I have a mortgage serviced by Indycrack. My DTI is 25%. I have all my bills paid. Shouldn't I be rewarded with a redo at a lower rate and lower mortgage.
This seems to provide an incentive for IndyMac borrowers to stop making their mortgage payments until they are "seriously delinquent or in default".
This makes sense.
And it's entirely consistent with the ongoing theme in this country of rewarding people who engage in economically and financial harmful activities at the expense of those who don't.
Our economy has all the integrity and structure of a bowl of oatmeal.
If only my loan was serviced by IndyMac. Without question I would skip a payment or two, provide my 1040's and get a $200k haircut on my mortgage balance. (about 1/3rd off current balance). Where else can you get that kind of re-do on a loan without losing your property. This screams of tempting moral hazard (whose to say anyone has any morals today anyway???)
That said, since my loan isnt with IndyMac, what is my recourse? How do I get on this gravy train?
Does anyone really think that once this genie is uncorked we wont see a wave of "gimmie some of that action" screams from the solid citizens who actually pay their note, as agreed, on time?
CR - No woooories I'm now busy reviewing old Indy Financials and using current del. rates to extrapolate losses. They need to add some lipstick to sell this thingy.
Must be nice to get free money from the FDIC; I just wish is wasn't my money the socialist a-holes at the FDIC were giving to all the dishonest borrowers. Quite a windfall for everybody lucky enough to have committed colluding fraud with Indymac, though... you don't have to go to jail, lose your house, or even lose your credit rating; Sheila just gives you my money instead.
MarkS - Probably you and I (assuming you live in the USofA)
Awww, I dunno about that. Since default is becoming the acceptable norm for the citizenry and the business community, won't it eventually become acceptable (in some form) for the democratically elected government as well?
Freddie and Fanny are clearly toast. Finished. Caput. And it is a terrible day for financials all round the world. AIG ain't doing so hot either, as well as DB.
Benevolent (because she's using YOUR $$$) FDIC chair Ms Bair is considering those who committed fraud, charity cases. How wonderful that she gets to decide.
Really, it's just evidence that the only "good" program to come out of the socialist initiatives during the great depression, the FDIC, is itself a corrupt out-of-control organization which needs to be abolished. It too can now join the laundry list of horrible abominations which started as noble ideas, but degenerated into corrupt financial disasters as idealism met human nature (social security, farm subsidies, socialism, etc.).
Mortgage based on ability to pay. Not a bad idea if done up front. Not so good after the fact. Am I paying for this or are they raising the risk premiums on the FDIC member banks? I hope its the banks, because I have no meaningful representation.
More BS to keep people who threw caution to the wind and jumped into an overinflated RE market staying in their homes- especially if they're not paying their mortgages!
To Paulsons' credit, he is the only public figure I know of who has stated that some people just "need to walk away from their (sic) homes." ie. it would be a better personal financial choice.
On the other hand.....if you can live there for free for months on end while your case grinds through the system.....
Moral Hazard firmly entrenched now from the top to the bottom of US society. Individual homedebtors getting the same royal treatment as Wall street con-men.
Thanks Democratic Congress and Pres. Bush for trashing us all, top to bottom!
"This seems to provide an incentive for IndyMac borrowers to stop making their mortgage payments until they are "seriously delinquent or in default"."
To me this: "IndyMac Federal also will seek to work with others who are unable to pay their mortgages due to payment resets or changes in the borrowers repayment capacities." indicates that they're willing to talk to borrowers about modification even if they're not in default. If they are indeed making mods available to those who are able to demonstrate hardship without defaulting, they may be able to use IndyMac as a test case to develop a new mod formula.
Maybe they just extend amortization to 50+ years. We're all living longer, right? That would probably appease the insufferable libertarians on this board.
At some point 'proving financial hardship' won't matter. Banks must still think there's a light at the end of the tunnel, but getting folks into new mortgages now just delays the inevitable for most of them.
...It used to be said that the business of America was business,'' Phelps says.Now the business of America is homeownership.'' To grow optimally, he says, America needs to get beyond its house passion.
....Phelps argument works on multiple levels. The first is obvious. The federal government allocates too many resources to housing
A couple weeks ago, just after FDIC took over IndyMac, a guy wrote a letter to an RE question column in the Seattle Times. Here's his question:
"I have a mortgage with IndyMac. Now that FDIC has taken IndyMac over, do I need to keep paying my mortgage or will FDIC pay it for me now?"
His question seemed really quirky and nuts at the time. Turns out this guy was really onto something.
See, WE are the stupid ones. The scheisters and fiscally incompetent are the smart ones and can actually _anticipate what the next step will be on the moral hazard slide.
the point of mods is that they are less expensive than foreclosures.
But who is paying for either loss are indeed the saps with over the FDIC limit and Indymacs bond holders and creditors. If the losses exceed the worth held by those parties, then the FDIC and the taxpayer are on the hook for the losses that would be incurred by the FDIC insured parties.
Too late for the rants folks. We're stuck with the losses on these loans, and the foreclosures will generally be worse than the mods. Either way the FDIC will have to pay, and that will end up in the lap of the taxpayers because it's too big. It does probably make sense to do like Downey does and mod the mortgages before they're even in default to avoiid the defaults and cash flow problems though.
It will be very interesting to see how the FDIC spins this one when those mods prove more difficult to do than they think, borrower don't cooperate, and/or many borrowers don't qualify (probably because of the DTI). And then, when the loans redefault, what will the FDIC say then? I think this could be a win for the other servicers, maybe they will lay off the idea of regulating mortgage servicers - really a bad idea if you think about it, the government just needs to stay out of it! Let the borrowers default, it will all get better in time.
Shiela just paid bought down my rate and restored my equity position in that condo I've been trying to flip since forever down in Coconut Grove.
I got faster approval with IndyMac just putting down my own 'stated income' due to my occupational circumstance at the time, which was kind of a avant-garde menagerie of sword-swallower/chainsaw-juggler/street-exhibition-involving-performance-cats.
