How do you figure out who is "the highest risk borrower" ... watch as everyone with an ARM starts skipping payments to fall into this category, whether they can pay or not.
Terminator 2: Judgment Day (1991) and the freeze scene...
Sarah, John, the Terminator, and Dyson break into the Cyberdyne building and retrieve the parts from the first Terminator. While preparing explosives to destroy everything else, security alerts the police who show up in force. When the SWAT team enters the building, they fatally shoot Dyson who stays behind to trigger the detonator.
They escape in a SWAT van, with the T-1000 in pursuit, first in a helicopter, then a liquid nitrogen truck. The truck crashes into a steel mill, causing the tank to rupture and liquid nitrogen to spill everywhere, freezing the T-1000. Even though the Terminator shatters him, the pieces thaw and reassemble. The T-1000 and Model 101 begin to fight hand to hand, with the T-1000 stabbing him through the power cell with a metal pole, deactivating him. The T-1000, disguised as Sarah, goes to hunt John. As John is confronted by two Sarahs, the Terminator, who had reactivated itself using an alternate power source, shoots the T-1000 with a grenade launcher causing it to deform and overbalance, falling into a vat of molten metal, terminating it.
With mortgage rates disconnecting from 10 year treasuries, who will bear the cost of the extensions given that CFC and GMAC Mortgage have such strong financial positions?
How many?
How long?
Loans held for duration I assume, not those to be securitized?
Is this just an effort to slow the flood of properties heading to FC anyway... the economic equivalent of sand bagging?
Exactly - and what will this do to the value of those loans?
On the helping front, it will be on the margins IMNSHO - as home values continue to go down more folks will throw in the keys - regardless of some temporary fix on ARM reset.
Also, bigger picture, how much help is it really to keep someone chained to payments on an overpriced depreciating asset?
Exactly - and what will this do to the value of those loans?
Considering the likelihood of FC for many & current value recovery from FC... freezing could actually INCREASE the REAL (current) value of the loans IF the FB continues to make any kind of a payment. Pretty sad thought, really.
Excerpt:
Today, California Governor Arnold Schwarzenegger announced an agreement with four large servicers of sub-prime mortgage loans to fast-track modifications to those loans so that homeowners who have been current, but are facing unaffordable loan payment resets, will be able to stay in their homes over the long term. The program builds on a proposal by FDIC Chair Sheila Bair that servicers freeze interest rates at current rates for homeowners who have been making timely payments on sub-prime loans with interest rates scheduled to reset.
...
...
Still pretty thin in content isn't it ?
Is this action meant to help homeowners or mortgage companies with loads of REO and potential REO?
Maybe to keep California from becoming like Cleveland, with empty buildings everywhere. Just prolonging the unwind.
"i think the freeze is 36m, provided you make your payments on time for the first 6m after the freeze, but i'm not positive about that.
bacon,
So you're telling me these will dump on top of the other resets for 2010 creating an even larger series of resets then?
Meltdown Man | 11.20.07 - 9:35 pm
Why deal with something today you can put off until a later date - like when you're no longer da governator....
Also, bigger picture, how much help is it really to keep someone chained to payments on an overpriced depreciating asset?
energyecon
Don't underestimate the tenacity of people when it comes to their home. They'll take on 2nd an 3rd jobs before giving up on their home payments. That's one reason RE prices never go down as much.
So you're telling me these will dump on top of the other resets for 2010 creating an even larger series of resets then?
Weeeeeeeeeeeeeeeeee! Let the good times roll!
Arnold must have seen the prospectus for tax revenue declines if the mortgage neutron bomb hits SD, LA, the Inland Empire, Sac and the Bay Area. Borrowing against the future yet again.
Why deal with something today you can put off until a later date - like when you're no longer da governator....
Mike in Long Island | 11.20.07 - 9:37 pm | #
Somehow Ahnuld needs to get these resets postponed until 2012 when he's no longer governor. 2010 resets will seriously impede his presidential aspirations.
according to the latest reuters article they are talking FIVE YEARS, countrywide is making positive sounds about that (they would, it could diminish their write-offs).
so keep the teaser rates for five years instead of 12 months or whatever they were.. and at the end of five years the home owner finds their outstanding, despite best-case appreciation of their house, is still what their house is worth.
People are essentially being turned into renters and the banks into long term investment property holders.
"Don't underestimate the tenacity of people when it comes to their home. They'll take on 2nd an 3rd jobs before giving up on their home payments. That's one reason RE prices never go down as much."
The recent data shows that is not true in this enviorment they are paying their credit card debt and skipping the house payment. You sir are simply uninformed.
Anyway, Ahnuld's made a point about being filthy rich. Perhaps he should pay these loans off and gift them. Gee, that would make him some sort of California Chavez!
Along with loan modification, the lenders have agreed to seek out borrowers before their loan terms reset and to improve the process of determining if borrowers can afford bigger mortgage payments when loan rates rise, Lockhart said.
Hmmmm, there might be a teeny, tiny, problem there.
As long as it's the banks choice to do so and they're not getting some kind of payoff courtesy of the taxpayers, I don't have a problem with this kind of thing.
5 years? Is CFC gonna be around 5 months from now?
sdtfs | 11.20.07 - 9:51 pm | #
Great point. Would CFC's committment to freeze ARMs for 5 years become the liability of whoever steps in to pick up the pieces if CFC goes tango uncle?
Do these loans accrue neg-am, so the lender can book non-cash earnings and the loan balance goes to the moon? There has to be a catch. Of course, in 3 years at this staggering dollar depreciation/inflation rate a $500k mortgage will be a like a latte.
I figure it won't be long before the optionARM and regular ARM holders line up some class action attorneys
Relative to their incomes, consumers have been taking on more debt for decades, as America's increasingly sophisticated financial system allows more people more access to credit. But the pace of indebtedness has accelerated dramatically. The ratio of household debt to disposable income is now above 130%. Earlier this decade it was 100%; in the early 1990s it was 80%
The Terminator is just buying some time for the 'collusion freeze' play !
Freezing rates is a form of price control. I'm not necessarily opposed to the plan in this case, but I cringe at the thought of unintended consequences. One unintended consequence leaps out at me. Price controls are suddenly fashionable again.
Four Thousand Years of Price Control The case against price controls is not merely an academic exercise, restricted to economics textbooks. There is a four-thousand-year historical record of economic catastrophe after catastrophe caused by price controls.
With the wave of a hand, or the flash of a legislative pen, they promise to make everything cheaper....
I own a home in CA (I mean I "really" own it, no mortgage) and it seems to me that steps to slow down the rate that houses in my neighborhood go into FC are worth consideration.
A rate freeze where the difference in interest is added to the principle (in effect, a HEL) will benefit the long-term homeowner (and his neighbors) and seems an approach worthy of consideration.
The "flipper" probably won't benefit from this since he can't support even the lower payments for long so he'll have to pay the piper sooner rather than later.
Excellent, so people underwater in homes they could never afford can now hold on to them just a little bit longer so that they can become even more underwater. And all the while screwing over the financially prudent buyers who were stupid enough to get a 30-year fixed while rates were at 40-year lows.
Perhaps it's just a coincidence, but it seems like at almost the exact time that this was announced the WSJ placed a story on the "front page" of its website about Paulsen calling for a "coordinated response" to the impending foreclosure crisis.
As for the plan itself, I guess it's a bit like the cramdown proposal being talked about in Congress, but without the lien-stripping (i.e, the borrowers will have the lower rates, but they still owe more than the house is worth). I guess these folks won't be moving for the next five years...
picosec,
I think many who refused to buy into the craziness and make use of those teaser loans might be the ones ticked off. Nevertheless, that our politicians would do something was a foregone conclusion.
Crude futures rose to a fresh record above 99 dollars a barrel in early Asian trade as the dollar continued to trade lower against major rivals, boosting demand for dollar-denominated oil from holders of stronger currencies.
Crude for January deliver rose to as high as 99.29 dollars a barrel. The contract closed at 98.03 dollars on the New York Mercantile Exchange Tuesday after setting a high of 98.62 in electronic trade.
No worry about price controls: the 'price' is going to decline. What this does is gives the 'home owner' a few months to get used to the idea of mailing in the keys. I don't think they can afford the home in any case. Then again, it will look better on property tax rolls.
VennData: Hey, "Remember that floating rate CDO tranche we bought and hedged with a another floating rate swap?"
Haha. Exactly. Wall Street is surprised by the divergence from the model? Wait until all the politicians get their grubby little fingers in the gears. Ooops, too bad all that financial "engineering" was used to create so much leverage. Too late for my newest startup, Humpty Dumpty Structured Products?
You are on the mezzanine level.
There is an elevator marked interest rates.
There are two buttons marked up and down. The down button is broken.
PRESS INTEREST RATE UP BUTTON.
While waiting for the rates to rise a large Austrian in lederhosen rushes forward, grabs the doors and jams the mechanism. Safe from the rising rates but unfortunately destroying your only hope of a safe exit. To the north is a deep tranche.
JUMP.
You have fallen into a tranche. Far above was the relative safety of the mezzanine. The walls are covered with some form of negative amortization. You cannot climb out.
CALL FOR HELP.
The large Austrian cannot hear you. He has gone on to the Senate.
CALL CONGRESS.
Calling Congress got you into this mess are you sure?
Asian markets see red - save China..it has its own path. And currencies reflect a depreciating USD..imports will add to inflation in the US..."Nov. 21 (Bloomberg) -- The yen rose against 16 of the most- actively traded currencies as losses related to U.S. subprime mortgages widened, prompting investors to sell higher-yielding assets funded by loans made in Japan.
The currency gained the most versus the Australian and New Zealand dollars as Freddie Mac, the second-biggest U.S. mortgage- finance company, reported a third-quarter loss. The risk that banks and brokerages will default on their debt is rising, credit-default swaps show
What happens if or when 1USD = 1MXPeso? Well we can go south for jobs!
I don't see where anyone is commenting about the other more outrageous part of this: Guv. Arnold is trying to get the GSEs and the FHA to increase the size of the loans they will guarantee, so the taxpayers are supposed to foot the bill for this - up to and including $1,000,000 McMansions.
Complete crap! Nobody needs to live in a million dollar house - especially on my dime.
Unlike in the 90s RE slump where the government had to massively intervene in the market via RTC, the rate freeze this time around is a very modest step. If this is enough to prevent a massive wave of foreclosures (which I believe it will combined with the strong job market), then that's great news. Now, don't tell me that's not good news for homeowners with 30 year term fixed mortgages as they will profit from fewer foreclosures as well.
No worry about price controls: the 'price' is going to decline.
The legislature is now firmly in whack-a-mole mode. One thing pops up, they freeze it, then move on to the next thing. Oil loves the "freeze" talk no doubt.
