A New Twist Or Is Everyone Pretending?
Readers suggested a topic around the latest proposal to freeze interest rate resets. “Banks, U.S. near deal to freeze subprime rates: report. Now this is a new twist.”
One posted. “A continued attempt to reward bad behavior on the borrowers part. However a freeze will do nothing more than prolong the inevitable. Of course that’s what we do best.”
Another wrote, “What a country! Raise fixed interest rates on prime borrowers while lower income interest rates on savers while simultaneously destroying the dollar — AND — try to freeze the interest rate (which predicts the rate of default in theory) of the risky loans!”
One saw fallout, “So if they can/do freeze rates, I guess we will find out how many these homeowners were speculators. Speculators make money on increased value of the homes, otherwise they will bail. Also, what will do to the holders of these mortgages, such as the Florida state fund which had a run on the deposits?”
“Again, Washington DC is not thinking about the unintended consequences of their actions.”
Another wants details, “I have a question about this meme. All this talk about teaser rates; do they in fact exist in any significant numbers?”
“I know neg-ams have teaser payments, but that just means the interest gets capitalised into the principal balance. So if they freeze the rate on a neg-am (or to a lesser extent a 5/1 ARM), you’re still going to see payment shock when the loan resets or recasts to full amortisation.”
As did this poster, “What are the mechanics of this deal. As we all know, mortgages are put into large packages (CDO’s) and sold to investors. These bond holders are expecting a specific return on their notes. The banks may not have the right to alter the terms of these mortgages once they are sold.”
“If they pass a law altering the nature of these bonds, then it would create more instability in the financial markets. If they monkey with mortgage bonds today - they may toy with credit card bonds tomorrow. Why would anyone invest in a US bank bond when the terms can be changed at will?”
“Even if the banks are just working with the mortgages on their books, it seems like a bad deal. As everybody knows, the first few years of a mortgage, you pay mostly interest. Massively rolling payments to the back to the note is not really a great solution. Extending the note only adds interest to the front.”
“Eventually, they have to get their principal back. Also, banks are short on cash right now and really can’t afford to be a reformed Scrooge this Christmas. They need money not kind spirits. It also seems very unfair that some people would get their rates frozen while others would not based on whether a bank sold their mortgage or not.”
“I still do not see this slowing down price drops. There’s just too many empty houses. The problem currently is oversupply. These people can either stay in their current houses, or rent some other house. Either way, they are using exactly the same amount of supply.”
One had some answers, “They can NOT pass a statute altering the terms of contracts in existence. Such the a thing would be an ex post facto law - ex post facto means ‘after the fact’ - and it is explicitly prohibited by that thing called the US Constitution.”
“The best they can do is to beg the financial institutions to delay the rate increases (a freeze) if the institution can. And therein lies the catch. If the institution only services the loan and does not own, they can not alter to the terms of the loan UNLESS every single investor/owner of the loan agrees.”
“Given that the servicing companies can not even figure out who owns the loan to file the foreclosure case properly (ex: getting kicked out of Federal Ct in Ohio), it is highly doubtful that they could find the owners of the loans to get their agreement to changing the terms of the resets.”
“If the servicing companies do not have the agreement of the owner’s of the loans and fail to reset the rates per the loan requirement, then they get sued by the loan owners for the lost interest income.”
One was skeptical, “I think this will have minimal impact as it will only affect a small portion of the toxic loans out there. Banks can only adjust the terms on loans they originated and control - basically what they got stuck with in the SIVs before they could dump them on some poor unsuspecting schmuck. But I don’t believe they can adjust any of the terms on the junk sold on wall street, heck the investors are having a hard time even proving in court that they hold title on properties they are trying to repo.”
“To me it just looks like an attempt to save the bacon of the big national banks who are likely to go under if they can’t resolve their SIV dilema quickly.”
The Wall Street Journal. “A government-led plan to freeze interest rates on certain troubled subprime home loans drew criticism both from investors who foresee losses and from some analysts warning that it will merely prolong the pain of the mortgage crisis.”
“As much as $362 billion in U.S. subprime home mortgages with adjustable interest rates are due to reset at potentially higher rates in the coming year, according to Banc of America Securities, risking a wave of defaults by borrowers unable to afford the new monthly payments. That in turn could exacerbate a wave of write-offs by investors who now own those mortgages.”
“Fund manager Alan Fournier predicted that the plan being pushed by the Treasury Department will prolong the pain of the housing slump. He said it would merely delay inevitable foreclosures for some people who can’t afford their homes, while allowing holders of mortgage-backed securities to put off marking down their assets.”
“‘This reduces the pressure short-term to bring everything to a clearing price,’ Mr. Fournier says. ‘We really just need to let it wash through.’”
The Boston Herald. “Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said that while the freeze plan sounds interesting on paper, it may be very difficult to implement in reality.”
“Many subprime mortgages were packaged up in huge investment vehicles and sold to investors across the world, he said.”
“Treasury might be able to get large mortgage-related companies like Citigroup, Wells Fargo, Washington Mutual Inc. and Countrywide to go along with a freeze - but then those firms have to sift through a massive morass of investment vehicles to determine which mortgages can legally have their reset rates frozen, he said.”
The Star Tribune. “Why would lenders agree to pass up the billions that they’re set to collect on rising mortgage rates? ‘What they want to avoid is customers mailing in their keys and walking away,” said banking analyst Mark A. Morgan. The value of houses is falling so fast as to wipe out the equity that many subprime owners have in their houses, he said.”
“‘If you look at delinquency loss curves, everything is going straight up,’ Morgan said. ‘That’s the uncertainty that’s motivating them to freeze’ rates in the hope the borrowers can keep paying. As one former Wall Street banker once said, ‘A rolling loan gathers no loss.’”
“In a statement, Michael Heid, co-president of Wells Fargo Home Mortgage, said the bank will keep in mind contractual obligations to investors who provided the cash for home mortgages, as well as the needs of customers.”
“Some critics are wondering whether lenders are simply postponing a day of reckoning for themselves and for financially distressed homeowners.”
“‘Everyone is pretending,’ said Prentiss Cox, associate professor of law at the University of Minnesota. ‘Nobody’s accepting the loss that’s out there. Nobody’s recognizing the loss and booking it.’”
From Forbes. “The mayhem in the global markets is the fault of ’snooty’ financiers who thought they were cleverer than everyone else, said Germany’s finance minister, Peer Steinbrueck.”
“He said that the credit crisis, triggered by the collapse of the U.S. housing market, also raised serious questions about transparency, and whether market participants really have enough information to evaluate risks.”
“‘Of course, this crisis did not originate in the hedge funds, but it raises the question of transparency because we are having to deal with so much packaging, securitization, impenetrable jargon,’ he told the Financial Times. ‘The truth is, nobody knows where the risks are.’”
