You are right about the problems being mostly political. My feeling is that Saudia Arabia would not kick the U.S. to the curb easily, because it would endanger the Royal Family hold on power. They need our planes and bombs. The others not so much.
It is interesting to see Russia jawboning about a new reserve currency. It is absolutely in their best interests. It would be ironic if the real threat from Russia was not military or political, but economic.
so you refi your 125% LTV IO into a 30yr fixed? Yea.. I'm thinking this is a nothingburger since most can barely afford the IO, let alone paying the principal.
It would have been smart for this to have been announced 6 months ago. I talked about it then. Enabling millions of homeowners to have a lower monthly payment or get our of their ARMs would provide a huge economic stimulus. 4.75% 30-year rates would have enabled almost anyone to refi. 2nd trusts would be be repaid in full and the value of MBS on 2nds would skyrocket reducing the writedowns by banks.
They wouldn't. Preventing foreclosures is, more than anything, of benefit to the lender. Going into foreclosure is a sane financial measure for many people who bought too much house.
"I"m trying to understand why anyone who is clearly underwater would choose to refi rather than just mailing in the keys."
That is very difficult for me to grasp as well. 20% underwater seems to be a C'ya inflection point for me. Of course it is all about the monthly nut, but still rent HAS to be far less.
R Timm - smart right up until sometime in the near future when the gov't is paying significantly more than that 4.75% to finance that money, since they're financing their own debt short. Then we could start piling the losses up on the taxpayer.
@RockyR re USS John McCain intercepting Korean Ship.
The only military strategy the N.Koreans have is total war. They have the biggest artillery force in the world, and Seoul, together with most of the US personnel is within range. In the first three hours of a conflict Seoul and most of the US forces will have been pounded so badly that they will hardly be able to greet the 1 million highly motivated N. Korean troops overrunning their positions.
Just to keep the status quo, i.e., parallel 38 stalemate, the Pentagon has estimated it would need 500.000 troops on the theatre of operations, and it would take 6 months at present to mobilize them. In fact, without a draft, the US cannot do it. Moreover, if the US crosses the parallel 38 for some regime change, the Chinese might decide to jump into the fray just as they did in 1953. There is no military solution, everyone knows, except Fox News audiences.
The downside of living in a national security state is that the constitution is no protection against propaganda spread by whatever lobby or intelligence services interested in keeping tension on any given part of the world.
Northwest Metal Products Co. (NorWesCo) is located 25 miles south of Seattle in Fife, Washington. NorWesCo is a state-of-the-art sheet metal manufacturing plant covering 320,000 square feet. (Seven acres under roof.) NorWesCo manufactures over 4000 items (washtubs, buckets, watercans, wheelbarrows, and other old and new-timey stuff.) and employs approximately 200.
@ghost
Because people are smart and they believe the government propaganda that recovery is just around the (dead man's) curve?
OR maybe they are smoking the green shoots?
The 10-year has been below 4% for a long time now. Rates wouldn't be fixed at 4.75% for a 30 year but it is safe to say the gov owning FNM and FRE could service them for .25% and require 1% for a risk premium and still provide extremely low rates. Underwriting should be only for those with the ability to pay and no cash out.
As long as this is no cash out, increasing the LTV limit from 105% to 125% just allows Fannie and Freddie to lower the risk on loans they already own or guarantee.
Okay, I think I see CR's side of the argument here. Not that I'm in 100% agreement with it, but I can see it.
The point is, if it's 'no cash out', the principal won't be going up. The LTV will, sure - but the loan that they hold is already at that higher LTV anyway because of the fall in the house price. For instance, if I originally bought a $400K house with a $380K mortgage, and my house is now worth $300K, all this lets me do is refi from a (say) 6.5% to a 5.5% for the $375K of principal that's left. Same principal, lower rates, equals lower payments, equals less risk. If I were planning to mail in the keys, either now or later, and Fan / Fred already held the loan to begin with, they're screwed either way.
Of far bigger concern - to me, at least - is that once this foot gets in Fannie and Freddie's door, the gub'mint is eventually going to let them take on refis they don't already hold, and/or brand new loans, under these same insane terms. And that's when the GSEs balance sheets are going straight to hell. That's why I think this is going to increase risk long-term, not lower it. Camel's nose, tent, you know the drill.
"Of course is is all about the monthly nut, but still rent has to be far less."
That, but it is a bit more complicated, Blackhalo. Imagine you are in an underwater situation. The the water heater goes out. That costs almost a month's rent to fix.
Then the A/C goes on the fritz. Or a pipe breaks. Etc.
At some point you have to cut bait.
I have a relative in this very situation. So far she is staying put, but my advice is to put zero money into the property. It is a tough situation, to be sure. But if one ever had to move, lost a job, etc., it becomes a no-brainer IMHO.
If there is no military solution in Korea, why is the administration doing all this saber rattling? Gates blathering about missiles fired "in the direction of Hawaii" and activating missile defense systems. Every test missile NK has fired to date that has gone east of the launch point could be considered "in the direction of" the US. Does anyone here think that NK could hit Hawaii, or that they have a working nuke warhead?
R Timm - that way lies Japan, if you're lucky, and Zimbabwe if you're not.
Here's a concept - let's try to get back to living within our means, and maybe our children and grandchildren still have a remote chance of not being screwed.
"As long as this is no cash out, increasing the LTV limit from 105% to 125% just allows Fannie and Freddie to lower the risk on loans they already own or guarantee."
The problem is, there is always a loser, there is no free lunch.
Who loses in this situation? The person holding the interest rate cash flow on the MBS, who probably bought the MBS on the basis that these people would be less likely to refinance.
The loss is subtle, and I doubt many will cry for the poor MBS holder who gets paid back principal at par and gives up his 6% MBS, but little by little, this disregard for the law (and it is technically breaking the law) eats at the system, and people lose faith.
In this case, "people" so far are foreign governments, who refuse to buy MBS at all. As a result, the Fed has to print money to buy MBS.
Printing money eats away at the value of the dollar, so is a hidden tax on all of us.
So, to the contrary, there is a loser, and indirectly it is all of us.
Lets screw around with the market some more. I bought some GNMA in the belief that the pre payment risk was low because people who were under water would have a hard time refinancing their loans. By the time that Obama is done we will have no capital markets left. Why should bondholders risk lending money if the rules of the game can be changed at will.
"Why should bondholders risk lending money if the rules of the game can be changed at will. "
Welcome to Calvinball..
"Other kids' games are all such a bore!
They've gotta have rules and they gotta keep score!
Calvinball is better by far!
It's never the same! It's always bizarre!
You don't need a team or a referee!
You know that it's great, 'cause it's named after me!"
Mook, if these were refi's they didn't already own - that would be a huge problem!
One problem I have with this program is (I believe) it allows borrows to tack the fees onto the loan balance. I think that should be an out of pocket expense.
Here is an example of what probably happened.
Some guy borrows $160K on a $200K house. (80% LTV) Lets say he has paid the principal down to $155K, and would like to refi.
Whoa - his house will only appraise for $125K. Right now he can't refi. But if this proposal goes through - and Fannie or Freddie hold the loan - then he will able to refi (get a lower interest rate).
The private sector can do this too (they can offer homeowners whatever they want with the loans on their books). They won't be able to sell this loan, and they can't do it if the loans is securitized in RMBS.
"so you refi your 125% LTV IO into a 30yr fixed? Yea.. I'm thinking this is a nothingburger since most can barely afford the IO, let alone paying the principal."
Another excellent point that most people miss. Affordability is a function of payment, not rate. But all the affordability indexes I look at assume a 30 year amortizing payment. It was not a decline in the 30 year rate that lead to the bubble, but a decline in monthly payments through things like IO, etc.
The "underwater refi" game is a ruse to trick people into maintaining an uneconomic situation. "You may be 25% underwater, but look, you can get a lower rate. See how nice your lender is, you wouldn't think of screwing them, would you?"
As I posted above, it is a complicated situation at an individual level (and is further complicated by state-by-state recourse laws), but lowering the rate doesn't change the equation much at all.
I think part of the refi vs walk away question is path of least resistance. Most people will avoid the hassle of moving and doing the numbers to see what is best. The refi is the path of least resistance. America has been taking this path for almost 30 years in my opinion. Hence we have the situation we have now.
Regardless of your political affiliation do you believe there is anyone smart enough, not beholden to campaign contributors, and charismatic enough to get elected by telling people the truth of what it will really take in sacrifices to get us back on track without passing a whole pile of crap to our kids and grandkids? Of course not. We selfish beings will take the path we know all too well.
@125% or more, how many years before there would be equity in the house to even give the owner a chance to think about 'moving up'? Longer than it would be before they could buy a new house after a walk-away?
Nice post, ghostface. There must be other unintended consequences - to other homeowners/mortgagees, realtors, home builders, etc.
"Lets screw around with the market some more. I bought some GNMA in the belief that the pre payment risk was low because people who were under water would have a hard time refinancing their loans. By the time that Obama is done we will have no capital markets left. Why should bondholders risk lending money if the rules of the game can be changed at will."
crazyv, you have it right on. But since when did BHO ever show any regard for the markets?
Even when I pretend to be the FHA director, I still fail to see the logic behind this action: People are massively underwater, so let's lock them in rather than give them a fresh start.
I suppose the only way to make sense of it: You truly believe that house prices will "recover".
Or perhaps you don't want people to suffer the god-awful stigma of foreclosure.
Some local reporters are figuring out that people are falling off the backend of the UE rolls:
from the News and Observer website:
North Carolina unemployment surged to 11.1 percent in May, a sign that despite glimmers of optimism in the economy, the labor market is continuing to take a wallop in this recession.
The total number of people employed in the state fell by 28,855 during the month, according to data released by the N.C. Employment Security Commission. The labor force also contracted, suggesting that some workers gave up hope of finding a job altogether.
