I wish Lockhart went into more detail about the impact of the following statement.
A $600,000 loan requires as much capital as three $200,000 loans.
Especially with regards to portfolio limits.
(political hat on)
Am I a such bad guy to think that helping 3 first time buyers ($200k) is a better use of capital than to help one California speculator (600k) get bailed out?
SInce the increase in the conforming loan limit only lasts until the end of 2008, anyone who buys using it is likely to have fewer potential buyers if they go to sell in the next few years.
The supply of buyers will be constrained when the limit reverts. It seems a rational buyer who might need to sell would factor that in and lower his offering price.
Separately, I am skeptical that raising the limit will matter that much. The mania has passed. I don't think there are as many people eager to take on $700K home loans as there used to be.
At the end of 2008 it will be clear that we need to extend the program
Then 3 years from now Fannie and Freddie will be even more insolvent than they already are
Thus, govt bailout.
it will be much more politically palatable to bail out 2 firms that are both GSE's (Fannie/Freddie) than to bail out numerous private banks (wells/wamu/citi/jpmorganchase etc)
"...In a fresh sign that the nation's housing crisis will worsen, home prices are likely to decline in 2008 for the second straight year, the National Association of Realtors said Thursday...The Realtors, in its monthly economic and sales outlook, is forecasting a 1.2% drop in prices of existing homes sold this year...Only a month ago, the association was forecasting that prices would be flat in 2008 and that the home market would rebound in the last half of the year..."
" If you add in the net increase in outstanding FHLBank advances, especially in the third quarter, the combined market share of the housing GSEs may be 90 percent. . . .
"
This means YOU (each US citizen) are now guaranteeing most of the current high house price....
So if those house prices head down 25%, YOU will pay much of that cost, thru taxes and inflation.
The beneficiaries of your payments will be those speculators that sold on the way up, especially those using the systems advertised on TV: How to become a Real Estate Millionare.
Their money is coming from you in significant part -- the likely outcome.
If so, a number of sound options exist:
1) the first-time buyer should remain a renter
2) the first-time buyer should move to somewhere where the buyer can afford home ownership.
3)the first-time buyer should save more money for a down payment to assure 'skin in the game.'
The last thing the GSEs should be doing now is undermining their financial health while simultaneously maintaining the speculative real estate asset bubble in California. Let the market correct itself. I can't imagine I am quoting the Republican front runner, because I loathe the selfish and mean spirited crowd that they are, but as John McCain so wisely suggests:
"...return to the principle that you don't lend money (to people) who can't pay it back." McCain said there are "some greedy people on Wall Street who perhaps need to be punished". Yes, I also love the irony of this coming from one of the Keeting 7.
But he's got a point. And in case, let's protect the GSEs.
I think increasing the CLL to 600,000 is the dumbest idea ever. And if you are a member of Congress and can not understand the implications of that last line in the quote above, you shouldnt be in Congress or you need to read up on the issue.
But, I thought part of this was a geographical based CLL. I know that doesnt get around the idea of having the total loan amount skewed to places like Calif. But does it keep some sanity in the market for other areas.
Again, dumb idea but hope some sanity like Lockharts prevails.
Not only are there no guarantees, but the GSEs are up to their necks in QSPEs. If FASB ends that party (previous Tanta post) that will put extreme pressure on their capital.
I spent about a year writing a series of posts titled "The Safety Net That Never Was" (aka the "implicit guarantee"). And now it seems people are noticing the problem.
Not all people want to move several hundred miles away from Bubble Zones - giving up their friends, family, and jobs in the process. And we shouldn't have to; this notion that huge swaths of the nation - often the only areas with decent jobs - should be disgustingly overpriced is insane and needs to end.
Saving is for "losers" and the Fed will make sure of that by going to 0% interest while stoking the fires of inflation.
This whole bit with the higher loan limit is simply a ploy to pass the bailout burden to the taxpayers while trying to keep housing unaffordable. Unaffordable housing is good since it will force people to depend upon the whims of the government for housing in the future - think of the power that would come with being able to control who gets shelter and who doesn't!
Does anyone know what percentage of current mortgages were taken out, not by home buyers or speculators but by MEWers?
In our corner of the world, a large proportion of people in default appear to be in trouble on refi's they did in 2005-06, on homes they had purchased years before.
"Not all people want to move several hundred miles away from Bubble Zones"
Irrelevant. I want to live in a mansion in La Jolla. But guess what? I can't so I moved to the midwest, over a THOUSAND miles from my family and friends... guess what, I survived. And there's three great inventions- called the telephone, the airport, and the internet that keep me connected.
"And we shouldn't have to"
you're right. so pony up and pay the asking prices without govt intervention, or rent.
