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Oh bother. For responsible people they need to offer some kind of reconditioning programs to instill irresposible values. Otherwise you end up the big looser.
--
"programs to help"
What I admire the most about Americans is their benevolence put into the hands of govt. and GSEs. Govt. exists for the primary purpose to help people, especially, to realize their American Dreams. Protection of life and property is just a side show.
Hail to democracy.
Jas
Loser. Too loose with the O's.
I'm sure that the conservative welfare state will take care of its own "for the good of the country."
Well, our beautiful streets paved with gold have now turned into streets paved with IOUs.
So... is anybody working on a REAL solution, or is this as good as it gets?
I don't know, I kind of liked "the big looser." Paging Mr. Greenspan!
And, if they find ways for people to 'shed' those subprimes, what happens to the house? How can any outcome be consistent with that nice PR title "HomeStay"?
Somebody has to take a hit; there is absolutely no way around that fact - it is just a matter of 'who'?
This is shaping up to be yet another classic example of socializing risk and privatizing profits.
Worried should be proud.
What is a "more consumer-friendly sub-prime product"? How about smaller, cheaper houses? The answer is affordable houses, not financing products.
"Workout solutions" has a problem, doesn't it? Tranched-up mortgages require all the tranche-holders to comply. If so, then subprime borrowers will find themselves in one of two boxes. Either their mortgage will be held in one piece, which I understand is the common way for the GSEs to invest, or it will be held as a bunch of chunks by a number of investors. The first group are the lucky ones, in terms of being able to seek a workout simply.
If I have the story right, wouldn't an effort to provide better opportunities to refi be simpler? Under refi, it wouldn't matter (to the borrower) how the mortgage was held.
More Noise by the gov't under the banner of doing something. The impact on the foreclosure rate will be little or nothing.
Here's an idea: let market forces reset the price of homes back to a level where traditional mortgage financing is affordable for the average income American. True, people who bought using high risk instruments, thinking owning a home was going to make them rich, lose out, but that is the risk in a free market economy.
So, I guess the real question is: do we want a free market economy, or don't we?
CR, I think your hope for journalists is misplaced. Journalists just parrot whatever crap somebody spoon-feeds them these days.
I think that The Economist is the only group of journalists that does any critical thinking these days.
How can borrowers refinance if home values have already declined significantly? A new appraisal won't be required?
Are Fannie Mae and Freddie Mac required to maximize shareholder value or can they knowingly take big losses just to "help out" with the crisis?
--
"This is shaping up to be yet another classic example of socializing risk and privatizing profits."
In case you didn't know, that is the definition of Anglo-American Kapitalism -- Kapitalists Rule! They get to exploit the people by using their power over and ownership of the Govt. of the United Kapitalists, aka, govt. of the United Kingdom and USA.
Where do you suppose the bad loans really originated? Not at your neighborhood lender.
Amerika today is a nation ruled by Bankrupters and Fraudsters of New York City. The rest of the discussion here and elsewhere are merely details of how they do it. It is very important to understand the root causes and the reality as it is not as it is supposed to be.
Dont despair Collapse of the Amerikan System is coming within our lifetime. Thanks in no less part to BFNYC. They are evildoers par extreme.
Power corrupts and
Jas
Fannie Mae
Fannie doesn't even report earnings anymore. Who better to foist all the bad paper onto. Besides, sharholders should have known something was up when their investment stopped being honest and open with them. Or at least, Fannie stopped pretending to be honest and open.
I suspect Ron, above, has it right. The key words are "ease into a mortgage that they can afford." I'm fairly sure there are some borrowers out there who could have qualified for a fixed rate, but who were put into an ARM which resets to a payment they wouldn't have been qualified at. Not that many, but some. This program will help those, but do nothing for people who had no hope of qualifying for anything.
How can borrowers refinance if home values have already declined significantly? A new appraisal won't be required?
A new appraisal will certainly be required. But the idea of having a new product for this stuff--the "Home Stay"--is that the maximum LTV is likely to be rather higher than a standard program might have. A good question--which our friends in the press wouldn't ask, of course--is how high it will go in this program. That might be why we haven't seen the MIs jumping up and volunteering to write insurance for this stuff yet.
There's absolutely no reason, in theory, why the originators of these take-out loans can't retain some of the risk of them, in recourse arrangements, carried-back notes, reduced servicing fees, what have you. But nobody seems to be asking about that.
Freddie Mac chief executive Richard Syron will offer services and products that will help troubled subprime borrowers "ease" into a mortgage that they can afford.
