I'm not even from the US and I sympathise with what looks like it will be a bailout of the irresponsible, paid for by the responsible. Anyone who has sat on the sidelines and acted responsibly should feel rightly aggrieved. If you've been paying rent to a buy to let landlord who is in over their head you should feel doubly aggrieved as your tax money goes to bail them out.
What is the opinion of those who wish to express on whether that will actually prop up consumption in the US?
Frankly, I don't see how it can.
I have been convinced that reworking loans is in the best interest of the lenders. Fine. But, quite frankly, I am struck by the continuing fact that the constant is the house.
Everybody wants a roof over their heads, and everybody wants to make a buck. But those desires are simply that: desires.
What isn't a desire is the house.
The name of the game appears to be to make the house "affordable".
How do you do that without producing a "poverty effect"?
I honestly don't know. If you look at the jobs data, you would come to the conclusion that the US is a juggernaut that will spew money in every direction for eternity.
Today we are kicking off Homeownership Month by taking our message of empowering families through
homeownership to communities nationwide, said HUD Secretary Mel Martinez. Homeownership not only
strengthens families, but also communities. The Bush Administration has joined forces with numerous private and
nonprofit organizations in a collaborative effort to increase homeownership particularly among minorities.
Last year, President Bush announced a goal to create 5.5 million new homeowners by the year 2010, and
issued Americas Homeownership Challenge, a call to the real estate and mortgage finance industries to work in
partnership to help achieve this goal. The Blueprint for the American Dream Partnership, created last year by
Martinez in response to President Bushs call, is a coalition involving many segments of the housing industry
And so did a cry of lamentation arise from the multitudes unto Bernanke: Spare us, Oh Lord, from the wrath of subprime.
From the House of Countrywide wailing was heard, from the land of Dodd and Schumer there was gnashing of polls, and from the Kingdoms of Bear, Lehman and Cramer the rending of fine Italian garments: Set your righteous hand, glorious and merciful Fed, against our enemies among the rating agencies, the risk-averse and short-sellers. In your power and majesty, you need only say the word and interest rates shall fall, liquidity like manna shall descend from the skies, and easy credit shall flow once again across the parched and barren land.
....
Here we go again. Another Friday revelation to protect the market, banks and the hedgies from a Friday rundown. It gets old. BS in Wyoming and more BS from DC. They just don't get it. I wonder if Bush can say macro economics in a sentence without flubbing it up. More delay of what must happen to right the course of business cycle.
Tanta, I see no reason why you can't hint now that you'll be pre-announcing later in the morning what you have to officially say after the markets respond to Bush's speech.
As far as i understand, the government through FHA will increase subprime portfolio insurance from 160K borrowers/year to 240K/year . They will also increase the risk premium on their insurance.
And that's the end of government intervention. The rest of the stuff has to be worked out by mortgage lenders and brokers.
rubberbandman, a global study about a decade ago showed counterintuitively that the wealthier a country, the lower the rate of homeownership.
I began to worry about housing about the time these no-nothings started preaching homeownership as essential to the American Dream. It isn't. It is evidence that the US is regressing toward third world status.
The officials said Mr. Bush would call for the Federal Housing Administration to change its federal mortgage insurance program in a way that would let an additional 80,000 homeowners with spotty credit records sign up, beyond the 160,000 likely to use it this year and next.
I read that different than you. I interpreted that to mean there are now 160k slots available and that would be increased by as much as an additional 80k. So a total of 240k for 2007-2008, not 480k as you suggest. I don't know, just saying, I read it different.
Probably no coincidence that following this news, gold and silver jumped, as well as the pound and euro. Gold finally broke through 670/oz and silver is at 12/oz again.
I lost buckets (at least buckets to me) of money buying tech stocks at or near the top, then went down with the ship as they lost 80% or more of their value. I got up and dusted myself off, looking for no one to help me, NOR expecting any help for my stupidity. The only input I received was a hard and well-deserved kick in the ass by my wife. Today I still pay the price as I struggle to pay for/save for college tuition for my four children. The fool, not by the taxpayers, should pay for foolish decisions. Even though his administration cant screw in a light bulb properly, bush should keep his nose out of this.
Full disclosure: I knew nothing about FHA before today. Here's some tidbits that I picked up on the internet:
-FHA requires income verification (through tax returns, it seems).
-The FHA max front-end DTI is 29%.
-The CBO report on FHA says it will be several years before the agency's IT systems can handle risk-based pricing.
-The FHA run rate through May was around 100,000 loans
Finally, competing bills to modernize the agency are already moving through the House (in committee). They include provisions to: eliminate downpayments, raise loan ceilings to FNMA levels, and allow risk based pricing. Last year, a similar bill failed in the senate despite the President's support.