"Saving is for "losers" and the Fed will make sure of that by going to 0% interest while stoking the fires of inflation."
couldn't agree more. The fed is trying to drop "safe" returns to negative real rates of return, FORCING the prudent to jump into speculative investments (i.e. mortgages and other derivative securities).
It is the only way to keep the ponzi game going.
I would propose that if the limit is increased, then there is a stipulation that under no circumstances will the GSEs be bailed out with taxpayer money. ...
Lockhart's message is so commonsensical and obvious. It's scary that this is probably news to the members of Congress.
If I were running Countrywide (or BofA) or WaMu, I would move heaven and earth to refinance as many borrowers as possible while this "temporary" (wink wink) conforming limit lasts. Get those loans out of my servicing portfolio and make them someone else's problem. Even if it means forgiving some debt to help the borrower qualify for a refi.
Now, you don't suppose that this is why folks are pushing a higher conforming limit, do you?
Oh, and Tanta, could you answer a question about FHA? As I understand it, the FHA doesn't have CLTV limits. So I could have a $400,000 first lien and a $100,000 HELOC on a house that's now worth $420,000 -- and if the FHA limit is raised, I could (theoretically) refi the first lien for $400,000 into an FHA-insured loan. First-lien LTV is about 95 percent and combined LTV is about 120 percent.
I would propose that if the limit is increased, then there is a stipulation that under no circumstances will the GSEs be bailed out with taxpayer money. ...
That would take a specifically directed constitutional amendment to have any real teeth. Any statutory declaration stating no direct or implicit future bail out can be changed by a new statute making it null and void. It would only be words on paper replacing words on paper.
Heck - even a constitutional amendment can be repealed by a NEW amendment (see prohibition).
The only protection worth a damn is peoples' vigilance. If we don't have it we are screwed.
"As the safety and soundness regulator of Fannie Mae and Freddie Mac, I have to tell you that expansion of their activities would be imprudent unless the regulator has significantly more powers and more flexibility to use those powers."
Translated into plain English: "I need a bigger budget and more subordinates if I'm going to sign off on this."
Does anyone know what percentage of current mortgages were taken out, not by home buyers or speculators but by MEWers?
by 'MEWers', I'm supposing you mean owner-occupied cash-out refi's.
What is that going to tell you? I can tell you taht in 2006, there were two 'cash-out' refi's for every one 'rate/term' refi. Still, that doesn't tell you how much was taken out. It also doesn't tell you to what extent people were tapping/taking out 2nds.
MEW is tougher to measure than the Maestro's work might suggest.
Does anyone know what percentage of current mortgages were taken out, not by home buyers or speculators but by MEWers?
by 'MEWers', I'm supposing you mean owner-occupied cash-out refi's.
What is that going to tell you? I can tell you taht in 2006, there were two 'cash-out' refi's for every one 'rate/term' refi. Still, that doesn't tell you how much was taken out. It also doesn't tell you to what extent people were tapping/taking out 2nds.
MEW is tougher to measure than the Maestro's work might suggest.
What I'm getting at is a point that a lot of people seem to miss. A lot of the subprime mortgage picture is all about refis (first and seconds) for consumption (spending) rather than about home purchasing--whether that means "the American dream of home ownership" or specuvesting. A lot of the discussion about mortgage problems seems to assume it is all about buying and selling homes, but in a higher-than-realized percentage of cases, it is simply about borrowing money: taking your house to the pawn shop, in effect.
John-M. I would expect it's only a matter of detail just how far we are on the hook for the GSE's. The implicit guarantee is understood to be there. Even if it isn't nailed down. But it would be interesting to speculate on the detail.
So I could have a $400,000 first lien and a $100,000 HELOC on a house that's now worth $420,000 -- and if the FHA limit is raised, I could (theoretically) refi the first lien for $400,000 into an FHA-insured loan. First-lien LTV is about 95 percent and combined LTV is about 120 percent.
But you can't refinance any first lien while doing nothing about the second lien. If you did that, the new loan (the new refinance) would be in second lien position behind the old loan that isn't being paid off (the HELOC). Neither FHA nor anyone else will allow that to happen.
Either you have to have enough equity to pay off the second lien with first lien proceeds (which you wouldn't have in your example), or you have to get the second lien holder to "resubordinate" its lien--file a written agreement in the public records that puts the old HELOC behind the new refi even though its mortgage date precedes the new refi.
There is no law that says second lien holders have to agree to subordinate. However, if they are willing to and the borrower qualifies for the total debt payments under FHA qualifying rules, you could do that.
So why is this the only quote from Lockhart in the MarketWatch story:
James Lockhart, the director of the federal agency that oversees Fannie and Freddie, said they have been helping borrowers refinance out of subprime loans.
"They do have enough capital at the moment to do more, especially in the securitization area," Lockhart said.
