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Dude, I'd just rather walk away.
There you are.
Anything, anything to avoid more foreclosures.
Anything.
For at least seven or eight more months.
T: watch those apostrophe's. They're contagious.
Per the conf call this program is for people who are already underwater only
GSE detonation in 3....2....1
So there's a whole lot wrong with a whole lot of pressure to make the GSEs bail out the problems of the mortgage and housing markets, but so far this one sounds to me like Fannie Mae "bailing out" Fannie Mae, and, well, they ought to do that if it makes sense.
I dunno if that makes sense. I find myself becoming more simple-minded and reactionary every day I see the same stuff happening over and over.
By bailing out Fannie Mae et al. we might be focusing our efforts and resources on treating the symptoms instead of the the underlying cause.
I think excessive or premature bailouts could make things worse, sort of like giving somebody with appendicitis pain killers and sending them home because cutting them open and pulling out part of their insides would be too brutal and unkind.
T: watch those apostrophe's. They're contagious.
Its true; they're.
Sorry.
ac, I put "bailing out" in quotes here because this isn't a bailout of any sort. It is, to use the industry language, portfolio self-defense.
The loans are already underwater. Refinancing them doesn't make FNMA's position any worse.
I love the nice Leninist motif of "heightening the contradictions," but when has that ever worked?
Yeah, I don't see much benefit to this plan at all. Who really wants to start behind the 8-ball to the tune of 10-20% on a loan when prices are falling. You really, really, really have to want that house. At this point, if you expect home prices to fall further for awhile, you might as well walk away and get the clock ticking on getting the foreclosure off your credit record and buy back cheaper in 2015 or whenever. And many of these people couldn't afford the ARM teaser rates, how are they going to pay the 30-year fixed?
No plan I've seen cuts to the core problem of the housing bust - the entire thing only existed because people could make money off it. The whole market was uneconomical from a homeowner's perspective many years before the bubble burst, but as long as prices were rising 10% you could have the second home investment, rentals that lost money and stupid ARM teaser rates that everyone involved knew the homeowner could not afford unless prices rose enough to unload it before the reset.
Now every plan is about making sure the banks don't go under. If homeowners don't get a fresh start, the plan ain't flying. Baker does point out correctly that walking away is like getting a big check from your bank (the IRS agrees, in that debt-forgiveness is counted as income). You gotta beat that incentive or your plan is a non-starter.
OT but interesting spin on today's market action from Bloomberg:
U.S. Stocks Decline on Concern SEC Plan Will Hurt Broker Profit
Please, anything but new regulations!
But we'll gladly accept help from the taxpayers.
BTW my idea is that when somebody defaults on their mortgage they should go to a correctional institution until they've worked off their unpaid debt.
I propose modern version of something like the following:
In 1579, an act of the Scottish Parliament "For Punishment of Strang and Idle Beggars, and Reliefe of the Pure and Impotent"...
and
An act of 1672 ordered magistrates to erect "correction houses" or workhouses in which beggars could be detained and made to work.
It's not that we can't afford our houses, we're just bad people.
In general, are ARMs resetting to higher rates with LIBOR so low? Aren't ARMs ideal for an environment of falling interest rates?
I wonder if they are going to design this with sufficient thought to allow for a lower monthly payment to encourage those underwater borrowers to stay in the their now submarket houses. I would like an interest rate of, say, two percent, and then it would be in my interest to continue to pay my new much smaller mortgage payment on a slightly higher balance.
I would call that a TAF loan;-}
Someday this war's gonna end...
This is the first I've heard of any plan for people who are not delinquent.
Money
California screaming: Tales from the housing bust
People in L.A. are coping in ways they never imagined with a crisis they never saw coming. Like it or not, California's reputation as a national trendsetter is going to remain intact.
Postcards from the edge - May. 7, 2008
It's brilliant if it is Fannie bailing out its own mortgages. Change an underwater loan from non-recourse to recourse. Solves the jingle mail problem.
In general, are ARMs resetting to higher rates with LIBOR so low? Aren't ARMs ideal for an environment of falling interest rates?
The trouble with a lot of these hybrids is that they were interest only. So when they adjust, the rate can stay the same or even drop, if the index went down, but if the thing gets "recast" to an amortizing payment, the resulting adjusted payment can go up.
Keeping your ARM in a falling rate environment is a fine thing, as long as you believe you'll be able to refinance as soon as they head back up again. That's hard to do when you're underwater. Are you sure that whenever the point comes you'd like the fixed rate that your LTV will qualify? Certainly people with low-rate ARMs can keep what they have; this doesn't force anybody to refinance. It just lets those who would not otherwise be eligible for a refi because of the LTV to lower their payments if they can.