So the only thing new in the leaked plan is to allow re-fi's with 90+-day lates. No doubt that's helpful, but I'm not sure how we get from 100,000 loans to 280,000 next year without allowing stated income or at least dramatically raising the DTI ceiling.
"He is also expected to support legislation that would provide tax breaks to homeowners whose mortgage debt is forgiven ..."
Bill Gross can claim, like Cramer, that the authorities listened to him.
I guess I expected this eventually, but good lord this is stupid. The war in Iraq plus now the war on foreclosures. It feels like I'm listening to Westmoreland and Johnson. Of course we all know how that ended.
But, at the end of the day, the collateral is, and has always been the issue. I don't think that even a massive wealth transfer is going to solve the underlying problem.
Bobby,
You are probably right. All i was trying to say is that the government is trying to save 80K-160K houses in a market that has about 5 mil inventory. RC rightly calls this action "much ado about nothing".
To qualify for the new benefit, homeowners would have to prove they paid their loan on time before it reset to a higher rate and must have at least 3% equity in the home.
The program, which doesn't need congressional approval, should take effect early next year.
Under current rules, the maximum loan the FHA can guarantee is $202,000 in most states and up to $362,000 in high-cost states such as California and New York.
The officials said Bush will also call on Congress to pass his proposal to reform the FHA, in part by raising those loan limits to $262,000 in most states and $417,000 in pricier areas. The officials spoke on condition of anonymity because they weren't authorized to speak on the record.
Bush also wants the FHA to be able to help other risky borrowers, beyond the 80,000, by broadening its lending criteria. To compensate for the added risk that the borrowers might default, the FHA would charge them higher premiums on the loans. Also, he wants to eliminate the 3% down payment requirement, though borrowers would have to pay at least some of the closing costs to secure the loan.
For now, the administration's primary vehicle to help homeowners will be the FHA, which doesn't originate loans but helps riskier borrowers qualify by guaranteeing their loans against default. By allowing the agency to back loans for delinquent borrowers, the FHA estimates it can help an additional 80,000 homeowners qualify for refinancing in 2008, bringing its total of refinancing guarantees to about 240,000, senior administration officials said. Mr. Bush also plans to announce that the FHA will begin charging "risk-based" premiums, a move that will enable the agency to help riskier borrowers since they can charge those individuals higher insurance rates. Right now, FHA premiums are a flat 1.5% of the loan, and the change would give the FHA flexibility to charge some borrowers as much as 2.2%.
The FHA does not make loans, it insures them. That helps lower the cost of mortgages for borrowers and makes the loans less risky for lenders. The agency has $22 billion in reserve to cover defaults. No taxpayer money is involved; the reserves are made up of premiums paid by borrowers.
You cant solve the problems in the financial markets unless you can make some progress on the retail end of it, said this official. This is also a step to get banks to start loaning again
Oh yes. I'm a bank who takes a huge loss and I'm going to start lending more money than I was over the last few years? Seriously, what are they smoking?
Robert Shiller, economist who carved a bestseller out of Greenspans infamous Irrational Exuberance remark, has been warning for some time now that optimistic home owners have talked up a housing bubble to match the internet bubble. Indeed, ahead of an address today by the Yale economist to the Jackson Hole symposium in Wyoming, he told The Times:
People are so accustomed to rising house prices, they do not believe it when someone tells them it will come to an end . . . What we have may be the makings of an economic crisis. We may be at a unique point in world history, like 1929, but this time it would be the housing market. Prices are still going up in Canada and the UK, but the US may lead the way.
please remind me:
1. how can an overextended homedebtor afford an FHA loan with a 1.5-2.2% insurance rate when they can't even afford their teaser neg am payments?
(I'm assuming that insurance is a one time fee right, not a yearly recurring?)
Although the FHA is self funded... what happens when the $22Billion runs out? Or is any possible housing depreciation limited to $22 Billion? (HSBC alone set aside 11 billion for losses on loans)
So, let me get this straight: dumbarses who went out and bought houses at 5, 6, 10, and whatever times their yearly incomes while often lying about their incomes are now going to be bailed out with MY tax dollars, while I am stuck in a cruddy apartment because I (foolishly) believe in living within my means and not lying on legal documents (stated income liar loans, etc.) Yeah, that's fair!
This is sickening, and no matter which party we vote for, we get more of the same: everything from bailouts to support of illegals, etc. Soon, being a responsible, law-abiding citizen will be illegal in America.
Well, first, I think the insured loan allows the lender to quote a better rate then the premium is taked on to that, if I am not mistaken.
Second, there will remain at least some qualifications to obtaining the FHA insurance so that those who have no hope of paying will not get coverage. At least that's my take on the picture right now.
