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![Syndicate content](/misc/feed.png "Comments for \""Bailouts" for UnterNerds: The Freddie Mac Story\""){kind=small}
This is rhe real bailout -Raising FHA limits: Expired
brought to you by Hillary Clinto
Yal, are you suggesting that a bill in the House of Representatives is being sponsored by a senator from New York?
I was late to Bloomberg's story on Freddie yesterday, only coming in at update 3, and I was trying to put it together with other "bailouts" I'm hearing about, i.e. WaMu, $2B for the people it suckered, NACA, using financing from Citi, etc. and so far I'm not seeing anything that will help someone currently behind on payments.
The thing I really hate about these stories is that they generate headlines that make the great unwashed masses and other unternerds assume something is being done to help people who were taken advantage of, when in the main, it seems the aid is going far more to those who created the problem in the first place.
Yal,
Thanks for the link. You have to admire the consistency of misinformation here. They are "reforming" an entity that wasn't making inappropriate loans to begin with.
There are definitely some things being done with FHA loans that make them more consumer friendly, but to call those changes "reforming" in the current climate is misleading to the point of being obscene.
I would imagine there was a closed door meeting where Dodd and Schumer pressured Syron to come up with something to help them fabricate a story for the press.
After the meeting, I could just see the following:
Intern to Schumer: "but Sir, $20 billion won't really make any difference".
Schumer (blowing cigar smoke in Intern's face): "Ya, but it will look like we did something."
Basically there is a lot of talk, but little real action which may be years from now in any event.
Politics is often very slow and full of talk.
In any case, what seems to be developing is a move to detoxify loans by changing conditions of the loans, which have likely been forced back to the entity making the offer, so that the debtor might be actually able to make payments. The GSE's may encourage this by providing a market for the revised loans. But the guys that made the loans will take a haircut on their anticipated profits.
All in all, not a bad result. Hard core bears may resent folks getting by with it without blood in the street, but thats life.
But something like this will minimize political and personal fallout. The banks survive but take a hit to profits. The survivor will go on wiser to watch it happen again in 20 years or so.
lama, I also imagine the following:
Schumer: Get me Dick Syron!!
Syron: You wanted to talk to me?
Schumer: I need $20 billion to buy subprime mortgages, stat.
Syron: You want me to do that? In our last meeting you told me to cut back on my purchases so that the "free market" could have a fighting chance.
Shumer: Yeah, well, that was then. I don't want you to put the $20 billion in your portfolio. You'll have to sell it. Wall Street investors have to have MBS to buy, and this "New Century" thing---who the hell are they, anyway?--is scaring people off.
Syron: I see. Well, then, I'll have a press release ready for later in the day.
Schumer: I knew I could count on you.
Syron: I only wish I knew you could count.
Business & Financial News, Breaking US & International News | Reuters.com
This above link shows the kind of loans that Freddie would possibly take. WaMu help those subprime borrowers that are going to get payment shocks, then sell those loans to Freddie.
Tanta,
With my own ears I have Hilary saying a month ago she is working on a bill that would allow HFA to support higher home prices because in her state NY prices are usually higher than FHA limits.
Is this series going to be a book?
Nerd und ÜberNerd by Tanta Z Nietzsche
And can we get digitally signed copies? W want them 'digitally' signed of course, being 'UberNerds'.
There is nothing wrong or all that unusual about modifying a high-interest loan to make payments affordable in bad circumstances. If it prevents a large loss for the lienholder and allows the borrower to keep their home and not lose their investment, it is a reasonable action by both parties.
But it seems as if the bulk of problems have arisen from loans in which the borrower's real income in comparison to the mortgage is such that they are doomed to default when forced to pay when making any reasonable payment, ie, the plan was really to fund the payments by quick cashout refis which are now unavailable. No one can save these borrowers.
The subprime loans will certainly stabilize, but it will happen because of homes being taken back and less irresponsible lending rather than a bailout.
Dryfly:
Is this series going to be a book?
Nerd und ÜberNerd by Tanta Z Nietzsche
And can we get digitally signed copies? W want them 'digitally' signed of course, being 'UberNerds'.
The UberNerd heaven - electronic UperNerd digitally signed books!
All joking aside, it is a pity that this sort of digital UberNerdism wasn't available and conveyed to consumers a few years ago. It would have saved some of them from a lot of pain.
