Something to think about. University of Maryland business professor Peter Morici, who just won his second straight "Forecaster of the Month" award from MarketWatch.com, said back on November 12 that the Federal Reserve and U.S. Treasury Department are "naïve" about the global economy. In addition, both Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson "look out of their league." Think he may be correct in his assertions?
Do you really think that all of the people are at the top of these places are clueless idiots? They are at the top because they know how to "play" the system to benefit their career.
Have you considered that Mr. Paulson "played" the rest of the IB community by talking up housing and MBS while he gave time and info so that GS could put itself into a position where it can short the markets and end up dominating the IB world?
When did the fortunes of GS turn up and the remainder turn down? Remeber the big gasoline price takedown at the beginning of Paulson's term.
With GS clear of MBS it is now to their benefit to talk down all of the other IBs on the basis of their holdings.
Where will Mr. Paulson be in one year? Getting his office at GS ready to move into again! Making a couple hundred grand for "government service" was pocket change compared to how GS has benefitted.
So for GS now, a down market is up--is it to Paulson's future benefit to find solutions in any timely fashion?
The lesson learned is not to be the smartest people in the room, it's to have people in the room on Pennsylvania Avenue.
Not out of the realm of possibility, especially in an administration rife with corruption and conflicts of interest.
Hey maggot, you svck! You and your maggot buddies have gutted this country and now you want the responsible people to bail you out, once again? Well, that's just perfect! I hate you, and we'd all be better off if you crawled back under your rock.
"Meanwhile, of course, the intangible returns--the credit we get for pretending that this is about Helping the Poor or being Heroes to Homeowners......"
What a wonderful gift "For the Children" this holiday season. How selfless of these government officials and lenders protecting their tax bases and loan markdowns. I'm just glad this will solve the problem and not create and even larger problem as these reset at a later time.
"Reality-bias" LOL! If only these delusional apparatchniks had taken the time to get out of their DC cocoon, and driven around an empty Lennar or Beazer development, maybe they would have figured it out sooner.
CNBC: Can You Believe Them [Fed & Tr. Sec.] Anymore?
That was the rhetorical question asked by Steve Liesman, the economics reporter regarding their forecasts for the economy and housing.
Blind faith in the Tr. Sec., during early 1870s, and in the Fed, during 1920s, was rampant. Financial markets participants believed, then, that they would never allow a depression because of the extraordinary powers that they have to right, i.e., save, the economy. Once again, blind faith will lead to disappointment and greater despair than during the last two major depressions in the US. How stupid one has to be to believe that the Fed can avoid deflation and depression? Both are caused by a sharp fall in the households demand. And the fall in the demand has already begun; it will turn very sharp early next year.
This is a blog. I just published this. You can send copies to anyone you want.
I did not approach this with the idea that it was an actual letter to Hank and might actually get Hank to change his tune. I was using the time-honored rhetorical convention of the letter in order to offer an analysis of where we are.
However, if you want to send it to the Treasury, go ahead. I personally believe we have enough readers of this blog who also work for the government that this post will get read by at least some regulatory types.
And I hope the career regulatory types--the ones who understand the math--get a big kick out of it. That's all the entertainment they're likely to get in this mess.
Tanta- "That's all the entertainment they're likely to get in this mess."
Oh, Conjure and I have to disagree with you on this point. We're looking forward to reading about distraught borrowers 'going postal' on mortgage brokers and armed standoffs between 'against the wall' borrowers and local law enforcement.
I'm not sure what in the hell you are proposing here. A giant government-sponsored-cram-down-workout-loan modification program?
At the very least, the solution requires an understanding of the real estate business and the psychology that drove real estate values to DOUBLE in five years.
First, you have to view all real estate in the country as a gigantic Level 3 asset, and it needs to be marked to market. If you proceed from the viewpoint that real estate in states such as California, Arizona and Florida is at least 50% over-valued, based upon historical mean values as well as traditional affordability metrics, you'll come to the conclusion that the best way to help all those poor homeowners and overburdened lenders is to immediately remove all legal and regulatory requirements that extend the timeframe of the foreclosure process. Yes, time is money. Let the cleansing begin, make it easier for lenders to foreclose as soon as possible.
Second, the psychology that drove this market was based upon fear and greed, pure and simple. Now that the perceived incentive of 20% annual appreciation is eliminated, the vast majority of FB's would be happy to walk with no tax liabilites and minimal credit rating damage, especially if they can rent the same house for half the cost.
Keeping the current borrower-lender relationship intact without addressing the severe over-valuation of the real estate asset is only prolonging the cleansing process. Similar to the super-SIV, any workouts are ignoring the true value of the underlying asset in the hope that the market will improve at some time in the future. It will when market values drop by about 40-60 percent.
What makes you think Paulson will ever see this? Some flunky will intercept it and put in the e-basket before it gets anywhere near him. He doesn't need his brain to be addled at a time like this, you know.
It is interesting to see people bemoaning forclosure as if it was the worst possible thing that could happen to these FBs. It's similar to how recession has become some kind of economic Ragnarok to be avoided at all costs. For many of these people who have agreed to pay prices for their homes that they have no realistic chance of affording, a foreclosure is probably their best option. No likely workout in mortgage terms can help somebody who was barely able to make negatively ammortizing payments on their house. If they put little down, the ding to their credit reccord is well worth sticking the bankers/bondholders/mortgage-industrial-complex with ~100k in losses.
Strategem Capital 40%
National Bank 27%
Canadian Pacific 15%
Dundee Wealth 15%
Industrial Alliance 15%
Sherritt International 10%
Virginia Mines 10%
Desjardins Group 8%
And because we need more debt, a new product innovation:
In the wake of Royal Bank of Canada's successful entry into Europe's covered bond market last month, Bank of Montreal is planning to sell this new form of debt early in the new year.
BMO has assembled a five-dealer syndicate to help move its first issue of covered bonds, following a path blazed in October when RBC sold what's expected to be 2-billion ($2.89-billion) of debt.
Covered bonds are triple-A-rated securities that give investors a claim on both a specific pool of assets, usually residential mortgages, and the parent bank's balance sheet
Also note these are in Euros. Not in depreciating USDs.
I'd be laughing if this wasn't so depressing. So our way out of this mess is to a)do something that's never been done before b) based on experience has a low probability for success. Great.
These subprime and Alt-a mortgages could continue to unwind until 2010, pushing real estate prices continually downward. At the same time, the PMI companies are all underwater, and only the bravest of the solvent are secondary mortgage market buyers. It will probably take another RTC-like entity to purge this market until prices stabilize, and countries with stronger currencie start buying up America's residential housing. Crony capitalists will end up with most of the treasure at give-away prices.
For many of these people who have agreed to pay prices for their homes that they have no realistic chance of affording, a foreclosure is probably their best option.
No one--not me, not anyone else, not even Sheila Bair--is proposing that the law change such that borrowers are obligated to accept a modification.
A modification document must be executed by both the lender and the borrower. It is a change to the contractual terms of the original note and mortgage that were jointly executed by the lender and the borrower. It is always the borrower's option, not obligation, to sign it.
If it is truly in people's best interest to walk, they will. If they think it is in their best interest to take a mod that is offered to them, they will. If most people don't ask for mods or sign them when offered, that will tell you how the average homeowner views this situation.
It is, however, beside the point in the discussion of whether or how to offer the mods in the first place. They are not being forced on borrowers. If you think that lenders are trying to encourage borrowers to believe that mods are better than walking, because lenders would rather modify the loan than take title, then make that argument. I, on the other hand, hear a lot of industry participants saying that they don't think encouraging widescale mods is a good idea, for them or for the borrowers.
I really wish we could get straight on what a workout is and is not. It is not a matter of running down the street chasing a borrower who is walking away, and holding him down until he signs a paper agreeing to make a modified payment.
Hey! Then we can securitize the income stream form those insurance policies AND sell some swaps on Keyboard Reinsurance AAA Payouts and we'll all be RICH!
Hey! Then we can securitize the income stream form those insurance policies AND sell some swaps on Keyboard Reinsurance AAA Payouts and we'll all be RICH!
energyecon | 11.21.07 - 10:55 am | #
Too complcated for me, I will just sell the coffee.
I agree that doing workouts will require more than en masse "guidelines" or whatever the heck Paulson is talking about ("bulk processing"?), and that would require actual thinking humans performing actual human thinking. During the S&L crisis the workout industry wss huge, and most of the loans at issue were commercial loans which were much larger (and fewer) than the mortgages at issue today.
It does make me wonder if the U.S. can stay all that competitive with so much of the "work" being first to sell each other houses and mortgages we can't afford, then to try to negotiate with each other about payment terms. If this whole debacle had transpired in another country we'd be laughing at them and muttering thinly-veiled ethnic slurs.
Off the top of my head, thinking that we need a few of the trader dudes and dudettes to weigh in on what freezing rates on large chunks of loans would do to their securities. Would that tend to stabilize that end of the problem? And giving a couple million folks a fair shot at keeping their home might help that end of it.
I think Tanta is correct - there is no way anyone will be able to ramp up an operation to re-qualify that many deals in the coming months. And resolution to a crisis of historic proportions is going to require some seriously different thinking.
WASHINGTON -- Companies that collect mortgage payments could earn $500 for every loan they modify to avoid default under a plan developed by the federal regulator of the nation's savings and loans.
Funding for the voluntary plan would come from existing surpluses in bundles of mortgages that are sold to institutional investors,
"If this whole debacle had transpired in another country we'd be laughing at them and muttering thinly-veiled ethnic slurs."
Fortunately we are too busy wondering which former administration official will try to top McClellan by publishing a book officially accusing all the others of treason. It seems pretty clear now that they won't wait until Bush leaves office. The rattiest of rats leaving the sinkingest of ships.
I do not foresee much leadership from the Feds on mortgage issues over the next year or so.
how recession has become some kind of economic Ragnarok to be avoided at all costs
The PtB were DAMN SURE that Poppy's drubbing in 1991-1992 wasn't going to be repeated, no matter WHAT the longterm costs. Monetary policy controls slammed to the firewall. Lending oversight eliminated -- BUY! BUY! BUY! -- gasoline prices temporarily lowered going into the election.
It does make me wonder if the U.S. can stay all that competitive with so much of the "work" being first to sell each other houses and mortgages we can't afford, then to try to negotiate with each other about payment terms.
And I hope the career regulatory types--the ones who understand the math--get a big kick out of it. That's all the entertainment they're likely to get in this mess.
I'm sure they'll get a chuckle when their Lumbergh comes in and asks them to come up with a spread sheet that can automatically determine which borrowers are good candidates for a modification.
Yeah, and if you can get that done by tomorrow, that'd be great. OK?
Thats great Tanta. I agree "for once" with some of your points you have made in regards to loan modifications and your comments in this section.
A loan modification usually is only a reduction in rate or a freeze on the rate. Very rarely will you ever see a deduction of principle in order for a borrower to qualify for a loan mod.
The problem that they are addressing are ARM's that have adjusted and these borrowers cannot afford the new reset payment or about to reset payment. It's not as if they are just going to fix 2 million loans over night.
It's not as if the investors are going to lose .70 cents on the dollar either, if loan mods are implemented. They will lose far more if they are not. Plain and simple.
You are dead on about the man power that will be needed to implement this to have any pasting impact. This is a HUGE problem that has not been addressed.
Lenders will have to essentially hire back all the LO's they laid off and turn them into loss mitigation specialists. And the few non-profits that are operating in the stone ages will not be able to handle the flow either.
