Egan-Jones Ratings Co., a credit researcher, estimates that MBIA will need to raise more than $4 billion, managing director Sean Egan said. That compares with the company's market capitalization of $3.4 billion.
It's Moody's firing a warning shot saying `you have two weeks, so do something,''' said Paul Berliner, a trader at Schottenfeld Group, which manages $100 million in New York.The drama behind MBIA and Ambac should be the most important focus for the entire financial sector right now. Everyone should be on the edge of their seats wondering how this plays out.''
Credit-default swaps tied to MBIA's bonds climbed to the highest in two weeks after the announcement, widening to 480 basis points from 400 basis points earlier today, according to broker Phoenix Partners Group in New York.
The contracts, used to speculate on a company's ability to repay its debt or hedge against the risk it won't, rise as investor confidence falls. A basis point on a contract protecting $10 million in bonds from default for five years is equivalent to $1,000 a year.
Bondholders may lose about $9 billion on municipal bonds if the insurers falter, according to data compiled by Bloomberg and Lehman Brothers Holdings Inc. indexes. More than $30 billion would disappear from the value of CDOs held by banks, based on the values that Citigroup Inc. and Merrill Lynch & Co. assigned to their holdings in the past month. Another $150 billion may evaporate from bonds backed by home-equity lines of credit and other mortgages and loans, according to investors and traders.
If your mortgage was originated between June 5, 2005 and October 17, 2006, and your rate is between 5.45% and 7.24%, and your middle name is "Oscar", and you have more than 59% equity, and your rate is set to reset up to three days before your ex-wife's 47th birthday, you may be eligible for a freeze, if you fill out form BRX-765-01-01-01-01-000Z and hand-deliver to the side door of the Federal Reserve Bank of San Francisco, Omaha branch office.
The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.
The same Bloomberg article says 30% of subprime loans are already delinquent, so no help there.
The same article says, "These mortgages usually begin with a rate of 7 percent to 9 percent and then reset to between 11 percent and 13 percent. ``What we are talking about is having these loans modified, so they continue for a longer period of time at the starter rate,'' John Reich, director of the Office of Thrift Supervision, said in an interview in Washington Dec. 3."
So who could even afford the median house at 7-9%?
I wonder when my subprime investment HELOC will accept 50 cents on the dollar to recover something rather than pray I continue to pay.
This could get very interesting in the race to liquidity that is occuring in the financial system.
The freeze is indeed a band-aid.
By not providing any incentive to folks who bought investment properties, they are still causing a tremendous amount of houses to end up in foreclosure land. This will be facinating to watch.
Hey, if the house buying investors get burned, they are going to burn all of those bondholders big time.
Mods and offers to mod should be flying- how about this- reassemble a CDO tranche for 30 cents on the dollar, send letters to the performing offering to settle their balances for 50 to 60 cents on the dollar, and then work out the delinquent on a similar basis. Double your money, easy and cramdown accomplished.
Essentially, the market is haircutting the morons who bought this toxic waste, and if they don't essentially start kicking back to the homeowners some of that haircut, the homeowners are going to jinglemail them. All of the HELOC stuff from the last several years over 70% of the current zillow value should be treated like this.
So we reward borrowers, but only if they stay with the property or can find financing to cover balance.
Democratic Senator Hillary Clinton of New York, a candidate for her party's presidential nomination, reiterated today her support for a five-year freeze. Speaking at New York's Nasdaq stock exchange, she said "Wall Street helped create the foreclosure crisis, and Wall Street needs to help us solve it."
Who is "us", I wonder?
I have noticed that President-elect Clinton has a disturbing tendency to speak in the first-person plural. (I preferred Bob Dole's third-person singular.)
I made all my payments on my loan with...can I get the rate that was offered as a TEASER at the time I took out my loan instead of the 5.5% I have now??
Let me guess - this fits the profile of the shit pile currently held by WM and CFC??? -Crispy&Cole
Originated by, would be my guess. If the loans don't default, and the industry/government has come to an "agreement", then there won't be the large number of putbacks essentially bankrupting WM and CFC?
"Although the administration is finally giving the foreclosure crisis the attention it deserves, it seems that President Bush is going to give struggling homeowners far less than they need," Hillary Rodham Clinton
Hey you smart people - is a heavy buy of Etrade a bad idea? The way I see it, it's either going bankrupt or it will bounce back to $20+ early next year. Book is almost $10.
It's 1990 and welcome to Japan! This plan is a disaster waiting to happen. Japan failed to clear it's bad loans and it resulted in "The Lost Decade" with plenty of zombie companies making matters worse. So now we'll have some zombie consumers tying up bank capital.
Yes, some borrowers were lied to by shady mortgage brokers but some also borrowed when they shouldn't have. Don't cry over spilt milk when you lose money at a casino. Why do I rent when I could have doubled down?
Look, all those who want a recession....this is good news.
I doubt the plan is gonna save more money for the lenders than whatever workout program they would have done on their own...otherwise they'd just do it anyway.
Second, even if alot of homeowners get "saved", I doubt their mortgage payment will be less than the rent they would pay if they were forced out....so their spending money will be impaired for years which is what will really affect the economy in the long run.
Finally, there will be plenty of forclosures even with the plan to drive prices down anyway.....
So for all you hoping for a recession..this is a "win-win" plan.
Paulson said in his speech that the government is focused on helping subprime borrowers who can afford the introductory mortgage rate but not the adjusted one. The plan "does not, and will not, include spending taxpayer money on funding or subsidies for industry participants or homeowners," he said.
Great! So whose money does it spend, exactly?
OK I'm done. Now I'll just wait to hear the highly technical details of tearing up the contract law that forms the underpinning of civilized society. Democracy + demagoguery = mob rule, here we come
Has anybody else noticed how Hillary Clinton's campaign platform seems to consist entirely of making excuses for backing Republican plans, and then saying she'll do even more?
Then Paulson added the bit about changing the law so state and local governments could issue bonds to refinance the homes...the real bailout for Wall Street?
Not a taxpayer penny for the 'teaser freezer' but the real deal buried in the background?
I'm a little confused. How does this help $hitpile holders like WM and CFC? Aren't they expecting revenue stream from the resets starting next year? If the Govt freezes rates, then isn't that revenue gone?
I guess it's probably better than a whole crapload of foreclosures... Maybe that's the angle. Also maybe screws some of the less connected competition?
Borrowers whose credit scores are below 660 out of a possible 850 and haven't risen by 10 percent since the loan was issued will be given priority.
This is beyond all belief - the folks least likely to survive are "bailed out" temporarily - and nothing for the folks who had a better higher score, or who improved their credit record? The whole thing is nuts, but this part in particular is totally f'ing insane!
I am sitting with a large downpayment, waiting for house prices to drop, hoping to pay cash for my next house. How much of a delay does this put into my plans?
Follow on question: How can someone in my position game the system to get a piece of this cut-rate financing for "innocent victims" of the housing boom?
I have seen mention of this in several places, how does the frozen rate translate in this scenario? Borrower-->> -->>Lender-->>IB-->>investor-->>us????
I recall there was a recent case in Ohio where the judge asked for documentation on who actually held the mortgage in a foreclosure proceeding, where the mortgage had been packaged as a security. Do not we have the same problem with who is getting the paid the frozen mortgage rate? Does not this rate freeze bring the certain death of the creation of securities based on ARMs. Maybe these securities where already nearly "priceless" i.e. have no price, but now there is no security as to how much these securities are worth if the government steps in and freezes rates for five years. How does this rate freeze help the system, except to delay some foreclosures, which might stop a thunderous crash to the bottom? How many of these ARMs are performing OK and now they will be taking in less money.
Always go with the herd, otherwise you may be stampeded with little to show but hoof prints on your back and dirt in your teeth.
Then Paulson added the bit about changing the law so state and local governments could issue bonds to refinance the homes...the real bailout for Wall Street?
Yeah, I read something about that, but I don't even understand what it means. Are we talking about localities themselves taking over the toxic mortgages? Why the heck would they want to do that?
It seems to me there is just a huge amount of stuff (from houses to land to derivatives thereof) which are being carried on balance sheets (from personal to corporate to financial) at far above their intrinsic value. So recognizing major losses is inevitable; all you can do in the meantime is try to shuffle them around.
But nobody is going to be the recipient of such shuffling voluntarily. That includes local governments... You either have to trick somebody, or you have to force it on them by legislative fiat. I'm not even sure which this is.
Cameras would only be permitted in the technical briefing if it was set up like the FEMA "press conference." Since the press is apparently actually invited to this one, they don't want any pesky cameras around as they divulge the details and get asked common sense questions (like how they are going to determine who can, and who cannot, afford the reset without doing so on a case-by-case basis).
Lenin , Fidel Castro and Hugo Chavez couldn't come up with a more communist worker party design than this. I wonder if there were any tape recorders during this arm twisting exercise to crunch out a POS plan.
This should piss everyone in the country off.
How many people will this bailout encompass. Any estimates?
If I had an ARM loan and negative equity I would stop paying right away. These gamblers and freeloaders scammed the system once. What makes anyone think they won't do it again?
