Without having read it, it sounds nuts. I'm short mortgage lenders, and I would hugely benefit from it, but it sounds like an extraordinarily blunt expropriation.
I don't know what other vices or virtues Bair's plan may have, but it does get around one big problem with fixing the foreclosure mess. The infrastructure doesn't exist to evaluate, negotiate, or do any of the things that case-by-case work-outs entails. Identifying a class and treating everybody the same would really cut down on paperwork and processing. It would also blow up lots of financial instruments, I suspect.
If the report is accurate -- which is a little hard to believe, but these are wild times -- it seems an astonishingly reckless thing for the Chair of the FDIC to say.
From the CNN article: "Responses have been more Katrina-like," said George Goehl, executive director of the National Training Information Center, a network of community organizations working with borrowers to negotiate loan workouts with lenders.
I think he means Katrina-like as in paltry. But Tons of money was spent after Katrina doing things like shipping truckloads of ice back and forth to Pennsylvania.
hmmm.... Do I see another multi-billion dollar, no-bid contract in the works for Haliburton?
I think there is a real opportunity here around now for a politician to trot out a renter with a touching personal anecdote against bailouts. Why hasn't anybody seized on that yet? There ought to be more renters around than those at risk for foreclosure.
They loaded $28b but today $29.25b of repos expired so the net add is negative. The Slosh Report is a convenient site to track TOMOs. Interestingly, a chunk of repos backed by MBS was replaced by treasuries so the collateral has better quality now.
BR, any bailout will punish the prudent and others that didn't participate in the housing mania.
But k harris has a good point - the infrastructure isn't in place to handle what is coming - or even what is happening today with rapidly rising delinquency and foreclosure activity (it will be much worse next year). Many non-participants in the bubble are going to be punished anyway with the many problems of empty houses next door.
The time to act was a few years ago. Now we are left with no clean exit strategy.
I'm surprised that Bair said: "I don't want to kick the can down the road and just prolong the pain." because that is exactly what her proposal would do. Weird, I think Bush said the same thing about Iraq a few years ago - I'm going to try and find the quote.
So nobody likes "bailouts," but nobody likes paying taxes either, and so when contraditions arise, "everyone" is fine with stiffing the IRS, and we don't want to see this as a "bailout" of people who are walking away from their debts.
But people who are trying not to walk away from their debts? We're against anything that makes actual repayment of the loans more likely.
Whatever.
FWIW, Durbin's proposal to allow cramdowns in Chapter 13 doesn't bother me in the slightest. Lenders, of course, will get all spastic about it, but lenders need to live in fear of BK judges. It does wonderful things for their ability to underwrite loans and review appraisals.
To me, it's about the future, too: the debt forgiveness proposal, if made permanent, permanently decreases the cost of the "put" or option to default on a mortgage loan.
The threat of cramdown (declaring the amount of the loan over the property value to be unsecured, thus modifying the loan balance down to the secured amount) makes it riskier for lenders to write high-LTV paper. One hopes that the debt forgiveness proposal will also have this effect.
I'm a renter in the Los Angeles area. I have a lot of money in the bank that I have been saving to buy a house with. Prices have started to drop, I can afford houses close in but in areas where I would not live. Give it another year and maybe I can afford in an area where I do want to live.
I've been waiting years for this downturn, when houses where at a level that I can now afford I did not have the savings to buy. When the come back down I'll buy a home and hold it for the long term.
How do I get on the news with my story? I can actually afford the home that you raised up in price and bought out from under me.
Give them the bailout but anyone who owns a home now free and clear or renting is IRS tax exempt for life. Works for me, that way the ones that caused the mess pay for cleaning it up.
For every story about a family thrown out onto the streets, we need a story for the family locked out of one. With just the right amount of sentiment and a journalist who sees the story.
And if this is not enough...Banks are desperate to clean their Balance Sheets by offering discounts..
"Investment banks are offering finance to vulture funds on improved terms if the money is used to buy debt from them, according to bankers and managers of the funds.
Banks keen to shift a backlog of well over $200bn of leveraged buy-out debt are tying leverage for recovery, or vulture, funds run by hedge funds and private equity to the sale of the debt."
I think the best thing to do at this point is to repeal the most onerous provisions of the MBNA protection... er, recent bankruptcy bill, and then let everyone take their lumps. Any fiddling will just put off the pain, making it worse when it finally comes.
If Congress HAS to pass the debt forgiveness tax relief whatsit, then it should have some kind of limit, such as the median household income.
crispy&cole, if you just rephrased CR's proposal so that purchase money loans and rate/term refinances with "no new money" are exempt, you could distinguish that. Everybody has a HUD-1 Settlement Statement that shows this.
c&c,
It's not that he feels better taking those shots, he feels better being seen taking those shots. In fact, he'd rather listen to his own voice than theirs.
BR, I'm all for appointing Tanta Mortgage Czar - and let her decide what to do. I nominated her yesterday!
crispy&cole, sometimes unintended consequences are obvious - like in this case. Freeze the interest rate at the teaser rate on subprime loans will prolong the period for the market to reach balance. I'm all for a longer bust period if the alternative is a severe recession - something I don't see. Maybe Bair thinks the economy is really going down the tubes.
Bks and Foreclosures are to filed at the correct time of the year. Eg: If your last name begins with A, B or C, your date is Janaury. Eg if your last name starts with D, E or F your date is February.
This will help smooth out the process.
Of course lenders are required to assume full costs until the right month arrives.
The Broker who undertook the mortgage, pays for all court costs.
Borrowers are prohibited by law from taking out any other mortgage or mortgage instrument for a full seven years.
If a hedge fund borrow's money from a prime broker, loses money on MBS , default's on loan, and files BK, are they subject to income tax on borrowed funds?
"Vulture funds"? Wow. They'll do anything to "make up" their books. And who are all these "investors" into hedge funds anyways? Do they ever see any of their returns? This just has Ponzi scheme written all over it.
"Investment banks are offering finance to vulture funds on improved terms if the money is used to buy debt from them, according to bankers and managers of the funds."
Ok they dump one set of loans now what are they going to do with the new ones Hummmmmmm?
It is funny to me that politicians want to promote "home ownership" but as soon as we get falling prices that will create REAL (rather than artificial) home ownership, they have to stop it.
Almost every foreclosed house will end up being a homeownership opportunity for a responsible person who will buy at a sustainable price.
The proposal I would like to see is something along the lines of "one free foreclosure"- that one foreclosure can't be used against someone in future credit decision. No idea how this could be implemented, but it would promote what needs to happen- turnover of houses bought as unsustainable prices back to their real market value. And would lessen the penalty to those sucked up in the mania of the bubble, and allow them the chance to buy again at a proper price.
Look at the International Debt Crisis of the early 80's to gather true perspective on this problem. Look at the renegotiation/bailouts that occurred. We made it through that, we'll make it through this.
This is truly a ship of fools we must save the ship even if it means saving the fools. It is that simple.
When a child falls down and hurts themselves, do you stand above the child preaching morals or do you first attend to the injury and then figure the way to prevent the child from repeating the behavior that caused the injury?
I say tend to the injury first, teach morals afterward.
