naked capitalism

Max says:

Almost 53 percent of borrowers whose loans were modified in the first quarter of this year re-defaulted by being more than 30 days overdue, …

Coming to discover a little bit of a moral hazard there, no?

fresno dan says:

I can never understand why people think that these “loan modifications” as are being (wihtout principal reduction) put forward are helpful to the mortgagee. Lowering interest just means that your a defacto renter, who will still take a loss when you sell (either an actual loss or less money earned if held in a savings acount).
O, of course, that was the whole point.

Ken Stremsky says:

If Congress had learned from the Savings and Loans Crisis and regulated properly, the mortgage mess might have not taken place.

Congress should require down payments on homes and fixed rate mortgages to make future mortgage messes less likely.

Banks may want to turn many foreclosed homes into low income apartments and middle income apartments. Banks may want to turn many foreclosed homes into apartments for disabled Veterans and apartments for other Veterans.

The least that should be done to grow the economy and create jobs is the indexing for inflation of capital gains, interest from savings accounts, and dividends. If the capital gains tax is not indexed for inflation, people may pay the capital gains tax when they have actually lost money because of inflation. If people are less worried about inflation, they may save and invest more. If businesses are less worried about inflation, they may invest more and hire workers. If banks are less worried about inflation, they may make more loans.

If the federal government is serious about growing the economy and creating jobs, it should stop taxing capital gains, interest from savings accounts, dividends, and estates. Businesses will have an easier time obtaining loans and investments for hiring workers, plant and equipment, and research and development. People will have an easier time saving money for down payments on homes and fixed rate mortgages, college tuitions, and retirements.

The federal government should sell a lot of the land it owns to raise capital, reduce the national debt, help fund Social Security and Medicare, and do other things. Some of the money the federal government obtains from the sale of the lands should go to state governments. If you type federal government owned land on a search engine, you might be surprised at how much land the federal government owns.

Congress should consider allowing many casinos and hotels especially hotels for the wealthy to be built in many national parks. The federal government could obtain property taxes from these casinos and hotels, a percent of sales from these casinos and hotels, and a 5 percent rooms and meals tax from these casinos and hotels. State governments should obtain some of the money the federal government obtains from these casinos and hotels.

Article 1, Section 8 of the Constitution says Congress has the power

“To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”

Congress should consider backing our currency with gold, silver, and other commodities.

Congress should eliminate the Federal Reserve or veto many of its decisions. If the Federal Reserve continues to exist, two members of the United States House of Representatives and 2 United States Senators should sit on the board of the Federal Reserve. If 3 of these members of Congress wants a Federal Reserve decision to be vetoed, it should be vetoed. If the majority of the members of the United States House of Representatives wants a decision to be vetoed, it should be vetoed. If a majority of the United States Senate wants a decision to be vetoed, it should be vetoed.

I ran for United States Senate from New Hampshire in 2002. My website is http://www.myspace.com/kennethstremsky

Mara says:

Looking at it from the glass-half-full side, at least half of the modifications DID work, and that kept a lot of people in their houses and paying on time. I think that’s a good thing, though the mortgage co’s will kvetch that it isn’t working, hoping to go back to evicting people into the snow. Of course, when your economy gets over half a million newly unemployed in one month, it’s going to be bad, even if home prices were rising up until now.

This economy is much akin to a multiple gunshot victim: we’ve stanched the bloodflow from one severed artery, but there are 3 others that need to be tended to. I wouldn’t then say, “see this direct pressure didn’t work, because he’s still bleeding over here and here.” The point is that you’re not done saving the patient yet.

Anonymous says:

In order to be considered for a loan mod you have to be in such dire financial condition that you have no reserves left. I would assume that many people are trying to use the loan mods to buy some extra time in hopes of selling the property. The talk of “moral” hazard is double edged. If you do the “right” thing by killing yourself to pay for a house that has a mortgage far higher than it’s real value at the cost of educating your children of getting needed medical care is that moral? Should people put their obligations to banking institutions before all else?