Thanks, Tanta. I would think that second lienholders would resubordinate if, under FHASecure, the refi'd first lien resulted in a lower rate and lower payments.
would increase the maximum size loan those GSEs could purchase or guarantee from $417,000, to the lower of 125 percent of median area prices or $730,000, for mortgages originated between July 1, 2007 and December 31, 2008.
Right on Lockhart, stand your friggn ground and say no to Paulson, Fannie and the collusive corruption. Do we have maybe one person in Washington on the right track? I seriously doubt anyone on The Banking Committee is not bought off by boatfulls of lobbyists from NAR, SIFMA, and a very long list of scumbags, but at least Lockhart has some ok PR going!!!!
MAB writes:
Currently, the GSE's have NO government guarantees. Hence the cliff diving of FRE & FNM.
Here we go again...
Ok, riddle me this: If there really is no assumed/implicit government guarantee behind these GOVERNMENT-Sponsored Enterprises (despite what the bond markets seem to think), then why does Congress get to vote on raising the GSE conforming loan limits?
If GSEs were truly "private" corporations that answered only to internal management and shareholders, then why can't the GSE CEOs tell CON-gress to go pound sand?
For a non-CEO view of Fannie around Dec/07: Bear In Mind › Fannie Mae: Systemic time bomb
I am fixated on this financial theme 'counterparty risk' (and need to extend it to the non-financial world) --which I construe as efforts to keep your trading partner alive and able to continue his payments/obligations/support for your most worthy goals/interests/satisfaction.
That would mean supplying the oxygen tent to the bulk of the population...not just the subprime few (the CEO endorsed MSM view).
And of course there are priorities: those supplying life support will get the life support needed to supply the life support...even though they may have been responsible for the need for the tent in the first place.
Ok, my counterparties, do you think that's too cynical?
Lockhart is a close personal friend of President Bush, that's one reason he is running OFHEO.
Mab,
Bob Blakely came as close as anyone will ever come to getting Fannie's books in order. He started out as an MIT mechanical engineer. It was likely him that vetoed the plan to put the extra accountants in Fannie's parking garage -- the weight would have threatened to collapse the structure. Bob's delivery of Fannie's '06 10-K ahead of the NYSE delisting deadline late last year was a genuine miracle.
I'm not betting the '07 10-K appears on time on March 15th, now that he's gone.
The real bailout isn't through Fannie and Freddie but through FHA (FHA's limits are tied to the conforming limit). FHA will be making the truly toxic (97% CLTV, down payment assistance, etc.) loans to refi the existing loans and bailout the banks.
"There is no law that says second lien holders have to agree to subordinate. However, if they are willing to and the borrower qualifies for the total debt payments under FHA qualifying rules, you could do that."
Tanta, wouldn't the CLTV limit on the proposed first lien shoot down the CLTV of 120% in the example used even if the 2nd lien holder agreed to subordination? Or have I missed something in these new-fangled products?
then why does Congress get to vote on raising the GSE conforming loan limits?
Many private industries are regulated by the government. Utility companies/rates for one. Some states and cities even regulate rental rates and rental rate increases.
Regulation, by congress or other government agency, is not proof of a government guarantee. The only guarantee is an assumed one of the TOO BIG TO FAIL type.
Not all people want to move several hundred miles away from Bubble Zones - giving up their friends, family, and jobs in the process. And we shouldn't have to; this notion that huge swaths of the nation - often the only areas with decent jobs - should be disgustingly overpriced is insane and needs to end.
The insane part is that the priced-out folks in these "desirable" areas are fighting against affordable housing. Where are all the new condo towers in downtown LA? In Manhattan? The LA metro area is, on average, the most densely populated area in the US - even more dense than NYC. Manhattan beats LA metro. Everybody is already living on top of each other, yet they turn out in droves to protest any new towers. Why?
In a letter to the heads of the two companies, Schumer asked that they immediately state that when appropriate, servicers can and should make partial chargeoffs available to struggling homeowners.
I have had it with them. They keep saying It will lower our stock price. Its not as profitable as what else we do. Then, Hello! Fannie and Freddie, Go become a private company, Schumer said. You have a government guarantee. You dont pay taxes. You have a lot of benefits. Now if ever is the time for you to step up to the plate.
Now I'm not sure about everyone here knowing about "no governement guarantee, but none of you have talked to Schumer.
Lockhart obviously gets it, but I fear that his accurate but very technical wording will not get the attention it deserves. None of this stuff is rocket science, but I wonder if his audience (Congress, executive branch, the public at least) doesn't just focus on the soundbites. I think they hear, "Lockhart thinks there might be problems with raising the CLL, but it will be OK with more oversight." What I would like to hear him say after all of the technical analysis is something that the average American (or Congressman) understands and Lockhart really knows. Perhaps, "Every single piece of historical performance suggests that the system is not strong enough to provide the oversight that would be required to make this work, and we should all openly recognize that the taxpayer will end up paying for the failure when it happens."