Looks like they are going to "ease" a little pink into the taxpayers to me.
"Ease into a mortgage they can afford..."
Hmmm... are we talking the 50-year-mortgage?
Bob, I think it depends on how many of the wretched loans being refinanced here had 40-year terms to start with. Eventually there is nowhere left to run to, amortization-wise.
If Fanni Mae will never report earning the stock will never fall. Sky is limit!
But the idea of having a new product for this stuff--the "Home Stay"--is that the maximum LTV is likely to be rather higher than a standard program might have.
Unless we're talking LTVs exceeding 120% this program is likely going nowhere.
tj & the bear
Unless we're talking LTVs exceeding 120% this program is likely going nowhere.
Don't be silly our gov'mnt will buy the MBS's and put them in the Social Security trust fund.
i just saw an advertisement for a 510k mortgage for just 1699 per month. you would not guess where i found it
at cnn.com i mean it seems like the wave of doom articles is no longer in trend, i mean its all just subprime is it not?
I hate to be the contrarian here--obviously I don't hate it enough, or I'd quit--but I'm still not convinced that there is so little money at Fannie or Freddie that they'll need to draw on the treasury for this deal. Until I hear the final story, I think there's still a chance we'll find out that what they were up to was income-smoothing, for purposes of paying obscene management bonuses and goosing the share price, not income-invention. Am I the only one who thinks there might still be something in the "cookie jar"?
Back in 2002(?), Fannie Mae had devised two programs, Home Stay and Home Manager. Home Manager was intended to provide a home warranty plan to the borrowers mortgages. The warranty would to shield a borrower from sudden cash-flow crises triggered by major repair costs. Home Stay was intended to be an insurance policy that would allow borrowers to skip up to six months worth of mortgage payments when necessary because of job, health or marital issues.
The current Fannie Mae proposal is probably a variation on one or both of these plans. Does anyone know how delinquent borrowers would pay for the insurance premiums or how either program would help underwater borrowers who couldn't refinance?
DenverKen said: "...Here's an idea: let market forces reset the price of homes back to a level where traditional mortgage financing is affordable for the average income American..."
I agree with the idea that market forces should (will) take care of this issue. However, I take exception to the "affordable for the average income American" part.
Americans of average income don't buy houses. The typical homebuyer is of above-average income.
That's one of the (many) reasons I don't think there's going to be a housing "bust." Home prices don't need to come down to the point where a person of median income can afford them before they'll stabilize.
Sebastia
I assume the HomeStay program only applies to owner-occupied properties and not to investment properties and second homes. I would also hope these loans will fully document income.
Suresh, I thought that skip-pay product was called something else, but now I can't remember what. In any case I look forward to the cute name Freddie comes up with. "Affordable Fool's Gold"?
Renee, you can guarantee that this will be owner-occupied PR only. There is no way the GSEs will stand up and offer to take the shrapnel for offering this to second home and investor loans, even if they wanted to.
I'm willing to bet that there will be some rule about what the exact terms or rate/fee/point combo was on the original loan before it qualifies for the "HomeStay." That would do something to keep this limited to people with predatory loans, not a windfall opportunity for people who just took an ARM they now don't want.
Sebastian
"I take exception to the "affordable for the average income American" part."
"Americans of average income don't buy houses. The typical homebuyer is of above-average income."
Would you care to show us the data on that? For all 50 state individualy would be nice.
I am suspicious about Fannie (and/or Freddie) being tasked to manage this bailout. This is an outfit where 2500 outside accountants are just finishing their "remodeling" and concerned that existing staff are not up to maintaining the structure...requiring a permanent maintenance schedule from these helpers.
Sorta like expecting help from the fire department who keep burning their station down.
US home ownership is above 2/3.
You can predict (with some good theory and data from here among other p[laces) that ownership is due to decline soon.
But for now, the median American is affording a home.
Kevin,
There is no guarantee that the math will work out as Sebastian suggests, but the logic he is working with is clear, I think. Around 2/3 of households own (part or all of) their own home. That leaves 1/3 of households which do not. One clear message from all this subprime stuff is that it is still those with little saving and low incomes who have a hard time affording a home. So if there is a high proportion of lower income families in the 1/3 that do not own their own homes, then the other 2/3 have a high proportion of not-lower-income families. Home owners would, on average, enjoy incomes above the median.
We are, of course, only part way to the answer. There is still room in all of this for the median income family to be unable to afford the median priced home, if the bubble inflated the median price sufficiently.
Sebastian: "Americans of average income don't buy houses."