Why the distinction between someone who borrowed 80% of the purchase price up front and someone who borrowed only 50% up front and then later borrowed the other 30%? They are in the same situation financially aren't they? Seems to me you are punishing timing differences.
"Note: Say someone bought a house with a $200K first, and then loses the house in foreclosure. I don't think there should be any tax consequences."
Why not, there are tax consequences for the lender, they will pay less of them, so what you favor is a bailout in disguise...
Remember that under the current law income is imputed to the home owner (No money down, not really an owner) based on the BANKS loss from selling the house for less than the mortgage owed. THE HOME OWNER LOST NOTHING BUT THE HOUSE HE NEVER PAID FOR.
Debts need to equal credits if you remember accounting 101.
See, I thought capitalism was based more upon a Darwinian metaphor, "Only the strong survive." Now we metaphorically refernce it as a "Nanny State". Oh! But who will save the children? THE CHILDREN!?!?
So, if we're in a "Nanny State", I'd like to know what happened to all those mental hospitals in the 80's? That should be the first thing we do to put a bandaid on the boo-boo. Cause all the former patients seem to have eloped to Wall Street.
Also, your proposal would incent buyers to leverage to the max up front. Is that really what we are after? A more elegant approach might be to hold the purchase price constant and then say the first 80% borrowed, no matter when or for what purpose, if foreclosed upon etc. would not incurr a tax burden. I think that likely accomplishes your goal without creating very strange incentives.
Tanta seems spot on in that all proposed relief acts lead to a definite tightening of credit standards. Of course, that means fewer qualified borrowers, which means lower demand, which drives down prices, which distresses more homeowners, yadda yadda yadda.
Where does it end? I suspect sometime after average purchasers qualify on average under the new lending standards.
Existing contract law has reasonable criteria for determining that a contract is invalid.
Considering that a stable legal framework is one of the primary prerequisites for a developed economy, I would guess that there aren't many situations in which the practice of having the government suddenly step in and allow (or even force) unilateral modifications would be desirable.
So who takes the hit if they froze the mortgages at todays income level? The owner of the MBS and all the down stream products created from them who expected the rate to rise as a part of the package they bought?
Do I have that right?
So then the real value of the note is at NO interest in some cases and 1% in others and 2% in others and ...... ?
And what does that do to the valuations of mark to model? And will the pigmen be made to then remark these to market or will they still be AAA as they are now solid as a rock because the income stream vs equity are solid???!!!!
Is this even workable? And does the bill have a cut off date or can I go out and borrow more than my house is worth on a teaser rate and expect that all I will have to pay is that teaser rate?
And what about HEOLCs? Are they included as they are seconds as far as I know?
This just sounds to funny to be real but then look at the administration who's hack proposed it.
Tanta I could be persuaded to forgive income tax on the debt that bowers are cleared of. However I see one major problem the banks will take it as a loss and the gov't will be out of a lot of revenue. Ahh-haa... Want to teach the lenders about making loans to people they shouldn't don't let them record that as a loss... I'm surprised someone hasn't thought of this yet. Of course then Cramer wouldn't even be able to get a loan...
Why the distinction between someone who borrowed 80% of the purchase price up front and someone who borrowed only 50% up front and then later borrowed the other 30%?
Banker, the thing is, it's still true that people who never allowed their CLTV to go over 80% (at the time of any given loan) rarely default. Even now. For there to be debt forgiveness that is taxable, the property value would have to drop by more than 20%, and only the amount of the lender's actual loss is "forgiven."
It's the folks who start out overleveraged who have most debt forgiven, since they are most likely to be 1) upside down and 2) to default.
The problem with your metaphor is that these proposals do not attend to the injury, which is unsustainably high home prices - rather, they they put the child back on roller skates for the Grand Canyon sight seeing tour...
(Extremely off-the-top-of-the-head estimate: $250b expected losses * ~25% average marginal rate = $63b. Is that considered a large or small number these days?)
Fair enough, but my point remains. Change the number to 95% or any number you wish. Why does it matter how they got there? If you treat timing of borrowings differently, you get really counterproductive incentives.
Housing novice: YouTube is a start. Make it compelling and you might get it somewhere. I'm in the same boat as you and have the credit, downpayment, dti, pti for something thats realistic. A 1200 foot home in lakewood for 600K. Get real!
I'm writing the officials but what does that get you! I think little. The chances for creating a better environment for our children is being priced artificially from the same people they want to own a home. "It's a mess" is correct.
The people on this blog are more knowledgeable than our officials. It's sad that we can't somehow point that out to them but we don't have any special interest groups playing that tune every night to back us up.
Find me the person who, after buying at the top, with no (or virtually no) money down, with a ultra low rate loan, is willing to NOW take the further risk that their property won't continue to slide below their new mortgage basis......when "everyone" can see housing prices continue to fall.
Somehow I see people who once didn't think much about the risk they were taking thinking very hard about the new one.
All this "feel good" legislation will do is bring new meaning to the expression "pushing on a string".
CR, I would be interested in your comments on why you don't see a severe recession, and how confident you are of that, and what would count as severe.
I think no one could have the confidence to say that a severe recession is highly likely (just because they don't come along very often) but the systemic imbalances (not primarily in the housing market, but in the current account deficit, negative savings rate, and so forth) seem sufficiently larger than they have been in a long time that a severe recession seems much more probable than usual.
18B...mmm Bof E and ECB have stayed rates. USD seemed to level in with anticipation that perhaps they might give BB a bit of room. Nope. USD might tip a bit tomorrow along with the stockmarket. PPT arrives to help!
Politicians add productive value (as politicians) in only one way: By understanding and surfacing the really important issues that constituents want addressed. This is especially true in the year leading up to a general election.
So, housing is definitely an issue with heat "out there." Unlike, say, immigration reform, it's not an issue where their are clear partisan dividing lines.
There will be laws passed, but they will be mainly beef ups of mortgage disclosures and fiduciary responsibilities for REIC.
The political rhetoric could make more people aware how desperate their situation is and, indirectly, lead to more foreclosures sooner.
If the chairman of the Federal Deposit Insurance Corp is making suggestions like the one quoted...more than a few banks are ready to go bye-bye if nothing is done.
Otherwise, why come up with something so far out of left field? I can believe Cramer coming up with that, but the Chairman of the FDIC?
Even if the debt was from a HELOC and was used for an H2 and a vacation?
The money was already tax free to begin with. If the homeowner had sold the home at the peak, paid off the HELOC, there wouldn't have been any additional taxes due.
This isn't going to have a huge impact. If you're insolvent, you're already exempt from the taxes. This just reduces the paperwork.
Of course, I'm guessing there is one guy, somewhere, who is upside down on his home, has substantial assets, a bank that is willing to do a short sales and not pursue a deficiency judgment. I'm guessing he'd be pretty happy to hear this
What is wrong with the current system? You don't get taxed if you're insolvent. That protects most people who really couldn't afford the house.
People who are solvent but are walking away from mortgages and taking advantage of non-recourse provisions should be on the hook for taxes. Loan forgiveness is income. You spent the money.
If loan forgiveness isn't income, people very quickly figure out ways to turn the loan forgiveness into tax-free paydays. Classic case - employer "loans" executive money to buy a house then forgives all or part of the loan at the end of the year. I don't know what hoops they have to jump through to qualify under this proposed legislation, but folks will figure it out quickly.