I have a hunch that this won't matter in the long run, that 90% of everyone getting mods is going to end up foreclosed anyway. Just delays the inevitable. Maybe that's the point. Could be a good point. I don't have all the data. Smells like panic to me though.
Yes, extending the term to 50 years would be acceptiable. It's a much better solution than rewarding greedy liers with principal.
The problem is that with so many loans being interest only, they already are extended...
BTW, If I sound a bit bitter... maybe I am. As an ant who lives well within her means and saves, it's hard watching the grasshoppers of of world live off the communial grain.
JLR writes:
Maybe they just extend amortization to 50+ years. We're all living longer, right? That would probably appease the insufferable libertarians on this board.
JLR | 08.20.08 - 2:46 pm
Look at the amortization tables, it doesn't save you much of anything going from 30 to 50.
Maybe it's just a ploy to get people to document their incomes and then they drop the hammer on them. (One can dream, can't he?)
"If, consistent with maximizing the net present value of the mortgage, an interest rate reduction below the current Freddie Mac survey rate is necessary to achieve a 38% DTI, then IndyMac Federal could reduce the rate further for five years."
In other words just we will let you keep your PayOption 1% interest rate!
At 38% DTI, and possibilities of rate increases, many indeed will default later. But later is good. (for the bank and its depositors) Even 4 or 5% return for a few more years will help cash-flow significantly. Cliff-diving is bad, long slow decline is painful, but more stable. Gives many people the possibility of getting better jobs or getting on with their lives and out of these houses.
We want less collateral damage. Therefor this is a good thing. Preferably if it's seen to be working more servicers will emulate it before getting a run on the bank.
It will be very interesting to see how the FDIC spins this one when those mods prove more difficult to do than they think, borrower don't cooperate, and/or many borrowers don't qualify (probably because of the DTI)
I think you missed the part where the article says they can write down principle to make the debtor's ratio 38%.
NOw if these new loans can be counted as new sales to use for comps in the local neighborhoods, that would kick a$$.
WTF: CAPM suggests a linear relationship between risk and return. This fram ework of investor behavior is based on equilibrium economics, a linear measure (beta), and rational agents. Importantly, the work of Markowitz and the CAPM 2 also rely on the assumption of normally distributed returns, with finite variance. These key principles of capital markets theory have two important underlying sa sumptions and one significant predicted outcome. The first premise is that stock price returns can be treated as independent, identically distributed random var iables, unleashing the use of traditional probability calculusa powerful tool. The second assumption is that of rational agentseither on an individual or a colle ctive basis. A predicted outcome of capital markets theory is modest trading activity and limited price fluctuations.
Wow, Greenspan handed Bernanke a really stinky bag to hold. He gets to preside over the dissolution of the GSEs. That will be costly. I am guessing that this was one of the authorities the Ben wanted, to be able to decide how to parse out the juiced up fragments to Hank's buddies...
"
Patience. Rate-reduction and write-down mods are the proverbial wave of the future. Coming to a lender/servicer near you soon."
So true. The FDIC is just using IndyMac for practice...wait till CountryWide is dumped into the FDIC's lap by BofA.
The irony is that many people in CA that are underwater with their mortgages are going to default just so they can get a loan mod. The default rates are going scare the mortgage markets and make rate for new loans go sky high. Damm, moral hazard is anything but moral!
Hmmm
Maybe folks here are looking the wrong way as to who is getting bailing out.
Maybe the point is not to keep the house owners happy, but to lessen the default level of SIVs to help prop up the big boys with their unwinding
I don't understand why the GSE's are not demanding an equity stake as part of the bailout deal. I know there's no equity now but if the deal required a 50% equity stake due on sale in the 1st 5 years which declined over time to 10% or so after 20 years that might end up recapturing some of the lost dollars. Remember the Treasury made money on the Chrysler stock it demanded as part of the bailout in the 80's.
"Ow if these new loans can be counted as new sales to use for comps in the local neighborhoods, that would kick a$$."
I don't think loan mods are used as comps. I don't know if loan mods are recorded with the title deed offices. If so I would a copy of some of these papers and show the Realtor when bidding on the price of a house.
"Maybe the point is not to keep the house owners happy, but to lessen the default level of SIVs to help prop up the big boys"
Oh, of course that's the reason. No one here is so naive to think anyone in position of authority would get a rat's ass about the lowest rungs on the food chain.
"When the heck will the RISK involved in writing a mortgage these days be priced into the interest rate charged?"
It has, by demanding much more equity stake, downpayment on purchase or equity in a 2nd. Rates are higher too, but treasuries are still to cheap. Wait till LT treasury rates start their climb...
I assume that most, if not all, of the people reading here are very clear as to why and who the bailouts are ultimately for.
If our reps. in DC had been at all concerned about "the people", they would have stepped in, oh, about 8 years ago and said Hey, we've got a problem, none of these people who are "buying" these homes will ever actually OWN them. Just look at the debt levels! Those mortgages will NEVER be paid off.
It was a ponzi scheme for the banks and WS all along.
Just ask all the people who lost their homes in the past 10 years for the same reason that people are losing them today.
Only difference between then and now? The bank could take the home back and RE-SELL it for more money than before.
As long as the banks and WS were seeing greater profits, the politicians were fine with the scheme and there were no "Poor Homedebtors!" stories in the news, no Barnie Frank and Dodd and Clinton and now the whole Dem Congress screaching about those poor homedebtors.
Once the scheme turned sour for the banks, the politicians "got compassion." Barf.
I wonder if Indymac is also forgiving short sale debt if the owner would rather sell short now instead of staying strapped to a mortgage debt for 50 years.
Look at the amortization tables, it doesn't save you much of anything going from 30 to 50.
That's exactly why the amortization will be extended. Gotta keep people in their overpriced homes, if they sell too soon the bank will lose money. That's why so many of these workout/bailout schemes have "lender gets part of the equity if you sell too soon" attachments.
Uncle Ar, yep, it looks like that will be the catalyst, total economic dissolution on all levels.
