The Arc Of The Universe And People’s Intelligence
Readers suggested a topic on GSE proposals. “Principle write-downs at Fannie Mae and Freddie Mac: 1) Are they a go? 2) Who wins and who loses if they are? My recollection is vague, but it seems the Treasury Department summarily slapped federal guarantees onto all of the GSE debt after they collapsed. The upshot is that the U.S. Treasury (however defined — i.e. as the tax base, monetary base, or otherwise) is presumably on the hook for losses, whether due to default or write downs of GSE debt.”
A reply, “The bondholders will get the nice return. The taxpayer will be on the hook for any losses. The government has _guaranteed_ the mortgages, so taxpayers will bear all losses.. But the taxpayer does not hold the mortgages themselves, since they were securitized; the holder of the mortgages (e.g. the bondholder) will get the return.”
The Nevada Appeal. “I recently heard a story that applies to thousands of Nevada homeowners who are facing foreclosure: A young couple were first-time homebuyers. They had a 20 percent down payment, and both husband and wife were moderate wage earners. They were clear about how much they could afford to pay, and they gave the real estate agent the figures. The agent assured the buyers they could make it work. This was in the summer of 2008. But when the figures came back, they were several hundred dollars higher than the couple could afford. Rather than stop the deal, the lender told the couple not to worry. They would close and negotiate a refinance deal in a couple of months. In the meantime, the lender promised the buyers, the company would pay the difference. All verbal. Nothing in writing.”
“In late 2008, their home lost value dramatically. Within a year or so, they went ‘un der water.’ Then disaster struck. The key wage-earner lost his job. His wife was underemployed. They re duced their house payments (the bank would not work with them). The couple finally stopped paying entirely in an effort to feed their family.”
“Bank of America said it would work on a short sale, but reneged. Another branch of B of A auctioned the home to Fannie Mae at the Lyon County Courthouse. Fannie Mae hired someone else to tack a notice on the door of the couple’s home. The notice said they’d have to be out in 14 days. In the meantime, the couple have secured new, full-time jobs, but are about to be evicted from their home. They can’t even rent it. They worked hard and tried to do the right thing. Their credit has been destroyed. They feel they’ve been exploited by corrupt banks and extra-legal/unethical lender practices. The couple run the risk of being put out on the street, the culprits having no accountability.”
“Many Nevada homeowners are still suffering. Will justice ever prevail? Dr. Martin Luther King Jr. once said, ‘The arc of the universe is long but it bends toward justice.’ In this situation, justice seems badly warped. Who will help Neva da’s home-buying consumer? Who has the authority to take on a major corporation and bend the arc toward justice?”
From Scoop News. “Australian economist Steve Keen is amongst a growing group of economic renegades who believe things are so far gone with the global economy that a debt jubilee and a total reset of the financial system is required. He proposes nationalizing the banks and wiping the slate clean because he contends that it is now mathematically impossible for most countries to repay the combination of their sovereign and private debt. He also contends along with economic historian Michael Hudson that the mortgage and consumer credit that western banks have extended is verging on odious, lent recklessly for short term gain by banks more concerned about their profits from the resultant interest and fees than the effect it would have on not just individual consumers but also the nations they are citizens of.”
“If Keen and other proponents are correct the time has arrived for a general debt jubilee to be applied to western democracies including New Zealand. But why should people be absolved from mistakes in their personal financial decisions? What about the prudent amongst us who have paid off their debt or refused to accumulate any of it at all? Surely you cannot reward the reckless, for what kind of message does this send to people and how does it distort future behaviour if everyone thinks they will be bailed out at some point down the track.”
“The way Keen gets around the moral hazard problem is to give everyone a large chunk of cash whether they have debt or not. Keen doesn’t mention a figure but consider how your own and the nation’s situation would change if say every adult over eighteen got $100-200,000.”
“This leads to the other major criticism of this jubilee concept, that it would be hyper inflationary. After all we are talking in New Zealand’s case about the government creating hundreds of billions of dollars out of thin air. This would not necessarily be inflationary if a number of other things were done concurrently. The idea isn’t just to pay off debts and restart the current credit system – it is to completely reform and re-regulate credit to prevent the same lunacy of the GFC happening again.”
The Macau Daily Times. “While Mainland China has already successfully brought the growth rate in personal income above that of the national GDP, Macau is yet to bridge this gap and make individuals prosper alongside the entire economy, which, according to prominent mainland economist Wang Tongsan, is essential to the stability of the society as a whole.”
“Asked of what he considered to be the economic solution for Macau, Wang said he agreed with the local authority’s assertion to diversify the economy - by developing services industries including tourism. ‘Macau is too special. Firstly, its population is too small, but then they’re very smart,’ he said, ‘they successfully found their knack, which is gambling, and now they developed it into the biggest gaming market; the local GDP per capita is USD$50,000, while in mainland China it’s only USD$4,000.’”
“‘But the cost of this is a ‘distorted’ economy (that relies heavily on the gaming industry), and the solution is diversification - that is to develop service industry, including tourism’, he added. ‘It’s easy to say but difficult to implement, but I believe that since the Macau people are smart enough for this daunting job (of developing the world’s number one gaming market and the GDP per capita), then they must have the intelligence to find a way to diversify the local economy,’ said Tongsan.”
“‘I can only say that from an economic theory point of view, it’s correct to push for economic diversification, but I can’t tell you the details (on how to do it).’ He raised another example of Macau people’s ‘intelligence’: ‘(Last year) we heard in Beijing that Hong Kong is giving money (cash HKD6000) to its citizens - we though this an innovative idea. But after coming here, we learnt that this is actually Macau’s innovation, HK is just copying Macau’s example.’”
“A young couple were first-time home buyers. They had a twenty percent down payment and both husband and wife were moderate wage earners. They were clear about how much they could afford to pay, and they gave the real estate agent the figures.”
So far so good. And then … something happened …
“But when the figures came back they were several hundred dollars higher than what they the couple could afford.”
But the couple were talked into doing the deal anyway.
IMO what happened afterwards is on them - on the couple - in that they knew what they could afford and nothing afterwards - lies, promises, etc. - was going to change this fact.
And ‘This was in the summer of 2008.’
Jeebus, how could you not know the Nevada market was crashing in 2008? Which brings up an interesting point; when do you cut off the loan forgiveness? Is a purchase in 2011-12 eligible?
In my view the issue isn’t about what happend to real estate prices, the issue is whether or not the buyers could afford to buy.
Prices of things go up and down all the time but these fluctuations don’t affect the price of the monthly payments the buyers agree to pay.
Buy a brand new car on the monthly payment plan and you will soon be underwater but nobody seems to care all that much. But buy a house on a monthly payment plan and when it goes underwater it becomes a national crisis.
Or what they can afford to pay:
‘In the meantime, the couple have secured new, full-time jobs, but are about to be evicted from their home.’
What’s the problem? Just take the money from your jobs and pay back what you owe. Ah, but I bet they have an balance from when they were living there for free. Can’t expect them to pony up for that huh?
But buy a house on a monthly payment plan and when it goes underwater it becomes a national crisis.
Because the HELOC spigot is shut off. No more living beyond your means: no fancy cars, no expensive vacations, no eating out, etc.
“Because the HELOC spigot is shut off.”
And this (apparently) is what the Fed is trying to turn back on again, isn’t it, by making real estate always go up again? (Admittedly, it is pretty hard to tell what the Fed’s real policy objectives are…)
The problem is that the media, society, PTB, whomever, have brainwashed consumers (among other things) into thinking of a home as an asset, not an expense. And monetary policy has encouraged home ownership with the various tax advantages. It’s something to improve and entertain in, celebrate holidays and milestones, to grow old in and leave to your children! It’s not a money pit! The myth has persisted for so long that it’s the “American Dream”. It’s an emotional purchase. And no one discourages this because it is in no one’s (except the consumer) best interest to do so. If everyone could view capitalism at a distance and realize that firms, corporations, Wall Street, will do whatever they have to do to get you to part with your money, it would send chills down your spine. Look at the food they try to get us to eat, breakfast cereals, hamburger helper, spam, cheesewiz, twinkies… Does anyone know what is in there? Yes! The companies that make it know and yet, they are still willing to sell it to us AND lie to us about how good it is for us! I recommend everyone on here watch, “Fat, Sick and Nearly Dead” and start thinking about what you put into your bodies. It’s an eye-opener.
Because that “monthly payment” was actually just interest only, or even less than interest (neg/am) with a 3-5 year grace period. That grace period is up and people now have no equity for a refi and no one to sell to.
I overhead a former Californian bragging about his creative approach to getting the price he wanted for his house. He sold it to a guy who owns three restaurants, but couldn’t get a mortgage because he is self-employed. He allowed the guy to give him a note for interest-only for three years and then a balloon payment at the end. He thought he had nothing to worry about because the guy would “lose everything” if he didn’t make the payment and he would get the house back. Hmm.
“Buy a brand new car on the monthly payment plan and you will soon be underwater but nobody seems to care all that much. But buy a house on a monthly payment plan and when it goes underwater it becomes a national crisis.”
Great example there to point out one of the crazier aspects of the real estate mania: In a world where ‘real estate always goes up,’ real estate is an appreciating, not a depreciating, asset.
Other than rare art, fine violins and other collectibles, almost all physical assets of which I am aware physically depreciate, losing both real and pecuniary value over time unless money is spent to maintain them. This applies equally to cars and houses. Is this really that hard for the sheeple to grasp?
Other than rare art, fine violins and other collectibles, almost all physical assets of which I am aware physically depreciate, losing both real and pecuniary value over time unless money is spent to maintain them.
Do “rare art, fine violins and other collectibles” not require money be spent to maintain (or protect) them?
Does land depreciate over time?
Land prices fluctuate over time and values can appreciate if buildable land is scarce and there are jobs.
“…not require money be spent to maintain (or protect) them?”
Yes, but not as much on the margin as do, say, cars and houses. I assume most rare art goes to environments which offer natural protection; for instance, it may be costly to maintain the security and environmental conditions which protect rare art in a museum setting, but the cost is a vanishingly small fraction of the market value of the artwork.