Another excellent point I have brought up before - we are turning people into "house slaves" through programs like this. People will never be able to sell, and thus labor mobility, one of the strengths of our economy I believe, will be dead.
Unless, of course, the govt inflates everyone out of their debt problems...
"We selfish beings will take the path we know all too well."
Platitudes over substance is surely the greatest American vice. I think it will take some pretty hard times to encourage the U.S.A. to grow up and reach the level of maturity our forefathers had.
Of far bigger concern - to me, at least - is that once this foot gets in Fannie and Freddie's door, the gub'mint is eventually going to let them take on refis they don't already hold, and/or brand new loans, under these same insane terms. And that's when the GSEs balance sheets are going straight to hell. That's why I think this is going to increase risk long-term, not lower it. Camel's nose, tent, you know the drill.
The same argument was made when the limit was increased to 105%. It didn't happen.
You've admitted that this will reduce Fannie and Freddie's risk--can't we let them do that? Is it really necessary to cut off the camel's nose to spite its face?
125 percent LTV is okay, given that the government will have soon re-inflated the housing bubble. (The folks in DC and Wall Street are working diligently on this as we write.) We have to inflate away our overleveraging, don't you see? Naive to think that we could repay it in any other way. (Just watch what Uncle Ben does, not what he says.)
@CR - I get your point, but if you were giving honest advice to that homeowner, it would be in their best interest to walk away from that house instead of getting ball and chained to it iwth underwater debt.
A national security state and an Empire cannot exist without a created "Goldstein" as in Orwell's 1984.
Btw, China has just said the US should stop its "color coded revolution" dirty tricks in Iran:
Beijing cautions US over Iran
By M K Bhadrakumar
China has broken silence on the developing situation in Iran. This comes against the backdrop of a discernible shift in Washington's posturing toward political developments in Iran.
Since they already own the loans and the risk, whatever it takes to keep them in their homes paying the P@I. Notice no talk about lowering the principal...thats the real problem that they do not want to touch...
Will the underwater homeowners buy it with RE values dropping like a stone....I don't think so...however, O can say he tried to help the underwater crowd...
HomeGnome (profile) wrote on Fri, 6/19/2009 - 10:22 am
I think it will take some pretty hard times to encourage the U.S.A. to grow up and reach the level of maturity our forefathers had.
So true. I want it to happen to get to what you speak of, but my fear is ,as a nation we are not tough enough to learn from it. It will just devolve into civil chaos.
"They have the biggest artillery force in the world, and Seoul, together with most of the US personnel is within range."
In nice fixed emplacements ! They could start shelling and watch while their artillery force was bombarded to scrap within hours from the air.
Fixed artillery is a relic of WW1. When facing highly accurate air delivered munitions it's like lobbing rocks at a sniper.
Does anyone here think that NK could hit Hawaii, or that they have a working nuke warhead?
Haven't really thought about it yet...I'm still too terrified of the Nicaraguan army that's two days march from Texas and that paved surface the Grenadans put on their only airstrip to be able to worry about any new threats.
"Continuing claims is not a number anyone should use to gauge the health of the economy."
I beg to differ. It's at least a number that is still receiving UE checks. Any other numbers are in my mind total cow dung. AND, a decrease month to month shows NOW a number that can be extrapolated to gauge the quantity fallen off the UE Check Wagon. I don't think the FedGov likes us knowing the numbers of the "new-hungry".
The one thing that would make sense is the one thing the Obama administration hasn't done- i.e. the idea of the portable mortgage. If you have a mortgage on your current house and want to buy a new house as long as the new property has an appraised value greater or equal to the appraised value of the current house you should be allowed to transfer your existing mortgage to the new house.
The great advantage of this proposal is that it reintroduces labor mobility plus begins to get homes turning over thereby creating jobs for all the people associated with home turnover. It also has the advantage of not rewarding dead beats. Admittedly it hurts some MBS holders of discounted bonds who will not be prepaid as quickly as they were expecting - but that is a small price considering that there are not many of those securities around.
That appears to be more of China worried about examples of popular revolt against appointed governments. Subtext is "respect your elders and betters proles".
The govt is absolutely frightened that people are going to mail in their keys in droves. That would make for a very unstable situation.
The banking system is unstable by design, not that it was intended to be unstable, but a fractional reserve system is inherently unstable.
OTOH, if a lot more jingle mail starting flowing, the Fed would create a new alphabet soup program to gobble up more mortgages. Keep the banks whole, or change the capitalization rules again. Banks can't fail, solvency no longer matters.
"It's at least a number that is still receiving UE checks."
Except it is not, see my post, it does not include the extended govt programs. It only includes the 26 week state programs. Over 2.5MM are on the govt programs that are not included in the 6+ in the continuing claims number.
Though i agree with your sentiment in that it is a good, if incomplete, indicator of purgatory.
"I beg to differ. It's at least a number that is still receiving UE checks. Any other numbers are in my mind total cow dung. AND, a decrease month to month shows NOW a number that can be extrapolated to gauge the quantity fallen off the UE Check Wagon."
I agree. Particularly relevant would be those who are able to find employment BEFORE UE expires. THAT is what would be the most useful to track.
"So true. I want it to happen to get to what you speak of, but my fear is ,as a nation we are not tough enough to learn from it. It will just devolve into civil chaos."
We are now an entitlement society, where high self-esteem in taught in the schools. Maturity is not encouraged in this environment. Hard times are thus unacceptable, so little good will be learned. People will just whine for more handouts. When they get them, they will learn that whining works, and down the tubes we go.
The longest range NK missile is not supposed to be able to reach Hawaii. What I've read on the nukes is that they have not even started working on the miniaturization required to put a nuke warhead on a missile and they are decades away from being able to do that. So, no fear of NK nuke missiles are this point.
"Particularly relevant would be those who are able to find employment BEFORE UE expires."
I have been trying to find the data on the "flows". I believe Mish posted something yesterday about 49% exhausting their benefits, but I don't know where he got that number. But those are the types of things that would be interesting.
The problem is, i can't find a lot of data about the extended benefit programs. Probably by design.
I'm trying to understand who in their right mind would loan more money than the collateral is worth. In no way does it lower risk.
This is the world's STUPIDEST idea! There is no economic stimulus whatsoever to it. It makes the lender's toxic balance sheets EVEN WORSE!
We avoid price/value discovery, and pile risk onto the taxpayer. To get people to accept this, the government has to either be insane or seriously hate their constituents.
Sheer lunacy. All this can possibly do is rip off the unaware and make them lose even more money than they already have. People taking this deal are getting on board the train to Economic Auschwitz.
@crazyv - wouldn't your proposal be more effective if everyone just lived in gov't owned and assigned housing? It would cut out all of those pesky charges that go along with buying/selling houses. It could work. No major unintended consequences there.
"The longest range NK missile is not supposed to be able to reach Hawaii."
I am somewhat less concerned about Honolulu, than I am about Anchorage. Although the idea of Sara Palin going up in a puff of radioactive fire, does not displease me so much. Her 15 min are up already.
"The one thing that would make sense is the one thing the Obama administration hasn't done- i.e. the idea of the portable mortgage."
Not a bad idea. Or how about increasing assumable mortgages - if someone else wants to buy your house, and qualifies, they can assume your mortgage (not something that would help with underwater mortgages, but otherwise).
of course, either idea would hurt the entire infrastructure built up around originating mortgages, which is why ideas like this get no traction, too much money made forcing people to churn mortgages.
Yeah, splat, North Korea was smart enough to built their ICBMs and plutonium bombs without external help, but somehow they could not grasp US air warfare. Btw, North Korea has had more bombs thrown at them than Germany during WWII, which, together with the straffing of refugees and the execution of POWs, can explain why the regime exists until today, and why their 1 million-man army is extremely keen in liberating the peninsula from Americans. Blowback is a bitch.
If I were planning to mail in the keys, either now or later, and Fan / Fred already held the loan to begin with, they're screwed either way.
Yes, but they're screwed even worse this way. If you plan on mailing in the keys, you aren't going to maintain the house and the value of the collateral falls even more than it already has. Encouraging the value of the collateral to drop is a dumb plan for a lender.
@Yalt - exactly. Which is why this is so disingenuous for the gov't to pass this off as helping those underwater homeowners. It enslaves them.
I joked above about gov't owned housing, but isn't Fannie/Freddie effectively the same thing, except the goal is to get as much blood out of each borrower as possible?
anyone has a graph showing the market share of first time home buyers v/s the investors and total home sales? historical going back before the bubble would be nice.
thanks
What do you mean by "lower the risk"? By lowering the rate they'll reduce the default and loss rates, but they'll also reduce the interest payments received. Further analysis would be required to determine whether the costs of lower interest payments exceed the benefit from lower default rate. Bottom line is that - even in this no-cash-out scenario - this could be net cash flow negative to Fannie and Freddie (i.e. the taxpayers).
I think its time to re-institute the DRAFT....
Not necessarily for war, but to rebuild America...It will toughen kids up, give them confidence and self reliance....by the way, the young-ins can start out in the boy/girl scouts....
Might as well start with the young and get them ready...o, by the way, some of us oldsters can supervised, based on our experience over the years....just a thought....
BelieverJeff (profile) wrote on Fri, 6/19/2009 - 11:04 am
Blackhalo
I think it will take some pretty hard times to encourage the U.S.A. to grow up and reach the level of maturity our forefathers had.
So true. I want it to happen to get to what you speak of, but my fear is ,as a nation we are not tough enough to learn from it. It will just devolve into civil chaos.
"I'm trying to understand who in their right mind would loan more money than the collateral is worth. In no way does it lower risk. "
Well, I think the point is these are loans on which Frannie is already on the hook. But...
"We avoid price/value discovery, and pile risk onto the taxpayer."