We could have had an RE meltdown leading to once-again affordable housing for Americans and stable communities and the implosion of the institutions that engaged in the corrupt ponzi scheme focused on HOUSING.
Instead, with the Fed and Congress in charge, trying frantically to keep the over-valued RE plates spinning on their sticks, we get RE meltdown, plus inflation that's killing the real economy, and moral hazard that shows the rest of the world that the US is just as corrupt and incompetent as any banana republic.
And as an extra added bonus, taxpayer funded bailouts for all egregious entities that have already f*cked us over once with their corrupt ponzi scheme- gotta keep those guys alive so they can screw us again once they've been bailed this time!
God forbid Americans ever have homes at 2 X income again. Just think, at that price, people, not banks, would actually OWN their property one day.
Scary thought, eh, average Americans, not banks and WS hedge funds owning their own property.
Much better to pay that low low rate on a loan at 10 x your income to the bank forever and ever.
WTF is the Federal DEPOSIT Insurance Co. doing yappin about loan mods?
That question will be addressed by Senator Shumer's office. After all, his remarks blew away potential buyers that had been negotiating with the FDIC in private.
Kung Fu Panda - if the lender forgives the debt, it's as if the debt never happened, and should not ding the borrower's credit. If the debt is a write-down or charge off, it would be a ding.
DR - if the loan mod affects the terms of the original Deed of Trust, you can expect the lender to record a Reconveyance and a new Trust Deed. Those are public records.
BondOfSteel - not to worry. What goes around comes around. Karma's for real. Just don't gloat over the misfortunes of others and you'll come out ahead where it counts.
Some are saying that longer amortization - from 30 to 50 years - is not a substantial measure. It is! For a 6.5% loan, it saves 11% in monthly payments, equivalent to an 11% principle reduction or a reduction in interest rate to 5.4%.
I agree with the many comments regarding moral hazard, but it really doesn't make that much of a difference in a situation this bad. What this program shows with great clarity is the difficulty faced in returning any portion of the bank to private hands within the 90 day timeline initially stated. It is the first of many Continental Illinois.
Since the FDIC "mod squad" is careful to insert this "maximizing" language ("This - the blanket mod - in turn will maximize value for the FDIC, as well as improve returns to the creditors of the former IndyMac Bank and to investors in those mortgages) one wonders how actually, you know, legal the FDIC's blanket mod approach is.
I have a very strong suspicion that the FDIC doesn't actually have the legal authority to provide loan modifications on anything other than a customized (one-by-one) basis.
Any IndySmack creditors or investors looking to launcha a suit against the FDIC?
tew writes:
Some are saying that longer amortization - from 30 to 50 years - is not a substantial measure. It is! For a 6.5% loan, it saves 11% in monthly payments, equivalent to an 11% principle reduction or a reduction in interest rate to 5.4%.
tew | 08.20.08 - 5:04 pm
So making payments for 167% of the original term of the loan saves me a whopping 11% per month? Sign me up.
-sarcasm off-
"The irony is that many people in CA that are underwater with their mortgages are going to default just so they can get a loan mod."
Righty-O.
What are the lenders/servicers going to do when the guy with ability to pay goes into default anyway and says "mod me. Write-down my principle and lower and lock-in my interest rate."
If that guy is paying a steep monthly premium to own versus rent and is hundreds of thousands of dollars upside down, he's got every incentive to play chicken. It's win-win for him. The lender loses no matter the outcome, but they can certainly cut their losses by doing a write-down instead of going the foreclosure route.
Proving hardship? Let's just see if that's a pre-requisite for a write-down by the time we get to 2010.
Maybe it's just a ploy to get people to document their incomes and then they drop the hammer on them. (One can dream, can't he?)
-Uncle Ar
I think there's an element there that you are on to. They have been investigating fraud at IndyMac since the seizure. They've bound to have unearthed a lot of very interesting stuff. Also, on their website they mention that most of these loans are Alt-A products. If they want to get a workout mod they will have to fully document and any fraudsters shouldn't make it through the process. They probably won't even want to pursue it, they will just walk and get FC'd. An interesting angle here would be this: Could they get re-directed back into the FDIC workout (and fraud exposed) if they try to file BK? Thoughts?
What the FDIC is trying to do is to approach modifications "sytematically", based on a simple front end DTI metric. The FDIC says that borrowers will have to show "financial stress" by providing updated financial information. Buy you are correct: this "systematic approach" seems to reward folks who overstated their incomes the most.
You make an interesting point, Doc. Even if the IndyMac shredders had been going nonstop before the takeover, they'd have left lots of paper behind.
There should be more than one investigation going. One kind would be fraudulent loans to consumers - relatively penny ante and too costly to prosecute any of the parties on a loan-by-loan basis. This is Attorney General territory - not FDIC. Very little likelihood of criminal charges there. Civil's a different story - big opportunity for a civil litigation bubble.
Another type of investigation would be fraud to corporate investors based on their business practices, accounting methods, representations, etc. That's the SEC's territory. More civil exposure, too.
And then there's securities fraud based on the completed loans they packaged and sold. Also SEC territory.
In any case, there are so many dirty hands that even the fraudsters can point the finger at somebody else. There will be considerable sound and fury, signifying nothing.
ac writes:
Our economy has all the integrity and structure of a bowl of oatmeal.
Please do not insult oatmeal like that. Considering oats are more than 10% dietary fiber (by weight), oatmeal has much more structure and integrity than our economy. Not to mention protein, iron, and magnesium. A bowl of Frosted Sugar Cluster-Bombs would be my preferred metaphor. Made with heavily subsidized corn syrup rather than real sugar, of course.
Feckless Ness, I am trying to isolate it in the context of a homeowner that "lied" to get the Alt-A loan that is now the focus of a modification or future modification. It seems possible to me that if I was a self-employed plumber that actually made $70K in the tax year previous to the loan app, but I stated that I would make $200K in the tax year that the loan was applied for wouldn't be considered a fraud-maybe. BUT, if you claimed to be a plumber making $200K and you were never a plumber at all, i.e., then it would seem you would have a cut and dried fraud case. It would be in the FDIC's interest to get this "plumber" out of the house toot suite and get the property auctioned, rather than let them wait out months and months of BK stays.