“What a country! Raise fixed interest rates on prime borrowers while lower income interest rates on savers while simultaneously destroying the dollar — AND — try to freeze the interest rate (which predicts the rate of default in theory) of the risky loans!”
Sounds like somebody is trying to twist the U.S. economy into a pretzel.
Sounds like somebody already has.
Perfect
“In California, four top mortgage lenders have agreed to a deal brokered by Gov. Arnold Schwarzenegger to allow borrowers facing unaffordable resets to keep their lower initial rates five more years if they live in their homes and continue to make payments on time.”
Oh, how nice. Allow those guilty of mortgage fraud the opportunity to live in a house at a teaser rate, possibly lower than equivalent rent, and cash in on any potential upside appreciation (a long shot, but still). If not, they can just walk. Something reeks.
My god what a stupid idea. You might delay these forclosures a little while but I doubt for long because a lot of forclosures are happening before the reset takes place. The other thing is you are chasing foreign capital right out of this country. Why invest where you can have the rules changed mid stream. Hard to belive our markets just a few short years ago were suposedly transparent and the model for the world.
A mortgage is an individual contract between a borrowers and lender. In my construction of the world, free markets are all of these individual contracts at work.
What would this industry wide solution be (assuming the borrower has no choice in accepting or rejecting this “solution”)?
Socialism? Communism?
Paulsonism.
“Paulsonism”
Good one. He’s a saxist.
wouldn’t destroying the dollar actually bring foreign capital INTO the country ? The US was always a high cost center because of an overvalued dollar. The playing field is leveling in terms of cost.
Our markets were transparent? What do you think was going on during the dotcom ponzi scheme in the 1990’s and the junk bond ponzi scheme in the 1980’s?
I’ve read somewhere that the difference between a developed & a third-world country is the willingness (and ability) of the govt to enforce contracts and private property rights. I tend to agree.
If the freeze rates, what’s to stop them from voiding contractual agreements in the future?
“To me it just looks like an attempt to save the bacon of the big national banks who are likely to go under if they can’t resolve their SIV dilema quickly.”
Ok, tin foil hat on…
I think they know this will not work. IMO it’s just another MSM blurb to hopefully calm the nerves of the herd. A little more lipstick on the pig in an attempt to instill false hope in at-risk borrowers to hang on and try to keep making their payments.
Remember the number one rule…NEVER STARTLE THE HERD.
DOC
Doc,
You have a point. I think its obvious to everyone that the herd is nervous and ready to bolt. But how is undermining the banking system going to keep everyone calm?
This is getting very interesting.
Got popcorn?
Neil
It will keep them calm, by offerig them more pie in the sky, so they think.
“But how is undermining the banking system going to keep everyone calm?”
Exactly. So far the solutions to the debt bubble are:
1) lower rates again (ie: encourage more debt)
2) temporarily ease debt burdens (ie: encourage more debt)
ie: These aren’t solutions, they just bleed fb’s to death slowly. None of this makes for a turnaround, but the bottom of this downward slope may be a couple years further out.
Hey, can I have an extention of 1.9% teaser rates on my credit cards? I’ve never paid a dime of interest on various rewards credit cards, but I’d like free access to 1.9% money!
Now the rubber is hitting the road - how do you pass a blanket policy targeted at the needy without looking at each borrower on a case to case basis? Financial longs had a windfall this week, but when the dust settles, I remain confident that the financials have nowhere to go but down.
I’ve had a 1.9% fixed rate on some debt I transferred onto a Citibank card for a couple of years. It is fixed until I pay it off. I only pay minimum on it since I can earn slightly more in an online savings account. The game they play there is not to charge anything on the card (it’s in the safe) and not to be late on any payments. Good credit goes a long way!
Got to pay the piper, six or half dozen the other.
If you don’t do anything there will be massiv foreclosures. The market gets flooded with properties and prices drop, not to mention the losses on mortgage backed securities and their various derivatives.
If you extend teaser rates it might not hurt Wall Street/investors as bad if you get the majority of distressed borrowers to continue to make payments. So you collect 2.5% on your money instead of 9%, still beats taking a 50+% hair cut on the principal if the property goes into foreclosure.
From the sub-prime borrower’s point of views the smartest thing is to mail in the keys regardless of what the interest rate is. Why would you want to make payments on an asset that you have negativ equity in? Walk away and make it somebody else’s problem.
Moral of the story, don’t expect to see your principal again if you loan money to vagrants…an expensive greed 101 lesson.
What the banks and govt fail to understand is they have helped breed a mentality (along with the entertainment and news industry) in our society of no accountability and responsibility. I don’t care if the COULD offer 0% rates to these people, these FB will not continue to pay for an asset that isn’t appreciating or allowing them to live the lifestyle they think they deserve that they see on tv due to the tight payments. They wont pay if it crimps their lifestyle!
(jingle bell rock) Someone please finish this!
Jingle-key, Jingle key, jingle key, WALK!
Jinlge key mail and jingle key sales,
“Jingle-key, Jingle key, jingle key, WALK!
Jinlge key mail and jingle key sales, ”
Yippin’ and Yappin’
Nippin’ and Nappin’
Thats the SIV Rock!
So you mean to tell me in the last bust every single person walked rather because they were upside down and that’s ok with you. Unless someone has some emergency reason why they have to sell right now, why should they be able to just walk because the value of their “home” is now lower. If these folks got their American Dream of homeownership, they have a loan they can afford and have no reason to move, they should stay put and pay their obligations. And if they refied or HELOCed and spent with wild abandon - no bailout for you. In fact they should have to pay it back the rest of their lives - why should all these people get hndreds of thousands tax free and then be able to walk? I guess with this rationale, anyone who has bought a car, computer or anything else that depreciates, should just not pay when the value goes below what they paid and should keep the asset.
They should be able to walk because the stupid lenders didn’t require a down payment. I don’t like it either, but if they can’t afford it, what are you going to do? Beat the money out of them?
how about no tax refund and make them pay for their own ‘bail out’.
There was a furniture ad on TV this week — something like no payments for two years. wonder who the bagholder on that one will be. I’d forecast a 50% default rate, easy, on that stuff.
ylekiot 1, you are so close to the truth that you should be put on a witness protection program safe from the Wall Street mob. The banks and mortgage lenders have created a monster that they cannot control because the fact of the matter is that most subprime borrowers were in the game for the free ride of capital appreciation and to make matters worse for the banks, these guys had no skin in the game. Now for the banks to expect them to continue to pay the frozen teaser rates for years to come without the possibility of price increases shows how desperate and clueless the banks have become. They have for long displayed an amazing degree of irresponsibility and recklessness and they are now about to realise that it takes two to tango. The teaser freezer plan will not work because the borrowers know they can walk away and live to borrow and buy cheaply another day. The banks on the other hand have been screwed and are now left holding a baby called REO.