A similar comment applies to fine string instruments; I once had a $700 repair done on my viola, after a 2mm hole mysteriously appeared in the side (none of my four small children at the time ever confessed the act). The guy who did the repair also works on rare Italian violins; while $700
represented a material fraction of the market value of my viola, it is a pittance compared to the market value of a Stradivarius. And most repair and maintenance work is far less costly than that.
By contrast, the cost of physically maintaining a home clearly is a material share of the price.
“Does land depreciate over time?”
I suppose that depends; for instance farmland subject to intensive cultivation may lose its productive value over time, which would be a form of depreciation.
More importantly to this discussion, the value of land can decline dramatically in the aftermath of a property mania over a protracted period of time. In terms of the effect on resale value, there is little difference between the impacts of a bursting bubble and rapid physical depreciation.
“Does land depreciate over time?”
In a practical sense, since you have to continually spend money to keep it.
since you have to continually spend money to keep it.
I bet those Indians who sold us Manhattan for a bag of beads had a good laugh.
“In a practical sense, since you have to continually spend money to keep it.”
I hadn’t thought about the property tax angle, but right: Even if the market value of the land stays constant, the ownership tax you have to pay to hold on to it is financially tantamount to depreciation.
P-bear, ALL dwellings depreciate over time, including yours. You will pay for upkeep when your rent increases.
“You will pay for upkeep when your rent increases.”
We haven’t had a rental increase in four years running. With ongoing price declines in San Diego, and many new rentals soon to become available due to top-down programs which push dead shadow inventory onto the rental market, coupled with myriad empty-nesters who will be seeking opportunities to downsize from their family-sized McMansions to smaller dwellings better suited for retiree lifestyles, I am thinking we will be in a buyer’s market for both rentals and homes for purchase for years, if not decades, to come.
But perhaps you know better?
Even if the market value of the land stays constant
What if the market value of the land goes up a lot? That has happened before, at some time in recorded history, right?
the cost of physically maintaining a home clearly is a material share of the price.
Does the imputed rent balance that at all?
“What if the market value of the land goes up a lot?”
It’s a crap shoot, for sure! Of course, land prices can also decline a lot, severely burning the gamblers who speculate in it.
It’s not hard to find examples of falling land values these days.
Got deflation?
Euro zone strugglers falter in property sell-off
By Tom Bill
LONDON, April 20 | Fri Apr 20, 2012 5:30am EDT
(Reuters) - Debt-laden euro zone countries hoping to sell state-owned property must cut prices and establish more transparent sales programmes to boost the slow trickle of transactions to date, research showed.
While European governments more than doubled real estate sales to 2.3 billion euros ($3 billion) last year to cut debt in the wake of the financial crisis, they were dominated by more robust economies like Germany and the UK, a report by property consultancy CBRE said.
Greece, Portugal, Spain, Italy and Ireland, the five nations most debilitated by the sovereign debt crisis, together accounted for less than one percent of the total, CBRE director of research Richard Holberton said.
“In some cases there may be a need to drop prices” he told Reuters. “In others there is still a basic need for a comprehensive audit to understand what they’ve got and how to get rid of it.”
The urgency to raise funds was underlined this week as Spanish 10-year bond yields rose above 6 percent, raising concerns about its ability to borrow money at sustainable levels. Italy was forced to relax its budget deficit targets.
Government property disposal programmes have prompted accusations that countries are selling off the family silver and have been opposed by groups such as trade unions.
Greece aims to raise 50 billion euros through privatisations and real estate sales by 2015. Last year, it set up the Hellenic Republic Asset Development Fund to dispose of 70,000 properties including ministeries, tax offices and tracts of beachfront land.
“They haven’t got a cat in hell’s chance of hitting that target,” said David Parker, the Emeritus Professor of Economics at Cranfield University who has advised governments on privatisations.
“There is a real likelihood of price cutting if there is desperation to find buyers who themselves are finding debt financing difficult to arrange.”
…
Let’s put to rest this BS notion that a landlord expenses are automatically pass through costs to the end user. It’s false. Ask a Detroit landlord.
Buy a brand new car on the monthly payment plan and you will soon be underwater but nobody seems to care all that much. But buy a house on a monthly payment plan and when it goes underwater it becomes a national crisis.
Automobile financing is also being supported by the fed since high personal debt levels would disqualify most prospective buyers.
“Jeebus, how could you not know the Nevada market was crashing in 2008?”
My recollection on this is fairly vague, but it seems Nevada (esp. Vegas) was among the very first markets to tank, way back when All Real Estate Is Local almost seemed like a plausible thesis.
Perhaps they thought the Nevada market had bottomed out by 2008, the same way many serial bottom callers currently believe the national U.S. housing market has reached bottom (”national” meaning the one whose ups and downs are driven by injections of federally guaranteed mortgages into the lending pipeline)?
Your right PB.
Las Vegas peak in June 2005 by June 2006 it was going down slow but steady. In winter 2007 stuff hit the fan!! 2008 we were in free fall and haven’t bottomed yet.
Story mentions Lyon county so the couple is near Reno/Sparks/Carson City and they were a few months behind us.
Good grief, up North they talk about us being financial Kamikazes!
“…when do you cut off the loan forgiveness?”
There seem to be much broader distributional issues with qualifying for loan forgiveness, in case anybody cares about such matters. A very simple example will serve to illustrate my point:
FB Number 1 has been struggling to make his payments ever since the onset of the Great Recession. A year ago he lost his job and stopped paying the mortgage. He was foreclosed last month (an unusually fast foreclosure action) and is now out of home and all the mortgage payments he threw away on home ownership over the past several years.
FB Number 2 just lost his job, but plans to keep on making payments as long as he is able to do so, as he has heard that principle write downs are on the way. If he manages to keep making his mortgage payments until he finds another job, and hang on to his home until he eventually sells it, he may find himself $50K+ richer when he eventually sells the home than he would have been without the principle write down.
If principle write downs go through, then I am guessing FB Number 2 wins the lottery, in the sense of receiving maybe $50K+ in principle write down income, and FB Number 1, along with millions of others who were foreclosed since 2007, wins some kind of booby prize. Needless to say, anyone who was a renter at the point when the mortgage forgiveness went into effect qualifies for no principle write down income.
Is this roughly the story? If not, what am I missing?
P.S. Just in case anyone thinks my example seems unduly harsh, I was FB Number 2 in the early 1990s recession, but without the prospect of any principle forgiveness program. Because we didn’t buy a house we couldn’t afford, we were able to use savings and income from temporary employment to continue making our mortgage payments until I found another full-time job.
You missed one thing that many other people seem to miss….when you are Foreclosed, then you have not made any gains on the sale of the property. You may have a loss if you had a substantial down payment. However, with the ridiculously low mortgage rates, and the ZERO down environment of the BOOM times, the monthly payments that were made were probably equivalent to, or less than, the amount of money going to rent. So, it’s not throwing away house payments, it’s paying for the privilege of having a place to live that you haven’t PAID for in Cash, i.e. “free and clear of all encumbrances.
Additionally, some people have stayed in houses that they bought with almost no money down, or skimmed with “cash out” refinancing after the initial “purchase”. They basically stole “free rent” from the lender, while often trashing the house, if not, at least maintaining the property.
They have not been hurt.
The ONLY people hurt by all these “save the FB” proposals are RENTERS, and people who bought houses and Paid As Agreed.
That’s most people.
It’s another “redistribution” plan to “save the world economy”.
God help me. I just can’t stand anymore of this upside down world. Payments to debtors, and theft from the frugal.
Well, Obama’s sitting in the whitehouse, so I should have expected this current world view to be the new way of thinking.
What does Obama have to do with it? Bush embraced bailouts as well. This is a bipartisan problem.
Jeebus, how could you not know the Nevada market was crashing in 2008?
Lots of people seemed to believe that rather than crashing, it was a brief window of opportunity to get in at a bargain price before things started going to infinity and beyond again!
That was basically my point; early on, it looked like the Nevada crash was more of an anomaly than the “dead canary in the mine shaft” that it turned out to be.
Well, there you go. Let’s get back to some simple mathematical facts. FINITE Systems can’t go to infinity. That’s all the simple minded need to know. It just can’t happen, no matter how much wishful thinking you can conjure up.
I guess the FED thinks they can Print to infinity, but eventually you run out of paper and disc drive space. Perhaps they are jumping on the new “cloud” theory of information storage, so they think they’ve got LOTS more room to expand the credit creation cycle of boom and bust (expecting to eliminate the bust). I don’t see it.
I guess the FED thinks they can Print to infinity, but eventually you run out of paper and disc drive space.
Someone recently suggested using scientific notation on our currency. You can certainly represent a lot of zeroes easily in very few digits with that little E!
Don’t dis my AAPL stock!
LOL
“Well, there you go. Let’s get back to some simple mathematical facts. FINITE Systems can’t go to infinity. That’s all the simple minded need to know. It just can’t happen, no matter how much wishful thinking you can conjure up.”
“Someone recently suggested using scientific notation on our currency.”
(Raises hand)
It can only go on until the working class has nothing left to take, or they revolt.
It can only go on until the working class has nothing left to take, or they revolt.
The birth of a Keynesian?
I don’t think so. The Aquisitor class does not consider balance, only tolerance.
Personally, I think Blue Skye’s Paradox of Spendthrift pretty much marginalizes Keynes.
Notice that it would be straightforward from a technical standpoint to reissue currency with the fundamental unit in the new currency equal to some power of ten in the dollar. For instance, the Fed could issue the Bernanke (”B”), where B1 = $1,000,000,000. Suddenly all currency figures would require nine fewer zeros, and the “benny” (formerly known as “penny”) under the new system would be worth $10,000,000.
Blue Skye’s Paradox of Spendthrift pretty much marginalizes Keynes.
Care to share it with us? Or is that the paradox?
Sure, but I’m tired. There is some entertainment potential.
I agree, combo. What gets me is the “several hundred thousand dollars.” What kind of refinance in interest rate will make up for going several hundred thousand dollars over their limit? If they were able to save up 20% down, they should have known enough to run the amort table.
“If they were able to save up 20% down,…”
The story says they “had” a 20% down payment, not that they saved it. Everyone I know who comes in with a large down payment gets it from their parents…
…or borrows it on the instant second mortgage as a PMI workaround.
I wonder if any of the victims would have said “NO!” if it was a Skydiving bubble?