The very most they should do is raise the limit for taxability from "insolvent" to "insolvent + $25,000" or some reasonable number that gives people a chance to keep a car, household goods and a little cash to start over.
The thing everyone's forgetting about Bair's proposal is that those loans weren't "supposed to" reset, for the most part, in the first place. They were "supposed to" refi at the reset as they had done for the entire period of 2001-2006. Had the party not ended, those bondholders wouldn't be seeing those 10.50% reset rates, they'd have gotten their principal back.
And you are talking about loans that are, on average, at around 8.50% ish pre-reset, and will adjust to 10.50-11.50% post reset.
I'm not endorsing Bair's proposal, necessarily, just pointing out that these loans were built to prepay.
From the article:
""Let's be honest about it: Hybrid ARMs were never made on the assumption that borrowers could continue to pay them back once the loans reset"
A rare honest moment indeed. If other people are going to get a 3% fixed mortgage, shouldn't we all get one?
Check my site for a prediction on tomorrows action.
Wouldn't you think Bair is making this rather bold suggestion based on information on the current health of our banking system? Could it be that banks are much worse off than we know?
Umm... So what was supposed to happen? These loans would be rolled over at the teaser rates in perpetuity? (The second question is rhetorical.)
Presumably these were "greater fool" vehicles -- they weren't ever expected to be paid back, but a greater fool would refi them and get them off our books before Armageddon....
So, Tanta, is your thinking that Bair's proposal sticks it to the current holders, but they are going to lose oodles anyway, and the proposal keeps people in their homes?
So, Tanta, is your thinking that Bair's proposal sticks it to the current holders, but they are going to lose oodles anyway, and the proposal keeps people in their homes?
Sticks it to them? They never expected to get 10.50%. They expected to get prepaid, because they were too fricking stupid to figure out that the refi party would have to end.
Now they have a choice between actually earning 8.50% on a loan that can possibly perform, or letting them reset to 10.50% and fail, at which point there will be losses.
Which would you rather have? I have never worked for a business that preferred to enforce contracts at a loss rather than restructure for a lower gain than expected.
In regards to how severe a recession might be, I can't answer CR's thinking, but the way the world-wide market is looking at it, the Fed just decided to inflate the U.S. out of the situation.
Basically, the people who rented and put their money in a the bank waiting for the right time are going to get the shaft. Unless they can put that money into a foreign currency, or maybe gold.
It always seemed to me that this was the likely course. We are the largest debtor nation in the world, and unlike almost all big debtor nations of the last 50 years, all our debts are denominated in our own currency.
The only thing that will give the rest of the world pause is if the Fed does not lower again this month. If they do, kiss reserve currency status goodbye. And 30-year mortgage rates will go UP.
CR, I would be interested in your comments on why you don't see a severe recession, and how confident you are of that, and what would count as severe.
I think no one could have the confidence to say that a severe recession is highly likely (just because they don't come along very often) but the systemic imbalances (not primarily in the housing market, but in the current account deficit, negative savings rate, and so forth) seem sufficiently larger than they have been in a long time that a severe recession seems much more probable than usual.
You covered it pretty good, with one exception. That is the issue of consumer sentiment or morale, which also plays a part in economic cycles. It isn't just based on levels of optimism/pessimism. It's based on the rate of change from one to the other.
I can't remember a time when the shift has been so great from optimisim to pessimism. I think the headlines about mortgage refrom reinforce pessimism. Do you really want to go buy a shiny new gas guzzler when the headlines are full of mortgage reform?
but Tanta i don't get it. now that anger as a renter resided, confusion showed up.
Holders of vintage 2006 and 2007 are getting 8.50%? What about the defaults that are happening even before the resets? Are they going to lower the teaser rate to avoid that?
If there are no more resets for ARM, would private investors still buy MBS? I'm not sure whether Bair is talking about jumbo or conforming ARMs.
I was at the conference today and saw Bair speak. The Q&A got a bit chippy between Bair and the attendees on this issue.
While I disagree with categorical mods to the initial rate, a great number of subprime borrowers would not be impacted by her "plan". She called for this mod type on subprime loans that have not missed one payment. One of the reasons subprime borrowers are subprime seems to be that they do not keep spotless payment track records. Over three years on a 3/27 or even two years on a 2/28, many subprime borrowers will miss at least one payment making them ineligible for the Bair-saves-the-subprime-borrower-via-mods-for-everyone plan (unfortunately I don't have actual stats to back this up...but I don't think it's a stretch).
somehow i think this new rate and relative underperformance against my hedge fund peers will make my seed money investor want to pull there funds...
8.5% seems steep also...
going to use 417k as my loan amt
what is the benefit of this?
"5. Delays credit counseling until after filing when foreclosure is imminent. "
I think the point is to get the borrowers out of immediate distress asap, before preaching at them: when foreclosure is imminent.
I'm not endorsing Ba's proposal, necessarily, just pointing out that these loans were built to prepay.
Indeed. Considering this and many other features of these loans that the lenders, if not the borrowers, certainly knew were questionable, I wonder whether there's any settled law on onerous contracts?
Whenever I've thought about that idea of fixing payments, I kept running into the point about how long the term would have to be extended to meet the principle. A moratorium period? Then what?
"Whenever I've thought about that idea of fixing payments, I kept running into the point about how long the term would have to be extended to meet the principle."
exactly! if that makes the mortgage a longer than 40 years one, i guess many borrowers would not accept it.
I believe her argument was essentially that borrowers that haven't missed a payment have shown they can handle their mortgage at the initial rate. Conversely those that have already missed payments are not worthy borrowers (my words, not hers...although, my interpretation of her thoughts), so keeping them at the initial rate will not help.
Sure, some (even many) subprime borrowers may prove unworthy of the loan they were given, but many (again, no numbers, so I'm keeping to vague terms) are "sloppy payers" who will continue through a cycle of missing payments and then catching up.
I understand Tanta's point of these mortgages being designed to have a refi. About the inability of many to refinance, how much is due to the credit crunch and how much due to the fact that home values stop going up?
I accept as a tax payer the fact that we might need to help those hurt by the credit crunch, but have issues about helping those that cannot refinance cause their house lost value.
Obviously, have issues with it cause I was waiting for home values to come down to be able to buy a home for myself. Also cause everytime I've said home prices may go down, everybody looked at me as if I were a total loser.
Federal Deposit Insurance Corp. Chairman Sheila Bair called for payments on most subprime mortgages to be fixed at current levels.
Lenders should extend "teaser" rates on all subprime adjustable-rate mortgages if the borrowers haven't missed any payments and they live in the homes, Bair said today in New York.
Is she saying keep the payments constant ?
Or is she saying : change a 0.5/1.5/28, 1/1/28, or 2/28 mortgage into a 30/0 mortgage with the starter rate applying to the rest of the life of the mortgage ?
That second is going to stiff a lot of people who were expecting those 28 years of higher payment; and the ones who get this deal are gonna make out like bandits; and why would they refinance OUT of such a deal 2,3,5 years down the road ? - what were teaser rates - 2%, 3%, sometimes near 0% in 2005, 2006 ? and the full rate was 8% or so.