They will most likely have to out score this work to a third party, independent operation.
It would be nice to see you use that great mind for a post on what Tanta feels can help homeowners and our mortgage crisis.
You know maybe a Thankgivings post? How about a guest post for my blog?
Now we need some aggressive State Attorney General to threaten to issue charges on all those borrowers who call up their servicer to prove that they really don't make what they said they made when they got the loan so that they qualify as someone who "can't afford" the coming rate hikes.
Eight states including Massachusetts have pledged almost $900 million this year to help borrowers replace unaffordable mortgages, but the states collectively have refinanced fewer than 100 people, a Globe survey found
The vast majority of the applicants aren't eligible for refinancing. They have either fallen too far behind on their payments, have badly damaged credit, or simply owe more on their loans than the value of their homes, making refinancing effectively impossible.
I really wish we could get straight on what a workout is and is not. It is not a matter of running down the street chasing a borrower who is walking away, and holding him down until he signs a paper agreeing to make a modified payment.
Let's imagine how that will work out.
FB: Okay, you got me. What do you want?
MG: Here sign this.
FB: Forget it. The last time one of you Mortgage Guys made me sign something I ended up with a lifetime of crushing payments. What is it this time?
MG: Well, ummm it is a deal for a lifetime of crushing payments.
FB: See? What's in it for me?
MG: You get to stay in your house.
FB: You mean the house that is worth $100k less than I owe? The house I cannot afford? That house?
MG: Yes. That house. Just sign here...
FB: So I can be another $100k underwater? No thanks. Besides, I have a question. What do all the people who aren't getting special treatment feel about this?
MG: They aren't being asked. We Mortgage Guys know more than them besides that in the long run this is best.
FB: Best for who?
MG: Why the Mortgage Guys of course.
FB: Get lost and watch out for the angry mob.
MG: What angry mob?... Ohhhh that angry mob.
If it is truly in people's best interest to walk, they will. If they think it is in their best interest to take a mod that is offered to them, they will.
I have to say, this sounds a little too....perfect market to me. It would have been in these peoples best interests if they'd never signed contracts agreeing to payments that they couldn't afford. I see little reason to believe that the average FB is suddenly likely to become better at anticipating the future than he/she was when they got the mortgage in the first place.
How many borrowers are going to opt for a loan mod when they find out someone just bought their neighbor's place for $100k less than they owe on their comparable place?
Lenders will have to essentially hire back all the LO's they laid off and turn them into loss mitigation specialists.
Um, no.
All those LOs had the analytic and financial and risk management skills of my Aunt Harriet's terrier. This is one reason why the loans are so bad to start with.
How about a guest post for my blog?
Thanks, Moe, but I write for my own blog.
Maybe it is occurring to you that you and I write about different parts of the same general subject. Your blog focuses on "helping homeowners." My blog focuses on analysis of economics and finance.
I jumped your case a while back not because I have any problems with the focus of your blog. I did so because you left the territory of "helping homeowners" and waded boldly into the territory of opining on synthetic CDOs. The latter, you do not understand.
That is not, you see, a criticism of you per se. Most people don't understand synthetic CDOs. It's not part of the public school curriculum or anything, so it's not like we can expect it to be a basic part of everyone's education.
But this means that you should exercise some caution in making claims about the subject. In my view.
May I ask, by the way, if your blog is a for-profit enterprise? This one is, mildly, in the sense that we have a tip jar and people do (graciously!) use it. Is your blog fully and completely not for profit? Is that why you feel OK asking me to come blog for you?
I had the impression that you and Aaron bought IAFC.com, so I guess I assumed you had a profit plan. Can you set me straight if I'm wrong?
One thing I've not seen addressed in the rush to help all the unfortunates refinance into new loans is the fact that these new loans will no longer be purchase money. And, in a state like California, that means the borrower can be subject to recourse. On a purchase money loan, the borrower is off the hook for any unpaid amounts, not so after the refi. I would imagine that mods retain their purchase money status?
If I was in trouble on a purchase money mortgage, you can bet I'd think long and hard before refi'ing.
Your goals are those of liquidationists everywhere. The "cleansing" of the final paragraph is pure liquidationist rhetoric. The "what the hell" of the first line sort of gives away the fervency of belief behind the rest of your comments. Your piece is mostly a lecture about things we all know already. I suspect you know that we know them. The point to such a lecture, I'd guess, is to insist that those things are the important things. That, I'm afraid, is a matter of individual judgement.
The fact is, neither you nor anybody else knows where equilibrium in the residential real estate market lies, so an argument based on the assertion that equilibrium is a long way off is a weak one. There is some reason to think there are multiple equilibria, so that intervention and liquidation could lead to different results. I can't say for certain that intervention is going to lead to a better outcome in the real estate sector. There is reason to suspect, though, that real estate troubles may do damage outside the real estate and mortgage sectors, to sectors not involved in speculative bubbles, to people not holding subprime, interest-only, 2/28, liar loans. If there is a time for intervention, I would think times of high risk to innocent by-standers would be high on the list.
So, yes, the things you mention are important, but please don't carry on with the facetious notion that the rest of us are not aware of them. We are. We just attach different importance to them than you do.
Also as one of the fed.... i along with many of my collegues, took all our Fed TSP moved it from C and S fund (S&P and small cap)a long time ago, but right after we reaped the benefits of the G fund (bonds and bills)...now since Greenspan left and Snow left, we moved those profits and have since been in the perverbial cat bird seat in I fund ( international- lower dollar more return, yea!)
Lenders have scheduled 5,244 metro Atlanta properties for public foreclosure sales next month, according to statistics released Tuesday by Alpharetta-based Equity Depot.
"Hey! Then we can securitize the income stream form those insurance policies AND sell some swaps on Keyboard Reinsurance AAA Payouts and we'll all be RICH!"
Hey! That's my gag.
Cheers,
PS I'm too old to know Leroy too. BTW wikipedia is incorrect. That fight is the suckiest suck of a suck fight.
On a purchase money loan, the borrower is off the hook for any unpaid amounts, not so after the refi. I would imagine that mods retain their purchase money status?
Deb, my understanding of that issue is that a simple rate/term modification of a purchase money loan does not make it a recourse loan. But sure that one will go to court too.
What is an issue is the situation where a lender takes back a zero-interest unsecured note for the deficiency, coupled with a modification that reduces the principal balance of the mortgage loan (by the amount of that new note). That happens; CFC has done it. I believe CFC did that for Casey Serin.
It means, precisely, that there is now full recourse on that unsecured note. Lenders don't particularly expect to collect on that, of course, at least not at the time. But if the borrower's financial situation ever recovers, then they can.
I'm finding odd WoW references sprinkled throughout many unrelated blogs I read. It's becoming frighteningly pervasive. I expect our HR department will start organizing raids as a team-building exercise in the near future.
It would have been in these peoples best interests if they'd never signed contracts agreeing to payments that they couldn't afford.
Why? For these 100% financing purchases, it was a nearly free put.
For people who weren't speculating, it was probably a question of their failure to understand how the game of musical chairs is played. But once they do get some education in that regard, there's no reason to think they'll act the way they did when they thought the music would never end.
I am not making a claim about how "perfect markets" function. I am responding to the insinuation that offering mods to those borrowers who do not want to walk is somehow forcing those borrowers who do want to walk to stay put.
There is nothing on this earth that can stop jingle mail, unless and until we go back to imprisoning debtors. Those who keep asserting that jingle mail is in borrowers' best interests surely must agree that therefore borrowers will send it? Or are you saying that borrowers are in the grip of a delusion fostered by the pro-modification crowd? False consciousness? I can't tell if the argument is about empirical matters or normative matters (see harris, k).
When I said hire back the LO's they just laid off,I meant, that would be the man power needed and I agree that these LO's are "one" of the root causes of our mortgage crisis.
I never claimed to be an expert on CDO's and MBS's. I have learned a lot form you and my own studies. Not being an expert, does not mean that I cannot form my opinion and voice that on my blog. However, I do know that this is your expertise that your gracioulsy write about. I just try to explain what I know in laymans terms and keep it simple for my audience, that's all.
I am aware of our styles and who our audiences are. Your audience will be affected by whatever is worked out with my audience and vice versa. So, for now we are intertwined in the blogging universe.
I am unique because I work for a for profit law firm and I am also Executive Director for a non-profit.
The purpose of having both is for people that cannot afford the law firm and qualify for legal aid, will still get legal aid help they need.
I joined forces with Aaron Krowne and we are building a network of websites focusing on the homeowner and the industry serving them now. We have not yet determined on how we are going to approach our monetization methods.
It has been not for profit for the last 4-5 months. It is draining a lot of time out of me. I have been offered advertsing in the thousands, but I have refused because I only want reputable and "safe" advertising on my site. Adsense will not allow that.
I was asking not to come blog for me, but to so kindly offer your advice and explain the issues in somewhat laymans terms to my audience of homeowners, non-profits, consumer advocates and politicians.
A donation of sorts of your time to a blog that is currently not for profit.
No downpayment loans often do cause the borrower to make the downpayment at time of sale, and modifying no-doc loans means that you have to underwrite the loans as they defaulting.
I don't think you are going to get borrowers who lied about their income to get the loan to send in the documents proving their fraud. I think Paulson knows this, and is recommending no-doc modifications.
Of course, if a servicer did this they would be screwing with their servicing obligations and setting themselves up for real legal problems. Given the number of teaser rates out there, and the fact that many borrowers are defaulting before reset, the whole project is an exercise in lunacy.
In California, I don't see how these workouts are going to accomplish much. Even modifying the loans to 30 year fixed at 6%, many buyers with 2/28s are not going to able to afford there loans.
The amount of income it takes to pay the mortgage on a median price home is huge and far above the median income. Politicians, government officials, and even Tanta are all telling us that workouts can fix the problem. I keep thinking that's impossible where I am because the home prices and thus the loan balances are completely out of line with incomes unless interest rates on the loans modified to a ridiculous 2 or 3%.
Why don't you just tell your audience of home-owners, consumer advocates, politicians and non-profits to come HERE ?
Something along the lines of - 'There is a better place to go to to learn about this than my "network of websites"( cf Search Engine Optimization - Black Hat, White Hat variants ) - the website is XXXXX'.
"For people who weren't speculating, it was probably a question of their failure to understand how the game of musical chairs is played."
Tanta I love ya, but once again you seem to be missing this point. They were all speculating...all of the buyers who signed on for exotic loans, whether they knew it as such or not. Nobody signs up for mortgage payments at more than 50% of their gross monthly earnings without speculating that the house was going to continue to appreciate. And don't give me the crap about the midwest market...this all about the bubble markets.
and even Tanta are all telling us that workouts can fix the problem.
Oh for Peat's sake. Where do you get that?
I said workouts are a matter of defending your portfolio. They work out only to the extent they work out.
The dilemma is that servicers do not have the resources to defend themselves. They are taking 30 cent hits because they do not have the ability to take 10 cent hits.
That is not the same thing as saying that there are no 30 cent hits, they'd all be 10 cents if you worked at it hard enough. That is patently false. The idea is that you have the resources to decide which is which.
So the bottom line is that the industry cannot afford to mitigate its losses. Paulson is, I am afraid, going to find a way to make it affordable for them. That certainly concerns me (she says, mistress of understatement).
"Paulson is, I am afraid, going to find a way to make it affordable for them. That certainly concerns me"
That makes two of us...literally. Since the national debt is now $9 trillion and no one seems to care, why not make it $18 trillion?