I am interested in this principal forbearance concept. A couple of weeks ago I bought something at Macys and then I noticed it was on sale. Macy's was kind enough to credit me with the difference. What other places will this work?
I have a student loan that I don't feel like paying anymore. Can I stop making payments and have the principal reduced? Last week when I bought gas, the price was $.25 higher than it was today. Can I bring my receipt into the station and have them give me a refund? Since I paid with my credit card, maybe the bank will be kind enough to let me only pay only a portion of my bill.
Last week when I bought gas, the price was $.25 higher than it was today. Can I bring my receipt into the station and have them give me a refund? Since I paid with my credit card, maybe the bank will be kind enough to let me only pay only a portion of my bill.
Actual analogy: after hiring a gas broker to find me an affordable tank of gas, I drove my car to Gas Station X to buy gas on his recommendation. I later found out that my gas broker was rewarded by Gas Station X with a gas-spread premium based on every dollar above the par gas price that I ended up paying. The gas price appraiser who inflated the price of my gas has absconded to Switzerland. Gas Station X took a note secured by an interest in my car, which IndyGas has purchased and securitized...
After the FDIC makes these loan modifications the loans will be current, and FDIC hopes to then be able to sell the loans to some suckers in the private sector. If my pension fund buys any of these loans I will personally lead a lynch mob into their office.
Apologies if this has been address, though I didn't see it.
What portion of these modifications will be paid for or subsidized by the FDIC's reserves and what portion will be paid for by.... someone else, such as taxpayers.
Followup question - Would this action give cause for other banks to be pissed off that their FDIC contributions are being used for unusual purposes?
I prepare construction drawings for small builders. As a rule of thumb they build/price the new house at 3 times of the lot. Land use regs in Seattle area have (had) created shortage of lots. Lot prices skyrocketed along with house prices and the lax lending of last 5 years resulted in prices almost doubling here.
Very good comments...I've been working on a loan mod w/IndyMac for 71 days. Here's what I have learned and experienced:
1) IndyMac is rewarding bad behavior first (i.e., people who lied about their income, gambled on ARMs and bought more house then they could afford.
2) There is no program for responsible mortgage holders who are not delinquent. Like myself.
3) They cherry pick mortgage holders that they are helping. The first qualification is you must be 60 days delinquent. Read #1.
4) I have had a multitude of entry level people calling me claiming that that "haven't forgot about me.
5) You must e-mail and call the offices to get any response but don't get overly optimistic.
6) I have letters into Schwarzenegger's, Boxer's, Feinstein's, State Dept. of Corporations and FDIC asking why there is not a program for responsible mortgage holders. To nobody's surprise, I haven't received one response.
7) Best bet is to hire a loan mod atty that may or may not find RESPA or TILA violations in your original loan docs. If they do, this is your best leverage. IndyMac does not have time to go to court so they will modify the loan.
Loan modification is a process whereby a home owner's mortgage is modified and both the lender and homeowner are bound by the new terms of the new mortgage.
The most common loan modifications are listed below:
\tlowering the mortgage interest rate
\treducing the mortgage principal balance
\tfixing adjustable interest rates within the mortgage
\tincreasing the loan term throughout the mortgage
\tforgiveness of payment defaults and fees
\tor any combination of the above
First but no hat tip see previous thred
Moral hazards seem to be multiplying.
A result of the current approach to this economic situation?
As with all modifications, borrowers will have to demonstrate their financial hardship by documenting their income.
Should open a lot of eyes when folks see what the fully documented incomes really are vs the stated incomes.
OT, but Karl Denninger knocked today's Ticker out of the park!
I didn't read the part about "borrowers who lied about their incomes on original loan documents will be subject to prosecution for mortgage fraud".
Was it there?
Ah, perverse incentives for exotic mortgages. Who said economics is dull?
I love this part:
"IndyMac Federal determines whether a modification proposal is affordable based on income information received from the borrower"
Current info or previously stated info?
Who said banking is dull?
Who takes the losses on the loans? The FDIC?
I have a mortgage serviced by Indycrack. My DTI is 25%. I have all my bills paid. Shouldn't I be rewarded with a redo at a lower rate and lower mortgage.
Barley, sorry I missed your comment. I'm doing a little research on some interesting stuff (hopefully) while still trying to follow the news.
Best Wishes.
MarkS - Probably you and I (assuming you live in the USofA)
Freddy -28%
Fannie -28%
WTF is the Federal DEPOSIT Insurance Co. doing yappin about loan mods?
This seems to provide an incentive for IndyMac borrowers to stop making their mortgage payments until they are "seriously delinquent or in default".
This makes sense.
And it's entirely consistent with the ongoing theme in this country of rewarding people who engage in economically and financial harmful activities at the expense of those who don't.
Our economy has all the integrity and structure of a bowl of oatmeal.
AC....I was picturing a different "bowl"
If only my loan was serviced by IndyMac. Without question I would skip a payment or two, provide my 1040's and get a $200k haircut on my mortgage balance. (about 1/3rd off current balance). Where else can you get that kind of re-do on a loan without losing your property. This screams of tempting moral hazard (whose to say anyone has any morals today anyway???)
That said, since my loan isnt with IndyMac, what is my recourse? How do I get on this gravy train?
Does anyone really think that once this genie is uncorked we wont see a wave of "gimmie some of that action" screams from the solid citizens who actually pay their note, as agreed, on time?
What interesting times we live in today!
CR - No woooories I'm now busy reviewing old Indy Financials and using current del. rates to extrapolate losses. They need to add some lipstick to sell this thingy.
Must be nice to get free money from the FDIC; I just wish is wasn't my money the socialist a-holes at the FDIC were giving to all the dishonest borrowers. Quite a windfall for everybody lucky enough to have committed colluding fraud with Indymac, though... you don't have to go to jail, lose your house, or even lose your credit rating; Sheila just gives you my money instead.
38% front end ratio!
