I’d heard about a week ago that the Administration was readying the Mother of All Homeowner Rescues, to be administered via Fannie and Freddie. Given that Team Obama has never done shock and awe on the financial front, and the Bush Administration engaged in it only on behalf of banks, I was plenty skeptical.
The program revealed on Monday is true to form: greatly underpowered and more likely to benefit banks than homeowners.
The simple outline is: the government is extending and modifying its disappointing HAMP program, which allowed borrowers underwater up to 125% loan to value to refinance through Fannie and Freddie at lower rates. HARP was expected to help 3 to 4 million borrowers but only 900,000 participated. The LTV cap is now being eliminated and no appraisal will be required. Only borrowers who have never missed a payment will be eligible. Certain fees will be waived for borrowers to refi into short-term mortgages.
Even the Administration conceded this wasn’t much of a program. From The Hill:
Edward DeMarco, FHFA’s acting director, was quick to note that the changes won’t expand eligibility to all the nation’s homeowners, but focus instead on enticing participation from those already eligible for HARP.
“This is not a mass refinance program,” he said. “It was really designed to enhance the program’s access for those borrowers who have always been the eligible population.”
Democrats jumped on the plan as being inadequate, and as some have read it, it won’t even provide much if any payment relief. Again from The Hill:
[Representative Dennis] Cardoza was quick to praise certain elements of the FHFA’s new strategy, particularly the elimination of new property appraisals in cases where Freddie or Fannie have a “reliable” automated valuation model.
Still, the Blue Dog Democrat is also leery that the devil is in the details. He criticized the FHFA reforms for “doing nothing to get the banks to cooperate.”
Encouraging homeowners to refinance into shorter-term mortgages, for instance, will do nothing to lower their monthly bills even at lower interest rates, he noted. Cardoza is pushing legislation to help homeowners refinance while lengthening their payback period up to 40 years.
“The problem is they can’t pay, not that they want to pay it off quicker,” he said. “They should have more time to weather this crisis.”
This plan will at best provide only modest help to homeowners. And in some cases, it will worsen their position. In some states, a purchase money mortgage is non-recourse. In all state, my understanding is a refi is recourse with only narrow exceptions.
It will have virtually no impact on the housing market because it will keep loan balances at the same inflated levels. Similarly, it will not contribute in any way to new construction.
So why is the Administration bothering to do this?
First, Obama is addicted to the appearance of Doing Something, regardless of whether it is productive. A clear sign is the apparent failure to investigate why HARP was a dud. As a management consultant, I’ve often been brought in to help clients dig their way out of failed initiatives. Almost without exception, their idea of what went wrong misses critical issues from the customer perspective. Cardoza suggests the banks dragged their feet. Another possibility is borrowers who are seriously underwater don’t want a refi; they might want a short sale or a principal mod. Remember, default is highly correlated with how deeply a home is underwater. And that makes sense: why should any one struggle to stay in a home if it’s a losing investment? Some parents may stay so as not to disrupt their children, or because they find the stress, legal hassle, and credit rating damage of a default to be too daunting. So even if a refi makes economic sense, borrowers may feel it commits them more to a home that they need to exit.
Second, this is a sop to the banks, because a refi ends any liability associated with the origination of the mortgage, including putback liability. Now that would seem to be a big “get out of jail free” card for banks engaged in putback litigation. But the reason this is not as nefarious as it might seem is that current mortgages aren’t the big bone of contention in putbacks (even if the originator lied, the borrower is paying, so there are no damages). But it would also end any chain of title issue on that mortgage. I’ve had lawyers calling me about the “empty trust” question, that mortgages might never have been conveyed properly to securitization trusts. Kemp v. Countrywide, in which a senior Bank of America servicing officer said Countrywide retained the notes (the borrower IOU) as standard practice raises the possibility that many of its securitizations were in fact empty trusts. The more mortgages that it can get refinanced, the lower its liability would be.
This plan is yet more proof that this Administration is not about to inconvenience banks to help homeowners and communities. It has tools in its power than would change the incentives for banks and make them far more willing to do what the overwhelming majority of mortgage investors would prefer, which is provide deep principal mods for viable borrowers. Forcing banks to write down seconds, and taking an aggressive stance on foreclosure fraud would restructuring debt more attractive than it is now. But just as the banks and their captured governments in Europe seem intent on grinding down entire economies to extract their pound of flesh, so are banks in the US continuing to operate a doomsday machine that grind up housing with no regard for the economic and social costs.