I am aware of our styles and who our audiences are. Your audience will be affected by whatever is worked out with my audience and vice versa. So, for now we are intertwined in the blogging universe.
The mind (not to mention stomach) revolts at the thought of Moe and Tanta being 'intertwined' in any universe.
Jwm In SD, there was a story in the WaPo yesterday about a woman who did a cash-out refi of the home she'd owned for like seven years to invest in an auto-repair company. It failed, and now she's going to lose her home.
She is really and truly losing something here. It isn't the case of a no-down buyer who just goes back to renting.
Is what she did smart? Of course not. But do you remember a couple of short years ago, when CR would post on MEW, and all the chippies would chirp about how it isn't being "consumed," it's being "invested"? I have spent my career telling people not to hock the roof over their heads for any reason except unavoidable economic emergency, unless they can afford to lose their home.
But I got drowned out by the grand chorus of "financial experts" who thought this was a fine idea.
Anyway, you can call that woman a "speculator" or not; it doesn't matter what term we use. She thought she was doing something that made economic sense. It did not. She will either fight to keep her home somehow--a workout, a Chapter 13--or she will walk.
But my original point was that when people did these things--buy with no down, refi for "investments"--they believed they were acting rationally. It's not clear that they weren't, if in fact most of them had nothing to lose.
quibble: I think that the zero interest note isn't really about getting the money if the defaulter's position improves. I don't think anybody thinks that likely. I suspect it's more about getting the money back if Casey's inability to repay the note was fraudulent. It's just easier to show that the money is there now than to prove that it was fraudulently hidden earlier.
I understand what you are saying and you are right about the litany stupid financial advisors telling people to pull their equity out (really just debt) to do all kinds of crazy things with it using the label "investing".
However, most people are not cut out for running a successful business...they just aren't. That is why most businesses fail early. It is speculating.
The difference is that this woman had a source of funding at her disposal that didn't require any of the hurdles that are usually required for a start up business when using OPM. You know, like a commercial loan, or VC money, or Angel Investors. I know about this because I tried to get my seed company off the ground in the past 3 years and it didn't happen because I couldnt raise the money. Guess what most people advised me to do? Use the equity in my house, only I'm one of those jealous bitter renters and I don't have access to easy equity money. But even if I did, I still would not have used it because of the risks involved. We are in agreement on this issue.
No one other than me was there to protect me from making mistakes and wouldn't have expected someone to help me if the business failed. That is whey the hurdles should be very high. I just don't have any sympathy for people who used their home to invest in sketchy businesses. Those risks are inherent.
Why would they accept anything less than full payments? Because they believe he's not good for it and the collateral is insufficient. In this case i just think that it's a form of insurance against fraud. Sort of "Okay, we agree, but just in case you THINK you're pulling a fast one on us if we EVER hear about you having money or other assets worth seizing we'll have your note. We won't have to go to the trouble of PROVING that you f'd us, we'll just take it all." Of course the other question is how is bad, probably unrecoverable, debt carried on their books. It seems obvious that it should have zero worth, but... Or could they SELL the note for pennies on the dollar to some deadbeat chasers?
Then why would you "unsecure" it? As opposed to taking back a zero interest second lien?
Because their lien would be wiped out in a foreclosure but the note survives not only that event but because they have a strong case for fraud it would most likely survive foreclosure as well. Countrywide traded a worthless non-performing second mortgage position into an enduring claim against any possible future assets/earnings.
"The fact is, neither you nor anybody else knows where equilibrium in the residential real estate market lies, so an argument based on the assertion that equilibrium is a long way off is a weak one. There is some reason to think there are multiple equilibria, so that intervention and liquidation could lead to different results. I can't say for certain that intervention is going to lead to a better outcome in the real estate sector. There is reason to suspect, though, that real estate troubles may do damage outside the real estate and mortgage sectors, to sectors not involved in speculative bubbles, to people not holding subprime, interest-only, 2/28, liar loans. If there is a time for intervention, I would think times of high risk to innocent by-standers would be high on the list."
Feigned concern for innocent by-standers while praying your roof doesn't collapse seems a bit hypocritical to me. You can only hope that equilibrium is at hand, however my experience in these matters assures me the issue is far from resolved. Who might be the innocent by-standers that 'we' should be so worried about K. Harris?
"Unfortunately, all of this is about to become moot because we are now being overtaken by events."
I just don't have any sympathy for people who used their home to invest in sketchy businesses
Fine. Your lack of sympathy has been noted.
This whole thing started out, however, with an apparent discussion of how people are or are not motivated to do one thing (hang on) or another (walk away).
I fail to understand, as I noted above, how what seems to be a factual claim (people act in what they perceive to be their own best interests) keeps turning into a normative claim.
There seem to be a lot of people who simply cannot keep up in these discussions, because they cannot imagine that anyone can be making a claim about economics, not a bid for sympathy for party A or party B. I really don't know why this is.
Your sympathy or lack thereof for this borrower does not change my math. If I owned that loan and thought I could save 20 cents by working it out, I would. If you want to stop me from doing that, you are making the claim that I should run my business not on profit maximization (or loss minimization) but acccording to some normative principal of "moral hazard" you have going.
That would, then, no longer be an argument about the economics of the situation. It would be a moral and political argument that I, at least, don't feel like getting into today. But you certainly can get into it if you want.
It seems that a lot of discussions of how people do act (in their perceived self-interest) turn into discussions of how people should act. Saying that banks should foreclose because it prevents moral hazard, is equivalent to saying that they shouldn't because people will lose their homes. I've found that, in general, assuming people are greedy, less bright than you would hope and amoral provides a pretty good approximation of how they behave as a group. For an individual, it's better to assume that they're smarter than you until you know otherwise.
Cynics and critcs. Open your minds and get with the times.
There will be MASS loan modifications. Like it or not.
In order to develop a "standard criteria" as Paulson is pushing for, would require lenders and servicers to beef up these departments and invest hundreds of millions of dollars to essentially "fix" what they helped create. They need to be held accountable and forced to "properly" employ "legitimate" efforts to work with borrowers.
There simply is no way in hell, that this can be done without a MASSIVE effort form lenders, servicers, government, non-profits, legal aid, third part loss mitigation companies etc.
Government needs to approach this like they would a natural disaster and either get lenders (who I believe should pay for the toxic loan clean up) to spend the necessary money to hire personnel and training or our government will foot the bill.
That's our choices for now. Like it or not.
I know when I comment here, I am not welcome and I could care less. Tough.
"If I owned that loan and thought I could save 20 cents by working it out, I would. If you want to stop me from doing that, you are making the claim that I should run my business not on profit maximization (or loss minimization) but acccording to some normative principal of "moral hazard" you have going."
Not arguing the economic aspect of this at all. In that, we are in agreement. However, based on some of your earlier posts, I do detect strains of sympathy for certain borrowers.
This is what I take issue with:
"She is really and truly losing something here. It isn't the case of a no-down buyer who just goes back to renting."
Why isn't it a case of just going back to renting? Because she lost a business? Sorry, happens everyday even in good economic periods.
I don't see the difference between this and someone who pulled equity out to buy an "investment home" that doesn't cashflow now because rents are based on incomes. The business model wasn't sound...too bad, you overinvested in the assets. So then why not walk away? Because there is an emotional attachement to business or the home in question? It should be an unemotional decision in either case, but if they don't have the capacity to realize it then that is just too damn bad.
I work for an MI company. We're hiring lots of people for loss mitigation. Where servicers don't or can't address loss mitigation effectively, we're putting our people in their offices, and proactively contacting "their" borrowers to do work outs where possible, or where not possible, to help speed up the foreclosure/short sale process to hopefully reduce the loss severity.
There are cases where a borrower is in temporary difficulty where we'll make their mortgage payments for a few months until they get back on their feet. It's cheaper than paying a claim.
So, there are some attempts at creatively addressing the problems. Not from the government though.
We're also hiring lots of people for fraud investigations, for obvious reasons.
However, based on some of your earlier posts, I do detect strains of sympathy for certain borrowers.
Guilty as charged. I often do have strains of sympathy for people who get themselves into financial messes. I have been known to have strains of sympathy for people who drive too fast and crash and end up paralyzed. I have this idea that part of the human condition is feeling bad for people who do dumb things and lose way more than they thought they were hazarding in the first place.
That's why I'm a Pinko.
Other people seem to feel that our disapproval of these folks should outweigh our natural human capacity for sympathy. My response would be along the lines of, whatever, dude. I think this kind of moralize-first-understand-later-if-ever has done bezactly zip for the country lately.
I return to that hysterical WaPo article we looked at a while ago about the woman who isn't a Republican any more because there are too many houses for sale now in Loudon County. I translate this as: "I had no sympathy for people who screwed up their own lives. Now that I am affected, I am overwhelmed with sympathy for myself."
It's mildly amusing to poke fun at people who are that unself-conscious. I doubt it advances the intellectual ball any, but there it is.
Anyway, I refuse to hide my sympathy for people whose lives are now a mess. I am also not making an argument today in this post that hinges on whether you share that sympathy or not.
Well. I have come to the conclusion that a new career as a slumlord will once again materialize.
I see that Tanta is operating under the midwest assumption of merely a 30 cent loss through foreclosure for first paper. I think, after consulting my personal conjure bag, that they should contemplate the 90 cent loss that could await given the paucity of investors stepping up in a devastated market like phoenix. Stripped property under city condemnation generally has a negative value. time to get cracking on my latest greatest new idea;-}
Of course, if total financial oblivion awaits, it doesn't matter what you owe;-}
I just don't have any sympathy for people who simply cannot keep up in these discussions.
Moe - please don't ever say the government will foot the bill. or any variation thereof, ever again. As one of my old professors liked to say, "the government doesn't have any ,b>money!"
What the gov't has is the power to levy and collect taxes. Which means the government itself pays for nothing, it is you and I and every other US taxpayer who 'foots the bill'. I don't know about you, but I fully expect to fork over something eventually thanks to this messs.
I would at least like to get my money's worth, and Paulson is sooo not showin' me the money.
I've found that, in general, assuming people are greedy, less bright than you would hope and amoral provides a pretty good approximation of how they behave as a group. For an individual, it's better to assume that they're smarter than you until you know otherwise.
About the workout problem, Paulson should suggest that all those troubled mortgages continue to get closed out via forclosure. The new twist is to put some "standard guidelines" in place that permits any homeowner who experiences FC to apply for a "muligan" and have their credit restored so they can go back into the market and buy a home they can afford. Then the market corrects naturally and people can again buy houses.
It doesn't surprise me. The MIs, along with Fannie and Freddie, have always been very proactive about loss mit. They understand that they can spend a dollar here and get back more than a dollar there.
They are "defending their portfolio." Actually, it's their claims paying, but same diff.
They are not doing this to "HELP HOMEOWNERS!" They are doing this because they are in first loss position, and they conclude that they lose less that way.
I am all in favor of the MIs mitigating losses.
But what we just heard was not that the MIs put forth a blanket policy of across-the-board mods with some "standard" procedures because they're just too damned busy to look at each loan.
In fact, we were told that they are sending folks into the servicers' shop to look at those loans. Workout experts.
One possible response to this is to ask, if the MIs can do that, why can't the servicers? Why do they have to run to Paulson for regulatory relief? Why have they apparently told him that they cannot process enough loan-by-loan workouts?
One sure sign of a weak argument is to pretned you know some fact about the other party which you do not know, and make it part of your argument.