“I recently heard a story that applies to thousands of Nevada skydivers who are dead: A young couple were first-time skydivers. They had a 20 percent down payment, and both husband and wife were moderate wage earners. They were clear about how much they could afford to pay, and they gave the Skydiving company the figures. The Skydiving company assured the first-time skydivers they could make it work. This was in the summer of 2008. But when the figures came back, a jump without parachutes was all they could afford. Rather than stop the deal, the Skydiving company told the couple not to worry. The plane would fly over a large pile of soft leaves and they could jump into that. In a couple of months they could come back again and jump with parachutes after the value of their house had risen enough to do a HELOC. All verbal. Nothing in writing.
Then disaster struck. The key wage-earner missed the leaves. His wife was underdropped.(the Skydiving company would not work with them).
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The trouble with skydiving victims like those you describe is that you never get to enjoy the pleasure of reading their victimhood story in MSM accounts. Dead men tell no tales; foreclosed homeowners tell tales a plenty.
“The trouble with skydiving victims like those you describe is that you never get to enjoy the pleasure of reading their victimhood story in MSM accounts.”
That may be true but if it were a Skydiving bubble instead of a Housing bubble I am pretty sure the cost of parachutes would have come down years ago. Although the price of leaves may have gone up.
I just tore my flight suit and a chunk out of my knee when the wind reversed and I landed on the runway.. true story, on my 21st birthday -
Why would anyone jump out of a perfectly good airplane?
One of my crusty old instructors at A&P school told us “There are two things that fall out of the shy…….bird S##t and fools……”
Concerning Steve Keen’s comments I can only say it’s nuts. Normally respect Keen, but this clearly shows a desperate attempt to create a solution. Why would anyone who is already deeply indebted use the money to pay off the debts? Is this a proposal to force the debts to be surrendered to the banksters and everyone else gets a free bank check? I just don’t see this working.
I was referring to this comment. It’s more magic from economists. Just print money and pass it around. That will make everyone richer.
I just can’t fathom the foolishness.
“The way Keen gets around the moral hazard problem is to give everyone a large chunk of cash whether they have debt or not. Keen doesn’t mention a figure but consider how your own and the nation’s situation would change if say every adult over eighteen got $100-200,000.”
I guess Keynesian philosophy just sounds so wonderful, even those who should know better can’t help be hear the siren call…………..
‘Public Credit and a debt jubilee deserve to be considered along with tax and welfare reform as alternatives to the current financial system. You don’t have to be a Marxist to see the current iteration of financial capitalism as unsustainable.’
That’s nice, like the Marxist wouldn’t have let this happen:
‘II. Proletarians and Communists…The section ends by outlining a set of short-term demands: #5 - Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.’
http://en.wikipedia.org/wiki/The_Communist_Manifesto
The State is a logical construct. It’s just people. Politicians (elected or unelected) and apparatchiks.
I’d prefer the State to just create a legal infrastructure in which people can carry on with their business. Giving power to “The State” means turning over one’s leashes to just a few people.
“I recently heard a story that applies to (4) thousands of Nevada homeowners who are facing foreclosure:
…
(1) But when the figures came back, they were several hundred dollars higher than the couple could afford.
…
(2) Rather than stop the deal, the lender told the couple not to worry. They would close and negotiate a refinance deal in a couple of months. In the meantime, the lender promised the buyers, the company would pay the difference. All verbal. Nothing in writing.
…
(3) They feel they’ve been exploited by corrupt banks and extra-legal/unethical lender practices. The couple run the risk of being put out on the street, the culprits having no accountability.”
There are plenty of great lessons for young couples in this story:
(1) Don’t buy stuff you can’t afford.
(2) If it’s not in writing, it’s not a legally binding contract.
(3) While it does sound like there may have been some unethical practices involved, the couple agreed to the deal, even though they knew they couldn’t afford the home and they didn’t have the agreement in writing.
(4) If the above scenario really applies to thousands of Nevadans, then I suggest their state consider instituting a mandatory high school course in basic consumer finance, akin to driver’s education, shop or home economics. The pitfalls this young couple willingly fell into were avoidable.
They were going to jump in on that bargain and ride back to the RE Top!
They were a lot of people fustrated on missing the RE bubble in Nevada.
Even in 2008 not only was construction laying off people so were the Casinos! If the Casinos are laying off in Nevada you know bad things are coming across the desert to home/job near you!
“I suggest their state consider instituting a mandatory high school course in basic consumer finance”
They just got the condensed post graduate course. Tuition is high. The rest of us are just auditing the course.
The age class in question was parented and taught by a generation that had never seen a major credit contraction.
Aside from massive household financial losses which are occasionally incurred, the tuition is free in Benjamin Franklin’s dear school of last resort for fools.
the tuition is free in Benjamin Franklin’s dear school of last resort for fools.
Nope, not free—I always thought that “dear” translated as “expensive” in that lovely turn of phrase…
As from the google definition:
Adverb:
At a high cost: “they buy property cheaply and sell dear”.
a generation that had never seen a major credit contraction.
Except those of us who wasted our time one of those useless liberal (ugh!) arts courses called History.
‘The arc of the universe is long but it bends toward
justiceFB’s.’“Surely you cannot reward the reckless, for what kind of message does this send to people and how does it distort future behaviour if everyone thinks they will be bailed out at some point down the track.
The way Keen gets around the moral hazard problem is to give everyone a large chunk of cash whether they have debt or not. Keen doesn’t mention a figure but consider how your own and the nation’s situation would change if say every adult over eighteen got $100-200,000.”
I suggested the same idea here, but I had my sarcasm tags on. Is this a real proposal, or just one to show how ludicrous is the idea of handing over $50K+ to all FBs who qualify?
Is this a real proposal, or just one to show how ludicrous is the idea of handing over $50K+ to all FBs who qualify?
It is at least more fair than principal forgiveness, which is a clear wealth transfer from the frugal to the profligate.
But why stop at $50K? Why not just give every citizen $1M? $10M? We’d all be rich!
Totally agreed! And with the Fed’s printing press, there really is no constraint on how much household-level quantitative easing they could do.
Wasn’t that the point of Sheila Bair’s tongue-in-cheek(?) op-ed in the Washington Post? “Fix income inequality with $10 million loans for everyone!”
They could make $10 million dollar loans at zero percent interest and give the buyer full discretion over when to repay the money. Wouldn’t that pretty much put households on an equal footing with Megabank, Inc (except that the Wall Street Megabanks were handed far larger amounts than $10 million)?
Keen is in denial. Bair’s sarcasm couldn’t scratch that.
“This would not necessarily be inflationary if a number of other things were done concurrently. The idea isn’t just to pay off debts and restart the current credit system – it is to completely reform and re-regulate credit to prevent the same lunacy of the GFC happening again.”
Achille’s heal of this proposal: Once it is clear that the central bankers can hit the reset button at any point in time and wipe everyone’s debt sleight clean, moral hazard would run amok, particularly at Megabank, Inc, as financial decision makers would realize that there is no reason this couldn’t be done again at any point in the future when it becomes convenient.
I submit that we already treaded this path leading up to the Fall 2008 collapse, after witnessing the “save the universe” bailout of Long-term Capital Management back in the late 1990s, and other similar bailouts. How else can one explain so many financial institutions making loans that clearly were destined for default, made at interest rates that didn’t properly price in the risk? (Perhaps I am forgetting about something — were CDOs supposed to insure against this?)
“wipe everyone’s debt sleight clean”
That would be a sleight of hand.
We’d all start with a clean sleight.
We’ve been assured by the Republican PR apparatus that Romney, like Ben Bernanke, is an expert on economics, who will turn around the economy if elected. Given that fact, why doesn’t he take on the real issues, such as the never-ending financial crisis, and tell the American electorate how he will do better than Obama has to right the economy?
I guess we are just supposed to believe Republican party operatives’ lame contention that the reason unemployment went up so high was because of Obama, and Romney will somehow wave a magic wand to make the jobs come back, forgetting the recession was already in full swing starting in December 2007, for the whole final year of Republican President GWB’s term in office?
More reality, less bullshit, please.
The Federal Reserve Turns Left
William Greider
April 11, 2012 |
This article appeared in the April 30, 2012 edition of The Nation.
Federal Reserve Board Chairman Ben Bernanke. REUTERS/Molly Riley
Washington is lost in a snarl of confusion, cowardice and wrongheaded ideological assumptions that threaten to keep the economy in a ditch for a long time. That prospect is not much discussed in the halls of Congress or the White House. It’s as though the crisis has been put on hold until after the presidential election.
As almost everyone understands, nothing substantial will be accomplished this year. President Obama is campaigning on warmed-over optimism and paper-thin policy proposals. Republicans propose to make things worse by drastically shrinking government spending, when the opposite is needed to foster a real recovery. The president, like the GOP, embraces large-scale deficit reduction. In these circumstances, it’s just as well that the two parties cannot reach agreement. After the election they may make a deal that splits the difference between bad and worse. In the worst case, they might inadvertently tip the economy back into recession.
In this sorry situation, there is really only one governing institution with the courage to dissent from the conventional wisdom—the Federal Reserve. The central bank declines to participate in the happy talk about recovery or in the righteous sermons attacking the deficit. In its muted manner, the Fed keeps explaining why the house is still on fire, why more aggressive action is needed, and is gently nudging the politicians who decide fiscal policy to step up. But its message is ignored by Congress and the president and viciously attacked by right-wing Republicans who say, Butt out.
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I guess we are just supposed to believe Republican party operatives’ lame contention that the reason unemployment went up so high was because of Obama, and Romney will somehow wave a magic wand to make the jobs come back, forgetting the recession was already in full swing starting in December 2007, for the whole final year of Republican President GWB’s term in office?
So what?
Have you looked at the typical recovery time from a recession?
Without massive government interference and spending programs like FDR, they typically take about 18 months or so.
But no, we had a “CRISIS”. We must ACT. GIVE me STIMULUS MONEY, for political operative payoffs and GREEN ENGERY, all at losses to US, and give me more authority to provide Banksters with bailout money. Oh, and by the way, since the Democrats control the Senate, we don’t need a BUDGET. A budget is a waste of time. We just need to spend more money in the places that the Democrats say, and if the Republicans propose a different plan, well then it’s DEAD ON ARRIVAL.