During fed testimony to congress in 2006 I believe, Schumer stated that his NYC house was "by far" his largest asset and had increased in value by a factor of more than TEN!
Or have I missed something in these new-fangled products?
Terry, in Queequeg's scenario, the proposed post-FHA-refi CLTV would be unchanged from the current CLTV. It doesn't matter if the current CLTV is higher than the original CLTV. Subordiation decisions don't have shit to do with CLTVs, per se.
The key consideration is that the first lien stays the same or goes down. Period. So long as the new balance would not be INCREASED as a result of a first mortgage refi, the 2nd mortgage holder should be willing to subordinate, since their position would remain the same (or theoretically better, if the new loan has better terms), as had no refi occured.
Yes, but if there was really a shortage of affordable housing then the people that are priced-out can out-vote those seeking to "protect" their land values (and it's pretty dubious that land values would go down with higher density. Look at Manhattan.).
yet they turn out in droves to protest any new towers. Why?
To keep their property values high.
========================
Not in NYC. We occasionally protest projects that will steal park space or subsidized housing, but not much else. New condos in NYC actually often increase the value of neighborhoods.
Re NYC, have you ever been in mid-town Manhattan at rush hour? I mean we're talking dense foot traffic, not to speak of vehicle traffic. Our subways are already operating at over 100% capacity.
Anyway, after the banks in NYC finish devastating the entire economy, there will be massive layoffs here, too. Already starting, I think.
Lockhart is clearly correct, but absent the discussion is the fact that current VERIFIABLE incomes in the US do not support $400+K mortgages.
Ditto on the oversight comments above. As with the proposed immigration bill; the regulations that allowed a more compassionate approach ignored the fact that the proposed solutions were impossible to implement.
Yes, but if there was really a shortage of affordable housing then the people that are priced-out can out-vote those seeking to "protect" their land values (and it's pretty dubious that land values would go down with higher density. Look at Manhattan.).
No. Density has little to do with it. It's supply and demand. That's all. Look at Buffalo.
You can't out-vote people in jurisdiction A if you live in jurisdiction B.
Not in NYC. We occasionally protest projects that will steal park space or subsidized housing, but not much else. New condos in NYC actually often increase the value of neighborhoods.
Park space usually helps keep demand up. So it's still a property value issue; your quality of life affects your demand of staying in the property you own. But that is still demand.
Manhattan has such a large demand that an additional 1,000 condos probably isn't going to have a significant impact on property values in and of itself because it's a relatively small addition to the supply. There are more people who don't live in Manhattan that would like to than there are people living in Manhattan that would rather not live there.
But choking the streets and subways and parkland with more people may have an adverse effect on demand.
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I wish Lockhart went into more detail about the impact of the following statement.
A $600,000 loan requires as much capital as three $200,000 loans.
Especially with regards to portfolio limits.
(political hat on)
Am I a such bad guy to think that helping 3 first time buyers ($200k) is a better use of capital than to help one California speculator (600k) get bailed out?
How quick we move to socialize the losses when we realize a faith based system does not work.
600k is a first-time buyer in CA.
If Tanta refuses the position of mortgage czar, I think it should be offered to Lockhart. He seems to be one of the sane ones...
SInce the increase in the conforming loan limit only lasts until the end of 2008, anyone who buys using it is likely to have fewer potential buyers if they go to sell in the next few years.
The supply of buyers will be constrained when the limit reverts. It seems a rational buyer who might need to sell would factor that in and lower his offering price.
Separately, I am skeptical that raising the limit will matter that much. The mania has passed. I don't think there are as many people eager to take on $700K home loans as there used to be.
"SInce the increase in the conforming loan limit only lasts until the end of 2008...."
At which time it will be extended.
Watch. That's the way these things work.
At which time it will be extended.
Terry beat me to it.
At the end of 2008 it will be clear that we need to extend the program
Then 3 years from now Fannie and Freddie will be even more insolvent than they already are
Thus, govt bailout.
it will be much more politically palatable to bail out 2 firms that are both GSE's (Fannie/Freddie) than to bail out numerous private banks (wells/wamu/citi/jpmorganchase etc)
"...In a fresh sign that the nation's housing crisis will worsen, home prices are likely to decline in 2008 for the second straight year, the National Association of Realtors said Thursday...The Realtors, in its monthly economic and sales outlook, is forecasting a 1.2% drop in prices of existing homes sold this year...Only a month ago, the association was forecasting that prices would be flat in 2008 and that the home market would rebound in the last half of the year..."
I'm shocked, shocked!