Case in point -- You want me to be arguing my own case, but you have absolutely no way of knowing whether I am. It is convenient to be able to dispose of my comments by sneering, so you sneer, but you have failed to prove you point because you have made up your premise. Need I mention how dishonest that sort of thing is? "Feigned concern" and "hypocritical" likewise assume knowledge you don't have, in what appears to be an effort to cast doubt on my intentions so you can avoid dealing with the substance of what I have said. Nice try, but making me into a stock character in your little play constitutes neither evidence nor logic. It's just a cheap debating trick.
Another pretty sure sign of a weak argument is the claim of superior knowledge. Sorry, but nothing you have said is evidence of any such thing. "My experience in these matters..."' Oooooo! That ought to convince an audience of one. Next thing, you'll be waving around a mail-order PhD.
But keep trying. What your writing lacks in substance it makes up for in entertainment value. It would be nice, though, if you'd branch out to more original debating tricks. Everything you've hauled out so far is pretty obvious.
What do you folks think of this super-simple mother-of-all universal workouts?
Treasury can help a homeowner in mortgage distress by entering as an intemediary between the borrower and lender without much taxpayer impact.
The borrower stops making loan payments; the mortgage is in effect destroyed.
A new tripartite relationship is setup between borrower, the treasury (actually IRS, as the operating entity) and the lender.
The IRS, as a part of mortgage enforcement, garnishes 30% of gross income. This is very trivial as IRS already takes 7.7% payroll taxes for Social Security & Medicare. Adding an extra line to deduct 30% off the top line has near zero costs.
The IRS, pays out the 30% to the lender.
The above occurs for 30 years after which period the garnishment is stopped.
This system is similar to wage garnishment for Alimony/childcare enforcement.
I think the lender will come out better off than through mass foreclosure.
It's called predatory servicing. Bogus fees, intentional delays, etc. This is the "new" problem that actually has been going on for years.
Servicers make more by not working with borrowers as opposed to working with them.
I'm sure the MI's know this and they have to go in and take charge because the servicers will continue to bottle neck any kind of loss mit efforts for their monetary gain. Hell. it's not as if it's their money on the line or their portfolio.
I think lenders and servicers are just playing public lip service. Paulson doesn't know what the hell is REALLY going on in regards to workouts. There is no policing agency ,standards or way to track whats really happening and that will take A LOT of time and money.
For now, lenders will lie and Paulson will have to believe them. Meanwhile I expose the truth.
I really enjoyed this thread and the comments by you and your crew.
I come here to learn about this side of the fence and I commend what you are doing.
I hope to see more posts in regards to workouts soon.
I said workouts are a matter of defending your portfolio. They work out only to the extent they work out.
Tanta,
What percentage of the loans in these portfolios do you think can be worked out? My uninformed guess is quite low, like less that 20%. Even if these workouts save a 20% loss in loan value (which seems high), that a 4% savings on the portfolio. Nothing to sneeze at but it's not going to salvage an anybody's MBS portfolio that lost a third of its value.
"Guilty as charged. I often do have strains of sympathy for people who get themselves into financial messes. I have been known to have strains of sympathy for people who drive too fast and crash and end up paralyzed. I have this idea that part of the human condition is feeling bad for people who do dumb things and lose way more than they thought they were hazarding in the first place."
If you google the phrase "no good deed goes unpunished" you will come up with a plethora of conservative web-sites.
When referring to yourself as a plural personal subjective pronoun, I take it that you have multiple personality disorder, that you've been elected or elected yourself to serve as the resident blog nazi, or that Tanta has selected you to speak for her, i.e. you are her bitch.
In any case, I've not seen any rules posted here prohibiting individuals from voicing their opinions or fervently held beliefs, and it's obvious that Tanta can speak for herself. I didn't notice any substance in your comments, nor could I find 'liquidationist' in any reference sources. Did you make that up all by yourself?
Moe is a lying POS as well as a convicted drug dealer and wife beater now running a scam called loansafe 100% not in compliance with CA law. Oh, he also likes to play an attorney by sending cease and desist orders to people as if he's an attorney. Check out loansafesucks.com
This comes directly from Riverside County. He also had his DRE license revoked.
Jan. 2003
Arrest Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 HS 11358 F Cultivating Marijuana 01/02/2003
Filed Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 HS 11360(A) F Transport/Sale of marijuanna 01/02/2003 DISCHARGED
2 HS 11358 F Cultivating Marijuana 01/02/2003 HTA
3 PC M273A(B) M Abuse/Endanger Child 01/02/2003 HTA
4 PC M273A(B) M Abuse/Endanger Child 01/02/2003 DISCHARGED
Infor Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 HS 11359 F Poss of Marijuana for Sale 01/02/2003 GUILTY CONVICTED
2 HS 11358 F Cultivating Marijuana 01/02/2003 DISMISSED
3 PC M273A(B) M Abuse/Endanger Child 01/02/2003 DISMISSED
4 PC 273A(B) F Abuse/Endanger Health of Child 01/02/2003 DISMISSED
March 2003
Arrest Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 243(E)(1) M Battery on Spouse/CoHabit/Pare 02/11/2003
Filed Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 243(E)(1) M Battery on Spouse/CoHabit/Pare 02/11/2003 GUILTY CONVICTED
August 2004
Arrest Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 245(A)(1) F Assault w/deadly weapon/instrument non-firearm produce GBI 08/26/2004
Filed Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 273.5(E) F Corporal Injury on Spouse/Cohabitant 08/26/2004 GUILTY CERTIFIED
2 PC 245(A)(1) F Assault w/deadly weapon/instrument non-firearm produce GBI 08/26/2004 CERT ACTIVE
3 PC 273.6(A) M Violation of Court Order 08/26/2004 CERT ACTIVE
4 PC 136.1(A) F Dissuade Witness 08/26/2004 CERT ACTIVE
Enhancement Description PleaStatus
PC 12022.1 COMMITTED ON BAIL/O.R. DENY CERT ACTIVE
5 PC 273.6(A) M Violation of Court Order 08/26/2004 CERT ACTIVE
Certified Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 273.5(E) F Corporal Injury on Spouse/Cohabitant 08/26/2004 GUILTY CONVICTED
2 PC 245(A)(1) F Assault w/deadly weapon/instrument non-firearm produce GBI 08/26/2004 DISMISSED
3 PC 273.6(A) M Violation of Court Order 08/26/2004 DISMISSED
4 PC 136.1(A) F Dissuade Witness 08/26/2004 DISMISSED
Enhancement Description PleaStatus
PC 12022.1 COMMITTED ON BAIL/O.R. DENY STRICKEN
5 PC 273.6(A) M Violation of Court Order 08/26/2004 DISMISSED
Origin Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 273.5(E) F Corporal Injury on Spouse/Cohabitant 08/26/2004
I'm starting a hedge fund called Ample Capital, anyone want to invest with me?
ROFL, what else can I say, except that WOULD be, like so totally cool.
that said, I'm sure that Paulson thinks the blogosphere is just a bunch of emos
Somehow, I just don't think Paulson felt much better after reading this. A certain sharp satirical "you don't get it" quality to it.
Great Letter. Tanta, you really should be required reading for everyone!!
Tanta, you RULE.
Something to think about. University of Maryland business professor Peter Morici, who just won his second straight "Forecaster of the Month" award from MarketWatch.com, said back on November 12 that the Federal Reserve and U.S. Treasury Department are "naïve" about the global economy. In addition, both Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson "look out of their league." Think he may be correct in his assertions?
"Beware Of This One-Two Punch"
Boom2Bust.com » Blog Archive » Beware Of This One-Two Punch
Tanta'a got Skillz!!!
Somebody just got an fixed-rate atomic wedgie.
Do you really think that all of the people are at the top of these places are clueless idiots? They are at the top because they know how to "play" the system to benefit their career.
Have you considered that Mr. Paulson "played" the rest of the IB community by talking up housing and MBS while he gave time and info so that GS could put itself into a position where it can short the markets and end up dominating the IB world?
When did the fortunes of GS turn up and the remainder turn down? Remeber the big gasoline price takedown at the beginning of Paulson's term.
With GS clear of MBS it is now to their benefit to talk down all of the other IBs on the basis of their holdings.
Where will Mr. Paulson be in one year? Getting his office at GS ready to move into again! Making a couple hundred grand for "government service" was pocket change compared to how GS has benefitted.
So for GS now, a down market is up--is it to Paulson's future benefit to find solutions in any timely fashion?
The lesson learned is not to be the smartest people in the room, it's to have people in the room on Pennsylvania Avenue.
Not out of the realm of possibility, especially in an administration rife with corruption and conflicts of interest.
I will consider this carefully.
Thank you Tanta.
You are FUNNY !!!! Way to go.
-K
Player 1: Alright guys, we've got a 32.33% (repeating, of course) chance of survival.
Player 2: That's better than we usually do.
Paulson comes back to the computer: Alright, times up! Let's do this! HENNNNRRY PAULSON!!!
stunned silence, then confusion and cursing all around
Player 1: Paulson, you are stupid as hell.
Player 2: Goddamnit Paulson!
Paulson: It's not my fault!
all the team members lying dead on the floor
Paulson after being berated by team leader: At least I have chicken.
Letter to Paulson:
Hey maggot, you svck! You and your maggot buddies have gutted this country and now you want the responsible people to bail you out, once again? Well, that's just perfect! I hate you, and we'd all be better off if you crawled back under your rock.
signed,
edgar
Tanta, this is pure genius! Thank you!
I knew one sentence in it was a good idea to put the coffee down on another table entirely. I was amply rewarded.
I'm guessing that you had some experience with that kind of issue at Goldman.
Pure comic gold or at least some non-dollar denominated facsimile thereof.
You forgot, however, to CC Gov. Swarzenegger.
Are you actually going to send it to his office?
Please do and CC the washingtonpost, NY Times, Wall Street Journal.
Excellent Letter to the Editor Material.
My vote for favorite line:
not sure you can afford to cover all the checks your mouth is writing
Trademark that!
are you guys too old to know about Leeroy Jenkins?
Nicely said Tanta.
"Meanwhile, of course, the intangible returns--the credit we get for pretending that this is about Helping the Poor or being Heroes to Homeowners......"
What a wonderful gift "For the Children" this holiday season. How selfless of these government officials and lenders protecting their tax bases and loan markdowns. I'm just glad this will solve the problem and not create and even larger problem as these reset at a later time.
"Reality-bias" LOL! If only these delusional apparatchniks had taken the time to get out of their DC cocoon, and driven around an empty Lennar or Beazer development, maybe they would have figured it out sooner.
Or they could have just read this blog.
Tanta, you're an idealist, but that's OK. Somebody's got to do it.
November 21, 2007
CNBC: Can You Believe Them [Fed & Tr. Sec.] Anymore?
That was the rhetorical question asked by Steve Liesman, the economics reporter regarding their forecasts for the economy and housing.
Blind faith in the Tr. Sec., during early 1870s, and in the Fed, during 1920s, was rampant. Financial markets participants believed, then, that they would never allow a depression because of the extraordinary powers that they have to right, i.e., save, the economy. Once again, blind faith will lead to disappointment and greater despair than during the last two major depressions in the US. How stupid one has to be to believe that the Fed can avoid deflation and depression? Both are caused by a sharp fall in the households demand. And the fall in the demand has already begun; it will turn very sharp early next year.
Jas
I would suggest fax bombing Hank's office today with this letter.
Department of the Treasury
Henry M. Paulson Jr., Secretary
Address: 1500 Pennsylvania Ave. NW, Washington, D.C. 20220
Phone: 202-622-2000
Fax: 202-622-6415
Web: United States - Department of The Treasury - Homepage.