Are we talking about localities themselves taking over the toxic
mortgages? Why the heck would they want to do that?
The localities (states, counties, cities) already own these toxic mortgages.
So this is really about issuing bonds against the tax payers to finance the same tax payers, while allowing the original deal's middleman an exit strategy.
This will not be enough due to 'popular' demand (if you know what I mean)-- thus, Hope Now Part II will be the gov't-backed Bush/Paulson Foreclosure Freeze.
I can't imagine (OK, I guess I can, since govt does some awfully stupid things) that local govts are going to want to jump into issuing bonds to help foreclosures. They tried it in Ohio, and last I heard they didn't do too much (too many that couldn't be helped). With local and state govts knowing that their tax receipts are coming in below projections, I doubt that they will want to add the costs of this type of program when they are already looking for ways to cut expenditures. At least, I hope they won't do it (assuming that the law was even passed to allow it).
With regard to local government financing this. A lot of mayors etc. in hard hit areas are complaining about how the abandoned homes, are costing them in reduced tax revenue and increased need for police etc. because of people stealing stuff from the homes etc. So this is again part of the current DC modus operandi, which is to screw up things horrendously at the national level and then let the state and local governments pay for it. State and local governments will be hit first by the economic downturn and this will just slow it a bit and drag things out.
This whole thing is going to take until march 2009 at this rate, and these yoyos are going to look like the bright lights of the cess pool cleaning industry.
There will be no solution until a giant fund back by social security is set up;-}
Have to get the privatize social security thingee in there!
I read something on the Internet (so it must be true) that the combined state programs to date (in some 4 or 5 states) had helped a sum total of about 100 borrowers...
The most important question is even simpler: Who wins, who loses, and how much? (If they insult your intelligence by claiming it's a "win/win", the follow-up is: Then how come government needs to get involved?)
"Follow the money" is always the first rule of analysis.
In preparation for tomorrow's announcements, anybody got template contracts that detail MBS and CDO insurance.
All I see is that they say unconditional guarantee ( yeah, right ) in their brochures and I've read people commenting that the insurance is not just against default but also "CHANGE OF TERMS".
Now this definitely counts as change of terms, no ?
Reading brokers outpost, there is a very muted/cynical reaction to the plan.
The usual points are getting brought up: many of those who might be protected under this plan could refi anyway, and, who is going to do all the documentation, and, it is easy (too easy?) to show you have insufficient income to withstand a reset but if you show it, how do you not get in trouble for over-stating your income during the mortgage application process?
Since brokers benefit from re-fi business I suppose they might be anti any plan that reduces the re-fi activity. On the other hand, they should be for any plan that stops the housing slump.
The one thing I will carry away from all this is that it's clearly not enough to be responsible by yourself. If society becomes sufficiently irresponsible, then you are just missing out the party as the designated driver, and you have to pay for gas, insurance, and the vomit cleanup bills.
my naive guess is that this is all about the swaps... the amount of money outstanding for the mortgages on these properties is nothing when compared to the swaps written against them..
So, even if they can't figure out how to minimize lawsuits by people who were expecting payments from interest rate resets... it'll be way cheaper to pay a settlement in court (even if the loss amount was slightly more than they would've lost by letting the rates reset and having foreclosures roll in).. since that would not affect the swap contract.
(Unless some smartypants anticipated this trick.. and figured out a way to guard against it when writing the swap agreement.)
Here is a thought, I wonder how voter participation and homeowner leverage correlate?
What I am getting at is who are the responsible types who are going to get pissed about this and if they tend to be the fraction of the population who not only register but also actually go vote...this could play in interesting ways as the details become clear.
"...
The number of households filing for bankruptcy in November increased to 28 percent over the same month last year.
However, the number of consumer bankruptcies in November actually decreased by 5.5% from October.
In November, 39.5 percent of the 71,799 consumer bankruptcy filings were made under federal Chapter 13, which protects bankrupt individuals from losing their homes in foreclosure."
I wonder if Paulson gave Goldman the heads up so they can cover their subprime related shorts. Funny how this plan came out AFTER the investment banks closed their books for their fiscal year ended.
The interpersonal complexity necessary to make this happen has my head spinning. Identify Joe6P, get him in the office, get him to document income, modify his loan, etc. Between appointments take phone calls from irate borrowers who don't qualify and/or have waited until the last minute to find out if they do.
There is a point past where people down the food chain can't be pushed to make things happen. It's one thing to get a mortgage broker to execute a questionable loan when it means a huge commission (and everyone is in a good mood), it's quite another to ask a 35K loan servicer to do that when everyone's terrified.
"Hey you smart people - is a heavy buy of Etrade a bad idea? The way I see it, it's either going bankrupt or it will bounce back to $20+ early next year. Book is almost $10."
Is the book almost $10 if they still have a load of no-doc mortgages? How do you know what their book value is, really?
They made a big deal of how they managed to attract back 10% of customers who fled them after the citadel buy, but I reckon they're still losing customers, until there is no doubt their mortgage portfolio is properly valued. If they can't mark it fully to market without wiping out their equity, they are going to continue the smokescreen and continue to lose customers. I'm not an elite trader but I also have a problem with them routing a chunk of their order flow through citadel instead of the best market maker. That seems to me to be selling your customer base out. And to a fscking hedge fund as well. Switching to Ameritrade isn't hard, just need to find a spare few hours to do it. I'm not seeing how they can hold onto their customer base here.
Crispy, That's a really good question. I wonder if the Chinese are interested in losing all that money they earned fair and square selling us things (much of it crap, but the question rests).
Some random observations on what we know of Hope Now:
-The 2/28's in the '05 vintage will have already reset, leaving only the 3/27's. I'm guessing 2/28's are two thirds, at least, of subprime ARM's.
-No matter what "lender representatives" say, investors will sue barring legislation exempting the servicers from liability.
-The plan favors the riskiest tranches, as the pools will receive, net/net, interest for longer.
-The plan hurts AAA tranches, as they would do better under foreclosure/recovery, ESPECIALLY if home prices continue to decline.
-We still haven't heard how DTI's or CLTV's fit into the criteria. Will the exclude the lower DTI's (i.e. the people that can pay)? What will they do about stated income? Will they mod people with no skin in the game (100% CLTV)?
Gross has been predicting 3% interest rates for years. He runs a bond fund. So when he predicts interest rates falling, it's like a mutual fund manager predicting stocks will go up.
Unfortunately this is only the "first" step. The administration will eventually help ALL ARM borrowers if necessary. See whatAndrew Gray (FDIC spokesman)said:
"There'll be other opportunities to help some of the other ARM borrowers," said Gray. "With the big numbers out of the way, the focus can be on the other categories of borrowers."
I can make my 4% rate but the reset will be 30% more on my.....$500,000 mortgage.
My FICO stinks so I "qualify" here?
a) Why should I qualify just because my FICO stinks...I spend too much?
b) Why shouldn't I STILL walk if the house is down to $350,000 in value?
Moreover, shouldn't the effort be aimed at people with relatively low incomes? Someone making a healthy income, overleveraged on some McMansion, gets a HUGE break only because their FICO stinks? Doesn't this simply reward every wanton spendthrift?
As mentioned above, very few are taking advantage of the workouts already being offered. Why is that? I think most who have gotten themselves into this jam know the jig is up. They got in expecting a riskless windfall and, once faced with a certain loss, will not have the will or the character to bother investigating any program that does not provide them something in the way of some other version of a "windfall".
Sure, we can all see this is a "great" deal from our perspective but from the perspective of someone who expected a home run, this isn't even a walk. Maybe a hit batter but not much to speak of when your investment dream is shattered.
Here's a "waterfall" of exclusions to the Hope Now plan, using very rough estimates:
-take out non ARM: 20% of sp
-take out already-reset '05 2/28's: 2/3 of '05 ARM's, or about 20% of the total.
-take out >660 FICO from the remaining ARM's: about 18% of the total.
-take out >60 day delinquents on the remainder: about 15% of the total.
That's about 73% of the relevant vintages, leaving 27% available to mod.
Then layer in whatever DTI/CLTV criteria they might have.
This announcement is how many days away from Christmas? Lets go Martha we can spend, spend and not worry about our mortgage. Yippie!
The Governments are the will of the people. So, we are all responsible. Remember it is private profits and social risks. Add this to the debt pile and watch the dollar sink further. Geezz!
Does that mean that the interest that is foregone from a reset kicking in is added back in to the loan amount for a reset five years from now -- in which case there is a bigger reset shock than there would be now? Or are the servicers just forgoing the higher interest for the next five years?
If so, that means we just have an even bigger shock coming five years from now. Is that correct? Guess I may have to wait for Tanta's analysis after the release.
What message does this send to someone who remained in a rental appartment rather than join in on this insanity? This will reward stupidity and punish thosewho used a little common sense.
One problem of a credit market collapse is that the squeaky wheel gets the grease. And the squeaky wheel begging for a bailout now is mortgages, not municipal bond insurance. Although the collapse of muni bond insurance is not getting much ink, it's more threatening to financial markets in my opinion.