That's serious moolah.. She can't really have thought this through - but she's a FDIC poobah - you'd have thought some reflection and significant detail was in order ??? nahhh, perhaps not.
Julia,
I know the feeling! I still get negative feedback from realtor friend/friends in the OC with homes when I bring prices falling. I'm a Native Angeleno who saw this huge bubble that was worse than the 90's bubble which I witnessed.
Prices are way out of whack! Bidding wars were unreal, with nothing behind the bid except in hindsight what was a packaged cdo. What a ride. Now we get to miss out on the help. is that Double jeopardy? Maybe the people that foreclosed in the 90's should file a discrimination suit. How come they didn't get a bailout? I do think that any bailout should include something for the money smart individuals that are going to get screwed by artificial high housing prices.
Paper in the 90's was bought by underwriters like me on credit situation, score, dti, Pti, poi, copies-checks, stories of why something went wrong, someone gets cancer in family and goes BK because they fought it but were clean since, I would buy them. etc, etc, etc. There was A,B,C,D paper. No different than today. We had to maintain yield against credit quality.
It didn't happen in the last couple years and were left with this mess.
Now you and me are watching with great intent. I hope that everyone and their families who were waiting for prices to move down to 4 times thier income get to buy a home and can raise a family peacefully without some crazy mortgage hanging you from your neck.
Life is simple. Everyone needs to learn from thier mistakes. I still do everyday. Bailing these people out is a moral decision that 90% of the people in the US will not be happy with. I hope.
This bailout is just plain wrong. Thanks for all the great information you all provide.
"I'm all for a longer bust period if the alternative is a severe recession - something I don't see. Maybe Bair thinks the economy is really going down the tubes."
CR... You do not see the economy going down the tubes? Risk mangers think in a micro world that only addresses risks to their employer, not to the economy and our country as a whole.
What is your background? If you are a risk manager, you are definitely focusing much, too much on yesterday's risk.
CR you really need to study your economic history as does Tanta!!!
Before her appointment to the FDIC, Ms. Bair was the Dean's Professor of Financial Regulatory Policy for the Isenberg School of Management at the University of Massachusetts-Amherst since 2002. Other career experience includes serving as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury (2001 to 2002), Senior Vice President for Government Relations of the New York Stock Exchange (1995 to 2000), a Commissioner and Acting Chairman of the Commodity Futures Trading Commission (1991 to 1995), and Research Director, Deputy Counsel and Counsel to Senate Majority Leader Robert Dole (1981 to 1988). While an academic, Chairman Bair also served on the FDIC's Advisory Committee on Banking Policy.
The Decider is already on record as opposing increased medical care for children (don't jump on me - you know that is how the Dems will play it), coming out against proposals like this would appear to be rubbing salt in wounds.
(It's a bit frustrating trying to participate in these discussions from Merrie Olde Englande -- I'm asleep during most of it.)
sk's point seems critical: is Bair talking about extending teaser rates (1-3% eg) indefinitely, or preventing resets after the teaser period has ended and the rate is something like 8%? The former proposal (which is what the article attributed to her, but that may well be inaccurate) seems nuts, but the latter seems within the realms of the sane. (It would still take a lot of splaining to make me think it was right, but it's not obviously wacko.)
Bob_in_Mass, I have placed my bets the same way you have (long TIPS & gold, short nominal bonds and lenders). But I never want to be too confident of my bet; the evolution of the economy is always driven in large part by peculiar one-off factors whose magnitude is larger than expected.
Two things I would add to your analysis is that all the rich countries are (in somewhat varying degrees) in the same position as the US, and it seems likely that they will all devalue substantially against Real Stuff. And the not-so-rich countries are liable to devalue nearly as much to "keep up". So holding foreign currency isn't an obvious winner. The other point is that taxes are on nominal gains, so unless your position is more levered to inflation than the marginal tax rate, you still come out behind. That's an argument for inflation call options of some sort -- which I don't own but feel I ought to.
I am too late to the party as well, and my views on bailouts are pretty black and white, but it seems a foregone conclusion that this will be debated for months or years and attempts will be made to push bailouts through. So let's set some guidelines: (1) Did you lie in any way (e.g. income level) on the application? No bailout and you go to jail for fraud. (2) Do you own more than one home? No bailout. (3) Did you make more than one mortgage equity withdrawal since you purchased? No bailout. And so on. At least try to cut down the number of people making applications. Number (1) especially ought to keep the numbers low.
URL for first cited article seems to be missing?
Without having read it, it sounds nuts. I'm short mortgage lenders, and I would hugely benefit from it, but it sounds like an extraordinarily blunt expropriation.
Political grandstanding.
Much of it would be vetoed even if it did pass.
I don't know what other vices or virtues Bair's plan may have, but it does get around one big problem with fixing the foreclosure mess. The infrastructure doesn't exist to evaluate, negotiate, or do any of the things that case-by-case work-outs entails. Identifying a class and treating everybody the same would really cut down on paperwork and processing. It would also blow up lots of financial instruments, I suspect.
Isn't the Bair proposal way out of touch? Wouldn't that devalue these loans (to whoever is currently holding them) substantially?
Here's the URL:
Subprime Payments Should Be Fixed, FDIC's Bair Says (Update1) - Bloomberg.com
Doesn't say much more than quoted by CR.
If the report is accurate -- which is a little hard to believe, but these are wild times -- it seems an astonishingly reckless thing for the Chair of the FDIC to say.
From the CNN article: "Responses have been more Katrina-like," said George Goehl, executive director of the National Training Information Center, a network of community organizations working with borrowers to negotiate loan workouts with lenders.
I think he means Katrina-like as in paltry. But Tons of money was spent after Katrina doing things like shipping truckloads of ice back and forth to Pennsylvania.
hmmm.... Do I see another multi-billion dollar, no-bid contract in the works for Haliburton?
Hey guys the fed has loaded b$18 of treasuries !!! maybe for tomorrows numbers ? (keep the yields down)
Temporary Open Market Operations - Federal Reserve Bank of New York
I think there is a real opportunity here around now for a politician to trot out a renter with a touching personal anecdote against bailouts. Why hasn't anybody seized on that yet? There ought to be more renters around than those at risk for foreclosure.
J.P,
They loaded $28b but today $29.25b of repos expired so the net add is negative. The Slosh Report
is a convenient site to track TOMOs. Interestingly, a chunk of repos backed by MBS was replaced by treasuries so the collateral has better quality now.
BR, any bailout will punish the prudent and others that didn't participate in the housing mania.
But k harris has a good point - the infrastructure isn't in place to handle what is coming - or even what is happening today with rapidly rising delinquency and foreclosure activity (it will be much worse next year). Many non-participants in the bubble are going to be punished anyway with the many problems of empty houses next door.
The time to act was a few years ago. Now we are left with no clean exit strategy.
I'm surprised that Bair said: "I don't want to kick the can down the road and just prolong the pain." because that is exactly what her proposal would do. Weird, I think Bush said the same thing about Iraq a few years ago - I'm going to try and find the quote.
Best to all.
Best Wishes.
here's a little ranieri...