Nice
Careful, dryfly. Keep up the Nietzschean wiseassery and you'll be getting Saturday Wagnerian Opera Blogging. Those chicks don't have helmet hair, they have helmets.
Subprimerdammerung: The Twilight of the Bonds.
Japan spent 15 years trying to stabilize it's broken property and credit markets...end result - nikkei still only about half it's all time high, property values today on average 40% lower 18 years after the peak. Yep, clearly government intervention will work better here. Picket fences against the tide is an expression that comes to mind.
Absolutely scathing.
Our so sensible MOM, thank you. It's obvious that the level of criticism supplied by Tanta is what the industry (that includes the Bloomberg pipe) lacks, ignores, obfuscates in order to keep...those house prices where they are while the rest try to figure out a way to heist somebody to make those mortgage payments.
Not a word about those high house prices possibly being too high. About ("generous", "excessive", "obscene" not typically used) profits being proof of customers over-paying; about owners/shareholders possibly extracting too much from consumers who increasingly own/share less.
Somethings are sacred.
Section 8(b) housing.
Tanta,
Are you suggesting that Herr Schumer wants to keep the juice flowing on Wall Street?
Assuming you are, don't you think that he is pushing on a string?
Ease credit? Dollar tanks, prices go through the roof, consumer goes permanently under water.
Tighten credit? Consumer goes permanently underwater.
What I still don't understand is why Wall Street behaves as though it's 1955. How are they measuring risk.
Hell, Morningstar has a column that says the Dow is undervalued. What gives?
Subprimerdammerung: The Twilight of the Bonds.
It ain't over until the uh fat lady sings.
calmo
Yea, the fly in the ointment so to speak of any workout of this mess is the loss in value of the underlying asset price.
the U.S. Fed govt, states and local districts are all involved in suporting the RE market. Tax advantages, special districts, commerical building projects,first time homeowners financing,etc.
Take the gov't out of RE and prices would plunge overnight. Just look at the Federal Tax breaks as a bailout; How much does that cost?
This bailout is just part of a long effort on part of the RE/builder industry to squeeze another dollar from the taxpayer, the ownership society in action.
Those chicks don't have helmet hair, they have helmets.
Ya and breast plates too.... or would those be called 'ÜberCorsets'.
Anyway - I married one - know all about'em. I tell folks my wife is 100% Norwegian immigrant stock... she corrects me and says no there is a little Danish & German in there too (the German is probably from Schleswig-Holstein, big difference).
[Does this really sound to the rest of you like Freddie offering to "stabilize" the "subprime loan market"?]
I don't think it matters, at least not when it pertains to the goldilocks stock market. To me, it appears that the market is pricing in a full blown rescue program, guarantee that no risk by lenders will go unrewarded, as it looks like we hit the floor and are bouncing off.
Losses or declining profits below lowered expectations achieved with accounting tricks to delay the reckoning? No problem! Stocks only go up.
"UberNerds realize that someone--approximately 50% of someones--need to be below median. We sometimes fail to understand why that always has to be the press."
Oooh, I know, I know! Let me, let me!
That said, what would really be cool for us ubernerd wanna-bes (and perhaps for any motivated journalists who happen by -though you know how likely I think that is) is at some point to pop up a list of common red flags that you ubernerds see in Big Paid Media stories -- bullet points of things that oughta make you go hmmmm -- including sins of ommission (such as the bit putting $20 bil in perspective of the whole $400 -plus bil. mkt).
The way I read this, Freddie is going to help the few borrowers whose only reason for default is the terms under which their loans were underwritten. That last quote was the tell-all:
"This suggests that many subprime borrowers have mortgages that should not have been made in the first place, at any price."
I don't see this as a bailout at all. Like Tanta said yesterday:
Dick Syron, for one, doesn't sound like he's in the mood to direct Freddie to buy a refi of some toxic subprime ARM and include a prepayment penalty in the loan amount.
If the only reasons these borrowers are defaulting are the prepayment penalties and onerous interest rates, Freddie is doing the right thing.
"Freddie is going to "stabilize" the subprime market by committing something like $4-10 billion a year for 2-5 years. Last year the subprime market was in the neighborhood of $450 billion."
