In light of current market conditions including home value trends, it appears that key elements of any net present value determination (such as default rates with or without a modification, and loss severities) cannot be accurately predicted based on historic data

>>Key elements in this context will be valuing the property and thereby using comps, which will be outdated in net present determinations, as the comps have all crashed in a spiral — if you can find a current sale within the last year! The latest comp within a one mile radius may be VERY hard to find for this Key Element of a refi/bailout!

“Barely three weeks after moving into the house, the couple decided to abandon it and left without making any payments.”

From a WSJ-affiliated publication… read the whole thing.

-K

Your second point well taken, although I’d much rather see bona fide bailouts (government programs with specific benefits and costs attached) than these efforts with uncertain costs and benefits (and collateral damage, per a comment above, of increasing uncertainty in the mortgage market) that also socialize the losses. Nouriel Roubini, before he changed his position and started advocating rate cuts, said fiscal measures would be necessary to combat the hard landing he predicted. Some sort of homeowner relief could be one element (again, this raises huge issues of equity, but I think an explicit bailout is easier to target to certain audiences than the plan just put forward).

However, on your first point, I am raising a different issue than Tanta (and I did see and referenced her initial comments).

Irrespective of how carefully the New Hope Alliance crafted this plan to avoid obvious abrogation of existing contracts (and therefore a need for safe harbor legislation, which would have been hugely controversial and still may not have survived Constitutional challenges, since contracts are governed by state law), I am saying that investors could probably launch successful suits if they wanted to.

If I as a non attorney (but having some experience with litigation strategy) can see obvious grounds for a suit, attorneys who have access to the documents and know the ins and out can clearly mount effective challenges. As I indicated, all you need to do is get past summary judgment; once you do that, you can use discovery to get into your opponents’ underwear, which is generally unpleasant and costly.

This concept was thrown together in about a week, effectively less than that when you back out time for drafting the President’s and Paulson’s speeches. You couldn’t get a top drawer law firm to do a legal review of the implications and write an opinion letter in that time.

Anon of 8:32 PM,

I have an earlier post on the fact that various state homeowner rescue plans haven’t produced much in the way of tangible results and put a link to it in earlier comments, but thanks for providing text of similar findings

more stories like this
Catastrophe fund backed to insure coastal homes
Patricks signs law to curb home foreclosures
Quiet times on Beacon Hill
Legislature passes foreclosure-aid bill
Massachusetts governor proposes $1.1 billion affordable housing bond bill
In Massachusetts, where the Patrick administration introduced a $250 million program in July as a “big piece” of its efforts to limit foreclosures, not a single loan has been refinanced.

In Maryland, the first state to create a refinancing program, officials have found it so ineffective that they are considering shutting it down. The program has made just nine loans in about a year.

A leading advocacy group said the programs simply aren’t able to help most borrowers. “They’re very well intentioned,” said David Berenbaum of the National Community Reinvestment Coalition, “but these new products aren’t fitting the needs of the consumers we see.”

The vast majority of the applicants aren’t eligible for refinancing. They have either fallen too far behind on their payments, have badly damaged credit, or simply owe more on their loans than the value of their homes, making refinancing effectively impossible.

http://www.boston.com/business/personalfinance/articles/2007/11/21/refinancing_programs_omit_many_borrowers/

However, according to a self-proclaimed mortgage insider in California who paints a dire picture, “The bailout we are hearing about for sub-prime borrowers will be the first of many”. If so, perhaps it is these future bailouts (in the heat of an election year, mind you) that will tear up the rulebook and consequences be damned. Never underestimate what politicians are capable of, for better or (mostly) worse.

The SEC `clarified’ its understanding of FAS 140 in congressional testimony last July, opining that a servicer may act when `default is reasonably certain’ without violating 140. BUT…the SEC’s view (at that time, who knows about tomorrow) clearly envisioned an individual review of a single loan: “Participants indicated that default is reasonably uncertain when there has been contact with the borrower, an assessment of the borrower’s ability to pay has been made, and there is a reasonable basis to conclude that the borrower will be unable to continue to make its mortgage payments in the foreseeable future.” Now the `participants’ mentioned were attendees at a FASB-sponsored conference: “investors, preparers, auditors, servicers, and banking regulators.” So we’re right back to the issue of customary practices for servicers–and it’s pretty clear that only case-by-case determinations were considered by the participants, and that substantial legal uncertainty remains about whether the mass modifications `guidance’ in the Paulson plan will or won’t violate FAS 140.

(I apologize for not having a link to the testimony–this was SEC Chairman Cox’s appearance before Barney Frank’s committee on July 24, 2007.)

Aha, sorry for misconstruing your point. And yes, I hadn’t realized that the ASF was attempting to tie its program into commonly-used contract terms.

The point re FAS 140 is very important, and thanks for passing it along. Amazed I haven’t seen it anywhere (admittedly, am behind the eight ball and haven’t read Calculated Risk yet today. The problem with early AM posting is you get the big news early and the nuance late).

Will check around and if that aspect hasn’t been picked up anywhere that has a good sized audience, I’ll write it up.