Page Not Found
CR, I agree -- I'm a renter too, I'd like my TV spot, that's all
Good heavens. When ideologies collide.
So nobody likes "bailouts," but nobody likes paying taxes either, and so when contraditions arise, "everyone" is fine with stiffing the IRS, and we don't want to see this as a "bailout" of people who are walking away from their debts.
But people who are trying not to walk away from their debts? We're against anything that makes actual repayment of the loans more likely.
Whatever.
FWIW, Durbin's proposal to allow cramdowns in Chapter 13 doesn't bother me in the slightest. Lenders, of course, will get all spastic about it, but lenders need to live in fear of BK judges. It does wonderful things for their ability to underwrite loans and review appraisals.
To me, it's about the future, too: the debt forgiveness proposal, if made permanent, permanently decreases the cost of the "put" or option to default on a mortgage loan.
The threat of cramdown (declaring the amount of the loan over the property value to be unsecured, thus modifying the loan balance down to the secured amount) makes it riskier for lenders to write high-LTV paper. One hopes that the debt forgiveness proposal will also have this effect.
I'm a renter in the Los Angeles area. I have a lot of money in the bank that I have been saving to buy a house with. Prices have started to drop, I can afford houses close in but in areas where I would not live. Give it another year and maybe I can afford in an area where I do want to live.
I've been waiting years for this downturn, when houses where at a level that I can now afford I did not have the savings to buy. When the come back down I'll buy a home and hold it for the long term.
How do I get on the news with my story? I can actually afford the home that you raised up in price and bought out from under me.
What a mess.
Give them the bailout but anyone who owns a home now free and clear or renting is IRS tax exempt for life. Works for me, that way the ones that caused the mess pay for cleaning it up.
Tanta-
There is no way to differentiate. This will all becoming a nightmare of unitended consequences.
Why are we re writing the rules after the fact? No relief for anyone!
For every story about a family thrown out onto the streets, we need a story for the family locked out of one. With just the right amount of sentiment and a journalist who sees the story.
And if this is not enough...Banks are desperate to clean their Balance Sheets by offering discounts..
"Investment banks are offering finance to vulture funds on improved terms if the money is used to buy debt from them, according to bankers and managers of the funds.
Banks keen to shift a backlog of well over $200bn of leveraged buy-out debt are tying leverage for recovery, or vulture, funds run by hedge funds and private equity to the sale of the debt."
Read all about it:
FT.com / In depth - Banks use discounts to tempt ‘vulture funds’
Sorry - I meant CR
Housing Novice..be careful with your stash never have more than 100k in a single bank/account!
Tanta -- the line is that "now is not the time to get religious about moral hazards."
I think the best thing to do at this point is to repeal the most onerous provisions of the MBNA protection... er, recent bankruptcy bill, and then let everyone take their lumps. Any fiddling will just put off the pain, making it worse when it finally comes.
If Congress HAS to pass the debt forgiveness tax relief whatsit, then it should have some kind of limit, such as the median household income.
A congressman in the Ca Valley in Stockon (foreclosure capital of the USA) is pushing hard for the 1099 debt relief.
Every politician federal and state is gradnstanding in this Valley with all these "community forums". Where the hell were you clowns 3 years ago?
crispy&cole, if you just rephrased CR's proposal so that purchase money loans and rate/term refinances with "no new money" are exempt, you could distinguish that. Everybody has a HUD-1 Settlement Statement that shows this.
They had a big "community forum" in my town last night, where the State Sentator grilled a bunch of REIC members.
All he accomplished was getting his face in front of the camera and making himself feel better by taking shots at these guys.
I can already see the "black market" for fake Hud-1's.
c&c,
It's not that he feels better taking those shots, he feels better being seen taking those shots. In fact, he'd rather listen to his own voice than theirs.
Florez calls Kern 'hotbed' of mortgage meltdown
(this is the best a Harvard and UCLA educated senator can do?)
404 - Page not found
BR, I'm all for appointing Tanta Mortgage Czar - and let her decide what to do. I nominated her yesterday!
crispy&cole, sometimes unintended consequences are obvious - like in this case. Freeze the interest rate at the teaser rate on subprime loans will prolong the period for the market to reach balance. I'm all for a longer bust period if the alternative is a severe recession - something I don't see. Maybe Bair thinks the economy is really going down the tubes.
Best to all.
Stager the pain.
Bks and Foreclosures are to filed at the correct time of the year. Eg: If your last name begins with A, B or C, your date is Janaury. Eg if your last name starts with D, E or F your date is February.
This will help smooth out the process.
Of course lenders are required to assume full costs until the right month arrives.
The Broker who undertook the mortgage, pays for all court costs.
Borrowers are prohibited by law from taking out any other mortgage or mortgage instrument for a full seven years.
If a hedge fund borrow's money from a prime broker, loses money on MBS , default's on loan, and files BK, are they subject to income tax on borrowed funds?
I've heard this argument a few times, but I think it's worth repeating:
Many of the people in trouble have bought homes relatively recently and have little or no equity in a home that's declining in value.
Who's going to want "help" making payments so they can keep losing tens of thousands of dollars a year?
"The ultimate result of shielding people from the effects of folly, is to fill the world with fools."
Spencer, Herbert
poszi :
Maybe but 18b$ of treasuries is huge
check the historical data.
"Vulture funds"? Wow. They'll do anything to "make up" their books. And who are all these "investors" into hedge funds anyways? Do they ever see any of their returns? This just has Ponzi scheme written all over it.
"Investment banks are offering finance to vulture funds on improved terms if the money is used to buy debt from them, according to bankers and managers of the funds."
Ok they dump one set of loans now what are they going to do with the new ones Hummmmmmm?
It is funny to me that politicians want to promote "home ownership" but as soon as we get falling prices that will create REAL (rather than artificial) home ownership, they have to stop it.
Almost every foreclosed house will end up being a homeownership opportunity for a responsible person who will buy at a sustainable price.
The proposal I would like to see is something along the lines of "one free foreclosure"- that one foreclosure can't be used against someone in future credit decision. No idea how this could be implemented, but it would promote what needs to happen- turnover of houses bought as unsustainable prices back to their real market value. And would lessen the penalty to those sucked up in the mania of the bubble, and allow them the chance to buy again at a proper price.
Look at the International Debt Crisis of the early 80's to gather true perspective on this problem. Look at the renegotiation/bailouts that occurred. We made it through that, we'll make it through this.
This is truly a ship of fools we must save the ship even if it means saving the fools. It is that simple.
When a child falls down and hurts themselves, do you stand above the child preaching morals or do you first attend to the injury and then figure the way to prevent the child from repeating the behavior that caused the injury?
I say tend to the injury first, teach morals afterward.
CR,
Why the distinction between someone who borrowed 80% of the purchase price up front and someone who borrowed only 50% up front and then later borrowed the other 30%? They are in the same situation financially aren't they? Seems to me you are punishing timing differences.
"Note: Say someone bought a house with a $200K first, and then loses the house in foreclosure. I don't think there should be any tax consequences."
Why not, there are tax consequences for the lender, they will pay less of them, so what you favor is a bailout in disguise...