Does it matter whether cashout is allowed? You have an asset with market value $300,000 and a liability with market value $360,000. Maybe you are legally and morally free to walk away from both. Most people are going to feel a great need to get some exercise.
If a borrower is contemplating 'walking away', even with the payments on this new 120% loan, and they (both the old and new loans) are recourse loans - then the borrower would be 20% ahead by taking this new loan and 'walking away' as opposed to 'walking away' on the old loan.
That's the only way I can see that it would be money in the borrowers pocket.
I'm on my first Scotch, so be charitable please.
MarkS:
Calculated Risk: Tanta: Negative Amortization for UberNerds
Does it matter whether cashout is allowed?
Yes.
If the existing loan is $360,000 on a $300,000 property, and the new refinanced loan is $360,000 on a $300,000 property, but the rate is lower or the term extended to lower the payments, then why would you be more motivated to walk after the refi than you were before?
If the existing loan were $330,000 on a $300,000 property, and Fannie Mae let you take $30,000 in cash out with this refi, someone walking away might well decide to take the cash first.
If people are going to walk, they're going to walk. I don't think Fannie is proposing this specific little initiative as a way to prevent walk-aways. They are presenting it as a way to prevent defaults due to higher than necessary monthly payments, I suspect.
I don't think we'll see a press release, as I think Fannie safely assumes everyone who matters already knew that. But kudos to Tanta for pointing that out to other interested civilians + Dr. Baker.
Dean Baker drives me a little nuts, to be honest. As an economic mind, he's got his share of skillz, probably mad-skillz if you dig his politics. The problem is, he is a first-class-canopenerassumer who shows how out of his depth he can be when he wades over to the mortgage banking end of the pool. His "lenders as landlords" idea to solve the subprime crisis was just so half-baked.
Dean - pop a couple UberNerds and blog to us in the morning.
STUPID is as STUPID does.
This actually makes some sense, assuming Tanta is right that these are already Fannie Mae loans and that they won't be cash-out refis. There is a certain contingent of people who got put in really nasty toxic loans and would like to (and be able to) keep their house if the payment didn't jump way up.
Yeah, it's probably a pretty small fraction of the problem, but it seems like a good thing.
If a borrower is contemplating 'walking away', even with the payments on this new 120% loan, and they (both the old and new loans) are recourse loans - then the borrower would be 20% ahead by taking this new loan and 'walking away' as opposed to 'walking away' on the old loan.
I think you need more Scotch.
First, please note that this thing about "purchases being non recourse and refis being recourse" is true in CA and some other places, but not everywhere in the country. There are, actually, mortgages outside CA, you know. In the state I live in purchase money mortgages are, indeed, recourse.
Beyond that, I don't see anything that says the mortgage being refinanced will necessarily be a purchase or a refinance transaction. But if it's true for a given loan that the old loan was no-recourse and the new loan is, then people planning on walking wouldn't want to take this deal. That doesn't then harm Fannie Mae. If the old loan was already recourse, then, again, how is anybody's position worsened or bettered by refinancing it?
The loans are ALREADY underwater. There is no "extra 20%" here. (Unless these things are cash-outs, which, as I said, isn't at all clear.)
Terry - I'll be charitable, but only if you pour the Shnapster a glass of whatever Scotch you have there.
I read that twice and I still don't follow. Where do they get this 20% from?
BTW, if you are underwater shouldn't you swim away?
Tanta's post is a good example of how the blogosphere's free marketplace of ideas can work: One blogger jumps on a bit of news and (perhaps) misinterprets it, but another blogger chimes in to (we hope) set things straight.
It will all work wonderfully well as long as we remember not to believe the first blog we read.
ac, I put "bailing out" in quotes here because this isn't a bailout of any sort. It is, to use the industry language, portfolio self-defense.
The loans are already underwater. Refinancing them doesn't make FNMA's position any worse.
I love the nice Leninist motif of "heightening the contradictions," but when has that ever worked?
I just get a big kick out of pushing the bailout button.
I really think a bailout is inevitable at some point, and in the end I'd have to support it because I don't think it's socially responsible to allow things to get to the point of systemic collapse to teach people a lesson.
But I think we need to get pretty close to the brink and see our lives flash before our eyes before we straighten up.
A few years of being homeless and living in a shanty town named after a president or Fed chairman will really whip people into shape - learning to build your own house out of scrap wood and standing in line for government handouts at dinnertime builds character like nothing else.
Then maybe the next time you promise to pay somebody half a million dollars you'll take it a bit more seriously.
BTW, if you are underwater shouldn't you swim away?
i think fannie is just trying to throw borrowers a pair of water-wings so they don't drown.