Moody's seems backed into a corner to downgrade MBIA and other insurers. On the day MBIA is downgraded even one notch, even if not before, the lower tier of the insured revenue bond market will be cut loose to free fall in value, much as CDOs have fallen. 60% of muni bonds are owned by individuals (either in funds or outright) so it will hurt on Wall Street.
MBIA is constrained to raise new capital not only because of its massive liablities but also because its business model going forward is broken. To rate an AAA, MBIA would have to significantly beef up its underwriting (especially for revenue bonds), which would narrow its market, and it would have to charge substantially higher premiums. In that case, it's a much smaller and less profitable company.
Paulson has his blinders on and he will ignore the bond insurance crisis until it's too late. If you own insured revenue bonds or funds that hold them, GET OUT NOW!
LONDON (AFP) The British government has prepared emergency legislation to nationalise the distressed Northern Rock bank if a rescue falls through, a newspaper report said Wednesday.
Is the 'teaser freezer' plan basically a blocker or stall while appearing to do something?
I shall eschew my usual rant over the creeping socialism inherent in a government that didn't even consider the two Constitutional questions before leaping to meddle.
Two seemingly contradictory answers float to the top of this cesspool. 1. Yes, this will have the effect of stalling and exacerbating the mortgage unwind. 2. No, this will not have much actual impact beyond that. the latter falls under the aegis of one of our greatest political minds; "Thank God we don't get all the government we pay for."
Tough, I'm gonna rant anyway. Government is supposed to ask thre questions in order;
Can we do something?
Should we do something?
What should we do?
It really pisses me off that the first two mandatory questions are no longer even remembered.
Has anybody else noticed how Hillary Clinton's campaign platform seems to consist entirely of making excuses for backing Republican plans, and then saying she'll do even more?
Maybe because the current Republican President is of the former Democrat persuasion (neo-conservatives are former Democrats)? Hillary is more of a socialist than Bush but they both are pretty close.
This HopeNow program will be such a raging mission-accomplished success that the administration will begin work right away to fix all the other outstanding loans.
The more you spend that you can't repay, the more you deserve to be rewarded. Go out and buy that boat, new car and Harley you had your eye on. Hope is on the way.
UBS/Barclays (via Blbg): Only 12% of sp borrowers in California would qualify for rate freeze. Moreover: no hope for subprime RMBS repackaged into low-rated CDOs accounting for about half of the $650bn of the asset-backed-bond CDO market
This HopeNow program will be such a raging mission-accomplished success that the administration will begin work right away to fix all the other outstanding loans.
Does HeliBen have enough fleets of helicopters to fight three simultaneous wars? How's that working for the military? While HopeNow isn't allowing people to comment my new site NoHopNow does.
You said, "I'm not an elite trader but I also have a problem with them routing a chunk of their order flow through citadel instead of the best market maker. That seems to me to be selling your customer base out. And to a fscking hedge fund as well. Switching to Ameritrade isn't hard, just need to find a spare few hours to do it. I'm not seeing how they can hold onto their customer base here.
Who do you think Ameritrade routes their orders to??
All of these discount brokers typically utilize the services of a third party "smart router" which is supposed to send orders so that "best execution" is obtained for the majority of orders not all orders. Can you define "best execution"??
Is it best price? Fastest execution speed? Some combo of both? Could it mean sending orders to someone in exchange for payment which may be used to "help investors since we can charge lower commissions??"
Take a look at any discount brokers routing practices - you might be surprised at what you find....
this is going to be a very long battle, they need to stabilize the fixed income markets.
Look at the big picture and forget all of the garbage, the little stuff will just make you angry.
If you want to get angry, focus on the inept fiduciaries running the pension plans across the country exposed to this bullshit. Many of which wouldn't know a bowling ball from a hand grenade.
hey, i need to hear that home prices will keep on going down fast, even though Hope showed up. Could you please tell me that is what is going to happen? i'll sleep better if so...
I would like to add this about muni bond insurance. For 35 years, this business has been as close to spinning lead into gold as it gets. Nothing has blemished it.
So, for it to go from gold to garbage in a few months would be stunning, a real wake-up call.
I believe today's stock market is stupid. It's stupid in believing simultaneously in a benign soft landing and sustained Fed rates cuts that will act immediately to turn desperate things around. And it's stupid in ignoring the cadence of negative news and loss of confidence in financial markets. Stocks are part of financial markets, you know.
When the wake-up call comes, the weakest segments of the stock market will fall faster than the weakest segments of the bond market, as always. The weakest segments are garbage little companies with negative or inflated earnings, REITs and emerging markets.
If you try to time the wake-up call, you may be right or you may be just as stupid as the stock market. If you really believe today's market is stupid, don't try to time it. Buy and hold weakness.
What about hillary's plan to "give" people homes. She wants to create a fund to pay for all homeowners.
The main point of her conversation on CNBC at 3:00 was:
It's not the time to scrutinize each mortgage. All people benefit from saving real estate prices from falling. The gov't should set up a fund to save homeowners.
Is there a more proven platform upon which to launch a massive assault on the productive/non-stupid?
This is attempted pillage on a grand scale.
But the rich people on the receiving end of those ARM-related payment flows will not accept the theft of their increased flow of $. Their lawyers will make quick work of this.
The White House will have "tried to fix it, except for those doggone lawyers".
Even if this attempted robbery succeeds, the rich people who funded the last round of suicide loans will not participate in the next round.
Either way, housing is so toast.
Q: Hypothetically, if this plan succeeds, would it actually keep housing values aloft?
I was trying so friggin hard to like Hillary, but her pronouncements on the RE market are enough to make we want to throw her into a ditch and have a sand filled mack truck tip over on her. It's really gad awful painful to listen to this idiotic claptrap.
Kett82 said: "Ok...A 30-year fixed-rate loan can still be had for around 5.85% and they are freezing these at 7 to 9%?"
Yeah, I've been checking out rates, too, both where I live and in the "bad" regions. Being "bailed out" by a freeze on interest rates so far above the market doesn't seem like such a great deal to me.
Thinking like a criminal for a moment, things look a little different. Short-term rates are pretty soft, so the cost of funds for lenders actually looks lower than it was when so many of these loans were originated.
Freezing those high rates when lenders can now get money even cheaper, making more on the spread? Who benefits from a situation like that?
Homeowners, of course. I know it's true because I saw it on television.
Kohn said the Fed was "not going to hold the economy hostage to teach a small segment of the population a lesson."
So, tell me, just what does teach the small segment of the population a lesson? Seriously, how can the American public protect itself from harm if it never feels the pain.
Another thing I'm sick of hearing from politicians in particular is this nonsense about "Keeping people in their homes".
That is total bullshit. These "people" never really owned anything but a 100%+ note to pay on a lender owned home. I want the true owners to get to keep the homes they had professionally appraised and paid for.
This ain't got jack to do with saving no homeowners ass, this is about saving banks and the politicians who stood by and allowed this cluster to happen.
Everyone of those bastadges needs to be taken out and shot.
The freeze cannot work. Let me try a couple of scenarios here.
Mr. Freeze stops a reset on a mortgage that is neg-am, or interest only. Unless the loan is rewritten such that the teaser rate is calculated as THE rate and is fully ammortized, then when the defrost button is pushed on the giant microwave in the sky, the reset will cause the freshly thawed meat (homedebtors) heart attacks.
If it locks rates on a subslime ARM, and the house isn't upside down, then why wouldn't the homedebtor get a fixed thirty refi...fear of fraud allegations? And if that is the case, jingle mail is the only option.
If it locks rates on those that are upside down, given that rents are lower than there mortgage and other asundries, why not jingle mail?
This completely ignores the fact that the actual owners of these mortgages will sue the servicer's in droves. Anyone who thinks Congang can alter contract terms after the fact is a bit daft. There's a whole lot of case law, and statuatory and Con law, and contract law, about bills of attainder and "changing the rules after the fact".
You can slap some wings on this pig, but when you push it off a cliff it's going to do a Wile E. Coyote.
"Did today not just make your head want to explode Barely"
I'm really pissed off at how the sense of entitlement has consumed this country from top to bottom. There is no risk. Everything gets bailed out eventually. It's communist America.
I can't bring myself to go long and going short is impossible against all these forces.
This plan really does nothing. All those who bought since 2005 and had low FICO scores will be renters in 5 years anyway (except for those who's financial fortunes change). It's a short term subsidized rent that spreads increased supply over five years. Assuming home prices do not increase in the next 3-4 years most all of these people will be out of their houses. Instead of being out when the rate resets and having the home priced at FMV on a bank sale, they get to "rent" for a few years and when the program is up or they are forced to move their upside down anyway and have to walk away from the home.
What's interesting is that there is no complaining from the bondholders who's cash flow has been reduced. Why? Because the bondholders are grandma and grandpa in Iowa who have pension money invested in this sh#@$@#$%t - they don't even know they are being screwed. But they're screwed whether their bond cash flow drops in half or the underlying asset is sold for .50 on the dollar.
So I've been keeping my friends abreast of the daily happenings in the housing bubble for over a year now via a mass email. For the most part I received a collective yawn as a response. But today was different. Judging by the shocked and appalled responses, I think today just woke a few people up.
Now I'm scared. I just used a "when pigs fly" analogy, and then I read this from Sebastian,
"Thinking like a criminal for a moment, things look a little different. Short-term rates are pretty soft, so the cost of funds for lenders actually looks lower than it was when so many of these loans were originated.
Freezing those high rates when lenders can now get money even cheaper, making more on the spread? Who benefits from a situation like that?
Homeowners, of course. I know it's true because I saw it on television.:)"
I need to put a few more layers on the Super Colander.
The portion of this "plan" that depends on funding by local and state governments is never going to happen. Of the top 5 overpriced states (CA, NV, AZ, FL, NJ) which is going to be able to issue enough bonds to make a difference? Maybe, just maybe, NJ could - as long as the Wall Street bonus stream doesn't evaporate, which it probably will. Local tax revenues are highly dependent on property taxes, so no hope there either. This part, at least, strikes me as DOA.
1) Your home is worth $150,000 and we'll keep the rates the same at 7% on your $175,000 mortgage. So you can pay around $1,200 a month to stay in your home
2) You can rent the same home down the street for $800 a month
Someones gonna have to do some good sales work to make this fly
I just read your post - your right. This is a plan to stop people from renting and instead pay 7% when short term rates are low. Great deal for the lenders - screw'em on the way in and screw'em on the way out
This nonsense is beyond the pale. I've saved, been responsible, lived below my means to improve my long term position, and I get to be used as a mop for the irresponsibles' mess.
This is why communism/socialism ultimately fail. People like me give up trying. When there's no benefit to being prudent, why bother.
They might make this whole thing work out, IF they hire BB. A little light hearted humor for the night:
If the gov. really wanted to help these people, and society as a whole, they'd just allow these homedebtors to walk and the market to crash hard and fast.
In a couple years these people could buy again at a price they could actually afford and neighborhoods could become whole again.
Anybody got a list of names of politicians who think that home prices at 2 X income is a healthy idea? Are there any out there?
"This plan really does nothing. All those who bought since 2005 and had low FICO scores will be renters in 5 years anyway"
Are you kidding? This is only the tip of the iceberg. And it's an election year to boot. "Vote for me and you can have a 6 bedroom mansion for $350/mo".
"Doesn't this simply reward every wanton spendthrift?"
Your Uncle Sam is lately a "wanton spendthrift".
He feels their pain, and everyone who is not leveraged is a fool as Helicopter Ben grabs the controls and inflates the currency to bail out the wanton spendthrifts
So, we're Venezuela now! How is this BS any different than their government stepping in and nationalizing the oil companies over there? In both cases, the government has decided it can change written, legal contracts on a whim to benefit various corrupt organizations. So, we're now using 3rd world nation style legal agreements, where people keep their obligations only so long as it is easy for them.
If this goes through, if I were a foreign investor, I'd dump every chunk of investments in this nation and be putting my money someplace else.
this is not an attempt to save borrowers but an attempt to save a total collapse in our economy. the idea is to keep f'd borrowers at least paying something. If everybody jingled mailed their keys,....it be like throwing a brick into a jet engine,....boom goes our economy!
Energy at all time highs, inflation getting out of control, and housing utterly collapsing so bad the Gov't is interseding! Don't miss the forest despite the trees, this is bad!
The dollar has lost it's credibility but too many other countries are still too dependant on it's past strength and the out of control consumption of our country. I am hoping this will help as other countries are forced to cut rates in line with us and pay attention to our spiral down. I still believe if we cough others get a cold, hopefully?
So, instead of throwing a brick into the jet engine, they'll just jetison all the fuel and turn the plane's nose straight into the ground?
Yes, things are bad. However, revoking contract law in a style that would make Hugo Chavez proud doesn't seem to be a solution. Foreign investors, upon which this ever-consuming nation depends, will flee from the US investment world with this type of nonsense going on.
I'd sooner have the brick in the engine - you lose the engine, but maybe the plane can be glided to safety. But by doing this, there's no way out for anyone.
There are so many more real issues that they seem to not want to face.
At the end of the day we need the Real Estate Market to correct itself. In many areas the Real Estate is wayyy over valued. We all know this!! So how in the world will the prices get to a point where buyers can really obtain a mortgage through conventional methods successfully??
And most importantly, how will these buyers afford to refinance to a traditional 30 year fixed after 3-5 years of this freeze? They will still be stuck! Either the value will drop and they will owe much more than the homes are worth. Especially with the freeze! How much of the premiums are really being paid during this time? The other scenario is lets say the values remains constant, how are they going to afford the higher payment of a traditional mortgage anyway?
How much lower can the interest rates get after this freeze to allow these same people to afford a traditional mortgage? These interest only rates and teaser rates can't be beat!!!
Everyone needs to just bite the bullet. Let it all correct itself. Recover. And move on!!!
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Too big to fail or too big to bail?
MBIA Shares Drop After Moody's Says Capital in Doubt (Update5)
[snip]
$4 Billion
Egan-Jones Ratings Co., a credit researcher, estimates that MBIA will need to raise more than $4 billion, managing director Sean Egan said. That compares with the company's market capitalization of $3.4 billion.
It's Moody's firing a warning shot saying `you have two weeks, so do something,''' said Paul Berliner, a trader at Schottenfeld Group, which manages $100 million in New York.The drama behind MBIA and Ambac should be the most important focus for the entire financial sector right now. Everyone should be on the edge of their seats wondering how this plays out.''
Credit-default swaps tied to MBIA's bonds climbed to the highest in two weeks after the announcement, widening to 480 basis points from 400 basis points earlier today, according to broker Phoenix Partners Group in New York.
The contracts, used to speculate on a company's ability to repay its debt or hedge against the risk it won't, rise as investor confidence falls. A basis point on a contract protecting $10 million in bonds from default for five years is equivalent to $1,000 a year.
Bondholders may lose about $9 billion on municipal bonds if the insurers falter, according to data compiled by Bloomberg and Lehman Brothers Holdings Inc. indexes. More than $30 billion would disappear from the value of CDOs held by banks, based on the values that Citigroup Inc. and Merrill Lynch & Co. assigned to their holdings in the past month. Another $150 billion may evaporate from bonds backed by home-equity lines of credit and other mortgages and loans, according to investors and traders.
great, let's support the biggest losers... make all the sense in the world.
If your mortgage was originated between June 5, 2005 and October 17, 2006, and your rate is between 5.45% and 7.24%, and your middle name is "Oscar", and you have more than 59% equity, and your rate is set to reset up to three days before your ex-wife's 47th birthday, you may be eligible for a freeze, if you fill out form BRX-765-01-01-01-01-000Z and hand-deliver to the side door of the Federal Reserve Bank of San Francisco, Omaha branch office.
Otherwise, just mail in them keys.
so why do I act financially responsible at all?
OT - on topic!
Is the 'teaser freezer' plan basically a blocker or stall while appearing to do something?
http://news.yahoo.com/s/ap/20071205/ap_on_go_pr_wh/mortgage_crisis
[snip]
The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.
[snip]
"Florida in general increases my thinking that we need to look at the reasons to help mitigate the subprime meltdown," Putnam said.
Can anybody translate that to English?
I want my recession, and I want it now.
if the bloated apprasil is still the principal and not the rational value our money is still inflated this got to be obvious to a blind ma
The shitpile is sliding. There is nothing that can be done to stop this now. There is only delaying the fall, or running away.
I'm watching from a relatively safe distance, and wincing.
Nemo,
I'll translate. Jeb is crying to Georgie, and Georgie will help out his family no matter has stupid it is.
Is the delta in interest payments that results from the "freeze" taxable income to the borrower? Seems like forgiven debt to me.
This has corruption written all over it. Let me guess - this fits the profile of the shit pile currently held by WM and CFC???
The same Bloomberg article says 30% of subprime loans are already delinquent, so no help there.
The same article says, "These mortgages usually begin with a rate of 7 percent to 9 percent and then reset to between 11 percent and 13 percent. ``What we are talking about is having these loans modified, so they continue for a longer period of time at the starter rate,'' John Reich, director of the Office of Thrift Supervision, said in an interview in Washington Dec. 3."
So who could even afford the median house at 7-9%?
I wonder when my subprime investment HELOC will accept 50 cents on the dollar to recover something rather than pray I continue to pay.
This could get very interesting in the race to liquidity that is occuring in the financial system.
The freeze is indeed a band-aid.
By not providing any incentive to folks who bought investment properties, they are still causing a tremendous amount of houses to end up in foreclosure land. This will be facinating to watch.
Hey, if the house buying investors get burned, they are going to burn all of those bondholders big time.
Mods and offers to mod should be flying- how about this- reassemble a CDO tranche for 30 cents on the dollar, send letters to the performing offering to settle their balances for 50 to 60 cents on the dollar, and then work out the delinquent on a similar basis. Double your money, easy and cramdown accomplished.
Essentially, the market is haircutting the morons who bought this toxic waste, and if they don't essentially start kicking back to the homeowners some of that haircut, the homeowners are going to jinglemail them. All of the HELOC stuff from the last several years over 70% of the current zillow value should be treated like this.
So we reward borrowers, but only if they stay with the property or can find financing to cover balance.
AllenM's bailout plan.
Someday this war's gonna end...
Democratic Senator Hillary Clinton of New York, a candidate for her party's presidential nomination, reiterated today her support for a five-year freeze. Speaking at New York's Nasdaq stock exchange, she said "Wall Street helped create the foreclosure crisis, and Wall Street needs to help us solve it."
Who is "us", I wonder?
I have noticed that President-elect Clinton has a disturbing tendency to speak in the first-person plural. (I preferred Bob Dole's third-person singular.)
I made all my payments on my loan with...can I get the rate that was offered as a TEASER at the time I took out my loan instead of the 5.5% I have now??
I want that 1.5% loan and I want it now!
Let me guess - this fits the profile of the shit pile currently held by WM and CFC??? -Crispy&Cole
Originated by, would be my guess. If the loans don't default, and the industry/government has come to an "agreement", then there won't be the large number of putbacks essentially bankrupting WM and CFC?
Did we approval from our bosses in the Chinese Communist Party to adjust the terms of the loans they hold?
Max out those credit cards to get your score below 660 quick!
Who is "us", I wonder?
"Although the administration is finally giving the foreclosure crisis the attention it deserves, it seems that President Bush is going to give struggling homeowners far less than they need," Hillary Rodham Clinton
The taxpayers who else?
Hey you smart people - is a heavy buy of Etrade a bad idea? The way I see it, it's either going bankrupt or it will bounce back to $20+ early next year. Book is almost $10.
I paid my mortgage off 9 years ago. Where is my money?
It's 1990 and welcome to Japan! This plan is a disaster waiting to happen. Japan failed to clear it's bad loans and it resulted in "The Lost Decade" with plenty of zombie companies making matters worse. So now we'll have some zombie consumers tying up bank capital.
Yes, some borrowers were lied to by shady mortgage brokers but some also borrowed when they shouldn't have. Don't cry over spilt milk when you lose money at a casino. Why do I rent when I could have doubled down?
Pissing in the ocean.
I can't wait to see Miss Tanta get out the big paddle and smack this one -- hard.
Look, all those who want a recession....this is good news.
I doubt the plan is gonna save more money for the lenders than whatever workout program they would have done on their own...otherwise they'd just do it anyway.
Second, even if alot of homeowners get "saved", I doubt their mortgage payment will be less than the rent they would pay if they were forced out....so their spending money will be impaired for years which is what will really affect the economy in the long run.
Finally, there will be plenty of forclosures even with the plan to drive prices down anyway.....
So for all you hoping for a recession..this is a "win-win" plan.
Paulson said in his speech that the government is focused on helping subprime borrowers who can afford the introductory mortgage rate but not the adjusted one. The plan "does not, and will not, include spending taxpayer money on funding or subsidies for industry participants or homeowners," he said.
Great! So whose money does it spend, exactly?
OK I'm done. Now I'll just wait to hear the highly technical details of tearing up the contract law that forms the underpinning of civilized society. Democracy + demagoguery = mob rule, here we come
Has anybody else noticed how Hillary Clinton's campaign platform seems to consist entirely of making excuses for backing Republican plans, and then saying she'll do even more?
The plan "does not, and will not, include spending taxpayer money on funding or subsidies for industry participants or homeowners,"
Uh Huh, I think he forgot the "yet" part of that.
Loans issued between Jan 2005 and July 2007? Haven't most of those loans already been foreclosed?
The page cannot be found
Nemo,
Then Paulson added the bit about changing the law so state and local governments could issue bonds to refinance the homes...the real bailout for Wall Street?
Not a taxpayer penny for the 'teaser freezer' but the real deal buried in the background?
I'm a little confused. How does this help $hitpile holders like WM and CFC? Aren't they expecting revenue stream from the resets starting next year? If the Govt freezes rates, then isn't that revenue gone?
I guess it's probably better than a whole crapload of foreclosures... Maybe that's the angle. Also maybe screws some of the less connected competition?
Hillary thinks 5B is going to come from taxpayers pocket....
Clinton Calls on Wall Street to Share Blame - CNBC
Funny how during the boom absolutely no regulations introduced to stop the fraud and incompetency. It would not be a free democratic free market move.
However, on the way down "The Government is pleased to announce............................"
"Then Paulson added the bit about changing the law so state and local governments could issue bonds to refinance the homes"
Do I smell an unfunded mandate?
BOHICA
that are currently scheduled to reset between January 2008 and July 2010
hmm, 2008/2009 . . . 2008/2009, any significant political events that are scheduled to happen next year?
Borrowers whose credit scores are below 660 out of a possible 850 and haven't risen by 10 percent since the loan was issued will be given priority.
This is beyond all belief - the folks least likely to survive are "bailed out" temporarily - and nothing for the folks who had a better higher score, or who improved their credit record? The whole thing is nuts, but this part in particular is totally f'ing insane!
Last,
That little item about bonds made my hair stand up but it has received no attention in the MSM or anywhere else...
Question:
I am sitting with a large downpayment, waiting for house prices to drop, hoping to pay cash for my next house. How much of a delay does this put into my plans?
Follow on question: How can someone in my position game the system to get a piece of this cut-rate financing for "innocent victims" of the housing boom?
Treasury press release: Paulson, Jackson to Host Morgage Briefing:
hp-713: Paulson, Jackson to Host Mortgage Briefing
money quote from press release:
The press conference will be followed by an additional technical briefing. Cameras will not be permitted in the technical briefing.
I have seen mention of this in several places, how does the frozen rate translate in this scenario? Borrower-->> -->>Lender-->>IB-->>investor-->>us????
I recall there was a recent case in Ohio where the judge asked for documentation on who actually held the mortgage in a foreclosure proceeding, where the mortgage had been packaged as a security. Do not we have the same problem with who is getting the paid the frozen mortgage rate? Does not this rate freeze bring the certain death of the creation of securities based on ARMs. Maybe these securities where already nearly "priceless" i.e. have no price, but now there is no security as to how much these securities are worth if the government steps in and freezes rates for five years. How does this rate freeze help the system, except to delay some foreclosures, which might stop a thunderous crash to the bottom? How many of these ARMs are performing OK and now they will be taking in less money.
Always go with the herd, otherwise you may be stampeded with little to show but hoof prints on your back and dirt in your teeth.
Yee Haw. As Slim Pickens would say.
...and I always wondered what the word "cockamanie" meant.
energyecon --
Then Paulson added the bit about changing the law so state and local governments could issue bonds to refinance the homes...the real bailout for Wall Street?
Yeah, I read something about that, but I don't even understand what it means. Are we talking about localities themselves taking over the toxic mortgages? Why the heck would they want to do that?
It seems to me there is just a huge amount of stuff (from houses to land to derivatives thereof) which are being carried on balance sheets (from personal to corporate to financial) at far above their intrinsic value. So recognizing major losses is inevitable; all you can do in the meantime is try to shuffle them around.
But nobody is going to be the recipient of such shuffling voluntarily. That includes local governments... You either have to trick somebody, or you have to force it on them by legislative fiat. I'm not even sure which this is.
energyecon:
Cameras would only be permitted in the technical briefing if it was set up like the FEMA "press conference." Since the press is apparently actually invited to this one, they don't want any pesky cameras around as they divulge the details and get asked common sense questions (like how they are going to determine who can, and who cannot, afford the reset without doing so on a case-by-case basis).
American Banker is free this week if you register. Here is a sample. Tip CR for it. Thanks.
American Banker: The Financial Services Daily
Lenin , Fidel Castro and Hugo Chavez couldn't come up with a more communist worker party design than this. I wonder if there were any tape recorders during this arm twisting exercise to crunch out a POS plan.
This should piss everyone in the country off.
How many people will this bailout encompass. Any estimates?
If I had an ARM loan and negative equity I would stop paying right away. These gamblers and freeloaders scammed the system once. What makes anyone think they won't do it again?
I'm disgusted.
The localities (states, counties, cities) already own these toxic mortgages.
So this is really about issuing bonds against the tax payers to finance the same tax payers, while allowing the original deal's middleman an exit strategy.
This will not be enough due to 'popular' demand (if you know what I mean)-- thus, Hope Now Part II will be the gov't-backed Bush/Paulson Foreclosure Freeze.
Bet me.
.
I would like to humbly request that everyone express outrage in some form of poetic metre.. or at least in some artistic manner.
Here is mine:
BAILOUT!!
AHHHHH!! My ears!
...don't speak its name.
Were thou beast or man...
I would slay thee! BAILOUT!
I would drown thee in a bathtub!
BAIL! OUT!!
I wish you were never born!
Ooooohhh, wail... wail...
My anti-mercy will know no bounds..
..and I will slay thee...
bailout..
I can't imagine (OK, I guess I can, since govt does some awfully stupid things) that local govts are going to want to jump into issuing bonds to help foreclosures. They tried it in Ohio, and last I heard they didn't do too much (too many that couldn't be helped). With local and state govts knowing that their tax receipts are coming in below projections, I doubt that they will want to add the costs of this type of program when they are already looking for ways to cut expenditures. At least, I hope they won't do it (assuming that the law was even passed to allow it).
Area,
You better be offering some serious odds to get a counter party on that bet!
"President announces plan to identify and string out marginal buyers until they are bled dry. Stock market surges"...
might make a good headline.
With regard to local government financing this. A lot of mayors etc. in hard hit areas are complaining about how the abandoned homes, are costing them in reduced tax revenue and increased need for police etc. because of people stealing stuff from the homes etc. So this is again part of the current DC modus operandi, which is to screw up things horrendously at the national level and then let the state and local governments pay for it. State and local governments will be hit first by the economic downturn and this will just slow it a bit and drag things out.
Learn to grow you own food.
Local gov't bonds are garbage.
This whole thing is going to take until march 2009 at this rate, and these yoyos are going to look like the bright lights of the cess pool cleaning industry.
There will be no solution until a giant fund back by social security is set up;-}
Have to get the privatize social security thingee in there!
Someday this war's gonna end...
I'm disgusted.
barely | 12.05.07 - 6:08 pm | #
I'm disgusted too! I dropped out from social security, now drop out from the first time buyer waiting line. I'm quite a drop out!!!
Waiting,
I read something on the Internet (so it must be true) that the combined state programs to date (in some 4 or 5 states) had helped a sum total of about 100 borrowers...
Maybe Tanta will feel well enough to attend tomorrow's Press Conf.
How to Get Around FDIC Limits (be careful)
How to Get Around FDIC Limits | Saving | Financial Articles & Investing News | TheStreet.com
WaitingInOC --
The most important question is even simpler: Who wins, who loses, and how much? (If they insult your intelligence by claiming it's a "win/win", the follow-up is: Then how come government needs to get involved?)
"Follow the money" is always the first rule of analysis.
So my asshole neighbor with his Hummer and other toys he can't afford gets to stay in his house, and he doesn't even have to get rid of his Hummer.
Who is this Ron Paul? I'm interested.
"Maybe Tanta will feel well enough..." There is a damn good joke in there somewhere. Somebody flesh it out for me. I need a laugh.
Perhaps we are moving towards a planned economy that China and the former Soviet Union used previously.
WSJ - Bush Is Set to Unveil Relief Plan for Homeowners
Bush to Unveil Aid to Homeowners - WSJ.com
In preparation for tomorrow's announcements, anybody got template contracts that detail MBS and CDO insurance.
All I see is that they say unconditional guarantee ( yeah, right ) in their brochures and I've read people commenting that the insurance is not just against default but also "CHANGE OF TERMS".
Now this definitely counts as change of terms, no ?
-K
Reading brokers outpost, there is a very muted/cynical reaction to the plan.
The usual points are getting brought up: many of those who might be protected under this plan could refi anyway, and, who is going to do all the documentation, and, it is easy (too easy?) to show you have insufficient income to withstand a reset but if you show it, how do you not get in trouble for over-stating your income during the mortgage application process?
Since brokers benefit from re-fi business I suppose they might be anti any plan that reduces the re-fi activity. On the other hand, they should be for any plan that stops the housing slump.
The one thing I will carry away from all this is that it's clearly not enough to be responsible by yourself. If society becomes sufficiently irresponsible, then you are just missing out the party as the designated driver, and you have to pay for gas, insurance, and the vomit cleanup bills.
my naive guess is that this is all about the swaps... the amount of money outstanding for the mortgages on these properties is nothing when compared to the swaps written against them..
So, even if they can't figure out how to minimize lawsuits by people who were expecting payments from interest rate resets... it'll be way cheaper to pay a settlement in court (even if the loss amount was slightly more than they would've lost by letting the rates reset and having foreclosures roll in).. since that would not affect the swap contract.
(Unless some smartypants anticipated this trick.. and figured out a way to guard against it when writing the swap agreement.)
Here is a thought, I wonder how voter participation and homeowner leverage correlate?
What I am getting at is who are the responsible types who are going to get pissed about this and if they tend to be the fraction of the population who not only register but also actually go vote...this could play in interesting ways as the details become clear.
FFDIC,
I was fantasizing about what she might do with her steel toed bunny slippers o' doom!
I wonder why the FHA head is there tomorrow? Just for show? Or is FHA the "gap-filler"?
OT- From CNN/Money
Consumer bankruptcies up 28% in November - Dec. 5, 2007
Consumer bankruptcies on the rise
"...
The number of households filing for bankruptcy in November increased to 28 percent over the same month last year.
However, the number of consumer bankruptcies in November actually decreased by 5.5% from October.
In November, 39.5 percent of the 71,799 consumer bankruptcy filings were made under federal Chapter 13, which protects bankrupt individuals from losing their homes in foreclosure."
I wonder if Paulson gave Goldman the heads up so they can cover their subprime related shorts. Funny how this plan came out AFTER the investment banks closed their books for their fiscal year ended.
The interpersonal complexity necessary to make this happen has my head spinning. Identify Joe6P, get him in the office, get him to document income, modify his loan, etc. Between appointments take phone calls from irate borrowers who don't qualify and/or have waited until the last minute to find out if they do.
There is a point past where people down the food chain can't be pushed to make things happen. It's one thing to get a mortgage broker to execute a questionable loan when it means a huge commission (and everyone is in a good mood), it's quite another to ask a 35K loan servicer to do that when everyone's terrified.
Ok...A 30-year fixed-rate loan can still be had for around 5.85% and they are freezing these at 7 to 9%?
It all seems so surreal...or supernatural or something...
"Hey you smart people - is a heavy buy of Etrade a bad idea? The way I see it, it's either going bankrupt or it will bounce back to $20+ early next year. Book is almost $10."
Is the book almost $10 if they still have a load of no-doc mortgages? How do you know what their book value is, really?
They made a big deal of how they managed to attract back 10% of customers who fled them after the citadel buy, but I reckon they're still losing customers, until there is no doubt their mortgage portfolio is properly valued. If they can't mark it fully to market without wiping out their equity, they are going to continue the smokescreen and continue to lose customers. I'm not an elite trader but I also have a problem with them routing a chunk of their order flow through citadel instead of the best market maker. That seems to me to be selling your customer base out. And to a fscking hedge fund as well. Switching to Ameritrade isn't hard, just need to find a spare few hours to do it. I'm not seeing how they can hold onto their customer base here.
A FICO based relief plan, so they can go back and not underwrite anything just rely on FICO again like stated income?
O
M
G
Crispy, That's a really good question. I wonder if the Chinese are interested in losing all that money they earned fair and square selling us things (much of it crap, but the question rests).
PIMCO - IO December
Gross predicts Fed Funds rate of 3% round abouts finally.
Some random observations on what we know of Hope Now:
-The 2/28's in the '05 vintage will have already reset, leaving only the 3/27's. I'm guessing 2/28's are two thirds, at least, of subprime ARM's.
-No matter what "lender representatives" say, investors will sue barring legislation exempting the servicers from liability.
-The plan favors the riskiest tranches, as the pools will receive, net/net, interest for longer.
-The plan hurts AAA tranches, as they would do better under foreclosure/recovery, ESPECIALLY if home prices continue to decline.
-We still haven't heard how DTI's or CLTV's fit into the criteria. Will the exclude the lower DTI's (i.e. the people that can pay)? What will they do about stated income? Will they mod people with no skin in the game (100% CLTV)?
-
"Ok...A 30-year fixed-rate loan can still be had for around 5.85% and they are freezing these at 7 to 9%?
It all seems so surreal...or supernatural or something...
Kett82 | 12.05.07 - 6:30 pm | #"
I think that's because they want to keep people in their overpriced depreciating asset.
Gross has been predicting 3% interest rates for years. He runs a bond fund. So when he predicts interest rates falling, it's like a mutual fund manager predicting stocks will go up.
Of course, he could be right this time...
Unfortunately this is only the "first" step. The administration will eventually help ALL ARM borrowers if necessary. See whatAndrew Gray (FDIC spokesman)said:
"There'll be other opportunities to help some of the other ARM borrowers," said Gray. "With the big numbers out of the way, the focus can be on the other categories of borrowers."
stick a clusterfork in it...
So I make $100,000.
I can make my 4% rate but the reset will be 30% more on my.....$500,000 mortgage.
My FICO stinks so I "qualify" here?
a) Why should I qualify just because my FICO stinks...I spend too much?
b) Why shouldn't I STILL walk if the house is down to $350,000 in value?
Moreover, shouldn't the effort be aimed at people with relatively low incomes? Someone making a healthy income, overleveraged on some McMansion, gets a HUGE break only because their FICO stinks? Doesn't this simply reward every wanton spendthrift?