Hopefully the Fed is starting to learn that you can't fake an economy with rate cuts, bubbles, and bailouts.
Sometimes you gotta use your brain, take your lumps, and learn from your mistakes instead of making an economic institution out of avoiding the consequences.
all the young men and women who've been waiting for the mkt to correct will be waiting 5yr longer
idoc | 11.20.07 - 10:18 pm
Yep... that's a major reason why I'm pissed off by this!
Campbeln
Apart from the character build-up, it's also good news for us prospective home owners as we learn that you can rey on RE prices not going down seriously as they did pre-1950s. Look what happened to RE prices under the gold standard more or less regularly - declines of 20-30%. That's nothing to build upon. Compare this to the near always appreciation since 1950.
OT a bit - I'm waiting for this all to make its way into pop culture. perhaps a movie scene where some youngun pulls up with his BMW M5 in front of a bunch of young hotties and they all ignore him since we can all see there are other M5s and 7 series Mercedes in the lot. As he gets out of the car he is talking to a friend and says, "yeah, but its paid for...". Cue bunch of young hotties running to talk to him.
I must have hit a weak spot with the reality of the gold standard. I heard it has a god-like status for disciples of the Austrian cult aehm school of economy I mean.
Seems like it might not actually be that many mortgages to me. The stuff CFC has on their books is basically junk anyway so this could help. GMAC I have no idea. And the last two: Litton Loan Servicing and HomeEq Servicing are servicing companies, how much can they have on their books that the can change rates on.
Anyone want to crunch the numbers? If not Tanta might beat you to it!
I don't really share the moral outrage about this proposal. It seems to me that someone's ox is getting gored (unless it's that "financial alchemy" again...), but it's probably the shareholders of the lenders or more likely the investors in the mortgage-backed securities and all the weird derivatives built around them. At least at this point, I don't see how there's any government money involved, and it seems like the role of the government is just to encourage this arrangement between private parties and not to mandate it.
It feels like some folks here are angry because this is messing with their schadenfreude. Which I wouldn't worry about, as I don't think this is going to put a dent in the coming economic meltdown(s).
Oh yes so much better that your house, which rises at the rate of average inflation goes down and the fiat currency that prices your house drops like a rock. Much better. Pull out a calculator and play with some numbers.
Is that Tanta sharpening her slippers I hear? There's gonna be some kickin' butt and takin' names when she gets her licks in on this one.
Upon calmer reflection I am all but convinced this won't happen. It is a political nonstarter like illegal alien drivers licenses. more directly it is like congress proposing the $5,000 penalty income tax forgiveness and fast track citizenship bill. Like many others on this blog I'm sure my first thought was great, where can I sign up to be an illegal alien? Same thing here. Where can I get a "teaser freezer" loan?
Huh!...Well if this is not a sign I don't know what isn't...Time to apply for all the credit cards I can get,,,and max the shit out of them....after all..Ill just write it down. its free money....Good day.
Your "strong job market" has seen the unemployment rate rise from 4.40% in March to 4.73% now.
Stagflationary Mark
No doubt unemployment will raise further and economic growth will slow down as well. I think the difference in opinion is just how far. I still see no indication of more than a mid-cycle downturn. I actually compared some leading indicators and it looks like growth in Europe is going to decelerate farther than here in US. Emerging markets still look stronger than either developed area. This is no less than amazing to me how more and more people on this planet can participate in economic growth and actually escape the poverty so prevailing in their countries for generations or centuries.
One major problem I see with this is how do they keep rates low for the next round of buyers. Bond holders who were screwed will not loan for the next round. You may keep some of these people in their homes however they will never be able to sale at current prices. Put it off for the next adminastration?.
Off topic do you think BB is trying to cause another Depression to study?? Surely he must be bored with the last one ny now.
How can they even do this. The loans are contracts. And the lenders don't mostly own them. Right?
Go to the top of the thread it is assumed they are ONLY doing this with loans they own OR have the explicit right to service within generous constraints of a securitization charter.
Mostly they have be loans they hold. These are probably some of the more interesting loans too - if you follow me.
And here in the Peoples Republic of Minnesota, we have sooooo much yet to learn from our comrades in the west. I am forever in gratitude to those brave souls out there on the edge showing the rest of us all 'the way'...
Picture Japan and its 12 year grueling recession. Traspose that to the USA if this gets off the ground. What free maket? This is a Soviet style market move, certain to make RE dead for decades.
Picture the state of these houses with another 5 years of deferred maintenance as their deadbeat occupants elect to not even do the most modest repairs. More umintended consequences than I would care to imagine. A total mess. Anything the government steps in to fix is always much worse as a result.
It feels like some folks here are angry because this is messing with their schadenfreude.
I agree. Although it is frustrating trying to invest in the market when politicians suddenly throw up surprises like this.
Where is the deliberation and transparency? Why wasn't this deal worked out in the legislature? How was it decided customers of these four companies get the break and why not the other 75% of subprime mortgage owners? The market needs more transparency, not backroom deals like this with Schwarzenegger.
I think in the long run it's in everyone's interest not to have a complete collapse (which is what looks like would happen if the market truly set the price on some of this stuff). There will be knock on effects such as rising crime and stagnant wages if the bottom falls out. Depressed property values all around. No one wants that.
We have $500 billion in liability war to pay for, remember. Taxes will go up. I wonder if the legs have been knocked out from under us.
I guess it is time to contemplate *distressing& my heloc and seeing if they are willing to knock down my rate;-} Of course my renter is entering bk- so life will be sweet once that happens- guaranteed payments.
Arnohld was very funny- without hurting the American taxpayer. Yeah right.
"Become an international problem"...yup. Our falling dollar.
When the chinese and japanese cut us loose there will be about $3 trillion in forex reserves that will become the ultimate old maid.
This is just window dressing. It helps the banks balance sheet for a bit because it preseves the illusion of a performing asset. The outcome will be the same. Most of the subprimes had ficos they deserved. A house costs more to live in than an apartment or trailer. An interest only payment on a depreciating asset is still way more than renting. This may help a very thin band of homeowners. The publicity for the lenders and Arnold is priceless.
Litton Loan Servicing - loan portfolio includes approximately 300,000 mortgages worth about $40 billion. California, Florida, and Texas are its largest markets.
Okay, we can all head south. But wanna bet that they'll have moved their troops off of the southern border to keep those pesky gringos in their own hole?
I think that this is a great move for lenders and for California. Arnold has effectively pre-empted attempts to force banks to forgive debt in exchange for them saying publicly that they'll try really hard to keep people in their houses. It gives lenders cover to only renegotiate loans that they would renegotiate anyway, produces lots of good feelings for the governator and produces the illusion that the state is doing something. Sounds like a good deal to me.
It feels like some folks here are angry because this is messing with their schadenfreude.
Messing with folks schadenfreude? Are you kidding me? This kind of thing ensures we got shadenfreude on tap for ten more years! They just moved the FIRST last call out a half decade!
I lived through the farm crisis out here in the Midwest - saw the same kinds of 'efforts'. A decade later something like half the farms had gone under anyway - farm income couldn't support the prices no matter how you structured, re-structured and re-re-structured the loans.
Apologies to J. Geils:
(As sund by Der Governator, yah)
I could see it was a rough-cut Tuesday
Slow-motion weekdays stare me down
Foreclosure reflex got me wound
There were no defects to be found
Snap shot and it froze without a sound
Thursday morning was a cold-flash actor
So many FBs are behind
Jumbo refis hard to find
Friday night we danced the equity grind
Stop time ARMs will make things fine
(Freeze frame) freeze frame
(Freeze frame) freeze frame
(Freeze frame) freeze frame
(Freeze frame)
(Whoooo) and I freeze
Now I'm looking at a flashback Sunday
Under water feeling just won't disappear
Close up, boiler room, sweet talk in my ear
Mozilo monkey-man love for me is strong
This freeze-frame moment can't be wrong
They did not profit on paper. They are showing a $2 Billion loss for the qtr. That being said, The actual loss is not going to end up that big. Much of the loss is going to show write-offs for "bad loans". While some of the losses are actual and they are for properties already auctioned off, a good percentage are for properties that may not even be repossessed yet. Some of those loans may even turn around prior to the auction stage and become recvery after write off in future qtrs. Anyway, the first rate cuts by the fed are just now starting to work through the economy, which very well may mean we are at, or very near the bottom of the housing problem. Once mortgages stabilize, people will start refinancing again and those who have been waiting for the bottom to get into the housing market will start jumping in. While we probably have a good year of sideways housing markets due to the large inventory that has been created from the downturn, the fact that the end is in sight could change a lot of things in the American Economy, including the start of the $$$ rebound.
I had to post this here to funny this guy...from another board.talking about housing and fannie..he must be high..or delusional.
I really don't see the significance of this. Most of these people bought for the appreciation. They won't kill themselves to keep a depreciating asset. Also this will not restart the housing ATM. Which is a huge part of the economy and also how these people kept their houses long enough to flip them. Am I off base with this??
Do these loans accrue neg-am, so the lender can book non-cash earnings and the loan balance goes to the moon?
That was exactly my thought what this deal could be really about - the borrowers can occupy their house for 3 more years while paying rent to the lender, and the lenders don't have to take losses onto their books yet. Does anybody know more about how the loan balances are affected by the extended teaser rates?
"Homebuilders will pop 30% on the hint of nationwide salvation."
If they do, I will be short HGX with every penny to my name. This won't fly, except in the very short term. Someone, somewhere already banked the money the borrowers are being allowed to keep.
"That was exactly my thought what this deal could be really about - the borrowers can occupy their house for 3 more years while paying rent to the lender, and the lenders don't have to take losses onto their books yet. Does anybody know more about how the loan balances are affected by the extended teaser rates?"
So sadistic it seems possible... Especially when one considers who's doing the "right thing"... The guys who brought this crap main stream...
"Does anybody know more about how the loan balances are affected by the extended teaser rates?"
They don't matter. What matters is that SOMEBODY has to front the long money to refinance the loan.
What matters is that they have to front the money at rates substantially below inflation.
In other words, SOMEBODY has to HAND MONEY OVER to the home owners. For free.
That's what the problem is now. You've got a few million savers who handed over their money FOR FREE but they didn't really understand that until the past few months.
Then they started pulling their money and trying to get clear of handout game.
I really don't know. However if the dude hoping for a gain doesn't have to pay the full cost of carrying the asset he hopes to see gain eventually, and avoid a loss at the same time... maybe he plays the game a little longer.
I'm not much of a gambler but I believe they call this a 'push'... ante's just carry over to next wager and we re-deal. For the financial industry trying like the devil to avoid a mark that's almost as good as winning the pot for now. It still keeps the dream alive that they will eventually win the pot.
Did you see Ah-nulds clip? When asked when the resets should be allowed to unfreeze he said (paraphrased) when housing values start to appreciate again... 2 years, 3 years, 5 years... when ever.