Thanks for clearing this up Tanta. The post goes a long way towards exposing the myth of any subprime bailout. 1% of total constitutes a bailout?!?! HAHAHA!
As some have suggested, any proposed bailout will wind up being nothing more than a slush-fund cushion for some well connected cronies and will do nothing to "stabalize" anything. Freddie probably agreed to this in exchange for a free pass from the GSE oversight.
The main reason why a bailout will never happen is the numbers just don't work. Short of a complete hyperinflationary debasement of the currency, the gov can't put together a package that is big enough to have much of an impact on the enormous subprime market, or on the much larger but similarly toxic Alt-A market. Any talk of a bailout is really just a ruse to raid the treasury to give more money to corporate crooks.
Thanks, Tanta. I didn't think I could hold the captive media or politicians in my own party in greater contempt. But you have proven me wrong.
Of related interest, I found this link about abuse of the CRA in Chicago.
SearchChicago:
It's a wonderful world we live in, a beautiful, magical place ...
Max, I suspect--can't prove, of course--that our Mr. Syron sat down, calculated what percent of the subprime market he thought was salvageable, subtracted what percent of that Fannie would take, and arrived at $20 billion over 5 years, which number he volunteered to the congresscritters.
I just don't think anyone can accuse Syron of goldielockiethinkie, here.
Many defaults ``are occurring in the first few months after the loan was originated,''
...could this also suggest a good amount of fraud on the part of sellers/realtors?
its all very well being critical and maybe justifiably so but when you have something like 1 trillion? f resests this year alone and absolutely no chance that any of the borrowers will be able to refinance in a declining market then something needs to be done.
I agree though that 20 billion is not going to do it.
Lets face it this is a national emergency. If you all bitch and moan about bailouts i think you might all go down with the ship. I suggest you all begin bailing immediately and do what you can to make this less ugly than it will already be.
Here endeth the lesso
umber2son, I think I might have mentioned at one point that while I am not the only person I know who has ever been thrown out of a trading room, I am the only person I know who has been so summarily dismissed for throwing a Freddie Mac stress toy at the TV.
That was actually during the run-up to the Iraq war, and what was on the TV was some horseshit about Iraq having WMDs.
What I was doing in the trading room in the first place--I wasn't a trader in that job--was a matter of one of those famous "bounce off the balance sheet" CRA trades that got forked up, and so somebody called my skinny little ass to come up there and--yes--make nice with the bank from whom we were supposed to be buying the loans for a day. Anybody who is surprised that I was the "make nice" party has never met the trading department.
Anyway, all I did--under that level of provocation--was throw a toy at the idiotbox. And I got "disciplined."
Tanta, I truly think we deserve to learn more about Freddie Mac stress toys!!! Either post a photo, or a detailed description of the item and how you acquired it?
"Subprimerdammerung" = Now I realize your secret agenda. It's to drive up the market for Depends, isn't it?
Since Syron is going to be held accountable for Freddie Mac performance, I doubt greatly that he will volunteer to pick up Fremont's and New Century's trash. What's in it for him?
Max "If the only reasons these borrowers are defaulting are the prepayment penalties and onerous interest rates, Freddie is doing the right thing."
Are you serious? WHo signed up for this loan in the first place? This was a bet on the RE market going up forever. A risk, not unlike buying a stock, gold or any other asset, in hopes that the risk would pay off. Do we have a market economy or don't we? I wonder.
The truth is, affordability is the issue in the bulk of RE loans. As simple as that. And don't think this will stop at $20B. FHA, HUD, Freddie... and the lawmakers will get involved in a heartbeat since we're approaching election time. This is only the warning shot. That's what the market is telling us. Otherwise the federally regulated lenders are heading straight into the hands of the RTC-V2.
And don't forget - BB and AG already indicated that Freddie and Fannie represent substantial risk to the financial markets. Do they need a lot of loans that will default?
I don't remember the leadup to the RTC bailout clearly enough to know if there were any programs to fix problem loans. I realize it was largely commercial RE that drove the collapse but plenty of residential losses were in the mix. Does anyone recall?
One way to look at this is to assume the writers can't do research or math.
Another way to look at it is Tanta can't sell newspapers.
No offense, I read Tanta every day and newspapers rarely. But the NY Times surely has a bigger tip jar.
I don't remember the leadup to the RTC bailout clearly enough to know if there were any programs to fix problem loans.