Wow. That is the opposite of affordable and I think people will re-default.
MarkS - Probably you and I (assuming you live in the USofA)
Awww, I dunno about that. Since default is becoming the acceptable norm for the citizenry and the business community, won't it eventually become acceptable (in some form) for the democratically elected government as well?
Freddie and Fanny are clearly toast. Finished. Caput. And it is a terrible day for financials all round the world. AIG ain't doing so hot either, as well as DB.
Benevolent (because she's using YOUR $$$) FDIC chair Ms Bair is considering those who committed fraud, charity cases. How wonderful that she gets to decide.
Really, it's just evidence that the only "good" program to come out of the socialist initiatives during the great depression, the FDIC, is itself a corrupt out-of-control organization which needs to be abolished. It too can now join the laundry list of horrible abominations which started as noble ideas, but degenerated into corrupt financial disasters as idealism met human nature (social security, farm subsidies, socialism, etc.).
Mortgage based on ability to pay. Not a bad idea if done up front. Not so good after the fact. Am I paying for this or are they raising the risk premiums on the FDIC member banks? I hope its the banks, because I have no meaningful representation.
FDIC - Festering Deadbeats Insulated from Consequences
More BS to keep people who threw caution to the wind and jumped into an overinflated RE market staying in their homes- especially if they're not paying their mortgages!
To Paulsons' credit, he is the only public figure I know of who has stated that some people just "need to walk away from their (sic) homes." ie. it would be a better personal financial choice.
On the other hand.....if you can live there for free for months on end while your case grinds through the system.....
Moral Hazard firmly entrenched now from the top to the bottom of US society. Individual homedebtors getting the same royal treatment as Wall street con-men.
Thanks Democratic Congress and Pres. Bush for trashing us all, top to bottom!
"This seems to provide an incentive for IndyMac borrowers to stop making their mortgage payments until they are "seriously delinquent or in default"."
To me this: "IndyMac Federal also will seek to work with others who are unable to pay their mortgages due to payment resets or changes in the borrowers repayment capacities." indicates that they're willing to talk to borrowers about modification even if they're not in default. If they are indeed making mods available to those who are able to demonstrate hardship without defaulting, they may be able to use IndyMac as a test case to develop a new mod formula.
Maybe they just extend amortization to 50+ years. We're all living longer, right? That would probably appease the insufferable libertarians on this board.
At some point 'proving financial hardship' won't matter. Banks must still think there's a light at the end of the tunnel, but getting folks into new mortgages now just delays the inevitable for most of them.
"Note: I didn't see any restriction on borrowers that overstated their income originally."
does that mean it pays to lie?
"Our economy has all the integrity and structure of a bowl of oatmeal".
LOL. Geez ac, where do you come up with this this stuff? I really really hope you are a (well-paid) writer.
JohnW
well, I guess that's the other moral hazard in the making, people trying to start bank runs on their mortgage servicer to get mods from the FDIC.
Let's really hope it doesn't come to that.
"borrowers who have a first mortgage owned or securitized and serviced by IndyMac"
As I said a month ago, it would be pretty hard to treat the bank-owned mortgages one way and the SFO mortgages another.
Anyway, this ought to take care of the "other 50%" that JK Huey was referring to awhile back.
Just "write it off", as George Castanza would say.
I believe it was Kramer
"America's Obsession With Housing Hobbles Growth"
ttp://tinyurl.com/55rav8
...It used to be said that the business of America was business,'' Phelps says.Now the business of America is homeownership.'' To grow optimally, he says, America needs to get beyond its house passion.
....Phelps argument works on multiple levels. The first is obvious. The federal government allocates too many resources to housing
Who is paying for this? The poor saps with over 100k in IndyMac accounts? Tax payers?
"Our economy has all the integrity and structure of a bowl of oatmeal."
Someone stole the bowl.
A couple weeks ago, just after FDIC took over IndyMac, a guy wrote a letter to an RE question column in the Seattle Times. Here's his question:
"I have a mortgage with IndyMac. Now that FDIC has taken IndyMac over, do I need to keep paying my mortgage or will FDIC pay it for me now?"
His question seemed really quirky and nuts at the time. Turns out this guy was really onto something.
See, WE are the stupid ones. The scheisters and fiscally incompetent are the smart ones and can actually _anticipate what the next step will be on the moral hazard slide.
Anon,
the point of mods is that they are less expensive than foreclosures.
But who is paying for either loss are indeed the saps with over the FDIC limit and Indymacs bond holders and creditors. If the losses exceed the worth held by those parties, then the FDIC and the taxpayer are on the hook for the losses that would be incurred by the FDIC insured parties.
where's bizarro world!
fnm and fre are on death watch, with some 5 trillion in notional exposure, as a minimum, and the sp500 is Positive!
Cara,
Starting bank runs to get mortgage mods from FDIC? You're brilliant.
Fess up, you're related to the guy who knew 2 weeks ago that FDIC would eventually pick up his mortgage, right?
Too late for the rants folks. We're stuck with the losses on these loans, and the foreclosures will generally be worse than the mods. Either way the FDIC will have to pay, and that will end up in the lap of the taxpayers because it's too big. It does probably make sense to do like Downey does and mod the mortgages before they're even in default to avoiid the defaults and cash flow problems though.
It will be very interesting to see how the FDIC spins this one when those mods prove more difficult to do than they think, borrower don't cooperate, and/or many borrowers don't qualify (probably because of the DTI). And then, when the loans redefault, what will the FDIC say then? I think this could be a win for the other servicers, maybe they will lay off the idea of regulating mortgage servicers - really a bad idea if you think about it, the government just needs to stay out of it! Let the borrowers default, it will all get better in time.
waitinginPNW - speak for yerself.
Shiela just paid bought down my rate and restored my equity position in that condo I've been trying to flip since forever down in Coconut Grove.
I got faster approval with IndyMac just putting down my own 'stated income' due to my occupational circumstance at the time, which was kind of a avant-garde menagerie of sword-swallower/chainsaw-juggler/street-exhibition-involving-performance-cats.