Is that what you mean to tell us??
EVERYTHING. And I mean EVERYTHING that this useless EEOC appointee has done is backward for economic growth and progress. So, expect the same all stuff for a while, because that’s what the philosophy of “social justice” is concerned with. Just pass around whatever we got, and let everybody get a bigger piece of pie. Unfortuately, someone’s got to make the pie, and it ain’t government parasites and welfare queens, Obama’s primary constituency.
“Have you looked at the typical recovery time from a recession?”
Yes.
And for a depression (like this one). You won’t get away with throwing out strawman bullshit like that in these parts.
Well, gee, according to all those government officials you seem to be so happy to recite, the “recession” ENDED in 2009. WE are in a RECOVERY. Go look at all the economic reports and listen to the dweebs at whatever “governmental” agency you want: we are in a “weak” recovery.. Just need more “stimulus”. Can’t do away with government spending right now….needed to help the recovery.
What?
No one has said it’s a DEPRESSION. Obama made noises like that when he was in the “Office of the President-Elect” (a made-up office, by the way), and said if he got about a TRILLION dollars of Stimulus money, he could avert disaster.
WE are now living the Obama “vision”.
The guy is more useless than tits on a piano, but some people just can’t see past the promises of “hope and Change”.
So, I guess you just made all that up.
‘Well, gee, according to all those government officials you seem to be so happy to recite, the “recession” ENDED in 2009.’
BUZZ!!!
Wrong answer. Other than Hank Paulson, government officials do not get to say when recessions start and end; that is the job of the economists at the National Bureau of Economic Research.
On the theme of less BS, the situation has been building for over 30 years. Your favorite clown, or my favorite clown, are just cogs in the same machine. Supporting either means you fully support the existing machine itself. How’s that working out for all of us so far?
+1 Skye.
This mess was created by Jack Welch et al, not Bush or Obama.
“…not Bush or Obama.”
AKA bagholders on decades of failed Fed-sponsored economic policy…
One of the big problems seems to be political leaders who live under the delusion that painting lipstick on a turd will somehow turn it into a delicacy. A turd covered in lipstick would smell as rank.
government parasites and welfare queens
Parrot Alert!
Actually, if you look at the postwar recessions, this is the third one in which rate of recovery is much slower than what was typical for most of the postwar period. The recoveries after both the 1990-91 and 2000-01 recessions took an usually long time to return to the pre-recession level of output.
Don’t confuse us with facts, please. We’re having a good rant, with lots of caps lock, which always overrides facts.
this is the third one in which rate of recovery is much slower than what was typical for most of the postwar period.
+1. Because this was the period during which our economy was being hollowed out by offshoring all of our jobs.
It takes longer to recover from layoffs when you don’t re-hire here.
“The recoveries after both the 1990-91…”
Bush the Father
“…and 2000-01 recessions…”
Bush the Son
“took an usually long time to return to the pre-recession level of output.”
Did we recover from the 2000 recession? I mean did we return to “normal”?
My business boomed in the 2000s. Looking back on that “success” I think the major activities were all involved in credit bubble malinvestments, which are now collapsing. So what really is a recovery?
Is recovery for an alcoholic a return to the weekend binge, or a sustainable lifestyle?
“Is recovery for an alcoholic a return to the weekend binge, or a sustainable lifestyle?”
I suppose the answer matters little to the successful liquor store proprietor.
“Have you looked at the typical recovery time from a recession?”
Was this a typical recession?
No.
That was my point above, which generated yet another rant replete with myriad capital locked passages.
Whether it is good or bad, or you agree or disagree with it, at least Obama has a plan.
Has Romney articulated his plan for “fixing” the housing market yet?
Obama’s Election-Year Mortgage Plan
Published on:
Thursday, April 12, 2012
Written by:
Shanthi Bharatwaj
President Barack Obama has made economic stimulus a priority in his administration and much of that effort has been focused in revitalizing the housing industry. To do so, Obama has tweaked federal programs to help distressed borrowers avoid defaulting on their mortgages and it is no accident many of his initiatives are targeted at the middle class home-loan borrower. Critics argue Obama has not done enough and that programs like the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) have been largely ineffective. Many also believe that government-sponsored enterprises Fannie Mae and Freddie Mac are not doing enough to help. Even so, Obama continues to make refinancing available to struggling homeowners with hopes that more will be able to take advantage. For more on this continue reading the following article from TheStreet.
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Let them eat cake?
I guess if that were your plan, it might not be a great idea to publicize it.
It’s hard to find current articles on the Republican stance on housing. Is this article still representative?
Any updates would be greatly appreciated, as I find their policy stances very obscure.
1/25/2012 @ 3:02PM |383 views
Republicans Offer Unpopular Solutions for Housing Fix
The Republican race for the White House has headed to Florida to bring the nation’s housing crisis to the fore. While jobs and tax reform have dominated the primaries so far, voters in Florida — one of the states hardest hit by plummeting home values and the foreclosure crisis — will be looking for more out of the candidates.
The claws have already emerged as Mitt Romney and Newt Gingrich spar over Gingrich’s past work as a consultant for Freddie Mac — an issue that dominated discussion on housing between the two front-runners during Monday’s Republican debate in Tampa.
While debate between Romney and Gingrich fell into an argument on semantics (was Gingrich a consultant or a lobbyist), the housing market has become one of those sticky issues where Republican fundamentals, including the ideals of small government, clashe with the public interest.
Many Republicans would love to see institutions such as Fannie Mae and Freddie Mac done away with, or to curb the power of the Federal Reserve to shrink the U.S. government. But many Americans now view the efforts of such institutions as necessary, according to a recent USA Today/Gallup Poll.
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If you quit reading propaganda such as this, you wouldn’t have to worry about the Republican “solution” to the “housing crisis”.
How about this. Do nothing. Shut down Fannie and Freddie, never to again have huge government agencies funneling money for loans to deadbeats.
That’s probably why you can’t find much discussion.
There isn’t anything to discuss. Kill all the government “rescue plans”.
Let the market take its course. Finish the foreclosures. Sell off the bad loans and get on with life, without some bureaucrat clusterf**k to interfere with people’s lives.
The most “Slanted” part of the story is of course:
“the housing market has become one of those sticky issues where Republican fundamentals, including the ideals of small government, clashe with the public interest.”
It assumes that small government and non-interference goes against the “public interest”. I say just he opposite. I say it SUPPORTS the Public Interest, not just those specific parasite groups that want government agents to hold their hand and provide a place to live, a free school, a free lunch, medical care and cellphones, all paid for by someone else.
“How about this. Do nothing. Shut down Fannie and Freddie, never to again have huge government agencies funneling money for loans to deadbeats.”
Post a link to convince us that is their plan; otherwise we will have to conclude you are making stuff up.
I can just as easily conclude that all the other writers of stories in the press are just “making it up”, which they are. However, you seem to believe that whatever comes in print form from a “legitimate” news source is “true”.
Those were my opinions about why so little is made of “saving the homeowners” with “government assistance”. So, I did a quick check and HERE in PRINT, just for you, is a story that says what the REPUBLICAN House is proposing and what Obama is rejecting:
“As of February this year, permanent loan modifications have already reached out to 630,000 homeowners.
Furthermore, 17,000 borrowers that have already availed of the first lien assistance are now enjoying their second lien through the Second Lien Modification Program.
So far under the Home Affordable Foreclosure Alternatives program, 10,000 borrowers have already made short sales with their loan servicers.
The GOP-led House voted early this week to pass a legislation that eventually killed the loan reduction program of the Obama administration, dubbed as a monumental failure.
Republicans argued that HAMP has failed to achieve its original goals of reaching out to 3 million to 4 million homeowners.
However, officials of the administration warned that President Obama won’t even bother to look at the bill once it reaches his desk.
They contended that however short the goals of the program has become, it has still provided assistance to hundred thousands of borrowers.”
Let’s read that Middle part again:
“The GOP-led House voted early this week to pass a legislation that eventually killed the loan reduction program of the Obama administration, dubbed as a monumental failure.”
I wonder if they just made this stuff up??
http://sizly.com/after-death-of-hamp-housing-market-still-in-deep-trouble-2/856207/
There. Now you can read the whole story, written by someone else.
‘I can just as easily conclude that all the other writers of stories in the press are just “making it up”, which they are.’
Let’s agree that everything printed in the MSM is made up, in order to elevate your lengthy and unsubstantiated rants to the stature of high quality journalism.
“The Treasury, however, would need to subsidize these principal write-downs at a cost of $3.8 billion.”
Washington maths: $1.7 bn in savings less $3.8 bn in subsidies = net gain to taxpayers.
MARKETS
Updated April 10, 2012, 2:07 p.m. ET
Analysis: Write-Downs Would Benefit Fannie, Freddie
By ALAN ZIBEL
Mortgage giants Fannie Mae (FNMA -4.67%) and Freddie Mac (FMCC -3.96%) could save $1.7 billion by accepting Treasury Department payments to forgive debt for troubled homeowners, but could still face increased costs if doing so causes other borrowers to default, a key regulator said Tuesday.
Edward DeMarco, acting director of the Federal Housing Finance Agency, has been studying expanded incentives offered earlier this year by the Obama administration, which wants the mortgage-finance firms to reduce borrowers’ loan balances. The two government-controlled companies, which buy up loans and package them for investors, don’t currently do so.
That offer, made in January, increased pressure on Mr. DeMarco, an independent regulator who has been skeptical of whether such programs make sense. The housing regulator has yet to make a decision on whether to implement a write-down program for Fannie and Freddie.
“This is not about some huge difference-making program that will rescue the housing market,” Mr. DeMarco said Tuesday, according to remarks prepared for a speech Tuesday at the Brookings Institution in Washington, D.C. “It is a debate about which tools, at the margin, better balance two goals: maximizing assistance to several hundred thousand homeowners while minimizing further cost to all other homeowners and taxpayers.”
The FHFA released a preliminary analysis that assumed about 690,000 homeowners with loans guaranteed by Fannie and Freddie would receive principal write-downs of $51,000 per mortgage, on average. Those homeowners would need to owe at least 115% of their houses’ current value.