Lazarus,
exactly the point. Paulson’s scam is designed to confuse these folks long enough to keep them paying something to the banks and prevent the avanlanche of REOs from hitting the banks, which the banks cannot afford. Something beats nothing, but as this worsens, only the dumbest of the FBs will continue to pay anything at all. Why bother. It will take some time in most states to evict them, and with vacant houses being looted and destroyed, it may suit the bank to try to keep even non-paying FBs in place for a while.
Somebody had a funny line about loaning money to poor people being a dangerous business to be in…paulson and friends are getting quite an education.
And from florida on, the public pension funds are poised to be the next big shoe to drop…yeah, the FBs have sucker punched the pension funds as well. Social Security looks pretty solid compared to the public pension funds…in Florida, they had Jeb Bush and Lehman looking out for them. Since both are ducking reporters, I bet Jeb and family are enroute to join brother Neil in Dubai…out of the line of fire.
I think your analysis is mostly correct. The point of the teezer-freezer is to postpone or stretch out the waves of foreclosures. The powers that be hope that the REOs can be absorbed if they don’t all hit the market at one time. This is not the worst thing in the world (even for us). Let the collapse occur in an orderly manner.
RE: vacant houses being looted and destroyed
Fannie Mae took the neighborhood description out of their 1004 reporting form around 1992 because appraiser’s were being too accurate in their neighborhood descriptions.
Comments like a large array of abandoned automobiles were noted in front of subject property; vast amounts of accumulated assorted garbage were visible in adjacent lots; inordinate amounts of broken glass observed in street gutters; numerous viewable buildings covered in spray painted graffetti; adjacent residences exhibit no signs of appropriate upkeep; radom gunshots heard at time of inspection…were deemed to be inappropriate narrations which would connote neighborhood negatives not accommodate to the sale of the mortgage to a potential MBS purchaser.
Of specific mention: Appraiser can make no comment about visible pride in ownership factors or lack thereof.
LMAO…Burn baby, burn.
Plus how are they going to get their HELOCS?? Wasn’t this the main modus operandi of these people over the last 6 years?
What if the bank eats the difference in interest? keep the teaser rates but pay the holders full interest. Stops foreclosures at least for now.
——————————————–
And therein lies the catch. If the institution only services the loan and does not own, they can not alter to the terms of the loan UNLESS every single investor/owner of the loan agrees.”
That’s one thing that crossed my mind…help the FB’s, still pay the investors of these securities in full, the lenders eat the difference. Still seems like death by 1,000 cuts though.
They might lose less money by doing this, at least the FB is paying something each month and the utilities are on, and hopefully not letting the house get destroyed.
Imagine a house in Floorriddah with windows locked and no AC on for a year. Total loss….
And a house in Michigan with no heat.
Disagreed. Loss on a note is a paperloss, not cashflow loss. This can be spread over time using accounting. Loss on the “payment in” vs. “payment out” is an immediate cash loss that is reflected in the cashflow. If banks’ cashflow goes south, it can’t be hidden.
This makes me sick to my stomach. If they pass any kind of bailout, I will do everything in my power to minimize my exposure to this BS with tax sheltering and limiting my property holdings (cars, houses, etc). I sold my house in 2006. I WAS going to buy when I thought this would start to bottom out. I will not buy AT ALL if I think that me buying puts me in a position to get raped by the gov to pay for some more coming programs for J6P schmuck and high roller bankers bailout. I will refuse to buy. Honestly, I don’t have any faith in the market or my financial future until the boomers peak in retirement (SS, etc) and then the SS demand starts to fall, or there happens to be some great awakining to our society and their way of thinking in financial sense….my $.02. No hard feelings to you HB boomers, just looking at the facts with the demand on SS….
I completely agree. I was waiting to buy legitimately, but I won’t play a game if the rules can be altered half-way through. Do this, and you can count me out as a home-buyer for at least a decade.
You get the feeling the Government is forgeting the “legitmate potential buyers out there” These buyers were smart enough not to buy an overpriced house. If they keep these prices inflated, then consumer spending will either be at a standstill or heading downward. I have been waiting since 2004 to buy but can, in good conscious, put myself and my family in financial strain.
All in all, “premium” consumers are being screwed by the falling dollar, higher COGS, and most likely left holding the bag with higher taxes to save F^&cked borrowers, investors, and Wall Street.
This is the price we pay for being to responsible with our money and our family.
“I was waiting to buy legitimately, but I won’t play a game if the rules can be altered half-way through. Do this, and you can count me out as a home-buyer for at least a decade.”
Me too. I sold in ‘04 and would love to own a home again. But I will not buy until the stupid money and stupid borrowers are out of the picture. I refuse to sign up for a mountain of mortgage debt in my mid-forties. 50% down and a 10 or 15 year fixed loan. Until then, I’m not buying.
Ditto, again.
We sold in 2004 & have been renting ever since. Have an agreement with our LL that they will not raise the rent until 2009 (or later).
Fine. Let them freeze the rates. As long as renting is cheaper than buying (without gimmicky loans), we’re renting.
The bailers hope to save the burger flippers who lied about their incomes. This way the payments stay the same while home prices fall. The burger flippers will lose in the end even if they stay for ten years. At the end of the next ten years they will have not saved a penny to retirement, thanks to their genius decision to become real estate tycoons. Any homes for sale in the McMansion neighborhoods of burger flippers are now only affordable to those who can afford traditional loans. The question is this: How would you feel about it if the only house you could afford is next door to bailed out low income speculators, even if you worked years to get to a high income level and responsibly saved a lot of money? I seriously doubt the low income liars who took out loans have the same culture as me. I would expect loud Mariachi music, low riders, rap music, parties all night, and such from such neighbors. So instead, I will continue renting for several years in upscale large apartment complexes.
“How would you feel about it if the only house you could afford is next door to bailed out low income speculators”
What I’ve said all along - those in the upper income brackets have no desire to live next door to uneducated, lower class negative am, teaser rate interest only scam artist debt riddled posers and their uncivilized offspring - yet another reason why these houses will never be worth what they sold for.
Around my area, we get alot of “lake people” who bought in the nice neighborhoods. They usually trash up the house and end up in forclosure. The banks gets a house full of pet droppings.
Hey Bill in Md., have you ever smelled boiled/broiled Yak meat on the barbe ? Will take the chingos anytime.
SS wouldn’t have a problem IF the Gov would pay back the 2+TRILLION it owes the SS. There would be tons of dough in the SS earning interest.
Your point taken, but it sure would be nice if we had honest gov.
dream aborted
Rubbish.