Yes. First of all, if you are familiar with the current program, the process for "valuing" the property is very weak, no appraisal involved in many cases (after all, the loan has to be less than 105, but to figure that out you need to figure out the denominator).
So it is likely Frannie is taking 120 mortgages anyway.
Then there is the whole issue with valuing risk and the precedent this sets.
What would you value a 125LTV loan at today? Shouldn't someone in that loan pay for their risk?
Put another way, what do you think Frannie marks these loans at? Certainly not par (despite having a higher interest rate). To get a par mark, their interest rates would need to be 15% I would bet.
I think a better plan would be to disclose the marks, and allow borrowers to buy back their loans at the mark.
If your loan is marked at 75cents on the dollar, you should be allowed to buy it back at that price.
That way, Frannie gets to realize their losses upfront, and we can get this behind us.
Companies can buy back their debt at market, why can't individuals?
Isn't that the point? By reducing the monthly payment this plan makes it slightly less likely the borrower will mail in the keys.
I understand the objections of the people who it's disingenuous of the Administration to present this plan as being in the best interest of the borrower, although it's worth pointing out that the plan doesn't take any options away from the borrower, it just gives them one additional option to choose from.
I don't understand why anyone would think that offering refinancing will cause more people to mail in the keys and is tantamount to "encouraging the value of the collateral to drop."
Is the gov't going to pay the refi/appraisal costs, or is the borrower, who apparently can't afford the payments, be eating the cost. Should we trust the appraiser values to do this as much as we trusted their numbers on the way to the top of the bubble?
Nice analysis. I know very little real truth related to NK (or Iran for that matter). My information comes through mainstream news outlets. To date, I've sort of discounted them as 1 million starving, desperate people in an underfunded military. Once upon a time, Saddam Hussein had the biggest military in the middle east. They weren't exactly hard to defeat.
You all talk about homeowners who are underwater not "falling for it" and going for the 125% LTV Refinance. While such restraint might be in their best financial interests, it's pretty clear that people will do anything to stay in their homes. They will refinance if they can. They think the turnaround is just around the corner and it will just be a few years until prices reach peak values again.
What this speaks to is a failure by the media (mainstream and otherwise) to point out that housing bubbles do not re-inflate quickly. There is plenty of historical data on this. It could be 20 years before we get back to bubble values. If there was more reporting on this, it would change people's views on walking away.
What do you mean by "lower the risk"? By lowering the rate they'll reduce the default and loss rates, but they'll also reduce the interest payments received.
"Lower the risk" = "lower the default and loss rates". You're correct that it's an open question whether the reduced risk justifies the reduced payments received. That problem was beaten to death back in Tanta's time, with lots of useful analysis but certainly no answer that would be valid under all circumstances.
....but it's the only hope for the FedGov to keep THIS juggling chainsaw from hitting the turf in another year. I think the FedGov will end up owning all RRE paper in the near future. No better way to keep the sheeple in line than by holding their mortgage.....Do we have a Housing Czar yet? . . . . Just answer "Yes'm Boss" - very good.....the Glorious Republic thanks you..
I think its time to re-institute the DRAFT....
Not necessarily for war, but to rebuild America...It will toughen kids up, give them confidence and self reliance....by the way, the young-ins can start out in the boy/girl scouts....
Great idea -- gives a new meaning to drill, drill, drill.
From Wikipedia, the free encyclopedia "The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury on 7, September 2008.
Ain't nothin gonna happen unless Treasurys are sold to finance the action.
"as a nation we are not tough enough to learn from it. It will just devolve into civil chaos."
I would hope that as a nation, we are better than that, but I am not sure how how much I would wager on it. Clearly some elements of the U.S.A are NOT at that level of maturity, but there are quite a few who are. As much as I dislike the representatives the red states choose to lead them, they tend to have a tad more adherence to the principles that I consider ideal. One hopes that the rest of the country will consider civil and military service, respectable at some point, rather than just the bottom line.
125% LTV is just stupid though, regardless of the intent. It is just not honest or practical on a purely fundamental level.
@Yalt - agreed, it is just another option, but the right thing to do would be to encourage underwater homeowners to seek professional advice on what's best for them, not promote the option that is most advantageous to the lending facility, and will often be the worst solution for the individual or family.
Who's looking at the social cost of overwhelming debt on these young families and communities in general. Another unintended consequence.
...allowing Fannie Mae and Freddie Mac to refinance loans with current loan-to-value ratios of 125 percent or higher
At current 2-3% per month rates of home price decline it will only take 12 or so more months with prices down another 20-40% to demonstrate the waste and futility of federal rescue attempts such as this.
If N Korea crossed the border and threatened US forces, Obama would release authority to the local commander and the Korean peninsula would go nuclear.
Why? It's US doctrine, just as it was in Europe. We're not going to have a repeat of Task Force Smith.
The creation of IO was because 30-year was bottoming out.
Decline of rates created the bubble, bubble drove down rates, it's a feedback cycle.
--Somebody smarter than me has pointed that from 1999-2003, median prices tracked the inflation adjusted payments on a 30 year fixed mortgage. After that , the use of wonky mortgages exploded.
This actually is a good thing, no matter the cost. When you have people willing to honor their debt obligations in entirety if only at a lower rate, you are rewarding good behavior. Most mods fail. Most refi's at 105% at least so far, do not.
It' s not so hot when you've got a non-gubmint loan but that change will come soon enough.
@lost - there may have been posts about transferring private debt to public, but it's the cummulative debt of public/private/corporate that needs to be brought in line. All of this gov't money in the last year, and the accumulated debt has grown slightly. They're trying to turn the ship broadside into the tidal wave.
"he does me. He'll blink. He's never gone "all in" in his entire life."
If that's the case, it would be in the interest of the Chinese to apply some pressure from their side. Anyway, The Divine One is in their sphere of influence.
The Chinese also know what US doctrine is, and they should know it's probably the only thing we have that's non-negotiable.
The only way this can possibly make sense is if the plan is to have double-digit inflation beginning by the end of 2010.
But you still need to step back and look at places like Detroit. Even during inflation, even during the housing boom, prices were still falling there for over 20 years. For those people, this plan is like asking for a tapeworm to cure their swine flu.
My son lives in a house in Berkeley that the owner quit paying her mortgage on last August.
Wells-Fargo filed a NOD early this month (10 months after last payment). Think they're overwhelmed?
BTW, I couldn't find the NOD on the County Public Records web site until, after playing around, found that it had been filed with the woman's name misspelled. Once again, overwhelmed and sloppy.
@Soylent - In principle, I agree with you about honoring debts, but BK and non-recourse is there to keep people from becoming debt slaves. It could be argued (and has been) that gov't played a big role in creating what is essentially paper debt. Fixing the problem is going to need to hurt a lot more than it has so far.
mp, the North Koreans have been calling all American bluffs since before they had exploded their first nuclear warhead.
It has been US doctrine to utilize low-yeld, tactical nukes even if the opponent is not a nuclear power. This doctrine was an attempt to keep the deterrent of the aging, and mostly useless nuclear arsenal. It may escape Pentagon planners the political dimension, though. The first nuke the US launches, will also be its last. Not because of nuclear retaliation, but because the pillars of the Empire, most NATO countries, Japan and South Korea will either break their alliance with the US, or have their governments overthrown by domestic revolt. That is certainly the case in Germany and South Korea.
US troops in South Korea are perceived as direct successors from their Japanese colonial oppressors, and the US servicemen are in the country as much to prop the client state as to defend it against the North Koreans.
Nukes and firepower have not saved the Soviet Union, they wont save the US either.
Tout empire perira - All empires one day perish, and as irony will have it, most go to Afghanistan to die.
You forget about all the current holders of MBS who are getting screwed.
Who in turn will never by an MBS again.
Which kills the MBS market.
Which the US housing finance system depends on. The Fed isn't going to be around forever buying all those MBS (or, if they are, we are really screwed).
All, thx for the response re NK. About what I expected, which is to say that the NK missile threat is not credible. Which is why I think the administration's moves recently are confusing. By revving up the missile defense system, Gates is giving credibility to the NK. I think Shylocracy suggested that this is maneuvering to prepare the way for military intervention, but that would be crazy.
I hope so, mp, but if you'll remember the Chinese leaders were the ONLY people told by Nixon during the "ping-pong diplomacy" days that we wouldn't back Taiwan (Formosa at the time) if the Chinese were to invade. The American people nor the Taiwanese were ever advised of the sell-out until recently according to declassed docs.
I agree completely. An honest approach would be to say that we want to make this option available to homeowners and we believe that in some cases this option will be in their best interests. We recommend that you seek professional advice to determine if that's true for you.
Of course if they did that they'd get unending grief for having recommended amoral behavior or would be accused of being in the control of the professional advisers lobby.
"It is interesting to see Russia jawboning about a new reserve currency. It is absolutely in their best interests. It would be ironic if the real threat from Russia was not military or political, but economic."
As of now it's difficult to see Russia as an economic threat to anyone but its energy customers, and even then, that would be self-limiting and short-term.
Interesting post over on Across the Curve. Touches on the uselessness of the credit market indicators and questions the inflationary effects of the Fed's balance sheet expansion (at least thus far). My question is "why are the banks sitting on these mountains of excess reserves?"
Hope no one previously posted.
Here is an excerpt from a piece by analysts and economists at Brown Brothers. I think it nicely summarizes why inflation fears are overblown. It begins following the colon:
"Various credit spreads, like LIBOR-OIS and TED would suggest there has been a dramatic improvement in capital markets. The rally in the stock market points in the same direction and a handful of banks have returned TARP money. But the sad truth of the matter is that the deus ex machina of credit creation is still terribly impaired.
And to appreciate this is partly to understand another reason why inflation fears are overstated. The Federal Reserve’s balance sheet has expanded to $2.055 trillion from $871 billion last May. The expansion has been financed primarily in two ways: Extra Treasury bill issuance by the Treasury Department which is in essence given to the Fed, and by creating reserves, “printing money” in the vernacular. Therein is where many see the inflation risk.
The reserves in excess of what is required, hence they are called “excess reserves, are the fuel for inflation, the monetarists amongst us argue. The key though seems to be what the banks are doing with these reserves. The short answer: nothing. That is to say, that the banks are sitting on a virtual mountain of excess reserves which are kept with their creator, the Federal Reserve itself.
In the most recent two-week bank statement period, these excess reserves stood at almost $800 billion—yes, a little more than the entire TARP allocation. Prior to the crisis, excess reserves were minimal—a couple of billion dollars. What this means is that nearly two-thirds of the dramatic expansion of the Fed’s balance sheet that so worries many investors is still with the Fed itself. It is not chasing assets or goods. It has not truly entered the circuit of capital. In essence, the inflation risk is being exaggerated because the “real effective” expansion of the Fed’s balance sheet is being exaggerated."
//US troops in South Korea are perceived as direct successors from their Japanese colonial oppressors, and the US servicemen are in the country as much to prop the client state as to defend it against the North Koreans//
"It has not truly entered the circuit of capital. In essence, the inflation risk is being exaggerated because the “real effective” expansion of the Fed’s balance sheet is being exaggerated."
And all those reserves are just going to sit there forever, right, right??? I think he's missing the point...they're going to be unleashed sooner or later.
They've ALREADY loaned more than the collateral is worth. This proposal changes nothing except the monthly payment they get out of the borrower.
Why is this so hard to understand? Any mob boss knows that the maximum rate of bleeding doesn't always get the most blood out of the turnip.
What is so hard to understand about cutting your losses sooner versus dragging the process out and making the losses greater later on?
The GSE's should be foreclosing and either find whatever buyers are willing to pay cash for the stuff or turn the properties over to an RTC. The longer they wait to cut their losses, the bigger their losses will be later. Why do you think we've gone from the 105% LTV idea to a 125% LTV idea. Because the 105% LTV idea didn't help and only made the potential losses bigger.
Even a mob boss knows there'[s a limit to how many markers he can give a guy on a losing streak.
'//US troops in South Korea are perceived as direct successors from their Japanese colonial oppressors, and the US servicemen are in the country as much to prop the client state as to defend it against the North Koreans//
@Shylockracy - Source, please."
By whom are they considered successors to the Japanese?
"...that the banks are sitting on a virtual mountain of excess reserves which are kept with their creator, the Federal Reserve itself."
Now, if anyone wants to look for a conspiracy, there's the place to look.
It seems likely to me that there is a agreement between the Fed and banks to keep this money out of the system, leaving it in Fed balances so the banks can earn their way out of the hole they're in.
I don't understand why anyone would think that offering refinancing will cause more people to mail in the keys and is tantamount to "encouraging the value of the collateral to drop."
The re-fi changes the loan from non-recourse to recourse, right? The USG can seize your assets if you walk away.
The same thing goes on in local government. They may not call it that but it does happen. Whenever a local government allows a Corporate firm to get a tax free incentive to bring their plant to a town that is bribery. I'm sure many small town or city politicians who have dreams of higher office consider how these firms that they allow into their communities for these tax incentives, will eventually want to rep
recommended : Econ & Finance Articles
When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate.
Taxing citizens to create bureaucratic government agencies and programs that fail to accomplish their mission while continuing to grow in size as politicians use them to reward the contributors to their re-election campaigns.
sm_landlord (profile) wrote (in reply to...) on Fri, 6/19/2009 - 1:10 pm
We are now an entitlement society, where high self-esteem in taught in the schools. Maturity is not encouraged in this environment. Hard times are thus unacceptable, so little good will be learned. People will just whine for more handouts. When they get them, they will learn that whining works, and down the tubes we go.
Worse than that, actually... the TAANSTAFL folks with assets subsidize the free-riders, thus reinforcing their delusions, until the point at which the TAANSTAFL have nothing left to take or simply stop producing and drop off to the shill gambling/entitlement economy. The productive economy in the middle feeds the safety net below and its attempts to save or invest are raked by the top via transaction and management fees by the royalty. That continues to siphon out all the productive wealth until there is no middle left to feed the system. It's the model of a failed third world state.
why not 175%LTV cash out refi's.
Makes about as much sense as the rest of the crap the Elephants and Asses have pulled over the last decade (or longer!)
USG can seize anything they want.
What are you going to do about it, terrorist?
An MBS buyer is taking a risk. That risk does not always carry rewards. If MBS buyers drop away, there is always other ways to finance property - AKA covered bonds.
Yes, the USA is broke, but should we all simply renounce our obligations because we are "upside down"? That makes as much sense as paying the government money as equity rose - albeit phantom equity. Sheesh, do you stop making your car payment once you drive off the lot because you just surrendered 25% of your equity?
The alternatives are all pretty gruesome. If your neighbor gets $100k whacked off their mortgage balance as "principal forgiveness" then what is to stop you from doing it? Then what is to stop everyone from doing it and crash the banking system.
Before you respond... I do think principal forgiveness is the best and only way out of this. The bank would forgive 25-50% of your current debt, restructure the payment based on the rate you have, then have a equity participation requirement if you sell your home over the modified loan balance. Its fair, universal, and can be "one and done". Yes, it will kill MBS holders. I could care less. 50% of something is better than 100% of nothing.
@dont you believe it
"OTOH the 10y could hold up, and the $ fall into the crapper"
Those are the 2 options IMO. Short term I'm mostly cash while deflation reigns, with small short LT Treasury and short dollar positions. I fully expect to move all the cash into one of these positions as we get more clarity on which path to the Dark Side Uncle Benny is going to choose.
"It seems likely to me that there is a agreement between the Fed and banks to keep this money out of the system, leaving it in Fed balances so the banks can earn their way out of the hole they're in."
E-mail I just received from a June graduate of a top university:
"Right now I'm just looking for a job. I did the first half of a yoga teacher training the day after I graduated, I am going to canvass for Prop 8 for clean energy for the month of July, take the Cbest to become a Substitute teacher and the GRE for grad school, and hopefully stay in the area!"
I just know I'm missing the subtleties (I claim information overload) but gotta love that this comes out the same day that Dallas Fed releases a letter advocating guess what (I won't spoil it)
Taming the Credit Cycle by Limiting High-Risk Lending
"Taming the Credit Cycle by Limiting High-Risk Lending" contends that a maximum loan-to-value ratio--the restriction of a loan's amount to no more than a specified percentage of the underlying real estate's appraised value--would guard against the speculative borrowing that leads to credit booms."
But 'cos these are Fannie and Freddie owned already it makes sense to raise LTV, that's it right? Only tax payer losses, yah, maybe that's it.
Before you respond... I do think principal forgiveness is the best and only way out of this. The bank would forgive 25-50% of your current debt,
I don't believe banks will do that. They seem very reluctant to reduce principal balances, only doing so after exhausting all other work out options. I think banks would only do that broadly if forced to by law.
Banks are sitting on these mountains of excess reserves precisely by design. When the Fed began paying interest on reserves, it created a way to basically transfer wealth to banks, allowing them to earn their way back to solvency, while at the same time preventing hyperinflation from taking hold (sterilization).
If this is the game plan, then how many years to earn their way out of a hole?
ghostfaceinvestah (profile) wrote on Fri, 6/19/2009 - 12:18 pm
* reply
* Ignore user
"It seems likely to me that there is a agreement between the Fed and banks to keep this money out of the system, leaving it in Fed balances so the banks can earn their way out of the hole they're in."
"Banks are sitting on these mountains of excess reserves precisely by design. When the Fed began paying interest on reserves, it created a way to basically transfer wealth to banks, allowing them to earn their way back to solvency, while at the same time preventing hyperinflation from taking hold (sterilization)."
Well, a quick glance at the history of Korea after WWII will make plain why the presence of US troops is seen as a humiliation by a large swathe of the South Korean population. You don't even need to refer to their proud history of cultural, political and ethnic unity for 600 years under a single dynasty. All it takes is to look at the dictatorships installed by the US in South Korea after the war with the North, and you will start understanding their mass psychology. Americans have been exposed for too long to the propaganda that leads them to see themselves as "liberators", when most of the historical record in the XXth century points elsewhere. Now, back to South Korea, most Americans would be amazed and perhaps shocked to realize how many South Koreans see the North Korean A-Bomb with pride. If push comes to shove, the South Korean regime will be fighting for its life, and in the chaos, in which direction the lower ranks of the army will point their guns is an unsure matter.
Soylent Green Is People. (profile) wrote on Fri, 6/19/2009 - 2:13 pm
The alternatives are all pretty gruesome. If your neighbor gets $100k whacked off their mortgage balance as "principal forgiveness" then what is to stop you from doing it? Then what is to stop everyone from doing it and crash the banking system.
Before you respond... I do think principal forgiveness is the best and only way out of this. The bank would forgive 25-50% of your current debt, restructure the payment based on the rate you have, then have a equity participation requirement if you sell your home over the modified loan balance. Its fair, universal, and can be "one and done". Yes, it will kill MBS holders. I could care less. 50% of something is better than 100% of nothing.
Why not start inflation-indexing housing prices and values, allowing them to adjust with the times and economic conditions? END the ridiculous and socially-useless notion of a home as an investment vehicle, which allows the travesty that is the FIRE economy in the first place. Stop allowing these silly games and making ordinary people risk their livelihoods in this way. Let people speculate in tulip bulbs and beanie babies, not necessities like food and housing. Take all the speculative profit out and I guarantee people will still be buying homes.
As of now it's difficult to see Russia as an economic threat to anyone but its energy customers, and even then, that would be self-limiting and short-term.
Russia has a small (for the size of Russia), reasonably educated population, a huge resource base, and a favorable geographic location. The looting and corruption from the 1990s and early 2000s is diminishing, and if you need something done in space fro a reasonable cost, look no further. I would keep an eye on them. That, and the thousands of nuclear warheads and delivery systems they have.
"Banks are sitting on these mountains of excess reserves precisely by design. When the Fed began paying interest on reserves, it created a way to basically transfer wealth to banks, allowing them to earn their way back to solvency, while at the same time preventing hyperinflation from taking hold (sterilization)."
I don't understand why anyone would think that offering refinancing will cause more people to mail in the keys and is tantamount to "encouraging the value of the collateral to drop."
You're not getting it.
If I'm going to sell, I have to come up with the extra 25% LTV at selling time. How am I going to do that? I might be able to come up with 5%, but that's probably stretching it.
The way it works in slums is - once you're in negative 25% equity territory, you stop paying. Period. Because it's only going to get worse. Negative 5% may be manageable, -25 is just beyond hope. I grew up in a neighborhood like that. Property values were constant from roughly 1978-1995 - regardless of inflation. Meaning a house that sold for 75K in 1978 sold for 75K in 1995 - while inflation ate away at equity. In other words - the person who took a 15-year mortgage in 1978 for that house had 100% equity by 1992 - but in 1978 dollars he had a whopping 25K in equity 1992. By 1995 he had 20K in equity. People don't figure this out all at once, but they all eventually figure it out and the only people who remain are people who have no intention of putting a dime into the house because it''s throwing money down the drain - if they wanted to live in a nice house they'd live in a nice neighborhood; what they want is to live in something that costs them next to nothing because either that's all they can afford or they're socking their money away for future use.
Most people haven't lived in areas where non-appreciating real estate is a fact of life. The current climate is their first taste of it, and they think it's an anomaly. It ain't necessarily so.
I'm not thrilled with the prospect of another RTC, but it's a better idea than this. And I'm just talking about the the idea as an idea - if they implemented it, there would be few takers - and the one's who took it would regret it soon afterward. When the light bulb goes on and they regret their decision, they stop paying.
There's nothing to get--you aren't making a coherent argument. (And by the way I live in a near-slum and there's a true slum not more than a mile away. Declining asset values are nothing new to me.)
If people are going to stop paying, period, then it doesn't matter whether they're offered a refinance or not and this proposal is simply irrelevant and certainly not the disaster you claimed earlier when you said this was going to cost the GSEs untold sums of money because it's going to drive collateral prices down.
If, as you admit in your last paragraph, there will in fact be a few takers who will regret it soon afterward and will stop paying later, then that's a bit of cashflow the GSEs wouldn't otherwise have seen and it's a few extra months there'll be someone living in the house. There'd be no advantage to them in handling these foreclosures now instead of later because their servicers simply can't handle them all now.
No one, and I mean not a single person, is going to leave their house BECAUSE of this refinance offer who wouldn't have if the offer wasn't made. But that's what was implied by your claim that the proposal was encouraging collateral values to drop.
Shylockracy,
Your last post jumped the shark of trolldom straight to disinformation. SK has benefited enormously from its industrialization and modernization under its current system. Does SK have political problems...absolutely. But to suggest that there is any meaningful group in the South other than NK agents that would welcome invasion from the North is a farcical joke. SK could very well produce its own missile arsenal and warheads in short order if it so chose. The people of SK more than anyone understand how lousy things are in the North.
I don't see anything in Shy's post that suggested South Koreans would welcome an invasion--he seemed rather to be saying that there'd be popular resistance to a SK regime perceived to be overly aggressive against the North (and especially so if that aggression were seen to be at the behest of the US and not an internal Korean decision), perhaps to the point that there'd be a change of regime in the South.
That doesn't seem unreasonable to me; there's certainly a lot of popular sentiment in favor of reconciliation. It goes without saying that if an SK government toppled over this question, it's replacement wouldn't come from the North.
No one, and I mean not a single person, is going to leave their house BECAUSE of this refinance offer who wouldn't have if the offer wasn't made. But that's what was implied by your claim that the proposal was encouraging collateral values to drop.
I disagree. I think the floating of a proposal like this turns the light bulb on for more people. No, they won't TAKE the offer, instead they'll realize "Screw it, it's not worth trying to keep up." Those who do take the 125 offer will continue the cash flow... until the 150% LTV offer gets floated. Then lots of the 125'ers stop paying.
I'm talking about the logical stupidity of the game; in reality the game has pretty much stopped but the government is behaving like a junkie who swears the next chase of the dragon is his last one ever - just making it worse.
"I don't see anything in Shy's post that suggested South Koreans would welcome an invasion"
Agreed. South Koreans do want reunification though, and have made concessions to the north. So be it. I only wish the US would remove our tripwire troops at the DMZ r...we cannot afford, on any level, further military involvement anywhere. Let the Chinese sort it out. Korean hatred for the Japanese would seem to preclude their involvement.
i understand your political view and you no doubt call everything "socialist" rather apply any thought to it but please explain to me how allowing people to carry the mortgage to a new home is "government housing". We have a simple problem - if somebody bought a home that is now worth less than what they paid for it their equity has been eroded. and if they sell at current prices it is lost. People are therefore frozen in place and will be until the market values return. That (a) prevents price discovery a prerequisite for clearing up the market (b) reduces jobs in the entire home purchase and sale food chain.
How is the lender any worse off if instead of having a mortgage on house A the lender has a mortgage on house B worth exactly the same amount. The first way out of the loan (that quaint banking idea) is the income of the borrower hasn't changed and the second way out the collateral is exactly the same.
Funny how a regime that's so powerful and strong, so self reliant, so.. well just plain victorious. Hasn't just rolled South and liberated the country ? Seeing as they don't give a rats about world opinion it's so strange that even given the fact we're tied up in two wars, they've still not used their massive overwhelming strength & superiority just to roll south. Perhaps it's because their leadership is realistically aware of what modern warfare is and just how badly their ass would be handed back to them.
BTW the Russian's and Chinese helped their nuclear program, plus the nuclear tech supplied by AQ Khan. I think you're reading a little too much North Korean propaganda and believing it.
They have the biggest artillery force in the world, and Seoul, together with most of the US personnel is within range. In the first three hours of a conflict Seoul and most of the US forces will have been pounded so badly that they will hardly be able to greet the 1 million highly motivated N. Korean troops overrunning their positions.
My understanding is that they've spent most of the last 55 years digging gun emplacements into the mountains and can put something like 100K "map quadrant" artillery shells an hour on the world's 8th largest city. Certainly the artillery pieces will be subject to precision bombing and counterbattery fire, but not before Seoul is substantially damaged.
I really don't think we have a conventional warfare option over there at the present.
[How is the lender any worse off if instead of having a mortgage on house A the lender has a mortgage on house B worth exactly the same amount.]
And that is exactly what I did the last time I moved house in that quaint backward little country I came from (England). House A had Mtg A, wanted to buy House B (cost more). Transferred Mtg A to House B and took out new Mtg B. Cost to do so? Less than taking out whole new loan since no redemption costs on Mtg A and Mtg B was small loan with same lender and lender wanted to keep me (like, why wouldn't he? So he made it cheaper than competitive lenders). Result: Bliss. Why it is impossible in the US I have no idea (that was a snark BTW). Oh maybe something to do with (a) Not Invented Here Syndrome (b) screw the borrower all ways to Sunday every darn time (c) US borrowers are more stupid than elsewhere (okay, not those ones here obviously, I know thaaat).
May run the long Ts into the ditch!
@Fiduciary Doodie (from previous thread),
You are right about the problems being mostly political. My feeling is that Saudia Arabia would not kick the U.S. to the curb easily, because it would endanger the Royal Family hold on power. They need our planes and bombs. The others not so much.
It is interesting to see Russia jawboning about a new reserve currency. It is absolutely in their best interests. It would be ironic if the real threat from Russia was not military or political, but economic.
125% OR HIGHER!
So, how high will LTV's end up then?
150%
175%
200%
The Great Fiat Currency Wars of the 21st Century?
Google: 4th Generation Warfare or William Lind.
I"m trying to understand why anyone who is clearly underwater would choose to refi rather than just mailing in the keys.
Gotta love a plan that increases negative skin in the game. Blow harder - if we all do it together we'll re-inflate this dirigible!
It would be awesome if brokers increased my margin capacity after my portfolio declined in value. Pretty much the same thing.
-- I"m trying to understand why anyone who is clearly underwater would choose to refi rather than just mailing in the keys. --
Swimming is hard. Many prefer to be pulled along by the hook.
so you refi your 125% LTV IO into a 30yr fixed? Yea.. I'm thinking this is a nothingburger since most can barely afford the IO, let alone paying the principal.
OMG.... and this is a good idea why ?
It would have been smart for this to have been announced 6 months ago. I talked about it then. Enabling millions of homeowners to have a lower monthly payment or get our of their ARMs would provide a huge economic stimulus. 4.75% 30-year rates would have enabled almost anyone to refi. 2nd trusts would be be repaid in full and the value of MBS on 2nds would skyrocket reducing the writedowns by banks.
They wouldn't. Preventing foreclosures is, more than anything, of benefit to the lender. Going into foreclosure is a sane financial measure for many people who bought too much house.
free ponies!
So, how high will LTV's end up then?
As I said earlier.. when I can get 400% LTV, I'm taking the cash and heading to Mexico !!
. . . may be expanded to include borrowers who owe more than 105 percent of their homes’ values . . .
I used to admit to my parents I had come home "after 11", too. Not that they actually fell for it.
"I"m trying to understand why anyone who is clearly underwater would choose to refi rather than just mailing in the keys."
That is very difficult for me to grasp as well. 20% underwater seems to be a C'ya inflection point for me. Of course it is all about the monthly nut, but still rent HAS to be far less.
R Timm - smart right up until sometime in the near future when the gov't is paying significantly more than that 4.75% to finance that money, since they're financing their own debt short. Then we could start piling the losses up on the taxpayer.
Who wrote the entry for second derivative? Brilliant!
@ R. Timm
You are assuming that TPTB goal is to actually make things better rather than increase dependence upon them.
Elephants and Asses
Trampling the Masses
From previous thread, about buying US product in the last year ...
Mossberg
Brain cells being used in wrong department. O's group is Jack of all trades and master of none. Where has common sence gone?
Next up on Obama's agenda is to give free Penis Enlargement surgery to anybody who is under 6 inches.
US government is trying the Thelma&Louise financing. Just adjust your scarf, hit the gas pedal, hold hands and head for the cliff
... or those over 6" forced to subsidize those under :-/
@RockyR re USS John McCain intercepting Korean Ship.
The only military strategy the N.Koreans have is total war. They have the biggest artillery force in the world, and Seoul, together with most of the US personnel is within range. In the first three hours of a conflict Seoul and most of the US forces will have been pounded so badly that they will hardly be able to greet the 1 million highly motivated N. Korean troops overrunning their positions.
Just to keep the status quo, i.e., parallel 38 stalemate, the Pentagon has estimated it would need 500.000 troops on the theatre of operations, and it would take 6 months at present to mobilize them. In fact, without a draft, the US cannot do it. Moreover, if the US crosses the parallel 38 for some regime change, the Chinese might decide to jump into the fray just as they did in 1953. There is no military solution, everyone knows, except Fox News audiences.
The downside of living in a national security state is that the constitution is no protection against propaganda spread by whatever lobby or intelligence services interested in keeping tension on any given part of the world.
"Next up on Obama's agenda is to give free Penis Enlargement surgery to anybody who is under 6 inches. "
But then who would buy all the monster trucks and spots cars that GM has planned?
I got pigged........
Northwest Metal Products Co. (NorWesCo) is located 25 miles south of Seattle in Fife, Washington. NorWesCo is a state-of-the-art sheet metal manufacturing plant covering 320,000 square feet. (Seven acres under roof.) NorWesCo manufactures over 4000 items (washtubs, buckets, watercans, wheelbarrows, and other old and new-timey stuff.) and employs approximately 200.
Norwesco Company Profile
"I"m trying to understand why anyone who is clearly underwater would choose to refi rather than just mailing in the keys. "
That is the question of the day, isn't it?
@BSR
Thanks for the info
I"m trying to understand why anyone who is clearly underwater would choose to refi rather than just mailing in the keys.
If most of them had brains, they wouldn't have bought houses at 10X income.
@ghost
Because people are smart and they believe the government propaganda that recovery is just around the (dead man's) curve?
OR maybe they are smoking the green shoots?
The 10-year has been below 4% for a long time now. Rates wouldn't be fixed at 4.75% for a 30 year but it is safe to say the gov owning FNM and FRE could service them for .25% and require 1% for a risk premium and still provide extremely low rates. Underwriting should be only for those with the ability to pay and no cash out.
Why do I get the feeling that california real estate prices is the last bastion? that once that collapses, the entire economy's gonna collapse?
As long as this is no cash out, increasing the LTV limit from 105% to 125% just allows Fannie and Freddie to lower the risk on loans they already own or guarantee.
Okay, I think I see CR's side of the argument here. Not that I'm in 100% agreement with it, but I can see it.
The point is, if it's 'no cash out', the principal won't be going up. The LTV will, sure - but the loan that they hold is already at that higher LTV anyway because of the fall in the house price. For instance, if I originally bought a $400K house with a $380K mortgage, and my house is now worth $300K, all this lets me do is refi from a (say) 6.5% to a 5.5% for the $375K of principal that's left. Same principal, lower rates, equals lower payments, equals less risk. If I were planning to mail in the keys, either now or later, and Fan / Fred already held the loan to begin with, they're screwed either way.
Of far bigger concern - to me, at least - is that once this foot gets in Fannie and Freddie's door, the gub'mint is eventually going to let them take on refis they don't already hold, and/or brand new loans, under these same insane terms. And that's when the GSEs balance sheets are going straight to hell. That's why I think this is going to increase risk long-term, not lower it. Camel's nose, tent, you know the drill.
Somebody dropped the ball on this proposal, and forgot to add that this refinancing will make money for the taxpayers.
Looks like somebody has been looking at the Alt-A recast graphs and are starting to panic.
@Tool
-- Mossberg --
Their emblem is the Swedish flag!
@BSR
-- Northwest Metal Products Co. --
There is quality product 'Made in USA'. Sadly most can't afford it. And that is only going to get worse.
"Of course is is all about the monthly nut, but still rent has to be far less."
That, but it is a bit more complicated, Blackhalo. Imagine you are in an underwater situation. The the water heater goes out. That costs almost a month's rent to fix.
Then the A/C goes on the fritz. Or a pipe breaks. Etc.
At some point you have to cut bait.
I have a relative in this very situation. So far she is staying put, but my advice is to put zero money into the property. It is a tough situation, to be sure. But if one ever had to move, lost a job, etc., it becomes a no-brainer IMHO.
No cash out doesn't sell one new Gubmint Motors vehicle.
"Mossberg"
Ditto,
@ghost
-- But if one ever had to move, lost a job --
Labor mobility is skewered!
If there is no military solution in Korea, why is the administration doing all this saber rattling? Gates blathering about missiles fired "in the direction of Hawaii" and activating missile defense systems. Every test missile NK has fired to date that has gone east of the launch point could be considered "in the direction of" the US. Does anyone here think that NK could hit Hawaii, or that they have a working nuke warhead?
R Timm - that way lies Japan, if you're lucky, and Zimbabwe if you're not.
Here's a concept - let's try to get back to living within our means, and maybe our children and grandchildren still have a remote chance of not being screwed.
"As long as this is no cash out, increasing the LTV limit from 105% to 125% just allows Fannie and Freddie to lower the risk on loans they already own or guarantee."
The problem is, there is always a loser, there is no free lunch.
Who loses in this situation? The person holding the interest rate cash flow on the MBS, who probably bought the MBS on the basis that these people would be less likely to refinance.
The loss is subtle, and I doubt many will cry for the poor MBS holder who gets paid back principal at par and gives up his 6% MBS, but little by little, this disregard for the law (and it is technically breaking the law) eats at the system, and people lose faith.
In this case, "people" so far are foreign governments, who refuse to buy MBS at all. As a result, the Fed has to print money to buy MBS.
Printing money eats away at the value of the dollar, so is a hidden tax on all of us.
So, to the contrary, there is a loser, and indirectly it is all of us.
Lets screw around with the market some more. I bought some GNMA in the belief that the pre payment risk was low because people who were under water would have a hard time refinancing their loans. By the time that Obama is done we will have no capital markets left. Why should bondholders risk lending money if the rules of the game can be changed at will.
"Why should bondholders risk lending money if the rules of the game can be changed at will. "
Welcome to Calvinball..
"Other kids' games are all such a bore!
They've gotta have rules and they gotta keep score!
Calvinball is better by far!
It's never the same! It's always bizarre!
You don't need a team or a referee!
You know that it's great, 'cause it's named after me!"
Mook, if these were refi's they didn't already own - that would be a huge problem!
One problem I have with this program is (I believe) it allows borrows to tack the fees onto the loan balance. I think that should be an out of pocket expense.
Here is an example of what probably happened.
Some guy borrows $160K on a $200K house. (80% LTV) Lets say he has paid the principal down to $155K, and would like to refi.
Whoa - his house will only appraise for $125K. Right now he can't refi. But if this proposal goes through - and Fannie or Freddie hold the loan - then he will able to refi (get a lower interest rate).
The private sector can do this too (they can offer homeowners whatever they want with the loans on their books). They won't be able to sell this loan, and they can't do it if the loans is securitized in RMBS.
Overall this is probably OK.
best to all
"so you refi your 125% LTV IO into a 30yr fixed? Yea.. I'm thinking this is a nothingburger since most can barely afford the IO, let alone paying the principal."
Another excellent point that most people miss. Affordability is a function of payment, not rate. But all the affordability indexes I look at assume a 30 year amortizing payment. It was not a decline in the 30 year rate that lead to the bubble, but a decline in monthly payments through things like IO, etc.
The "underwater refi" game is a ruse to trick people into maintaining an uneconomic situation. "You may be 25% underwater, but look, you can get a lower rate. See how nice your lender is, you wouldn't think of screwing them, would you?"
As I posted above, it is a complicated situation at an individual level (and is further complicated by state-by-state recourse laws), but lowering the rate doesn't change the equation much at all.
I think part of the refi vs walk away question is path of least resistance. Most people will avoid the hassle of moving and doing the numbers to see what is best. The refi is the path of least resistance. America has been taking this path for almost 30 years in my opinion. Hence we have the situation we have now.
Regardless of your political affiliation do you believe there is anyone smart enough, not beholden to campaign contributors, and charismatic enough to get elected by telling people the truth of what it will really take in sacrifices to get us back on track without passing a whole pile of crap to our kids and grandkids? Of course not. We selfish beings will take the path we know all too well.
-- Overall this is probably OK. --
Just one small problem. The money for this program must be raised by selling Treasurys. Good luck with that.
@125% or more, how many years before there would be equity in the house to even give the owner a chance to think about 'moving up'? Longer than it would be before they could buy a new house after a walk-away?
Nice post, ghostface. There must be other unintended consequences - to other homeowners/mortgagees, realtors, home builders, etc.
"Lets screw around with the market some more. I bought some GNMA in the belief that the pre payment risk was low because people who were under water would have a hard time refinancing their loans. By the time that Obama is done we will have no capital markets left. Why should bondholders risk lending money if the rules of the game can be changed at will."
crazyv, you have it right on. But since when did BHO ever show any regard for the markets?
Even when I pretend to be the FHA director, I still fail to see the logic behind this action: People are massively underwater, so let's lock them in rather than give them a fresh start.
I suppose the only way to make sense of it: You truly believe that house prices will "recover".
Or perhaps you don't want people to suffer the god-awful stigma of foreclosure.
OT back to last thread...
Some local reporters are figuring out that people are falling off the backend of the UE rolls:
from the News and Observer website:
North Carolina unemployment surged to 11.1 percent in May, a sign that despite glimmers of optimism in the economy, the labor market is continuing to take a wallop in this recession.
The total number of people employed in the state fell by 28,855 during the month, according to data released by the N.C. Employment Security Commission. The labor force also contracted, suggesting that some workers gave up hope of finding a job altogether.
"Labor mobility is skewered! "
Another excellent point I have brought up before - we are turning people into "house slaves" through programs like this. People will never be able to sell, and thus labor mobility, one of the strengths of our economy I believe, will be dead.
Unless, of course, the govt inflates everyone out of their debt problems...
"We selfish beings will take the path we know all too well."
Platitudes over substance is surely the greatest American vice. I think it will take some pretty hard times to encourage the U.S.A. to grow up and reach the level of maturity our forefathers had.
Of far bigger concern - to me, at least - is that once this foot gets in Fannie and Freddie's door, the gub'mint is eventually going to let them take on refis they don't already hold, and/or brand new loans, under these same insane terms. And that's when the GSEs balance sheets are going straight to hell. That's why I think this is going to increase risk long-term, not lower it. Camel's nose, tent, you know the drill.
The same argument was made when the limit was increased to 105%. It didn't happen.
You've admitted that this will reduce Fannie and Freddie's risk--can't we let them do that? Is it really necessary to cut off the camel's nose to spite its face?
"Some local reporters are figuring out that people are falling off the backend of the UE rolls:"
Something else I posted about - the "continuing claims" number is useless - it does not even include the extended UE programs the Feds have funded.
Continuing claims is not a number anyone should use to gauge the health of the economy. It is a holding tank.
"Unless, of course, the govt inflates everyone out of their debt problems... "
Better check with China to make sure they are on-board with that plan...
125 percent LTV is okay, given that the government will have soon re-inflated the housing bubble. (The folks in DC and Wall Street are working diligently on this as we write.) We have to inflate away our overleveraging, don't you see? Naive to think that we could repay it in any other way. (Just watch what Uncle Ben does, not what he says.)
"Even when I pretend to be the FHA director, I still fail to see the logic behind this action:"
He is nothing more than a puppet at this point.
See my previous post - the whole program is a ruse to convince people to make an uneconomical choice.
Note that when BHO announced these programs, he talked alot about "personal responsibility" and the like.
The govt is absolutely frightened that people are going to mail in their keys in droves. That would make for a very unstable situation.
@CR - I get your point, but if you were giving honest advice to that homeowner, it would be in their best interest to walk away from that house instead of getting ball and chained to it iwth underwater debt.
Or you know that your servicers simply cannot handle a higher foreclosure rate and it's better to have some cashflow on these properties than none.
Kung.Fu.Panda,
A national security state and an Empire cannot exist without a created "Goldstein" as in Orwell's 1984.
Btw, China has just said the US should stop its "color coded revolution" dirty tricks in Iran:
Beijing cautions US over Iran
By M K Bhadrakumar
China has broken silence on the developing situation in Iran. This comes against the backdrop of a discernible shift in Washington's posturing toward political developments in Iran.
Asia Times Online :: Middle East News, Iraq, Iran current affairs
Since they already own the loans and the risk, whatever it takes to keep them in their homes paying the P@I. Notice no talk about lowering the principal...thats the real problem that they do not want to touch...
Will the underwater homeowners buy it with RE values dropping like a stone....I don't think so...however, O can say he tried to help the underwater crowd...
HomeGnome (profile) wrote on Fri, 6/19/2009 - 10:22 am
125% OR HIGHER!
So, how high will LTV's end up then?
150%
175%
200%
Blackhalo
I think it will take some pretty hard times to encourage the U.S.A. to grow up and reach the level of maturity our forefathers had.
So true. I want it to happen to get to what you speak of, but my fear is ,as a nation we are not tough enough to learn from it. It will just devolve into civil chaos.
"Better check with China to make sure they are on-board with that plan... "
They know what is coming, why do you think they are stockpiling commodities?
-- We have to inflate away our overleveraging --
Can't happen. The spread on the yield curve would go to the moon!
Now this is digging I can believe in.
Dig faster! Dig faster!
It was not a decline in the 30 year rate that lead to the bubble, but a decline in monthly payments through things like IO, etc.
Disagree.
The creation of IO was because 30-year was bottoming out.
Decline of rates created the bubble, bubble drove down rates, it's a feedback cycle.
"They have the biggest artillery force in the world, and Seoul, together with most of the US personnel is within range."
In nice fixed emplacements ! They could start shelling and watch while their artillery force was bombarded to scrap within hours from the air.
Fixed artillery is a relic of WW1. When facing highly accurate air delivered munitions it's like lobbing rocks at a sniper.
Does anyone here think that NK could hit Hawaii, or that they have a working nuke warhead?
Haven't really thought about it yet...I'm still too terrified of the Nicaraguan army that's two days march from Texas and that paved surface the Grenadans put on their only airstrip to be able to worry about any new threats.
"Continuing claims is not a number anyone should use to gauge the health of the economy."
I beg to differ. It's at least a number that is still receiving UE checks. Any other numbers are in my mind total cow dung. AND, a decrease month to month shows NOW a number that can be extrapolated to gauge the quantity fallen off the UE Check Wagon. I don't think the FedGov likes us knowing the numbers of the "new-hungry".
The one thing that would make sense is the one thing the Obama administration hasn't done- i.e. the idea of the portable mortgage. If you have a mortgage on your current house and want to buy a new house as long as the new property has an appraised value greater or equal to the appraised value of the current house you should be allowed to transfer your existing mortgage to the new house.
The great advantage of this proposal is that it reintroduces labor mobility plus begins to get homes turning over thereby creating jobs for all the people associated with home turnover. It also has the advantage of not rewarding dead beats. Admittedly it hurts some MBS holders of discounted bonds who will not be prepaid as quickly as they were expecting - but that is a small price considering that there are not many of those securities around.
That appears to be more of China worried about examples of popular revolt against appointed governments. Subtext is "respect your elders and betters proles".
Labor mobility is over-rated.
If there are no jobs, mobility to reach them is moot.
ghostfaceinvestah wrote:
The govt is absolutely frightened that people are going to mail in their keys in droves. That would make for a very unstable situation.
The banking system is unstable by design, not that it was intended to be unstable, but a fractional reserve system is inherently unstable.
OTOH, if a lot more jingle mail starting flowing, the Fed would create a new alphabet soup program to gobble up more mortgages. Keep the banks whole, or change the capitalization rules again. Banks can't fail, solvency no longer matters.
"It's at least a number that is still receiving UE checks."
Except it is not, see my post, it does not include the extended govt programs. It only includes the 26 week state programs. Over 2.5MM are on the govt programs that are not included in the 6+ in the continuing claims number.
Though i agree with your sentiment in that it is a good, if incomplete, indicator of purgatory.
@BSR - they all got jobs, right? That's what the lower number means. (How much does panhandling pay these days?) /snark off/
"I beg to differ. It's at least a number that is still receiving UE checks. Any other numbers are in my mind total cow dung. AND, a decrease month to month shows NOW a number that can be extrapolated to gauge the quantity fallen off the UE Check Wagon."
I agree. Particularly relevant would be those who are able to find employment BEFORE UE expires. THAT is what would be the most useful to track.
"So true. I want it to happen to get to what you speak of, but my fear is ,as a nation we are not tough enough to learn from it. It will just devolve into civil chaos."
We are now an entitlement society, where high self-esteem in taught in the schools. Maturity is not encouraged in this environment. Hard times are thus unacceptable, so little good will be learned. People will just whine for more handouts. When they get them, they will learn that whining works, and down the tubes we go.
"If there are no jobs, mobility to reach them is moot. "
what about all the people we are going to need in DC to work for the every-increasing government?
what about all the people we are going to need in DC to work for the every-increasing government?
That's empire-buiding, so there's no actual need to be in D.C.
The job is being a placeholder so the "work" can be done locally.
@Yalt,
The longest range NK missile is not supposed to be able to reach Hawaii. What I've read on the nukes is that they have not even started working on the miniaturization required to put a nuke warhead on a missile and they are decades away from being able to do that. So, no fear of NK nuke missiles are this point.
"Particularly relevant would be those who are able to find employment BEFORE UE expires."
I have been trying to find the data on the "flows". I believe Mish posted something yesterday about 49% exhausting their benefits, but I don't know where he got that number. But those are the types of things that would be interesting.
The problem is, i can't find a lot of data about the extended benefit programs. Probably by design.
"When facing highly accurate air delivered munitions it's like lobbing rocks at a sniper."
Those first few volleys would be a bitch, though...
"what about all the people we are going to need in DC to work for the every-increasing government? "
No problem. The USG can just rent a bunch of that empty CRE space for the new bureaucrats in cities and towns across America. Two bird with one stone.
I'm trying to understand who in their right mind would loan more money than the collateral is worth. In no way does it lower risk.
This is the world's STUPIDEST idea! There is no economic stimulus whatsoever to it. It makes the lender's toxic balance sheets EVEN WORSE!
We avoid price/value discovery, and pile risk onto the taxpayer. To get people to accept this, the government has to either be insane or seriously hate their constituents.