Remember that under the current law income is imputed to the home owner (No money down, not really an owner) based on the BANKS loss from selling the house for less than the mortgage owed. THE HOME OWNER LOST NOTHING BUT THE HOUSE HE NEVER PAID FOR.
Debts need to equal credits if you remember accounting 101.
See, I thought capitalism was based more upon a Darwinian metaphor, "Only the strong survive." Now we metaphorically refernce it as a "Nanny State". Oh! But who will save the children? THE CHILDREN!?!?
So, if we're in a "Nanny State", I'd like to know what happened to all those mental hospitals in the 80's? That should be the first thing we do to put a bandaid on the boo-boo. Cause all the former patients seem to have eloped to Wall Street.
CR,
Also, your proposal would incent buyers to leverage to the max up front. Is that really what we are after? A more elegant approach might be to hold the purchase price constant and then say the first 80% borrowed, no matter when or for what purpose, if foreclosed upon etc. would not incurr a tax burden. I think that likely accomplishes your goal without creating very strange incentives.
Tanta seems spot on in that all proposed relief acts lead to a definite tightening of credit standards. Of course, that means fewer qualified borrowers, which means lower demand, which drives down prices, which distresses more homeowners, yadda yadda yadda.
Where does it end? I suspect sometime after average purchasers qualify on average under the new lending standards.
Chairman Bair's proposal is interesting.
Existing contract law has reasonable criteria for determining that a contract is invalid.
Considering that a stable legal framework is one of the primary prerequisites for a developed economy, I would guess that there aren't many situations in which the practice of having the government suddenly step in and allow (or even force) unilateral modifications would be desirable.
So who takes the hit if they froze the mortgages at todays income level? The owner of the MBS and all the down stream products created from them who expected the rate to rise as a part of the package they bought?
Do I have that right?
So then the real value of the note is at NO interest in some cases and 1% in others and 2% in others and ...... ?
And what does that do to the valuations of mark to model? And will the pigmen be made to then remark these to market or will they still be AAA as they are now solid as a rock because the income stream vs equity are solid???!!!!
Is this even workable? And does the bill have a cut off date or can I go out and borrow more than my house is worth on a teaser rate and expect that all I will have to pay is that teaser rate?
And what about HEOLCs? Are they included as they are seconds as far as I know?
This just sounds to funny to be real but then look at the administration who's hack proposed it.
Tanta I could be persuaded to forgive income tax on the debt that bowers are cleared of. However I see one major problem the banks will take it as a loss and the gov't will be out of a lot of revenue. Ahh-haa... Want to teach the lenders about making loans to people they shouldn't don't let them record that as a loss... I'm surprised someone hasn't thought of this yet. Of course then Cramer wouldn't even be able to get a loan...
Why the distinction between someone who borrowed 80% of the purchase price up front and someone who borrowed only 50% up front and then later borrowed the other 30%?
Banker, the thing is, it's still true that people who never allowed their CLTV to go over 80% (at the time of any given loan) rarely default. Even now. For there to be debt forgiveness that is taxable, the property value would have to drop by more than 20%, and only the amount of the lender's actual loss is "forgiven."
It's the folks who start out overleveraged who have most debt forgiven, since they are most likely to be 1) upside down and 2) to default.
Zarley,
The problem with your metaphor is that these proposals do not attend to the injury, which is unsustainably high home prices - rather, they they put the child back on roller skates for the Grand Canyon sight seeing tour...
Anyone talking estimated cost of 1099 relief?
(Extremely off-the-top-of-the-head estimate: $250b expected losses * ~25% average marginal rate = $63b. Is that considered a large or small number these days?)
Tanta,
Fair enough, but my point remains. Change the number to 95% or any number you wish. Why does it matter how they got there? If you treat timing of borrowings differently, you get really counterproductive incentives.
Housing novice: YouTube is a start. Make it compelling and you might get it somewhere. I'm in the same boat as you and have the credit, downpayment, dti, pti for something thats realistic. A 1200 foot home in lakewood for 600K. Get real!
I'm writing the officials but what does that get you! I think little. The chances for creating a better environment for our children is being priced artificially from the same people they want to own a home. "It's a mess" is correct.
The people on this blog are more knowledgeable than our officials. It's sad that we can't somehow point that out to them but we don't have any special interest groups playing that tune every night to back us up.
Just thinking. It's not a mess, it sucks!
I agree with ac.
Find me the person who, after buying at the top, with no (or virtually no) money down, with a ultra low rate loan, is willing to NOW take the further risk that their property won't continue to slide below their new mortgage basis......when "everyone" can see housing prices continue to fall.
Somehow I see people who once didn't think much about the risk they were taking thinking very hard about the new one.
All this "feel good" legislation will do is bring new meaning to the expression "pushing on a string".
CR, I would be interested in your comments on why you don't see a severe recession, and how confident you are of that, and what would count as severe.
I think no one could have the confidence to say that a severe recession is highly likely (just because they don't come along very often) but the systemic imbalances (not primarily in the housing market, but in the current account deficit, negative savings rate, and so forth) seem sufficiently larger than they have been in a long time that a severe recession seems much more probable than usual.
Thanks...
18B...mmm Bof E and ECB have stayed rates. USD seemed to level in with anticipation that perhaps they might give BB a bit of room. Nope. USD might tip a bit tomorrow along with the stockmarket. PPT arrives to help!
Politicians add productive value (as politicians) in only one way: By understanding and surfacing the really important issues that constituents want addressed. This is especially true in the year leading up to a general election.
So, housing is definitely an issue with heat "out there." Unlike, say, immigration reform, it's not an issue where their are clear partisan dividing lines.
There will be laws passed, but they will be mainly beef ups of mortgage disclosures and fiduciary responsibilities for REIC.
The political rhetoric could make more people aware how desperate their situation is and, indirectly, lead to more foreclosures sooner.
If the chairman of the Federal Deposit Insurance Corp is making suggestions like the one quoted...more than a few banks are ready to go bye-bye if nothing is done.
Otherwise, why come up with something so far out of left field? I can believe Cramer coming up with that, but the Chairman of the FDIC?
Even if the debt was from a HELOC and was used for an H2 and a vacation?
The money was already tax free to begin with. If the homeowner had sold the home at the peak, paid off the HELOC, there wouldn't have been any additional taxes due.
This isn't going to have a huge impact. If you're insolvent, you're already exempt from the taxes. This just reduces the paperwork.
Of course, I'm guessing there is one guy, somewhere, who is upside down on his home, has substantial assets, a bank that is willing to do a short sales and not pursue a deficiency judgment. I'm guessing he'd be pretty happy to hear this
What is wrong with the current system? You don't get taxed if you're insolvent. That protects most people who really couldn't afford the house.
People who are solvent but are walking away from mortgages and taking advantage of non-recourse provisions should be on the hook for taxes. Loan forgiveness is income. You spent the money.
If loan forgiveness isn't income, people very quickly figure out ways to turn the loan forgiveness into tax-free paydays. Classic case - employer "loans" executive money to buy a house then forgives all or part of the loan at the end of the year. I don't know what hoops they have to jump through to qualify under this proposed legislation, but folks will figure it out quickly.