So this is supposedly one of a series of Executive steps being taken to burnish O’s reputation before the election.
Wake me when someone goes to jail, would you?
My retired neighbor gets AARP periodicals. These publications contain stories of individuals all over the country, thousands or millions of them, who have been living in their houses for years now without making payments.
Seems as if nobody really needs mortgage mod assistance.. we’re all doing just fine living free of charge, care of the TBTF banks and their government enablers who made it all possible.
yes, all – except for all those who still pay their mortgage (which was based on fraudulent lending) but didn’t foolishly borrow against their supposed mountain of “equity” which has since miraculously disappeared leaving a financial crater which ultimately is due to the fraudulent lending in the first place – yes, all except for those
Right! The same prez who stands before the American public and proclaims that the banksters didn’t break any laws (we’ve all ready gone over that enough times!!!) is going back to help the banksters’ RE bubble reset (oopsy, I mean helping the citizen home-owners).
I stopped paying attention to anything O said over two years ago. Listening to Obama is a complete waste of time because, if you are not a banker or some rich CEO or investor who financed his campaign, he does nothing other than blow hot air in your face. Isn’t it depressing to realize that the 2012 presidential elections are going to be nothing more than an exercise in futility? Since we are stuck in this aristocratic two party duopoly, essentially the presidential elections will only offer a choice between a slow death (Obama) and a quick death (Republican). Lovely. Perhaps it is time to move – to another planet!
Considering Obama’s beliefs about executive assasination, the death he offers might not be as slow as you think.
Nope, it’s time to fight to death if need be. We need to stop being so passive.
Supposedly, now the Administration is working with the AG’s to have principal writedowns included in the 50 state settlement agreement.
Thanks. I bet they got pushback from some AGs on the release being too big and now need to sweeten the pot. The dollar value of settlement they are discussing is too small for the mods to be anything other than trivial.
And this is all bass-ackwards. Investors would HAPPILY support deep mods to borrowers that looked viable. They lose a fortune on a foreclosure, so a deep mod that worked would put them ahead. The bank servicers are the bottleneck. They don’t do mods because they are not set up to do mods. They are paid to foreclose. And their second mortgages stand in the way too. If those were written down to realistic levels, this would be a very different story.
“And their second mortgages stand in the way too. If those were written down to realistic levels, this would be a very different story.”
I’m curious about this. Does ‘realistic levels’ equal zero? For anyone underwater, I thought the second was history.
Well, Chase will not do a foreclose on us, but they are continuing to give us the run around. If it’s in their best interests to foreclose, why aren’t they? There are a bunch of people at this point who are in limbo. Could it be because of the criminal investigations that are going on by the state AG’s?
Regardless if the homeowner is current, Fannie/Freddie should put the mortgage back to the bank whenever possible.
The value of the guarantee option far exceeds what F/F received back in the day.
F/F have a moral an economic duty to the taxpayer to return each and every mortgage every chance they get.
“But just as the banks and their captured governments in Europe seem intent on grinding down entire economies to extract their pound of flesh, so are banks in the US continuing to operate a doomsday machine that grind up housing with no regard for the economic and social costs.”
Incredible!…are the banks really going to get away with wiping out a few hundred years worth of chain of title precedent and get away with fraud? I think so…….
You can bet that the banks will have two set of researchers for the homeowners applying.
One will be the typical one using the guidelines set for the program, but
the second will research chains of title on the mortgages. The homeowners that qualify with the the typical guidelines will undoubtedly be given priority if there is a problem with the chain of title on their mortgages. After all, this is the out the banks are really looking for.
Right on. My situation: seriously underwater; have kept home to help grown children; now need short sale. I get frequent messages from Chase but there is no refi that could possibly save me.
I don’t know how much you’re interested in staying in your home, but if you are, check out the link I posted above. It may be worth holding out to see if principal write downs don’t come yet. It shouldn’t be too much longer before some agreement is reached, the question is merely what it will be (or its determined that no agreement CAN be reached). Stay tuned to this channel for updates.