I have a hunch that this won't matter in the long run, that 90% of everyone getting mods is going to end up foreclosed anyway. Just delays the inevitable. Maybe that's the point. Could be a good point. I don't have all the data. Smells like panic to me though.
Yes, extending the term to 50 years would be acceptiable. It's a much better solution than rewarding greedy liers with principal.
The problem is that with so many loans being interest only, they already are extended...
BTW, If I sound a bit bitter... maybe I am. As an ant who lives well within her means and saves, it's hard watching the grasshoppers of of world live off the communial grain.
zero chaos
877 937 6242
JLR writes:
Maybe they just extend amortization to 50+ years. We're all living longer, right? That would probably appease the insufferable libertarians on this board.
JLR | 08.20.08 - 2:46 pm
Look at the amortization tables, it doesn't save you much of anything going from 30 to 50.
Maybe it's just a ploy to get people to document their incomes and then they drop the hammer on them. (One can dream, can't he?)
"If, consistent with maximizing the net present value of the mortgage, an interest rate reduction below the current Freddie Mac survey rate is necessary to achieve a 38% DTI, then IndyMac Federal could reduce the rate further for five years."
In other words just we will let you keep your PayOption 1% interest rate!
At 38% DTI, and possibilities of rate increases, many indeed will default later. But later is good. (for the bank and its depositors) Even 4 or 5% return for a few more years will help cash-flow significantly. Cliff-diving is bad, long slow decline is painful, but more stable. Gives many people the possibility of getting better jobs or getting on with their lives and out of these houses.
We want less collateral damage. Therefor this is a good thing. Preferably if it's seen to be working more servicers will emulate it before getting a run on the bank.
Anon writes:
It will be very interesting to see how the FDIC spins this one when those mods prove more difficult to do than they think, borrower don't cooperate, and/or many borrowers don't qualify (probably because of the DTI)
I think you missed the part where the article says they can write down principle to make the debtor's ratio 38%.
NOw if these new loans can be counted as new sales to use for comps in the local neighborhoods, that would kick a$$.
"That said, since my loan isnt with IndyMac, what is my recourse? How do I get on this gravy train?"
Patience. Rate-reduction and write-down mods are the proverbial wave of the future. Coming to a lender/servicer near you soon.
So to get to a 38% DTI we'll need to stretch your term to 100 years @ 1% interest with a 50% cram down of principal - NO WORRIES!
A 38% front end DTI seems high unless you remember a 55% DTI STATED INCOME loan.In 2006.
WTF: CAPM suggests a linear relationship between risk and return. This fram ework of investor behavior is based on equilibrium economics, a linear measure (beta), and rational agents. Importantly, the work of Markowitz and the CAPM 2 also rely on the assumption of normally distributed returns, with finite variance. These key principles of capital markets theory have two important underlying sa sumptions and one significant predicted outcome. The first premise is that stock price returns can be treated as independent, identically distributed random var iables, unleashing the use of traditional probability calculusa powerful tool. The second assumption is that of rational agentseither on an individual or a colle ctive basis. A predicted outcome of capital markets theory is modest trading activity and limited price fluctuations.
Wow, Greenspan handed Bernanke a really stinky bag to hold. He gets to preside over the dissolution of the GSEs. That will be costly. I am guessing that this was one of the authorities the Ben wanted, to be able to decide how to parse out the juiced up fragments to Hank's buddies...
That 38% is everything, PITI. Not to shabby when you live in SoCal and bought a $650K shack and now get it for less than prevailing rents.
"
Patience. Rate-reduction and write-down mods are the proverbial wave of the future. Coming to a lender/servicer near you soon."
So true. The FDIC is just using IndyMac for practice...wait till CountryWide is dumped into the FDIC's lap by BofA.
The irony is that many people in CA that are underwater with their mortgages are going to default just so they can get a loan mod. The default rates are going scare the mortgage markets and make rate for new loans go sky high. Damm, moral hazard is anything but moral!
Damn, just did some math. If you make the median San Diego income ($60K) you can have your 38% PITI payments = $1900/ month.
Sign me up.
Hmmm
Maybe folks here are looking the wrong way as to who is getting bailing out.
Maybe the point is not to keep the house owners happy, but to lessen the default level of SIVs to help prop up the big boys with their unwinding
"That 38% is everything, PITI. Not to shabby when you live in SoCal and bought a $650K shack and now get it for less than prevailing rents."
Man, all those Mexican illegals subprime mortgagees were on to something!
I don't understand why the GSE's are not demanding an equity stake as part of the bailout deal. I know there's no equity now but if the deal required a 50% equity stake due on sale in the 1st 5 years which declined over time to 10% or so after 20 years that might end up recapturing some of the lost dollars. Remember the Treasury made money on the Chrysler stock it demanded as part of the bailout in the 80's.
"Ow if these new loans can be counted as new sales to use for comps in the local neighborhoods, that would kick a$$."
I don't think loan mods are used as comps. I don't know if loan mods are recorded with the title deed offices. If so I would a copy of some of these papers and show the Realtor when bidding on the price of a house.
"Maybe the point is not to keep the house owners happy, but to lessen the default level of SIVs to help prop up the big boys"
Oh, of course that's the reason. No one here is so naive to think anyone in position of authority would get a rat's ass about the lowest rungs on the food chain.
Well DR, I hope you're right about mortgage rates going sky high. They can go to 30% for all I care.
So much has happened in the past year that should have pushed them up, yet they still hover at ground level.
When the heck will the RISK involved in writing a mortgage these days be priced into the interest rate charged?
"When the heck will the RISK involved in writing a mortgage these days be priced into the interest rate charged?"
It has, by demanding much more equity stake, downpayment on purchase or equity in a 2nd. Rates are higher too, but treasuries are still to cheap. Wait till LT treasury rates start their climb...
When the heck will the RISK involved in writing a mortgage these days be priced into the interest rate charged?
When we are all subprime (= US Treasuries lose their AAA rating.)
Would a loan mod show up on the borrower's credit report in the future?