The very most they should do is raise the limit for taxability from "insolvent" to "insolvent + $25,000" or some reasonable number that gives people a chance to keep a car, household goods and a little cash to start over.
The thing everyone's forgetting about Bair's proposal is that those loans weren't "supposed to" reset, for the most part, in the first place. They were "supposed to" refi at the reset as they had done for the entire period of 2001-2006. Had the party not ended, those bondholders wouldn't be seeing those 10.50% reset rates, they'd have gotten their principal back.
And you are talking about loans that are, on average, at around 8.50% ish pre-reset, and will adjust to 10.50-11.50% post reset.
I'm not endorsing Bair's proposal, necessarily, just pointing out that these loans were built to prepay.
i'm a renter too. i'd support a tax payers strike if they don't give all of us renters a home we can pseudo pay back with a teaser rate.
what is the benefit of this?
"5. Delays credit counseling until after filing when foreclosure is imminent. "
it's the last of Specter's Bill. It seems to me that people in need of a bail out DO need credit counseling.
From the article:
""Let's be honest about it: Hybrid ARMs were never made on the assumption that borrowers could continue to pay them back once the loans reset"
A rare honest moment indeed. If other people are going to get a 3% fixed mortgage, shouldn't we all get one?
Check my site for a prediction on tomorrows action.
"And they can add to the length of the loan, which lowers monthly payments."
but how long will the mortgages need to be to compensate for not resetting? from 30 years to 40, 50 or 60 years?
Tanta,
Wouldn't you think Bair is making this rather bold suggestion based on information on the current health of our banking system? Could it be that banks are much worse off than we know?
rc
Umm... So what was supposed to happen? These loans would be rolled over at the teaser rates in perpetuity? (The second question is rhetorical.)
Presumably these were "greater fool" vehicles -- they weren't ever expected to be paid back, but a greater fool would refi them and get them off our books before Armageddon....
So, Tanta, is your thinking that Bair's proposal sticks it to the current holders, but they are going to lose oodles anyway, and the proposal keeps people in their homes?
So, Tanta, is your thinking that Bair's proposal sticks it to the current holders, but they are going to lose oodles anyway, and the proposal keeps people in their homes?
Sticks it to them? They never expected to get 10.50%. They expected to get prepaid, because they were too fricking stupid to figure out that the refi party would have to end.
Now they have a choice between actually earning 8.50% on a loan that can possibly perform, or letting them reset to 10.50% and fail, at which point there will be losses.
Which would you rather have? I have never worked for a business that preferred to enforce contracts at a loss rather than restructure for a lower gain than expected.
rigtsal,
In regards to how severe a recession might be, I can't answer CR's thinking, but the way the world-wide market is looking at it, the Fed just decided to inflate the U.S. out of the situation.
Basically, the people who rented and put their money in a the bank waiting for the right time are going to get the shaft. Unless they can put that money into a foreign currency, or maybe gold.
It always seemed to me that this was the likely course. We are the largest debtor nation in the world, and unlike almost all big debtor nations of the last 50 years, all our debts are denominated in our own currency.
The only thing that will give the rest of the world pause is if the Fed does not lower again this month. If they do, kiss reserve currency status goodbye. And 30-year mortgage rates will go UP.
The Fed has its private parts in a vice...
um, I meant vise. Though there may be vice involved...
CR, I would be interested in your comments on why you don't see a severe recession, and how confident you are of that, and what would count as severe.
You covered it pretty good, with one exception. That is the issue of consumer sentiment or morale, which also plays a part in economic cycles. It isn't just based on levels of optimism/pessimism. It's based on the rate of change from one to the other.
I can't remember a time when the shift has been so great from optimisim to pessimism. I think the headlines about mortgage refrom reinforce pessimism. Do you really want to go buy a shiny new gas guzzler when the headlines are full of mortgage reform?
Best to pull in your horns awhile.
but Tanta i don't get it. now that anger as a renter resided, confusion showed up.
Holders of vintage 2006 and 2007 are getting 8.50%? What about the defaults that are happening even before the resets? Are they going to lower the teaser rate to avoid that?
If there are no more resets for ARM, would private investors still buy MBS? I'm not sure whether Bair is talking about jumbo or conforming ARMs.
Now they have a choice between actually earning 8.50% on a loan that can possibly perform, or letting them reset to 10.50% and fail
time to look at an amortization schedule on this
I was at the conference today and saw Bair speak. The Q&A got a bit chippy between Bair and the attendees on this issue.
While I disagree with categorical mods to the initial rate, a great number of subprime borrowers would not be impacted by her "plan". She called for this mod type on subprime loans that have not missed one payment. One of the reasons subprime borrowers are subprime seems to be that they do not keep spotless payment track records. Over three years on a 3/27 or even two years on a 2/28, many subprime borrowers will miss at least one payment making them ineligible for the Bair-saves-the-subprime-borrower-via-mods-for-everyone plan (unfortunately I don't have actual stats to back this up...but I don't think it's a stretch).
JL,
what was Bair's argument about helping those that didn't miss a payment and not those that already missed one?
somehow i think this new rate and relative underperformance against my hedge fund peers will make my seed money investor want to pull there funds...
8.5% seems steep also...
going to use 417k as my loan amt
what is the benefit of this?
"5. Delays credit counseling until after filing when foreclosure is imminent. "
I think the point is to get the borrowers out of immediate distress asap, before preaching at them: when foreclosure is imminent.
I'm not endorsing Ba's proposal, necessarily, just pointing out that these loans were built to prepay.
Indeed. Considering this and many other features of these loans that the lenders, if not the borrowers, certainly knew were questionable, I wonder whether there's any settled law on onerous contracts?
Whenever I've thought about that idea of fixing payments, I kept running into the point about how long the term would have to be extended to meet the principle. A moratorium period? Then what?
This is very funny and ominous at the same time. How often do you get that in one cocktail? Cheers!
"Whenever I've thought about that idea of fixing payments, I kept running into the point about how long the term would have to be extended to meet the principle."
exactly! if that makes the mortgage a longer than 40 years one, i guess many borrowers would not accept it.
Julia --
I believe her argument was essentially that borrowers that haven't missed a payment have shown they can handle their mortgage at the initial rate. Conversely those that have already missed payments are not worthy borrowers (my words, not hers...although, my interpretation of her thoughts), so keeping them at the initial rate will not help.
Sure, some (even many) subprime borrowers may prove unworthy of the loan they were given, but many (again, no numbers, so I'm keeping to vague terms) are "sloppy payers" who will continue through a cycle of missing payments and then catching up.
I understand Tanta's point of these mortgages being designed to have a refi. About the inability of many to refinance, how much is due to the credit crunch and how much due to the fact that home values stop going up?
I accept as a tax payer the fact that we might need to help those hurt by the credit crunch, but have issues about helping those that cannot refinance cause their house lost value.
Obviously, have issues with it cause I was waiting for home values to come down to be able to buy a home for myself. Also cause everytime I've said home prices may go down, everybody looked at me as if I were a total loser.
If John Ryskamp (persistent commenter on Roubini's blog) finds about about this post, you guys are in for an earful.
===========================
RE: Bair
Federal Deposit Insurance Corp. Chairman Sheila Bair called for payments on most subprime mortgages to be fixed at current levels.