I see it as a symptom. It is the unintended consquences that concern me. If we become comfortable with rate freezes, will we soon be comfortable with price freezes?
That's so 1970s.
Hell isn't merely paved with good intentions, it is walled and roofed with them. - Aldous Huxley
Besides the question of whether this will actually slow the housing collapse, the key question seems to be whether lenders will permanently jack up their rates to account for potential government modification of their loan terms? Maybe this doesn't matter because teaser rate loans are dead? Or, does this ensure they'll stay dead? One lesson of the depression is of unintended consequences- this seems like an action that will make it even more difficult for future buyers to obtain financing.
Everything they do to fix this crap just makes another piece of crap show up. Nothing is for free and I think an unseen consequence of this is some people just throwing up their hands and mailing the keys saying fix this one to.
Probably not it might just be that the the I rate differential will go to principal..you had a rate of 4% which will continue but the reset was 9.% which will now roll forward onto the principal. It becomes a deffered interest mort.
I see it as a symptom. It is the unintended consquences that concern me. If we become comfortable with rate freezes, will we soon be comfortable with price freezes?
That's so 1970s.
People will be 'inheriting' California mortgages like they did rent controlled flats in Manhattan. Comical really.
Maybe the 'Big A' decided to bring something like this forward now in an effort to cut off an attempt at an even more insane Proposition 'X' next fall?
Who knows - its clearly theatre of the absurd California Style.
reley.."Picture Japan and its 12 year grueling recession"
For years the US Govt., US bankers, US investment houses wined about how Japan would not clean up the books/banks..seems to me the shoe is now firmly attached to the American heel!
You people are too smart to get so worked up about this. It's only about PR, nothing real. Nothing much will come of it.
If you watched the CBS Evening News tonight with Brian Williams, you would have thought Countrywide was Jesus Christ Come Down for modifying loans to keep people in their homes. At the end of the segment, they said Countrywide had actually kept 200 American families from foreclosure! Can you imagine the national impact!
The pols and lenders have to spin it so they don't look so stupid and heartless. That's all.
Good point about a certain lack of transparency about the state's resolution to partner with 4 lenders to extend current rates postponing the reset dates.
Also good point about imagining the neighborhood with abandoned houses when the resets force current owners out. Not only damaging all neighborhood house prices but also quite possibly real standards of living.
This looks to me like the lenders trade an increase of NPLs for smaller (nonresetting) future expected income streams.
A photo op for Arnold and a small gesture: a respite from agreements that appear to be defeating both lenders and mortgage holders.
But the long term solution? Nada.
Maybe, maybe not. We'll see HOW much Ahnuld puts the state behind this. But if you lived here and were a responsible person, living within or beneath your means, you might be a teensy bit upset.
The Chinese stock market bubble is at "full size" and the next wave of negative news could put it at risk of bursting, Morgan Stanley said.
If it does burst, the performance of Chinese companies, propped up by stock market gains, could suffer dramatically, it said.
"As the A-share market is already struggling to justify its current valuation and sentiment starts to turn sour, any potential negative news could accelerate the correction and push the snowball downhill," Morgan Stanley said in a note to clients.
It feels like some folks here are angry because this is messing with their schadenfreude. Which I wouldn't worry about, as I don't think this is going to put a dent in the coming economic meltdown(s).
And this is only about one type of mortgage in one of the 50 United States (and the District of Columbia). Admittedly a large state, but still.
Lets see how long is takes for the other states to yell "Me Too!"
Somewhere in all this, this enchilada has to have a negative effect on someone in the gravy train. Who ?
Do the negative effects outweigh the positive effects ? (assuming there are any tangible positive effects, and this is more than PR hype)
OT, and btw, JPY keeps gaining on USD.. a little more each time I glance at it.
It was unclear for how long the loan servicers would freeze the interest rates. "The word that was chosen is it's for a 'sustainable' period of time," said Mark Leyes, a spokesman for the California Department of Corporations, which oversees nondepository lending institutions. "What does that mean? The answer is, it depends. It could be two years, five years, even seven years. The idea is until the housing market recovers. At that point, housing values would be restored; equity is restored, refinancing becomes an option. But nobody knows how long that's going to be."
Maybe just maybe this is an attempt to NOT recognize the lower market value of houses to avoid a deflation of taxes paid on houses! If there are no re-fis at current market values, the tax question is moot.mmm
Will this help the affordability issue much? I don't think this will make a real home of genius any more valuable or affordable.
We don't have the bubble in Colorado Springs that CA has but we have entirely to many 30000 dollar millionaires with McMansions. Average wage 43000 average house price 229000.
"The idea is until the housing market recovers. At that point, housing values would be restored; equity is restored, refinancing becomes an option."
Equity will be restored. Should I even bother to laugh at this?
This whole thing is yet another delay tactic that benefits the lenders by allowing them to take in more money from the mortgages until the inevitable forclosure occurs. Delaying the inevitable.
The word that was chosen is it's for a 'sustainable' period of time," ... "What does that mean? The answer is, it depends. It could be two years, five years, even seven years. The idea is until the housing market recovers. At that point, housing values would be restored; equity is restored, refinancing becomes an option. But nobody knows how long that's going to be."
This is really stupid, idiotic, bumbling, foolish inept. What sort of legal contract will they draw up - Something with the words - "depends" ? Then people shouldn't be surprised if at some point the response is "Whatevah".
Well I do think the idea that the inital low rate would be maintained for up to seven years or "whatever it takes until the market recovers" and "equity returns" is almost cruel to the borrowers. I mean, they could be paying the "low" rate of interest on a completely underwater mortgage for a big chunk of their earning years. It reminds me of poor people in the sixties who rented refrigerators or televisions because they could never get the money together to buy...because they spent all their money on rental payments for refrigerators and televisions. I guess just by the sheer magic of even modest inflation the houses might have "equity" again in nominal dollars, but given how huge the bubble was it could take a decade or so in parts of California.
The HB stocks may soar, but no way is this good for them. I mean you can stay in the house you have but there is no way in H E double hockey sticks you can get another one. How is that good for builders?
well wont this action just further reduce any desire by any investors to lend to homeowners in the future? When I see price controls my gut tells me you only make the availability of future $$ to buy homes worse.
But then again the press release seemed to be mostly fluff and I really wonder how effective this will be.
This is basically what the servicers would normally do, with the benefit of free publicity on the local news and better uniformity across borrowers. There's no public money/mandate.
The press release refers specifically to owner-occupiers who got subprime resetting loans and haven't missed a payment. For a 2005 vintage 2/28, that probably means a 7.5ish teaser rate, due to reset to 12 something, right? Investors never assumed there would be a multi-year income stream at 12 percent; they figured the loan would refinance and prepay.
Some tranches typically would do better w/prepayment via foreclosure instead of a continuing payment stream at 7.5 percent, but the bulk of MBS investors? With foreclosure recoveries like we've been seeing? This is definitely a plus. The servicers clearly feel the benefits here outweigh any hit to their IO strips.
Throw in the fact that about a third of 'subprime' loans went to prime borrowers who got screwed by a mortgage broker, and I'm not too worried about the investors here, at least from the standpoint of credit risk.
The only clear losers here are the sketchy mortgage brokers who were hoping to extract more fees from desperate borrowers facing down the barrel of a reset. Seems fair.
I'll be really surprised if this applies to very many people. I don't see much downside, however.
Maybe the 'Big A' decided to bring something like this forward now in an effort to cut off an attempt at an even more insane Proposition 'X' next fall?
Yeah, no kidding. I think our governor is behaving similarly.
WA gov calls special session on property taxes OLYMPIA, Wash. (AP) -- Gov. Chris Gregoire has called for a one-day special legislative session to reinstate a 1 percent property tax increase cap recently struck down by the state Supreme Court.
so correct me if i'm wrong, but since these are mostly subprime borrowers, and they mostly have 2/28 terms, won't bondholders / bond structures backed by these loans that are expecting a floating coupon of ~9% at reset be hosed (or more accurately, hosed even more?) not to mention the CDOs backed by those bonds, etc.
and i agree with the comment above about liquidity and funding; if you think it's bad now, what asset manager in their right mind will want to roll the dice on these bonds again in the future??
Here is what I don't understand (I'm not an economist, far from it)...
If they are tacking on 3%, 4% or more-- every month-- for three years, aren't they more or less dooming the State of California to the standard rate of inflation + X%?
Maybe someone can explain how this isn't taking a bad situation, deferring it, and then making it much.. much.. worse.
Let's face it, many homes purchased via "subprime" means are gonna be fixer uppers, are going to be low income or starter type homes.
Adding 3%/4% per month is going to take that 350k home and turn it into a 500k home as break even (or whatever I'm not doing the math at this hour).
reading this stuff sounds like a 3rd world country being told by the IMF how, if they can reduce public services such as hospitals and schools even further, they'll be able to renegotiate their debt terms (but not have any of it written off), rather than having to face the national embarrassment of default. Except this isn't a 3rd world country, it is the american consumer.
This is a good thing. The rate freeze will not mean negative am. It means they stay paying 6.5% and their ARM doesnt go to 8.5% and then 10.5%. Those ARMs are darn near criminal anyhow.
The bond holder will be getting less interest than planned, but also less foreclosures. Seems to me the cascading effect on the swaps of a somewhat smaller cash flow should be better than the result if there was a wave of foreclosures.
This will definitely help some people who are on the margins, not every ARM holder is unable to afford current payments and 50% underwater on the home value. To point to the worst case as if it is the norm is just silly. This will definitely help marginal cases of people who can afford their current payment and owe marginally more than the current value of their house.
The magic in the plan comes over 5 years of increasing NOMINAL wages. Last I checked nominal wages were increasing at 3.9% per year. If that stays for 5 years, wages are 20% higher in nominal terms in 5 years. If wages are 20% higher DTI ratios can be calced to afford 20% more house than today.
If it slows the increase in foreclosures it is good. I have seen people here agruing that "since foreclosures will skyrocket and the market is going into the toilet anyhow, this just strings people along" Well, that is a circular argument. It supposes a bad crash and then says any efforts to avoid a bad crash are worthless.
This seems to me like a simple agreement to do workouts to avoid foreclosure which is darned near standard servicing from that I can tell from Tanta's posts. If you have a 30 year mortgage, you still win if your neighbor is not foreclosed - so there is a common interest.
I am suprised that some brilliant public servant has not suggested that distressed home owners be allowed to pay principal and forgo interest for some period of the loan. While the loan holder eats it.
If you have a 30 year mortgage, you still win if your neighbor is not foreclosed - so there is a common interest.