SS is a defined benefit system AKA ponzi scheme. Every defined benefits system relizes on no systematic change of inputs in order to achieve a systematic result set up in the beginning. Unfortunately, the systematic input became different a couple of years after the system was started and hense any attempt to maintain the benefits defined in the beginning will fail.
s/relizes/relies
You are correct. The main change was just the increase in life expectancy. If adjustments in the benefits had been made continuously to reflect this, I believe the minimum age to collect SS would now be around 72. Probably it should be.
I so agree with you DD. I’ve been bitching for weeks about this issue. It’s only a ponzi scheme because the money wasn’t retained or invested properly.
The fatal weaknesses of democracy - when it becomes a mobocracy - is when people realize they can vote themselves benefits from the public treasury that someone else has to pay for. Just wait until a few million more Democrat-on-arrival illegal aliens and Hillary’s restored voting rights for a million-plus convicted felons give the Democrats a permanent stranglehold on the levers of power.
The only people who should be allowed to vote, are those who pay more into the system in taxes, than they receive in benefits.
Love it, Sammy. I am often advocating that the vote be restricted to persons not on the public payroll, but I ought to adopt your position, which recognizes “payroll” a little more broadly.
Az, should have had the ‘Hamiltonian’ concept of voting. Only people who owned property could vote. Aaron Burr put an end to that.
If hilary ends up in office the main person to blame is Bush. They had a Republican majority and instead of practicing what they preach, they ran up the debt, got us invovled in nation building, and allowed this ponzi scheme to accelerate.
People who leave behind free healthcare and free education (both free in Mexico and Canada), risking their lives walking through a desert in search of economic opportunity, are not likely voters of “social democracy,” unless they are scared by something that’s even more dangerous to them, like xenophobia and racism. If they wanted socialism and government cradle-to-grave care (which is by definition sub-standard care), they could have stayed home, both in Mexico and Canada (and much of the rest of the world, for that matter). Speaking as an immigrant who is an unabashed Libertarian (just like Ayn Rand), and who has converted a flaming “liberal”/always-voted-Democrat-her-previous-life wife to a registered Republican and Ron Paul supporter, I can tell you, it really disheartens me to see Republicans trying to hang themselves on the immigration issue. Just keep in mind, immigrant blacks are far more economicly successful than average blacks; and immigrant blacks are far more likely to vote Republican and average blacks . . . same goes with Latinos and Asians . . . wouldn’t surprise me if it’s the same with 1st generation immigrants from Canada and Europe. It’s our public education system and the silly racial politics that make some 2nd and 3rd generation offsprings into Democrats . . . the 1st generation immigrants who have the drive to leave their own usually socialistic home countries come here not for the promises of socialism (they usually have seen how it doesn’t work in real life, first hand, that’s why they left), but for opportunities that freedom and liberty bring.
On the issue of voting, I have long toyed with the idea of “popular votes + tax votes”; i.e. one gets a vote for being a qualified voter in a jurisdiction, then additional votes for amount of tax paid. Currently, IRS claims to be collecting $22k on average tax payer, so let’s say every $22k paid in taxes gets the person/household another vote. That way, instead of buying politicians, we can literally buy votes
And the tax collection can be a lot easier . . . instead of income or sales tax, government can be funded on voluntary basis by the amount of votes that people are willing to buy. Perhaps even an auction for 100 million votes for each federal election, and the voters/donors decide how much they are willing to pay for each vote in addition to their one vote as a qualified voter.
REFUSE To Buy!!!
“Again, Washington DC is not thinking about the unintended consequences of their actions.”
Don’t kid yourself. They know exactly what the consequences are and they know that there are more homeowners who vote than there are bank presidents who vote.
But these are not homeowners. These are “mortgage holders”. I think most people that really own do not want to see this. I think they did a poll (can’t remember where) and 63% were against any form of bailout. Do we really believe that these subprimers take the time to vote?
I wouldn’t call them “mortgage holders.” They are mortgagors, who mortgaged (pledged) their houses to banks and others. The banks and other investors are the mortgage holders, or mortgagees. Agree with you that true homeowners do not want to pay (hidden costs) to keep FBs in their houses.
Voters may vote but Bank Presidents give campaign contributions.
Unintended consequences as in our rat-infested government has money to bail out speculators but not a friggin dime for kids with no health care? Hundreds of billions for war but not a cent to shore up SS?
I really need to get serious about leaving this shit hole.
Well said, Joe.
SCHIP is not supposed to be covering thouse that make $40k a year.
“And therein lies the catch. If the institution only services the loan and does not own, they can not alter to the terms of the loan UNLESS every single investor/owner of the loan agrees”
As far as I know (and that ain’t very far), some of these instruments have provisions that give the loan servicer (the banks, etc.) leeway to make these modifications.
What % subset of these allow modifications? I don’t know. Will there be lawsuits anyways. Yes, probably. Will it slow down the price declines? Maybe. Will it be available to a lot (>40%) of the people in trouble? Very doubtful (California’s similar plan was slated to help 5%-20%).
Will it stop the price declines? I don’t think so, not by a long shot.
Purposes for the proposal:
1. make it look like someone is “doing something”…voting season is coming.
2. by “doing something”, shore up consumer confidence during the Christmas consumer buying frenzy, so as to not spook the economy into a consumer pullback led recession.
3. Give house prices a chance to start going up again, after which it’s “ok” to foreclose…while running the risk that prices will not have recovered in the time frame, leading to even greater losses.
4. Help shore up the debt markets by looking like “something is being done”.
My take on the outcome:
1. Bubble will take a LITTLE longer to deflate…might see a LITTLE dead cat bounce on pricing, but I’m even doubtful on that.
2. Banks, investors, etc. will take a long hard slow extended bloodbath, instead of taking a quick bloodshower, extending the time of pain.
However, even #2 is doubtful in my mind…I see the pace picking up…
“after which it’s ‘ok’ to foreclose” - I think this is the deal - not that prices will have risen, but rather that they don’t want to be putting hundreds of thousands of REO’s on the mkt simultaneously and driving prices truly through the floor.
“Fund manager Alan Fournier predicted that the plan being pushed by the Treasury Department will prolong the pain of the housing slump. He said it would merely delay inevitable foreclosures for some people who can’t afford their homes, while allowing holders of mortgage-backed securities to put off marking down their assets.”
“‘This reduces the pressure short-term to bring everything to a clearing price,’ Mr. Fournier says. ‘We really just need to let it wash through.’”
You know, in a less distorted market, extending things out over a longer time frame would help a lot. Profits would be down for a long while, but they could avoid a serious panic.
This market has become so distorted by speculators, that extending it out over a long time is just not going to work. There are too many houses out there that would never have been purchased at all if not for speculators and there credit standards for borrowing are just getting tighted too quickly.