Lenders should extend "teaser" rates on all subprime adjustable-rate mortgages if the borrowers haven't missed any payments and they live in the homes, Bair said today in New York.
Is she saying keep the payments constant ?
Or is she saying : change a 0.5/1.5/28, 1/1/28, or 2/28 mortgage into a 30/0 mortgage with the starter rate applying to the rest of the life of the mortgage ?
That second is going to stiff a lot of people who were expecting those 28 years of higher payment; and the ones who get this deal are gonna make out like bandits; and why would they refinance OUT of such a deal 2,3,5 years down the road ? - what were teaser rates - 2%, 3%, sometimes near 0% in 2005, 2006 ? and the full rate was 8% or so.
That's serious moolah.. She can't really have thought this through - but she's a FDIC poobah - you'd have thought some reflection and significant detail was in order ??? nahhh, perhaps not.
Like some general once said: NUTS!
-K
Julia,
I know the feeling! I still get negative feedback from realtor friend/friends in the OC with homes when I bring prices falling. I'm a Native Angeleno who saw this huge bubble that was worse than the 90's bubble which I witnessed.
Prices are way out of whack! Bidding wars were unreal, with nothing behind the bid except in hindsight what was a packaged cdo. What a ride. Now we get to miss out on the help. is that Double jeopardy? Maybe the people that foreclosed in the 90's should file a discrimination suit. How come they didn't get a bailout? I do think that any bailout should include something for the money smart individuals that are going to get screwed by artificial high housing prices.
Paper in the 90's was bought by underwriters like me on credit situation, score, dti, Pti, poi, copies-checks, stories of why something went wrong, someone gets cancer in family and goes BK because they fought it but were clean since, I would buy them. etc, etc, etc. There was A,B,C,D paper. No different than today. We had to maintain yield against credit quality.
It didn't happen in the last couple years and were left with this mess.
Now you and me are watching with great intent. I hope that everyone and their families who were waiting for prices to move down to 4 times thier income get to buy a home and can raise a family peacefully without some crazy mortgage hanging you from your neck.
Life is simple. Everyone needs to learn from thier mistakes. I still do everyday. Bailing these people out is a moral decision that 90% of the people in the US will not be happy with. I hope.
This bailout is just plain wrong. Thanks for all the great information you all provide.
Chuck
Federal Deposit Insurance Corp. Chairman Sheila Bair called for payments on most subprime mortgages to be fixed at current levels.
Sheila Shut the F""" up. Where the F"""" were you as this mess played out over the past 5 years? You political stooge.
RON PAUL.
get the word out. The country is doomed if we let these puppets lead the way all bought and paid for by special interests.
Where the F"""" were you as this mess played out over the past 5 years?
FDIC: Board of Directors & Senior Executives
To be sure, those who've served in the present admin will have a lot of 'splaining to do, like, forever, but
To be sure, those who've served in the present admin will have a lot of 'splaining to do, like, forever, but
pd130 | 10.04.07 - 9:45 pm | #
go ahead trust a bought and paid for democrap. No different than bought and paid for repubs.
RON PAUL OUR ONLY HOPE TO CORRECT OUR FISCAL POLICIES AND ECONOMIC STRENGTH.
"I'm all for a longer bust period if the alternative is a severe recession - something I don't see. Maybe Bair thinks the economy is really going down the tubes."
CR... You do not see the economy going down the tubes? Risk mangers think in a micro world that only addresses risks to their employer, not to the economy and our country as a whole.
What is your background? If you are a risk manager, you are definitely focusing much, too much on yesterday's risk.
CR you really need to study your economic history as does Tanta!!!
From the FDIC web site, a short CV of Sheila Bair...
Board of Directors & Senior Executives - Sheila C. Bair
[snip]
Before her appointment to the FDIC, Ms. Bair was the Dean's Professor of Financial Regulatory Policy for the Isenberg School of Management at the University of Massachusetts-Amherst since 2002. Other career experience includes serving as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury (2001 to 2002), Senior Vice President for Government Relations of the New York Stock Exchange (1995 to 2000), a Commissioner and Acting Chairman of the Commodity Futures Trading Commission (1991 to 1995), and Research Director, Deputy Counsel and Counsel to Senate Majority Leader Robert Dole (1981 to 1988). While an academic, Chairman Bair also served on the FDIC's Advisory Committee on Banking Policy.
[snip]
They don't need to mess with 1099 debt relief if the IRS would only allow one to take a capital loss on a house that decreased in value.
Sure, there is a $250K / $500K exemption on capital gains, but not allowing a capital loss on a house to offset the debt relief income is weird.
giacutter,
The Decider is already on record as opposing increased medical care for children (don't jump on me - you know that is how the Dems will play it), coming out against proposals like this would appear to be rubbing salt in wounds.
Zarley, I wrote that I don't foresee a severe recession - you even quoted me. And then you ask if I see the economy going down the tubes?
I think I answered that question. ROFLOL.
Zarley??? Is that you Jas?
I guess if you are going to be a reckless gambler, then I guess it's best to be a reckless gambler when there are lots of reckless gamblers around.
What EVER happened to personal responsibility.
(It's a bit frustrating trying to participate in these discussions from Merrie Olde Englande -- I'm asleep during most of it.)
sk's point seems critical: is Bair talking about extending teaser rates (1-3% eg) indefinitely, or preventing resets after the teaser period has ended and the rate is something like 8%? The former proposal (which is what the article attributed to her, but that may well be inaccurate) seems nuts, but the latter seems within the realms of the sane. (It would still take a lot of splaining to make me think it was right, but it's not obviously wacko.)
Bob_in_Mass, I have placed my bets the same way you have (long TIPS & gold, short nominal bonds and lenders). But I never want to be too confident of my bet; the evolution of the economy is always driven in large part by peculiar one-off factors whose magnitude is larger than expected.
Two things I would add to your analysis is that all the rich countries are (in somewhat varying degrees) in the same position as the US, and it seems likely that they will all devalue substantially against Real Stuff. And the not-so-rich countries are liable to devalue nearly as much to "keep up". So holding foreign currency isn't an obvious winner. The other point is that taxes are on nominal gains, so unless your position is more levered to inflation than the marginal tax rate, you still come out behind. That's an argument for inflation call options of some sort -- which I don't own but feel I ought to.
I am too late to the party as well, and my views on bailouts are pretty black and white, but it seems a foregone conclusion that this will be debated for months or years and attempts will be made to push bailouts through. So let's set some guidelines: (1) Did you lie in any way (e.g. income level) on the application? No bailout and you go to jail for fraud. (2) Do you own more than one home? No bailout. (3) Did you make more than one mortgage equity withdrawal since you purchased? No bailout. And so on. At least try to cut down the number of people making applications. Number (1) especially ought to keep the numbers low.
Woohoo! Free lunches for all!
I love one of the first comment here. 'Wouldn't it devalue the loans of whoever is holding it?" or something of that nature.
Well, I hate to inform you but ummmm... the value now is percieved fluff which adequates to pretty much worthless.
Following Bair would only make your percieved fluff values that are worth nothing in their current state, worth something.
Isn't that better than nothing?
Moe Bedard
Founder & Homeowner Advocate
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