And if you are of late house-formation age and sat out the insanity of the last five years due to your realization that it was an unsustainable cluster-f**k?
shrug
I've learned my lesson. Ramp every mania and only exit when the signs are obvious that it is ending. Even if you get caught, if the mania is big enough, daddy govt will come to the rescue.
The HB stocks may soar, but no way is this good for them. I mean you can stay in the house you have but there is no way in H E double hockey sticks you can get another one. How is that good for builders?
Journeyman | 11.20.07 - 11:51 pm | #
well wont this action just further reduce any desire by any investors to lend to homeowners in the future? When I see price controls my gut tells me you only make the availability of future $$ to buy homes worse.
But then again the press release seemed to be mostly fluff and I really wonder how effective this will be.
Cal House Bear | 11.20.07 - 11:51 pm | #
Ditto to both these posts. Add in the recent results from Freddie and Fannie, and who in their right mind would lend to American home buyers?
So is the teaser rate 8% or 3%? Because if the mortgage holders have to "suffer" with an 8% return that doesn't strike me as such a grave outcome.
Plus, at least this solution avoids having to document their income (which is a whole 'nother issue).
Anecdotal: Talking to friend who has a friend with a hubby in landscape biz. Raking in the cash, gets free health insurance for the kids, subsidized health insurance for the adults and now they're building a new house.
It is a mystery to me why the IRS doesn't use mortgage interest deductions as an audit trigger (or any transactions related to home purchases). It's really pretty much impossible to live your financial life under the table despite people's impressions to the contrary.
who will pay the investors if ARMS are not adjusted..already, the sliced & diced securities have been traded,sold & profited from ...
so someone else has to take the shaft and that's fine if they are wall street bankers...in any case, principle owed will zooom..
Hmm dunno if that wait will be all that long for the kids hoping for a stock market lump of coal...at least by this morning's futures down around 1%, the 10 year kncoking on the three handle door and the yen is at 108.5...let's see how the 'shop til you drop' story turns out for Black (Bleak?) Friday.
Keep hanging onto that job number and clicking your heels together O Joe!
Looks good on paper and the idiots that have no clue what's going on will like it. It's all about the votes. The companies will get good PR too, since they are so hated right now.
This will blow up in no time. The companies involved should be asking themselves where their revenues will come, instead of taking more looses. Like they can afford it.
So countrywide has a bunch of neg-am loans that are going to go bad. As soon as they do they will have to back out the neg-am accruals that they have been booking as profit and take a hit on the REO. With the rate freeze they can go on booking the neg-am accruals as profit and avoid taking the REO hit. Since countrywide would already be bankrupt if their assets were marked-to-market this buys them time for some miracle to occur.
Remember the story of the thief, the emir and his horse:
I thief was brought before the emir having been caught in the act. The emir sentenced him to death. While being dragged away the thief cried out, "Give me a year and I will teach your horse to sing hymns!" Everyone in the court scoffed but the thief was given a chance to make good on his boast. Every day he would be taken out to the courtyard and would sing to the emir's favorite horse. The other prisoners laughed and said, "You will never get that horse to sing." The thief shrugged and said, "Perhaps, but I have a year and who knows what will happen in a year. The emir might die, the horse might die, and perhaps the horse will learn to sing."
The article states that these lenders only represent about a quarter of the value of high risk mortgages in CA. Let's hope the others don't follow suit.
My reading of the Reuters is that this agreement is not going have much effect.
The four lenders service more than a quarter of issued subprime mortgages, financing that allowed borrowers with little in the bank to buy homes during the recent housing boom.
The four may have issued a quarter of the mortgages but there no indication of how many they still hold. It would be stupid of issuers to modify loans contrary to their servicing contracts as the investors who bought them would sue them. An agreement with government is zero legal protection in a contract dispute.
an agreement ... that will allow their mortgage borrowers in California to continue paying loans at initial rates if they live in their homes and make payments on time but are unlikely to afford higher payments when their mortgage interest rates reset.
Notice it says continue paying at the initial interest rates. Sounds to me like loans will negatively amortize and the actual interest rate is not changing.
If you are a California resident, and appalled at the decision to protect the imprudent and punish everyone else, why not share your thoughts in a little note to the Governator? Paste this link into your browser (Governor Arnold Schwarzenegger - Interact.
meow
Renamed:
Avoiding
Reality
Mortgage
This is going to have to go national almost immediately. I mean what are CFC and GMC gonna say? We'll do California but not Florida?
The bigger question is how many people does this actually help and how will CFC/GMAC shareholders feel about it?
How do you figure out who is "the highest risk borrower" ... watch as everyone with an ARM starts skipping payments to fall into this category, whether they can pay or not.
Terminator 2: Judgment Day (1991) and the freeze scene...
Sarah, John, the Terminator, and Dyson break into the Cyberdyne building and retrieve the parts from the first Terminator. While preparing explosives to destroy everything else, security alerts the police who show up in force. When the SWAT team enters the building, they fatally shoot Dyson who stays behind to trigger the detonator.
They escape in a SWAT van, with the T-1000 in pursuit, first in a helicopter, then a liquid nitrogen truck. The truck crashes into a steel mill, causing the tank to rupture and liquid nitrogen to spill everywhere, freezing the T-1000. Even though the Terminator shatters him, the pieces thaw and reassemble. The T-1000 and Model 101 begin to fight hand to hand, with the T-1000 stabbing him through the power cell with a metal pole, deactivating him. The T-1000, disguised as Sarah, goes to hunt John. As John is confronted by two Sarahs, the Terminator, who had reactivated itself using an alternate power source, shoots the T-1000 with a grenade launcher causing it to deform and overbalance, falling into a vat of molten metal, terminating it.
With mortgage rates disconnecting from 10 year treasuries, who will bear the cost of the extensions given that CFC and GMAC Mortgage have such strong financial positions?
Is this legal? If it is it shouldn't be.
Its unbelievable to think that some will get a free ride while other have already had their credit and lives destroyed.
CFC isn't going to around for much longer anyway.
Wow...
How many?
How long?
Loans held for duration I assume, not those to be securitized?
Is this just an effort to slow the flood of properties heading to FC anyway... the economic equivalent of sand bagging?
Banker,
Exactly - and what will this do to the value of those loans?
On the helping front, it will be on the margins IMNSHO - as home values continue to go down more folks will throw in the keys - regardless of some temporary fix on ARM reset.
Also, bigger picture, how much help is it really to keep someone chained to payments on an overpriced depreciating asset?
Is this action meant to help homeowners or mortgage companies with loads of REO and potential REO?
Didn't Ah-nuld play Mr. Freeze in one of the Batman movies.... or was it Dr. Freeze???
Ironic... in a life imitates art sort of way.
i think the freeze is 36m, provided you make your payments on time for the first 6m after the freeze, but i'm not positive about that.
Exactly - and what will this do to the value of those loans?
Considering the likelihood of FC for many & current value recovery from FC... freezing could actually INCREASE the REAL (current) value of the loans IF the FB continues to make any kind of a payment. Pretty sad thought, really.
That story in the SACBEE is a bit thin isn't it ? This is only other link I can find to this via Google
New America Foundation Praises Governor Arnold Schwarzenegger’s Leadership in Responding to Sub-prime Mortgage Loan Crisis | NewAmerica.net
Excerpt:
Today, California Governor Arnold Schwarzenegger announced an agreement with four large servicers of sub-prime mortgage loans to fast-track modifications to those loans so that homeowners who have been current, but are facing unaffordable loan payment resets, will be able to stay in their homes over the long term. The program builds on a proposal by FDIC Chair Sheila Bair that servicers freeze interest rates at current rates for homeowners who have been making timely payments on sub-prime loans with interest rates scheduled to reset.
...
...
Still pretty thin in content isn't it ?
-K
"i think the freeze is 36m, provided you make your payments on time for the first 6m after the freeze, but i'm not positive about that.
bacon,
So you're telling me these will dump on top of the other resets for 2010 creating an even larger series of resets then?
Is this action meant to help homeowners or mortgage companies with loads of REO and potential REO?
Maybe to keep California from becoming like Cleveland, with empty buildings everywhere. Just prolonging the unwind.
"i think the freeze is 36m, provided you make your payments on time for the first 6m after the freeze, but i'm not positive about that.
bacon,
So you're telling me these will dump on top of the other resets for 2010 creating an even larger series of resets then?
Meltdown Man | 11.20.07 - 9:35 pm
Why deal with something today you can put off until a later date - like when you're no longer da governator....
Also, bigger picture, how much help is it really to keep someone chained to payments on an overpriced depreciating asset?
energyecon
Don't underestimate the tenacity of people when it comes to their home. They'll take on 2nd an 3rd jobs before giving up on their home payments. That's one reason RE prices never go down as much.
O-Joe
So you're telling me these will dump on top of the other resets for 2010 creating an even larger series of resets then?
Weeeeeeeeeeeeeeeeee! Let the good times roll!
Arnold must have seen the prospectus for tax revenue declines if the mortgage neutron bomb hits SD, LA, the Inland Empire, Sac and the Bay Area. Borrowing against the future yet again.
Why deal with something today you can put off until a later date - like when you're no longer da governator....
Mike in Long Island | 11.20.07 - 9:37 pm | #
Kinda like unfunded entitlement liabilities?
Damn. I thought the State of CA was already running a $7 billion deficit?
What, Arnold is going to front the long money to convert the loans?
sk, a bit thin? The story hardly exists! But the SacBee is a real paper - so I'm sure it's true.
dryfly, we need to know more. If bacon dreamz is correct (36 months) this would really be shocking. I was expecting 3 to 6 months.
These can't be securitized loans - these have to be loans held for investment, which means it is the shareholders taking the hit.
We need to know more!
Best to all.
Somehow Ahnuld needs to get these resets postponed until 2012 when he's no longer governor. 2010 resets will seriously impede his presidential aspirations.
according to the latest reuters article they are talking FIVE YEARS, countrywide is making positive sounds about that (they would, it could diminish their write-offs).
so keep the teaser rates for five years instead of 12 months or whatever they were.. and at the end of five years the home owner finds their outstanding, despite best-case appreciation of their house, is still what their house is worth.
People are essentially being turned into renters and the banks into long term investment property holders.
The cynic in me says that CFC, GMAC et al agreed to this "freeze" because:
a - they can't process the amount of foreclosures they are faced with
b - a true "freeze" means the ARMS won't float lower when the Fed cuts rates to a Japan like number
c - all of the above
"Don't underestimate the tenacity of people when it comes to their home. They'll take on 2nd an 3rd jobs before giving up on their home payments. That's one reason RE prices never go down as much."
The recent data shows that is not true in this enviorment they are paying their credit card debt and skipping the house payment. You sir are simply uninformed.
The servicers were already doing the loan mods. Nothing new. Just PR.
And it's only for those who had no problem with the previous payment but wouldn't be able to afford the new one.
Anyway, Ahnuld's made a point about being filthy rich. Perhaps he should pay these loans off and gift them. Gee, that would make him some sort of California Chavez!
The Terminator is looking out for #1 because he just passed unfunded liabilities to you suckers in CA !
Reuter article
Business & Financial News, Breaking US & International News | Reuters.com
Sorry I can't figure out how to insert a link properly...
5 years? That's a good way to piss off everyone who took out a 30-year fixed.
Responsibility is for suckers.
Here is the press release with video.
These problems will be back!
Along with loan modification, the lenders have agreed to seek out borrowers before their loan terms reset and to improve the process of determining if borrowers can afford bigger mortgage payments when loan rates rise, Lockhart said.
Hmmmm, there might be a teeny, tiny, problem there.
5 years? Is CFC gonna be around 5 months from now?
As long as it's the banks choice to do so and they're not getting some kind of payoff courtesy of the taxpayers, I don't have a problem with this kind of thing.
5 years? Is CFC gonna be around 5 months from now?
sdtfs | 11.20.07 - 9:51 pm | #
Great point. Would CFC's committment to freeze ARMs for 5 years become the liability of whoever steps in to pick up the pieces if CFC goes tango uncle?
Hey, i've got an idea. Those of us who are earning interest on our bank deposits can get the government to raise those rates too.
Better yet, I've got a tidy balance on a credit card. 0.9% through May. Can I stretch that out for another 29 years please?
Time to exit Californism and move to a free market state.
That should making pricing those CDO's such my more interesting:
Hey, "Remember that floating rate CDO tranche we bought and hedged with a another floating rate swap?"
Do these loans accrue neg-am, so the lender can book non-cash earnings and the loan balance goes to the moon? There has to be a catch. Of course, in 3 years at this staggering dollar depreciation/inflation rate a $500k mortgage will be a like a latte.
I figure it won't be long before the optionARM and regular ARM holders line up some class action attorneys
Americans are up to their necks in DEBT!
Relative to their incomes, consumers have been taking on more debt for decades, as America's increasingly sophisticated financial system allows more people more access to credit. But the pace of indebtedness has accelerated dramatically. The ratio of household debt to disposable income is now above 130%. Earlier this decade it was 100%; in the early 1990s it was 80%
The Terminator is just buying some time for the 'collusion freeze' play !
Freezing rates is a form of price control. I'm not necessarily opposed to the plan in this case, but I cringe at the thought of unintended consequences. One unintended consequence leaps out at me. Price controls are suddenly fashionable again.
Four Thousand Years of Price Control
The case against price controls is not merely an academic exercise, restricted to economics textbooks. There is a four-thousand-year historical record of economic catastrophe after catastrophe caused by price controls.
With the wave of a hand, or the flash of a legislative pen, they promise to make everything cheaper....
I think my name is safe for yet another day.
I own a home in CA (I mean I "really" own it, no mortgage) and it seems to me that steps to slow down the rate that houses in my neighborhood go into FC are worth consideration.
A rate freeze where the difference in interest is added to the principle (in effect, a HEL) will benefit the long-term homeowner (and his neighbors) and seems an approach worthy of consideration.
The "flipper" probably won't benefit from this since he can't support even the lower payments for long so he'll have to pay the piper sooner rather than later.
Excellent, so people underwater in homes they could never afford can now hold on to them just a little bit longer so that they can become even more underwater. And all the while screwing over the financially prudent buyers who were stupid enough to get a 30-year fixed while rates were at 40-year lows.
Brilliant, just brilliant...
Perhaps it's just a coincidence, but it seems like at almost the exact time that this was announced the WSJ placed a story on the "front page" of its website about Paulsen calling for a "coordinated response" to the impending foreclosure crisis.
As for the plan itself, I guess it's a bit like the cramdown proposal being talked about in Congress, but without the lien-stripping (i.e, the borrowers will have the lower rates, but they still owe more than the house is worth). I guess these folks won't be moving for the next five years...
picosec,
I think many who refused to buy into the craziness and make use of those teaser loans might be the ones ticked off. Nevertheless, that our politicians would do something was a foregone conclusion.
"how will CFC/GMAC shareholders feel about it"
Probably pretty good! Perhaps it allows the defferal of the interest rate differential to be applied to the principal!
I too have to ask if thiis is legal. Sound like collusion to me. Oh sorry: market participation.
Crude futures rose to a fresh record above 99 dollars a barrel in early Asian trade as the dollar continued to trade lower against major rivals, boosting demand for dollar-denominated oil from holders of stronger currencies.
Crude for January deliver rose to as high as 99.29 dollars a barrel. The contract closed at 98.03 dollars on the New York Mercantile Exchange Tuesday after setting a high of 98.62 in electronic trade.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
No worry about price controls: the 'price' is going to decline. What this does is gives the 'home owner' a few months to get used to the idea of mailing in the keys. I don't think they can afford the home in any case. Then again, it will look better on property tax rolls.
VennData: Hey, "Remember that floating rate CDO tranche we bought and hedged with a another floating rate swap?"
Haha. Exactly. Wall Street is surprised by the divergence from the model? Wait until all the politicians get their grubby little fingers in the gears. Ooops, too bad all that financial "engineering" was used to create so much leverage. Too late for my newest startup, Humpty Dumpty Structured Products?
I didn't see IMB, WaMu, Wells, Option1, DSL, FED... lots of names absent.
The big mess in CA is with AltA/Jumbos anyhow. This won't make a dent.
Chapter 2:
You are on the mezzanine level.
There is an elevator marked interest rates.
There are two buttons marked up and down. The down button is broken.
PRESS INTEREST RATE UP BUTTON.
While waiting for the rates to rise a large Austrian in lederhosen rushes forward, grabs the doors and jams the mechanism. Safe from the rising rates but unfortunately destroying your only hope of a safe exit. To the north is a deep tranche.
JUMP.
You have fallen into a tranche. Far above was the relative safety of the mezzanine. The walls are covered with some form of negative amortization. You cannot climb out.
CALL FOR HELP.
The large Austrian cannot hear you. He has gone on to the Senate.
CALL CONGRESS.
Calling Congress got you into this mess are you sure?
Asian markets see red - save China..it has its own path. And currencies reflect a depreciating USD..imports will add to inflation in the US..."Nov. 21 (Bloomberg) -- The yen rose against 16 of the most- actively traded currencies as losses related to U.S. subprime mortgages widened, prompting investors to sell higher-yielding assets funded by loans made in Japan.
The currency gained the most versus the Australian and New Zealand dollars as Freddie Mac, the second-biggest U.S. mortgage- finance company, reported a third-quarter loss. The risk that banks and brokerages will default on their debt is rising, credit-default swaps show
What happens if or when 1USD = 1MXPeso? Well we can go south for jobs!
Mike in Long Island,
Sorry I can't figure out how to insert a link properly...
Start with the following.
< a href=________>________< /a>
To make a link:
Here's an example.
< a href=http://calculatedrisk.blogspot.com/>Calculated Risk< /a>
It needs two (and only two) spaces deleted to be complete. When those two spaces (and only two spaces) are deleted it becomes the following.
Calculated Risk
all the young men and women who've been waiting for the mkt to correct will be waiting 5yr longer
I don't see where anyone is commenting about the other more outrageous part of this: Guv. Arnold is trying to get the GSEs and the FHA to increase the size of the loans they will guarantee, so the taxpayers are supposed to foot the bill for this - up to and including $1,000,000 McMansions.
Complete crap! Nobody needs to live in a million dollar house - especially on my dime.
OTS - Weakness in Housing and Credit Markets Reduces Thrift Earnings - Thrift earnings declined 84% during 3Q 2007:
Weakness in Housing and Credit Markets Reduces Thrift Earnings
all the young men and women who've been waiting for the mkt to correct will be waiting 5yr longer
idoc | 11.20.07 - 10:18 pm
Yep... that's a major reason why I'm pissed off by this!
stagflationary mark,
Thanks much. Another bit of info to tape to my monitor.
Can anyone cite the section of the California Constitution specifically empowering the State to engage in this action?
all the young men and women who've been waiting for the mkt to correct will be waiting 5yr longer
idoc | 11.20.07 - 10:18 pm
Yep... that's a major reason why I'm pissed off by this!
Deferred gratification is good for you, builds character and all that.
Unlike in the 90s RE slump where the government had to massively intervene in the market via RTC, the rate freeze this time around is a very modest step. If this is enough to prevent a massive wave of foreclosures (which I believe it will combined with the strong job market), then that's great news. Now, don't tell me that's not good news for homeowners with 30 year term fixed mortgages as they will profit from fewer foreclosures as well.
O-Joe
"Can anyone cite the section of the California Constitution specifically empowering the State to engage in this action?"
I imagine it's the same section that lets CA run an ongoing deficit and justifies the attempted plunderment of the CALPERS fund.
Hello, footpad.
Thanks CR,
This pisses me off to NO end. Eff the prudent. How this is legal I'll never know, but who's going to challenge it.
GRRRRRRRR!
Cheers,
sdtfs,
No worry about price controls: the 'price' is going to decline.
The legislature is now firmly in whack-a-mole mode. One thing pops up, they freeze it, then move on to the next thing. Oil loves the "freeze" talk no doubt.
It's starting to feel like Scarface.
You know what capitalism is?
Hopefully it works out this well:
YouTube -
Cheers,
Nobody takes a hit? Sounds like another super conduit idea to me.
This should help the housing situation:
Crude oil rose above $99 a barrel for the first time in New York as a weakening U.S. dollar increased demand for commodities.
Oil Surges Above $99 as Weaker Dollar Spurs Commodity Demand
Hopefully the Fed is starting to learn that you can't fake an economy with rate cuts, bubbles, and bailouts.
Sometimes you gotta use your brain, take your lumps, and learn from your mistakes instead of making an economic institution out of avoiding the consequences.
" the rate freeze this time around is a very modest step"
Optimistic Joe signs over his 401K plan to Arnold for infinite usage.
But Joe doesn't know that.
At some point we'll have to get off the internet and knocking on politicians doors to have a chance at stopping their schemes.
all the young men and women who've been waiting for the mkt to correct will be waiting 5yr longer
idoc | 11.20.07 - 10:18 pm
Yep... that's a major reason why I'm pissed off by this!
Campbeln
Apart from the character build-up, it's also good news for us prospective home owners as we learn that you can rey on RE prices not going down seriously as they did pre-1950s. Look what happened to RE prices under the gold standard more or less regularly - declines of 20-30%. That's nothing to build upon. Compare this to the near always appreciation since 1950.
O-Joe
O-Joe,
Not to be rude, but SHADDAP!
Sheesh,
Cheers,
OT a bit - I'm waiting for this all to make its way into pop culture. perhaps a movie scene where some youngun pulls up with his BMW M5 in front of a bunch of young hotties and they all ignore him since we can all see there are other M5s and 7 series Mercedes in the lot. As he gets out of the car he is talking to a friend and says, "yeah, but its paid for...". Cue bunch of young hotties running to talk to him.
When do they plan to release the "details"?
Part of the attempt could be to shake up some fence sitters.
How can they even do this. The loans are contracts. And the lenders don't mostly own them. Right?
Cheers,
If this is enough to prevent a massive wave of foreclosures (which I believe it will combined with the strong job market), then that's great news.
Your "strong job market" has seen the unemployment rate rise from 4.40% in March to 4.73% now.
O-Joe,
Not to be rude, but SHADDAP!
Sheesh,
Cheers,
Misean
I must have hit a weak spot with the reality of the gold standard. I heard it has a god-like status for disciples of the Austrian cult aehm school of economy I mean.
O-Joe
"shaddup".
Joe hasn't figured out where the money comes from yet. He still thinks the loan companies can "just extend it".
ho ho ho.
Well, they can if Bernanke cuts rates back down to 2001 levels.
This is looking more and more like Japan, Part II, a long-term crash over the next 10-15 years.
Fricking great.
Seems like it might not actually be that many mortgages to me. The stuff CFC has on their books is basically junk anyway so this could help. GMAC I have no idea. And the last two: Litton Loan Servicing and HomeEq Servicing are servicing companies, how much can they have on their books that the can change rates on.
Anyone want to crunch the numbers? If not Tanta might beat you to it!
Banker, one quick parable:
ACA=Herstatt
Have you retreated to the Bankerdome yet?
I wonder how this is starting to look to our fine friends at the NY Fed.
Corrigan is mighty glad to be retired, I bet.
Flood the discount window with mortgage paper and survive!!! But not until after Xmas- Santa must have a nice visit first.
Someday this war's gonna end...
I don't really share the moral outrage about this proposal. It seems to me that someone's ox is getting gored (unless it's that "financial alchemy" again...), but it's probably the shareholders of the lenders or more likely the investors in the mortgage-backed securities and all the weird derivatives built around them. At least at this point, I don't see how there's any government money involved, and it seems like the role of the government is just to encourage this arrangement between private parties and not to mandate it.
It feels like some folks here are angry because this is messing with their schadenfreude. Which I wouldn't worry about, as I don't think this is going to put a dent in the coming economic meltdown(s).
O-Joe,
Oh yes so much better that your house, which rises at the rate of average inflation goes down and the fiat currency that prices your house drops like a rock. Much better. Pull out a calculator and play with some numbers.
If you think that you can that is.
Cheers,
This unilateral action will knock out whatever legs remain under the mortgage securities.
The MLEC will be shown to be woefully undersized and will be backed up worse than a frozen septic tank.
Expect a quick back-tracking on the 5-7 year moratorium.
"I don't see how there's any government money involved"
Not yet, you haven't.
That's on purpose, chum.
Did you just HAPPEN to see Arnold's name associated with this?
Why does it need his name on it?
Is that Tanta sharpening her slippers I hear? There's gonna be some kickin' butt and takin' names when she gets her licks in on this one.
Upon calmer reflection I am all but convinced this won't happen. It is a political nonstarter like illegal alien drivers licenses. more directly it is like congress proposing the $5,000 penalty income tax forgiveness and fast track citizenship bill. Like many others on this blog I'm sure my first thought was great, where can I sign up to be an illegal alien? Same thing here. Where can I get a "teaser freezer" loan?
Huh!...Well if this is not a sign I don't know what isn't...Time to apply for all the credit cards I can get,,,and max the shit out of them....after all..Ill just write it down. its free money....Good day.
Your "strong job market" has seen the unemployment rate rise from 4.40% in March to 4.73% now.
Stagflationary Mark
No doubt unemployment will raise further and economic growth will slow down as well. I think the difference in opinion is just how far. I still see no indication of more than a mid-cycle downturn. I actually compared some leading indicators and it looks like growth in Europe is going to decelerate farther than here in US. Emerging markets still look stronger than either developed area. This is no less than amazing to me how more and more people on this planet can participate in economic growth and actually escape the poverty so prevailing in their countries for generations or centuries.
O-Joe
One major problem I see with this is how do they keep rates low for the next round of buyers. Bond holders who were screwed will not loan for the next round. You may keep some of these people in their homes however they will never be able to sale at current prices. Put it off for the next adminastration?.
Off topic do you think BB is trying to cause another Depression to study?? Surely he must be bored with the last one ny now.
Question -
Since the underlying bonds will not be paying out the promised rate, wouldn't S&P and Moody's have a field day downgrading concerned bonds?
How can they even do this. The loans are contracts. And the lenders don't mostly own them. Right?
Go to the top of the thread it is assumed they are ONLY doing this with loans they own OR have the explicit right to service within generous constraints of a securitization charter.
Mostly they have be loans they hold. These are probably some of the more interesting loans too - if you follow me.
And here in the Peoples Republic of Minnesota, we have sooooo much yet to learn from our comrades in the west. I am forever in gratitude to those brave souls out there on the edge showing the rest of us all 'the way'...
LOL.
Picture Japan and its 12 year grueling recession. Traspose that to the USA if this gets off the ground. What free maket? This is a Soviet style market move, certain to make RE dead for decades.
Picture the state of these houses with another 5 years of deferred maintenance as their deadbeat occupants elect to not even do the most modest repairs. More umintended consequences than I would care to imagine. A total mess. Anything the government steps in to fix is always much worse as a result.
Joe D. Banks,
Yep, they just bailed the specs, and left the honest purchasers holding the friggin' bag.
GRRRRRRRR!
Cheers,
It feels like some folks here are angry because this is messing with their schadenfreude.
I agree. Although it is frustrating trying to invest in the market when politicians suddenly throw up surprises like this.
Where is the deliberation and transparency? Why wasn't this deal worked out in the legislature? How was it decided customers of these four companies get the break and why not the other 75% of subprime mortgage owners? The market needs more transparency, not backroom deals like this with Schwarzenegger.
I think in the long run it's in everyone's interest not to have a complete collapse (which is what looks like would happen if the market truly set the price on some of this stuff). There will be knock on effects such as rising crime and stagnant wages if the bottom falls out. Depressed property values all around. No one wants that.
We have $500 billion in liability war to pay for, remember. Taxes will go up. I wonder if the legs have been knocked out from under us.
I guess it is time to contemplate *distressing& my heloc and seeing if they are willing to knock down my rate;-} Of course my renter is entering bk- so life will be sweet once that happens- guaranteed payments.
Arnohld was very funny- without hurting the American taxpayer. Yeah right.
"Become an international problem"...yup. Our falling dollar.
When the chinese and japanese cut us loose there will be about $3 trillion in forex reserves that will become the ultimate old maid.
Someday this war's gonna end...
This is just window dressing. It helps the banks balance sheet for a bit because it preseves the illusion of a performing asset. The outcome will be the same. Most of the subprimes had ficos they deserved. A house costs more to live in than an apartment or trailer. An interest only payment on a depreciating asset is still way more than renting. This may help a very thin band of homeowners. The publicity for the lenders and Arnold is priceless.
dryfly,
"Mostly they have be loans they hold. These are probably some of the more interesting loans too - if you follow me."
Yes, Unfortunately I do.
"And here in the Peoples Republic of Minnesota, we have sooooo much yet to learn from our comrades in the west."
Alright the friggin Governator just fired a midi gun at me. No reason to heap it on.
Cheers,
Litton Loan Servicing - loan portfolio includes approximately 300,000 mortgages worth about $40 billion. California, Florida, and Texas are its largest markets.
.....
Humm..... how many are subprime....
Re Barley @ 10:14 and the USD = 1 MX Peso.
Okay, we can all head south. But wanna bet that they'll have moved their troops off of the southern border to keep those pesky gringos in their own hole?
I think that this is a great move for lenders and for California. Arnold has effectively pre-empted attempts to force banks to forgive debt in exchange for them saying publicly that they'll try really hard to keep people in their houses. It gives lenders cover to only renegotiate loans that they would renegotiate anyway, produces lots of good feelings for the governator and produces the illusion that the state is doing something. Sounds like a good deal to me.
It feels like some folks here are angry because this is messing with their schadenfreude.
Messing with folks schadenfreude? Are you kidding me? This kind of thing ensures we got shadenfreude on tap for ten more years! They just moved the FIRST last call out a half decade!
Pour me a double and set a chaser by its side.
Well, I bet my calls I bought on Lennar soar tomorrow on this news.
Nothing like luck on occaision. Closed my short and went long.
I can hardly wait for tomorrow.
Homebuilders will pop 30% on the hint of nationwide salvation.
Oh, joy. First consumer bailout starting.
Someday this war's gonna end...
Sounds like a good deal to me. - Winston.
I lived through the farm crisis out here in the Midwest - saw the same kinds of 'efforts'. A decade later something like half the farms had gone under anyway - farm income couldn't support the prices no matter how you structured, re-structured and re-re-structured the loans.
This is the same shit, different barn yard.
Apologies to J. Geils:
(As sund by Der Governator, yah)
I could see it was a rough-cut Tuesday
Slow-motion weekdays stare me down
Foreclosure reflex got me wound
There were no defects to be found
Snap shot and it froze without a sound
Thursday morning was a cold-flash actor
So many FBs are behind
Jumbo refis hard to find
Friday night we danced the equity grind
Stop time ARMs will make things fine
(Freeze frame) freeze frame
(Freeze frame) freeze frame
(Freeze frame) freeze frame
(Freeze frame)
(Whoooo) and I freeze
Now I'm looking at a flashback Sunday
Under water feeling just won't disappear
Close up, boiler room, sweet talk in my ear
Mozilo monkey-man love for me is strong
This freeze-frame moment can't be wrong
(Freeze frame) freeze frame
They did not profit on paper. They are showing a $2 Billion loss for the qtr. That being said, The actual loss is not going to end up that big. Much of the loss is going to show write-offs for "bad loans". While some of the losses are actual and they are for properties already auctioned off, a good percentage are for properties that may not even be repossessed yet. Some of those loans may even turn around prior to the auction stage and become recvery after write off in future qtrs. Anyway, the first rate cuts by the fed are just now starting to work through the economy, which very well may mean we are at, or very near the bottom of the housing problem. Once mortgages stabilize, people will start refinancing again and those who have been waiting for the bottom to get into the housing market will start jumping in. While we probably have a good year of sideways housing markets due to the large inventory that has been created from the downturn, the fact that the end is in sight could change a lot of things in the American Economy, including the start of the $$$ rebound.
I had to post this here to funny this guy...from another board.talking about housing and fannie..he must be high..or delusional.
I really don't see the significance of this. Most of these people bought for the appreciation. They won't kill themselves to keep a depreciating asset. Also this will not restart the housing ATM. Which is a huge part of the economy and also how these people kept their houses long enough to flip them. Am I off base with this??
oops, short 100 ryl today- best cover that first thing in the morning.
I will let the calls ride though.
I can't believe it.
Time to drop the interest rates on all subprime to 7%, and all prime to 5% and recreate the S&L fiasco.
That paper is only worth 40 cents on the dollar now.
Someday this war's gonna end...
That was exactly my thought what this deal could be really about - the borrowers can occupy their house for 3 more years while paying rent to the lender, and the lenders don't have to take losses onto their books yet. Does anybody know more about how the loan balances are affected by the extended teaser rates?
ETrade closed down 19% to $3.80.
Today also marks the day my account was fully transferred to Ameritrade (drove to an Ameritrade office in person the day the "b" word appeared).
Behold the power of the strong economy.
"Homebuilders will pop 30% on the hint of nationwide salvation."
If they do, I will be short HGX with every penny to my name. This won't fly, except in the very short term. Someone, somewhere already banked the money the borrowers are being allowed to keep.
"That was exactly my thought what this deal could be really about - the borrowers can occupy their house for 3 more years while paying rent to the lender, and the lenders don't have to take losses onto their books yet. Does anybody know more about how the loan balances are affected by the extended teaser rates?"
So sadistic it seems possible... Especially when one considers who's doing the "right thing"... The guys who brought this crap main stream...
"Does anybody know more about how the loan balances are affected by the extended teaser rates?"
They don't matter. What matters is that SOMEBODY has to front the long money to refinance the loan.
What matters is that they have to front the money at rates substantially below inflation.
In other words, SOMEBODY has to HAND MONEY OVER to the home owners. For free.
That's what the problem is now. You've got a few million savers who handed over their money FOR FREE but they didn't really understand that until the past few months.
Then they started pulling their money and trying to get clear of handout game.
Am I off base with this??
I really don't know. However if the dude hoping for a gain doesn't have to pay the full cost of carrying the asset he hopes to see gain eventually, and avoid a loss at the same time... maybe he plays the game a little longer.
I'm not much of a gambler but I believe they call this a 'push'... ante's just carry over to next wager and we re-deal. For the financial industry trying like the devil to avoid a mark that's almost as good as winning the pot for now. It still keeps the dream alive that they will eventually win the pot.
Did you see Ah-nulds clip? When asked when the resets should be allowed to unfreeze he said (paraphrased) when housing values start to appreciate again... 2 years, 3 years, 5 years... when ever.
Sounds like an attempt to 'push' to me.
Joe D. Banks,
I really don't see the significance of this.
I see it as a symptom. It is the unintended consquences that concern me. If we become comfortable with rate freezes, will we soon be comfortable with price freezes?
That's so 1970s.
Hell isn't merely paved with good intentions, it is walled and roofed with them. - Aldous Huxley
Besides the question of whether this will actually slow the housing collapse, the key question seems to be whether lenders will permanently jack up their rates to account for potential government modification of their loan terms? Maybe this doesn't matter because teaser rate loans are dead? Or, does this ensure they'll stay dead? One lesson of the depression is of unintended consequences- this seems like an action that will make it even more difficult for future buyers to obtain financing.
Everything they do to fix this crap just makes another piece of crap show up. Nothing is for free and I think an unseen consequence of this is some people just throwing up their hands and mailing the keys saying fix this one to.
I suspect it's for loans currently above the rate for prime borrowers.
Pilgrim,
Great use of the "unintended consquences" theory!
CR
"means it is the shareholders taking the hit"
Probably not it might just be that the the I rate differential will go to principal..you had a rate of 4% which will continue but the reset was 9.% which will now roll forward onto the principal. It becomes a deffered interest mort.
I see it as a symptom. It is the unintended consquences that concern me. If we become comfortable with rate freezes, will we soon be comfortable with price freezes?
That's so 1970s.
People will be 'inheriting' California mortgages like they did rent controlled flats in Manhattan. Comical really.
Maybe the 'Big A' decided to bring something like this forward now in an effort to cut off an attempt at an even more insane Proposition 'X' next fall?
Who knows - its clearly theatre of the absurd California Style.
Stagflationary Mark,
"It is the unintended consquences that concern me. If we become comfortable with rate freezes, will we soon be comfortable with price freezes?"
Problem is that the price freeze in the 70"s was price increases. This is price DECLINES.
Cheers,
I just sent the Guvernator a nasty-gram. Recommend all Californians reading this list do same regarding interest rate tampering.
I know, won't matter a hill of beans, but boy.... I sure feel better, now.
reley.."Picture Japan and its 12 year grueling recession"
For years the US Govt., US bankers, US investment houses wined about how Japan would not clean up the books/banks..seems to me the shoe is now firmly attached to the American heel!
Problem is that the price freeze in the 70"s was price increases. This is price DECLINES.
Its a lot like Manhattan rent control... and we all know Manhattan is very affordable today as a result.
Freeze is just another word for halted.
The article should read,
GMAC and CFC are halted.
I imagine the article will be corrected in the very near future.
Eff it dryfly.
Hope it's something like this.
YouTube -
Cheers,
Misean,
Problem is that the price freeze in the 70"s was price increases. This is price DECLINES.
Can you say that with a straight face when you fill up your gas tank?
I'm stick to the theory that we're playing the Great Depression off against the 1970s, in hopes of interpolating two wrongs magically into a right.
Great Depression: Falling prices, dollars worth more, rising unemployment
1970s: Rising prices, dollars worth less, rising unemployment
Combination: Unstable prices, unstable dollars, rising unemployment
You people are too smart to get so worked up about this. It's only about PR, nothing real. Nothing much will come of it.
If you watched the CBS Evening News tonight with Brian Williams, you would have thought Countrywide was Jesus Christ Come Down for modifying loans to keep people in their homes. At the end of the segment, they said Countrywide had actually kept 200 American families from foreclosure! Can you imagine the national impact!
The pols and lenders have to spin it so they don't look so stupid and heartless. That's all.
crashcadia,
How about:
Freeze is just another word for nothin' left to loose.
Thanks JJ
Cheers,
I'm stick to the theory... - Me
This is my brain on economics. Any questions? D'oh!
You people are too smart to get so worked up about this. It's only about PR, nothing real. Nothing much will come of it.
I agree. Much ado about nothing.
Stagflationary Mark,
Right, I'm not necessarilly arguing with that scenario. I'm just saying, the prices you are seeing controlled are downward ones.
YouTube -
Cheers,
Good point about a certain lack of transparency about the state's resolution to partner with 4 lenders to extend current rates postponing the reset dates.
Also good point about imagining the neighborhood with abandoned houses when the resets force current owners out. Not only damaging all neighborhood house prices but also quite possibly real standards of living.
This looks to me like the lenders trade an increase of NPLs for smaller (nonresetting) future expected income streams.
A photo op for Arnold and a small gesture: a respite from agreements that appear to be defeating both lenders and mortgage holders.
But the long term solution? Nada.
rich,
Maybe, maybe not. We'll see HOW much Ahnuld puts the state behind this. But if you lived here and were a responsible person, living within or beneath your means, you might be a teensy bit upset.
Cheers,
The Chinese stock market bubble is at "full size" and the next wave of negative news could put it at risk of bursting, Morgan Stanley said.
If it does burst, the performance of Chinese companies, propped up by stock market gains, could suffer dramatically, it said.
"As the A-share market is already struggling to justify its current valuation and sentiment starts to turn sour, any potential negative news could accelerate the correction and push the snowball downhill," Morgan Stanley said in a note to clients.
It feels like some folks here are angry because this is messing with their schadenfreude. Which I wouldn't worry about, as I don't think this is going to put a dent in the coming economic meltdown(s).
And this is only about one type of mortgage in one of the 50 United States (and the District of Columbia). Admittedly a large state, but still.
Lets see how long is takes for the other states to yell "Me Too!"
Somewhere in all this, this enchilada has to have a negative effect on someone in the gravy train. Who ?
Do the negative effects outweigh the positive effects ? (assuming there are any tangible positive effects, and this is more than PR hype)
OT, and btw, JPY keeps gaining on USD.. a little more each time I glance at it.
It was unclear for how long the loan servicers would freeze the interest rates. "The word that was chosen is it's for a 'sustainable' period of time," said Mark Leyes, a spokesman for the California Department of Corporations, which oversees nondepository lending institutions. "What does that mean? The answer is, it depends. It could be two years, five years, even seven years. The idea is until the housing market recovers. At that point, housing values would be restored; equity is restored, refinancing becomes an option. But nobody knows how long that's going to be."
Governor, 4 big lenders agree on plan to stall high mortgage rates
Maybe just maybe this is an attempt to NOT recognize the lower market value of houses to avoid a deflation of taxes paid on houses! If there are no re-fis at current market values, the tax question is moot.mmm
gotta get my tinfoil hat set properly
Will this help the affordability issue much? I don't think this will make a real home of genius any more valuable or affordable.
We don't have the bubble in Colorado Springs that CA has but we have entirely to many 30000 dollar millionaires with McMansions. Average wage 43000 average house price 229000.
"As the A-share market is already struggling to justify its current valuation"
c'on 50X next years earnings is perfectly fine!
"The idea is until the housing market recovers. At that point, housing values would be restored; equity is restored, refinancing becomes an option."
Equity will be restored. Should I even bother to laugh at this?
This whole thing is yet another delay tactic that benefits the lenders by allowing them to take in more money from the mortgages until the inevitable forclosure occurs. Delaying the inevitable.
A chilling plan.
YouTube - Mr. Freeze
=========================
The word that was chosen is it's for a 'sustainable' period of time," ... "What does that mean? The answer is, it depends. It could be two years, five years, even seven years. The idea is until the housing market recovers. At that point, housing values would be restored; equity is restored, refinancing becomes an option. But nobody knows how long that's going to be."
This is really stupid, idiotic, bumbling, foolish inept. What sort of legal contract will they draw up - Something with the words - "depends" ? Then people shouldn't be surprised if at some point the response is "Whatevah".
They haven't thought this through have they ?
-K
Barley,
Get them from me. They are top quality, and guarenteed. They're rated AAA and ACA guarentees them...
CA property taxes are a bit of alchemy. Not convinced that has much to do with it.
Cheers,
Well I do think the idea that the inital low rate would be maintained for up to seven years or "whatever it takes until the market recovers" and "equity returns" is almost cruel to the borrowers. I mean, they could be paying the "low" rate of interest on a completely underwater mortgage for a big chunk of their earning years. It reminds me of poor people in the sixties who rented refrigerators or televisions because they could never get the money together to buy...because they spent all their money on rental payments for refrigerators and televisions. I guess just by the sheer magic of even modest inflation the houses might have "equity" again in nominal dollars, but given how huge the bubble was it could take a decade or so in parts of California.
Allen,
The HB stocks may soar, but no way is this good for them. I mean you can stay in the house you have but there is no way in H E double hockey sticks you can get another one. How is that good for builders?
well wont this action just further reduce any desire by any investors to lend to homeowners in the future? When I see price controls my gut tells me you only make the availability of future $$ to buy homes worse.
But then again the press release seemed to be mostly fluff and I really wonder how effective this will be.
sk,
"This is really stupid, idiotic, bumbling, foolish inept."
Let me pile on a bit, insipid, moronic, non-sequitor, filthy, deranged, despicable, destitute, egregious, irresponsible, ridiculous, unhinged, myopic, balderdash, blithering, mindless, hopeless, blundering...
Cheers,
Misean,
Tell us how you really feel about this.
Asia drifting lower..China sees red. US futures going sideways. To much indecision and for some (financials) there is some fear.
Neat!
All for now. Have a good night. btw China to trim growth forecasts (to 11-12%) and global commodities prices are structural....
This is basically what the servicers would normally do, with the benefit of free publicity on the local news and better uniformity across borrowers. There's no public money/mandate.
The press release refers specifically to owner-occupiers who got subprime resetting loans and haven't missed a payment. For a 2005 vintage 2/28, that probably means a 7.5ish teaser rate, due to reset to 12 something, right? Investors never assumed there would be a multi-year income stream at 12 percent; they figured the loan would refinance and prepay.
Some tranches typically would do better w/prepayment via foreclosure instead of a continuing payment stream at 7.5 percent, but the bulk of MBS investors? With foreclosure recoveries like we've been seeing? This is definitely a plus. The servicers clearly feel the benefits here outweigh any hit to their IO strips.
Throw in the fact that about a third of 'subprime' loans went to prime borrowers who got screwed by a mortgage broker, and I'm not too worried about the investors here, at least from the standpoint of credit risk.
The only clear losers here are the sketchy mortgage brokers who were hoping to extract more fees from desperate borrowers facing down the barrel of a reset. Seems fair.
I'll be really surprised if this applies to very many people. I don't see much downside, however.
dryfly,
Maybe the 'Big A' decided to bring something like this forward now in an effort to cut off an attempt at an even more insane Proposition 'X' next fall?
Yeah, no kidding. I think our governor is behaving similarly.
WA gov calls special session on property taxes
OLYMPIA, Wash. (AP) -- Gov. Chris Gregoire has called for a one-day special legislative session to reinstate a 1 percent property tax increase cap recently struck down by the state Supreme Court.
so correct me if i'm wrong, but since these are mostly subprime borrowers, and they mostly have 2/28 terms, won't bondholders / bond structures backed by these loans that are expecting a floating coupon of ~9% at reset be hosed (or more accurately, hosed even more?) not to mention the CDOs backed by those bonds, etc.
and i agree with the comment above about liquidity and funding; if you think it's bad now, what asset manager in their right mind will want to roll the dice on these bonds again in the future??
JD Banks,
vainglorious, non-sensical, bupkis, bullcrap, indefensible, unreasonable, inept, indefaticable, derisive, dense, derogatory, dilettante, and simply bloody stupid.
Cheers,
But then again the press release seemed to be mostly fluff and I really wonder how effective this will be.
Detail please, These usually are PR hits, nothing to even get mad at yet, more happy talk for the sheeple.
ron,
rich suggested same. And he's probably correct. But I'm not gonna loose a good opportunity to lay it on thick.
Cheers,
Here is what I don't understand (I'm not an economist, far from it)...
If they are tacking on 3%, 4% or more-- every month-- for three years, aren't they more or less dooming the State of California to the standard rate of inflation + X%?
Maybe someone can explain how this isn't taking a bad situation, deferring it, and then making it much.. much.. worse.
Let's face it, many homes purchased via "subprime" means are gonna be fixer uppers, are going to be low income or starter type homes.
Adding 3%/4% per month is going to take that 350k home and turn it into a 500k home as break even (or whatever I'm not doing the math at this hour).
They Live
We sleep.
Can someone pass me one of those tinfoil hats please? Thanks.
Misean,
Indefacitable? I'm not sure that's actually a word, but nonetheless an exemplary rant!
reading this stuff sounds like a 3rd world country being told by the IMF how, if they can reduce public services such as hospitals and schools even further, they'll be able to renegotiate their debt terms (but not have any of it written off), rather than having to face the national embarrassment of default. Except this isn't a 3rd world country, it is the american consumer.
This is a good thing. The rate freeze will not mean negative am. It means they stay paying 6.5% and their ARM doesnt go to 8.5% and then 10.5%. Those ARMs are darn near criminal anyhow.
The bond holder will be getting less interest than planned, but also less foreclosures. Seems to me the cascading effect on the swaps of a somewhat smaller cash flow should be better than the result if there was a wave of foreclosures.
This will definitely help some people who are on the margins, not every ARM holder is unable to afford current payments and 50% underwater on the home value. To point to the worst case as if it is the norm is just silly. This will definitely help marginal cases of people who can afford their current payment and owe marginally more than the current value of their house.
The magic in the plan comes over 5 years of increasing NOMINAL wages. Last I checked nominal wages were increasing at 3.9% per year. If that stays for 5 years, wages are 20% higher in nominal terms in 5 years. If wages are 20% higher DTI ratios can be calced to afford 20% more house than today.
If it slows the increase in foreclosures it is good. I have seen people here agruing that "since foreclosures will skyrocket and the market is going into the toilet anyhow, this just strings people along" Well, that is a circular argument. It supposes a bad crash and then says any efforts to avoid a bad crash are worthless.
This seems to me like a simple agreement to do workouts to avoid foreclosure which is darned near standard servicing from that I can tell from Tanta's posts. If you have a 30 year mortgage, you still win if your neighbor is not foreclosed - so there is a common interest.
I am suprised that some brilliant public servant has not suggested that distressed home owners be allowed to pay principal and forgo interest for some period of the loan. While the loan holder eats it.
If you have a 30 year mortgage, you still win if your neighbor is not foreclosed - so there is a common interest.
And if you are of late house-formation age and sat out the insanity of the last five years due to your realization that it was an unsustainable cluster-f**k?
shrug
I've learned my lesson. Ramp every mania and only exit when the signs are obvious that it is ending. Even if you get caught, if the mania is big enough, daddy govt will come to the rescue.
God I wish I could act on that realization.
Cheers,
prat
The HB stocks may soar, but no way is this good for them. I mean you can stay in the house you have but there is no way in H E double hockey sticks you can get another one. How is that good for builders?
Journeyman | 11.20.07 - 11:51 pm | #
well wont this action just further reduce any desire by any investors to lend to homeowners in the future? When I see price controls my gut tells me you only make the availability of future $$ to buy homes worse.
But then again the press release seemed to be mostly fluff and I really wonder how effective this will be.
Cal House Bear | 11.20.07 - 11:51 pm | #
Ditto to both these posts. Add in the recent results from Freddie and Fannie, and who in their right mind would lend to American home buyers?
So... 5 more years of renting in this bubble? My wife is gonna be pissed...not that I really want an overpriced home anyway.
So is the teaser rate 8% or 3%? Because if the mortgage holders have to "suffer" with an 8% return that doesn't strike me as such a grave outcome.
Plus, at least this solution avoids having to document their income (which is a whole 'nother issue).
Anecdotal: Talking to friend who has a friend with a hubby in landscape biz. Raking in the cash, gets free health insurance for the kids, subsidized health insurance for the adults and now they're building a new house.
It is a mystery to me why the IRS doesn't use mortgage interest deductions as an audit trigger (or any transactions related to home purchases). It's really pretty much impossible to live your financial life under the table despite people's impressions to the contrary.
who will pay the investors if ARMS are not adjusted..already, the sliced & diced securities have been traded,sold & profited from ...
so someone else has to take the shaft and that's fine if they are wall street bankers...in any case, principle owed will zooom..
Hmm dunno if that wait will be all that long for the kids hoping for a stock market lump of coal...at least by this morning's futures down around 1%, the 10 year kncoking on the three handle door and the yen is at 108.5...let's see how the 'shop til you drop' story turns out for Black (Bleak?) Friday.
Keep hanging onto that job number and clicking your heels together O Joe!
Anyone who believes this is for the benefit of homeowners is delusional. They are just a side beneficiary.
This doesn't help house prices. All it does is allow some FBs to continue to make payments on an overpriced house.
Nothing can stop a decline in housing prices: record inventory, 6.5% interest rates, and tightening loan standards.
Looks good on paper and the idiots that have no clue what's going on will like it. It's all about the votes. The companies will get good PR too, since they are so hated right now.
This will blow up in no time. The companies involved should be asking themselves where their revenues will come, instead of taking more looses. Like they can afford it.
So countrywide has a bunch of neg-am loans that are going to go bad. As soon as they do they will have to back out the neg-am accruals that they have been booking as profit and take a hit on the REO. With the rate freeze they can go on booking the neg-am accruals as profit and avoid taking the REO hit. Since countrywide would already be bankrupt if their assets were marked-to-market this buys them time for some miracle to occur.
Remember the story of the thief, the emir and his horse:
I thief was brought before the emir having been caught in the act. The emir sentenced him to death. While being dragged away the thief cried out, "Give me a year and I will teach your horse to sing hymns!" Everyone in the court scoffed but the thief was given a chance to make good on his boast. Every day he would be taken out to the courtyard and would sing to the emir's favorite horse. The other prisoners laughed and said, "You will never get that horse to sing." The thief shrugged and said, "Perhaps, but I have a year and who knows what will happen in a year. The emir might die, the horse might die, and perhaps the horse will learn to sing."
The article states that these lenders only represent about a quarter of the value of high risk mortgages in CA. Let's hope the others don't follow suit.
My reading of the Reuters is that this agreement is not going have much effect.
The four lenders service more than a quarter of issued subprime mortgages, financing that allowed borrowers with little in the bank to buy homes during the recent housing boom.
The four may have issued a quarter of the mortgages but there no indication of how many they still hold. It would be stupid of issuers to modify loans contrary to their servicing contracts as the investors who bought them would sue them. An agreement with government is zero legal protection in a contract dispute.
an agreement ... that will allow their mortgage borrowers in California to continue paying loans at initial rates if they live in their homes and make payments on time but are unlikely to afford higher payments when their mortgage interest rates reset.
Notice it says continue paying at the initial interest rates. Sounds to me like loans will negatively amortize and the actual interest rate is not changing.
If you are a California resident, and appalled at the decision to protect the imprudent and punish everyone else, why not share your thoughts in a little note to the Governator? Paste this link into your browser (Governor Arnold Schwarzenegger - Interact.
maybe the governments can start paying on the mortgage as well....where does a person sign up??