The agency projected that Fannie and Freddie would save $9.9 billion from a principal write-down program. This compared with savings of $8.2 billion if the same set of borrowers received a principal-forbearance plan–a kind of loan modification in which lenders set aside a portion of the loan and don’t require any payments on it until the borrower sells the home or pays off the loan.
The Treasury, however, would need to subsidize these principal write-downs at a cost of $3.8 billion. This would result in a net cost to taxpayers of $2.1 billion, the FHFA analysis said.
However, Obama administration officials have argued that the FHFA needs to make its decision based entirely on the plan’s impact on Fannie and Freddie, which have been kept afloat since September 2008 with more than $150 billion in taxpayer aid.
In a interview taped last week for C-Span’s “Newsmakers” program, U.S. Housing and Urban Development Secretary Shaun Donovan said he believes there is a “compelling” case for principal write-downs. Mr. Donovan said he believed the housing regulator would make an impartial decision. “What he is focused on, independent of whatever his personal views may be, is what is his legal responsibility and what does the analysis say,” Mr. Donovan said.
On Tuesday, Mr. DeMarco also noted that such a program may have a detrimental effect on the housing market as a whole. This is because some homeowners who haven’t missed payments could intentionally miss payments to benefit from principal forgiveness.
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Does mortgage principal reduction work?
By Tami Luhby @CNNMoney April 9, 2012: 8:36 AM ET
NEW YORK (CNNMoney) — The world will only have to wait a few more weeks to find out whether Fannie Mae and Freddie Mac will allow principal reductions on mortgages they back.
The Federal Housing Finance Agency will decide this month whether Fannie and Freddie should allow write downs on the balances of borrowers who owe more than their homes are worth, said Ed DeMarco, acting director for the agency.
Fannie and Freddie have been at the center of a tug-of-war over fixing the housing market. They have long resisted calls to write down the balances on the loans in their portfolio, saying it would be too costly for taxpayers.
But the pressure has been building, especially in the wake of the $26 billion mortgage settlement that will reduce principal for 1 million borrowers whose loans aren’t backed by Fannie and Freddie.
The agency, which regulates the government-controlled companies, had decided against allowing principal reduction after internal studies showed that alternatives such as adjusting monthly payments or forbearing principal were more cost effective.
DeMarco has said his agency is charged with protecting taxpayers’ interests, and principal reduction would amount to an expensive taxpayer bailout of troubled homeowners.
Since then, however, the Obama administration has sweetened the pot. It tripled the incentives it will pay to Fannie and Freddie for reducing principal under the Home Affordable Mortgage Program, or HAMP. This has prompted the agency and the companies to redo their analysis.
But will it even matter if Fannie and Freddie start allowing principal reduction?
…
I’m very unclear on how the F&F principle reduction proposal relates to whether underwater homeowners are current on payments. DeMarco’s comments suggest that only those who are behind on payments will qualify; is this correct? And will there be an opportunity for those who struggled to remain current on their payments to stop making them in order to qualify going forward?
…
How many are eligible?
Together, Fannie and Freddie have about 3 million loans that are seriously underwater, according to company filings. But three-quarters of these homeowners are current on their payments and may not qualify.
“These borrowers are demonstrating a continued willingness to meet their mortgage obligations,” said DeMarco in a recent speech. “This should be recognized and encouraged, not dampened with incentives for people to not continue paying.”
In the end, the number of eligible underwater Fannie and Freddie loans could range from a few hundred thousand up to 750,000, according to estimates. That’s not that much considering there are 11 million underwater borrowers in the U.S., just over a quarter of whom are behind in their payments.
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All this blather is about whether the writedowns will eventually benefit the taxpayer. I want to know about the moral hazard — which pound of flesh will be extracted from the FB? Or do they get off scot-free?
I may be missing the qualification requirements (links appreciated), but DeMarco’s comments suggest that it is precisely the F&F mortgagees who defaulted on their mortgages who get rewarded. What kind of policy is that? (Answer to the rhetorical question: IT’S A BAD POLICY, PLAIN AND SIMPLE.)
Examiner editorial: Investors get raw deal in mortgage settlement
April 10, 2012 — 7:05 PM
Examiner Editorial
There is no excuse for banks filing forged or back-dated foreclosure documents with state courts and county recorder offices. Unfortunately, that is exactly what many of the nation’s largest banks did during the height of the recent financial crisis. And a new settlement approved by a federal judge in Washington last week essentially let them get away with it.
The problem stems from the federal government’s efforts, through Fannie Mae and Freddie Mac, to increase homeownership by encouraging the securitization of home mortgages. Financial institutions could buy individual mortgages from originators, package them into financial products, and then sell them to investors. This was supposed to make buying a home easier by reducing borrowing costs. What it really did was set the stage for the housing bubble.
The banks packaging these loans often did not comply with state laws designed to track who owned which property. In the absence of good information, when it came time to foreclose on some of these properties, financial institutions would often file fraudulent paperwork because they lacked good information and sufficient manpower to track down the correct trustees. Fannie Mae was well aware of these frauds going back as far 2003, but did nothing to stop them.
These practices became widely known after the bubble burst, and the federal government as well as attorneys general from many of the largest states began investigations into the industry. Last Thursday, 49 states, the Obama administration, and the nation’s five largest banks (Wells Fargo, Citi, Ally/GMAC, JPMorgan Chase & Co. and Bank of America) entered into a $26 billion settlement that provided immunity to the banks from future claims by the federal and state governments. But although the $26 billion settlement is ostensibly intended to punish banks for filing fraudulent papers, only $1.5 billion of that total, just 6 percent, will go to homeowners who lost their homes to foreclosure.
So where does the other 94 percent of the money go? The states and the federal government will get about $3 billion in fines. Borrowers who are current on their payments but want to refinance at lower rates will get $3.7 billion. Another $7 billion will go toward forbearance for unemployed borrowers. The last $10 billion will go to reducing principal for borrowers who owe more than their homes are worth. Not only is this a mere drop in the bucket compared to the $717 billion that these 11 million Americans still owe, but, as Pacific Investment Management Co.’s Scott Simon explains, this punishes the wrong party.
The banks fraudulently filed the foreclosure papers, not the investors who bought the securities the banks issued. But it will be the investors, not the banks, who pay for the principal write downs. “Think about this,” Simon explained. “You tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that.’”
The settlement made final last week doesn’t redress the crime committed. It doesn’t address the foreclosure crisis. It punishes innocent parties. No wonder the Obama administration can’t figure out how to end our foreclosure mess.
HUD Secretary Donovan: Fannie, Freddie should forgive mortgage debts
by Tara Steele on April 8, 2012
Two government officials in the same agency, lawmakers, taxpayers and economists cannot agree on whether or not underwater borrowers should be granted principal reductions, but a decision could be made soon regardless.
Controversy over principal reductions continue
Some lawmakers and economists advocate for the limping real estate market to find its own bottom naturally so that a recovery is not dependent upon the government’s intervention, while supporters of principal reductions for mortgage borrowers say it is not a measure to falsely prop up the market, rather is a means of stopping the hemorrhaging.
This contentious issue has been accelerated by the $25 billion mortgage settlement between 49 attorneys general, the federal government and the five largest mortgage servicers, Bank of America struck a separate deal, offering principal reductions averaging over $100,000. Other servicers and agencies are experimenting with the same.
Despite the Federal Housing Finance Agency (FHFA) which regulates Fannie Mae and Freddie Mac asserting in a statement that pincipal reductions at Fannie and Freddie would cost taxpayers another $100 billion, the Obama administration also announced recently that it would offer incentives to Fannie and Freddie to reduce principal on loans which previously was only offered to private entities and banks.
It was reported that Fannie and Freddie proclaim not only is principal reductions the savior to homeowners, but to the very existence of Fannie and Freddie. The claim is that loan forgiveness would theoretically keep hundreds of thousands of homeowners in their homes and would save Fannie and Freddie money, thus saving taxpayers over $150 billion, as the FHFA is the federal conservator to the two mortgage giants and Americans are therefore responsible for future losses until Fannie and Freddie are privatized, which the government has said is the ultimate plan of the agency.
The beating drum on the topic
On C-SPAN today, Shaun Donovan, the United States Secretary of Housing and Urban Development, which operates under the FHFA was asked about principal reductions. When asked why Fannie and Freddie should be forced to do write-downs, Donovan said, “This isn’t about force. This is about making the right decision for homeowners and for the taxpayer.”
Donovan points to a growing consensus that for homeowners that are “deeply underwater” where there is “really no light at the end of the tunnel,” homeowners realize that even after years of paying their mortgage, they can never regain the equity they lost in their home, and “families will give up at some point. We think the data shows that.”
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WSJ Blogs
Developments
Real estate news and analysis from The Wall Street Journal
April 10, 2012, 1:28 PM
Consumer Regulator Seen Pushing Loan Writedowns
By Maya Jackson Randall
As the federal regulator for Fannie Mae and Freddie Mac ponders cutting mortgage-loan balances for more Americans, U.S. House Republicans are eyeing the role of another independent agency – the Consumer Financial Protection Bureau.
Republicans on the House Oversight Committee are accusing the federal government’s newest financial regulator of working behind the scenes to tilt other agencies in favor of cutting mortgage balances for more distressed borrowers, a politically-charged issue known as principal writedowns.
Rep. Darrell Issa (R., Calif.), the oversight panel’s chairman, says he is concerned that the bureau has grown into a lobbying powerhouse on principal reductions and other housing policies he believes could hurt the fragile market.
The issue is the latest source of tension between the CFPB and Republicans critical of any agency they fear is protecting consumers without weighing the impact on the banking system.
“Internal communications indicate the administration’s push for principal writedowns of troubled mortgages was highly political and the rationale behind them dubious,” Mr. Issa said in an interview.
“It’s disconcerting to see evidence that the administration has been pushing another multi-billion dollar initiative that would reward those trying to game the system through strategic defaults, more than homeowners who really needed help keeping current with mortgage payments.”
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To forgive is not divine – it’s politics
By JOHN REINIERS, MORE THAN WORDS | Hernando Today
Published: April 21, 2012
Alexander Pope, one of the great 18th century poets, famously observed that “To err is human, to forgive is divine” – perhaps in those days when accountability was quite palpable and unequivocal. (Imprisoned for nineteen years for stealing bread, Jean Valjean, in Les Miserable, steals again, but is forgiven by the bishop, and seeks redemption with good deeds.) But we are now in an era of political forgiveness – a ploy to get votes. The irony is that, given our modern culture, forgiveness will likely engender more abuse, not redemption.