This is just another desperate effort to get people to reaffirm a debt which may or may not exist. The fake paperwork/robosigner scheme failed so I guess next up in line is to get a signed confession.
Here’s what a gamechanger would look like: Obama rests his 2012 bid on a bold plan to revisit the Bankruptcy “Reform” of 2005.
In one fell swoop he could get young people and 11 million underwater homeowners on board without alienating millions of “angry renters” who don’t want their tax dollars used to bail out anyone.
Reset bankruptcy laws based on the premise that no American should be a debt slave and everyone deserves a REAL second chance. People before banks.
God, this crap writes itself! That he doesn’t have the brains or the balls to go there says he is not worthy.
Changing the bankruptcy law is an excellent idea, I wish you would decouple this idea from Obama’s political campaign. Your idea needs to be done independently of any election campaign.
If Obama made this happen I would still not vote for a man who is a war and financial criminal.
If people vote R or D the outcome for the vast majority of our population will be the same. That is why, it makes sense to quit worrying about R and D elections and focus on actions that will help our fellow citizens in spite of the the best efforts of the corrupt presidency, Congress and courts systems to harm us!
Me thinks you misjudge the populace. If people get write downs or debt forgiveness or even bankruptcy laws are made more friendly, there will be those who will feel they’ve been punished for being “responsible”. We have a strong contingency in the right wing who do not believe in second chances or special considerations for people who find themselves in dire straits; nor do they feel any compassion for “losers” who brought whatever their difficulties may be upon themselves. Had the “losers” worked hard, shown integrity, and made morally superior choices like these conservatives, surely they wouldn’t be asking for any assistance.
I agree with you that too many people in our population (although not just conservatives) have drunk the kool-aid about “personal responsibility” for being laid off one’s job in a recession/depression, becoming ill and having large medical bills etc. Further, evidently personal responsibility does not attach to the wealthy who recklessly and illegally gamble with taxpayer money. People who still believe this ideology can vote for Obama or the openly Republican candidate of their choice.
I do think the pool of people who still hold this ideology continues to shrink as more people find themselves acting “irresponsibly” after losing their job and needing health insurance, housing, food assistance etc. The OWS movement is helping people understand what is really going on. We have a lot of propaganda to undo in this society!!!
If people get write downs or debt forgiveness or even bankruptcy laws are made more friendly, there will be those who will feel they’ve been punished for being “responsible”. LucyLulu
True and with some justification too. The banking system does cheat savers – of honest interest rates.
That’s why we should bailout the entire population, including savers, equally, with new fiat.
Bankruptcy is not a walk in the park. Any sane person who can avoid it would.
Bankruptcy reform is much more palatable to libertarians like myself than handing out free fiat to all comers could ever be (though if it comes to that, I’ll get in line).
I certainly don’t want to sound like I wish Obama would put this on the table to “save” his presidency. He’s a disaster.
But I do want people to see what a bold, infinitely workable solution might look like. And if any of these clowns put this one on the table I would think long and hard about giving him or her my vote.
I think with principal mods, as with any part of this financial crisis, the idea of shared sacrifice must be invoked to get more people on board. For instance, what if any person who gets a principal mod also got a hit to their credit record (possibly revokable if bank fraud could be proved)? Sounds harsh, but if both the banks and the borrowers start taking hits, it could help sell the program and keep people in their homes.
I think it could be sold on the fact that the bankruptcy rules for homes are completely different than any other type of debt. The notion is that you write down the value of the debt to the value of the security, as your probably know. So if a home is underwater, the amount underwater is considered unsecured debt along with stuff like credit cards. So if you have $50,000 of total unsecured debt and the person only has $15,000 in assets, everyone gets 30 cents on the dollar.
The pitch would be along the lines of OWS: that homeowoners don’t get breaks that businesses do. Either end Chapter 11 or give homeowners this break. Frame it this way and it changes the conversation.
Moreover, you don’t need to actually BK. The threat of a BK changes the negotiating dynamics.