Send a free fax Free Fax • Free Internet Faxing
Ministry - I like that idea.
Tanta - you OK with that?
Great post, Tanta! Thank you...
Guys,
As a memeber of the federal govt ... today and the rest of the week is dead...
you would be better faxing to FBC, CNBC, and posting to there websites under article comments..
The WaPo and times and WSJ are all excellent as well...
dont forget the LA Times...
tanta, genius is sexy!
Interesting article
Business: Local governments bail out of state fund
Am I OK with that?
This is a blog. I just published this. You can send copies to anyone you want.
I did not approach this with the idea that it was an actual letter to Hank and might actually get Hank to change his tune. I was using the time-honored rhetorical convention of the letter in order to offer an analysis of where we are.
However, if you want to send it to the Treasury, go ahead. I personally believe we have enough readers of this blog who also work for the government that this post will get read by at least some regulatory types.
And I hope the career regulatory types--the ones who understand the math--get a big kick out of it. That's all the entertainment they're likely to get in this mess.
Oh Tanta! I like SO don't want to get on your bad side. I'd die simultaneously laughing and drowning in tears.
You've brightened my day. Where's that Amazon gift list that everyone wants you and CR to institute?
bacondreamzin,
don't worry.. at least one person got teh reference.
Though, I don't know many people who aren't 'too old' who would actually know wtf you were talking about..
IM IN YER MARGAGE SICURITIEZ!! FORCLOSIN YER PAYMINT STREAMZ!!!
Tanta- "That's all the entertainment they're likely to get in this mess."
Oh, Conjure and I have to disagree with you on this point. We're looking forward to reading about distraught borrowers 'going postal' on mortgage brokers and armed standoffs between 'against the wall' borrowers and local law enforcement.
Conjure says, "The fun has only just begun."
I'm not sure what in the hell you are proposing here. A giant government-sponsored-cram-down-workout-loan modification program?
At the very least, the solution requires an understanding of the real estate business and the psychology that drove real estate values to DOUBLE in five years.
First, you have to view all real estate in the country as a gigantic Level 3 asset, and it needs to be marked to market. If you proceed from the viewpoint that real estate in states such as California, Arizona and Florida is at least 50% over-valued, based upon historical mean values as well as traditional affordability metrics, you'll come to the conclusion that the best way to help all those poor homeowners and overburdened lenders is to immediately remove all legal and regulatory requirements that extend the timeframe of the foreclosure process. Yes, time is money. Let the cleansing begin, make it easier for lenders to foreclose as soon as possible.
Second, the psychology that drove this market was based upon fear and greed, pure and simple. Now that the perceived incentive of 20% annual appreciation is eliminated, the vast majority of FB's would be happy to walk with no tax liabilites and minimal credit rating damage, especially if they can rent the same house for half the cost.
Keeping the current borrower-lender relationship intact without addressing the severe over-valuation of the real estate asset is only prolonging the cleansing process. Similar to the super-SIV, any workouts are ignoring the true value of the underlying asset in the hope that the market will improve at some time in the future. It will when market values drop by about 40-60 percent.
What makes you think Paulson will ever see this? Some flunky will intercept it and put in the e-basket before it gets anywhere near him. He doesn't need his brain to be addled at a time like this, you know.
Your effort was not wasted, Bacon.
We've been Leeroyed for sure.
Leeroy Jenkins - Wikipedia, the free encyclopedia
It is interesting to see people bemoaning forclosure as if it was the worst possible thing that could happen to these FBs. It's similar to how recession has become some kind of economic Ragnarok to be avoided at all costs. For many of these people who have agreed to pay prices for their homes that they have no realistic chance of affording, a foreclosure is probably their best option. No likely workout in mortgage terms can help somebody who was barely able to make negatively ammortizing payments on their house. If they put little down, the ding to their credit reccord is well worth sticking the bankers/bondholders/mortgage-industrial-complex with ~100k in losses.
excellent. fax the letter.
O/T ABCP Canadian Writdowns:
ABCP writedowns
Strategem Capital 40%
National Bank 27%
Canadian Pacific 15%
Dundee Wealth 15%
Industrial Alliance 15%
Sherritt International 10%
Virginia Mines 10%
Desjardins Group 8%
And because we need more debt, a new product innovation:
In the wake of Royal Bank of Canada's successful entry into Europe's covered bond market last month, Bank of Montreal is planning to sell this new form of debt early in the new year.
BMO has assembled a five-dealer syndicate to help move its first issue of covered bonds, following a path blazed in October when RBC sold what's expected to be 2-billion ($2.89-billion) of debt.
Covered bonds are triple-A-rated securities that give investors a claim on both a specific pool of assets, usually residential mortgages, and the parent bank's balance sheet
Also note these are in Euros. Not in depreciating USDs.
I'd be laughing if this wasn't so depressing. So our way out of this mess is to a)do something that's never been done before b) based on experience has a low probability for success. Great.
Conjure Bag says, "Let them eat cake."
Thank you Tanta.
These subprime and Alt-a mortgages could continue to unwind until 2010, pushing real estate prices continually downward. At the same time, the PMI companies are all underwater, and only the bravest of the solvent are secondary mortgage market buyers. It will probably take another RTC-like entity to purge this market until prices stabilize, and countries with stronger currencie start buying up America's residential housing. Crony capitalists will end up with most of the treasure at give-away prices.
Conjure Bag says, "It's going to liquidate. All of it. More competent people will pick up the pieces."
bacon,
just hit your LEEEEEROY PAULSON post - ROFLMAO!
vast majority of FB's would be happy to walk
For many of these people who have agreed to pay prices for their homes that they have no realistic chance of affording, a foreclosure is probably their best option.
No one--not me, not anyone else, not even Sheila Bair--is proposing that the law change such that borrowers are obligated to accept a modification.
A modification document must be executed by both the lender and the borrower. It is a change to the contractual terms of the original note and mortgage that were jointly executed by the lender and the borrower. It is always the borrower's option, not obligation, to sign it.
If it is truly in people's best interest to walk, they will. If they think it is in their best interest to take a mod that is offered to them, they will. If most people don't ask for mods or sign them when offered, that will tell you how the average homeowner views this situation.
It is, however, beside the point in the discussion of whether or how to offer the mods in the first place. They are not being forced on borrowers. If you think that lenders are trying to encourage borrowers to believe that mods are better than walking, because lenders would rather modify the loan than take title, then make that argument. I, on the other hand, hear a lot of industry participants saying that they don't think encouraging widescale mods is a good idea, for them or for the borrowers.
I really wish we could get straight on what a workout is and is not. It is not a matter of running down the street chasing a borrower who is walking away, and holding him down until he signs a paper agreeing to make a modified payment.
some of us ARE too old and yet too immature NOT to get the Leroy Jenkins reference...FTW!
WDBCrob, Bacon,
thanks. I even pulled the YouTube video of LeeRoy Jenkins and watched that.
Classic. it's just too funny. and apropos
mp,
hope you got the Scrooge McDuck 'toons ready or else you are going on a major league pub crawl with Conjure later tonite!
It will inescapably have an air of ludicrousness about the entire process.
It's time to replace the tip jar by selling keyboard-replacement insurance policies online.
Hey! Then we can securitize the income stream form those insurance policies AND sell some swaps on Keyboard Reinsurance AAA Payouts and we'll all be RICH!
Hey! Then we can securitize the income stream form those insurance policies AND sell some swaps on Keyboard Reinsurance AAA Payouts and we'll all be RICH!
energyecon | 11.21.07 - 10:55 am | #
Too complcated for me, I will just sell the coffee.
Excellent work Tanta.
Already in circulation at Treasury.
Just noticed the "You Must Be Kidding" tag on this post. Nice touch Ms T
Hmmm... Ms T ... I'm picturing Tanta, fully blinged out wearing a tank top, crashing through the heavy oak doors of a Fed meeting. Pity the fools.
I agree that doing workouts will require more than en masse "guidelines" or whatever the heck Paulson is talking about ("bulk processing"?), and that would require actual thinking humans performing actual human thinking. During the S&L crisis the workout industry wss huge, and most of the loans at issue were commercial loans which were much larger (and fewer) than the mortgages at issue today.
It does make me wonder if the U.S. can stay all that competitive with so much of the "work" being first to sell each other houses and mortgages we can't afford, then to try to negotiate with each other about payment terms. If this whole debacle had transpired in another country we'd be laughing at them and muttering thinly-veiled ethnic slurs.
Stand by for generalised systemic financial meltdown
RGE - Financial Times' Alphaville on a "Generalised Systemic Financial Meltdown"
Roubini's concerns about such a systemic financial meltdown will be fleshed out in the next few days.
Nice letter Tanta........
Off the top of my head, thinking that we need a few of the trader dudes and dudettes to weigh in on what freezing rates on large chunks of loans would do to their securities. Would that tend to stabilize that end of the problem? And giving a couple million folks a fair shot at keeping their home might help that end of it.
I think Tanta is correct - there is no way anyone will be able to ramp up an operation to re-qualify that many deals in the coming months. And resolution to a crisis of historic proportions is going to require some seriously different thinking.
WASHINGTON -- Companies that collect mortgage payments could earn $500 for every loan they modify to avoid default under a plan developed by the federal regulator of the nation's savings and loans.
Funding for the voluntary plan would come from existing surpluses in bundles of mortgages that are sold to institutional investors,
Agency's plan to lower defaults - Los Angeles Times
"If this whole debacle had transpired in another country we'd be laughing at them and muttering thinly-veiled ethnic slurs."
Fortunately we are too busy wondering which former administration official will try to top McClellan by publishing a book officially accusing all the others of treason. It seems pretty clear now that they won't wait until Bush leaves office. The rattiest of rats leaving the sinkingest of ships.
I do not foresee much leadership from the Feds on mortgage issues over the next year or so.
how recession has become some kind of economic Ragnarok to be avoided at all costs
The PtB were DAMN SURE that Poppy's drubbing in 1991-1992 wasn't going to be repeated, no matter WHAT the longterm costs. Monetary policy controls slammed to the firewall. Lending oversight eliminated -- BUY! BUY! BUY! -- gasoline prices temporarily lowered going into the election.
It does make me wonder if the U.S. can stay all that competitive with so much of the "work" being first to sell each other houses and mortgages we can't afford, then to try to negotiate with each other about payment terms.
You broke the code.
And I hope the career regulatory types--the ones who understand the math--get a big kick out of it. That's all the entertainment they're likely to get in this mess.
I'm sure they'll get a chuckle when their Lumbergh comes in and asks them to come up with a spread sheet that can automatically determine which borrowers are good candidates for a modification.
Yeah, and if you can get that done by tomorrow, that'd be great. OK?
Thats great Tanta. I agree "for once" with some of your points you have made in regards to loan modifications and your comments in this section.
A loan modification usually is only a reduction in rate or a freeze on the rate. Very rarely will you ever see a deduction of principle in order for a borrower to qualify for a loan mod.
The problem that they are addressing are ARM's that have adjusted and these borrowers cannot afford the new reset payment or about to reset payment. It's not as if they are just going to fix 2 million loans over night.
It's not as if the investors are going to lose .70 cents on the dollar either, if loan mods are implemented. They will lose far more if they are not. Plain and simple.
You are dead on about the man power that will be needed to implement this to have any pasting impact. This is a HUGE problem that has not been addressed.
Lenders will have to essentially hire back all the LO's they laid off and turn them into loss mitigation specialists. And the few non-profits that are operating in the stone ages will not be able to handle the flow either.