When we are all subprime (= US Treasuries lose their AAA rating.)
That's the end game.
zendiet-
I assume that most, if not all, of the people reading here are very clear as to why and who the bailouts are ultimately for.
If our reps. in DC had been at all concerned about "the people", they would have stepped in, oh, about 8 years ago and said Hey, we've got a problem, none of these people who are "buying" these homes will ever actually OWN them. Just look at the debt levels! Those mortgages will NEVER be paid off.
It was a ponzi scheme for the banks and WS all along.
Just ask all the people who lost their homes in the past 10 years for the same reason that people are losing them today.
Only difference between then and now? The bank could take the home back and RE-SELL it for more money than before.
As long as the banks and WS were seeing greater profits, the politicians were fine with the scheme and there were no "Poor Homedebtors!" stories in the news, no Barnie Frank and Dodd and Clinton and now the whole Dem Congress screaching about those poor homedebtors.
Once the scheme turned sour for the banks, the politicians "got compassion." Barf.
A sustainable mortgage logically means extended amortization. Personally, I'd like to end my mortgage rather than sustain it.
I wonder if Indymac is also forgiving short sale debt if the owner would rather sell short now instead of staying strapped to a mortgage debt for 50 years.
Look at the amortization tables, it doesn't save you much of anything going from 30 to 50.
That's exactly why the amortization will be extended. Gotta keep people in their overpriced homes, if they sell too soon the bank will lose money. That's why so many of these workout/bailout schemes have "lender gets part of the equity if you sell too soon" attachments.
Uncle Ar, yep, it looks like that will be the catalyst, total economic dissolution on all levels.
We could have had an RE meltdown leading to once-again affordable housing for Americans and stable communities and the implosion of the institutions that engaged in the corrupt ponzi scheme focused on HOUSING.
Instead, with the Fed and Congress in charge, trying frantically to keep the over-valued RE plates spinning on their sticks, we get RE meltdown, plus inflation that's killing the real economy, and moral hazard that shows the rest of the world that the US is just as corrupt and incompetent as any banana republic.
And as an extra added bonus, taxpayer funded bailouts for all egregious entities that have already f*cked us over once with their corrupt ponzi scheme- gotta keep those guys alive so they can screw us again once they've been bailed this time!
God forbid Americans ever have homes at 2 X income again. Just think, at that price, people, not banks, would actually OWN their property one day.
Scary thought, eh, average Americans, not banks and WS hedge funds owning their own property.
Much better to pay that low low rate on a loan at 10 x your income to the bank forever and ever.
Actually owning your home is so 1960's.
Thanks Congress!
WTF is the Federal DEPOSIT Insurance Co. doing yappin about loan mods?
That question will be addressed by Senator Shumer's office. After all, his remarks blew away potential buyers that had been negotiating with the FDIC in private.
I wonder, if the bank forgives some of the debt, does the new, lower "value" get written into the local RE comps?
Nah...that would mean realtors and other banks would take a hit.
Can't do anything that would benefit future homebuyers-especially if the NAR has a beef with it!
Kung Fu Panda - if the lender forgives the debt, it's as if the debt never happened, and should not ding the borrower's credit. If the debt is a write-down or charge off, it would be a ding.
DR - if the loan mod affects the terms of the original Deed of Trust, you can expect the lender to record a Reconveyance and a new Trust Deed. Those are public records.
BondOfSteel - not to worry. What goes around comes around. Karma's for real. Just don't gloat over the misfortunes of others and you'll come out ahead where it counts.
Some are saying that longer amortization - from 30 to 50 years - is not a substantial measure. It is! For a 6.5% loan, it saves 11% in monthly payments, equivalent to an 11% principle reduction or a reduction in interest rate to 5.4%.
CR:
FDIC: Error 404 - Page Not Found
I agree with the many comments regarding moral hazard, but it really doesn't make that much of a difference in a situation this bad. What this program shows with great clarity is the difficulty faced in returning any portion of the bank to private hands within the 90 day timeline initially stated. It is the first of many Continental Illinois.
Tanta,
Since the FDIC "mod squad" is careful to insert this "maximizing" language ("This - the blanket mod - in turn will maximize value for the FDIC, as well as improve returns to the creditors of the former IndyMac Bank and to investors in those mortgages) one wonders how actually, you know, legal the FDIC's blanket mod approach is.
I have a very strong suspicion that the FDIC doesn't actually have the legal authority to provide loan modifications on anything other than a customized (one-by-one) basis.
Any IndySmack creditors or investors looking to launcha a suit against the FDIC?
As a friendly reminder.. Bair and the FDIC are doing this for BANKS not homeowners.
tew writes:
Some are saying that longer amortization - from 30 to 50 years - is not a substantial measure. It is! For a 6.5% loan, it saves 11% in monthly payments, equivalent to an 11% principle reduction or a reduction in interest rate to 5.4%.
tew | 08.20.08 - 5:04 pm
So making payments for 167% of the original term of the loan saves me a whopping 11% per month? Sign me up.
-sarcasm off-
"The irony is that many people in CA that are underwater with their mortgages are going to default just so they can get a loan mod."
Righty-O.
What are the lenders/servicers going to do when the guy with ability to pay goes into default anyway and says "mod me. Write-down my principle and lower and lock-in my interest rate."
If that guy is paying a steep monthly premium to own versus rent and is hundreds of thousands of dollars upside down, he's got every incentive to play chicken. It's win-win for him. The lender loses no matter the outcome, but they can certainly cut their losses by doing a write-down instead of going the foreclosure route.
Proving hardship? Let's just see if that's a pre-requisite for a write-down by the time we get to 2010.
Maybe it's just a ploy to get people to document their incomes and then they drop the hammer on them. (One can dream, can't he?)
-Uncle Ar
I think there's an element there that you are on to. They have been investigating fraud at IndyMac since the seizure. They've bound to have unearthed a lot of very interesting stuff. Also, on their website they mention that most of these loans are Alt-A products. If they want to get a workout mod they will have to fully document and any fraudsters shouldn't make it through the process. They probably won't even want to pursue it, they will just walk and get FC'd. An interesting angle here would be this: Could they get re-directed back into the FDIC workout (and fraud exposed) if they try to file BK? Thoughts?