People get over it, also, especially if they find their position overwhelmed by public opinion, and ESPECIALLY, if economic conditions improve thereafter. I know plenty of Tea Party types who have declared bankrupcy. Don’t let them fool you with their convenient piousness. It’s a stance is all, and will be forgotten about as soon as it’s expeditious.
Great suggestion Leviathan, however, Obama’s
“promises” are not gonna count next year. If he
expects people like me (lifelong Dem, SERIOUSLY
disillusioned and angry) to vote for him, that
reform and others like it — mainly, jailing Wall St. criminals need to be done BEFORE I’ll vote for him again.
I’m confused Bill,
How can you expect Obama to put himself in prison and authorize the death penalty for himself for the 2000+ civilians he has assassinated by remote control drone?
To say nothing of the multi-trillion dollar theft he has facilitated.
I can’t tell if you’re joking about Obama putting people before banks or serious.
It’s not a matter of Obama’s brains or balls, nor would he be re-elected if he tried to champion a change that would deprive the elite of power and assets gained through debt.
Re-election is solely at the discretion of the moneyed elite, who can buy minds with slick propaganda and sports team whoop-it-up. If the president turned against the interests of the financial sector, then you would see the MSM, interest groups, donors, etc. begin taking fewer potshots at some RINO like Romney, saying favorable things, etc.
The election would be engineered to maintain the power of the elite and status-quo. That’s why the president will never turn against the interests of the financial sector and the elite.
It might be too late to save yourself (or whoever) from debt slavery, but you can save your children. You have to teach them to have a mind, not turn it into mush as the status-quo desires.
You get an A+ from this grader!
That was for Leviathan’s suggestion to revisit the pernicious 2005 bankrupcy act.
thanks for doing a post on this yves. because i tried reading the corporate media and they told me nothing about the program. they just gave their usual he said/she said.
Please Google HR 1587. They need to fast track this into a Bill. Obama has failed on almost everything except protecting the bankers and Wall Street institutions. If the homeowner is going to file bankrupcty maybe they can have a judge cram down the principal on their primary mortgage. You can strip the HELOC away under Chapter 13 if the value of the home fall below what is owed on the first lien. They need to change it so that all of the unsecured mortgage debt can be crammed down. Obama hasn’t or won’t clue in, so maybe HR 1587 will get done this time. A version of this got voted down in 2009 so keep your fingers crossed.
I don’t see much different between having a mortgage on a home that’s underwater due to its value depreciating down into the double-digits and purchasing it with a interest rate that’s in the double-digits. So it’s hard for me to have much sympathy for home owners that are underwater on their mortgages these days. Thinking back to the mid-80s when I bought my first home with a mortgage interest rate in the low double-digits, which was the going rate at the time, I was technically underwater on my mortgage, especially given that the value of my home wasn’t appreciating enough to offset the cost of my extremely high interest rate.
And yet, you would never hear me complain about being underwater due to this. That’s because I never viewed my home as a nest egg, much less as a way to borrow against it. Perhaps I was too young and too fresh out of college to be buying a home, as some used to tell me. But I saw my home as a place to live and enjoy life, not as a way to make (or lose) money. Plus at the time, I was a collector of antique furniture and enjoyed growing things in the garden, so I had a real reason to be in the market for an old historic home on a fairly good-sized lot.
Where I live businesses are folding and there aren’t jobs to replace them. People are often desperate to move to some place where they might have a chance at getting a job but they cannot because they are underwater on their home.
How would you handle that situation?
Those who are underwater are not only stuck unable to sell their homes, thus unable to relocate to find employment, but there is also no light at the end of the rainbow in terms of digging their way out of the hole. Home values are not expected to return to mid-2000 prices for at least 10-15 years. On the other hand, you were able to refinance your double digit mortgage into single digit rates within 5 years or so, depending upon when you bought. As I recall, salaries were also climbing to keep pace with inflation, or at least approximately so, unlike today, when those who ARE working are often seeing their hours or salaries cut. But home payments didn’t seem nearly so burdensome as they seem to be now. Certainly foreclosures were not at the same rate as they are now. I know, I had not one, but two 17% mortgages myself (simultaneously, my ex’s business took us to two different states during the year depending upon season)…… :=)
Cynthia, I don’t understand why you have no sympathy for underwater homeowners. Again? It’s because there’s no difference between having too high a rate or too high a mortgage balance?