As mentioned above, very few are taking advantage of the workouts already being offered. Why is that? I think most who have gotten themselves into this jam know the jig is up. They got in expecting a riskless windfall and, once faced with a certain loss, will not have the will or the character to bother investigating any program that does not provide them something in the way of some other version of a "windfall".
Sure, we can all see this is a "great" deal from our perspective but from the perspective of someone who expected a home run, this isn't even a walk. Maybe a hit batter but not much to speak of when your investment dream is shattered.
So my asshole neighbor with his Hummer and other toys he can't afford gets to stay in his house, and he doesn't even have to get rid of his Hummer.
Who is this Ron Paul? I'm interested.
larryk | 12.05.07 - 6:14 pm | #
larryk,
Just wait until he gets the second mortgage to add on to the garage so his wife can get her convertible.
re:
Gross .... runs a bond fund. So when he predicts interest rates falling, it's like a mutual fund manager predicting stocks will go up.
...
Nemo
LOL ! Yeah, that needed to be said - he's STILL just a shill like all the others - for some reason he gets a pass though.
Well said.
-K
Here's a "waterfall" of exclusions to the Hope Now plan, using very rough estimates:
-take out non ARM: 20% of sp
-take out already-reset '05 2/28's: 2/3 of '05 ARM's, or about 20% of the total.
-take out >660 FICO from the remaining ARM's: about 18% of the total.
-take out >60 day delinquents on the remainder: about 15% of the total.
That's about 73% of the relevant vintages, leaving 27% available to mod.
Then layer in whatever DTI/CLTV criteria they might have.
Again, rough estimates.
from the Bloomberg link:
Paulson finalized the deal as the housing recession entered a third year, threatening the economic expansion.
Third year of a housing recession ?
Did I miss the memo about this ?
This announcement is how many days away from Christmas? Lets go Martha we can spend, spend and not worry about our mortgage. Yippie!
The Governments are the will of the people. So, we are all responsible. Remember it is private profits and social risks. Add this to the debt pile and watch the dollar sink further. Geezz!
David:
Take out anyone who doesn't hear about the plan because they aren't paying attention - 98% of American public.
These are the questions I have:
Does that mean that the interest that is foregone from a reset kicking in is added back in to the loan amount for a reset five years from now -- in which case there is a bigger reset shock than there would be now? Or are the servicers just forgoing the higher interest for the next five years?
If so, that means we just have an even bigger shock coming five years from now. Is that correct? Guess I may have to wait for Tanta's analysis after the release.
What message does this send to someone who remained in a rental appartment rather than join in on this insanity? This will reward stupidity and punish thosewho used a little common sense.
One problem of a credit market collapse is that the squeaky wheel gets the grease. And the squeaky wheel begging for a bailout now is mortgages, not municipal bond insurance. Although the collapse of muni bond insurance is not getting much ink, it's more threatening to financial markets in my opinion.
Moody's seems backed into a corner to downgrade MBIA and other insurers. On the day MBIA is downgraded even one notch, even if not before, the lower tier of the insured revenue bond market will be cut loose to free fall in value, much as CDOs have fallen. 60% of muni bonds are owned by individuals (either in funds or outright) so it will hurt on Wall Street.
MBIA is constrained to raise new capital not only because of its massive liablities but also because its business model going forward is broken. To rate an AAA, MBIA would have to significantly beef up its underwriting (especially for revenue bonds), which would narrow its market, and it would have to charge substantially higher premiums. In that case, it's a much smaller and less profitable company.
Paulson has his blinders on and he will ignore the bond insurance crisis until it's too late. If you own insured revenue bonds or funds that hold them, GET OUT NOW!
This responds to Eli's request for appropriate poetry.
Socializing Risks (ba hum bug!)
LONDON (AFP) The British government has prepared emergency legislation to nationalise the distressed Northern Rock bank if a rescue falls through, a newspaper report said Wednesday.
Is the 'teaser freezer' plan basically a blocker or stall while appearing to do something?
I shall eschew my usual rant over the creeping socialism inherent in a government that didn't even consider the two Constitutional questions before leaping to meddle.
Two seemingly contradictory answers float to the top of this cesspool. 1. Yes, this will have the effect of stalling and exacerbating the mortgage unwind. 2. No, this will not have much actual impact beyond that. the latter falls under the aegis of one of our greatest political minds; "Thank God we don't get all the government we pay for."
Tough, I'm gonna rant anyway. Government is supposed to ask thre questions in order;
Can we do something?
Should we do something?
What should we do?
It really pisses me off that the first two mandatory questions are no longer even remembered.
Has anybody else noticed how Hillary Clinton's campaign platform seems to consist entirely of making excuses for backing Republican plans, and then saying she'll do even more?
Maybe because the current Republican President is of the former Democrat persuasion (neo-conservatives are former Democrats)? Hillary is more of a socialist than Bush but they both are pretty close.
This HopeNow program will be such a raging mission-accomplished success that the administration will begin work right away to fix all the other outstanding loans.
The more you spend that you can't repay, the more you deserve to be rewarded. Go out and buy that boat, new car and Harley you had your eye on. Hope is on the way.
This is an embarrassment.
Perhaps we are moving towards a planned economy that China and the former Soviet Union used previously.
You've never heard of a Five-Year Plan ?
Point that coincidence out to a few of the neocons please.
from roubini:
UBS/Barclays (via Blbg): Only 12% of sp borrowers in California would qualify for rate freeze. Moreover: no hope for subprime RMBS repackaged into low-rated CDOs accounting for about half of the $650bn of the asset-backed-bond CDO market
As to Gross's 3% or lower assumption, my opinion is that he is spot on.
Tough period ahead.
This HopeNow program will be such a raging mission-accomplished success that the administration will begin work right away to fix all the other outstanding loans.
Does HeliBen have enough fleets of helicopters to fight three simultaneous wars? How's that working for the military? While HopeNow isn't allowing people to comment my new site NoHopNow does.
Justin,
You said, "I'm not an elite trader but I also have a problem with them routing a chunk of their order flow through citadel instead of the best market maker. That seems to me to be selling your customer base out. And to a fscking hedge fund as well. Switching to Ameritrade isn't hard, just need to find a spare few hours to do it. I'm not seeing how they can hold onto their customer base here.
Who do you think Ameritrade routes their orders to??
All of these discount brokers typically utilize the services of a third party "smart router" which is supposed to send orders so that "best execution" is obtained for the majority of orders not all orders. Can you define "best execution"??
Is it best price? Fastest execution speed? Some combo of both? Could it mean sending orders to someone in exchange for payment which may be used to "help investors since we can charge lower commissions??"
Take a look at any discount brokers routing practices - you might be surprised at what you find....
barely-
this is going to be a very long battle, they need to stabilize the fixed income markets.
Look at the big picture and forget all of the garbage, the little stuff will just make you angry.
If you want to get angry, focus on the inept fiduciaries running the pension plans across the country exposed to this bullshit. Many of which wouldn't know a bowling ball from a hand grenade.
hey, i need to hear that home prices will keep on going down fast, even though Hope showed up. Could you please tell me that is what is going to happen? i'll sleep better if so...
I would like to add this about muni bond insurance. For 35 years, this business has been as close to spinning lead into gold as it gets. Nothing has blemished it.
So, for it to go from gold to garbage in a few months would be stunning, a real wake-up call.
I believe today's stock market is stupid. It's stupid in believing simultaneously in a benign soft landing and sustained Fed rates cuts that will act immediately to turn desperate things around. And it's stupid in ignoring the cadence of negative news and loss of confidence in financial markets. Stocks are part of financial markets, you know.
When the wake-up call comes, the weakest segments of the stock market will fall faster than the weakest segments of the bond market, as always. The weakest segments are garbage little companies with negative or inflated earnings, REITs and emerging markets.
If you try to time the wake-up call, you may be right or you may be just as stupid as the stock market. If you really believe today's market is stupid, don't try to time it. Buy and hold weakness.
Wake-up calls happen when people are asleep.
I meant short and hold weakness.
What about hillary's plan to "give" people homes. She wants to create a fund to pay for all homeowners.
The main point of her conversation on CNBC at 3:00 was:
It's not the time to scrutinize each mortgage. All people benefit from saving real estate prices from falling. The gov't should set up a fund to save homeowners.
Stock market went up 100 pts on her statement.
A free home for all a chicken in every pot.
hey repoman, i want to have sweet dreams... don't talk about hilary please!
"Need"
Is there a more proven platform upon which to launch a massive assault on the productive/non-stupid?
This is attempted pillage on a grand scale.
But the rich people on the receiving end of those ARM-related payment flows will not accept the theft of their increased flow of $. Their lawyers will make quick work of this.
The White House will have "tried to fix it, except for those doggone lawyers".
Even if this attempted robbery succeeds, the rich people who funded the last round of suicide loans will not participate in the next round.
Either way, housing is so toast.
Q: Hypothetically, if this plan succeeds, would it actually keep housing values aloft?
I was trying so friggin hard to like Hillary, but her pronouncements on the RE market are enough to make we want to throw her into a ditch and have a sand filled mack truck tip over on her. It's really gad awful painful to listen to this idiotic claptrap.