What the FDIC is trying to do is to approach modifications "sytematically", based on a simple front end DTI metric. The FDIC says that borrowers will have to show "financial stress" by providing updated financial information. Buy you are correct: this "systematic approach" seems to reward folks who overstated their incomes the most.
You make an interesting point, Doc. Even if the IndyMac shredders had been going nonstop before the takeover, they'd have left lots of paper behind.
There should be more than one investigation going. One kind would be fraudulent loans to consumers - relatively penny ante and too costly to prosecute any of the parties on a loan-by-loan basis. This is Attorney General territory - not FDIC. Very little likelihood of criminal charges there. Civil's a different story - big opportunity for a civil litigation bubble.
Another type of investigation would be fraud to corporate investors based on their business practices, accounting methods, representations, etc. That's the SEC's territory. More civil exposure, too.
And then there's securities fraud based on the completed loans they packaged and sold. Also SEC territory.
In any case, there are so many dirty hands that even the fraudsters can point the finger at somebody else. There will be considerable sound and fury, signifying nothing.
ac writes:
Our economy has all the integrity and structure of a bowl of oatmeal.
Please do not insult oatmeal like that. Considering oats are more than 10% dietary fiber (by weight), oatmeal has much more structure and integrity than our economy. Not to mention protein, iron, and magnesium. A bowl of Frosted Sugar Cluster-Bombs would be my preferred metaphor. Made with heavily subsidized corn syrup rather than real sugar, of course.
Feckless Ness, I am trying to isolate it in the context of a homeowner that "lied" to get the Alt-A loan that is now the focus of a modification or future modification. It seems possible to me that if I was a self-employed plumber that actually made $70K in the tax year previous to the loan app, but I stated that I would make $200K in the tax year that the loan was applied for wouldn't be considered a fraud-maybe. BUT, if you claimed to be a plumber making $200K and you were never a plumber at all, i.e., then it would seem you would have a cut and dried fraud case. It would be in the FDIC's interest to get this "plumber" out of the house toot suite and get the property auctioned, rather than let them wait out months and months of BK stays.
I am interested in this principal forbearance concept. A couple of weeks ago I bought something at Macys and then I noticed it was on sale. Macy's was kind enough to credit me with the difference. What other places will this work?
I have a student loan that I don't feel like paying anymore. Can I stop making payments and have the principal reduced? Last week when I bought gas, the price was $.25 higher than it was today. Can I bring my receipt into the station and have them give me a refund? Since I paid with my credit card, maybe the bank will be kind enough to let me only pay only a portion of my bill.
Last week when I bought gas, the price was $.25 higher than it was today. Can I bring my receipt into the station and have them give me a refund? Since I paid with my credit card, maybe the bank will be kind enough to let me only pay only a portion of my bill.
Actual analogy: after hiring a gas broker to find me an affordable tank of gas, I drove my car to Gas Station X to buy gas on his recommendation. I later found out that my gas broker was rewarded by Gas Station X with a gas-spread premium based on every dollar above the par gas price that I ended up paying. The gas price appraiser who inflated the price of my gas has absconded to Switzerland. Gas Station X took a note secured by an interest in my car, which IndyGas has purchased and securitized...
After the FDIC makes these loan modifications the loans will be current, and FDIC hopes to then be able to sell the loans to some suckers in the private sector. If my pension fund buys any of these loans I will personally lead a lynch mob into their office.
Apologies if this has been address, though I didn't see it.
What portion of these modifications will be paid for or subsidized by the FDIC's reserves and what portion will be paid for by.... someone else, such as taxpayers.
Followup question - Would this action give cause for other banks to be pissed off that their FDIC contributions are being used for unusual purposes?
I prepare construction drawings for small builders. As a rule of thumb they build/price the new house at 3 times of the lot. Land use regs in Seattle area have (had) created shortage of lots. Lot prices skyrocketed along with house prices and the lax lending of last 5 years resulted in prices almost doubling here.
Ms. Bair needs to modify those terms to get rid of mention of Freddie Mac five years down the road.
Didn't see anything 'bout what happens to these borrowers should they decide to move on to green pastures and newer bigger faster scams.
I have a perfect payment history on my 8.625% adjustable rate mortgage with Indymacbank.
They told me on Wednesday that I don't qualify for the new loan modification program because my payments are "current".
Anyone know how many months I need to skip paying my mortgage so they'll give ME the 6.5% fixed rate, too ?
Very good comments...I've been working on a loan mod w/IndyMac for 71 days. Here's what I have learned and experienced:
1) IndyMac is rewarding bad behavior first (i.e., people who lied about their income, gambled on ARMs and bought more house then they could afford.
2) There is no program for responsible mortgage holders who are not delinquent. Like myself.
3) They cherry pick mortgage holders that they are helping. The first qualification is you must be 60 days delinquent. Read #1.
4) I have had a multitude of entry level people calling me claiming that that "haven't forgot about me.
5) You must e-mail and call the offices to get any response but don't get overly optimistic.
6) I have letters into Schwarzenegger's, Boxer's, Feinstein's, State Dept. of Corporations and FDIC asking why there is not a program for responsible mortgage holders. To nobody's surprise, I haven't received one response.
7) Best bet is to hire a loan mod atty that may or may not find RESPA or TILA violations in your original loan docs. If they do, this is your best leverage. IndyMac does not have time to go to court so they will modify the loan.
Good Luck.
Loan modification is a process whereby a home owner's mortgage is modified and both the lender and homeowner are bound by the new terms of the new mortgage.
The most common loan modifications are listed below:
\tlowering the mortgage interest rate
\treducing the mortgage principal balance
\tfixing adjustable interest rates within the mortgage
\tincreasing the loan term throughout the mortgage
\tforgiveness of payment defaults and fees
\tor any combination of the above
Check out this Public site at loanmodificationmortgage.org