Homeowners who are underwater simply bought sometime before the market crashed as far as it has. You were smarter, but the lesson for many years is that homes are a good investment.
Someone who bought in too high from a common misconception and then the market crashed have _my_ sympathy.
I don’t buy the premise that most people bought their home as a speculative asset. Most people bought into the idea of homeownership as part of being an adult, particularly if you have kids. as a way of providing stability for them. And most good school districts have very little in the way of rental homes that are big enough for families (small condos for singles and condos are more common).
Many people saw rising home prices and got in out of fear that if they didn’t buy now, they’d be priced out forever as home prices continued to rise.
Many people saw rising home prices and got in out of fear that if they didn’t buy now, they’d be priced out forever as home prices continued to rise. Yves Smith
Bingo! The population was stampeded into buying with their own stolen purchasing power.
Not true, because people could have (and in my case, did) rent with the expectation that house prices would eventually have to fall to reasonable levels.
Valuing a CMO may have been rocket science, but figuring out that homes were (are) trading at absurd prices didn’t even require an abacus.
Not true, because people could have (and in my case, did) rent with the expectation that house prices would eventually have to fall to reasonable levels. Typing Monkey
Most people are not as cynical as that. In any event, a Depression is too high a price to pay just so savers can look smart.
Most people are not as cynical as that
Who do you think all these people with second homes were renting to???!??!?? BTW, this wasn’t even cynicism–it was very, very basic common sense–you don’t make a thirty year commitment worth five or ten times your pre-tax income with no down payment when there is an unforseen variable cost (interest) associated with it.
But don’t take my word for it–find a 10yr old and offer to sell him a candy bar in exchange for him doing all your lawn care for the next five years. Persuade him by telling him that “everybody knows” that this is a good idea and that the price of a candy bar is only going to go up. Let me know what he tells you.
Didn’t second homes/cottages account for something like 30% of all home sales at one point?
Unless and until principal write downs and bankruptcy cramdowns happen, nothing will get better. I was more interested in the other part of this rumor, that Fannie and Freddie would start auctioning off huge blocks of REO properties to private investors. Screws the taxpayers, but resolves the overhang.
None of the administration’s programs is adequate, but – inadequate as they all are – they are still managerial and logistic disasters. Lost documents, ridiculously detailed, doomed-to-fail qualification minutia, incompetent ‘non-profit,’ paid intermediaries like the CCCSF and , Frankesteinian megabanks whose internal systems don’t connect…These are only the tip of the iceberg.
I say: put the whole industry out of business. Let anyone who lives in their home (one home per family) keep it, no mortgage, no strings attached. Let anyone whose home was repossessed by a bank since 2007 have it back or make the banks compensate them. Per David Graeber’s, Debt: the First 5,000 Years (http://mhpbooks.com/books/debt/) declare a Jubilee for people but not corporations. This would also put all the credit reporting institutions out of business, thereby erasing terabytes of wrong information about people (no, I don’t own a condo in Salt Lake City. I have never even been to Utah.).
“Move Your Money” is all very fine and good: I endorse it. But it is not enough. So many of us are “assets” of the big banks, that our deposits are paltry by comparison. Until something is done about THAT, our efforts are symbolic. Symbolism is good, mind you. That said, it is necessary but not sufficient.
‘ Lost documents, ridiculously detailed, doomed-to-fail qualification minutia, incompetent ‘non-profit,’ paid intermediaries like the CCCSF and , Frankesteinian megabanks whose internal systems don’t connect…These are only the tip of the iceberg.’
Very well put.
Co-worker right next to me just moved not only all his deposit and savings accounts out of Wells Fargo, but also refi’d his mortgage with a Credit Union as well.
You don’t have to be an asset of a big bank.
I believe this BankTransferDay movement is going to hurt the big banks a lot.
Even with a finance background it use to take me a long time to figure out what their scam was. Now I see it the moment they come out with this garbage. I agree with another blogger that people should stop making their payments throughout the US because they will never have clear title to their property if MERS has touched it and/or it was securitized. The help the banks at any cost and screw US citizens Obama administration is useless. This has got to be a people driven recovery. At least some of the courts are aware and legislating in favor of the homeowners and not the banks. This is good but it’s not enough.
