will be much less willing to buy American debt going forward.
Note - last paragraph should also be in quotes (its from the article).
The government had no trouble expanding the medicare program even though there was no money. The Iraq war is paid for by T-bills sold to (mostly) overseas investors. Interest rates for Treasury’s have gone way down making a large housing bailout program more feasible. And the foreclosure pain is many months away from peaking. Once this thing really gets going, more and more senators will speak out and it will be unstoppable.
“…much or all of it could be recouped over time if most people who are saved make good on their new loans held or guaranteed by Uncle Sam.”
I’d imagine this scenario can work only if selling prices are confidently expected to hold or rise, and even “hold” would work only if the FB is not in negative equity already. Otherwise, there’s very little incentive that I can see to staying in the house, as opposed to dropping off the keys during the “no-1099″ Moral Lapse that Leviathan is likely to implement. It’s also likely that landlords will discount a foreclosure, in such times, as long as the rest of the credit report looks good.
I read the president’s comments of yesterday to mean that he would probably veto anything larger than what he already proposed. He said that government had a role to play and that it was very limited and then outlined what he thought it should be. It is a bit like the whole stem cell research thing. He said that government should only sponsor research on the already existing lines (no matter that they are largely useless) and that is it.
And don’t think he will necessarily cave to the hedgies. His people are private equity people. They do magnificently well in a crash. All sorts of bargains to pick up. And the really really rich have access to funds to do the buy outs even when other groups don’t. GHWB will still be able to get money from the sheiks in Saudi Arabia and Dubai even if other funding is scarce.
Now, politicians who are still running for office and have to attract currrent donations? Well, you can predict what they are going to do. They are already doing it.
As much as I dislike the president and the overwhelming majority of his policies, I think he will block a large scale bailout while he is in office.
“In the Bay Area, where the median home price in June was $665,000, highest in the continental United States, fully 61.9 percent of mortgages taken out in the first half of 2007 were above the $417,000 level, making them ineligible for FHA guarantees even if the limit is raised, according to DataQuick.”
I ran some numbers this morning. The crash of the investment pool that funded the Jumbo loans over the course of the past month added maybe 100bps to the Jumbo lending rate (currently at 7.40 percent). I estimate this implies a more-than 10% drop in the Jumbo-funded home purchase bid. In other words, the guy who would have just been able to “afford” a $1,400,000 McMansion purchase on August 1, 2007 can now only “afford” to pay less than $1,260,000 for the same McMansion as of September 1, 2007. And good luck to Dodd and friends at bumping up the GSE conforming limit past $1m in the interest of expanding “affordable housing” opportunities in coastal California.
TIMBER!!!
“were above the $417,000 level, making them ineligible for FHA guarantees”
Exccept, the GSE (Freddie/Fannie) limit is $417K.
FHA is limited by location, but even in highest areas like San Fran, is maxed at about $363K.
I wish reporters would get a freakin’ clue. What ever happened to fact checkers?
You can check the FHA limits for your area on this site:
https://entp.hud.gov/idapp/html/hicost1.cfm
fha mortgage limits list
Message: MORTGAGE LIMITS SUCCESSFULLY COMPLETED
Mortgage maximums as of Friday August 31, 2007
(1 records were selected, 1 records displayed.)
MSA Name / One-Family / Last Revised
SAN FRANCISCO-SAN MATEO-REDWOOD $362,790 01/01/2006
“And good luck to Dodd and friends at bumping up the GSE conforming limit past $1m in the interest of expanding “affordable housing” opportunities in coastal California.”
Any senator in Flyover Country that agrees to the raising of the $417k limit, just to keep coastal housing, highly inflated should be tarred, feathered and then beaten with a rubber hose.
Raising Fannie’s and Freddie’s limits will be paid for by middle-America and do absolutely nothing good for Middle America. It isn’t those of us in New York and Connecticut that should be writing our elected officials. It is those of you in the center of the country that should be writing and telling them to tell Barney Frank, Dodd, Hillary et al to go screw themselves.
600k starter homes are the real crisis.
Precisely. I personally think that is the biggest absurdity that seems to continue to go unrecognized by the MSM. A $600K starter home!!!??? WTF?!?!
Why don’t we just legalize all the mexicans and as these mortgages reset, we can turn, the FB”S into landlords. Addl $700 mortgage pymt……….addl roommate that does not speak inglesa
$600k starter homes are very appropriate..
They start you on the way to bankruptcy, insolvency, a short sale/foreclosure, clinical depression, the mac-n-cheese eating plan, etc………………..
“600k starter homes are the real crisis.”
That’s the real problem. It hardly ever gets said in the media. Peter Schiff was on CNN’s “House Call” this morning, making that point. He said people used subprime loans to buy more house than they could afford. He also stated that prices needed to fall a lot and that any government intervention would only make the problem worse. He was emphatic that the housing market needed to correct. The host of the show, Jerry Wills, didn’t seem to like what he was saying. It was one of the few times that I actually heard someone saying, on T.V., that inflated house prices were the problem. It’s seems that no one wants say that prices have to fall to affordable levels. It’s all about, how do we keep FB’s in their houses and paying their mortgages, like serfs.
400K starter houses are the problem….as are 350K starter houses, and in many areas, 300K houses
“Christine Young of Henderson, refinanced her four bedroom, nearly 2,000 square foot home more than a year ago. And at the time was convinced she was getting into a fixed mortgage. ‘It wasn’t fixed. A year later, our arm came up and now we can’t make our arm payment and it’s $700 more than what we were paying and it’s due September 1st.’”
“Christine blames predatory lenders for signing her up on a mortgage she tried so hard to avoid in the first place. ‘I thought this guy was the nicest and most honest guy.’
I just can’t believe that this woman didn’t know it wasn’t fixed, if that was what she was looking for. Someone such a large house would definitely have the commonsense to make sure she got the type of loan she wanted. She is lying. She thought she could bail out soon because ‘RE prices always go up’. I am sure sh’d have laughed at the time if someone told her that prices were in bubble-O-sphere.
Let them rot!
I must be in some alternate reality. $700 a month can be gotten. A second job. Sell something. I would not take a foreclosure hit for $700 per month. And if an unexpected $700 a month is going to whack you that hard, you don’t need to be owning real property. Good lord! I have had unexpected vet bills of $5,000 per month!
“Good lord! I have had unexpected vet bills of $5,000 per month!
Good lord! That’s about what it costs me to live for a year!
I agree, tx, about the $700 (not the $5000 vet bills!) She was happy to take the easy re-fi cash, but heaven forbid she work to pay her living expenses.
What animal is even worth $5000, except perhaps a racehorse or a gamecock?
Mine. I would spend $5,000 on a pet that feeds my soul over a fancy car that feeds my ego.
Of course, anyone who thinks spending $5,000 on a bird so it can brutually kill (or be killed by) other birds is a worthwhile investment is not someone who has any values that I would give a damn about.
Txchick rescues animals, you like to see them tortured. Nope, you’d never get it.
Just looked for her home on zipreality. Couldn’t find it. Closest was $359 K down to $299 K. Still with price inflation in LV, prob bought around $275K. Prices need to come down another 20%. I don’t think I’m the market, but will keep on looking around the $275 K price point. First time in years decent 4 bedroom sub $290 K.
This lady and others with similar tales of woe are so full of sheet. When you go to closing, one of the first and most prominent documents you sign is the “NOTE”. If it is an adjustable of any form, it clearly states in 24+ point font “ADJUSTABLE RATE NOTE”. It is impossible to miss not to mention the Truth in Lending Disclosure which, by the nature of its title alwasy draws peoples upmost attention when they see it. Especially since the TIL always has a higher interest rate than what the borrower is quoted because it factors in the closing costs as a percentage of the loan to illustrate the true cost of the money. Almost every closing i have have ever had (over 1000), the borrower asks me why the TIL rate is higher than the Note rate.
Somewhere on those loan docs she had to have initialed the rate. She’s lying.
Let’s get real - any type of bailout won’t really help. Once these folks don’t have their houses to use as ATMs and their credit cards are maxed out, there will be a melt down. Most people these days can’t live within their means. Think about what life would look like without easy money. There will be alot of pissed off folks. I predict uptick in divorce and crime.
Providing a tax consequence free exit from the debacle is the most humane part of this proposal. Debt dependents are in for a rude awakening. Addiction is extremely painful. Debt addicts will no longer gain approval to live it up at the Hotel California:
http://www.youtube.com/watch?v=fJt86UqHtX8
“To avoid foreclosing, Pam put her house on the market several months ago. She’s hoping to sell before they lose the house or lose out even more. ‘We started at $389,000 and now at $299,000. So we lost $90,000 on what we were counting on,’ Pam said.”
Not to worry… it’s only a paper “loss.” This kind of mentality is so annoying - some people equate fantasy equity with real money. Counting on that money like it’s real makes some people feel entitled to gains - and that the person who finally buys their house is “ripping them off.”
‘Course, ole Pam will be lucky to get a sale at all - so her “90K loss” may never actually materialize and she’ll be stuck with the house!
I’m not expecting any significant bailout programs to make it past the talking phase. Like immigration reform, Washington politicians will just treat this as a PR event: they’ll take up TV time making proposals for legislation that have no hope of ever getting out of committee.
In the end, the situation will be prove to be out of their control, and the laws of economics would provide the resolution.
Good God, I hope you’re right.
http://news.goldseek.com/GoldSeek/1188318791.php
Please help me understand this:
Doesn’t the Bush Bailout require people to qualify for these loans under new a different set of standards than their original loans? Will the “homeowners” need to pay for a new appraisal, inspection, etc on the house? How many are actually going to have the money to do this with a sinking home value. I suspect the vast majority will not qualify regardless. I’m no fan of the president but looking at what I have read (superficially), very few will benefit from this. He’s throwing the dogs a few bones to get them to stop barking. The bones have no meat on them.
I also suspect that those who have stopped paying their mortgages already have the mindset that they are walking. The house keys are ready to be handed over. Just a question of how long they can stay in the house without making payments. One last vacation, one last botox and a new boob job. The bank can’t take these back.
The forgiveness of the 1099 short sale difference – OK. Many FBs have no money. They are in debt up to their eyeballs. The legal battles over tax collection, etc would likely just jam up an already screwed up system. This may be an idea of practical over fairness. Its harder to punish someone with a learning disability. I’m just shocked more people have claimed “stupid” as a medical diagnosis to get their insurance company or the government to subsidize their mistakes.
What I don’t get is this idea that there is a pent up demand for a new home. Almost everyone I know has either been in their house for greater than 10 years and have no desire to move, or the younger ones just bought new homes in the past few years they couldn’t afford. There is no need, only desire to have something newer and different. Same mentality as leasing or buying a new car every few years. With homeowner rates at record highs you would think that buyers fatigue would set in — everyone that wanted a house over the past few years already bought one. There is no pent up demand to get into a house. I haven’t seen (yet) a sudden spike in homelessness in the US.
There is talk about “temporary” changes to Fannie and Freddie. Bernanke is also changing the banking rules. The Banks are being nationalized. The recession is coming. Average J6P is going to get laid off and lose his health insurance. National Health Care will be the debate for 2008 if things move quickly. This will supplant all discussion regarding the Fed Reserve, flat tax, etc. FBs will have less anxiety when they lose their jobs and homes if they have their “right” to healthcare. The government will see this in the best interest of the population – national health care. Afterall, they have already separated people from their money – no house, no pension funds/retirement accounts, stock falling, etc. Inflation will eat up the savers.
With nationalized health care look for a wave of early retirements.
If I were 18 years old or over 65 I may just take up surfing, become a waiter to have access to food, and collect everything in cash.
Personal responsibility is being punished.
Rant off. Adding more tinfoil to my hat.
“forgiveness of the 1099 short sale difference”
Correct me if I’m wrong, but.. wouldn’t that: 1. Reduce federal tax revenues, creating a shortfall that would have to be made up somewhere else and 2. put in place an incentive (by removing a dis-incentive) for future irresponsible borrowing?
Also, Bush does not have the power to unilaterally change the tax code.
Not having a specific power has stopped this president when?
I don’t know if it would create a shortfall in fed tax revs. Remember the number of short sales have been very limited up until now, so if they collect from them it would be more tax dollars than they previously collected. If they don’t collect it would be the same as it was without them.
But the other size of the short sale - the lender - gets a deduction. As the number of short sales/walkaways explodes, you will get a huge increase in tax deductions without a corresponding increase in income on the other side.
FHA loans used to be the subprime market until 2004. they had their own underwriting standards and you could get into a home for 3% down and a 1.5% insurance premium built into the loan.
W’s plan means people can refi into FHA loans with the only changes being a few late payments being allowed and 100% LTV instead of 97% LTV. they would have to pay the mortgage insurance and the current rates are around 6.5% for a fixed loan.
traditionally all government backed mortgage programs didn’t allow late payments for 12-24 months
Proposed new category of quasi-government entity:
TISL = taxpayer-insured subprime lender
Yesterday they were saying that they had to have 3.5% for something. Many of these people have zero%.
Here is a question for you folks…
If a bailout does go through, does that result in even less liquidity and/or higher rates in the mortgage markets, because the eventual buyers of MBSs will be even more hesistant to buy them for their portfolios.
We are likely going to end up back in a a world of portfolio lending. This means that a loan officer, whos company owns the funds for your loans and who works at you local bank branch, will meet with you and decide to lend you money or not. In this type of system there are no CDOs or mortgage brokers.
“Ain’t gonna be no bailout. Don’t worry folks. Any of these politicos can say whatever they want, but it won’t change reality, which is there’s no money to bail anybody out. It’s already been spent, packaged, exported, whatever.”
As long as the proverbial printing press is in good working order, I don’t see this as a problem.
“The program also wouldn’t apply to mortgages larger than $362,000, ruling out many homeowners in California and other high-cost states. ‘It’s not enough,’ Peter Morici, a University of Maryland economist, said. ‘We have a lot of people whose mortgages are greater than the value of their houses, and this program won’t do anything for them.’”
$362,000 sounds like too much to me. The median household income in San Diego County is something like $60,000. This is six years worth of pretax income for the median San Diego household we are talking about here! Where does Morici come up with the quaint notion that this is chump change?
$362,000?
How many of the FBs could afford $362,000 on a 30 yr fixed at 6%?
Hmm..let’s see…that’s about $2,200 for P&I alone. Add in another $600 for taxes & ins gives us $2,800 for PITI. Divide that by say 40% yields a required monthly gross of $7,000 or $84,000 per year.
Ok folks, now I’m sure that all those FBs out there may AT LEAST $84,000 (well, they must, their mtge app said so)..
This just keeps gettign better and better…
We own our house free & clear, but if we had to have a mortgage there’s no way I’d want to pay $2800/mo and we make $88,000/yr. That payment would be more than the net of one 2 week pay. You’d be house poor.
Let me add a bit of perspective. I just looked at some numbers off the SANDAG (San Diego Association of Governments) web site for household incomes in San Diego County. The 25th percentile of income for San Diego households is a bit less than $30,000. Under traditional loan underwriting standards, such a household might qualify for a loan at 30% of their income, which for this household would support a monthly payment of $9000/12 = $750. With a thirty-year zero interest loan, this household could only afford to buy a home for at most 360 X $750 = $270,000.