If the regulators had seen what was happening much earlier (2003 maybe?), and slowly started to implement rules tightening credit (restricting the % of ninja loans that any entity could make, restricting the % of neg am loans that any entity could make, requiring the MBS’s to disclose the amount of loans in the pools that were ninja or neg am or what the percent change in morgage payment the resets would create and when the resets would happen) then they could have prevented the bubble from inflating quite so much and started a slow deflation of the bubble that was already there. It would have meant a pull back by builders and and the mortgage originators/packagers, but it could have been absorbed.
Now? It is just too late.
“extending things out over a longer time frame would help a lot. Profits would be down for a long while, but they could avoid a serious panic.”
This blows my mind. Why do this. The whole world knows you’ve taken losses. Fess up, take a short term hit and get going again.
If these banks are going to be carrying these losses for a long time, then if I’m an entrepreneur, I’m going to raise capital and start a new bank. One that is free of all the losses from 2003-2008. I’ll be lean and mean, higher profit margins, better growth, probably offer higher savings rates. I’ll be able to attract great talent from banks still carrying the losses.
I’d eat those guys up.
But if they take their losses today, they can get back to good profit margins and I would have a much harder time competing with them.
The question for these banks is solvency. You can’t take limitless write-downs and still be a bank.
If house prices are falling drastically and these people keep a neg am loan that adds to the principle, pretty soon they’ll owe 75% instead of 50% more than the props worth. There’s no way they’ll ever get out from under that unless they live another 100 years.
Ghost - I think that’s the crux of the matter. I’m convinced that extension of teaser rates means only that neg-am will be extended if it already is a feature of the loan and will be created if it is not already a feature of the loan. The banks just want to buy time so that the wall of unaffordable debt will crumble slowly rather than all at once.
Okay, in California it’s 1 in 88 homeowners at risk of foreclosure. Not sure what the “normal” percentage would be in any given year, but that would certainly mean that 87 homeowners/Voters are probably not at all keen about this rate freeze. And as others have pointed out, even reducing the interest rate to 0% won’t help many of the speculators, oh, right, “homeowners” out since they were probably floating all their money to make the monthly payment until they hit their big equity payday.
I don’t think it has anything to do with voters…remember, the plan is a voluntary plan worked out with banks…if the banks (and by extension, investors) want to take the risk of drawing out a subset of the FBs even longer, in a climate of price declines, that’s OK by me. It won’t stop the declines, and they’ll be in even dire-er (is that a word?) straits later on. I say, bring it on.
Is the bank going to show them how much more they’re going to owe with the neg am mortgage at the end of the 7 years. If not, every stupid idiot that can qualify will go ahead and do it.
I only brought up the voter aspect in response to comments that this bail-out had political ramifications, with a presidential election looming. On every website I’ve seen which allows comments the majority of posters are opposed to a rate freeze.
The entire tax code is already so tilted towards homeowners and against savers. You can deduct mortgage interest and get $250k capital gains tax-free when you sell your house. But every penny of savings interest is taxed. Why not just throw another bone on the homeowners’ pile? And if you committed blatant fraud to get there? Who cares, we’ll freeze your rates anyway! But the funny part is, somewhere along the way a lot of people forgot why homeownership is favored taxwise - because it’s not considered a good investment to begin with - it’s more a “peace of mind” transaction. Haha!
“Ex post facto” laws & voiding contracts — FDR seized private gold holdings & voided gold clauses in 1933, and the Supreme Court backed him up. This is one of many violations of the Constitution over the years which have turned the USA into something which Lincoln & Washington would not recognize. Never underestimate what can happen in a crisis.
Lincoln suspended heabius corpus during a crisis, that`s what can happen.
It got put back into place.HBcorpus.
W took it out permanently, no protections for you and me, much less any terr-ist.
The shell game continues, as shortsighted lenders do anything to squeeze the last dime out of the FB turnip. It is doubtful whether this plan will be legal for any loans other than those still held by the originating lender. However most FBs (and some lenders) don’t know who owns their loan. If an FB tries to find out who owns their loan, they will only get to talk to a $7 an hour imbecile, who either won’t know who owns the loan, or (tinfoil hat) has been told to say the lender still owns the loan. So FBs will be encouraged to keep their payments current, in the hope that their loan will be one of the lucky ones that will be granted amnesty when it resets. The NAR will trot out FunYun next week to spout off about how price declines are only an aberration, and the market will go up next year. The FBs will believe all of this and continue to pay their loan and to hope for the best (remember the name of this scam starts with Hope), not releasing they are even more F’d than they were before.
I think that by allowing FBers to continue to keep the low teaser rates is a form of discrimination. Anyone who has responsible payment history, and credit is being discriminated by paying higher rates.
I think this has all the minimum requirements for a class action lawsuit against the Treasury, and banks that join this “freeze bailout”. Anyone want to start a class-action lawsuit? I am in.
“Anyone who has responsible payment history, and credit is being discriminated by paying higher rates.”
I’m in agreement, but let me play devil’s advocate by adding one word to your sentence:
“Anyone who DOESN’T have responsible payment history, and credit is being discriminated by paying higher rates.”
Isn’t that the way it’s supposed to be, and isn’t discriminatory. So how is the former?
Equal protection under the law?
Hey what about me?
If we are gonna start subsidizing bad behavior, gambling, and speculation….I want in on the action too.
I lost a bunch of money playing Lotto and also at the casino….where is MY bailout?
Pay me now suckers or I don’t pay YOU in April!!!
SeattleMoose, we had our chance two weeks ago. Should have taken the Eagles vs the Patriots and the 23 points.That chance won’t come along again for a while.
I’d say their trying to time this thing so it doesn’t happen on Bush’s watch. That way when things really go south in 2009 and 2010, the other party will have impetus for change in the White House in 2012. Politics trumps all other decisions.
God I hope Ron Paul gets elected or I’m leaving this country for good.
And where to go? I once thought that too, until I realized that no matter where you go, the herd is the same.
I got transferred to Australia from the states for a few months, and the real estate market here is just like the states two years ago: turning, but no one sees it coming. And the politicians are responding the exact same way.
Even worse, the election down here last week included a commercial for Kevin Rudd (the new PM) talking about John Howard (former PM) [paraphrased]:
“Mr Howard, the prices of everything are going up, and now you’re raising interest rates…”***
I wanted to throw a brick at my TV everytime that whiny commercial came on: of course the central bank is raising rates, they don’t have the same cooked inflation numbers to work with as Bernarke has at his fingers.