Your assumptions are correct.
I think this makes some sense but is fairly limited in scope. It helps people in the situation I am in if they want a lower payment. I have an FHA loan (is that Fannie, not sure?) and am about 12 percent underwater. My loan is a 30 year fixed at 5.75% and I am prime and have never missed a payment. But I can't refi because I owe more than the house would be appraised for. If rates dropped considerably below what I'm paying now, it would be nice to have the option to refi and lower the interest portion of my mortgage. It would be even nicer if the refi costs were very minimal or non-existent as I would not want to increase my mortgage balance considerably since I'm making extra principal payments trying to pay it down faster anyway (I figure with extra payments some day I won't be underwater and can sell.) Now if I hit a cash crunch and wanted a lower payment and rates were lower, this option would allow me to refinance without having to become delinquent to qualify for a "workout". I think its a good idea for Fannie loans, but as I said, fairly limited to responsible borrowers who are a bit underwater but want a lower interest rate.
Tanta's post is a good example of how the blogosphere's free marketplace of ideas can work: One blogger jumps on a bit of news and (perhaps) misinterprets it, but another blogger chimes in to (we hope) set things straight.
It will all work wonderfully well as long as we remember not to believe the first blog we read.
Seriously, blogs like this give me hope that technology is making the world a more equitable place by making it harder to spread intentional disinformation.
Seems like so much industry today depends on making people believe things that aren't true.
Maybe it's always been that way and I'm just noticing it for the first time.
For all the things that are wrong it's easy to overlook the amazing freedom of ideas and information that technology has given us in the past decade.
We haven't screwed everything up.
Seriously, blogs like this give me hope that technology is making the world a more equitable place by making it harder to spread intentional disinformation.
Seems like so much industry today depends on making people believe things that aren't true.
Maybe it's always been that way and I'm just noticing it for the first time.
For all the things that are wrong it's easy to overlook the amazing freedom of ideas and information that technology has given us in the past decade.
We haven't screwed everything up.
The internet is great for the conscientious student of public affairs who uses it wisely.
But it also seems to be useful for online cults who provide their true believers with "facts" to support any worldview, no matter how delusional or toxic. Some of these websites use all capital letters, every paragraph in a different color, with pulsating headlines...
what about.. writes: (long ass post)
your FHA loan would be GNMA, not FNMA. But otherwise, you get the gist.
I have an FHA loan (is that Fannie, not sure?)
Fannie Mae does own some FHA loans. That is not the majority of the loans it holds, but there are some. I do not know if FHA loans are included in this initiative; we'll have to wait for the Announcement.
The only way you can find out if your loan is owned by Fannie Mae is to call your servicer and ask. If you can't get them to tell you, you can call a loan officer and ask if you're eligible. The bank handling your refi application would verify that your loan is Fannie Mae-owned before proceeding.
For all I know, you can even contact Fannie Mae yourself about this these days. Try their website (http://www.fanniemae.com)
also, maybe this is designed to help mortgage origination companies generate some extra fee income by doing more refi's...
sigh, there is a ~2% chance FNMA owns your FHA loan.
sigh, there is a ~2% chance FNMA owns your FHA loan.
See, here's the thing. Whenever I write a post taking somebody else apart for getting the facts wrong, I become more than usually anal-compulsive about my own. So I wasn't about to declare that no FHA loan could possibly qualify for this, even though that's probably likely, because I like being on the other side of the "self-correcting blogosphere."
Did Fannie actually do these and other exotic loans?
I thought they stuck to the basics plus some regular arms, no negative amortization, etc.
I realize they are so big, they have one of everything, but.....
Anyway, I'm fine with it and it fits with my current fixation with the monthly payment as the fulcrum of this mess.
I thought they stuck to the basics plus some regular arms
Well, regular ARMs do "reset." That's what we call it when the rate changes.
They bought tiny amounts of neg am and a lot of IO hybrids.
When an IO or a neg am loan's payments are recalculated to fully amortize, we call it a "recast."
Not that you'll find the press using those terms that carefully. But us UberNerds do.
One interesting question would be why they picked 120%. Have they found some kind of breaking point after which people will walk away?
Tanta said: "I think you need more Scotch."
Oh, thank you. I believe I will! I don't have to blame it on the cat tonight.
I think the 120% LTV loan would work to the borrowers advantage ('walking away') in extremely limited circumstances. I'll not waste bandwidth on picayune scenarios though.
Shnaps said: "I'll be charitable, but only if you pour the Shnapster a glass of whatever Scotch you have there."
On the way. Put a glass under your route/modem!
Have they found some kind of breaking point after which people will walk away?