I read in one article something to the effect of this being a drop in a rather large bucket compared to the scope of the problem. It's mostly designed to offer some political coverage.
FHA and KOLKHOZY are the greatest inventions of the 20th century. Some people believe in angels, I personally, believe in FHA. And I know I am not the only one. "FHA believers of the world, unite!"
Don't think this "bail out" plan amount to much. The scope is fairy limited. And the subsidy is very limited as well. For those who cannot afford the payment even with the FHA insured loan, they won't apply. The rest of the plan to jawbone lender to not foreclose is just for late night commedy circuit. It won't happen. So it is just a day that our government show us why we elect them in the first place. Both politic parties will get involve and we are just watch one big show...
This is a very BAD NEWS.President Bush almost always acts too little too late (Katrina,Iraq surge...) and soon everyone will have to realize how ugly things are and how badly the economy is doing. A recession can begin tomorrow and consumers will certainly save much more in September.So this news is the beginning of the end.
Anyone hazard a guess what president Hillary will do in 2009 when the Prime Pay-Option ARMs start recasting en masse? That's when things get interesting.
HR 1852 has already been introduced. A similar version passed the house with over 400 votes last year (no action in the senate). It expands FHA's authorities for lower credit, lower downpayment loans, and higher loan limits.
A. Its important and reasonable for FHA, but of relatively minor importance in the overall market
B. Remember, the bubble was breaking before the subprime hit the fan - those loans were available until just a few weeks ago.
This will provide some cushion, but won't prevent risk repricing.
"dumbarses who went out and bought houses at 5, 6, 10, and whatever times their yearly incomes while often lying about their incomes"
I see people demonizing the borrower far more so than the lender. I'm surprised that the lender was incompetent and ignorant as to not seek verification, through W-2s and check stubs, of the income of the mortgage recipients.
I just took out a small car loan and was asked to provide proof of income.
Can anyone who has taken out a mortgage recently verify that some lending institutions asked for no proof of income?
I can't imagine this would be the case, and if so, then shame on both parties involved in the transaction.
they are at risk of lowering the quality of government debt by taking on these kinds of loans. High quality government debt is the only thing holding interest rates down for homeowners.
So, at the open the dow is up >100 and financials are leading the way. Looks to me that the market does not really need a Fed cut. Perhaps one can be justified by the very low inflation rate data that also came out today.
IMO it will be tricky if we are to use somewhat subjective criteria to target individuals who are thought to be deserving help.
Can anyone who has taken out a mortgage recently verify that some lending institutions asked for no proof of income?
I can't imagine this would be the case, and if so, then shame on both parties involved in the transaction.
To the lay person, this does seem incomprehensible. But really, it happens. They are called "NINA" or "SISA" loans. Look 'em up.
As to 'both parties'. Har-dee Har Har. There are a lot more than TWO parties involved these days. Go google 'mbs securitization' or visit the ubernerd section of this blog. I kind of like demonizing the rating agencies, myself. Or the Chinese.
"(I'm assuming that insurance is a one time fee right, not a yearly recurring?)"
Yearning, the 1.5-2.2% is the up front component of the insurance. There's also an ongoing monthly premium, which is currently 0.5% of the beginning loan amount. These monthly premiums, in the case of high LTV loans, continue until the loan is paid off.
If crack manufacturers didn't make it, there wouldn't be any crack to distribute. No distribution, no sales. No sales, no buyers.
The lenders are at fault for creating products that would allow virtually anyone the financing to purchase a home. The brokers are at fault for pushing the product and potentially steering borrowers into higher rate ARMS when they qualified for lower fixed rates, and some borrowers are at fault for not being smart enough to realize that they were biting off more than they could chew.
Did some borrowers try to rig the system by committing fraud? Absolutely. Did some simply buy to much house? Of course. Should they be bailed out? Of course not. But some relied on their broker, wrongly so, to tell them what they could and could not afford to buy. There is a reason the phrase "least sophisticated debtor" exists.
If anyone wants to level the playing field on the whole mortgage fiasco then create and fund a program whereby competent legal counsel is available to those who feel that they have legitimate issues with their mortgages. Homeowners who really did get screwed and are just trying to keep their heads afloat can't afford even $150/hr legal counsel to help them out when they truly need it.
Someone come up with THAT kind of bailout and I'll be impressed. Because that is the only thing that will allow this mess to shake out in a fair and equitable manner. Everyone else - lenders, brokers, ramaining borrowers into the boat...
I said it a while back and will say it again: This will be an election year issue and once all the candidates start weighing in with their own version of how to help, the noise level will skyrocket. That is a bad thing too.....will just make it that much harder to have an intelligent discussion about how to fix the problem.
Look for many more uninformed opinions and solutions in the coming months.