The Mortgage Debt Forgiveness Act (2007), introduced by Charlie Rangel (D-NY), a mass principal reduction advocate, is a case in point. This legislation allows under-water borrowers to avoid capital gains taxes if the borrower gets an offer to sell to a third party borrower for less than the borrower owes the bank. If the bank were to approve, the borrower could be on the hook for a substantial capital gains tax. With certain qualifications, this act saves the borrower from having to pay taxes on the forgiven debt.
This raises the obvious question: Does anyone ever get rewarded for doing the right thing and paying their bills on time?
Now enter Fannie Mae/Freddie Mac, another lofty idea with unintended disastrous results established by FDR’s New Deal in 1938. They finance about 60 percent of all new mortgages. They went into conservatorship – the equivalency of bankruptcy – in 2008.
Democrats and Treasury are putting pressure on Ed DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), to employ wholesale mortgage principal forgiveness as private sector banks do on a selective basis. What was the dirty little secret is that the estimated $1.7 billion savings will come at the expense of Treasury which will pony up incentive payments of $3.8 billion – a net loss of $2.8 billion to taxpayers.
DeMarco, has repeatedly resisted pressure form congressional Democrats since his agency’s internal analysis shows that principal forgiveness would increase their losses and costs to the taxpayers. (He prefers principal forbearance.) Treasury has offered to donate unused HAMP funds to facilitate the “forgiveness.”
The aim of the Home Affordable Mortgage Program was to establish an affordable (sensible) relationship between an owner’s gross income and their mortgage payment to promote stability in the housing market. The irony is that many of these homeowners lied about their employment or income in the first place to get the loan. (Remember the ninja loans – “no income-no job.”)
DeMarco estimates 700,000 homeowners, who are underwater and in default, would qualify for loan forgiveness. It is estimated that 11 million homeowners are underwater but making payments. So now the government will open the door to “strategic defaults,” another obvious moral hazard. The government created this mess with the Community Reinvestment Act (1977) in the first place and will now double down.
It has also been pointed out that about half of FHFA’s loans have a subordinate second mortgage which could remain intact after a principal write-down, thus benefiting these banks. So in the event of a subsequent foreclosure, Fannie Mae or Freddie Mac will bear all the losses. (A windfall for banks. Most upright, underwater borrowers struggle to make their mortgage payments on time. No forgiveness for them.)
…
According to housing economist Andrew Jakabovics, since two-thirds of homeowners are taxpayers, a massive tax transfer to a select group of underwater homeowners who qualify for principle write downs will benefit “taxpayers.” If this is the justification for the policy, then why not “help” all the “taxpayers” who pay their taxes and make their monthly mortgages or rental payments on time, month after month, with $51,000 in unearned, tax-free income, rather than limiting the largess to a few hundred thousand lucky-ducky underwater homeowners who won the bailout lottery?
And would anyone who understands Washington math kindly explain how $3.8 billion in Treasury-direct “incentive payments” used to finance $1.7 billion in “loss reductions” adds up to a net gain for taxpayers? Washington math doesn’t add up, but since this is America, I guess we are all supposed to put our heads down, play dumb and ignore the obvious inconsistency.
Fannie, Freddie Weigh Mortgage Write-Downs
by Chris Arnold
Morning Edition
[4 min 13 sec]
April 11, 2012
Hundreds of thousands of homeowners facing foreclosure might get help by having the amount they owe reduced by Fannie Mae and Freddie Mac.
This is a hot topic in Washington, D.C., with many Democrats pushing for these so-called “principal reductions” to try to help the housing market. On Tuesday, a top federal regulator came a step closer to allowing the move.
NPR and ProPublica reported three weeks ago that Fannie and Freddie had each just completed a new analysis and found that principal reductions would save the government-owned enterprises money.
Edward DeMarco, acting director of the Federal Housing Finance Agency, which controls Fannie and Freddie, has released the official figures from the agency’s report.
“In this analysis, principal reduction is better for the enterprises. … It reduces … [their] losses by $1.7 billion,” DeMarco said.
This is a big change.
Fannie and Freddie are now owned by the government and control most of the home loans in the country. DeMarco has steadfastly resisted cutting the amount that borrowers owe, but now the Treasury Department has tripled an incentive through the Troubled Asset Relief Program, the bank bailout fund.
Speaking at the Brookings Institution in Washington on Tuesday, DeMarco said if Fannie and Freddie do these write-downs, billions of dollars from the Treasury Department would be steered toward them.
“The expected incentive payments … would be $3.8 billion,” he said.
A Tax-Dollar Shell Game?
Critics say this incentive amounts to a “shell game.” By giving Fannie and Freddie taxpayer money from another source, the Treasury Department has made the write-downs look good on Fannie and Freddie’s books, but the write-downs would still result in taxpayer expense. Proponents counter that it would help the housing market and taxpayers eventually.
The Principal Write-Down Debate
Read a statement to NPR from Federal Housing Finance Agency Acting Director Edward DeMarco about proposals to reduce mortgage principal:
“As I have stated previously, FHFA is considering HAMP incentives for principal reduction and we have been having discussions with the Enterprises [Fannie Mae and Freddie Mac] and Treasury regarding our analysis. FHFA’s previously released analysis concluded that principal forgiveness did not provide benefits that were greater than principal forbearance as a loss mitigation tool. FHFA’s assessment of the investor incentives now being offered will follow the previous evaluation, including consideration of the eligible universe, operational costs to implement such changes, and potential borrower incentive effects. As we complete the review, the public should understand that Fannie Mae and Freddie Mac continue to offer a broad array of assistance to troubled borrowers and have continued to implement HARP 2.0 to enhance refinancing opportunities for underwater borrowers. FHFA remains committed to its legal responsibilities as conservator to ensure assistance is offered to troubled borrowers while minimizing losses to taxpayers.”
“Two-thirds of taxpayers are homeowners, and protecting housing markets and stabilizing communities all accrues to their benefit, too, so it’s just where you draw the line on your analysis,” says housing economist Andrew Jakabovics of the nonprofit Enterprise Community Partners.
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Liberals are liars.
Real Estate
Is Fannie and Freddie Honcho Ed DeMarco “America’s Most Dangerous Man?”
By Christopher Matthews | @crobmatthews | April 11, 2012
Ed DeMarco, acting head of the Federal Housing Finance Agency (FHFA), doesn’t have the look of a comic-book super-villain, but if you listen to some of the barbs his critics hurl at him, DeMarco is more dastardly than The Joker or Magneto. Peter Goodman, Business Editor at the Huffington Post has called DeMarco “America’s most dangerous man.” The liberal activist group MoveOn has been petitioning for DeMarco’s ouster writing, “What would it take to save millions of homes and billions of dollars in taxpayer money? Replacing one man—Ed DeMarco.”
That’s pretty harsh stuff. So what is getting DeMarco’s (mostly left-leaning) critics all bent out of shape? DeMarco has repeatedly fought back against calls for Fannie Mae and Freddie Mac, the Government Sponsored Enterprises (GSE’s) overseen by the FHFA, to forgive underwater homeowners some of the principal they owe. For these critics, principal forgiveness is a win-win. Homeowners would see the amount they owe on their home drastically reduced, but the taxpayers who now own Fannie and Freddie would benefit too because principal forgiveness is the best way to avoid a costly foreclosure process. Proponents of principal reduction also believe that it would be a great way to stimulate the economy. As TIME’s Bill Saporito has argued, ridding American homeowners of some of its $700 billion in negative home equity would be a huge boon to the economy by making homeowners more confident to invest or take on new debt, and by enabling people to move to find new and better work opportunities.
So why has DeMarco been so steadfast in his opposition to this approach? First of all, he doesn’t agree with the principal reduction crowd’s math. He has repeatedly argued that reducing principal won’t prevent more foreclosures, and will cost taxpayers more than methods the FHFA is already using to keep people in their homes. As for the stimulus argument, he is sticking to the mandate Congress gave him – which dictates he must protect taxpayer assets and promote stability and liquidity in the housing market. Notice this doesn’t say anything about using Fannie and Freddie to implement stimulus strategies.
DeMarco seems to be taking the criticism in stride. Unlike many of the left’s other financial crisis arch-villains, you can’t really accuse DeMarco of acting out of greed or self-interest. A career civil servant, Mr. DeMarco could probably take his Ph.D in economics and go make a great deal more money working in private-sector housing finance. He is enduring withering criticism from the left while putting up with a frustrating lack of action from Congress. By all appearances, DeMarco is an economist who has studied the problem at hand, and believes he is not only obeying his Congressional mandate, but also pursuing the best path forward for the housing market.
Yesterday, DeMarco took to the Brookings Institute to defend his beliefs. In his speech, he provided an overview of the many programs FHFA has offered, in conjunction with the Treasury Department, to try to keep people in their homes while offering them some form of relief. He presented the results of previous FHFA analyses, which showed that using principal forgiveness, as opposed to other methods like principal forbearance, is more costly to the taxpayer and doesn’t necessarily do more to keep homeowners in their homes.
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“As TIME’s Bill Saporito has argued, ridding American homeowners of some of its $700 billion in negative home equity would be a huge boon to the economy by making homeowners more confident to invest or take on new debt, and by enabling people to move to find new and better work opportunities.”
I call bullshit on this argument. There is nothing special about underwater homeowners when it comes to providing household-level economic stimulus. Wouldn’t it be better for the economy to just choose at random the households that qualify for helicopter drops of cash, in order to not provide moral hazard incentives to people who don’t repay money they borrow?
Liberals Are Liars®
“After all we are talking in New Zealand’s case about the government creating hundreds of billions of dollars out of thin air.”
That would be bad. What kind of government would do that kind of thing?
Are you a member of the “hope and change” school of housing policy, or of the “handcuffs” school?
It’s tragic how the basic principles of property rights and contract law that underpin a stable economic order have been quietly undermined by leading Federal Reserve Bank policy makers like Ben Bernanke and Tim Geithner.