Possibly. Possibly they just looked at their own portfolio and decided that they didn't have many loans with a current LTV of > 120% that are still performing and could get a lower interest rate.
Once you got over 120%, you'd have to add such a big risk premium to the interest rate on the new loan that it would be hard to be lowering anyone's payment, is the problem.
The loans are already underwater. Refinancing them doesn't make FNMA's position any worse.
but, as you said, it allows the closing costs to roll into the new loan.
Fees!!
increase's the debt load
This is a very sensible* ploy by FNM to forestall delinquency on their own mortgage book. A lot of people don't view themselves as 'underwater' as long as they can make the payment.
I speak to many people who simply do not recognize their housing losses - many believe they will be 'fine' in the long term. If FNM can keep a few of these people out of delinquency, kudos to them.
(with caveats as given by Tanta and other earlier in thread)
Remember: if we rule out cash-out, the ONLY reason for a borrower to take such a loan is that it reduces their interest rate, gets them out of an ARM into a fixed, or extends the term to lower the payment at the same rate.
Right there, you exclude any borrowers who are upside down but already have very low interest rates or 40-year terms. These folks don't get anything by refinancing.
Nothing, by the way, would stop Freddie or any bank with a owned loan portfolio from offering the same thing to their own borrowers. In fact, I bet a bunch of banks and thrifts already do this, they just haven't publicized it. As I said, if you already own an underwater loan and the refi only improves its risk profile, why not do it? It just means everyone sticks to refis of their own loans, not refis of someone else's loans.
The only investors who can't do this are the MBS owners.
I got it!
You buy a $300k house and you get $60k back and you can pretend that it's a $240k house, since you're able to afford the monthly payments, since those are the only things that matter... you're happy, and Fannie Mae is happy!
Isn't this almost like a predatory loan or something? If I'm buying a car, worth $10k, and the salesman sells me a loan for $12k, I'd punch him and leave.
If you get a $360k loan, you bought a $360k house!
Okay, I got it.
There is no situation where it would be to the borrower's advantage to walk away on one of these.
Just took a little more Scotch.
Tanta, FWIW, I agree with Schaps that DB occasionally claims a little more expertise than is his due. Even the very wisest of us occasionally errs... but the wisest knows enough to admit it. DB is, according to DB, never wrong. Which means you should trust your instincts, which seem to me to be the best.
but, as you said, it allows the closing costs to roll into the new loan.
I suspect it does; I have not confirmed the terms of this yet, obviously.
That is why it will, for most borrowers, require a decent drop in the interest rate. If you're refinancing from 8% to 6%, you can increase your loan balance by 5% and still get a lower payment.
However, if you're looking to refi for a .25 drop, it's not likely worth it, in terms of the monthly payment, to roll costs into the balance.
Some of you folks seem to assume that borrowers will be forced to do this, or that Fannie Mae would accept a loan with terms that worsened the borrower's profile rather than improving it. But no one will be forced, and I'm quite sure that when the guidelines come out we'll see that the payment has to go down before anyone is eligible (unless it's an ARM-to-fixed refi).
Just because someone is currently at 120% LTV doesn't mean they're "in the money" for a refi. Some borrowers will be; some already have the lowest rate and payment they're ever going to get this lifetime.
You buy a $300k house
And you somehow convince Fannie Mae that a purchase transaction is a refinance of a loan FANNIE MAE ALREADY OWNS?
How do suppose anyone will pull that off?
--
"DB is, according to DB, never wrong."
I don't read the blog daily, but when was the last time that CR and Tanta admitted to be wrong?
Not admitting mistakes is a common disease.
Jas
It's like Fannie Mae modifying their loans but the borrower doesn't have to become delinquent first or prove a hardship case. And FNMA originators make a few bucks.
Fannie's announcement says that this option is only for Fannie-owned loans, but it doesn't say whether it covers loans where Fannie owns the first, but there is also a 2nd (for example, an 80-Fannie/20-SomeoneElse). If so, this could in fact be considered a bailout of the 2nd mortgage-holder.
Jas, when has either CR or Tanta had to admit to being wrong?
I read the blog regularly and don't recall having seen any significant mistakes.
When I took Tanta to task for suggesting that we shouldn't provide any assistance to borrowers, she was if anything overly generous in conceding the point.
Hey, Jas, when was the last time...You admitted one?
I admit lunch was a mistake.
I did pay just 42.17, but sometimes being cheap isn't worth it.
Someday this war's gonna end...
Fannie's just allowing refis on loans (if they make sense) when the borrower is already underwater. There is no problem with this. Granted, to have home prices falling so much over such a wide area is unusual, but when this happens in a locality banks will do it. No cash-outs, of course, but when you are going take a loss if you have to foreclose, you have to let your regular guidelines go.