They will most likely have to out score this work to a third party, independent operation.
It would be nice to see you use that great mind for a post on what Tanta feels can help homeowners and our mortgage crisis.
You know maybe a Thankgivings post? How about a guest post for my blog?
Now we need some aggressive State Attorney General to threaten to issue charges on all those borrowers who call up their servicer to prove that they really don't make what they said they made when they got the loan so that they qualify as someone who "can't afford" the coming rate hikes.
Program Insight:
Eight states including Massachusetts have pledged almost $900 million this year to help borrowers replace unaffordable mortgages, but the states collectively have refinanced fewer than 100 people, a Globe survey found
The vast majority of the applicants aren't eligible for refinancing. They have either fallen too far behind on their payments, have badly damaged credit, or simply owe more on their loans than the value of their homes, making refinancing effectively impossible.
Massachusetts, other states leave out many borrowers in programs for refinancing home loans - The Boston Globe
For my Thanksgiving offering at the table,"I'm thankful I'm not in Henry Paulson's situation and god bless CR and Tanta."
Genius.
I really wish we could get straight on what a workout is and is not. It is not a matter of running down the street chasing a borrower who is walking away, and holding him down until he signs a paper agreeing to make a modified payment.
Let's imagine how that will work out.
FB: Okay, you got me. What do you want?
MG: Here sign this.
FB: Forget it. The last time one of you Mortgage Guys made me sign something I ended up with a lifetime of crushing payments. What is it this time?
MG: Well, ummm it is a deal for a lifetime of crushing payments.
FB: See? What's in it for me?
MG: You get to stay in your house.
FB: You mean the house that is worth $100k less than I owe? The house I cannot afford? That house?
MG: Yes. That house. Just sign here...
FB: So I can be another $100k underwater? No thanks. Besides, I have a question. What do all the people who aren't getting special treatment feel about this?
MG: They aren't being asked. We Mortgage Guys know more than them besides that in the long run this is best.
FB: Best for who?
MG: Why the Mortgage Guys of course.
FB: Get lost and watch out for the angry mob.
MG: What angry mob?... Ohhhh that angry mob.
yes, some of us have our life vests on and chuckling nervously...and the band played on..
If it is truly in people's best interest to walk, they will. If they think it is in their best interest to take a mod that is offered to them, they will.
I have to say, this sounds a little too....perfect market to me. It would have been in these peoples best interests if they'd never signed contracts agreeing to payments that they couldn't afford. I see little reason to believe that the average FB is suddenly likely to become better at anticipating the future than he/she was when they got the mortgage in the first place.
O/T Super Fund back in the news:
BlackRock set to manage SuperSIV fund: report
Help - Page Not Found - Boston.com
How many borrowers are going to opt for a loan mod when they find out someone just bought their neighbor's place for $100k less than they owe on their comparable place?
Lenders will have to essentially hire back all the LO's they laid off and turn them into loss mitigation specialists.
Um, no.
All those LOs had the analytic and financial and risk management skills of my Aunt Harriet's terrier. This is one reason why the loans are so bad to start with.
How about a guest post for my blog?
Thanks, Moe, but I write for my own blog.
Maybe it is occurring to you that you and I write about different parts of the same general subject. Your blog focuses on "helping homeowners." My blog focuses on analysis of economics and finance.
I jumped your case a while back not because I have any problems with the focus of your blog. I did so because you left the territory of "helping homeowners" and waded boldly into the territory of opining on synthetic CDOs. The latter, you do not understand.
That is not, you see, a criticism of you per se. Most people don't understand synthetic CDOs. It's not part of the public school curriculum or anything, so it's not like we can expect it to be a basic part of everyone's education.
But this means that you should exercise some caution in making claims about the subject. In my view.
May I ask, by the way, if your blog is a for-profit enterprise? This one is, mildly, in the sense that we have a tip jar and people do (graciously!) use it. Is your blog fully and completely not for profit? Is that why you feel OK asking me to come blog for you?
I had the impression that you and Aaron bought IAFC.com, so I guess I assumed you had a profit plan. Can you set me straight if I'm wrong?
One thing I've not seen addressed in the rush to help all the unfortunates refinance into new loans is the fact that these new loans will no longer be purchase money. And, in a state like California, that means the borrower can be subject to recourse. On a purchase money loan, the borrower is off the hook for any unpaid amounts, not so after the refi. I would imagine that mods retain their purchase money status?
If I was in trouble on a purchase money mortgage, you can bet I'd think long and hard before refi'ing.
Richard H,
Your goals are those of liquidationists everywhere. The "cleansing" of the final paragraph is pure liquidationist rhetoric. The "what the hell" of the first line sort of gives away the fervency of belief behind the rest of your comments. Your piece is mostly a lecture about things we all know already. I suspect you know that we know them. The point to such a lecture, I'd guess, is to insist that those things are the important things. That, I'm afraid, is a matter of individual judgement.
The fact is, neither you nor anybody else knows where equilibrium in the residential real estate market lies, so an argument based on the assertion that equilibrium is a long way off is a weak one. There is some reason to think there are multiple equilibria, so that intervention and liquidation could lead to different results. I can't say for certain that intervention is going to lead to a better outcome in the real estate sector. There is reason to suspect, though, that real estate troubles may do damage outside the real estate and mortgage sectors, to sectors not involved in speculative bubbles, to people not holding subprime, interest-only, 2/28, liar loans. If there is a time for intervention, I would think times of high risk to innocent by-standers would be high on the list.
So, yes, the things you mention are important, but please don't carry on with the facetious notion that the rest of us are not aware of them. We are. We just attach different importance to them than you do.
In other words, Dick Head, don't mess with k harris.
Tanta,
Also as one of the fed.... i along with many of my collegues, took all our Fed TSP moved it from C and S fund (S&P and small cap)a long time ago, but right after we reaped the benefits of the G fund (bonds and bills)...now since Greenspan left and Snow left, we moved those profits and have since been in the perverbial cat bird seat in I fund ( international- lower dollar more return, yea!)
Lenders have scheduled 5,244 metro Atlanta properties for public foreclosure sales next month, according to statistics released Tuesday by Alpharetta-based Equity Depot.
Metro Atlanta Business News | ajc.com
energyecon,
"Hey! Then we can securitize the income stream form those insurance policies AND sell some swaps on Keyboard Reinsurance AAA Payouts and we'll all be RICH!"
Hey! That's my gag.
Cheers,
PS I'm too old to know Leroy too. BTW wikipedia is incorrect. That fight is the suckiest suck of a suck fight.
Tanta, don't mind if I butt in do you?
Moe, if you are a Not-for-Profit enterprise, can you post a link to your 990 filings which will include detail compensation of employees?
On a purchase money loan, the borrower is off the hook for any unpaid amounts, not so after the refi. I would imagine that mods retain their purchase money status?
Deb, my understanding of that issue is that a simple rate/term modification of a purchase money loan does not make it a recourse loan. But sure that one will go to court too.
What is an issue is the situation where a lender takes back a zero-interest unsecured note for the deficiency, coupled with a modification that reduces the principal balance of the mortgage loan (by the amount of that new note). That happens; CFC has done it. I believe CFC did that for Casey Serin.
It means, precisely, that there is now full recourse on that unsecured note. Lenders don't particularly expect to collect on that, of course, at least not at the time. But if the borrower's financial situation ever recovers, then they can.
O/T - Markets Shutdown?
Nov. 21 (Bloomberg) -- European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region's main source of financing for home lenders
Europe Suspends Mortgage Bond Trading Between Banks (Update3) - Bloomberg.com
Bacon, I'm with you on Leroy Jenkins, well done.
I'm finding odd WoW references sprinkled throughout many unrelated blogs I read. It's becoming frighteningly pervasive. I expect our HR department will start organizing raids as a team-building exercise in the near future.
High comedy... as always...
Good stuff!
It would have been in these peoples best interests if they'd never signed contracts agreeing to payments that they couldn't afford.
Why? For these 100% financing purchases, it was a nearly free put.
For people who weren't speculating, it was probably a question of their failure to understand how the game of musical chairs is played. But once they do get some education in that regard, there's no reason to think they'll act the way they did when they thought the music would never end.
I am not making a claim about how "perfect markets" function. I am responding to the insinuation that offering mods to those borrowers who do not want to walk is somehow forcing those borrowers who do want to walk to stay put.
There is nothing on this earth that can stop jingle mail, unless and until we go back to imprisoning debtors. Those who keep asserting that jingle mail is in borrowers' best interests surely must agree that therefore borrowers will send it? Or are you saying that borrowers are in the grip of a delusion fostered by the pro-modification crowd? False consciousness? I can't tell if the argument is about empirical matters or normative matters (see harris, k).
Matt,
ROFL.
Cheers,
Tanta,
When I said hire back the LO's they just laid off,I meant, that would be the man power needed and I agree that these LO's are "one" of the root causes of our mortgage crisis.
I never claimed to be an expert on CDO's and MBS's. I have learned a lot form you and my own studies. Not being an expert, does not mean that I cannot form my opinion and voice that on my blog. However, I do know that this is your expertise that your gracioulsy write about. I just try to explain what I know in laymans terms and keep it simple for my audience, that's all.
I am aware of our styles and who our audiences are. Your audience will be affected by whatever is worked out with my audience and vice versa. So, for now we are intertwined in the blogging universe.
I am unique because I work for a for profit law firm and I am also Executive Director for a non-profit.
The purpose of having both is for people that cannot afford the law firm and qualify for legal aid, will still get legal aid help they need.
I joined forces with Aaron Krowne and we are building a network of websites focusing on the homeowner and the industry serving them now. We have not yet determined on how we are going to approach our monetization methods.
It has been not for profit for the last 4-5 months. It is draining a lot of time out of me. I have been offered advertsing in the thousands, but I have refused because I only want reputable and "safe" advertising on my site. Adsense will not allow that.
I was asking not to come blog for me, but to so kindly offer your advice and explain the issues in somewhat laymans terms to my audience of homeowners, non-profits, consumer advocates and politicians.
A donation of sorts of your time to a blog that is currently not for profit.
Henry, I have done a spreadsheet for the Gomez loan.
Current balance: $612,573
Current Payment: $4,923
Taxes and Ins: $510
Current Rate: 9.25%
Borrowers gross mo. income: $2,300
Target DTI ratio: 35%
Target PITI: $805
Less taxes & ins: ($510)
Net available for debt service: $295
Max 30 yr ln at 0% int: $106,200
Max 30 yr ln at 6.5% int: #46,925
There, that wasn't so hard. (This is an actual case.)
This was great. Truly great.
No downpayment loans often do cause the borrower to make the downpayment at time of sale, and modifying no-doc loans means that you have to underwrite the loans as they defaulting.
I don't think you are going to get borrowers who lied about their income to get the loan to send in the documents proving their fraud. I think Paulson knows this, and is recommending no-doc modifications.
Of course, if a servicer did this they would be screwing with their servicing obligations and setting themselves up for real legal problems. Given the number of teaser rates out there, and the fact that many borrowers are defaulting before reset, the whole project is an exercise in lunacy.
currently not for profit
That's revenge, isn't it? First, I get accused of ruining other people's keyboards. Then . . . .
But it's a great line for the mortgage industry: Currently Not For Profit. I wonder why Freddie didn't adopt that for its last Q.
In California, I don't see how these workouts are going to accomplish much. Even modifying the loans to 30 year fixed at 6%, many buyers with 2/28s are not going to able to afford there loans.
The amount of income it takes to pay the mortgage on a median price home is huge and far above the median income. Politicians, government officials, and even Tanta are all telling us that workouts can fix the problem. I keep thinking that's impossible where I am because the home prices and thus the loan balances are completely out of line with incomes unless interest rates on the loans modified to a ridiculous 2 or 3%.
Why don't you just tell your audience of home-owners, consumer advocates, politicians and non-profits to come HERE ?
Something along the lines of - 'There is a better place to go to to learn about this than my "network of websites"( cf Search Engine Optimization - Black Hat, White Hat variants ) - the website is XXXXX'.
-K
Excellent Tanta.
"For people who weren't speculating, it was probably a question of their failure to understand how the game of musical chairs is played."
Tanta I love ya, but once again you seem to be missing this point. They were all speculating...all of the buyers who signed on for exotic loans, whether they knew it as such or not. Nobody signs up for mortgage payments at more than 50% of their gross monthly earnings without speculating that the house was going to continue to appreciate. And don't give me the crap about the midwest market...this all about the bubble markets.
Please put a halt to this incessant faxing!!!
Unfortunately, all of this is about to become moot because we are now being overtaken by events.
and even Tanta are all telling us that workouts can fix the problem.
Oh for Peat's sake. Where do you get that?
I said workouts are a matter of defending your portfolio. They work out only to the extent they work out.
The dilemma is that servicers do not have the resources to defend themselves. They are taking 30 cent hits because they do not have the ability to take 10 cent hits.
That is not the same thing as saying that there are no 30 cent hits, they'd all be 10 cents if you worked at it hard enough. That is patently false. The idea is that you have the resources to decide which is which.
So the bottom line is that the industry cannot afford to mitigate its losses. Paulson is, I am afraid, going to find a way to make it affordable for them. That certainly concerns me (she says, mistress of understatement).
"Paulson is, I am afraid, going to find a way to make it affordable for them. That certainly concerns me"
That makes two of us...literally. Since the national debt is now $9 trillion and no one seems to care, why not make it $18 trillion?
I am aware of our styles and who our audiences are. Your audience will be affected by whatever is worked out with my audience and vice versa. So, for now we are intertwined in the blogging universe.
The mind (not to mention stomach) revolts at the thought of Moe and Tanta being 'intertwined' in any universe.
Jwm In SD, there was a story in the WaPo yesterday about a woman who did a cash-out refi of the home she'd owned for like seven years to invest in an auto-repair company. It failed, and now she's going to lose her home.
She is really and truly losing something here. It isn't the case of a no-down buyer who just goes back to renting.
Is what she did smart? Of course not. But do you remember a couple of short years ago, when CR would post on MEW, and all the chippies would chirp about how it isn't being "consumed," it's being "invested"? I have spent my career telling people not to hock the roof over their heads for any reason except unavoidable economic emergency, unless they can afford to lose their home.
But I got drowned out by the grand chorus of "financial experts" who thought this was a fine idea.
Anyway, you can call that woman a "speculator" or not; it doesn't matter what term we use. She thought she was doing something that made economic sense. It did not. She will either fight to keep her home somehow--a workout, a Chapter 13--or she will walk.
But my original point was that when people did these things--buy with no down, refi for "investments"--they believed they were acting rationally. It's not clear that they weren't, if in fact most of them had nothing to lose.
Sarah, it appears to be National Snort Hot Coffee Through Your Nose Day and nobody told you and me.
currently not for profit
OMG, am I glad I finished my coffee.
quibble: I think that the zero interest note isn't really about getting the money if the defaulter's position improves. I don't think anybody thinks that likely. I suspect it's more about getting the money back if Casey's inability to repay the note was fraudulent. It's just easier to show that the money is there now than to prove that it was fraudulently hidden earlier.
Perhaps all those currently not for profit mortgage companies can hire all those self-unemployed realtors.
Bankruptcy and repudiation are the the springboards from which much of our civilization vaults and turns it's somersets,...(The Variorum Walden)
I suspect it's more about getting the money back if Casey's inability to repay the note was fraudulent.
Then why would you "unsecure" it? As opposed to taking back a zero interest second lien?
Tanta,
I understand what you are saying and you are right about the litany stupid financial advisors telling people to pull their equity out (really just debt) to do all kinds of crazy things with it using the label "investing".
However, most people are not cut out for running a successful business...they just aren't. That is why most businesses fail early. It is speculating.
The difference is that this woman had a source of funding at her disposal that didn't require any of the hurdles that are usually required for a start up business when using OPM. You know, like a commercial loan, or VC money, or Angel Investors. I know about this because I tried to get my seed company off the ground in the past 3 years and it didn't happen because I couldnt raise the money. Guess what most people advised me to do? Use the equity in my house, only I'm one of those jealous bitter renters and I don't have access to easy equity money. But even if I did, I still would not have used it because of the risks involved. We are in agreement on this issue.
No one other than me was there to protect me from making mistakes and wouldn't have expected someone to help me if the business failed. That is whey the hurdles should be very high. I just don't have any sympathy for people who used their home to invest in sketchy businesses. Those risks are inherent.
Here comes the PPT to the rescue AGAIN, happy holidays!
Why would they accept anything less than full payments? Because they believe he's not good for it and the collateral is insufficient. In this case i just think that it's a form of insurance against fraud. Sort of "Okay, we agree, but just in case you THINK you're pulling a fast one on us if we EVER hear about you having money or other assets worth seizing we'll have your note. We won't have to go to the trouble of PROVING that you f'd us, we'll just take it all." Of course the other question is how is bad, probably unrecoverable, debt carried on their books. It seems obvious that it should have zero worth, but... Or could they SELL the note for pennies on the dollar to some deadbeat chasers?
Then why would you "unsecure" it? As opposed to taking back a zero interest second lien?
Because their lien would be wiped out in a foreclosure but the note survives not only that event but because they have a strong case for fraud it would most likely survive foreclosure as well. Countrywide traded a worthless non-performing second mortgage position into an enduring claim against any possible future assets/earnings.
It seems obvious that it should have zero worth, but... Or could they SELL the note for pennies on the dollar to some deadbeat chasers?
Yes. Because it now is a "recourse" debt to other assets of the borrower. That was my original point.
"The fact is, neither you nor anybody else knows where equilibrium in the residential real estate market lies, so an argument based on the assertion that equilibrium is a long way off is a weak one. There is some reason to think there are multiple equilibria, so that intervention and liquidation could lead to different results. I can't say for certain that intervention is going to lead to a better outcome in the real estate sector. There is reason to suspect, though, that real estate troubles may do damage outside the real estate and mortgage sectors, to sectors not involved in speculative bubbles, to people not holding subprime, interest-only, 2/28, liar loans. If there is a time for intervention, I would think times of high risk to innocent by-standers would be high on the list."
Feigned concern for innocent by-standers while praying your roof doesn't collapse seems a bit hypocritical to me. You can only hope that equilibrium is at hand, however my experience in these matters assures me the issue is far from resolved. Who might be the innocent by-standers that 'we' should be so worried about K. Harris?
"Unfortunately, all of this is about to become moot because we are now being overtaken by events."
Exactly.
Funniest. Thread. Ever.
Tanta and Sarah, you owe me a new keyboard and a cup of coffee.
I just don't have any sympathy for people who used their home to invest in sketchy businesses
Fine. Your lack of sympathy has been noted.
This whole thing started out, however, with an apparent discussion of how people are or are not motivated to do one thing (hang on) or another (walk away).
I fail to understand, as I noted above, how what seems to be a factual claim (people act in what they perceive to be their own best interests) keeps turning into a normative claim.
There seem to be a lot of people who simply cannot keep up in these discussions, because they cannot imagine that anyone can be making a claim about economics, not a bid for sympathy for party A or party B. I really don't know why this is.
Your sympathy or lack thereof for this borrower does not change my math. If I owned that loan and thought I could save 20 cents by working it out, I would. If you want to stop me from doing that, you are making the claim that I should run my business not on profit maximization (or loss minimization) but acccording to some normative principal of "moral hazard" you have going.
That would, then, no longer be an argument about the economics of the situation. It would be a moral and political argument that I, at least, don't feel like getting into today. But you certainly can get into it if you want.
It seems that a lot of discussions of how people do act (in their perceived self-interest) turn into discussions of how people should act. Saying that banks should foreclose because it prevents moral hazard, is equivalent to saying that they shouldn't because people will lose their homes. I've found that, in general, assuming people are greedy, less bright than you would hope and amoral provides a pretty good approximation of how they behave as a group. For an individual, it's better to assume that they're smarter than you until you know otherwise.
Cynics and critcs. Open your minds and get with the times.
There will be MASS loan modifications. Like it or not.
In order to develop a "standard criteria" as Paulson is pushing for, would require lenders and servicers to beef up these departments and invest hundreds of millions of dollars to essentially "fix" what they helped create. They need to be held accountable and forced to "properly" employ "legitimate" efforts to work with borrowers.
There simply is no way in hell, that this can be done without a MASSIVE effort form lenders, servicers, government, non-profits, legal aid, third part loss mitigation companies etc.
Government needs to approach this like they would a natural disaster and either get lenders (who I believe should pay for the toxic loan clean up) to spend the necessary money to hire personnel and training or our government will foot the bill.
That's our choices for now. Like it or not.
I know when I comment here, I am not welcome and I could care less. Tough.
"If I owned that loan and thought I could save 20 cents by working it out, I would. If you want to stop me from doing that, you are making the claim that I should run my business not on profit maximization (or loss minimization) but acccording to some normative principal of "moral hazard" you have going."
Not arguing the economic aspect of this at all. In that, we are in agreement. However, based on some of your earlier posts, I do detect strains of sympathy for certain borrowers.
This is what I take issue with:
"She is really and truly losing something here. It isn't the case of a no-down buyer who just goes back to renting."
Why isn't it a case of just going back to renting? Because she lost a business? Sorry, happens everyday even in good economic periods.
I don't see the difference between this and someone who pulled equity out to buy an "investment home" that doesn't cashflow now because rents are based on incomes. The business model wasn't sound...too bad, you overinvested in the assets. So then why not walk away? Because there is an emotional attachement to business or the home in question? It should be an unemotional decision in either case, but if they don't have the capacity to realize it then that is just too damn bad.
"For an individual, it's better to assume that they're smarter than you until you know otherwise."
Sorry, but that has gotten me into more trouble than doing the opposite.
Jwm,
It also helps to assume they are somewhat malevolent.
"It also helps to assume they are somewhat malevolent."
Now that one I agree with.....
I work for an MI company. We're hiring lots of people for loss mitigation. Where servicers don't or can't address loss mitigation effectively, we're putting our people in their offices, and proactively contacting "their" borrowers to do work outs where possible, or where not possible, to help speed up the foreclosure/short sale process to hopefully reduce the loss severity.
There are cases where a borrower is in temporary difficulty where we'll make their mortgage payments for a few months until they get back on their feet. It's cheaper than paying a claim.
So, there are some attempts at creatively addressing the problems. Not from the government though.
We're also hiring lots of people for fraud investigations, for obvious reasons.
However, based on some of your earlier posts, I do detect strains of sympathy for certain borrowers.
Guilty as charged. I often do have strains of sympathy for people who get themselves into financial messes. I have been known to have strains of sympathy for people who drive too fast and crash and end up paralyzed. I have this idea that part of the human condition is feeling bad for people who do dumb things and lose way more than they thought they were hazarding in the first place.
That's why I'm a Pinko.
Other people seem to feel that our disapproval of these folks should outweigh our natural human capacity for sympathy. My response would be along the lines of, whatever, dude. I think this kind of moralize-first-understand-later-if-ever has done bezactly zip for the country lately.
I return to that hysterical WaPo article we looked at a while ago about the woman who isn't a Republican any more because there are too many houses for sale now in Loudon County. I translate this as: "I had no sympathy for people who screwed up their own lives. Now that I am affected, I am overwhelmed with sympathy for myself."
It's mildly amusing to poke fun at people who are that unself-conscious. I doubt it advances the intellectual ball any, but there it is.
Anyway, I refuse to hide my sympathy for people whose lives are now a mess. I am also not making an argument today in this post that hinges on whether you share that sympathy or not.
Shorter Tanta: The math doesn't work out here.
Shorter Moe: Don't confuse me with math.
Well. I have come to the conclusion that a new career as a slumlord will once again materialize.
I see that Tanta is operating under the midwest assumption of merely a 30 cent loss through foreclosure for first paper. I think, after consulting my personal conjure bag, that they should contemplate the 90 cent loss that could await given the paucity of investors stepping up in a devastated market like phoenix. Stripped property under city condemnation generally has a negative value. time to get cracking on my latest greatest new idea;-}
Of course, if total financial oblivion awaits, it doesn't matter what you owe;-}
Someday this war's gonna end...
Delightful post! Hilarious and insightful!
Paulson Finds Bush's Treasury No Career Enhancer Like Goldman
"Paulson Finds Bush's Treasury No Career Enhancer Like Goldman"
Wow, that was a nice letter! I think I just made a mess in my shorts.......
I just don't have any sympathy for people who simply cannot keep up in these discussions.
Moe - please don't ever say the government will foot the bill. or any variation thereof, ever again. As one of my old professors liked to say, "the government doesn't have any ,b>money!"
What the gov't has is the power to levy and collect taxes. Which means the government itself pays for nothing, it is you and I and every other US taxpayer who 'foots the bill'. I don't know about you, but I fully expect to fork over something eventually thanks to this messs.
I would at least like to get my money's worth, and Paulson is sooo not showin' me the money.
I've found that, in general, assuming people are greedy, less bright than you would hope and amoral provides a pretty good approximation of how they behave as a group. For an individual, it's better to assume that they're smarter than you until you know otherwise.
Winston is my new ShuDurPerSav.
I understand that we will all foot the bill, unless we force lenders to foot the bill. That's our 2 choices.
Tanta, did you hear this MI co saying they are beefing up their loss mit to handle these loans and placing them in lenders offices????
This is new or old with MI co's?
About the workout problem, Paulson should suggest that all those troubled mortgages continue to get closed out via forclosure. The new twist is to put some "standard guidelines" in place that permits any homeowner who experiences FC to apply for a "muligan" and have their credit restored so they can go back into the market and buy a home they can afford. Then the market corrects naturally and people can again buy houses.
Yes, Moe. I saw that post.
It doesn't surprise me. The MIs, along with Fannie and Freddie, have always been very proactive about loss mit. They understand that they can spend a dollar here and get back more than a dollar there.
They are "defending their portfolio." Actually, it's their claims paying, but same diff.
They are not doing this to "HELP HOMEOWNERS!" They are doing this because they are in first loss position, and they conclude that they lose less that way.
I am all in favor of the MIs mitigating losses.
But what we just heard was not that the MIs put forth a blanket policy of across-the-board mods with some "standard" procedures because they're just too damned busy to look at each loan.
In fact, we were told that they are sending folks into the servicers' shop to look at those loans. Workout experts.
One possible response to this is to ask, if the MIs can do that, why can't the servicers? Why do they have to run to Paulson for regulatory relief? Why have they apparently told him that they cannot process enough loan-by-loan workouts?
Phallic Phool,
One sure sign of a weak argument is to pretned you know some fact about the other party which you do not know, and make it part of your argument.
Case in point -- You want me to be arguing my own case, but you have absolutely no way of knowing whether I am. It is convenient to be able to dispose of my comments by sneering, so you sneer, but you have failed to prove you point because you have made up your premise. Need I mention how dishonest that sort of thing is? "Feigned concern" and "hypocritical" likewise assume knowledge you don't have, in what appears to be an effort to cast doubt on my intentions so you can avoid dealing with the substance of what I have said. Nice try, but making me into a stock character in your little play constitutes neither evidence nor logic. It's just a cheap debating trick.
Another pretty sure sign of a weak argument is the claim of superior knowledge. Sorry, but nothing you have said is evidence of any such thing. "My experience in these matters..."' Oooooo! That ought to convince an audience of one. Next thing, you'll be waving around a mail-order PhD.
But keep trying. What your writing lacks in substance it makes up for in entertainment value. It would be nice, though, if you'd branch out to more original debating tricks. Everything you've hauled out so far is pretty obvious.
You had me at "I'm from the Blogs."
What do you folks think of this super-simple mother-of-all universal workouts?
Treasury can help a homeowner in mortgage distress by entering as an intemediary between the borrower and lender without much taxpayer impact.
This system is similar to wage garnishment for Alimony/childcare enforcement.
I think the lender will come out better off than through mass foreclosure.
Tanta,
It's called predatory servicing. Bogus fees, intentional delays, etc. This is the "new" problem that actually has been going on for years.
Servicers make more by not working with borrowers as opposed to working with them.
I'm sure the MI's know this and they have to go in and take charge because the servicers will continue to bottle neck any kind of loss mit efforts for their monetary gain. Hell. it's not as if it's their money on the line or their portfolio.
I think lenders and servicers are just playing public lip service. Paulson doesn't know what the hell is REALLY going on in regards to workouts. There is no policing agency ,standards or way to track whats really happening and that will take A LOT of time and money.
For now, lenders will lie and Paulson will have to believe them. Meanwhile I expose the truth.
I really enjoyed this thread and the comments by you and your crew.
I come here to learn about this side of the fence and I commend what you are doing.
I hope to see more posts in regards to workouts soon.
This post is so great. Of course, that as we all know, is cause Tanta is great.
Agreed.
I said workouts are a matter of defending your portfolio. They work out only to the extent they work out.
Tanta,
What percentage of the loans in these portfolios do you think can be worked out? My uninformed guess is quite low, like less that 20%. Even if these workouts save a 20% loss in loan value (which seems high), that a 4% savings on the portfolio. Nothing to sneeze at but it's not going to salvage an anybody's MBS portfolio that lost a third of its value.
I'm a long time fan and don't comment often...this letter made me just say again how much I enjoy your writing.
Now I finally understand why investors prefer foreclosures to workouts. It's cheaper than spending the money to ramp up to do the workouts.
I also think workouts are rare because the people in trouble are basically insolvent.
"Guilty as charged. I often do have strains of sympathy for people who get themselves into financial messes. I have been known to have strains of sympathy for people who drive too fast and crash and end up paralyzed. I have this idea that part of the human condition is feeling bad for people who do dumb things and lose way more than they thought they were hazarding in the first place."
If you google the phrase "no good deed goes unpunished" you will come up with a plethora of conservative web-sites.
I thought that was telling...
PS I stopped visiting Aaron's site because I got sick of wading through two pages of ads to get to the article links.
i'm here to party with tanta
oh ya
dah pass word...
green ghoul sent me
btw
where's the host-ette ???
explanation:
my digital quill work
in the comment cages
over at economists view
got me a taunt
to come on over here
and face my betters
on sames'
"own turfffff "
i suggested this open letter
had an element of self dramtization to it
a st joan complex
talking snark to power
only noy really
only virtually
its really a feel good blow off
for the anvil chorus
of the morally
indignant
greed head decapitators club
This is just brilliant.
K Harris
When referring to yourself as a plural personal subjective pronoun, I take it that you have multiple personality disorder, that you've been elected or elected yourself to serve as the resident blog nazi, or that Tanta has selected you to speak for her, i.e. you are her bitch.
In any case, I've not seen any rules posted here prohibiting individuals from voicing their opinions or fervently held beliefs, and it's obvious that Tanta can speak for herself. I didn't notice any substance in your comments, nor could I find 'liquidationist' in any reference sources. Did you make that up all by yourself?
You are not in the know, just a rant from someone that really does not know what is going on. Be part of the solution not the problem.
I see that Moe Bedard has been active on this blog entry. Mr. Bedard, can you confirm or deny the contents of this thread:
Moe is trying to bully me!
And this thread:
Mortgage Grapevine: LoanSafeSolution's Moe Bedard is a convicted felon!
Moe is a lying POS as well as a convicted drug dealer and wife beater now running a scam called loansafe 100% not in compliance with CA law. Oh, he also likes to play an attorney by sending cease and desist orders to people as if he's an attorney. Check out loansafesucks.com
This comes directly from Riverside County. He also had his DRE license revoked.
Jan. 2003
Arrest Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 HS 11358 F Cultivating Marijuana 01/02/2003
Filed Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 HS 11360(A) F Transport/Sale of marijuanna 01/02/2003 DISCHARGED
2 HS 11358 F Cultivating Marijuana 01/02/2003 HTA
3 PC M273A(B) M Abuse/Endanger Child 01/02/2003 HTA
4 PC M273A(B) M Abuse/Endanger Child 01/02/2003 DISCHARGED
Infor Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 HS 11359 F Poss of Marijuana for Sale 01/02/2003 GUILTY CONVICTED
2 HS 11358 F Cultivating Marijuana 01/02/2003 DISMISSED
3 PC M273A(B) M Abuse/Endanger Child 01/02/2003 DISMISSED
4 PC 273A(B) F Abuse/Endanger Health of Child 01/02/2003 DISMISSED
March 2003
Arrest Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 243(E)(1) M Battery on Spouse/CoHabit/Pare 02/11/2003
Filed Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 243(E)(1) M Battery on Spouse/CoHabit/Pare 02/11/2003 GUILTY CONVICTED
August 2004
Arrest Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 245(A)(1) F Assault w/deadly weapon/instrument non-firearm produce GBI 08/26/2004
Filed Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 273.5(E) F Corporal Injury on Spouse/Cohabitant 08/26/2004 GUILTY CERTIFIED
2 PC 245(A)(1) F Assault w/deadly weapon/instrument non-firearm produce GBI 08/26/2004 CERT ACTIVE
3 PC 273.6(A) M Violation of Court Order 08/26/2004 CERT ACTIVE
4 PC 136.1(A) F Dissuade Witness 08/26/2004 CERT ACTIVE
Enhancement Description PleaStatus
PC 12022.1 COMMITTED ON BAIL/O.R. DENY CERT ACTIVE
5 PC 273.6(A) M Violation of Court Order 08/26/2004 CERT ACTIVE
Certified Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 273.5(E) F Corporal Injury on Spouse/Cohabitant 08/26/2004 GUILTY CONVICTED
2 PC 245(A)(1) F Assault w/deadly weapon/instrument non-firearm produce GBI 08/26/2004 DISMISSED
3 PC 273.6(A) M Violation of Court Order 08/26/2004 DISMISSED
4 PC 136.1(A) F Dissuade Witness 08/26/2004 DISMISSED
Enhancement Description PleaStatus
PC 12022.1 COMMITTED ON BAIL/O.R. DENY STRICKEN
5 PC 273.6(A) M Violation of Court Order 08/26/2004 DISMISSED
Origin Charges
CountChargeSeverityDescriptionViolation DatePleaStatus
1 PC 273.5(E) F Corporal Injury on Spouse/Cohabitant 08/26/2004
Moe Bedard beat me while he was high on marijuana then robbed me blind.