The only solution is for housing prices to return to affordable levels and for people to have to pay down payments and verify their incomes. Anything else is just noise and will only continue this nonsense Bubble of free money/debt for all, except for people who believe in living within their means and paying off their debts.
To the anti-bailout caucus: lighten up on the keyboard indignation, it's embarrassing the rest of us.
This isn't a bail out - it isn't enough to bail out Ohio. If this IS Bush's idea of a bailout... well it figures.
You'll know a REAL bailout proposal when you see one (and being an election year my guess is we will - from somebody far behind in the polls - the political equivalent of trolling). So save the anger in a jar for that day, it'll appreciate faster than gold. You'll have enough saved by then to spread near and far.
i expect a bailout for homeowners to a larger extent than currently stated facts.....
reason: this is just a start, later on they will keep adding provisions so that they can help as many as possible.
why will they do it: bush does not want the economy problem on top of iraq to make him the worst president ever.....he will like to leave the economy problem for the next administration to handle (nice booby trap)
how can they do it: as simple as print money, by borrowing and increasing the deficit as they are doing now to fund all other things. i think they need around 600 billion to bailout most bad loans, which will be enough to postpone bad times for almost 15 months....enough time to say good bye.
As far as Bush,he is clearly unhinged,and everyone knows it,read "Bush on the couch" if you want to be terrified.As far as housing,the point has been made here many times that prices hve to return to fundamentals.The question at this point is how messy and painful that will be.my guess is very.
Welcome to another episode of the Friday PR push. Release all bad political news after 4pm Friday, and all market moving news prior to the opening bell on Friday.
Clearly, Bernanke was going to give no new ground on interest rate cuts, so to offset what would otherwise be a crushingly depressing market drop on the Friday before the end of the month and the holiday, the political players spin another tale of how "we're here to help."
Well, problem is, how many times can you say "I'm going to do something" before people realize you aren't doing anything, and when you finally get around to doing something, it ain't squat in terms of making any difference to the underlying problems.
It's a slow wakeup call here in America, and the PR folks are going to fight it the whole way. They will trickle all the crud out into the market slowly, and with each new serving of it, they'll talk up the market to keep everyone pacified and hopeful, even while we swirl down the bowl.
The problem I see is that there is a tidal wave of bad news slowly coming ashore, and there are only so many PR weapons they can shoot off and then only a few interest rate moves they can try before it the impotency of the whole interventionist affair becomes to apparent to avoid.
Bobby: "No taxpayer money is involved; the reserves are made up of premiums paid by borrowers."
Even if that is so, every insurance runs on some actuarial model, with certain expectations on claims incidence.
When actual claims are in excess of the model, you will quickly run out of your "reserves", unless your reserves are government revenue that will fall last when things get tough. That's the whole point of federal loan guarantees.
I skipped down a bit, so apologies if this repeats anything written already, but, based on the track record, the logical assumption here is that whatever action the administration takes will make the situation worse.
Please note, I do not believe that the government can only make a problem worse, through government action many great things have been accomplished.
This particular administration however has a spotless track record of screwing up everything they get involved in.
All depends on who you are and how you look at it Ed. If by helping those out who actually need the help, I agree - most of the plans result largely in failure. But if you are one of the cronies, oh, well, let's just say you are fat and happy every time you hear that the gubmint is goin to do something to fix a problem. It's like an invitation to line your pockets somehow. All you need are the right connections. Plenty of folks are making out like bandits the past few years. Just not most ordinary folks.
Bobby: "No taxpayer money is involved; the reserves are made up of premiums paid by borrowers."
Then nobody will mind if we drop the government guarantee for these loans,
if they produce losses.
Oh....you mean we need the government guarantee to put a bid on these loans? That means the government is voluntarily offering to hold the bag on any losses, while the purchaser gets any gains. The Bush Put.
Primero
So dissappointing. My poor tax dollars.
After 6 years, you still expect quality kabuki from these clowns?
I'm not even from the US and I sympathise with what looks like it will be a bailout of the irresponsible, paid for by the responsible. Anyone who has sat on the sidelines and acted responsibly should feel rightly aggrieved. If you've been paying rent to a buy to let landlord who is in over their head you should feel doubly aggrieved as your tax money goes to bail them out.
Punish all the savers.
Rescue the banks and hedge funds.
Weaken the dollar.
All for approx. 1-2% of US households
I have a question.
Suppose a "bailout" of some kind is put in place.
What is the opinion of those who wish to express on whether that will actually prop up consumption in the US?
Frankly, I don't see how it can.
I have been convinced that reworking loans is in the best interest of the lenders. Fine. But, quite frankly, I am struck by the continuing fact that the constant is the house.
Everybody wants a roof over their heads, and everybody wants to make a buck. But those desires are simply that: desires.