If you have someone with a variable who wants to go fixed, or a 2/28 who is going to refi fixed for a 30 year term (to get the payment down), you'd be stupid not to let them do it.
Jas. Lecturing someone else on intellectual humility. I might die.
You owe me a clean keyboard, Jas.
Speaking of deflation, Jas, might you have an answer for that dratted $3.55 a gallon gas that looks mighty inflationary to my fisc?
All I see is a housing bubble deflating, and a dollar inflating.
Pay no attention to those higher prices for everything, there will be deflation, in computers maybe, or something.
Someday this war's gonna end...haven't you noticed we didn't exactly raise taxes to pay for it?
Re: Tanta
Sorry for my facetiousness, I understand that this program is for people who already own a home and not new buyers/loans. I was just looking at it from the perspective of selling this type of thing to a new buyer... frankly I think it's nuts... but I suppose people trying to keep their homes don't have the same mentality as someone looking to buy a home at a reasonable price.
>
OK - so folk wiser than me have pointed out that the incentive to walk away is no more under this initiative Indeed the incentive is going to be less since monthly payments are reduced. Thanks
Seriously, blogs like this give me hope that technology is making the world a more equitable place by making it harder to spread intentional disinformation.
A good thought. I might suggest also that Sebastian and O-Joe are not real people, but rather artificial intelligence programs designed to periodicaly test that the "swarm logic" of the blogs is still working.
It may be that the percentage of people that fall the full 120% ltv are a minority of the loans. I would assume so. Certainly if these were the majority, I can see it writing one bad situation into another. If these loans are mostly closer to the 100% mark, we are likely not going to drop much further and I think these people current on their loans probably forecast appreciation factoring in at some point in the future.
"AllenM writes:
Speaking of deflation, Jas, might you have an answer for that dratted $3.55 a gallon gas that looks mighty inflationary to my fisc?
All I see is a housing bubble deflating, and a dollar inflating.
Pay no attention to those higher prices for everything, there will be deflation, in computers maybe, or something."
It would not be hard to find a house that has depreciated by $50,000 in the coastal areas.
Even at $3.55/gallon, $50,000 can buy a pretty decent supply of gas. Based on the limited amount of milage I put on in a year, I could probably keep fill up my tank for 5-10 years or so at that rate, even if I was driving a Hummer (whicj I don't)
What was that about prices not falling?
Why would you expect FNM to know what it is doing?
T did it.... truly bizarro world
Tanta,
If the program includes rolling up a second, how does that include the overall risk profile of the loan to FMNA? All it does is relieve the holder of the second from a VERY tenuous position. If it does not, why call them refis and not simply mods?
And I'd be interested to know what type of loan these U-house captains are being relieved of before I say give my blessing (by that I mean I won't vociferously object to the use of my tax dollars). If they got in this position by some teaser rate crap, then tell them to get the hell out of my house - the rate and payment that got them into the house in the first place was predicated on the back-end rate hike; now they're being refied into prime-looking paper for the sake of "Keeping people in their [HA!] houses".
I've heard your sermon about looking out for the whole portfolio, and loss mit, etc., but I want some retribution dammit! I want people who paid 'rent' in their houses and looked down their noses at those of us with enough self-respect to call ourselves renters to suffer the 'indignity' of writing a rent check. Which reminds me that if these fools had enough money to make the teaser rate payments but not the fully-amortising, then they clearly have enough money to pay rent somewhere -- they'll hardly be living under bridges or in shanty towns.
/rant
FHA has allowed no cash out refi's of underwater borrowers for decades. Fannie is the newcomer. FHA calls them streamline refinances. If you have an FHA loan you can automatically refinance into a new FHA loan with a lower rate if you aren't taking out more than 2% applied to closing costs. No appraisal required. FHA had 100% of the credit risk before, and 100% of the credit risk again. The risk might be up to 2% higher, but they concluded long ago that the improvement from a lower payment outweighed that.
Ahhh, but Bond Guy, monetizing that drop in houses is difficult for the poor borrower/sap who locked in to their fixed rate 20% down loan in Dec 2005. Now when the 2% refi floats up, then I will agree with you, meanwhile, sadly, food, energy, and all of those fill in items that are soo necessary to a household are flying upward.
As the old joke goes, when they drop my mortgage to meet the market, I will have enough money left over to maybe take a vacation.
Meanwhile, I will note that Hoenig agrees with me, although he is late to the party.
The sad part is that given the amount of overshoot we are in for, buying a house with a fixed payment right now will look like a wonderful investment in 10 to 20 years, but legging it through with capital to feed the alligator is the difficult part.