Realtors: Home prices to post another decline in '08 - Feb. 7, 2008
It appears to me he's trying to state, in Greenspan like language, that this will likely bankrupt the GSE's.
My hunch is no one cares about this. Bankruptcy will be next years problem. We're focused on the here and now.
Think about this a minute:
" If you add in the net increase in outstanding FHLBank advances, especially in the third quarter, the combined market share of the housing GSEs may be 90 percent. . . .
"
This means YOU (each US citizen) are now guaranteeing most of the current high house price....
So if those house prices head down 25%, YOU will pay much of that cost, thru taxes and inflation.
The beneficiaries of your payments will be those speculators that sold on the way up, especially those using the systems advertised on TV: How to become a Real Estate Millionare.
Their money is coming from you in significant part -- the likely outcome.
Gives a new meaning to the term "pass-through"
Currently, the GSE's have NO government guarantees. Hence the cliff diving of FRE & FNM.
"600k is a first-time buyer in CA."
If so, a number of sound options exist:
1) the first-time buyer should remain a renter
2) the first-time buyer should move to somewhere where the buyer can afford home ownership.
3)the first-time buyer should save more money for a down payment to assure 'skin in the game.'
The last thing the GSEs should be doing now is undermining their financial health while simultaneously maintaining the speculative real estate asset bubble in California. Let the market correct itself. I can't imagine I am quoting the Republican front runner, because I loathe the selfish and mean spirited crowd that they are, but as John McCain so wisely suggests:
"...return to the principle that you don't lend money (to people) who can't pay it back." McCain said there are "some greedy people on Wall Street who perhaps need to be punished". Yes, I also love the irony of this coming from one of the Keeting 7.
But he's got a point. And in case, let's protect the GSEs.
Christopher Carrington
San Francisco
I think increasing the CLL to 600,000 is the dumbest idea ever. And if you are a member of Congress and can not understand the implications of that last line in the quote above, you shouldnt be in Congress or you need to read up on the issue.
But, I thought part of this was a geographical based CLL. I know that doesnt get around the idea of having the total loan amount skewed to places like Calif. But does it keep some sanity in the market for other areas.
Again, dumb idea but hope some sanity like Lockharts prevails.
MAB,
Not only are there no guarantees, but the GSEs are up to their necks in QSPEs. If FASB ends that party (previous Tanta post) that will put extreme pressure on their capital.
I spent about a year writing a series of posts titled "The Safety Net That Never Was" (aka the "implicit guarantee"). And now it seems people are noticing the problem.
A few points:
This whole bit with the higher loan limit is simply a ploy to pass the bailout burden to the taxpayers while trying to keep housing unaffordable. Unaffordable housing is good since it will force people to depend upon the whims of the government for housing in the future - think of the power that would come with being able to control who gets shelter and who doesn't!
Christopher Carrington,
Actually, $600k is the budget boost Congress just gave to OFHEO. The world has gone mad ...
Does anyone know what percentage of current mortgages were taken out, not by home buyers or speculators but by MEWers?
In our corner of the world, a large proportion of people in default appear to be in trouble on refi's they did in 2005-06, on homes they had purchased years before.
Lockhart sounds like he's vaguely in touch with reality. How did he get a job in this administration?
"Not all people want to move several hundred miles away from Bubble Zones"
Irrelevant. I want to live in a mansion in La Jolla. But guess what? I can't so I moved to the midwest, over a THOUSAND miles from my family and friends... guess what, I survived. And there's three great inventions- called the telephone, the airport, and the internet that keep me connected.
"And we shouldn't have to"
you're right. so pony up and pay the asking prices without govt intervention, or rent.
"Saving is for "losers" and the Fed will make sure of that by going to 0% interest while stoking the fires of inflation."
couldn't agree more. The fed is trying to drop "safe" returns to negative real rates of return, FORCING the prudent to jump into speculative investments (i.e. mortgages and other derivative securities).
It is the only way to keep the ponzi game going.
I would propose that if the limit is increased, then there is a stipulation that under no circumstances will the GSEs be bailed out with taxpayer money. ...
This is another train wreck waiting to happen.
Can our country be even more mismanaged?
I cover my face and cringe.
My hunch is no one cares about this. Bankruptcy will be next years problem. We're focused on the here and now.
charlie | 02.07.08 - 11:22 am | #
Here & now = election, not housing problems
It sounds like the fecal matter is about to hit the rotary oscillator!
Also seems like our GSE have valiantly (sarcasm) grabbed up the worst of the origination from last year.
John M,
Nobody can figure out the books of the GSE's. A mind numbing number of accountants have tried for the last few years. The GSE's are WMD's IMO.