What isn't a desire is the house.
The name of the game appears to be to make the house "affordable".
How do you do that without producing a "poverty effect"?
I honestly don't know. If you look at the jobs data, you would come to the conclusion that the US is a juggernaut that will spew money in every direction for eternity.
I don't know.
Truely a sad day for the tax paying and hard saving Americans who live within their means.
June 2003
Today we are kicking off Homeownership Month by taking our message of empowering families through
homeownership to communities nationwide, said HUD Secretary Mel Martinez. Homeownership not only
strengthens families, but also communities. The Bush Administration has joined forces with numerous private and
nonprofit organizations in a collaborative effort to increase homeownership particularly among minorities.
Last year, President Bush announced a goal to create 5.5 million new homeowners by the year 2010, and
issued Americas Homeownership Challenge, a call to the real estate and mortgage finance industries to work in
partnership to help achieve this goal. The Blueprint for the American Dream Partnership, created last year by
Martinez in response to President Bushs call, is a coalition involving many segments of the housing industry
http://www.ahfc.state.ak.us/iceimages/news/060303-homeownership-month.pdf
I cannot believe you would even have taken the time to post on the subject.
much ado about nothing.
"It's better for the markets if a muddled version goes out Thursday night than if we just get the actual version during trading hours?"
Yes.
Have you ever heard Bush talk about anything to do with economics or the markets?
The Song of Bernanke - WSJ.com
The Song of Bernanke
August 31, 2007; Page A8
And so did a cry of lamentation arise from the multitudes unto Bernanke: Spare us, Oh Lord, from the wrath of subprime.
From the House of Countrywide wailing was heard, from the land of Dodd and Schumer there was gnashing of polls, and from the Kingdoms of Bear, Lehman and Cramer the rending of fine Italian garments: Set your righteous hand, glorious and merciful Fed, against our enemies among the rating agencies, the risk-averse and short-sellers. In your power and majesty, you need only say the word and interest rates shall fall, liquidity like manna shall descend from the skies, and easy credit shall flow once again across the parched and barren land.
....
Here we go again. Another Friday revelation to protect the market, banks and the hedgies from a Friday rundown. It gets old. BS in Wyoming and more BS from DC. They just don't get it. I wonder if Bush can say macro economics in a sentence without flubbing it up. More delay of what must happen to right the course of business cycle.
this is new:
Barclays ex-CDO chief vanishes - Investment News
Tanta, I see no reason why you can't hint now that you'll be pre-announcing later in the morning what you have to officially say after the markets respond to Bush's speech.
Or did you just do that?
As far as i understand, the government through FHA will increase subprime portfolio insurance from 160K borrowers/year to 240K/year . They will also increase the risk premium on their insurance.
And that's the end of government intervention. The rest of the stuff has to be worked out by mortgage lenders and brokers.
Am i missing something?
rubberbandman, a global study about a decade ago showed counterintuitively that the wealthier a country, the lower the rate of homeownership.
I began to worry about housing about the time these no-nothings started preaching homeownership as essential to the American Dream. It isn't. It is evidence that the US is regressing toward third world status.
REBear,
I read that different than you. I interpreted that to mean there are now 160k slots available and that would be increased by as much as an additional 80k. So a total of 240k for 2007-2008, not 480k as you suggest. I don't know, just saying, I read it different.
Probably no coincidence that following this news, gold and silver jumped, as well as the pound and euro. Gold finally broke through 670/oz and silver is at 12/oz again.
I lost buckets (at least buckets to me) of money buying tech stocks at or near the top, then went down with the ship as they lost 80% or more of their value. I got up and dusted myself off, looking for no one to help me, NOR expecting any help for my stupidity. The only input I received was a hard and well-deserved kick in the ass by my wife. Today I still pay the price as I struggle to pay for/save for college tuition for my four children. The fool, not by the taxpayers, should pay for foolish decisions. Even though his administration cant screw in a light bulb properly, bush should keep his nose out of this.
Full disclosure: I knew nothing about FHA before today. Here's some tidbits that I picked up on the internet:
-FHA requires income verification (through tax returns, it seems).
-The FHA max front-end DTI is 29%.
-The CBO report on FHA says it will be several years before the agency's IT systems can handle risk-based pricing.
-The FHA run rate through May was around 100,000 loans
Finally, competing bills to modernize the agency are already moving through the House (in committee). They include provisions to: eliminate downpayments, raise loan ceilings to FNMA levels, and allow risk based pricing. Last year, a similar bill failed in the senate despite the President's support.
So the only thing new in the leaked plan is to allow re-fi's with 90+-day lates. No doubt that's helpful, but I'm not sure how we get from 100,000 loans to 280,000 next year without allowing stated income or at least dramatically raising the DTI ceiling.