The whole thing makes me mad. We had to work our butts off to save 33% to put down on a 7% 15 yr fixed. We paid it off in 13 1/2 yrs. Now these idiots get to come along with 100% loans and teaser rates of 1.9% and the gov wants to help them out because they can’t make it. I say, “Tough luck. You need to work and save like the rest of us and not get in over your head to buy every status symbol ever made. Maybe if some of them were living in the cardboard boxes all their large purchases came in they would learn some sense of responsibility.” I’ve learned from helping out at centers for the poor, that some of them, even though they’ve made as much money as other families that don’t ask for help, will never stand on their own two feet. To them, a penny earned is a nickel spent, and I’m sick of it. They always want a bailout and most of them don’t hold jobs, because every type of work they can find is beneath them.
A friend of mine that’s a judge said she fined this guy in court instead of giving him 60 days in jail, and he said he didn’t have the money to pay. She said then we’ll give you some court appointed task to work off the debt. He said, “I don’t work for nothing.” She said, “Let me get this straight, you don’t work for money and you don’t work for nothing?” He said, “That’s right, I’m not working for free just to pay a fine.” She said, “Fine by me. 120 days in jail.” and banged the gavel.
So the Tax payers pay for the crime, great answer judge. I think its time to think about prison work crews. Then we could get labor back from China, seeing how thats what they do.
Definitely need to put prisoners to work.
Infrastructure projects, cleaning, cleaning, cleaning!!! Grafitti erradication (scrub with wire brushes until it comes clean!), etc.
Lots of work for them & it would be much better for everyone if they were **working** instead of “working out”.
Since the topic is “is this a new twist or is everyone pretending” Here is the “latest concept” in Internet Auctions, notice that although this is supposedly an auction it has starting bid prices.
http://paxofsanjose.com/all-pax-auctions.aspx
‘The truth is, nobody knows where the risks are.’”
Oh God (seems like we’re calling on the almighty a lot these days), it is NOT that nobody knows where the risks ARE, fer cryin’ out loud! It’s that nobody wants to admit WHAT they are. Sheesh.
Yeah, between the mortgages they bought, then resold worldwide, being in the middle I’d bet Wall Street has a good idea where those losses are, worldwide.
“‘What they want to avoid is customers mailing in their keys and walking away,” said banking analyst Mark A. Morgan….”
We’re here from the government
And, we’re here to help
Don’t walk away…
I usually try to keep politics out of my posts on this board but…..
Who thinks this is directly inspired by the Bush Administration to keep the economy / housing market limping along until George W is out of office. I doubt George wants to see his legacy as a quagmire in Iraq, an exploding national deficit and a ruined economy. He probably told Paulson to put a lid on this fire till he gone.
(BTW, I tend to vote republican)
The fact that the Bush administration is making a clear and strong effort to bailout FB’s is an obvious indication that he is more concerned about his own legacy rather than the “principles” (however shallow they are) the CONservatives allegedly hold as their own. Phony? Yup. Deceptive? Without a doubt.
Plug your ears everytime these fear mongering, boogeyman behind every tree CONservatives yammer on about “values”, “integrity” and “honor”.
Yeah, don’t drop the soap when you hear that stuff from anybody, not just neocons.
So much for free markets.
So much for personal responsibility.
Billions of dollars being lost by power players and many thousands of people getting evicted and the only people likely to take some kind of action are the Bush Administration? All politicians will get sucked into this and that is just a start.
The Chimp’s legacy is ruined regardless. This will go down as the worst presidency in the history of this country. The only caveat is if Hillary gets elected…a Bilderberger and a globalist.
Hey you guys, stop talking about leaving the country and come joing me in beautiful New Zealand where I have been living for a year now. Took the housing bubble bucks from the sale of my CA house back in 05 and am enjoying renting here and not working. Great schools for my three kids and NO ILLEGALS!
Come on over!
I would love to, but need a job. Seeing how I dont herd sheep, bungee jump, or fight Orgs. I just have to stay here in the USA.
Uh, so you’re not illegal? How does that work - are you a zillionaire, invested in a local business, or married to a Kiwi, or just leaving the island every 180 days? And a marine in New Zealand? That seems even stranger. North Island or South?
Got my papers through the official NZ immigration program.
That’s shocking - that is, the use of the word “inimitable” twice in the very first sentence of the website I found on NZ immigration:
“New Zealand might be the most far flung inhabited landmass in the world but the inimitable way of life, incredibly low cost of living, breathtaking natural scenery and inimitable feeling of space available in New Zealand draws many thousands of people to apply for immigration every year.”
http://www.shelteroffshore.com/index.php/living/more/new_zealand_immigration_law/
(By the way, I have no interest in moving to New Zealand. Windy, blue laws, aggressive magpies, the pool tables aren’t level, “six” for “sex”. . .)
But how will this help the developers, lenders, and construction workers. These are the big money jobs that replaced the big money jobs that were shipped overseas. Even at 0% a 300k home is over 800 a month for 30 years. This plan will not stop the final outcome. Watching the economy fail will be slow. Just like watching your grandparents get old and die. This problem did not start with housing, its debt. Debt caused every Depression and will cause this one.
“Such the a thing would be an ex post facto law - ex post facto means ‘after the fact’ - and it is explicitly prohibited by that thing called the US Constitution.”
I think it is time to change the U.S. Constitution, HOUSE PRICES CAN’T GO LOWER IN U.S., IT IS AGAINST MARKET ECONOMY ( U.S. STYLE). I wonder if the same should apply to U.S. stock market as well. Yes it is time to change the CONSITUTION.
Most of the reactions here make no sense to me. Adjusting loans were designed for times when rates were going down, not going up, so these loans were in trouble from the start. Many times the rate adjustment schedules have been displayed here, so it is broadly known that there is trouble. The banks are just trying to save some of these loans if they can. Many if not most of the people with bad loans are still going to get taken down by them, and the banks who made the loans are still in trouble and at best will make a lot less than they hoped. It sounds like people thought this would all go down the drain without even a gurgle, and that isn’t realistic at all. How messing around with doomed toxic loans like this is unexpected or amounts to a bailout is beyond me.
It sounds like the desire to view everything that is going on as a morality play is getting ahead of any desire to do the math. There is no bailout and most of these debtors and institutions are still in deep trouble. People are saying that the government is giving free homes to zero down types as a result of this, but there does not appear to be any math that can support such an assertion.
This bailout plan sounds like a variation on the Infinite Monkey Theorem. If you give enough subprime borrowers enough time, they’ll eventually get that 50% raise at work, their rich Uncle Ned will pass on and leave them his estate, or they’ll hit the lottery. Once in possession of newfound wealth, said borrowers will make good on their high-cost mortgages, the banks will rake in profits, and everybody will live happily ever after.
Or, at minimum, things will “turn around,” and FBs will be able to sell their houses for more than they owe.
Yeah, just give it enough time. What’s the life expectancy of the universe anyway?