In fairness, and in light of the Fed’s inflationary bias, incomes do tend to rise over time, and my calculation does not consider this. But then on the other hand, most lenders tend to charge more than 0 percent interest on their loans.
The bottom line: Even in expensive areas like San Diego, the $417,000 conforming limit is far too high for low-income buyers to afford. The government should considering lowering, not raising, the conforming loan limit to reflect this, UNLESS THEIR POLICY GOAL IS TO SPARK A FORECLOSURE CRISIS IN LOW-INCOME COMMUNITIES.
Ditto for the $363K FHA lending limit…Don’t use my tax dollars to insure defaults on loans to encourage low income buyers purchase houses they cannot afford!
Calm down a little PB.
Words ought to be a little wild, for they are the assault of thoughts on the unthinking.
–John Maynard Keynes–
Professor Bear .I don’t really believe that they will stick by the underwriting guidelines of the insured FHA loan ,especially if they raise the loan limits . What watch dog team is going to make sure they stick to the qualifying guidelines . I think this is going to be the way they pull the fast one on the taxpapers that will end up paying for the loans that will default .Isn’t this the fast one that the REIC pulled when they started approving any borrower ?
The fact that FHA is a” insured loan ‘,will not matter because whenever you have a insurance pool it is based on the majority of loans not defaulting and only having a certain % of defaults over a long time frame . These loans they want to take over are not going to fall under normal insurance risk ,especially in a declining price RE market .
Taxpayer funds hear we come .
it would be alot better if the powers that be propose new loan product after the correction takes place in the market .In fact , as a taxpayer ,I demand this .
FHA insurance - is that a taxpayer-provided pool of funds to cover losses once the aggregate premiums have been depleted?
You can slice and dice it any way you want.
But the bottom line is the very fact that a “bailout” is being bantered about speaks volumes about the moral/ethical makeup of our “leaders” and the country overall.
Bailout = reward stupidity, greed, and criminal behavior and punish those who have common sense, are financially conservative, and had hoped for a “hard lesson” for the get rich quick crowd. HA!!!
Game over. The patients are running the asylum.
America - a government of the criminal for the criminal.
Moving forward, I just hope to God my kids will live in a time that they are not required to “PAY” a clerk fees so they can be “given’ a mortgage.
when did these fees get so out of hand that a whole sub industry has grown to it…..
Why not pay fees to get a Car or refrigerator loan. I thought the loan interest was how the money was suppose to be made in the loan process.
“Why not pay fees to get a Car or refrigerator loan.”
You do. These are known as origination fees, or sometimes, points.
It’s about $200, not $8000.
Even 30 years ago you had to pay points to get a loan. The fees are probably similar, but the price of the fees are way out of line.
One other thought on the FHA. You have to meet appraisal and the criteria was very stringent. If you buy a house for $400k and the values have dropped to $200k, there will be no loan. I don’t see 98% of this stuff bought at yesterday’s prices appraising at today’s market values.
Ben Bernanke Action figure: http://www.dailyreckoning.com/Featured/bernanke-helicopter.jpg
If the medium sales price in the Nation is around 252k, than why wouldn’t a loan amount of 362k be enough of a loan amount . If they want to bail out higher priced States or regions ,than now your talking about bailing out people who have a average income alot higher than the average home buyer in the United States .Than your getting into supporting bail outs for the higher income borrowers and luxury home buyers .I don’t think alot of people are going to believe that these higher income buyers didn’t know how to read the loan documents .How can you claim your a victim when you were a move up buyer and it was the second or third home you have bought ? These higher end buyers made a choice to use leverage and go on a adjustable or made interest only payments with full knowledge of what they were doing . it was all about leverage and how much debt could one run up to make money during the boom ?