FRE: Equity Market Cap: 18.8B
Debt: 735B
FNM: Equity Market CAP: 30.1B
Debt: 763B
Derivative and MBS guarantee amounts are mind blowing. Given falling home prices, it sure looks like insolvency to me.
Some perspective: Total Federal Reserve Assets (primarily treasuries) are approximately 780B.
IMO, the GSE's are a toxic waste dumping ground.
Lockhart's message is so commonsensical and obvious. It's scary that this is probably news to the members of Congress.
If I were running Countrywide (or BofA) or WaMu, I would move heaven and earth to refinance as many borrowers as possible while this "temporary" (wink wink) conforming limit lasts. Get those loans out of my servicing portfolio and make them someone else's problem. Even if it means forgiving some debt to help the borrower qualify for a refi.
Now, you don't suppose that this is why folks are pushing a higher conforming limit, do you?
Oh, and Tanta, could you answer a question about FHA? As I understand it, the FHA doesn't have CLTV limits. So I could have a $400,000 first lien and a $100,000 HELOC on a house that's now worth $420,000 -- and if the FHA limit is raised, I could (theoretically) refi the first lien for $400,000 into an FHA-insured loan. First-lien LTV is about 95 percent and combined LTV is about 120 percent.
Right?
I would propose that if the limit is increased, then there is a stipulation that under no circumstances will the GSEs be bailed out with taxpayer money. ...
That would take a specifically directed constitutional amendment to have any real teeth. Any statutory declaration stating no direct or implicit future bail out can be changed by a new statute making it null and void. It would only be words on paper replacing words on paper.
Heck - even a constitutional amendment can be repealed by a NEW amendment (see prohibition).
The only protection worth a damn is peoples' vigilance. If we don't have it we are screwed.
Is it me, or wouldn't raising the limit serve to perpetuate the current misalignment (there's a nice euphemism for overpriced) in housing prices?
If prices are out of whack (rent/purchase ratio), why is it a good idea to take steps to keep them out of whack?
Just once I'd like to hear the question asked and answered.
"As the safety and soundness regulator of Fannie Mae and Freddie Mac, I have to tell you that expansion of their activities would be imprudent unless the regulator has significantly more powers and more flexibility to use those powers."
Translated into plain English: "I need a bigger budget and more subordinates if I'm going to sign off on this."
Any statutory declaration stating no direct or implicit future bail out can be changed by a new statute making it null and void.
Actually, it would be even quicker and easier than that.
Bush could simply issue a signing note saying he will disregard that law. It would only be about the one thousandth time he did that.
11 1/2 months to continue to wreak havoc on the U.S.
Does anyone know what percentage of current mortgages were taken out, not by home buyers or speculators but by MEWers?
by 'MEWers', I'm supposing you mean owner-occupied cash-out refi's.
What is that going to tell you? I can tell you taht in 2006, there were two 'cash-out' refi's for every one 'rate/term' refi. Still, that doesn't tell you how much was taken out. It also doesn't tell you to what extent people were tapping/taking out 2nds.
MEW is tougher to measure than the Maestro's work might suggest.
Does anyone know what percentage of current mortgages were taken out, not by home buyers or speculators but by MEWers?
by 'MEWers', I'm supposing you mean owner-occupied cash-out refi's.
What is that going to tell you? I can tell you taht in 2006, there were two 'cash-out' refi's for every one 'rate/term' refi. Still, that doesn't tell you how much was taken out. It also doesn't tell you to what extent people were tapping/taking out 2nds.
MEW is tougher to measure than the Maestro's work might suggest.
What I'm getting at is a point that a lot of people seem to miss. A lot of the subprime mortgage picture is all about refis (first and seconds) for consumption (spending) rather than about home purchasing--whether that means "the American dream of home ownership" or specuvesting. A lot of the discussion about mortgage problems seems to assume it is all about buying and selling homes, but in a higher-than-realized percentage of cases, it is simply about borrowing money: taking your house to the pawn shop, in effect.
John-M. I would expect it's only a matter of detail just how far we are on the hook for the GSE's. The implicit guarantee is understood to be there. Even if it isn't nailed down. But it would be interesting to speculate on the detail.
the American people cannot afford to have Fannie Mae, Freddie Mac, or the 12 FHLBanks incapable of serving their mission. . . .
BTW - What is the status of the $51 billion FHLBank Atlanta loaned Countrywide?
Paid back?
Borrowed more?
So I could have a $400,000 first lien and a $100,000 HELOC on a house that's now worth $420,000 -- and if the FHA limit is raised, I could (theoretically) refi the first lien for $400,000 into an FHA-insured loan. First-lien LTV is about 95 percent and combined LTV is about 120 percent.
But you can't refinance any first lien while doing nothing about the second lien. If you did that, the new loan (the new refinance) would be in second lien position behind the old loan that isn't being paid off (the HELOC). Neither FHA nor anyone else will allow that to happen.