"He is also expected to support legislation that would provide tax breaks to homeowners whose mortgage debt is forgiven ..."
Bill Gross can claim, like Cramer, that the authorities listened to him.
Look, think of it this way-
you are driving 120 miles per hour straight into a brick wall, massive hemmoraging from the brain results from the impact-
your little, mentally challenged brother shows up with band-aides.
I guess I expected this eventually, but good lord this is stupid. The war in Iraq plus now the war on foreclosures. It feels like I'm listening to Westmoreland and Johnson. Of course we all know how that ended.
But, at the end of the day, the collateral is, and has always been the issue. I don't think that even a massive wealth transfer is going to solve the underlying problem.
A sad day, indeed.
George
Bobby,
You are probably right. All i was trying to say is that the government is trying to save 80K-160K houses in a market that has about 5 mil inventory. RC rightly calls this action "much ado about nothing".
To qualify for the new benefit, homeowners would have to prove they paid their loan on time before it reset to a higher rate and must have at least 3% equity in the home.
The program, which doesn't need congressional approval, should take effect early next year.
Under current rules, the maximum loan the FHA can guarantee is $202,000 in most states and up to $362,000 in high-cost states such as California and New York.
The officials said Bush will also call on Congress to pass his proposal to reform the FHA, in part by raising those loan limits to $262,000 in most states and $417,000 in pricier areas. The officials spoke on condition of anonymity because they weren't authorized to speak on the record.
Bush also wants the FHA to be able to help other risky borrowers, beyond the 80,000, by broadening its lending criteria. To compensate for the added risk that the borrowers might default, the FHA would charge them higher premiums on the loans. Also, he wants to eliminate the 3% down payment requirement, though borrowers would have to pay at least some of the closing costs to secure the loan.
Federal Housing Adminstration to help refi at-risk loans - USATODAY.com
One thing is certain, world will be awash with new shiny dollars.
For now, the administration's primary vehicle to help homeowners will be the FHA, which doesn't originate loans but helps riskier borrowers qualify by guaranteeing their loans against default. By allowing the agency to back loans for delinquent borrowers, the FHA estimates it can help an additional 80,000 homeowners qualify for refinancing in 2008, bringing its total of refinancing guarantees to about 240,000, senior administration officials said. Mr. Bush also plans to announce that the FHA will begin charging "risk-based" premiums, a move that will enable the agency to help riskier borrowers since they can charge those individuals higher insurance rates. Right now, FHA premiums are a flat 1.5% of the loan, and the change would give the FHA flexibility to charge some borrowers as much as 2.2%.
Bush Moves to Aid Homeowners - WSJ.com
The FHA does not make loans, it insures them. That helps lower the cost of mortgages for borrowers and makes the loans less risky for lenders. The agency has $22 billion in reserve to cover defaults. No taxpayer money is involved; the reserves are made up of premiums paid by borrowers.
Bush to Offer Proposals To Ease Mortgage Crisis - washingtonpost.com
"Hey, Mr. President, tally me a bailout,
Daylight come, and I wanna my home
I'lost 6k, 7k, 8k a Bunch!
Daylight come, and I wanna my home."
Moin from Germany,
no wonder the $ index once again is testing the multidecade support at 80 and gold is looking better day by day...
You cant solve the problems in the financial markets unless you can make some progress on the retail end of it, said this official. This is also a step to get banks to start loaning again
Oh yes. I'm a bank who takes a huge loss and I'm going to start lending more money than I was over the last few years? Seriously, what are they smoking?
If the proposal boils down to help mortgage lenders to take a loss in a civilized and orderly manner I'm in
Robert Shiller, economist who carved a bestseller out of Greenspans infamous Irrational Exuberance remark, has been warning for some time now that optimistic home owners have talked up a housing bubble to match the internet bubble. Indeed, ahead of an address today by the Yale economist to the Jackson Hole symposium in Wyoming, he told The Times:
People are so accustomed to rising house prices, they do not believe it when someone tells them it will come to an end . . . What we have may be the makings of an economic crisis. We may be at a unique point in world history, like 1929, but this time it would be the housing market. Prices are still going up in Canada and the UK, but the US may lead the way.
FT Alphaville » Blog Archive » Oh no! A Bush bail-out is planned
please remind me:
1. how can an overextended homedebtor afford an FHA loan with a 1.5-2.2% insurance rate when they can't even afford their teaser neg am payments?
(I'm assuming that insurance is a one time fee right, not a yearly recurring?)
Well, that settles that
Lovely.
So, let me get this straight: dumbarses who went out and bought houses at 5, 6, 10, and whatever times their yearly incomes while often lying about their incomes are now going to be bailed out with MY tax dollars, while I am stuck in a cruddy apartment because I (foolishly) believe in living within my means and not lying on legal documents (stated income liar loans, etc.) Yeah, that's fair!