Hmmm. I have to be one of the disagree-ers with that statement.
Median income may not afford the kind of home you'd like to live in, but definitely affords a home, even if it's a 2 br. starter ranch. Numbers are clear. He makes $25,000 ($12.50/hr.), she makes $25,000 = $50K income. Starter salaries. $50K will afford you a starter ranch at $200K. And with ARMs? Jeesh. Markets vary, of course, but I'd say I'm lowballing amt. of income and highballing price of starter ranch.
If you add in a state or federal 1st time buyer's program on top of that, you're sitting very pretty. Believe me, it's not a problem. Unless, of course, our median incomer sits with a $30K credit card debt and 2 huge car loans. But if we're talking about median income alone without spending addictions, no prob Bob.
I said: "...Americans of average income don't buy houses. The typical homebuyer is of above-average income..."
and Kevin said: "...Would you care to show us the data on that? For all 50 state individual[l]y would be nice..."
Are you kidding me? Google it yourself, using "typical homebuyer."
This is a sad commentary on the state of intellectual curiousity in our country.
S.
"Americans of average income do not buy houses"?
69% of adults own their home. None of these people should be considered average?
Sebastian
In 06 I had $6,300 in income but I bought 2 homes and paid cash. Hope I didn't screw your data up.
Tanta,
I hardly think the MI companies are going to be dragged into this, because they don't underwrite MI policies on individual subprime loans anyway.
My self esteem rests firmly on Sebatstian's approval. Therefore, I just Googled "typical homebuyer" and found that the median household income for first time home buyer in the US in 2006 was $58,300.
These are clearly exceptional people.
Page Not Found | Illinois Association of REALTORS®
lama
These are clearly exceptional people.
My son-in-law makes less the 28k and my daugther is a stay at home mom and they bought a 3bdr, 1 bth with a 3 car garage on a 30 year fixed and a 20% down payment in 04 clearly they must be really be super excepional.
lama,
We of little intellectual curiosity call those the "Lake Woebegone homeowners".
Off Topic,
I did notice that the vast majority of information available was from state realtor organizations. It seems like the industry is quite fragmented even in 2007.
Tanta,
Wrong I was. Fannie doesn't classify these as subprime loans. They're expanded approval loans, and therefore the high LTV versions do have mortgage insurance, and they have since 1995.
If there's anything new here, it's that Fannie plans to broaden this HomeStay expanded approval DU thingie to 2,000 lenders from the current 500. ETA: Q3 2007.
One possible fly in the ointment: These loans are for borrowers who don't have a late mortgage payment in the last 12 months. So they're not exactly the perfect vehicle for foreclosure prevention. These loans are for people who can foresee problems, not for people who are in distress right now.
Sebastian says, "...Americans of average income don't buy houses. The typical homebuyer is of above-average income..."
These two statements are contradictory. Although the second is true (if we take the adjective "typical", which has no mathematical definition, to mean either "average" or "median"), the first is false -- especially if we take "average" strictly, but even if the intended meaning was "median". (Average income is higher than median due to the way income is distributed.)
For all households, over all age ranges, home "ownership" is nearly 69%. So not only do average people buy homes, median people most certainly do, and even people rather below median do.
Note, moreover, that for middle-aged household heads the ownership rate is
even higher. Already at 68.9% for those 35-44, it rises to 76.2% for those 45-54, and 80.9% for the 55-64 age cohort.
Indeed, this is a sad commentary on the state of intellectual curiousity in our country.
You can discover this in minutes by clipboarding Census Bureau data into Excel.
"My son-in-law makes less the 28k and my daugther is a stay at home mom and they bought a 3bdr, 1 bth with a 3 car garage on a 30 year fixed and a 20% down payment in 04"
Kevin - That's U.S. homeownership at its highest, finest, most honorable moment. This family is wealthier than any McMansionite.
I would love to know the demographics of this town, tho. I don't think this could happen in my community...
Outsider
"I would love to know the demographics of this town, tho. I don't think this could happen in my community..."
Were in north central NE, even a kid out of high school with a summer job can buy a home out here although it would be a small one and need some work.
A lot of young folks are staying or moving back due to the cost of housing in other parts of the country. This is a great place to build real wealth if you can tele - commute. My neighbor works for IBM and if he can't fix the problem over the phone or net they fly a jet out and pick him up. One of the young guys that moved back and set up his software company headquarters here. It's not all gravy, snow sucks but I can live with that, gas is cheaper 2.89 gal and electric utilities are 29% below the national average.