I would guess that a reduction in the actual loan and not the rate would provide better results for numerous reasons buried in my previous paragraph.

Stephen says:

Use the downturn to end mortgage interest deductability…helps the treasury and stops the incentive to overbuy.

Replace it with a principal residence is capital gains free.

Use the market downturn to get rid of this drain on the treasury. I dont know a sane economist out there that thinks this is a good tax break.

Anonymous says:

Ha! “principle reduction”.. Honestly, I can’t wait.. When this country thinks it is necessary to give a principle reduction to the most irresponsible folks in America, it will be beautiful day for all the academics who promote this daily.. A principle reduction for a small percentage of the mortgage holders in this country equals a waterfall of defaults that no professor or economist or some “know it all” newscaster will input into their “mathematical” equation. Who really thinks a responsible and prudent neighbor will stand by and watch someone else get a principle reduction and smile and say “isn’t that sweet” they refinanced their house multiple times and bought all those wonderful toys and now my tax dollars will bail them and I will just continue to give and give and be charitable, all for the greater good… Little do these academics and Washington folks who never get out understand, this move will not only bankrupt America financially but it will be the last straw and bankrupt America morally. I would call this “wipe out” of anything that may be left in this country we might call good, charitable and responsible. I just dare the government to do this. At least we will be able to add to the dictionary what a “modern day revolution” definition will look like.. I guarantee anyone it will not be pretty. And to think they are worried about the financial health of this country. Can you imagine what this country will look like with the highest crime rate in history?? Of course not…

Go ahead… “Make my day”!!! Give those homes away… Just dare ya…. You can bet I will figure out how to take advantage of the deal of the century someway, somehow…

Jojo says:

@Mara said “Looking at it from the glass-half-full side, at least half of the modifications DID work, and that kept a lot of people in their houses and paying on time.”

At least for 6 months anyway. But what will happen in 12 months?

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And here’s a banking related humor [lol]:

Louis C. K. – Broke

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Fraud Guy says:

As someone who is attempting to go through a modification, here are the issues I am encountering:

1. Bank does not wish to cut interest rate.
2. Bank does not wish to extend term of loan.
3. Bank does not wish to forgive any payments.
4. Bank does not wish to defer any payments to end of loan.

They have claimed that the reason for doing so is that they are constrained by the terms of their securitization agreement from doing so.

However, Bair at the FDIC has seen the securitization agreements, and basically stated that all of the bank claims are false–they have the right to do any of the above to maintain the value of the underlying asset.

In addition, my bank in question has recently entered into an agreement with several state’s attorneys to do any and all of the above for homeowners who were oversold their mortgages. (I, however, did not qualify for the program, as my credit was too good then, and is too poor now to qualify for a refi).

BWare–banks have REFUSED to do any proactive mods with me–in fact, their employees have counseled me to go 60+ days delinquent so that additional modification programs are available. Re: anonymous about being tapped out financially–basically, if I had held back about $50K before going to foreclosure/default, I could have bought my way out of many troubles–but that would have been unethical and deeply immoral.

Anonymous says:

Adding to Fraud Guy’s comment – I notice no definition of what constitutes a “loan modification.” My experience has been that the bank offers loan modifications of (1) increased interest rate, (2) lumping all overdue fees and late fees and b.s. fees it can into the principal, thus increasing the principal, (3) tacking on some obnoxious balloon payment at the end, and (4) demanding a huge good-faith payment up front.

Why are 53% of loan modifications failing? I’d want to look at the loan mod first.

Anonymous says:

Mods will continue to fail because of the same old s… MORTGAGE SERVICING FRAUD. We are never going to get out of the woods until Feds seriously crack down on servicers, particularly i-bank subsidiary servicers who manufacture defaults for in house trading proft.

Kevin Kleen rpakkleen@gmail.com says:

Most borrowers do not default until they have a significant income curtailment event (job loss, divorce, illness, etc.) and exhaust their resources. Lenders (if they respond at all) provide a modification that leaves no slack for future problems. So, any hiccup in the borrower’s income is sufficient to send the deal back into default.

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