Either you have to have enough equity to pay off the second lien with first lien proceeds (which you wouldn't have in your example), or you have to get the second lien holder to "resubordinate" its lien--file a written agreement in the public records that puts the old HELOC behind the new refi even though its mortgage date precedes the new refi.
There is no law that says second lien holders have to agree to subordinate. However, if they are willing to and the borrower qualifies for the total debt payments under FHA qualifying rules, you could do that.
So why is this the only quote from Lockhart in the MarketWatch story:
James Lockhart, the director of the federal agency that oversees Fannie and Freddie, said they have been helping borrowers refinance out of subprime loans.
"They do have enough capital at the moment to do more, especially in the securitization area," Lockhart said.
Read it all if you want:
Democrats seek subprime role for Fannie, Freddie - MarketWatch
Thanks, Tanta. I would think that second lienholders would resubordinate if, under FHASecure, the refi'd first lien resulted in a lower rate and lower payments.
would increase the maximum size loan those GSEs could purchase or guarantee from $417,000, to the lower of 125 percent of median area prices or $730,000, for mortgages originated between July 1, 2007 and December 31, 2008.
retroactive, even! How thoughtful.
Right on Lockhart, stand your friggn ground and say no to Paulson, Fannie and the collusive corruption. Do we have maybe one person in Washington on the right track? I seriously doubt anyone on The Banking Committee is not bought off by boatfulls of lobbyists from NAR, SIFMA, and a very long list of scumbags, but at least Lockhart has some ok PR going!!!!
MAB writes:
Currently, the GSE's have NO government guarantees. Hence the cliff diving of FRE & FNM.
Here we go again...
Ok, riddle me this: If there really is no assumed/implicit government guarantee behind these GOVERNMENT-Sponsored Enterprises (despite what the bond markets seem to think), then why does Congress get to vote on raising the GSE conforming loan limits?
If GSEs were truly "private" corporations that answered only to internal management and shareholders, then why can't the GSE CEOs tell CON-gress to go pound sand?
Hint: they're not really "private" corporations.
I wish Congress would raise the CLL to $10 million, so that specuvestors can bid the price of the average starter home right up to that limit.
It's always been my "dream" to live in a $10 million home.
For a non-CEO view of Fannie around Dec/07:
Bear In Mind › Fannie Mae: Systemic time bomb
I am fixated on this financial theme 'counterparty risk' (and need to extend it to the non-financial world) --which I construe as efforts to keep your trading partner alive and able to continue his payments/obligations/support for your most worthy goals/interests/satisfaction.
That would mean supplying the oxygen tent to the bulk of the population...not just the subprime few (the CEO endorsed MSM view).
And of course there are priorities: those supplying life support will get the life support needed to supply the life support...even though they may have been responsible for the need for the tent in the first place.
Ok, my counterparties, do you think that's too cynical?
moopheus,
Lockhart is a close personal friend of President Bush, that's one reason he is running OFHEO.
Mab,
Bob Blakely came as close as anyone will ever come to getting Fannie's books in order. He started out as an MIT mechanical engineer. It was likely him that vetoed the plan to put the extra accountants in Fannie's parking garage -- the weight would have threatened to collapse the structure. Bob's delivery of Fannie's '06 10-K ahead of the NYSE delisting deadline late last year was a genuine miracle.
I'm not betting the '07 10-K appears on time on March 15th, now that he's gone.
The real bailout isn't through Fannie and Freddie but through FHA (FHA's limits are tied to the conforming limit). FHA will be making the truly toxic (97% CLTV, down payment assistance, etc.) loans to refi the existing loans and bailout the banks.
"There is no law that says second lien holders have to agree to subordinate. However, if they are willing to and the borrower qualifies for the total debt payments under FHA qualifying rules, you could do that."
Tanta, wouldn't the CLTV limit on the proposed first lien shoot down the CLTV of 120% in the example used even if the 2nd lien holder agreed to subordination? Or have I missed something in these new-fangled products?
what if 125% of local median is less than $417,000?
Harm,
then why does Congress get to vote on raising the GSE conforming loan limits?
Many private industries are regulated by the government. Utility companies/rates for one. Some states and cities even regulate rental rates and rental rate increases.
Regulation, by congress or other government agency, is not proof of a government guarantee. The only guarantee is an assumed one of the TOO BIG TO FAIL type.
Not all people want to move several hundred miles away from Bubble Zones - giving up their friends, family, and jobs in the process. And we shouldn't have to; this notion that huge swaths of the nation - often the only areas with decent jobs - should be disgustingly overpriced is insane and needs to end.