I agree that the “rate freeze” and many of the other “solutions” are ethically dubious and economically unsound–but I’m not going to get upset about them. The system was broken, is broken, and will remain broken. I think the beauty of this blog is that is gives us rational actors information and community. The “rate freeze” is just more data for us–and we should be able to adjust our investments consider correspondingly. Other currencies, especially the euro, are at a premium these days, but I feel compelled to open a foreign account considering what I’m reading in the WSJ. The Iraq War and the Housing Bubble–which are not unrelated events–have brought us to the end of the dollar’s worldwide dominance. Plan accordingly…
Spykeeboi, I feel just the same. If the US authorities’ only possible responses are those that flush the US dollar further down the toilet, we must respond by getting our assets into diverse currencies. Heck, I wonder what fraction of Paulson’s assets are in USD? Even if they’re in some “blind” (wink, wink) trust.
I doubt this bailout, if it materializes, will have much affect other than possibly delaying some foreclosures. These instruments were sold far and wide. I don’t think we have even begun to realize the extent of how far this whole thing goes.
This article from the NY Times details the problems of a small village in Norway who got involved in investments with Citigroup.
http://www.nytimes.com/2007/12/02/world/europe/02norway.html?hp
A couple of good quotes from the aritcle:
“The chief investigator of Norway’s financial regulator, Eystein Kleven, said Terra Securities’ Norwegian-language prospectus did not mention such payments, or other risk factors. Citigroup’s term sheet did provide information on risks, but Narvik only got a copy after it had signed the agreement.
Even if the Norwegian prospectus had been complete, it is not certain that Narvik would have shunned the investment. Ms. Kuvaas, for one, said she did not read the prospectus before voting to authorize it — a decision that was made when she was in the government but not yet mayor. She said the town trusted Terra Securities, with which it had worked since the late 1990s.”
“These investments represent a quarter of Narvik’s annual budget of $163 million, and covering the losses would necessitate taking out a long-term loan, which the town could only pay off by cutting back on services.”
It’s not just the local governments in the US that bought into this mania.
What an amazing paradox. Just think if your were one of the FBs who will be helped by Paulson’s new plan - your 1.9% mortgage rate will be extended for 2-5 years - Yeah! But because your an employee of a local government who invested treasury in a fund holding SIV paper and gets screwed by the 1.9% cap, your employer cannot give you a paycheck. Boo!
This is a mess of epic proportions and there will be no easy workaround. There will be plenty of pain - the best anyone can hope for is to distribute it out over several years.
the best anyone can hope for is to distribute it out over several years.
———————
NO, NO, NO, NO!!!!!
The best thing that could happen is that the PTB allow the market to take care of the dislocations & purge all the crap from the system.
The sooner, the better. Then, we could finally get around to reviving our economy & bringing back our JOBS!!!!
There is no easy fix to the problem of globalization (and the credit bubble & globalization are related in many ways).
We need to decide if we want to be a civilized, safe, innovative and devolped country OR… we want to become a third-world cesspool filled with the lowest of the low (worker skills, pay, healthcare, crime, etc.).
Which one will it be? Seems the PTB have already decided & it’s not the good one.
I wonder if the significance of the upcoming resets may be a bit overblown. How many of the IO/Neg Am/ARM mortgages are actually going to reset before they default? I won’t be surprised if a very significant percentage of these loans in many locations will default first because they were taken out by fraudsters and flippers who have already bailed.
OK, this is for flat. Those public pension funds, that are supposed to be untouchable? Well, NY’s 2 funds took a major haircut due to the slide in CFC’s share price. Now there’s a lawsuit. Billions gone. And those public employees? Soon to be retiring en masse. The fireworks are just beginning, wait til other states and municipalities start looking at their retirement funds and what’s in them. Or, more to the point, what’s left.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-11-30T214459Z_01_N30312252_RTRIDST_0_COUNTRYWIDE-CLASSACTION-NEWYORK-UPDATE-2.XML&pageNumber=0&imageid=&cap=&sz=13&WTModLoc=InvArt-C1-ArticlePage2
I had a feeling the Feds would try a bailout. Problem is, how do you bail out millions of homeowners each underwater by at least 100K? YOu could raise taxes or devalue the currency, but that would be so obvious to even the densest people, and I’m doubtful that the Feds could bail out trillions of $$$. I have a feeling that this next election is going to be a doozy.
A comment on the politics regarding RE. I’m not trying to shill for Bush, but as time goes on I’m beginning to think that he’s stuck between a rock and a hard place. When he was first voted into office, we still had many of the same problem we have today. The problem is, most of these problems were ’swept under the rug’, so to speak. THat’s how it was done for generations, quite frankly. I think when Bush was elected to office, that 2000 election brought out the ugly in a lot of people, and I think with it came the acknowledgement of a lot of the problems we face right now by the media, MSM or otherwise. Consider gas prices. We were debating this back before the First Gulf War. We had health care issues when the first BUsh was in office. We’ve had constitutional crisises long before Bush or Clinton or Reagan were in office. To be honest, I think Bush and the US Congress are doing exactly what the Americans want them to do. I didn’t see anyone bashing Bush during 9-11-01 even though we had all sorts of stupid problems then. Same with the 2003 Iraq War; again, nobody really complained (quite a few people opposed the Iraq War, but they were only a small percentage at the time). All of a sudden, you Americans are losing big $$$$ (not directed at anyone on this site, BTW) on the overinflated fish shacks and granite mobile homes you bought and now Bush and the Congress are evil? I thought both Bush and the Congress stunk even back in 2000 (at the time it was politically incorrect to imply that either one of these two stunk). As for people thinking the US Constitution is in danger, I wouldn’t worry about it at all. We as a ‘country’ have never followed it well even from the get-go. The US government has never managed it’s money well. Even before the Civil War we were wasting money on all sorts of political pet projects. Consider too that the US government doesn’t pull in much revenue per employee as depicted by the media (about $58,000 per employee in 2004, the #’s are available on the web). That’s probably why they keep printing more money.
” I didn’t see anyone bashing Bush during 9-11-01 even though we had all sorts of stupid problems then.”
You must be joking. There was and continues to be an avalanche of criticism of Bush on his handling of 9/11, his failure to pay attention to warnings on Al Quaeda,et. al. Why rehash the obvious, except that I disagree with everything you’ve written.
Thats an interesting prespective aeyra.
They, congress, are evil for a few other decisions as well.
Torture/waterboarding is A-OK,
Permanent Suspension of Habeus Corpus.
um, let us think…Wire tapping, demanding of all Social security #s to get married, to fly on an airplane, the list goes on.
More revenue would be pulled in if more jobs had stayed here, and less companies were allowed to get OFF TAX FREE.
Let’s not forget the tax cut so the richest Americans could pay only 15% on LT cap gains — for sitting on their fat a$$es.
Disclosure: 100% of my income is cap gains, and even I think the 15% LT cap is ridiculous.