Got inflation?
Don't feel it yet?
Obviously you don't remember the 70s very well;-}
How about twenty cents for your now 25 year Tbond with a coupon of 4.375 percent to make the current yield?
Low bond prices should have you absolutely terrified. Those ABX cliffdives are a sign of things to come...
Someday this war's gonna end...
central_scrutinizer said: "...I might suggest also that Sebastian and O-Joe are not real people, but rather artificial intelligence programs designed to periodicaly test that the "swarm logic" of the blogs is still working...."
I just always assumed it was me and one other guy on the Internet, given how similar a lot of the conversations I have here are to the ones I used to have on Yahoo! several years ago.
Sebastia
Tanta, Tanta, Tanta. "... if the borrower already owes $360,000 on a $300,000 home, the situation isn't made worse by refinancing it into a new loan with a lower payment." Huh?
I can't imagine why you'd suggest Bureaucrats, who've repeatedly been exposed as inept (if not corrupt), should be entitled to put evermore of my money at risk, especially in non-recourse states.
"U.S. Stocks Decline on Concern SEC Plan Will Hurt Broker Profit"
What? Brokers make more money on phony leverage and an illusion of a balance sheet? You don't say.
We're all solvent now.
"You owe me a clean keyboard, Jas"
Stop feeding the ...roll
bailey, why is this so hard to understand?
Here.
Fannie Mae currently owns a loan of $360,000 on a $300,000 property. The interest rate is 7.5% and the payment is $2,517.17 per month.
Fannie Mae lets an originator refinance this loan into a new $360,000 loan on the same $300,000 property, but at 6.5%. That means the new payment is $2,275.44.
The borrower now has $241.73 more in his pocket every month than he did before. This improves his overall financial position.
How does Fannie Mae lose? Sure, they're reducing the interest rate, but it's still a market rate. And the loan is less likely to default because of financial hardship under its new terms. You offset the reduced interest rate with the increased likelihood of getting paid back.
So how is any of "your" money put at risk here, that wasn't already at risk?
Jas writes:when was the last time that CR and Tanta admitted to be wrong?
Scroll up, Jas - 05.07.08 - 6:06 pm
Jas - did you see editorial in the WaPo? If you read it, I'm guessing your toes still haven't uncurled yet.
If someone is down 20%, and assuming they had to put something down for Fannie Mae to be holding it, they must have bought in the last few years, in which case the interest rate really hasn't moved a lot. The 30 year FRM is higher than when we refinanced in 2003.
So if there's no cash-out, this sould seem to only help people in I/O or option ARMs that will recast.
I would be really surprised if this doesn't allow people to at least roll their closing costs into the loan.
And doesn't it circumvent the new fees/down payments required in falling markets?
All of these plans seem to be built on the premise that the current downturn will be much shorter than they have been historically, and the accompanying recession will be a shallow one. Otherwise, the U.S. government could be in very, very deep do-do in 5-10 years or so.
ot - Post office $700 million in the red
small change...
["Weakness in the housing and credit markets, both of which are heavy users of mail, are leading the declines in mail volume," Postmaster General John Potter said.]
Yahoo! 404 - Page Not Found
Shnaps,
His editorial was actually based on his book. The review was in an Economist magazine... thought it funny that none of the sources I saw mentioned he wrote more than just an editorial... he wrote a whole book on the "superclass"...
And doesn't it circumvent the new fees/down payments required in falling markets?
Yes. Because it only makes sense to apply those to new loans (purchases or refinances of some loan Fannie Mae doesn't already own).
It may well be that only a small segment of FNMA's borrowers would be in the money for a refi. So? That's good news, actually. It suggests that Fannie's underwater but performing borrowers are mostly already in the strongest loan they can practically be in.
This is not a big deal--just prudent portfolio defense.
I assume FNM would hold these loans in its cash portfolio: 120% LTV loans wouldn't be eligible for MBS because they're not "fully" backed by real estate collateral.
If I were FHA, and I thought that interest rates were going to rise next year, and that would cause LOTS of defaults among my ARM customers.... wouldn't I want to convert them to fixed rates while those are low???
120% LTV loans wouldn't be eligible for MBS because they're not "fully" backed by real estate collateral.
That is also my assumption.
Emily Latella - "Ohhhh ... never mind."
This is no difference than FHA allowing rate/term refis with no credit and no appraisal. They already have the risk and are just mitigating it by lowering the rate for the borrower. Fannie Mae is likely just the guarantor of the MBS so it is not out anything on yield. Makes total sense.
The only thing that does not make any economic sense is having to do this as a refinance rather than a odification. The problem is the pool investor. He wants to keep his higher yield, so Fannie does a refi to pay him off and he still loses his higher yield.