Thursday, April 5, 2012
Fighting Over the American Home: Handcuffs versus Hope and Change
Matt Stoller is a fellow at the Roosevelt Institute. You can follow him on twitter at http://www.twitter.com/matthewstoller
Over the past four years, we’ve watched as public officials pushed financial and legal power to the large banks – the latest episode in this saga was the mortgage settlement between state officials, Federal regulators, and the banks themselves. But there is also an undercurrent of resistance to this, resistance which could be growing stronger over time.
So what comes after the mortgage settlement? Will there be yet another multi-billion dollar transfer of wealth from taxpayers to banks in the near future? If I’m reading the tea leaves correctly, I suspect the answer is, yes. This time, it will flow through Fannie and Freddie, government entities that are responsible for trillions of dollars of mortgages. There’s been a deeply bitter fight over this giant pot of money, centering around Federal Housing Finance Agency (FHFA) acting head Ed DeMarco. DeMarco controls Fannie and Freddie, and so far, he has refused to write down principal for homeowners on GSE controlled mortgages. But Treasury has been attempting to get DeMarco to change his mind, using the prospect of simply paying off Fannie and Freddie with bailout funds.
Housing finance isn’t just a question of money, it involves the deep fabric of America – the home, savings, the rule law and the meaning of property, and the very space of the nation. It’s also a question of politics, and realigning interest groups that had been allies or opponents. With that in mind, it’s worth looking at how the last few years of bailouts and foreclosures have clarified factions in our politics.
There are two schools of thought on fixing the housing market. The first is the Tim Geithner school, which we’ll call the “hope and change” school. Hope and changers, who occupy most elite positions in the administration, in banks, at the Fed, in the economics establishment in Congress, at housing nonprofits like the Center for Responsible Lending, in regulatory agencies, believe that the housing market will come back when the economy returns. Foreclosure problems may be tragic, or overblown, or not, but ultimately are incidental to fundamentals, like matching housing supply to demand or increasing employment through boosts in aggregate demand. Warren Buffett is probably the most famous member of this school.
The second is the “law and order” or “handcuffs” school, which has (loosely) as members people like former FDIC chief Sheila Bair, former SIGTARP Neil Barofsky, iconoclastic investors such as Bill Frey, foreclosure fraud defense attorneys, Congressional actors like Maxine Waters, criminologists like Bill Black and various securitization experts and bloggers. The handcuffs believes that law and order is not incidental to the breakdown of the housing market, but is central to it.
Obviously these aren’t fast and hard divisions, they just represent the two major frames of thought around the housing crisis. It’s not a partisan breakdown – most people in both parties are part of the Hope and Change crowd, but a chunk of the left isn’t, and there are a few right-wingers like Chris Whalen and various right-wing investors who are outraged at the abrogation of property rights.
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I’m curious whether any Republican readers here would care to comment on the Democrat opinion that DeMarco should be fired for failing to support principal write downs. Is that a legitimate reason to fire a regulator who appears to be acting in the public interest, independently of political pressure?
03-13-2012
Dems want FHFA DeMarco out since refuses to do prin reductions FANNIE/FREDDIE
3/12/12 - David Dayen Article Highlights
Over the past several weeks, Democratic lawmakers and allied groups have launched an all-out effort to get Ed DeMarco, the head of the FHFA, fired. They cite his resistance to allowing Fannie Mae and Freddie Mac to engage in principal reductions on their loans as the main reason. This culminated in Barney Frank, the ranking member on the Financial Services Committee, calling for DeMarco to be replaced.
The Massachusetts Democrat said Edward DeMarco, head of the federal agency that oversees Fannie Mae and Freddie Mac, has been too rigid in his approach to foreclosure prevention and should be replaced. He’s been too rigid in refusing to help on foreclosures, Frank, the ranking member of the House Financial Services Committee, said Wednesday. “He’s acting as if he was head of two private companies called Fannie and Freddie and not taking into account the impact this has on the economy, and I think he should be more cooperative with efforts to reduce foreclosures.” Asked if DeMarco should go, Frank said, “Yes. … since he won’t be more flexible, yes.”
I agree with Frank and other liberal advocates that DeMarco has been inflexible. Actually, he’s been downright dishonest. FHFA’s document defending its decision on principal reductions was a logical mess. He has not been able to justify his position that write-downs would not protect the taxpayer investment in Fannie and Freddie. Targeted principal relief would obviously be preferable to additional foreclosures, and much better than interest-rate reductions or forbearance, which Fannie and Freddie have engaged in, and which are far worse strategies to reduce incidents of foreclosures.
DeMarco was not appointed by the President, but was around during the Bush Administration. This Bush-era regulator is undermining Administration housing policy entirely by himself, and he must be fired to make everything all better.
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Corker: Gov’t Should Not Encourage Homeowners to Stop Making Mortgage Payments
posted by Evan Bedard on April 11, 2012 in Mortgage Assistance
(Source: Rep Bob Corker) - NASHVILLE – April 11, 2012 — U.S. Senator Bob Corker, a member of the Senate Banking, Housing and Urban Affairs Committee, today wrote to Ed DeMarco, acting director of the Federal Housing Finance Agency, urging him to avoid encouraging irresponsible behavior on the part of American homeowners.
“The last thing the federal government should be doing is taking taxpayer money and creating a program that incentivizes homeowners to not pay their mortgages, and I thank you for your record in standing up against efforts that would do just that,” Corker said to DeMarco in regard to the Treasury Department’s plan to forcibly push principal reduction loan modifications at Fannie Mae and Freddie Mac. “As policy makers, we should reward responsible behavior, not encourage reckless behavior. At no time should any program designed by the government discourage those borrowers working hard to stay current on their mortgages from doing so.”
On Tuesday, DeMarco is expected to give a speech to the Brookings Institution outlining the challenges associated with principal reduction loan modifications.
The text of Corker’s April 9, 2012 letter to DeMarco is below.
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“As a country we would be moving in a very dangerous place if we sent a message to homeowners that they would be better off not paying their bills.”
Barn door left open.
All the horses ran away.
Hurry, close the door!
I simply cannot find any information on the qualification requirements for principle reduction of GSE loans, aside from the implications of DeMarco’s speeches and public comments. Any links to such information would be greatly appreciated.
DeMarco Warns of the Dangers of Large-Scale Forgiving of Mortgage Debt
David C. John
April 15, 2012 at 9:05 am
To hear certain parts of the press tell it, the acting director of the Federal Housing Finance Agency (FHFA), Ed DeMarco, announced that the agency is willing to consider wholesale write-downs of underwater mortgages in a recent speech on the subject. However, a closer reading of DeMarco’s speech and the news stories shows that he actually understands the dangers of such a move. Even The New York Times noted that “His comments left doubt about whether he would change his long-held stance against principal reduction.”
The agency—which now controls both Fannie Mae and Freddie Mac, since those two housing giants essentially failed back in 2008—has been under heavy pressure from consumer organizations and some more liberal Members of Congress. In fact, many of them have been calling for DeMarco’s firing because of his opposition to such a move.
The press has focused on the fact that a new FHFA study unveiled at the recent speech showed a combined $1.7 billion reduction in expected losses for the mortgage entities under FHFA’s control. This would reduce the amount that taxpayers must pay to cover those losses. However, DeMarco also noted that under one of the many Obama mortgage refinancing programs, Treasury would provide a total of $3.8 billion in incentive payments for that action, thus leaving taxpayers with a net additional cost of $2.1 billion.
In DeMarco’s words:
In his speech, DeMarco also warned of some of the unpleasant consequences of large-scale forgiveness of mortgage principal that supporters of such a move tend to overlook. For instance, he warned that such a program is unfair to the millions of homeowners who have sacrificed to pay their mortgages.
DeMarco pointed out that a new public program of mortgage write-downs would encourage many responsible homeowners to default in order to get the same benefit that those who have stopped making mortgages would receive.
That means, will some percentage of borrowers who are current on their loans, be encouraged to either claim a hardship or actually go delinquent to capture the benefits of principal forgiveness?
DeMarco noted that even the $1.7 billion in projected loss reduction is based on the assumption that all underwater and delinquent homeowners would participate. He further stated that depending on the proportion who actually do, it would take only as few as an additional 20,000 responsible homeowners to stop paying their mortgages to eliminate those loss reductions.
In the speech, DeMarco further noted that almost half of the FHFA’s underwater loans also have a second mortgage on them, and an additional amount have private mortgage insurance. These loans would not be affected by a principal write-down, thus benefiting those lenders, and:
There is nothing wrong with writing down the principal of a mortgage as a way to reduce losses, if it is acceptable to the owner of the mortgage and made voluntarily on a case-by-case basis. However, the mass principal write-down advocated by the Obama Administration and some housing advocates would be a serious mistake. Finally, as DeMarco noted, it would do much less to fix housing than other more responsible moves:
DeMarco may have said that his agency is still studying the concept of large-scale write-downs of mortgage principal, but a close reading of his speech shows he understands why such a move would be very bad policy. He should not give in to pressure to ignore his own good judgment on this issue.
Dumb question of the day: What does Megabank, Inc get out of F&F principle reductions? (I’m guessing they get something, or else the Treasury Secretary would not be pushing for them…)
They get Obama’s reelection and continued pandering to regulators of Megabank?
Transfers the loss to PRC via T-bonds?
If that were the plan, wouldn’t it have been far more straightforward to clarify up front that the GSE debt was never guaranteed, and let the mortgage losses land squarely on GSE debt investors (including PRC)?
I heartily dispute the claim that “the stakes are small” in the principal reduction fight. If that were the case, why would top Obama officials be fighting so vigorously and openly to push them through?
Aside from the prima facie evidence, the precedent set by this policy could well determine the future ability of the U.S. mortgage market to function. If F&F principal reductions go through, moral hazard might be ensconced for generations to come.
The Political Fight Over Principal Reduction
By Jed Kolko
April 17, 2012
With four million homes lost to foreclosure since the housing crisis began, and another 11 million borrowers underwater on their mortgages today, housing policy is focused on keeping current homeowners from losing their homes. This year, Washington housing wonks have fought over “principal reduction”: reducing mortgage loan balances for underwater borrowers to help them stay in their homes. The fight has turned nasty and personal with Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA)—the regulator of Fannie Mae and Freddie Mac—at its center.