Higher paying jobs are electricians about 25-30. There are a lot of wind farms and ethanol plants going in also.
Last I checked this was still part of America but maybe not.
Outsider
should have read
Higher paying jobs are electricians about 25-30 per hour.
Actually, Kevin, there are many folks who could make $28K and not have any mortgage and still not be able to make it work.
So I say, you did something right in your child-rearing. Low cost of living or not, they are living within their means... how refreshing.
Applause applause!
Does anyone else get the feeling that Wall Street is behind the push to refinance the troubled loans into new ones, shouldered by the taxpayer (through FHA, FNMA, FHLMC, etc.)?
I sure do. Wall Street was behind causing this mess. Now, methinks they would love nothing more than to offload the huge losses their reckless behavior begat, and that they are now looking at, onto the unsuspecting taxpayers.
The subprime borrowers are just pawns in Wall Street's games again here, I fear. Wolves in sheep's clothing, I say.
Agreed.
"Average Americans don't buy houses" is present tense. The "69% ownership" is past tense - it reflects the past as it is an integral of sales for the last, say 60-80 years (depending on how long a person stays in a home before the inevitible).
So you are both right! See, the internet is big tent!
My 2 bedroom, 1 bath, 0.12 Acre starter home cost me $235k in 1999 and I am selling it now for $440k. Care to move to the Boston 'burbs?
What do you think folks in the Boston burbs who make the median $54k/year do here? I can tell you; they take 3 jobs including a spouse working and get an exotic mortgage product to boot. Is that 'average'?
Sebastian's premise is somewhat correct, it's just his conclusion that's all wrong.
Home prices have historically paralleled median incomes at given multiples; the idea that they can abruptly and permanently reset themselves to much higher multiples is ludicrous.
Northeast,
I don't think Boston's suburbs are considered average in terms of price. The other problem with Boston is that the average income is not much higher than in places where $200k will in fact buy a decent home. That is why Essex County was named by Forbes Magazine as the least affordable county in the US.
Essex County real estate agents surprised at overpriced rating - The Boston Globe
Jeff's,
Of course Wall Street is behind the push for a taxpayer sponsored bailout. Now that Senator Dodd's top campaign contributors 404
have paid good money to make bankruptcy more difficult for struggling families, relief will soon be on the way. This relief will look remarkably similar to your wallet.
Northeast: "What do you think folks in the Boston burbs who make the median $54k/year do here?"
I know exactly what they do... they move to southern NH and drive our prices even higher...
Lama: "This relief will look remarkably similar to your wallet."
Priceless!
Tanta,
Thanks for the heads up on the article's errors. The article did raise another interesting questions: How can a loan that the borrower could not afford be refinanced into one he can afford?
This is of particular concern with the EPD because those payments are written
at the low teaser rate. Some how I don't think that this going to help a borrower with a grossly overstated income.
Tanta,
This article explains how difficult it is to re-write loans that have been sold. Won't the same apply to Freddie and Frannie?
Subprime mortgages can't easily be rewritten, official says - MarketWatch
"Bair testified at a hearing of the House Financial Services Committee on subprime foreclosures."
"Most of the adjustable-rate mortgages taken out in the past few years can't be easily rewritten, Bair said. About three-fourths of the $600 billion in subprime ARMs taken out in 2006 have been securitized, or sold in the secondary market, which means that neither the servicer of the loan nor the original lender can easily negotiate with the borrower to change the terms of the loan, she testified.
Reworking the terms of the loan after it's been securitized "can be very difficult and may require extraordinary actions," Bair said.
"Once the lender has sold the mortgage to the issuer, the lender no longer has the power to restructure the loan or make other accommodations for its borrower," Bair said."
You guys are killing me.
Can any one of you (who took issue with my statements about how people of above-average income and not people of average income are the typical buyers of houses) show me how that's wrong?
"How much house can I afford?" calculators are ubiquitous on the Internet. Excel works well for the task, too.
How does a person of median income afford a median-priced home with a conventional mortgage?
The only way I've ever been able to get there is if the prospective median-income homebuyer has a $40K+ downpayment for the median-priced home and has virtually no other debt.
(Try mortgage calculation on a California property and see if you can tell me with a straight face that people of median incomes are buying median-priced houses there.)
Is it possible for median-income people to buy median-priced homes? Absolutely. Is it typical? Absolutely not. The empirical statistics demonstrate this and so does simply running the numbers the way a mortgage-lender might.
Sebastian
p.s. Still amazed at the lack of intellectualy curiosity, esp. when so much data is so close at hand.