The only thing that does not make any economic sense is having to do this as a refinance rather than a odification. The problem is the pool investor. He wants to keep his higher yield, so Fannie does a refi
That's the thing: Fannie can't "do" refis. Fannie is not an originator.
Fannie doesn't do mods, either. The servicer would have to do the mod. But either FNMA or the servicer would have to buy the loan out of the pool to do a mod.
Letting one of its seller/servicers do a refi is probably easier on everyone involved than trying to modify these loans.
"AllenM writes:
Ahhh, but Bond Guy, monetizing that drop in houses is difficult for the poor borrower/sap who locked in to their fixed rate 20% down loan in Dec 2005."
Yeah, but what about the x% of people who are looking to buy? (In a typical year, 10% of the housing stock turns over.) Lower house prices/high vacancies should tend to put downward pressure on rents, no?
The "inflation is understated" crowd have been screaming bloody murder about how the CPI is understated because house prices were outstripping the housing component of the CPI? Well, you don't hear that particular argument any more, do you?
Inflation will always skyrocket if you only look at the things that are going up in price, to paraphrase another popular argument.
"How about twenty cents for your now 25 year Tbond with a coupon of 4.375 percent to make the current yield?
Low bond prices should have you absolutely terrified. Those ABX cliffdives are a sign of things to come..."
I can make money from the long or short side; volatility makes it easier to make money (less leverage needed to hit a target). Don't forget about the liability side of bond holders; there's a lot of institutions out there who would actually be better off if their bond investments cratered as a result of higher T-Bond rates.
In any event, how do you see running out to borrow with a hypothetical T-Note yield of 10% or whatever? Yeah, I can see the housing market speculators waiting to line up to get 12% mortgages so they can invest in a real asset so they can beat the coming hyper-inflation! Man, if you set up a housing blog now, the news would be real bullish!
Hey Jas, I admit to having failed to close my italic tag. Happy?
Anyone have even semi-accurate guess-estimates on the potential size of the 'universe of eligible borrowers holding FNMA loans who meet all the requirements' ?
Otherwise, this could be like Runway Shows where the press tongue-wags the airways over some designer's latest fashion that's totally irrelevant to the "greater-than Size 2" universe of women.
Tanta writes:
120% LTV loans wouldn't be eligible for MBS because they're not "fully" backed by real estate collateral.
So these would be loans held in Fannie's portfolio? Did they definitely originate in the portfolio as well.
Tanta, you seem to take a sanguine view about all these plans, kind of no harm, no foul. But given the situation we are in, and the lack awareness exhibited by most parties, but particularly the GSEs, and the documented experience of the GSEs' suspect controls, I can't help but think you're being optimistic.
These institutions are taking on more and more risk and a time when house prices are in a near free-fall. Prolonging a bad situation may be a really poor attempt at a solution.
Anyone have even semi-accurate guess-estimates on the potential size of the 'universe of eligible borrowers holding FNMA loans who meet all the requirements' ?
I personally think it's a very small segment of the universe. In fact, although I read this yesterday, I was all set to just ignore the whole thing until Baker posted on it and CR and I both got inundated with emails from people having a cow over it. I still think "nothingburger" applies here, pretty much.
So these would be loans held in Fannie's portfolio? Did they definitely originate in the portfolio as well.
I gave you all the hard details I have. I understand "owned by Fannie Mae" to mean their total book of business, guaranty or portfolio. But even if the loans are currently in MBS and would have to move to portfolio, it's still the fact that Fannie already owns all the credit risk on these loans, even if it does nothing.
I still do not understand why you see this as "taking on more risk." They already took on the risk, and there's nothing they can do to get out from under it.
If they really were volunteering to take refis of somebody else's loans at 120% LTV, trust me, I'd be bitching as loudly as Baker is.
But they aren't. And by forcing these to be refis, they get the originator holding to full reps and warranties (unlike in a modification). Plus they get market interest rates on the loan.
I seriously do not understand why this isn't just simple credit risk portfolio management.
It's going to be interesting to see the details on this one. The point a lot of you keep raising is a valid one, specifically how many of these loans are there to refi. I get a creepy feeling that this might morph into an across the board program in which Fannie starts taking out the piggyback lenders.
Sorry, I cut myself off there.
And they're also PERFORMING loans. These are not workouts. You cannot do the old "would I lose less by foreclosing?" math here--you can't foreclose on a performing loan!
You can, however, allow the borrower to lower his payment, if possible, to assure as much as you can that he doesn't get into financial trouble down the road. That's all.
So, I take it you're still working on a post RE: other Fannie announcement (the somethingburger) that at least I emailed you yesterday?