The insane part is that the priced-out folks in these "desirable" areas are fighting against affordable housing. Where are all the new condo towers in downtown LA? In Manhattan? The LA metro area is, on average, the most densely populated area in the US - even more dense than NYC. Manhattan beats LA metro. Everybody is already living on top of each other, yet they turn out in droves to protest any new towers. Why?
In a letter to the heads of the two companies, Schumer asked that they immediately state that when appropriate, servicers can and should make partial chargeoffs available to struggling homeowners.
I have had it with them. They keep saying It will lower our stock price. Its not as profitable as what else we do. Then, Hello! Fannie and Freddie, Go become a private company, Schumer said. You have a government guarantee. You dont pay taxes. You have a lot of benefits. Now if ever is the time for you to step up to the plate.
Now I'm not sure about everyone here knowing about "no governement guarantee, but none of you have talked to Schumer.
Lockhart obviously gets it, but I fear that his accurate but very technical wording will not get the attention it deserves. None of this stuff is rocket science, but I wonder if his audience (Congress, executive branch, the public at least) doesn't just focus on the soundbites. I think they hear, "Lockhart thinks there might be problems with raising the CLL, but it will be OK with more oversight." What I would like to hear him say after all of the technical analysis is something that the average American (or Congressman) understands and Lockhart really knows. Perhaps, "Every single piece of historical performance suggests that the system is not strong enough to provide the oversight that would be required to make this work, and we should all openly recognize that the taxpayer will end up paying for the failure when it happens."
Dark Matter,
During fed testimony to congress in 2006 I believe, Schumer stated that his NYC house was "by far" his largest asset and had increased in value by a factor of more than TEN!
Look who is talking their book.
Or have I missed something in these new-fangled products?
Terry, in Queequeg's scenario, the proposed post-FHA-refi CLTV would be unchanged from the current CLTV. It doesn't matter if the current CLTV is higher than the original CLTV. Subordiation decisions don't have shit to do with CLTVs, per se.
The key consideration is that the first lien stays the same or goes down. Period. So long as the new balance would not be INCREASED as a result of a first mortgage refi, the 2nd mortgage holder should be willing to subordinate, since their position would remain the same (or theoretically better, if the new loan has better terms), as had no refi occured.
yet they turn out in droves to protest any new towers. Why?
To keep their property values high.
To keep their property values high.
Yes, but if there was really a shortage of affordable housing then the people that are priced-out can out-vote those seeking to "protect" their land values (and it's pretty dubious that land values would go down with higher density. Look at Manhattan.).
yet they turn out in droves to protest any new towers. Why?
To keep their property values high.
========================
Not in NYC. We occasionally protest projects that will steal park space or subsidized housing, but not much else. New condos in NYC actually often increase the value of neighborhoods.
Re NYC, have you ever been in mid-town Manhattan at rush hour? I mean we're talking dense foot traffic, not to speak of vehicle traffic. Our subways are already operating at over 100% capacity.
Anyway, after the banks in NYC finish devastating the entire economy, there will be massive layoffs here, too. Already starting, I think.
Let's retroactively put a surcharge tax on profits made by speculators in the SFR market, who never occupied the property.
As someone pointed out they are the ones who profited at society's future expense.
Just a thought.
Lee
So, why did the GSE's have to maintain their market share?
Lockhart is clearly correct, but absent the discussion is the fact that current VERIFIABLE incomes in the US do not support $400+K mortgages.
Ditto on the oversight comments above. As with the proposed immigration bill; the regulations that allowed a more compassionate approach ignored the fact that the proposed solutions were impossible to implement.
Lockhart, my dear boy. If you keep saying sane stuff like that, they'll never give you the keys to the family car.
Yes, but if there was really a shortage of affordable housing then the people that are priced-out can out-vote those seeking to "protect" their land values (and it's pretty dubious that land values would go down with higher density. Look at Manhattan.).
No. Density has little to do with it. It's supply and demand. That's all. Look at Buffalo.
You can't out-vote people in jurisdiction A if you live in jurisdiction B.
Not in NYC. We occasionally protest projects that will steal park space or subsidized housing, but not much else. New condos in NYC actually often increase the value of neighborhoods.
Park space usually helps keep demand up. So it's still a property value issue; your quality of life affects your demand of staying in the property you own. But that is still demand.
Manhattan has such a large demand that an additional 1,000 condos probably isn't going to have a significant impact on property values in and of itself because it's a relatively small addition to the supply. There are more people who don't live in Manhattan that would like to than there are people living in Manhattan that would rather not live there.
But choking the streets and subways and parkland with more people may have an adverse effect on demand.
Lexicon alert: new name for jumbo loans that temporarily fall under the new conforming limits: confumbos
See entry:
Confumbo - Wikipedia, the free encyclopedia
Do we have maybe one person in Washington on the right track?
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