This is sickening, and no matter which party we vote for, we get more of the same: everything from bailouts to support of illegals, etc. Soon, being a responsible, law-abiding citizen will be illegal in America.
Yearning,
Well, first, I think the insured loan allows the lender to quote a better rate then the premium is taked on to that, if I am not mistaken.
Second, there will remain at least some qualifications to obtaining the FHA insurance so that those who have no hope of paying will not get coverage. At least that's my take on the picture right now.
I read in one article something to the effect of this being a drop in a rather large bucket compared to the scope of the problem. It's mostly designed to offer some political coverage.
FHA and KOLKHOZY are the greatest inventions of the 20th century. Some people believe in angels, I personally, believe in FHA. And I know I am not the only one. "FHA believers of the world, unite!"
Don't think this "bail out" plan amount to much. The scope is fairy limited. And the subsidy is very limited as well. For those who cannot afford the payment even with the FHA insured loan, they won't apply. The rest of the plan to jawbone lender to not foreclose is just for late night commedy circuit. It won't happen. So it is just a day that our government show us why we elect them in the first place. Both politic parties will get involve and we are just watch one big show...
This is a very BAD NEWS.President Bush almost always acts too little too late (Katrina,Iraq surge...) and soon everyone will have to realize how ugly things are and how badly the economy is doing. A recession can begin tomorrow and consumers will certainly save much more in September.So this news is the beginning of the end.
Meh.
Anyone hazard a guess what president Hillary will do in 2009 when the Prime Pay-Option ARMs start recasting en masse? That's when things get interesting.
HR 1852 has already been introduced. A similar version passed the house with over 400 votes last year (no action in the senate). It expands FHA's authorities for lower credit, lower downpayment loans, and higher loan limits.
A. Its important and reasonable for FHA, but of relatively minor importance in the overall market
B. Remember, the bubble was breaking before the subprime hit the fan - those loans were available until just a few weeks ago.
This will provide some cushion, but won't prevent risk repricing.
Pondering the Mess @ 8:35AM
"dumbarses who went out and bought houses at 5, 6, 10, and whatever times their yearly incomes while often lying about their incomes"
I see people demonizing the borrower far more so than the lender. I'm surprised that the lender was incompetent and ignorant as to not seek verification, through W-2s and check stubs, of the income of the mortgage recipients.
I just took out a small car loan and was asked to provide proof of income.
Can anyone who has taken out a mortgage recently verify that some lending institutions asked for no proof of income?
I can't imagine this would be the case, and if so, then shame on both parties involved in the transaction.
they are at risk of lowering the quality of government debt by taking on these kinds of loans. High quality government debt is the only thing holding interest rates down for homeowners.
So, at the open the dow is up >100 and financials are leading the way. Looks to me that the market does not really need a Fed cut. Perhaps one can be justified by the very low inflation rate data that also came out today.
IMO it will be tricky if we are to use somewhat subjective criteria to target individuals who are thought to be deserving help.
Can anyone who has taken out a mortgage recently verify that some lending institutions asked for no proof of income?
I can't imagine this would be the case, and if so, then shame on both parties involved in the transaction.
To the lay person, this does seem incomprehensible. But really, it happens. They are called "NINA" or "SISA" loans. Look 'em up.
As to 'both parties'. Har-dee Har Har. There are a lot more than TWO parties involved these days. Go google 'mbs securitization' or visit the ubernerd section of this blog. I kind of like demonizing the rating agencies, myself. Or the Chinese.
Yearning to learn:
I had an FHA loan once. The premium was paid at closing. I refied that loan a few years later and part of the premium was refunded to me.
I'm not particuarly worried about a bailout. Bush has had a habit of making a grand announcement of some program and then letting it die from neglect.
"(I'm assuming that insurance is a one time fee right, not a yearly recurring?)"
Yearning, the 1.5-2.2% is the up front component of the insurance. There's also an ongoing monthly premium, which is currently 0.5% of the beginning loan amount. These monthly premiums, in the case of high LTV loans, continue until the loan is paid off.
Finuance, excellent point.
If crack manufacturers didn't make it, there wouldn't be any crack to distribute. No distribution, no sales. No sales, no buyers.
The lenders are at fault for creating products that would allow virtually anyone the financing to purchase a home. The brokers are at fault for pushing the product and potentially steering borrowers into higher rate ARMS when they qualified for lower fixed rates, and some borrowers are at fault for not being smart enough to realize that they were biting off more than they could chew.