I’m just stating the obvious. If Bush is so bad and the US government is a bunch of clowns, then the American people need to stop complaining and contact their Senator or Representative. Unless the members of Congress are ignoring all of the letters sent to them by their constituents, I don’t think a lot of people even care, quite honestly. I really don’t care if everyone disagrees with what I post on this site, BTW. Does anyone here really think that the Feds can bail out the housing market without something giving somewhere else? I think we’re up a creek without a paddle here, and now I’m beginning to question a whole bunch of stuff going on. Look at the problem in FL with the pension crisis; that’s got the housing bubble written all over it. It doesn’t suprise me that FL had something stupid happen. The point I’m making is that I don’t think anyone should be surprised over the politics involved with this RE bubble, and I don’t think it’s something that one should necessarily lose sleep over. I’ve heard from people here and elsewhere of all sorts of RE scams and cronyism from the last RE bubble in the 80s. There’s the same catchy jingles and the media shills and the sales gimmicks and games. The thing that worries me more is what happens when the public wakes up and realizes: this is how it has always been. Not just in RE but pretty much everything.
Class action suits - here we come!
I read somewhere that the majority of foreclosures up to now are investors. An extension of teaser rates will not stop the smartones from walking away. They have nothing to lose. The longer they hold on the more they lose.
Right , I guess the bail-out people just don’t get it that at least 30% of the loans were investor loans and fraudulent junk and a high % of those are toast .
Never did I ever think I would ever see borrowers have to prove that they don’t qualify in order to get a give-a-way rate like the teaser rates ,or if you don’t qualify for the adjustable loan you took out you get a rate lower than a prime rate fixed borrower with a down payment .
I think the plan is to bring the Fed rate down to zero for at least 3 to 5 years so the banks/lenders can afford to fund this bail-out . Stupid decision to trash the dollar and go for a bogus bail out like this plan the people in power have . Are they trying to avoid lawsuits also because of the lenders evil underwriting , bogus appraisals ,and promise of refinancing of toxic loans ?
“Never did I ever think I would ever see borrowers have to prove that they don’t qualify in order to get a give-a-way rate”
Nor did I…I’m going to have to put this one in my memory banks for the next mania that comes about…”too big to fail”.
Attached condo in this exclusive gated comm, went foreclosure as the guys had 7 other properties. Nice fellas,waved all the time, wish I knew, I would have offered to rent for cheap.
i am hoping the following article is true. if so, not a whole lot of specuvestors will qualify for the bail-out plan.
“Under discussions in Washington, relief would only be provided to homeowners who remained up to date on their payments but can’t afford the higher rate they will face. Homeowners whose property values have dropped below the value of the mortgage would not qualify.”
Treasury, Fed Ride To Rescue Lenders, Subprime Borrowers
http://biz.yahoo.com/ibd/071130/feature.html?.v=1
I wonder if an individual investor with some money in a money-market fund which is invested in CDO/MBS may have a shot in a lawsuit against the bank if the the underlying loan conditions are modified.
Not if they signed an arbitration agreement.
“Homeowners whose property values have dropped below the value of the mortgage would not qualify.”
Value is a funny word. For example, your Sunday paper sales flyer may tout a $20 roasting pan with the writeup, “Compare at $50 VALUE.” Or, as used when modified by the word “market”, as in “Recent sales in the area have gone for significantly less than market VALUE.”
I believe that the latest edition of Webster’s defines “value” as: “The amount that a thing might sell for, if the eternal creator actually LIKED me. WAAAAAAAA!”
I’m not particularly alarmed by this proposed monkey business. I know at first the news will be chock-full of interviews with salt-of-the-earth, hard working families about to lose the farm, Pa going blind, brother Bubba needing a kidney. But sooner or later, somebody on a well read blog like - oh, here, or slashdot or consumerist.com, will report on a few particularly notable citizens reaping the rewards of an APR freeze. Maybe find an unregistered-alien-slash-mortgage-broker who is claiming each of 20 houses as his primary residence.
A few stories like that and someone in the mainstream media will break ranks and report on the scandal. During sweeps. Maybe Fox News, if we can find some freeze-claiming fraudster who is also an exotic dancer or has been in a Girls Gone Wild video.
In all seriousness, as apathetic and dumb as the public may be, I think this plan stands an excellent chance of going horribly wrong and becoming a PR nightmare. I’d be positively gleeful if I didn’t actually have to LIVE in this country.
“Homeowners whose property values have dropped below the value of the mortgage would not qualify.”
Most of the buyers going back to 2005 or maybe 2004 in addition to those who HELOC’d up to peak 2005 prices wouldn’t qualify. This is also the group with the riskiest mortgages with the worst terms.
There will still be massive foreclosures among those who bought in the past few years. The worst thing for those buyers would be to keep making payments on their depreciating “asset” thinking this might help them when it won’t. I wonder if that’s the intention, keep money coming into the lenders while making it look like you’re “helping” those facing foreclosure.
How to be a bank:
1) Lie about the quality of your derivative products so you illicitly make obscene profits while screwing the investors who trust you.
2) When you get caught with your pants down, change the rules of the game at the government level so that you don’t have to pay the price for your irresponsibility.
Any questions?
If you’re in a short fund you must *really* be pissed off at all this. The short funds are the only “smart” guys on the street right now. They’re the only ones that haven’t been smoking crack while working on the spreadsheets.
Too bad “math skills” have nothing to do with the next chapter in this game. This is about politics, manipulation and the end of free markets.
Their is an estimated $900 billion in credit debt out there..How much of that is backed by MBS’s ? That may the next thing to go..
I mean if people can’t make their mortgage payments, how are they going to make their credit card payments.
The snowball is rolling and getting bigger all the time.
Because Shrub and the Governator’s FB bail-out plans seem so implausible and are devoid of details, there is nothing to do but wait to see what happens. I suspect it is just a PR announcement like that after Katrina and that few FB’s will be saved. As always, charity will go to the political contributers: banks (in Katrina: Blackwater).
Here is what I’m wondering about the bail-out plans:
As I understand it, currently in California borrowers who have not refinanced have NON-RECOURSE LOANS.
They can walk away and mail the keys to the bank.
HOWEVER, IF they refinance, they LOSE their NON-RECOURSE status.
I would assume that if a FB takes the bail-out bait and calls the lender to get their interest rate increase frozen, then this revision in the contract would switch their mortgage from NON-RECOURSE to RECOURSE.
Now the FB cannot walk away from their home without losing everything: money in savings, 401k, cars… and having their wages garnished. Seems similar to the new BK laws. The new indentured servitude (but didn’t that get paid off after 7 years?).
I am wondering if one reason that these bail-out plans have been announced with such vague language is to test the waters to see if the public catches on about the downside for the FB’s.