“Than your getting into supporting bail outs for the higher income borrowers and luxury home buyers”
Isn’t sucking middle America dry to support the interests of the wealthy a primary aim of national policy these days?
Yep . And really ,these high end homes are going to end up being the biggest loss for the lenders when they go bad. Also ,its much easier to bail out a party that bought a lower end house and might be down by only 20k . Try bailing out a party that is down by 300k .
My prediction is with time the bail-out team with propose a bail -out plan of providing ” insured loans” up to 800k,(with only 3 to 10% down payment requirement ) . How are they going to get investors to invest without offering “no risk “,insured investment ,backed by this US taxpayers .I wonder how they are going to sell the victim line for the high end buyer however .
That’s the sticking point. Good luck selling those GSEs.
‘ If they want to bail out higher priced States or regions ,than now your talking about bailing out people who have a average income alot higher than the average home buyer in the United States’
-Remember, ‘It is different here’…. in So Cal.
Plus, you can’t discriminate against an illegal that bought a house.
Uh . . . look at the FHA requirements. No illegals can get them.
According to the Denver Post, over 20,000 illegal immigrants got FHA insured loans and they are defaulting en masse.
http://tinyurl.com/2q2wxg
Great. So the taxpayer gets to bail out the banks who loaned to illegal immigrants who walked???
Yes! Precisely. This is exactly the moral hazard of this whole thing. Some poor schlub who makes $50K yr in the midwest gets to bailout the Clownifornians who are overleveraged and meanwhile, he will never, ever, set foot in a 6 to $800K home in his lifetime.
How many of those “poor schlubs” in the Midwest voted for Bush TWICE and continue to shamble into the voting booths every election to vote Republicrat, despite the fact that the GOP stopped representing Main Street years ago? [And don't think I'm giving the Democrats a pass - they're just as bad]. As long as the American voters, out of apathy or cluelessness continue to vote for the status quo, they have lost all right to complain about the mercliless screwing they’re getting from our political and financial overlords.
Ron Paul for President!
Ding ding ding ding.
It’s KARMA!
I just took a look at the June 30th report of IndyMac’s S&L filed with the OTS. IndyMac FSB is a $31.3 billion S&L whose deposits, within limits, are insured by the FDIC.
On the asset side, IndyMac FSB has $0.9 billion in cash, government, and agency securities, $5.0 billion in conventional MBS (loss reserve of 0), and $20.2 billion in portfolio real estate loans. These real estate loans consist of $3.0 billion in construction loans, $1.8 billion in HELOCs and consumer 2nds, $14.7 billion in 1st mortgage home loans, and $0.7 billion in income property and land loans. The loss reserves for this $20.2 billion portfolio is $71 million, less than 4/10 of 1%. REO totals only $64 million and there is no loss reserve.
On the liability side IndyMac FSB carries $12.1 billion in insured deposits and $10.9 billion in FHLBank borrowings (secured by mortgage loans). IndyMac FSB also carries $3.2 billion in uninsured deposits and $3.5 billion in commercial borrowings. These non-guaranteed liabilities support 21% of total assets.
What’s always interested me is that everyone seems to ignore IndyMac’s construction loan portfolio which represents nearly 10% of total assets and 110% of “stated” equity. I wonder how much equity IndyMac really has; its allowance for loan losses is laughable considering the nature of its loan portfolio (construction loans, consumer 2nds, and Alt-A 1sts).
Maybe Indymac should go into the renting business ,or better yet ,call the bail-out team to see what they can do for the bank in the way of buying bad loans .
OK TUx.
Would you short sale IMB now ?
I opened my short position over a year ago. I won’t close until there are rumors of receivership or FDIC-assisted merger. So to me it looks like it is still a short opportunity if your broker can borrower the shares for you. The risk is that some fool will catch a falling knife and offer to buy the company.
Thanks for your information regarding Indymac.
This is my question …….How could they of prevented the stock market crash of 1929 if they decided to do so in Sept of 1929.