Did some borrowers try to rig the system by committing fraud? Absolutely. Did some simply buy to much house? Of course. Should they be bailed out? Of course not. But some relied on their broker, wrongly so, to tell them what they could and could not afford to buy. There is a reason the phrase "least sophisticated debtor" exists.
If anyone wants to level the playing field on the whole mortgage fiasco then create and fund a program whereby competent legal counsel is available to those who feel that they have legitimate issues with their mortgages. Homeowners who really did get screwed and are just trying to keep their heads afloat can't afford even $150/hr legal counsel to help them out when they truly need it.
Someone come up with THAT kind of bailout and I'll be impressed. Because that is the only thing that will allow this mess to shake out in a fair and equitable manner. Everyone else - lenders, brokers, ramaining borrowers into the boat...
I said it a while back and will say it again: This will be an election year issue and once all the candidates start weighing in with their own version of how to help, the noise level will skyrocket. That is a bad thing too.....will just make it that much harder to have an intelligent discussion about how to fix the problem.
Look for many more uninformed opinions and solutions in the coming months.
The only solution is for housing prices to return to affordable levels and for people to have to pay down payments and verify their incomes. Anything else is just noise and will only continue this nonsense Bubble of free money/debt for all, except for people who believe in living within their means and paying off their debts.
"Much to do about nothing."
To the anti-bailout caucus: lighten up on the keyboard indignation, it's embarrassing the rest of us.
This isn't a bail out - it isn't enough to bail out Ohio. If this IS Bush's idea of a bailout... well it figures.
You'll know a REAL bailout proposal when you see one (and being an election year my guess is we will - from somebody far behind in the polls - the political equivalent of trolling). So save the anger in a jar for that day, it'll appreciate faster than gold. You'll have enough saved by then to spread near and far.
Until then enjoy the show.
Sheesh.
i expect a bailout for homeowners to a larger extent than currently stated facts.....
reason: this is just a start, later on they will keep adding provisions so that they can help as many as possible.
why will they do it: bush does not want the economy problem on top of iraq to make him the worst president ever.....he will like to leave the economy problem for the next administration to handle (nice booby trap)
how can they do it: as simple as print money, by borrowing and increasing the deficit as they are doing now to fund all other things. i think they need around 600 billion to bailout most bad loans, which will be enough to postpone bad times for almost 15 months....enough time to say good bye.
As far as Bush,he is clearly unhinged,and everyone knows it,read "Bush on the couch" if you want to be terrified.As far as housing,the point has been made here many times that prices hve to return to fundamentals.The question at this point is how messy and painful that will be.my guess is very.
Welcome to another episode of the Friday PR push. Release all bad political news after 4pm Friday, and all market moving news prior to the opening bell on Friday.
Clearly, Bernanke was going to give no new ground on interest rate cuts, so to offset what would otherwise be a crushingly depressing market drop on the Friday before the end of the month and the holiday, the political players spin another tale of how "we're here to help."
Well, problem is, how many times can you say "I'm going to do something" before people realize you aren't doing anything, and when you finally get around to doing something, it ain't squat in terms of making any difference to the underlying problems.
It's a slow wakeup call here in America, and the PR folks are going to fight it the whole way. They will trickle all the crud out into the market slowly, and with each new serving of it, they'll talk up the market to keep everyone pacified and hopeful, even while we swirl down the bowl.
The problem I see is that there is a tidal wave of bad news slowly coming ashore, and there are only so many PR weapons they can shoot off and then only a few interest rate moves they can try before it the impotency of the whole interventionist affair becomes to apparent to avoid.
Bobby: "No taxpayer money is involved; the reserves are made up of premiums paid by borrowers."
Even if that is so, every insurance runs on some actuarial model, with certain expectations on claims incidence.
When actual claims are in excess of the model, you will quickly run out of your "reserves", unless your reserves are government revenue that will fall last when things get tough. That's the whole point of federal loan guarantees.
I skipped down a bit, so apologies if this repeats anything written already, but, based on the track record, the logical assumption here is that whatever action the administration takes will make the situation worse.
Please note, I do not believe that the government can only make a problem worse, through government action many great things have been accomplished.
This particular administration however has a spotless track record of screwing up everything they get involved in.
All depends on who you are and how you look at it Ed. If by helping those out who actually need the help, I agree - most of the plans result largely in failure. But if you are one of the cronies, oh, well, let's just say you are fat and happy every time you hear that the gubmint is goin to do something to fix a problem. It's like an invitation to line your pockets somehow. All you need are the right connections. Plenty of folks are making out like bandits the past few years. Just not most ordinary folks.
Then nobody will mind if we drop the government guarantee for these loans,
if they produce losses.
Oh....you mean we need the government guarantee to put a bid on these loans? That means the government is voluntarily offering to hold the bag on any losses, while the purchaser gets any gains. The Bush Put.