This is one reason why I'm so unamused by the jokes in the press about Lehman's "Mod Squad." Jeeze, we all called our loss-mit people the "Mod Squad" back in the day when it was funnier, since the program hadn't been off the air all that long.
The thrifts modified loans whenever they wanted to. They owned them.
The whole problem here is figuring out whose problem the problem is.
Name, it is well within the possibility that a given effort to educate consumers--of financial instruments, of newspapers--so that they become more interested in "news" than in "fluff," is in the best interest, actually, of the producers of financial instruments or newspapers. That implies that perhaps, actually, at the end of the day, Tanta could sell some papers.
Tanta just doesn't sell papers full of fluff. But then, Tanta doesn't need to do that, because advertisers have that covered.
So tanta, did our benevolent government get involved in the RTC era early on to head off the lender failures, or is this something new?
"The thrifts modified loans whenever they wanted to. They owned them."
I'm sure this is oversimplifying life, and just ignore me if it is, but maybe the answer is to go back to the old fashioned days where the people lending the money were the ones who were going to be hurt if the loans backfired.
Kinda like public housing - a whole lot less motivation to do upkeep when you don't own it... and don't even know who does...
The government actually put a lot of effort into the 80s to encourage a secondary market in mortgage loans, so that the thrifts could sell them and therefore stay solvent. The ones who would not or could not sell their 30-year fixed mortgages--most of which were underwater when rates rose dramatically--did not stay all that solvent.
There's no option of going back to the old days of all mortgages being held by depositories. There are not enough "deposits" to fund the current mortgage market, so there will have to be capital to lend coming from somewhere else. What we're on here is the project of solving the unintended consequences of the solution to the thrift crisis.
I knew it couldn't be that easy...
Testimony by Daniel H. Mudd Before the U.S. House Committee on Financial Services
Right now, we're getting at least 15,000 applications for subprime refinancing coming into our system per month. Because we have been adhering to our own prudent standards throughout, even before our new enhancements, 80 percent got a "yes." Altogether, we estimate that about 1.5 million homeowners who face resetting ARMs and potential payment shock this year and next could be eligible for our loan options. Certainly, lenders may choose someone else to buy or securitize the loans, but 1.5 million would be eligible for our options; we think this will also help establish a benchmark in the market for safe loans.
Media: Executive Speeches: 2007 Executive Speeches > Testimony by Daniel H. Mudd Before the U.S. House Committee on Financial Services (Opening Statement as Submitted)
If california borrowers have to demonstrate an ability to repay,they are S.O.L. for the most part due to originally qualifying at 50% plus of gross on a stated income loan...not to mention the decline in values...are we going to give them 125% plus stated income loans?
Tom, "are we going to give them 125% plus stated income loans"
maybe those victimized borrowers can get inflated appraisals? God knows that any time the government gets involved ineptitude, waste and fraud always follows closely behind.
"...could this also suggest a good amount of fraud on the part of sellers/realtors?
anon | 04.19.07 - 11:02 am | # "
Ya think???
So if I'm a paid-up member of MSM and understand the issues, does that make me a uber or unter nerd?
Just curious
Sorry, no need to reply. I realise that I'm just a mittle-nerdy
rcyran, you are certainly a treasure in that case, wherever you fall on the Nerd scale. Come hang out with us, where understanding the issues is never a handicap.
There are not enough "deposits" to fund the current mortgage market, so there will have to be capital to lend coming from somewhere else.
Should be interesting when that "somewhere else" decides not to provide any more capital.
rcryan, shouldn't it be spelled MittelNerdy?
I'm a MittelNerd just for asking.
Would it be considered too preemptive to print up an "Impeach Hillary" bumper sticker?
What dangerous thinking, suggesting to sheeple that the guberment will be there to pick up the pieces if they take a stoopid risk and fail.
The sad thing is we have the worst of both political parties at play here: Bush's big business theory of "let free markets prevail" is naive and rampant with greed and fraud, but it becomes downright TOXIC when combined with the democrat's "we must bail-out the poor downtrodden citizen" to clean-up the mess. It's hard to believe they don't "get" this....
As usual, we have privatization of the profits (i.e. flippers who bailed early to enjoy the windwall profits), while anyone trapped at the exits will be allowed to pass off their share of the losses to the taxpayers.