Obama needs to get a wooden dummy that he can put on his lap. That way it will be much easier to follow when he says one thing but does another.
Better yet in order to save money(which is what this is all about) by not renting or buying a wooden dummy. Just buy one diaper and set it on his lap and use that as the dummy. After Obama says something that is wise and fits the populist mode. He can then go to the diaper and let it speak. Theoretically it will then be easy to follow which end of Obama is speaking.
The key aspect here if I were a banker–encouraging the marks (er homeowner) to get a recourse loan. Makes my risk management department (such as it is) much happier and well I can track down the “homeowners” in event of default/foreclosure and make em my slaves for life. Going from non-recourse to recourse under this “program” is a scandal–its actually a screwing good credit risks (to date) to the post and protecting bank exposure. Quite the scam.
Agree. You turn a non-recourse loan into a recours loan, all you’ve helped is the banks. I’ve stuck up for Obama through thick and thin, basically because I’m scared of the (Republican) alternative. I’ve about run out of stick-up-for-him. The ’12 election looks oh, so, depressing.
Will someone suggest a replacement candidate from the Left side? Please hurry.
Either I misunderstood your post, or I am misanalyzing the situation.
My understanding is that once these loans default (and they will at a high rate), the originators would have to recognize the accounting losses. This program means that the banks will no longer have to do so (taxpayers instead of banks end up eating the loss).
Since most of these dumb loans occured before 2009, the banks get a huge bailout.
Again, I might have misunderstood the FHFA proposal. Please let me know if I’m wrong.
No, in a securitization, the originators NEVER recognize an accounting loss (unless they sold the loans at a loss). They sold the loans a long time ago.
They may later suffer litigation losses for contract violations or fraud, but that is a loss due to an actual court decision, a settlement, or an accounting reserve that reflects expected losses.
I stopped and gasped when I came across an article on MSNBC entitled “Why the US Economy Will be Booming by 2020.”
The piece concerns a very rosy 10-year forecast (lots of jobs, higher wages, higher housing prices, everything fabulous) by an outfit called “24/7 Wall Street,” based on sources vaguely described as “long-term economic forecasts issued by the government, financial analysts, and academics.” The funny part comes when the author emphatically vouches for the bona fides of this forecast by telling the reader that among the sources reviewed by 24/7 were, not only government forecasts, but FORECASTS BY ECONOMISTS AND THINK TANKS, noting that “FOR THE MOST PART, FINANCIAL FORECASTS ISSUED BY INDEPENDENT GROUPS ARE LESS AFFECTED BY POLITICS THAN THOSE ISSUED BY THE GOVERNMENT.”
Author Douglas McIntyre might find EConned to be interesting (and pertinent) reading.
P.S. None of the “independent groups” are identified in the article.
Here is the link http://www.msnbc.msn.com/id/45022308/ns/business-eye_on_the_economy/t/why-us-economy-will-be-booming/#.TqdEbOCzBPN
A “sop to the banks” is exactly what this is, Yves, and exactly what we’ve come to expect from Obama, the creaking Trojan horse. The conspicuous absence of cramdowns, writedowns, or mods; lifting the cap on loan-to-value; waiving appraisals altogether; elimination of title issues (for banks only); and the Fed’s continued purchase of toxic mortgage BS is a dead giveaway of yet another stealth giveaway (ZIRP-QE) to banksters, while hooking people from non-recourse loans into permanent debt. These refi’s would be the equivalent of liar loans, with almost all the benefit once again going to banksters.
The shadow inventory on foreclosed homes and imminent foreclosures is now so massive TPTB are beginning to panic. They are now extending extend-and-pretend accounting to homedebtors in a desperate bid to keep bubble prices aloft. It will not work, but it may be a sufficient delay that buys Obama his throne again in 2012.
This is related to another trick to raise conforming loan limits and Schumer’s scheme to sell visas to foreigners who buy houses. These pols clearly have no shame or moral compass:
The HAMP applicants that have any title problems will probably be poshed through expeditiously.
I’m often fascinated when the same story is reported from apparent polar opposite viewpoints. Curious what people think of this version, or the reporting of this version, of the new program: