Yes, as always it's all about price. Just what exactly constitutes the correct "significant discount." I suspect that the bond and servicing people are convinced that we are NOT near bottom. These plans are predicated on finding a price for these mortgages that is low enough to prevent massive government losses and high enough that the lenders will sell. Really, the only way that we can find a price like that is if the lenders think that the worst is yet to come and the government thinks that the worst is over.
When did barney Frank become Wall Street's best friend? Isn't this just another way of saying a taxpayer funded bailout of the banks and mortgage companies?
Really, the only way that we can find a price like that is if the lenders think that the worst is yet to come and the government thinks that the worst is over.
Absolutely. You don't do a bailout unless you believe, rightly or wrongly, that your intervention will have the right effect. So this kind of a plan always builds in an optimistic buyer and a pessimistic seller.
I'm just hung up on who the counterparty to the government really is. If this is an open invitation for banks to bring those security issues home to momma's balance sheet so that they can then cut loans out the pool to sell, you have to wonder how the banks could ever get enough for them.
Isn't this just another way of saying a taxpayer funded bailout of the banks and mortgage companies?
We have been blogging ad nauseam for years about securitization of loans. The whole Hope Now thingy and all that jazz was all about the difficulties of managing these loans because they are in pools governed by PSAs and tax law and stuff.
So all of a sudden everyone is ready to think that the problem loans are owned by banks and mortgage companies? Why is this?
Of course there's nothing preventing the sale of these securities right now. The problem is that the holders won't like the price they're likely to get.
Therein lies the problem. Any gov't bail out...erm...purchase of these securities is likely to be well above their value.
The best that could be done is to let the chips land where they may. Painful, but necessary. I see no reason why those who did not participate in getting into debt up to their eyeballs should be tapped to help those that did.
Rats! I thought you'd set us (viz. me) straight that FHA insures mortgages. Now it sounds like they purchase them too. Respectfully request clarification.
Of course there's nothing preventing the sale of these securities right now.
But we aren't talking about the sale of securities, we're talking about the sale of loans.
If the government had to buy the whole damned security in order to get its hands on the loans that need to be refinanced, $20 billion would end up buying maybe 2,000 refinanceable loans, not 200,000. And what would the FHA do with the rest of them?
"Alan Blinder, a professor of economics at Princeton, has called for a new government vehicle modelled on the Home Owners Loan Corporation of the 1930s to borrow between $200bn and $400bn to buy up and restructure distressed loans."
So the experts are seriously calling for Depression era methods for dealing with housing! To think that it was only 24 months ago that there was "no problem", and only 12 moths ago that it was "contained".
Rats! I thought you'd set us (viz. me) straight that FHA insures mortgages. Now it sounds like they purchase them too. Respectfully request clarification.
That is why this is news and would require legislative action: FHA currently is not authorized to buy loans, only to insure private-lender-originated loans.
Really, though, authorizing FHA to buy is the easy part--Congress can just pass a law for that. It's authorizing REMICs to sell that I don't understand here.
Maybe this is just posturing. Barney Frank comes up with unworkable idea, and then when he has to face voters, says "I suggested a plan, but they didn't listen."
I'd like to believe that congressional aides can get good enough advice that they understand the REMIC covenant issues, too.
Just a clarification, making a REMIC election does not trigger a requirement to sell defaulted (or distressed) loans at par. The terms of the PSA govern that. I can't speak for RMBS as I don't look at the PSAs but in CMBS the trend since about 2003 has been market value for defaulted loans vs. par which had been the standard. CMBS issuers make the REMIC election in almost all cases.
Not saying that there's no requirement to buy things out at par (can't say that without looking at the specific PSA for a deal) just that being a REMIC doesn't require par purchases.
Binder's biggest problem is that he conveniently forgets what the issue was with depression-era loans.
The overwhelming majority of them were made as short-term balloons. The borrower was expected to keep refinancing them every 1-5 years as they matured. They were typically 50% LTV as originated.
The problem was that folks couldn't get the bank to refinance those balloons, so the entire amount of the loan was immediately due and payable. Many of them were no longer 50% LTV because of plummeting house prices, but it was more like they were now at 100% LTV. But it is not entirely clear to me that the issue then was unaffordable payments--the issue was getting someone to offer you installment payments (to refinance the balloon instead of demanding payment of the entire remaining balance).
In the current situation, we have loans that started at 100%, are now at 120% LTV or more, and the issue is not maturing balloons but unaffordable payments.
Besides, of course, the fact that HOLC was buying loans from banks, not privately issued securities.
Can a renter like me also receive a handout from Uncle Barney?
Its not my problem that some people borrowed beyond their means and overpaid for a house they just had to own. No bailout. Sorry, suck it up buttercup.
I don't think this is correct. Even if you have all of the securities, you can't just unwind the deal, sell off the good loans and refi the bad. They don't work that way. What benefit would owning securities give home owners? Would the FHA as directing certificate holder instruct the servicer to not engage in foreclosure? Owning loans and owning bonds is very different.
In order to fully arrest the decline in housing prices a government program would have to be a simple, huge, BLIND, blanket approach that makes no distinction between fraudulent, speculative and mortgages sold by "abusive lenders" to "innocent" buyers.
Anything else will simply drag out the process, increase doubt and confusion and reduce the "natural" level of housing transactions...and the repricing of same.
No one can fashion a program of that size that cannot, simultaneously, be labeled a complete bailout of lenders, investors and speculators. Barney's plan might be one that, he knows, will start "modestly" but will mushroom overnight as there will be no end to those who "need" help.
This nonsense will prolong the problem, sadly. It has the virtue of making Barney (and other pols) look "good", however, so neither the projected cost nor the hidden costs are of any matter, no?
Just a clarification, making a REMIC election does not trigger a requirement to sell defaulted (or distressed) loans at par.
What I am saying is that REMIC law requires these pools to be static. Of course there's no requirement to sell defaulted or distressed loans at any price. The requirement is that the trust's assets are not actively traded at all.
The par issue is that the only way to unload defaults under those PSAs is, in at least some of them, the servicer's or issuer's reserved right to buy out some limited amount of defaulted loans at par. That is a right, not an obligation, of the issuer/servicer.
I have never seen a PSA that would allow the issuer/servicer to buy out a loan at its market price. That would then be a managed pool, not a static one.
Just be aware that there is a significant public backlash building against any such plan. Consistently, when the public is given a chance to weigh-in on them, the thumbs down votes are 10 to 20 times more than thumbs-up. Don't ignore the power of the public's voice in an election year with a REALLY lame duck President.
The people who need the counselling services are those that lived within their means and will see their tax bills increase as a reward for their responsible lifestyle.
Even ignoring the fact that the whole mortgage mess is so large, and the US government is so poor that it can't apply more than a band aid (and, while we're at it, the government better save that money for rescuing a Citi or Fannie in the next year anyways), the incentives set by such a bailout are incredibly deleterious (poor underwriting, poor borrowing is rewarded).
Moreover, what are all these horrible externalities caused by foreclosures? No one talks about the return of affordable housing for millions and millions of Americans. Just as with free trade, we see the heartache of the laid off textile worker, but the smaller benefits of millions of consumers are not weighed.
Even if you have all of the securities, you can't just unwind the deal, sell off the good loans and refi the bad.
Well, I agree this won't happen and isn't what is being proposed, but why couldn't you unwind the deal if you bought all the certificates? Presumably you'd have to compensate the servicer under a buyout clause, but then again that's why it won't happen (surely not for $20 billion it won't).
BP(beyond petroleum & back again?)(barely producing) hints at possible sale of alternative energy unit Marketwatch
LONDON (MarketWatch) -- Oil giant BP on Wednesday hinted that it could sell part of its alternative-energy unit, saying the division is worth up to $7 billion when comparing to other companies.
david_in_ct - sorry can't help you I'm not a research analyst and I stay away from individual stocks. But maybe you misunderstood me? I'm just saying that US equities have been a poor investment in recent years because of the depreciation of the dollar. And I don't expect that to change now that the Fed has basically announced to the world that they will keep cutting rates, which will further pummle the dollar.
It is said better here:
"...On average U.S. investors and foreign investors have done better recently by investing outside of the United States. A significant part of the that benefit comes from growing relative strength of other currencies." What You Should Know About Currency Risk -- Seeking Alpha
Mr Frank said that under his plan, the FHA would buy up packages of mortgages but at a substantial discount.
Discount to what?
Why would anyone ever want to sell anything at a "substantial discount", even if it were possible?
I guess they could mean a "substantial discount" to the inflated output of some model, as opposed to market value. So what they meant to say is that government intends to "buy mortgages at a substantial premium".
Hello, nationalized mortgage industry. Everyone from Bill Gross to <a href="http://www.ft.com/cms/s/0/471e6794-e2e7-11dc-803f-0000779fd2ac.html>Larry Summers seems to advocate something similar, so I guess it must be a splendid idea.
So all of a sudden everyone is ready to think that the problem loans are owned by banks and mortgage companies?
Well, given the size of the problem we could probably blow all 20 billion just on problem loans outside of securitization deals. We're looking at, what, over 1 trillion in underwater loans within a year? We can blow a LOT of money without ever needing to get into the securitization pools. Also, keeping the banks afloat is more urgent than assorted investors.
Just be aware that there is a significant public backlash building against any such plan.
It seems to me that the number of people who have legitimately paid for their house or have already been foreclosed on would far outnumber the people who would be helped (directly) by these bailouts.
Why wouldn't all the people who lost their house in the past 5 years be absolutely livid that their tax dollars are now going to bail somebody else out when they recieved no such bailout themselves?
Likewise for people who paid for their houses with their own money.
Nevermind whether it's right or not - is it politically tenable?
I'd suggest if anyone is interested in affecting this particular issue, write a letter to The Boston Globe, Frank's hometown newspaper, available at boston.com. The paper does publish letters from out of town, especially when it receives many about the same issue.
I'd think hard about what you say, because we are still not clear exactly what Frank is proposing. But it's important to say something. While the public in Massachusetts is no more amenable to bailouts than anyone else, the press here, as elsewhere, focuses exclusively on hard-luck "innocent" borrowers. Breaking through that narrative is the key to mobilizing public backlash.
As I say, be careful that you limit your remarks to accurate statements we know to be true right now.
"Can a renter like me also receive a handout from Uncle Barney?"
Well renters like us have been subsidising those upstanding citizens that think home ownership (even if the owner can't afford it) is the highest expression of the American ideal for years. I got this very conservative former co-worker of mine to the point of almost killing me by insisting he was a welfare queen that was was addicted to the mortgage interest tax deduction. I of course don't really believe this to be true but someone who sends me links to the NRO, quotes Rush Limbaugh like he's Thomas Jefferson and reads Bill O'Reilly's fiction is going to get what they get from me.
Why does Massachusetts keep electing this guy? Boggles my mind.
I propose legislation that requires any elected official to fund any of his/her own proposals with 100% of his/her own (protected or unprotected) assets before committing any of mine.
There are several key things needed to make a bailout work:
Take the money of taxpayers (which is a "given")
Punish savers and investors while rewarding crooks (ranging from liar-loan shmucks to CEO's)
Keep inflation high and savings rates low to force more consumption and investment in dead markets, such as MBS's, the stock market, etc.
High inflation also keeps the peasants in line since they are too busy saving money for $4 a gallon gas and $5 loaves of bread to question their Dear Leaders. To keep things exciting, lots of layoffs and outsourcing help.
End goal: an economy of debt-serfs with no jobs, no future, and no hope: just lots of debt and worthless fiat currency for all.
Interesting. I took a quick look at Barney Franks District. He is getting ahead of the curve. Actual forclosure rate is not bad but houses in pre-foreclosure is going to change that number by a lot.
Barney is a very smart guy. I've talked to him...astonishingly smart. This is also an election year. Put together a mess, and an election year and what do you get?
You get billing and cooing about the problems, calls to action, legislation introduced, chest-thumping, lipstick, and lots of shiny accessories that, in the end, just amount to a show. I would be shocked if Mr Frank didn't know about all these problems with the proposal. I'd be shocked if they didn't come out during discussion, and another proposal was put together. And another. All adding up to....time.
Because everyone knows what the issues here are, and time is what is needed. And a couple of programs tossesd in to satisfy the voters that something is being done, where really not much is being done.
So for all the conspiracy theorists out there, what exactly has been done? Pretty much nothing by the government. Well, except if you count the Fed, and that's a whole other discussion. In the end we'll bail out a few people, and that will be it. By the time any of this would get done, it will be way to late to save just about anyone, and the worst of it will have passed.
Fannie Mae Records a Steep Loss,
Shaken by Credit-Market Malaise
"Government-sponsored mortgage finance giant Fannie Mae swung to a deep fourth-quarter loss and reported a sharp rise in late payments on loans, a sign damage from the U.S. housing slump is rolling out from the Ground Zero of subprime mortgages."
Why would anyone ever want to sell anything at a "substantial discount", even if it were possible?
To get some invested principal back today.
The theory is this:
Noteholders will have to either foreclose and get that haircut or modify those loans to reduce principal and get that haircut.
So the haircut is there anyway. Selling the loan at the approximate amount of what you were already going to lose gets you partial recovery today instead of partial recovery at some point in the future.
So that takes care of why sellers would sell (assuming their PSAs let them sell). Why would there be any reason for FHA to buy?
Again, the theory is that it can do what the mortgage servicers are prohibited from doing, which is working out those loans.
But if FHA bought at what is in essence the estimated recovery amount, the theory is that it would simply break even. Buy a $100K loan for $75K, refinance it into a new $75K loan, FHA breaks even and the seller of the loan ate the $25K.
When NASDAQ crashed, the goverment policy was to clean up the aftermath, not try to prevent it.
During the S&L crisis, the government seized control of failed banks and handled each bank failure on a case by case basis. Sometimes they liquidated what they could and dissolved the bank, sometimes they found a new owner for the bank. It wasn't perfect, but it worked.
How come now the government is trying to prevent the failures from occuring in the first place?
We have a system in place to handle failed banks. We have systems to process foreclosures. Why do an across the board bailout of banks and homes when many of the homeowners will work things out on their own and most banks won't fail?
Banks will do whatever they can to prevent failure. Maybe they'll have to sell a large stake to China or the Saudi's, but most of them will find a way out on their own. Rest assured, if they see the government coming to the rescue, they'll focus their attention on taking as much advantage as possible from the goverment.
It seems it would cost a lot less if they let the current process run it's course and step in and clean up the aftermath via FDIC. That way they aren't throwing good money at something that may have never required a bailout in the first place.
The problem was that folks couldn't get the bank to refinance those balloons, so the entire amount of the loan was immediately due and payable.
The other problem was that even if you were on your way to saving up for the balloon payment, the bank failed and your savings to cover the ballon payment vanished.
Yeah, the Fannie Mae business is a big bailout coming. Given that the GSEs are the mortgage market ATM, not one we can avoid either. Wonder how Fannie's reserves are looking right now? Not good, I'll bet. Non-paywalled Fannie Mae report
So, how do these huge losses at Fannie Mae affect the proposed plans to make them the lender of last resort for everything (and eventually shovel all the toxic loans onto them)?
Silly me - it probably has no effect at all! Housing only goes up, and costly housing is VITAL to the Amerikan eCONomy!
What, precisely, does Barney Gumble think that taxpayer money thrown about in a fit of glee will accomplish?
Stop the dropping of home prices? (No)
Stop foreclosures? (No)
Stop the bad economic data? (No)
What's his objective? What does he want to accomplish? I'm thoroughly confused.
Want votes? I can think of a lot of things less $$-intensive. Want a good economy? Balance the budget and keep middle-class jobs in this country, tard-boy-man.
I don't think he has an actual metric in mind.. this proposal is a swing and a miss both as written and in long-term usefulness.
IMO:
from Europe it looks like this:
You are facing a ideological problem too...
free market or socialism /communism...
(for example: how can the bailout ((800 billion!!!)) be bigger then the combined market capitalisation of the banks involved?? would the gov not own them at the end??)
any bailout to let taxpayer hold the bag is well you guess it...
the irony is that the Capitalist preachers on wall street are the first to scream for socialism when the loss comes in...
"I have never seen a PSA that would allow the issuer/servicer to buy out a loan at its market price. That would then be a managed pool, not a static one.
What am I missing here?"
I probably wasn't articulate enough in what I was saying. Servicers can't buy back performing loans, in pretty much all circumstances. In the case of a defaulted loan traditionally the note could be sold to third party investors at market value or to a servicer at par. In CMBS at least the change has been that the servicer can now bid in competition with third parties and pay the market clearing level for a note that is in default. I did not mean to suggest that servicers can buy and sell performing notes as though the deal were a securitization.
"Well, I agree this won't happen and isn't what is being proposed, but why couldn't you unwind the deal if you bought all the certificates? Presumably you'd have to compensate the servicer under a buyout clause, but then again that's why it won't happen (surely not for $20 billion it won't)."
Accounting reasons. FAS140 doesn't really permit voluntary clean-up of a deal unless you are below some threshold amount of the original certificates outstanding (usually 10%). Basically there's no tender provision for the issuer. There might be some way in which you could acquire everything and vote to ammend the deal, but I'm not sure you'd get it past everyone you need to get it past (Accts, Trustee, etc.). Plus since most of the time the required payoff is effectively yield maintenance, good luck getting those bonds out of holder's hands if they have any idea of what you are trying to do. All my bonds that were trading at $.50 are now going to get redeemed at $1.05, oh happy day!
Thank you for maintaining the standard that you do here - a big part of why the community here is as diverse and thoughtful (at times lol) as it is - huzzah!
In the case of a defaulted loan traditionally the note could be sold to third party investors at market value or to a servicer at par. In CMBS at least the change has been that the servicer can now bid in competition with third parties and pay the market clearing level for a note that is in default.
You are telling me that these things are REMICs, but the servicer can buy a loan at a discount, which makes the holders of the certificates take the loss?
It doesn't matter whether the loan is performing or not. The question is whether you have to return 100% of outstanding principal to the investor.
I am the first to admit that I am not a specialist in CMBS, but how can they be REMICs if they can sell assets at less than par to anyone, including the servicer?
In RMBS, the only choice the trust has is to liquidate loans (foreclose and then sell the REO). You can't just sell loans out of a static pool. Performing or not. Now, some PSAs will let the servicer take loans out, up to some predetermined dollar amount. But it's always at par because otherwise the servicer would be making a profit at investors' expense.
It all is enough to just about make you run screaming down the street - my 70+ year old parents were visiting a couple of weeks back - after peering over my shoulder for half a morning my mother made the unsolicited observation, "It all sounds like 1929 must have..."
It seems it would cost a lot less if they let the current process run it's course and step in and clean up the aftermath via FDIC.
charlie, that's exactly what i'm saying...that's what, in the end, is going to happen. We have an election year, so lots of "i'm doing something!" proposals will get tossed around...sound and fury signifying nothing, you know?
In the end the government will end up doing a lot of house cleaning, just like in the 80's. People tend to have short memories. Btw, I was in the District a couple of weeks ago and found myself standing in front of the old RTC building. It made me sort of chuckle thinking we don't learn much do we?
[Mr Frank also called for between $5bn and $10bn in loans to the states, which would be used to purchase and refurbish foreclosed homes,]
This week on "Flip this House," when the city of Cleveland bought this dump, they had visions of flipping it to a family of four that receives SSI and runs a foster care home.
But there were surprises waiting...
Can they finish this rehab in time for the open house?
Can the Johnson's actually get the loan they were "preapproved" for?
Hey... at least this episode won't feature some jackass city inspector holding up the process.
Tanta, I believe that this proposal is about buying all the put-backs that the banks are going to take on fraud, etc. The banks aren't going to be able to put them back to the original brokers, so their theory is they'll put them back to the government!
I feel almost sure that this is the real focus of this particular proposal. I am sure the financial lobbyists are having a banner year.
Can you imagine how much WaMu alone is going to get back when the loans default and the original appraisals are deemed suspect?
Yes, this ponzi scheme masquerading as home ownership or take your pick of greed-based decisions is poetic justice. And extremely frustrating to watch unfold.
For those of us that had (or have) parents that grew up during the depression and taught us something about fiscal responsibility; I have little to no sympathy for these folks that are going underwater. What goes up, comes down.
Tanta, I believe that this proposal is about buying all the put-backs that the banks are going to take on fraud, etc. The banks aren't going to be able to put them back to the original brokers, so their theory is they'll put them back to the government!
Well, see, that's the thing. If the banks already owned these loans (had to buy them out of securities because they involved borrower or lender fraud or both), then nothing stops the banks from just writing them down to an affordable balance (that is, refinancing into an FHA loan at 97% and writing off the rest).
So there's no way to make any case for this if the current owner of the loan has nothing stopping it from just accepting a short refi. I again assume that in these put-backs there are conceivably lender-fraud loans that didn't involve borrower-fraud. And even if they involved borrower fraud? When has a lender willing to screw the government ever paused before putting that dog into an FHA refi?
You are therefore assuming that the plan is for FHA to overpay for those loans. Well, that might be someone's plan, but I wonder how much the banks are going to end up getting with only $20 billion in play. The higher the price, the fewer the loans sold.
I could think of some limited examples of those FHA might be willing to (short) refi.
Take the case of a naive borrower who got talked into some cash-back purchase swindle. The loan is a put-back because the investor discovered the inflated appraisal. Some bank buys the loan back.
Assuming the borrower wants to keep the house and can afford it, you refinance it into an FHA loan with a short payoff (the bank eats the amount of the loan that was inflated to provide the cash-back ripoff).
I am not suggesting that this is a typical scenario or anything like that; I'm just suggesting that it's something anyone might be willing to refi as long as it was a short refi.
"You are telling me that these things are REMICs, but the servicer can buy a loan at a discount, which makes the holders of the certificates take the loss?"
Yes. Note sales are definitely an option in the special servicer's arsenal when dealing with defaulted mortgages in CMBS. Again the note has to be in default, the special has to determine that the sale of note is a better course of action on a PV basis to the trust than foreclosure, etc. Additionally the note has to be offered for sale (not necessarily broadly marketed but at least "shopped"). I have no idea how it works in RMBS but I can send you some PSAs from CMBS deals if you like. Full disclosure: I am not a tax or securities lawyer, I just deal with them more than anyone in their right mind would.
MWE.K08.E HARD RED SPRING WHEAT May (MGEX) 1683.00 -
MW.K08 HARD RED SPRING WHEAT May (MGEX) 1698.00 -
KW.K08 HARD RED WINTER WHEAT May (KCBT) 1190 WHEAT May
(KCBT) 1212.25 -)
Is there anyone of the bright posters here no the difference between the mgex and kcbt wheat contract?
In recognition of the progress being made by both companies, as indicated by the timely release of their 2007 audited financial statements, and consistent with the terms of the relevant agreements, OFHEO will remove the portfolio growth caps for both companies on March 1, 2008.
As each Enterprise nears the lifting of its Consent Order, OFHEO will discuss with its management the gradual decreasing of the current 30 percent OFHEO-directed capital requirement. The approach and timing of this decrease will also include consideration of the financial condition of the company, its overall risk profile, and current market conditions. It will also include consideration of the importance of the Enterprises remaining soundly capitalized to fulfill their important public purpose and the recent temporary expansion of their mission.
We've talked a fair amount here about the savings for the lenders if they use workouts rather than foreclosure. But if prices continue to decline, we could easily get to a point where prompt foreclosure beats a workout and re-workout/later foreclosure. I suspect that lenders think that this is likely. With price/rent ratios still far out of whack, I don't see how any of the workout plans, except for a massive wage/price spiral, will arrest the price decline.
"the irony is that the Capitalist preachers on wall street are the first to scream for socialism when the loss comes in..."
Since it appears to be inevitable that we're going to have to pony up some more welfare for the rich there has to be a quid quo pro in there of some non negotiable big tax increases in there for the rich because the rest of us always have to clean up after them.
There are two fundamental problems with pretty much any proposal other than "Let the thing run its course."
The fundamentals, particularly housing supply and demand, MUST come back into balance. There's really no way around that. That means a huge increase in GDP, a huge drop in values, or some combination. Sudden huge increase in GDP is probably not an option. So a huge drop in values is going to happen no matter what.
Since values need to drop, some group of people will lose billions. It could be banks, or current homeowners, or taxpayers, or any combination. Each of these groups has different and significant externalities.
Problem is in the question "Ok, so if all these people are losing billions, where did all that money go?" And most of it didn't go to current homeowners or to banks or to Wall Street, it went to the people who sold their house as prices went up. And it went to the innumerable contractors and merchants who supplied the goods and services paid for with MEW. So if we want to come up with the billions necessary to fund whatever scheme Congress proposes, the one place we can't get it is from the people we gave it to in the first place.
Any attempt to avoid the truth will just end up making the problem even bigger.
As a former taxpayer of the US (now a Canadian taxpayer), I think that 40 cents on the dollar for the distressed loans seems fair-ish for the gov to offer. If the banks don't like it, they can hit the market.
Alan Blinder, a professor of economics at Princeton, has called for a new government vehicle modelled on the Home Owners Loan Corporation of the 1930s to borrow between $200bn and $400bn to buy up and restructure distressed loans.
Mark Zandi, chief economist at Moodys Economy.com told the House financial services committee that it would take about $250bn in upfront funds to purchase all 2m loans expected to end in foreclosure by the end of this decade.
"Restructure"! Restructure! Why be such skinflints. Forgive should be the word. Just forgive the loans. You know, like we used to do for countries in Africa, etc.
Yes, Tanta, I thought you described it accurately. I don't see why there is a need for FHA to buy these and write down when the owners already can write them down and then sell them. I think it's a shell game. There's no missing market mechanism that this fixes.
This looks to me to be another version of the BofA plan you covered.
I feel like such a dinosaur! A relic from the land that banking innovation forgot - where underwriting is done in the beginning.... All these proposals to do it at the end of the process make no sense to me unless they are a closeted way to sell bad loans at above FMV.
In the end the government will end up doing a lot of house cleaning, just like in the 80's. People tend to have short memories. Btw, I was in the District a couple of weeks ago and found myself standing in front of the old RTC building. It made me sort of chuckle thinking we don't learn much do we?
actually if you were looking for the rtc building (801 17th street) it no longer exists. it came down more than a year ago to make room for a high-end condo/mixed use building. at the time i thought it was very ironic as the edifice of the last re crisis was torn down to build over priced condos at the height of the bubble. how fitting.
manu06 writes:
What large bank is in Frank's district ?
Fleet ?
Fleet does not exist anymore. They were purchased by BofA. With Hanckock gone, really Massachusetts has had a lot of it's financial services business dry up.
One thing is for sure, you'll need to use a significant multiplier to calculate what those estimated costs to the taxpayer will actually be.
RTC 2.0 coming soon to a town near you.
Yes, as always it's all about price. Just what exactly constitutes the correct "significant discount." I suspect that the bond and servicing people are convinced that we are NOT near bottom. These plans are predicated on finding a price for these mortgages that is low enough to prevent massive government losses and high enough that the lenders will sell. Really, the only way that we can find a price like that is if the lenders think that the worst is yet to come and the government thinks that the worst is over.
When did barney Frank become Wall Street's best friend? Isn't this just another way of saying a taxpayer funded bailout of the banks and mortgage companies?
I got a great idea that is free: time. Time will only solve the "crime."
Really, the only way that we can find a price like that is if the lenders think that the worst is yet to come and the government thinks that the worst is over.
Absolutely. You don't do a bailout unless you believe, rightly or wrongly, that your intervention will have the right effect. So this kind of a plan always builds in an optimistic buyer and a pessimistic seller.
I'm just hung up on who the counterparty to the government really is. If this is an open invitation for banks to bring those security issues home to momma's balance sheet so that they can then cut loans out the pool to sell, you have to wonder how the banks could ever get enough for them.
Isn't this just another way of saying a taxpayer funded bailout of the banks and mortgage companies?
We have been blogging ad nauseam for years about securitization of loans. The whole Hope Now thingy and all that jazz was all about the difficulties of managing these loans because they are in pools governed by PSAs and tax law and stuff.
So all of a sudden everyone is ready to think that the problem loans are owned by banks and mortgage companies? Why is this?
The externalities involved in foreclosures justified the commitment of public funds. We are talking about terrible impact on society.
Maybe, but I think we should commit all of Alan Greenspan's and David Lereah's personal funds first.
Tanta...How long do you expect the spread between 10yr treasuries and MBS' to stay as wide as they are (about 200bps)?
thanks
Of course there's nothing preventing the sale of these securities right now. The problem is that the holders won't like the price they're likely to get.
Therein lies the problem. Any gov't bail out...erm...purchase of these securities is likely to be well above their value.
The best that could be done is to let the chips land where they may. Painful, but necessary. I see no reason why those who did not participate in getting into debt up to their eyeballs should be tapped to help those that did.
Cheers,
I'm not paying for this crap.
Screwed yourself by being greedy?
Suck. It. Up.
Sorry, Z, Tanta doesn't opine on such things.
Rats! I thought you'd set us (viz. me) straight that FHA insures mortgages. Now it sounds like they purchase them too. Respectfully request clarification.
Like trying to drain your fetid pool with a teaspoon......
Of course there's nothing preventing the sale of these securities right now.
But we aren't talking about the sale of securities, we're talking about the sale of loans.
If the government had to buy the whole damned security in order to get its hands on the loans that need to be refinanced, $20 billion would end up buying maybe 2,000 refinanceable loans, not 200,000. And what would the FHA do with the rest of them?
"Alan Blinder, a professor of economics at Princeton, has called for a new government vehicle modelled on the Home Owners Loan Corporation of the 1930s to borrow between $200bn and $400bn to buy up and restructure distressed loans."
So the experts are seriously calling for Depression era methods for dealing with housing! To think that it was only 24 months ago that there was "no problem", and only 12 moths ago that it was "contained".
Rats! I thought you'd set us (viz. me) straight that FHA insures mortgages. Now it sounds like they purchase them too. Respectfully request clarification.
That is why this is news and would require legislative action: FHA currently is not authorized to buy loans, only to insure private-lender-originated loans.
Really, though, authorizing FHA to buy is the easy part--Congress can just pass a law for that. It's authorizing REMICs to sell that I don't understand here.
I understand Tanta...But we I be on the right path to figuring it out if my notion is that when there are more buyers than sellers of MBS'? lol
Mommy and daddy government come to bail their spoiled, undisciplined kids out of the poor house.
Free market, my ass.
Disgusting display of personal/governmental irresponsibility.
This is not the kind of thing you pay for once. This is only an installment. The extortion will continue.
The government always overpays for everything. Why would this be any different?
Tanta,
"But we aren't talking about the sale of securities, we're talking about the sale of loans."
But they'd pretty much need to. Isn't that the point to the second to last paragraph of your original post? Eggs are tough to unscramble.
Cheers,
Maybe this is just posturing. Barney Frank comes up with unworkable idea, and then when he has to face voters, says "I suggested a plan, but they didn't listen."
I'd like to believe that congressional aides can get good enough advice that they understand the REMIC covenant issues, too.
Just a clarification, making a REMIC election does not trigger a requirement to sell defaulted (or distressed) loans at par. The terms of the PSA govern that. I can't speak for RMBS as I don't look at the PSAs but in CMBS the trend since about 2003 has been market value for defaulted loans vs. par which had been the standard. CMBS issuers make the REMIC election in almost all cases.
Not saying that there's no requirement to buy things out at par (can't say that without looking at the specific PSA for a deal) just that being a REMIC doesn't require par purchases.
Binder's biggest problem is that he conveniently forgets what the issue was with depression-era loans.
The overwhelming majority of them were made as short-term balloons. The borrower was expected to keep refinancing them every 1-5 years as they matured. They were typically 50% LTV as originated.
The problem was that folks couldn't get the bank to refinance those balloons, so the entire amount of the loan was immediately due and payable. Many of them were no longer 50% LTV because of plummeting house prices, but it was more like they were now at 100% LTV. But it is not entirely clear to me that the issue then was unaffordable payments--the issue was getting someone to offer you installment payments (to refinance the balloon instead of demanding payment of the entire remaining balance).
In the current situation, we have loans that started at 100%, are now at 120% LTV or more, and the issue is not maturing balloons but unaffordable payments.
Besides, of course, the fact that HOLC was buying loans from banks, not privately issued securities.
Can a renter like me also receive a handout from Uncle Barney?
Its not my problem that some people borrowed beyond their means and overpaid for a house they just had to own. No bailout. Sorry, suck it up buttercup.
"But they'd pretty much need to."
I don't think this is correct. Even if you have all of the securities, you can't just unwind the deal, sell off the good loans and refi the bad. They don't work that way. What benefit would owning securities give home owners? Would the FHA as directing certificate holder instruct the servicer to not engage in foreclosure? Owning loans and owning bonds is very different.
In order to fully arrest the decline in housing prices a government program would have to be a simple, huge, BLIND, blanket approach that makes no distinction between fraudulent, speculative and mortgages sold by "abusive lenders" to "innocent" buyers.
Anything else will simply drag out the process, increase doubt and confusion and reduce the "natural" level of housing transactions...and the repricing of same.
No one can fashion a program of that size that cannot, simultaneously, be labeled a complete bailout of lenders, investors and speculators. Barney's plan might be one that, he knows, will start "modestly" but will mushroom overnight as there will be no end to those who "need" help.
This nonsense will prolong the problem, sadly. It has the virtue of making Barney (and other pols) look "good", however, so neither the projected cost nor the hidden costs are of any matter, no?
Thank goodness we have enough "progressives" in Congress to fend against We the People from being bled white in this fiasco.
Just a clarification, making a REMIC election does not trigger a requirement to sell defaulted (or distressed) loans at par.
What I am saying is that REMIC law requires these pools to be static. Of course there's no requirement to sell defaulted or distressed loans at any price. The requirement is that the trust's assets are not actively traded at all.
The par issue is that the only way to unload defaults under those PSAs is, in at least some of them, the servicer's or issuer's reserved right to buy out some limited amount of defaulted loans at par. That is a right, not an obligation, of the issuer/servicer.
I have never seen a PSA that would allow the issuer/servicer to buy out a loan at its market price. That would then be a managed pool, not a static one.
What am I missing here?
Just be aware that there is a significant public backlash building against any such plan. Consistently, when the public is given a chance to weigh-in on them, the thumbs down votes are 10 to 20 times more than thumbs-up. Don't ignore the power of the public's voice in an election year with a REALLY lame duck President.
and extra funding for counselling services.
The people who need the counselling services are those that lived within their means and will see their tax bills increase as a reward for their responsible lifestyle.
Even ignoring the fact that the whole mortgage mess is so large, and the US government is so poor that it can't apply more than a band aid (and, while we're at it, the government better save that money for rescuing a Citi or Fannie in the next year anyways), the incentives set by such a bailout are incredibly deleterious (poor underwriting, poor borrowing is rewarded).
Moreover, what are all these horrible externalities caused by foreclosures? No one talks about the return of affordable housing for millions and millions of Americans. Just as with free trade, we see the heartache of the laid off textile worker, but the smaller benefits of millions of consumers are not weighed.
Even if you have all of the securities, you can't just unwind the deal, sell off the good loans and refi the bad.
Well, I agree this won't happen and isn't what is being proposed, but why couldn't you unwind the deal if you bought all the certificates? Presumably you'd have to compensate the servicer under a buyout clause, but then again that's why it won't happen (surely not for $20 billion it won't).
this is just so amusing...
BP(beyond petroleum & back again?)(barely producing) hints at possible sale of alternative energy unit Marketwatch
LONDON (MarketWatch) -- Oil giant BP on Wednesday hinted that it could sell part of its alternative-energy unit, saying the division is worth up to $7 billion when comparing to other companies.
$3-4B? I suggest in all seriousness that Tan Man should kick in at least a third of that.
Can a renter like me also receive a handout from Uncle Barney?
Maybe a 5 year freeze on rents. Rents...and...and...food! No, rents, food...and...and...oil! No, rents, food, oil...and...and...ponies!
I can see the campaign slogan now...
The prices go down, wages go up party!
david_in_ct - sorry can't help you I'm not a research analyst and I stay away from individual stocks. But maybe you misunderstood me? I'm just saying that US equities have been a poor investment in recent years because of the depreciation of the dollar. And I don't expect that to change now that the Fed has basically announced to the world that they will keep cutting rates, which will further pummle the dollar.
It is said better here:
"...On average U.S. investors and foreign investors have done better recently by investing outside of the United States. A significant part of the that benefit comes from growing relative strength of other currencies."
What You Should Know About Currency Risk -- Seeking Alpha
Ponies for everybody!
Oops that was meant to go on the other thread, sorry.
Mr Frank said that under his plan, the FHA would buy up packages of mortgages but at a substantial discount.
Discount to what?
Why would anyone ever want to sell anything at a "substantial discount", even if it were possible?
I guess they could mean a "substantial discount" to the inflated output of some model, as opposed to market value. So what they meant to say is that government intends to "buy mortgages at a substantial premium".
Hello, nationalized mortgage industry. Everyone from Bill Gross to <a href="http://www.ft.com/cms/s/0/471e6794-e2e7-11dc-803f-0000779fd2ac.html>Larry Summers seems to advocate something similar, so I guess it must be a splendid idea.
What if FHA already insures the note, will they be liable for the cram down?
Thank you Barney...I was worried for folks like Joe Lents (they guy that hasn't made a pymt in 5 yrs)
So all of a sudden everyone is ready to think that the problem loans are owned by banks and mortgage companies?
Well, given the size of the problem we could probably blow all 20 billion just on problem loans outside of securitization deals. We're looking at, what, over 1 trillion in underwater loans within a year? We can blow a LOT of money without ever needing to get into the securitization pools. Also, keeping the banks afloat is more urgent than assorted investors.
That's a long way from a goal of one million loans, however you slice it.
You're sking WAY too much of the chair of the House Committee on Finance to be able to grasp 4th grade math.
Just be aware that there is a significant public backlash building against any such plan.
It seems to me that the number of people who have legitimately paid for their house or have already been foreclosed on would far outnumber the people who would be helped (directly) by these bailouts.
Why wouldn't all the people who lost their house in the past 5 years be absolutely livid that their tax dollars are now going to bail somebody else out when they recieved no such bailout themselves?
Likewise for people who paid for their houses with their own money.
Nevermind whether it's right or not - is it politically tenable?
Rich, you are quite right about public sentiment.
I'd suggest if anyone is interested in affecting this particular issue, write a letter to The Boston Globe, Frank's hometown newspaper, available at boston.com. The paper does publish letters from out of town, especially when it receives many about the same issue.
I'd think hard about what you say, because we are still not clear exactly what Frank is proposing. But it's important to say something. While the public in Massachusetts is no more amenable to bailouts than anyone else, the press here, as elsewhere, focuses exclusively on hard-luck "innocent" borrowers. Breaking through that narrative is the key to mobilizing public backlash.
As I say, be careful that you limit your remarks to accurate statements we know to be true right now.
"Can a renter like me also receive a handout from Uncle Barney?"
Well renters like us have been subsidising those upstanding citizens that think home ownership (even if the owner can't afford it) is the highest expression of the American ideal for years. I got this very conservative former co-worker of mine to the point of almost killing me by insisting he was a welfare queen that was was addicted to the mortgage interest tax deduction. I of course don't really believe this to be true but someone who sends me links to the NRO, quotes Rush Limbaugh like he's Thomas Jefferson and reads Bill O'Reilly's fiction is going to get what they get from me.
Why does Massachusetts keep electing this guy? Boggles my mind.
I propose legislation that requires any elected official to fund any of his/her own proposals with 100% of his/her own (protected or unprotected) assets before committing any of mine.
There are several key things needed to make a bailout work:
End goal: an economy of debt-serfs with no jobs, no future, and no hope: just lots of debt and worthless fiat currency for all.
Interesting. I took a quick look at Barney Franks District. He is getting ahead of the curve. Actual forclosure rate is not bad but houses in pre-foreclosure is going to change that number by a lot.
Barney is a very smart guy. I've talked to him...astonishingly smart. This is also an election year. Put together a mess, and an election year and what do you get?
You get billing and cooing about the problems, calls to action, legislation introduced, chest-thumping, lipstick, and lots of shiny accessories that, in the end, just amount to a show. I would be shocked if Mr Frank didn't know about all these problems with the proposal. I'd be shocked if they didn't come out during discussion, and another proposal was put together. And another. All adding up to....time.
Because everyone knows what the issues here are, and time is what is needed. And a couple of programs tossesd in to satisfy the voters that something is being done, where really not much is being done.
So for all the conspiracy theorists out there, what exactly has been done? Pretty much nothing by the government. Well, except if you count the Fed, and that's a whole other discussion. In the end we'll bail out a few people, and that will be it. By the time any of this would get done, it will be way to late to save just about anyone, and the worst of it will have passed.
Fannie Mae Records a Steep Loss,
Shaken by Credit-Market Malaise
"Government-sponsored mortgage finance giant Fannie Mae swung to a deep fourth-quarter loss and reported a sharp rise in late payments on loans, a sign damage from the U.S. housing slump is rolling out from the Ground Zero of subprime mortgages."
Fannie Mae Lowers Housing Outlook As It Logs $3.56 Billion Loss - WSJ.com
Discount to what?
To the face value (par) of the loan.
Why would anyone ever want to sell anything at a "substantial discount", even if it were possible?
To get some invested principal back today.
The theory is this:
So that takes care of why sellers would sell (assuming their PSAs let them sell). Why would there be any reason for FHA to buy?
Again, the theory is that it can do what the mortgage servicers are prohibited from doing, which is working out those loans.
But if FHA bought at what is in essence the estimated recovery amount, the theory is that it would simply break even. Buy a $100K loan for $75K, refinance it into a new $75K loan, FHA breaks even and the seller of the loan ate the $25K.
When NASDAQ crashed, the goverment policy was to clean up the aftermath, not try to prevent it.
During the S&L crisis, the government seized control of failed banks and handled each bank failure on a case by case basis. Sometimes they liquidated what they could and dissolved the bank, sometimes they found a new owner for the bank. It wasn't perfect, but it worked.
How come now the government is trying to prevent the failures from occuring in the first place?
We have a system in place to handle failed banks. We have systems to process foreclosures. Why do an across the board bailout of banks and homes when many of the homeowners will work things out on their own and most banks won't fail?
Banks will do whatever they can to prevent failure. Maybe they'll have to sell a large stake to China or the Saudi's, but most of them will find a way out on their own. Rest assured, if they see the government coming to the rescue, they'll focus their attention on taking as much advantage as possible from the goverment.
It seems it would cost a lot less if they let the current process run it's course and step in and clean up the aftermath via FDIC. That way they aren't throwing good money at something that may have never required a bailout in the first place.
FNM: The net loss was triple analyst estimates.
stock up 15% from the open...
I will not have comments like that on my blog. You can take that kind of thing elsewhere. Tanta
Edited By Siteowner
What Ipodius said, Barney gets it. No worries, this is for show.
The problem was that folks couldn't get the bank to refinance those balloons, so the entire amount of the loan was immediately due and payable.
The other problem was that even if you were on your way to saving up for the balloon payment, the bank failed and your savings to cover the ballon payment vanished.
Yeah, the Fannie Mae business is a big bailout coming. Given that the GSEs are the mortgage market ATM, not one we can avoid either. Wonder how Fannie's reserves are looking right now? Not good, I'll bet.
Non-paywalled Fannie Mae report
So, how do these huge losses at Fannie Mae affect the proposed plans to make them the lender of last resort for everything (and eventually shovel all the toxic loans onto them)?
Silly me - it probably has no effect at all! Housing only goes up, and costly housing is VITAL to the Amerikan eCONomy!
What, precisely, does Barney Gumble think that taxpayer money thrown about in a fit of glee will accomplish?
Stop the dropping of home prices? (No)
Stop foreclosures? (No)
Stop the bad economic data? (No)
What's his objective? What does he want to accomplish? I'm thoroughly confused.
Want votes? I can think of a lot of things less $$-intensive. Want a good economy? Balance the budget and keep middle-class jobs in this country, tard-boy-man.
I don't think he has an actual metric in mind.. this proposal is a swing and a miss both as written and in long-term usefulness.
IMO:
from Europe it looks like this:
You are facing a ideological problem too...
free market or socialism /communism...
(for example: how can the bailout ((800 billion!!!)) be bigger then the combined market capitalisation of the banks involved?? would the gov not own them at the end??)
any bailout to let taxpayer hold the bag is well you guess it...
the irony is that the Capitalist preachers on wall street are the first to scream for socialism when the loss comes in...
just my 2 cents..
"I have never seen a PSA that would allow the issuer/servicer to buy out a loan at its market price. That would then be a managed pool, not a static one.
What am I missing here?"
I probably wasn't articulate enough in what I was saying. Servicers can't buy back performing loans, in pretty much all circumstances. In the case of a defaulted loan traditionally the note could be sold to third party investors at market value or to a servicer at par. In CMBS at least the change has been that the servicer can now bid in competition with third parties and pay the market clearing level for a note that is in default. I did not mean to suggest that servicers can buy and sell performing notes as though the deal were a securitization.
"Well, I agree this won't happen and isn't what is being proposed, but why couldn't you unwind the deal if you bought all the certificates? Presumably you'd have to compensate the servicer under a buyout clause, but then again that's why it won't happen (surely not for $20 billion it won't)."
Accounting reasons. FAS140 doesn't really permit voluntary clean-up of a deal unless you are below some threshold amount of the original certificates outstanding (usually 10%). Basically there's no tender provision for the issuer. There might be some way in which you could acquire everything and vote to ammend the deal, but I'm not sure you'd get it past everyone you need to get it past (Accts, Trustee, etc.). Plus since most of the time the required payoff is effectively yield maintenance, good luck getting those bonds out of holder's hands if they have any idea of what you are trying to do. All my bonds that were trading at $.50 are now going to get redeemed at $1.05, oh happy day!
the Home Owners Loan Corporation of the 1930s to borrow between $200bn and $400bn to buy up and restructure distressed loans."
that's a wonderful idea...
Home Owners(really just upside doen leaser's) create a Certificate, and loan it to there neighbor...
we'll all be RICH, i tell ya...
Sorry, Tanta, won't do again. Frustrated that insolvency is viewed as home ownership. Fog a mirror and get a loan.
Tanta,
Thank you for maintaining the standard that you do here - a big part of why the community here is as diverse and thoughtful (at times lol) as it is - huzzah!
In the case of a defaulted loan traditionally the note could be sold to third party investors at market value or to a servicer at par. In CMBS at least the change has been that the servicer can now bid in competition with third parties and pay the market clearing level for a note that is in default.
You are telling me that these things are REMICs, but the servicer can buy a loan at a discount, which makes the holders of the certificates take the loss?
It doesn't matter whether the loan is performing or not. The question is whether you have to return 100% of outstanding principal to the investor.
I am the first to admit that I am not a specialist in CMBS, but how can they be REMICs if they can sell assets at less than par to anyone, including the servicer?
In RMBS, the only choice the trust has is to liquidate loans (foreclose and then sell the REO). You can't just sell loans out of a static pool. Performing or not. Now, some PSAs will let the servicer take loans out, up to some predetermined dollar amount. But it's always at par because otherwise the servicer would be making a profit at investors' expense.
NSA,
It all is enough to just about make you run screaming down the street - my 70+ year old parents were visiting a couple of weeks back - after peering over my shoulder for half a morning my mother made the unsolicited observation, "It all sounds like 1929 must have..."
It seems it would cost a lot less if they let the current process run it's course and step in and clean up the aftermath via FDIC.
charlie, that's exactly what i'm saying...that's what, in the end, is going to happen. We have an election year, so lots of "i'm doing something!" proposals will get tossed around...sound and fury signifying nothing, you know?
In the end the government will end up doing a lot of house cleaning, just like in the 80's. People tend to have short memories. Btw, I was in the District a couple of weeks ago and found myself standing in front of the old RTC building. It made me sort of chuckle thinking we don't learn much do we?
[Mr Frank also called for between $5bn and $10bn in loans to the states, which would be used to purchase and refurbish foreclosed homes,]
This week on "Flip this House," when the city of Cleveland bought this dump, they had visions of flipping it to a family of four that receives SSI and runs a foster care home.
But there were surprises waiting...
Can they finish this rehab in time for the open house?
Can the Johnson's actually get the loan they were "preapproved" for?
Hey... at least this episode won't feature some jackass city inspector holding up the process.
Tanta, I believe that this proposal is about buying all the put-backs that the banks are going to take on fraud, etc. The banks aren't going to be able to put them back to the original brokers, so their theory is they'll put them back to the government!
I feel almost sure that this is the real focus of this particular proposal. I am sure the financial lobbyists are having a banner year.
Can you imagine how much WaMu alone is going to get back when the loans default and the original appraisals are deemed suspect?
I believe that this proposal is about buying all the put-backs that the banks are going to take on fraud, etc.
why would the FHA want to refi those?
energyecon,
Yes, this ponzi scheme masquerading as home ownership or take your pick of greed-based decisions is poetic justice. And extremely frustrating to watch unfold.
For those of us that had (or have) parents that grew up during the depression and taught us something about fiscal responsibility; I have little to no sympathy for these folks that are going underwater. What goes up, comes down.
Tanta, I believe that this proposal is about buying all the put-backs that the banks are going to take on fraud, etc. The banks aren't going to be able to put them back to the original brokers, so their theory is they'll put them back to the government!
Well, see, that's the thing. If the banks already owned these loans (had to buy them out of securities because they involved borrower or lender fraud or both), then nothing stops the banks from just writing them down to an affordable balance (that is, refinancing into an FHA loan at 97% and writing off the rest).
So there's no way to make any case for this if the current owner of the loan has nothing stopping it from just accepting a short refi. I again assume that in these put-backs there are conceivably lender-fraud loans that didn't involve borrower-fraud. And even if they involved borrower fraud? When has a lender willing to screw the government ever paused before putting that dog into an FHA refi?
You are therefore assuming that the plan is for FHA to overpay for those loans. Well, that might be someone's plan, but I wonder how much the banks are going to end up getting with only $20 billion in play. The higher the price, the fewer the loans sold.
What jag said. Since so much of the market was speculative, you can't stop market declines without bailing out speculators.
why would the FHA want to refi those?
I could think of some limited examples of those FHA might be willing to (short) refi.
Take the case of a naive borrower who got talked into some cash-back purchase swindle. The loan is a put-back because the investor discovered the inflated appraisal. Some bank buys the loan back.
Assuming the borrower wants to keep the house and can afford it, you refinance it into an FHA loan with a short payoff (the bank eats the amount of the loan that was inflated to provide the cash-back ripoff).
I am not suggesting that this is a typical scenario or anything like that; I'm just suggesting that it's something anyone might be willing to refi as long as it was a short refi.
"You are telling me that these things are REMICs, but the servicer can buy a loan at a discount, which makes the holders of the certificates take the loss?"
Yes. Note sales are definitely an option in the special servicer's arsenal when dealing with defaulted mortgages in CMBS. Again the note has to be in default, the special has to determine that the sale of note is a better course of action on a PV basis to the trust than foreclosure, etc. Additionally the note has to be offered for sale (not necessarily broadly marketed but at least "shopped"). I have no idea how it works in RMBS but I can send you some PSAs from CMBS deals if you like. Full disclosure: I am not a tax or securities lawyer, I just deal with them more than anyone in their right mind would.
Take the case of a naive borrower who got talked into some cash-back purchase swindle.
yeah, i guess i was assuming most wouldn't be of that variety.
OT OT OT
MWE.K08.E HARD RED SPRING WHEAT May (MGEX) 1683.00 -
MW.K08 HARD RED SPRING WHEAT May (MGEX) 1698.00 -
KW.K08 HARD RED WINTER WHEAT May (KCBT) 1190 WHEAT May
(KCBT) 1212.25 -)
Is there anyone of the bright posters here no the difference between the mgex and kcbt wheat contract?
tia
INO.com Current Futures Trading Price Board - Intraday Prices, Charts, and Quotes for Futures and Commodities Markets
*FANNIE MAE, FREDDIE MAC PORTFOLIO CAPS TO BE LIFTED MARCH 1
*REGULATOR TO REMOVE FANNIE AND FREDDIE PORTFOLIO GROWTH CAPS
STORY TO FOLLOW.
This solves everything!
Party like it's 1929.
OFHEO says stuff:
In recognition of the progress being made by both companies, as indicated by the timely release of their 2007 audited financial statements, and consistent with the terms of the relevant agreements, OFHEO will remove the portfolio growth caps for both companies on March 1, 2008.
As each Enterprise nears the lifting of its Consent Order, OFHEO will discuss with its management the gradual decreasing of the current 30 percent OFHEO-directed capital requirement. The approach and timing of this decrease will also include consideration of the financial condition of the company, its overall risk profile, and current market conditions. It will also include consideration of the importance of the Enterprises remaining soundly capitalized to fulfill their important public purpose and the recent temporary expansion of their mission.
The page cannot be displayed
make room for the LFKAJs!!1!!
We've talked a fair amount here about the savings for the lenders if they use workouts rather than foreclosure. But if prices continue to decline, we could easily get to a point where prompt foreclosure beats a workout and re-workout/later foreclosure. I suspect that lenders think that this is likely. With price/rent ratios still far out of whack, I don't see how any of the workout plans, except for a massive wage/price spiral, will arrest the price decline.
FANNIE MAE, FREDDIE MAC PORTFOLIO CAPS TO BE LIFTED MARCH 1
---Well that takes care of the "600k jumbos are equal to 3 200k non jumbos," problem.
"the irony is that the Capitalist preachers on wall street are the first to scream for socialism when the loss comes in..."
Since it appears to be inevitable that we're going to have to pony up some more welfare for the rich there has to be a quid quo pro in there of some non negotiable big tax increases in there for the rich because the rest of us always have to clean up after them.
There are two fundamental problems with pretty much any proposal other than "Let the thing run its course."
Problem is in the question "Ok, so if all these people are losing billions, where did all that money go?" And most of it didn't go to current homeowners or to banks or to Wall Street, it went to the people who sold their house as prices went up. And it went to the innumerable contractors and merchants who supplied the goods and services paid for with MEW. So if we want to come up with the billions necessary to fund whatever scheme Congress proposes, the one place we can't get it is from the people we gave it to in the first place.
Any attempt to avoid the truth will just end up making the problem even bigger.
As a former taxpayer of the US (now a Canadian taxpayer), I think that 40 cents on the dollar for the distressed loans seems fair-ish for the gov to offer. If the banks don't like it, they can hit the market.
Alan Blinder, a professor of economics at Princeton, has called for a new government vehicle modelled on the Home Owners Loan Corporation of the 1930s to borrow between $200bn and $400bn to buy up and restructure distressed loans.
Mark Zandi, chief economist at Moodys Economy.com told the House financial services committee that it would take about $250bn in upfront funds to purchase all 2m loans expected to end in foreclosure by the end of this decade.
"Restructure"! Restructure! Why be such skinflints. Forgive should be the word. Just forgive the loans. You know, like we used to do for countries in Africa, etc.
Yes, Tanta, I thought you described it accurately. I don't see why there is a need for FHA to buy these and write down when the owners already can write them down and then sell them. I think it's a shell game. There's no missing market mechanism that this fixes.
This looks to me to be another version of the BofA plan you covered.
I feel like such a dinosaur! A relic from the land that banking innovation forgot - where underwriting is done in the beginning.... All these proposals to do it at the end of the process make no sense to me unless they are a closeted way to sell bad loans at above FMV.
After Uncle Sam takes all the toxic loans away, how soon before we can do it again?
What large bank is in Frank's district ?
Fleet ?
ipodius writes:
In the end the government will end up doing a lot of house cleaning, just like in the 80's. People tend to have short memories. Btw, I was in the District a couple of weeks ago and found myself standing in front of the old RTC building. It made me sort of chuckle thinking we don't learn much do we?
actually if you were looking for the rtc building (801 17th street) it no longer exists. it came down more than a year ago to make room for a high-end condo/mixed use building. at the time i thought it was very ironic as the edifice of the last re crisis was torn down to build over priced condos at the height of the bubble. how fitting.
manu06 writes:
What large bank is in Frank's district ?
Fleet ?
Fleet does not exist anymore. They were purchased by BofA. With Hanckock gone, really Massachusetts has had a lot of it's financial services business dry up.
manu06,
Federal Reserve Bank of Bosto