They couldn’t, anymore than World War II could have been prevented in Sept 1939.
The train of events that led to the stock market crash started years before, and could have easily been reversed if anyone had seen past the dollar signs. The song remains the same.
As much as I was initially pissed about what GWB did, I’ve come to the conclusion it’s a political ploy.
It’s been well documented that his proposal as it stands really doesn’t do a whole lot. Other than that, what was his main message?
Investors and speculators should not get bailed out. Period.
Bernanke was pretty much the same. He’ll provide liquidity so the whole system doesn’t go caput but I even doubt he’ll lower rates at this point.
If Congress comes back with some billion dollar bail out fund now (a democratically controlled Congress) the republicans will turn around a point the finger at the democrats for wanting to bail out the hedgies and speculators.
I really do believe that’s what GWB was doing and that’s it.
Whichever party does anything that remotely helps the hedge funds, banks and speculators will lose big in the ‘08 elections.
As one poster noted above, this is the one single issue I can think of that crosses party lines. In fact, it makes most people furious. It’s sort of an “THAT’S IT” issue for most people.
We shall see. Nothing would surprise me though.
I’m skeptical of the idea that most people are opposed to a bailout. This is America 2007. The Greatest Generation is mostly dead and they took with them most of the ethics, common sense and personal responsibility.
I know a uy who bought a condo in phoenix a couple years ago, he lived in an apartment that did not require a credit check and rented out the condo..for a NICE montly loss of a few hundred. he had bad credit and has lost his job and been living 4 months rent free until they repo the condo. he was betting on the property gaining in value and he should get no tax break by bush. he should be on the hook atleast for the loss of the bank. plus he got free rent for months. what is his loss, he already had no credit? this is typical of what occured so i don’t believe all the hype, borrowers were duped. they gambled and lost…only losers buy at the peak like this!
The tax forgiveness of the 1099 will do one thing. It will cause many, many more people to mail the keys and walk away. They won’t be able to refi a 500k house now worth $250k and now they won’t have a tax burden. If anything it’ll bring down the price of houses even faster.
I’m trying to work through the details of a 1099-free world, and I must be missing something. Bush’s proposal (as I understand it) is that defaulting borrowers won’t be given a 1099 unless the lender reduces the deficiency to judgment. Okay. Well, isn’t that incentive for lenders to file for deficiency, which will force borrowers into bankruptcy? How does that help? Will lenders want to spend the time and money on such suits? They haven’t been so far, but I think they will if the government’s new policy forces them to by denying the lender the write-off for bad debt which isn’t 1099′d.
A second thought is this: many of my friends and colleagues on the debtor side of the bar say that the 1099 concerns seriously affect their client’s decisions on whether to walk away from the debt. If that threat is lifted, I think we’ll have a walk-away the likes of which have never been seen. After that, what happens? Isn’t it possible that the lenders will then *undervalue* the properties to maximize their tax write-off? Bizzarre.
Third, some states don’t allow lenders to sue for a deficiency (I think California is probably the biggest example). They are effectively non-recourse states once the foreclosure is done. That means 1099’s will never be given there under the new proposal because the lenders can’t reduce a deficiency to judgment. How is that equal protection under the law for residents of states where there is recourse? They are the only ones who can get 1099′d.
On balance, I think the proposal is another example of good intentions gone astray.
What if the Feds allowed debtors to use their Social Security accounts to “pay” their 1099’s? They don’t have the money for the judgement so the government will get little tax money anyway. The only caveat is that it is a one-time deal and that those who do it can NEVER collect Social Security in the future but must still pay their payroll taxes going forward. The FB’s get a fresh start, the Feds get their taxes by way of reduced payout liability in Social Security going forward. The FB’s will just have to realize that they may never be able to retire. Which if they had their wages garnished trying to pay that 1099 they wouldn’t be able to do anyway. Win all of the way around.