If there's no cash-out refi involved here, then I don't see the point of the program. Who would want to refinance a home that was significantly under water JUST to reduce their payments? If you are already 20% under-water (which this 120% program assumes), you'd might as well just walk-away and turn the keys back to the bank.
Terry - thank you very much for the Scotch. It came flying down my 24 port T1 line and I think all the multiplexing took out some of the peatiness.
It sure went down smooth.
Shnaps, what's your somethingburger?
OT
Post office $700 million in the red
I know I'm giving the USPS more business than I did last year, so I don't see the source of the problem. Fuel costs are biting them hard. USPS would be nothing without energy to make those cars and trucks move. My contributions (no first class mind you) will be a bit larger starting on Monday.
This may be propaganda to counter the grumping when people realize the rate increase has finally arrived.
Just another example how the "rich" elite soak the poor.
Poticians being paid off by lobbyist to rip off the american tax payers.
when is this going to stop?
bacon, that would be the whole "TBA pricing for all LFKAJs!"
"Party on d00ds!"
I'm wondering how that doesn't work the same way things work in Zim when Mugabe tells grocers they can only charge X$ for a loaf of bread.
and also orders them to sell bread.
You know, when CR admits he was wrong he does it in such a classy way it doesn't really make a stir. I know he's apologized within the last week or so, but really, because he doesn't get too caught up in trading insults, it doesn't seem like that big a deal.
Either you believe Big Ben and take him at his word- he will inflate, or you don't.
I take him at his word. But hey, if before the main course of serious inflation is delivered Congres$ manages to dish up an even lower fixed rate long term deal, I will take it.
Would I buy bonds? Heck no. JJ has a typical conservative bond portfolio that is fairly (as he has so far disclosed) unhedged. If you are a trader nimble enough to make it off the vix, more power to you.
While I see your point re others who would be better off with a higher discount rate (gee I have a defined benefit pension that is sucking a combined 18 frickin percent split equal between my employer and myself), they still would suffer the capital losses. Those losses should be avoided by getting out of treasuries.
Someday this war's gonna end...
I'm pretty sure that a FNMA-sponsored refi of a loan already pooled into an MBS would be a violation of securities law, because it means there wasn't full disclosure when the bond was publicly offered. Would anyone here recall live-free mortgages?
Sorry Tanta, I MUST be missing something. I can't see how Gov't. sponsored subsidies of home mortgages (at inflated prices that family incomes can not support) doesn't cost all us taxpaying "savers" money in the short AND long-term.
I certainly don't believe you're suggesting there's no additional risk to these loans because the existing loans are current or that the new lower rates include a commensurate risk assessment for non-recourse bubble states. Were this NOT the real story I'd expect we'd have a vigorous & healthy secondary market out there fighting for the business.
Terry, thanks for the warm-up,
But bartender- I'd like to switch to whatever bailey is drinking.
absinthe
I think your assumption that 120% refis will be limited to no cash out/rate term refis is a reasonable one. Unless Baker has some inside information to the contray, I think it is silly of him to assume it would apply to cash out refis.
Last again.
But bartender- I'd like to switch to whatever bailey is drinking.
Bailey's Irish Cream,of course. Oooops, that's no apostrophe: Baileys Irish
Cream.
This whole thing is the "nose of the camel in the tent." Once you go part of the way down the path of bailouts, it becomes easier to continue down the slippery slope. The end goal is socialized housing with the government being the only real lender, thus forcing housing prices to remain absurdly high and toxic financing to be the only option. End result is that people are much poorer than before and have to depend upon the state's kindness to keep their houses.
Pondering, i still don't see the bailout. FNM is acting in the interest of its shareholders to limit its losses. If taxpayer money ever has to be used to make good on FNM obligations, aren't we better off having that exposure reduced via this program?
bub wrote:
FNM is acting in the interest of its shareholders to limit its losses.
Is it? If these loans are preforming but at risk why is it wise to sacrafice risk premium? First, Tanta seems to think 'walk aways' are overstated. Therefore the risk of loss by walkaways is similarly overstated and there is no real threat here. Next, the motivating factor to walk away is the about underwater the borrower is - this plan doesn't fix that. If it can drop the borrower's payment by ~$250 on ~$2,500 (SWAG example above); aren't you just rewarding the borrowers who would have paid anyway, and reducing your reserves against those who won't regardless of the discount?
Then again, I just want my pound of flesh.
LASTLAST
this is all about 1) Fannie saving Fannie's ass 2) turning non-recourse purchase money loans into recourse refi loans.
I doubt cash out will be allowed. Even paying off 2nds that were not purchase money 2nds may not be allowed.