It’s an insiders’ fight, hardly registering on Main Street or in the election campaign, and that’s no surprise. The election campaign turned to housing only in January and February, when states suffering most from the housing bust—Florida, Nevada, and Arizona—held their Republican primaries and caucuses.
However, the fight over principal reduction hits all the big themes in the national debate over housing policy that will resurface as the presidential election draws near.
As with all housing policy during this recession, the debate over principal reduction is one small piece in a big, messy puzzle. There are many government policies in place or under discussion that try to help homeowners stay in their homes. Each policy or proposal focuses on some types of borrowers and not others. The key criteria for whether a borrower is eligible for these programs are:
- Whether the borrower is current on their mortgage payments;
- Whether their mortgage payments are more than 31 percent of their pre-tax income;
- How far underwater the borrower is;
- Who owns, guarantees, or insures the loan
The fourth piece—who owns, guarantees or insures your mortgage—makes housing policy a confusing mess. Only borrowers with Fannie- or Freddie-backed mortgages (60 percent of all mortgages) are eligible for refinancing under the Home Affordable Refinance Program (HARP). If that sounds unfair, take heart: President Obama thinks so, too, proposing in his State of the Union address a plan to make refinancing widely available to borrowers with mortgages not backed by Fannie or Freddie.
The Home Affordable Modification Program (HAMP), which modifies loans using various tools in order to reduce monthly payments, is different: unlike HARP, HAMP isn’t just restricted to Fannie- or Freddie-backed loans. In fact, HAMP loan modifications can go further for borrowers who don’t have Fannie or Freddie loans.
Here’s why: the FHFA allows Fannie and Freddie to modify loans under HAMP by lowering the interest rate, extending the term of the loan and deferring principal interest free, but not by reducing principal. Other mortgage servicers do use principal reduction as a tool to modify non-Fannie or Freddie loans (though only in 30 percent of loan modifications, so even when allowed it’s not the number one tool).
That’s what the big fight in Washington is about: getting the FHFA to add principal reduction to the list of approved tools in HAMP loan modifications. You wouldn’t know it from the fighting, but the stakes are actually pretty small—the FHFA allows Fannie and Freddie to use several other tools for loan modification, so it’s not as if the FHFA is choosing between principal reductions and doing nothing.
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Are White House Housing Plans Really Stymied By The Regulator For Freddie And Fannie?
Cora Currier | March 28, 2012 10:18 a.m.
ProPublica
For months now, the White House and the head of the regulator overseeing Fannie Mae and Freddie Mac have clashed over principal reductions for struggling homeowners. The Obama administration says that reducing the amount borrowers owe is essential to the housing recovery. Edward DeMarco, acting director of the Federal Housing Finance Agency, maintains that principal reductions are too costly for the taxpayer-owned companies.
Frustrated by DeMarco’s stance, Democrats in Congress and some state attorneys general have called for his resignation. Representative Elijah Cummings said recently of DeMarco that “he and he alone stands in the way of hundreds of thousands of people, if not millions, being able to [literally] get a new lease on life.”
Democrats have argued that the administration can’t get around DeMarco and the FHFA’s opposition to principal reduction. Is that really the case?
It wouldn’t be easy, but the White House does have options.
The most straightforward thing the White House could do is nominate a replacement for DeMarco, who became acting director of the agency in 2009 after his predecessor stepped down. The administration had picked a successor more than a year ago, but Republican objections led to the withdrawal of its nominee. The White House hasn’t named a potential replacement since. It also passed over the chance for a recess appointment this winter.
Obama has never called for DeMarco’s resignation, though the administration has consistently urged DeMarco to adopt principal reduction. The Secretary of Housing and Urban Development, Shaun Donovan, said in February “our goal is to get a good nominee and get someone in there who shares our view.”
The White House can’t simply fire DeMarco. Independent regulators are supposed to be immune from political pressure, and it is rare that the president would seek to remove them. There have been cases where heads of independent agencies have stepped down amid controversy — former SEC chair Harvey Pitt did so in 2002. But even that is rare.
There’s no precedent for it at the FHFA, which is a new agency, created in 2008 just before the government bailed out Fannie and Freddie. DeMarco said this week that he felt he has experienced “a substantial attempt to influence or direct an independent regulator.”
By law, the president nominates the director of the FHFA for a five-year term, and can remove him only “with cause.” But unlike with some other independent agencies, the statutes governing the FHFA don’t define what constitutes “cause.” The agency also declined our request for comment, while the White House didn’t respond.
Even if the president did pressure DeMarco to step down, all he’d get would be one of his deputies as another acting director, which is no guarantee of a shift in policy.
The Obama administration may think that it couldn’t get a new nominee through Congress — after all, the previous nominee, Joseph Smith, was opposed by some Republican senators precisely because they felt he would be too close to the administration on principal reductions. In the meantime, DeMarco takes the heat on principal reductions while other shortcomings in Obama’s housing policy fall out of focus.
Despite some of the heated rhetoric and criticism, DeMarco doesn’t face easy choices. His mandate to protect Fannie and Freddie’s bottom line — and thus taxpayer money — can be in tension with his agency’s duty to promote the stability of the broader housing market.
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Banks, GOP lawmakers fear top housing regulator moving to mortgage write-down
By Vicki Needham - 04/15/12 07:05 PM ET
The banking industry is concerned that Edward DeMarco, the nation’s chief housing regulator, is moving toward a plan that would allow some homeowners to walk away from their mortgages.
Industry groups say that cutting the principal for borrowers who are “underwater” and owe more than their homes are worth would further weigh down the housing recovery.
“Principal reductions create an incentive for a huge group of borrowers who have continued making their payments, despite lower home prices, to stop paying in hopes of principal forgiveness,” said Frank Keating, the president and chief executive of the American Bankers Association.
“A broad principal reduction program would result in fewer investors who are willing to lend for housing finance, increased borrowing costs and tighter credit availability,” Keating said.
DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), has come under pressure from Democrats and the Treasury Department to reduce mortgage principal. They argue the move would help struggling homeowners and save the government money in the long run.
But even with new data that back up those claims, DeMarco remains skeptical about the effects of implementing the program at Fannie Mae and Freddie Mac, the mortgage giants that the government has spent $150 billion keeping afloat.
Bankers argue that principal reductions through Fannie and Freddie would increase the liability for taxpayers and raise the cost of credit by creating incentives for borrowers to stop paying on their loans.
“The taxpayers’ cost for principal reductions generally exceeds the benefit created,” Keating said.
“Recovery in the housing market is extremely important, yet there are more cost-effective and efficient options other than principal reductions for borrowers and American taxpayers,” he added.
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Fannie Fights Innovation, Insists on Foreclosure
By Joel Sucher
APR 17, 2012 3:20pm ET
The question of the government-sponsored enterprises’ future has yet to become a front-and-center campaign issue. It should.
Former Republican presidential hopeful Jon Huntsman made dismantling the Fannie Mae/Freddie Mac duopoly part of his campaign platform. GOP front-runner Mitt Romney has stayed strangely silent on the issue, despite reports that his campaign has taken money from a former Fannie lobbyist. President Obama and his team have lobbed softballs with calls for principal reductions bouncing off the thick skin of the GSEs’ enabler-in-chief, Federal Housing Finance Agency acting director Ed DeMarco.
Now, interestingly, the International Monetary Fund has weighed in, with its managing director Christine Lagarde telling an audience at the Brookings Institution that dealing with the U.S. housing crisis was a “matter of urgency,” and calling for the “big boys and girls, Fannie and Freddie” to be part of the solution.
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Anything our local left-wing asshole bigmouth Eugene Paslov writes in the Nevada Appeal should be dismissed without a second thought.
This article spells out the answer to a question I raised above, which is whether being behind in mortgage payments is a qualification requirement for principal reduction; the article indicates it is.
Which naturally raises the question of whether F&F will give others who may be interested in getting their principal reduced the chance to stop paying their mortgages, before finalizing any decisions on who gets household-level bailouts of $51,000 or so.
And why limit it to those who are at least 25% underwater on their mortgages? Doesn’t that bias the bailout in favor of those who spent the most out of their mortgage loans, while punishing those who were relatively more prudent in managing personal debt?
Am I really the only poster here who finds this policy to be patently insane?
Will new bailout for homeowners help?
Economists are debating whether the possibility of a mortgage principal reduction will encourage more people to default. What do you think?
By MSN Money partner Apr 5, 2012 10:34AM
This post comes from Marilyn Lewis of MSN Money.
Image: House with bills
There’s new talk of partial debt forgiveness for homeowners who have government-backed mortgages. Discussions revolve around whether writing down mortgage balances is a good idea, morally, and whether it could do any good to heal the housing market.
A quick recap: Federal Housing Finance Agency chief Ed DeMarco is the guy who’ll make the decision. He has opposed principal write-downs. Until now. He’s possibly reconsidering because the Treasury Department has offered to bear the costs.
DeMarco has said he’ll decide this month. He oversees Fannie Mae and Freddie Mac, which together guarantee and control about half of the country’s 11 million underwater mortgages.
Only 300,000 or so mortgages would be eligible for a balance write-down. The mortgage principal would have to be at least 25% greater than the value of the home. Borrowers would also have to be late on their mortgage payments.
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April 20, 2012, 8:56 pm
Wall St. Protesters Lying on Sidewalk Are Arrested
By COLIN MOYNIHAN
Video of Friday’s protest near the New York Stock exchange.
The police arrested a group of Occupy Wall Street protesters who were lying on a sidewalk at the corner of Wall Street and Broad Street on Friday afternoon after one demonstrator announced that the law allowed them to do so as a form of political protest.
Organizers said that the eight people who were arrested were trying to draw attention to statements made by police commanders over the last few days that protesters were not allowed to lie on the sidewalks.
The police also arrested two other people on Friday afternoon. One man, holding a camera and a tripod, was arrested while standing on a sidewalk at the foot of the steps of Federal Hall. A second man was arrested moments later as a wedge of police officers walked east on Wall Street, pushing a crowd of people ahead of them.
Kevin Jones, an Occupy Wall Street protester, said that a wave of officers had passed when an officer trailing behind shoved a man in the back. The man stumbled forward, Mr. Jones said, and fell into the officers walking ahead of him. He was then arrested, Mr. Jones said.
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