Geoff, I gave up on her when she said "there's nothing wrong with Social Security". Give me a break!
Kett82 said: "Ok...A 30-year fixed-rate loan can still be had for around 5.85% and they are freezing these at 7 to 9%?"
Yeah, I've been checking out rates, too, both where I live and in the "bad" regions. Being "bailed out" by a freeze on interest rates so far above the market doesn't seem like such a great deal to me.
Thinking like a criminal for a moment, things look a little different. Short-term rates are pretty soft, so the cost of funds for lenders actually looks lower than it was when so many of these loans were originated.
Freezing those high rates when lenders can now get money even cheaper, making more on the spread? Who benefits from a situation like that?
Homeowners, of course. I know it's true because I saw it on television.
Sebastia
So my asshole neighbor with his Hummer and other toys he can't afford gets to stay in his house, and he doesn't even have to get rid of his Hummer.
What's worse, you and I are paying for it!!!
Don't bother with what Hillary says. She doesn't mean it anyway.
I'm gonna take out the biggest HELOC any bank will give me, and use the money to short every freaking financial stock on margin.
If I get the timing wrong, who cares, the Feds will bail me out for my stupidity, right??
Seriously, I think Ron Paul just won my vote tonight.
Kohn said the Fed was "not going to hold the economy hostage to teach a small segment of the population a lesson."
So, tell me, just what does teach the small segment of the population a lesson? Seriously, how can the American public protect itself from harm if it never feels the pain.
Another thing I'm sick of hearing from politicians in particular is this nonsense about "Keeping people in their homes".
That is total bullshit. These "people" never really owned anything but a 100%+ note to pay on a lender owned home. I want the true owners to get to keep the homes they had professionally appraised and paid for.
Right on, Sebastian. CR is beginning to infect you as well...
Organizer [Kohn said the Fed was "not going to hold the economy hostage to teach a small segment of the population a lesson."]
That's bullshit too. The IBs and banks are holding the country hostage by refusing to trade. And the Fed is coughing up the ransom.
Did today not just make your head want to explode Barely? It's a new low for me in terms of ability to tolerate this crap any longer.
"teach the small segment of the population a lesson"
Except that this "small segment" would be the top 1% richest assholes in the world.
This ain't got jack to do with saving no homeowners ass, this is about saving banks and the politicians who stood by and allowed this cluster to happen.
Everyone of those bastadges needs to be taken out and shot.
The freeze cannot work. Let me try a couple of scenarios here.
If it locks rates on those that are upside down, given that rents are lower than there mortgage and other asundries, why not jingle mail?
This completely ignores the fact that the actual owners of these mortgages will sue the servicer's in droves. Anyone who thinks Congang can alter contract terms after the fact is a bit daft. There's a whole lot of case law, and statuatory and Con law, and contract law, about bills of attainder and "changing the rules after the fact".
You can slap some wings on this pig, but when you push it off a cliff it's going to do a Wile E. Coyote.
Cheers,
"Did today not just make your head want to explode Barely"
I'm really pissed off at how the sense of entitlement has consumed this country from top to bottom. There is no risk. Everything gets bailed out eventually. It's communist America.
I can't bring myself to go long and going short is impossible against all these forces.
This plan really does nothing. All those who bought since 2005 and had low FICO scores will be renters in 5 years anyway (except for those who's financial fortunes change). It's a short term subsidized rent that spreads increased supply over five years. Assuming home prices do not increase in the next 3-4 years most all of these people will be out of their houses. Instead of being out when the rate resets and having the home priced at FMV on a bank sale, they get to "rent" for a few years and when the program is up or they are forced to move their upside down anyway and have to walk away from the home.
What's interesting is that there is no complaining from the bondholders who's cash flow has been reduced. Why? Because the bondholders are grandma and grandpa in Iowa who have pension money invested in this sh#@$@#$%t - they don't even know they are being screwed. But they're screwed whether their bond cash flow drops in half or the underlying asset is sold for .50 on the dollar.
What a mess
Geoff,
I'm with you buddy.
So I've been keeping my friends abreast of the daily happenings in the housing bubble for over a year now via a mass email. For the most part I received a collective yawn as a response. But today was different. Judging by the shocked and appalled responses, I think today just woke a few people up.
Now I'm scared. I just used a "when pigs fly" analogy, and then I read this from Sebastian,
"Thinking like a criminal for a moment, things look a little different. Short-term rates are pretty soft, so the cost of funds for lenders actually looks lower than it was when so many of these loans were originated.
Freezing those high rates when lenders can now get money even cheaper, making more on the spread? Who benefits from a situation like that?
Homeowners, of course. I know it's true because I saw it on television.:)"
I need to put a few more layers on the Super Colander.
Cheers,
The portion of this "plan" that depends on funding by local and state governments is never going to happen. Of the top 5 overpriced states (CA, NV, AZ, FL, NJ) which is going to be able to issue enough bonds to make a difference? Maybe, just maybe, NJ could - as long as the Wall Street bonus stream doesn't evaporate, which it probably will. Local tax revenues are highly dependent on property taxes, so no hope there either. This part, at least, strikes me as DOA.
One other point
Lets see - someone who bought in 2005
1) Your home is worth $150,000 and we'll keep the rates the same at 7% on your $175,000 mortgage. So you can pay around $1,200 a month to stay in your home
2) You can rent the same home down the street for $800 a month
Someones gonna have to do some good sales work to make this fly
Misean
I just read your post - your right. This is a plan to stop people from renting and instead pay 7% when short term rates are low. Great deal for the lenders - screw'em on the way in and screw'em on the way out
barely,
This nonsense is beyond the pale. I've saved, been responsible, lived below my means to improve my long term position, and I get to be used as a mop for the irresponsibles' mess.
This is why communism/socialism ultimately fail. People like me give up trying. When there's no benefit to being prudent, why bother.
They might make this whole thing work out, IF they hire BB. A little light hearted humor for the night:
YouTube -
Cheers,
If the gov. really wanted to help these people, and society as a whole, they'd just allow these homedebtors to walk and the market to crash hard and fast.
In a couple years these people could buy again at a price they could actually afford and neighborhoods could become whole again.
Anybody got a list of names of politicians who think that home prices at 2 X income is a healthy idea? Are there any out there?
"This plan really does nothing. All those who bought since 2005 and had low FICO scores will be renters in 5 years anyway"
Are you kidding? This is only the tip of the iceberg. And it's an election year to boot. "Vote for me and you can have a 6 bedroom mansion for $350/mo".
"Doesn't this simply reward every wanton spendthrift?"
Your Uncle Sam is lately a "wanton spendthrift".
He feels their pain, and everyone who is not leveraged is a fool as Helicopter Ben grabs the controls and inflates the currency to bail out the wanton spendthrifts
Cool!
So, we're Venezuela now! How is this BS any different than their government stepping in and nationalizing the oil companies over there? In both cases, the government has decided it can change written, legal contracts on a whim to benefit various corrupt organizations. So, we're now using 3rd world nation style legal agreements, where people keep their obligations only so long as it is easy for them.
If this goes through, if I were a foreign investor, I'd dump every chunk of investments in this nation and be putting my money someplace else.
Misean,
this is not an attempt to save borrowers but an attempt to save a total collapse in our economy. the idea is to keep f'd borrowers at least paying something. If everybody jingled mailed their keys,....it be like throwing a brick into a jet engine,....boom goes our economy!
Energy at all time highs, inflation getting out of control, and housing utterly collapsing so bad the Gov't is interseding! Don't miss the forest despite the trees, this is bad!
The dollar has lost it's credibility but too many other countries are still too dependant on it's past strength and the out of control consumption of our country. I am hoping this will help as other countries are forced to cut rates in line with us and pay attention to our spiral down. I still believe if we cough others get a cold, hopefully?
Hilary just lost my vote!
So, instead of throwing a brick into the jet engine, they'll just jetison all the fuel and turn the plane's nose straight into the ground?
Yes, things are bad. However, revoking contract law in a style that would make Hugo Chavez proud doesn't seem to be a solution. Foreign investors, upon which this ever-consuming nation depends, will flee from the US investment world with this type of nonsense going on.
I'd sooner have the brick in the engine - you lose the engine, but maybe the plane can be glided to safety. But by doing this, there's no way out for anyone.
There are so many more real issues that they seem to not want to face.
At the end of the day we need the Real Estate Market to correct itself. In many areas the Real Estate is wayyy over valued. We all know this!! So how in the world will the prices get to a point where buyers can really obtain a mortgage through conventional methods successfully??
And most importantly, how will these buyers afford to refinance to a traditional 30 year fixed after 3-5 years of this freeze? They will still be stuck! Either the value will drop and they will owe much more than the homes are worth. Especially with the freeze! How much of the premiums are really being paid during this time? The other scenario is lets say the values remains constant, how are they going to afford the higher payment of a traditional mortgage anyway?
How much lower can the interest rates get after this freeze to allow these same people to afford a traditional mortgage? These interest only rates and teaser rates can't be beat!!!
Everyone needs to just bite the bullet. Let it all correct itself. Recover. And move on!!!
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