Sheer lunacy. All this can possibly do is rip off the unaware and make them lose even more money than they already have. People taking this deal are getting on board the train to Economic Auschwitz.
Good Lord, if that post of mine needed a /snark tag to be understood, I'm giving up.
"People taking this deal are getting on board the train to Economic Auschwitz. "
Bones: "They're already dead, Jim."
Hi Charles K. Welcome to the idea slum.
@crazyv - wouldn't your proposal be more effective if everyone just lived in gov't owned and assigned housing? It would cut out all of those pesky charges that go along with buying/selling houses. It could work. No major unintended consequences there.
"The longest range NK missile is not supposed to be able to reach Hawaii."
I am somewhat less concerned about Honolulu, than I am about Anchorage. Although the idea of Sara Palin going up in a puff of radioactive fire, does not displease me so much. Her 15 min are up already.
Sorry Yalt, I read the first part of your reply as a question. It was from somebody else, nevermind.
"The one thing that would make sense is the one thing the Obama administration hasn't done- i.e. the idea of the portable mortgage."
Not a bad idea. Or how about increasing assumable mortgages - if someone else wants to buy your house, and qualifies, they can assume your mortgage (not something that would help with underwater mortgages, but otherwise).
of course, either idea would hurt the entire infrastructure built up around originating mortgages, which is why ideas like this get no traction, too much money made forcing people to churn mortgages.
I'm trying to understand who in their right mind would loan more money than the collateral is worth. In no way does it lower risk.
They've ALREADY loaned more than the collateral is worth. This proposal changes nothing except the monthly payment they get out of the borrower.
Why is this so hard to understand? Any mob boss knows that the maximum rate of bleeding doesn't always get the most blood out of the turnip.
Are we certain there will be no cash out?
Is that on the bargaining table?
Because if there is cashout, a lot of people are going to like this new plan.
Home equity - out. Credit cards - soon to be out. Refi and get cash out? hmmm. Yeah, that's the ticket.
Yeah, splat, North Korea was smart enough to built their ICBMs and plutonium bombs without external help, but somehow they could not grasp US air warfare. Btw, North Korea has had more bombs thrown at them than Germany during WWII, which, together with the straffing of refugees and the execution of POWs, can explain why the regime exists until today, and why their 1 million-man army is extremely keen in liberating the peninsula from Americans. Blowback is a bitch.
If I were planning to mail in the keys, either now or later, and Fan / Fred already held the loan to begin with, they're screwed either way.
Yes, but they're screwed even worse this way. If you plan on mailing in the keys, you aren't going to maintain the house and the value of the collateral falls even more than it already has. Encouraging the value of the collateral to drop is a dumb plan for a lender.
@Yalt - exactly. Which is why this is so disingenuous for the gov't to pass this off as helping those underwater homeowners. It enslaves them.
I joked above about gov't owned housing, but isn't Fannie/Freddie effectively the same thing, except the goal is to get as much blood out of each borrower as possible?
anyone has a graph showing the market share of first time home buyers v/s the investors and total home sales? historical going back before the bubble would be nice.
thanks
Don't forget the bombing of the dikes (which was considered a capital crime at Nuremburg, but it's OK if it's American bombs).
"Blowback is a bitch."
True. Particularly if arms start going back to Iran.
What do you mean by "lower the risk"? By lowering the rate they'll reduce the default and loss rates, but they'll also reduce the interest payments received. Further analysis would be required to determine whether the costs of lower interest payments exceed the benefit from lower default rate. Bottom line is that - even in this no-cash-out scenario - this could be net cash flow negative to Fannie and Freddie (i.e. the taxpayers).
I think its time to re-institute the DRAFT....
Not necessarily for war, but to rebuild America...It will toughen kids up, give them confidence and self reliance....by the way, the young-ins can start out in the boy/girl scouts....
Might as well start with the young and get them ready...o, by the way, some of us oldsters can supervised, based on our experience over the years....just a thought....
BelieverJeff (profile) wrote on Fri, 6/19/2009 - 11:04 am
Blackhalo
I think it will take some pretty hard times to encourage the U.S.A. to grow up and reach the level of maturity our forefathers had.
So true. I want it to happen to get to what you speak of, but my fear is ,as a nation we are not tough enough to learn from it. It will just devolve into civil chaos.
"I'm trying to understand who in their right mind would loan more money than the collateral is worth. In no way does it lower risk. "
Well, I think the point is these are loans on which Frannie is already on the hook. But...
"We avoid price/value discovery, and pile risk onto the taxpayer."
Yes. First of all, if you are familiar with the current program, the process for "valuing" the property is very weak, no appraisal involved in many cases (after all, the loan has to be less than 105, but to figure that out you need to figure out the denominator).
So it is likely Frannie is taking 120 mortgages anyway.
Then there is the whole issue with valuing risk and the precedent this sets.
What would you value a 125LTV loan at today? Shouldn't someone in that loan pay for their risk?
Put another way, what do you think Frannie marks these loans at? Certainly not par (despite having a higher interest rate). To get a par mark, their interest rates would need to be 15% I would bet.
I think a better plan would be to disclose the marks, and allow borrowers to buy back their loans at the mark.
If your loan is marked at 75cents on the dollar, you should be allowed to buy it back at that price.
That way, Frannie gets to realize their losses upfront, and we can get this behind us.
Companies can buy back their debt at market, why can't individuals?
Using CR's example:
200k original
155 owed
125 appraisal
Would you loan this guy $155k on his $125k house?
Negative LTV makes no sense. While we're at it, let's give him $200k so he can refi and buy a new BMW.
Isn't that the point? By reducing the monthly payment this plan makes it slightly less likely the borrower will mail in the keys.
I understand the objections of the people who it's disingenuous of the Administration to present this plan as being in the best interest of the borrower, although it's worth pointing out that the plan doesn't take any options away from the borrower, it just gives them one additional option to choose from.
I don't understand why anyone would think that offering refinancing will cause more people to mail in the keys and is tantamount to "encouraging the value of the collateral to drop."
Is the gov't going to pay the refi/appraisal costs, or is the borrower, who apparently can't afford the payments, be eating the cost. Should we trust the appraiser values to do this as much as we trusted their numbers on the way to the top of the bubble?
@skylockracy
Nice analysis. I know very little real truth related to NK (or Iran for that matter). My information comes through mainstream news outlets. To date, I've sort of discounted them as 1 million starving, desperate people in an underfunded military. Once upon a time, Saddam Hussein had the biggest military in the middle east. They weren't exactly hard to defeat.
Thanks,
rr
In Berkeley during the 1970's, it paid outstanding....so I have been told...
Treasury-Altered Reality Plan (profile) wrote on Fri, 6/19/2009 - 11:10 am
* reply
* Ignore user
@BSR - they all got jobs, right? That's what the lower number means. (How much does panhandling pay these days?) /snark off/
You all talk about homeowners who are underwater not "falling for it" and going for the 125% LTV Refinance. While such restraint might be in their best financial interests, it's pretty clear that people will do anything to stay in their homes. They will refinance if they can. They think the turnaround is just around the corner and it will just be a few years until prices reach peak values again.
What this speaks to is a failure by the media (mainstream and otherwise) to point out that housing bubbles do not re-inflate quickly. There is plenty of historical data on this. It could be 20 years before we get back to bubble values. If there was more reporting on this, it would change people's views on walking away.
What do you mean by "lower the risk"? By lowering the rate they'll reduce the default and loss rates, but they'll also reduce the interest payments received.
"Lower the risk" = "lower the default and loss rates". You're correct that it's an open question whether the reduced risk justifies the reduced payments received. That problem was beaten to death back in Tanta's time, with lots of useful analysis but certainly no answer that would be valid under all circumstances.
"Negative LTV makes no sense."
....but it's the only hope for the FedGov to keep THIS juggling chainsaw from hitting the turf in another year. I think the FedGov will end up owning all RRE paper in the near future. No better way to keep the sheeple in line than by holding their mortgage.....Do we have a Housing Czar yet? . . . . Just answer "Yes'm Boss" - very good.....the Glorious Republic thanks you..
I think its time to re-institute the DRAFT....
Not necessarily for war, but to rebuild America...It will toughen kids up, give them confidence and self reliance....by the way, the young-ins can start out in the boy/girl scouts....
Great idea -- gives a new meaning to drill, drill, drill.
Just to be perfectly clear.
From Wikipedia, the free encyclopedia "The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury on 7, September 2008.
Ain't nothin gonna happen unless Treasurys are sold to finance the action.
Fat Chance!
"as a nation we are not tough enough to learn from it. It will just devolve into civil chaos."
I would hope that as a nation, we are better than that, but I am not sure how how much I would wager on it. Clearly some elements of the U.S.A are NOT at that level of maturity, but there are quite a few who are. As much as I dislike the representatives the red states choose to lead them, they tend to have a tad more adherence to the principles that I consider ideal. One hopes that the rest of the country will consider civil and military service, respectable at some point, rather than just the bottom line.
125% LTV is just stupid though, regardless of the intent. It is just not honest or practical on a purely fundamental level.
@Yalt - agreed, it is just another option, but the right thing to do would be to encourage underwater homeowners to seek professional advice on what's best for them, not promote the option that is most advantageous to the lending facility, and will often be the worst solution for the individual or family.
Who's looking at the social cost of overwhelming debt on these young families and communities in general. Another unintended consequence.
...allowing Fannie Mae and Freddie Mac to refinance loans with current loan-to-value ratios of 125 percent or higher
At current 2-3% per month rates of home price decline it will only take 12 or so more months with prices down another 20-40% to demonstrate the waste and futility of federal rescue attempts such as this.
"it will just be a few years until prices reach peak values again."
Aye, there's the rub. A whole lot of wishful thinking going on.
"Aye, there's the rub. A whole lot of wishful thinking going on. "
Oh, absolutely. There are all kinds of people out there thinking their house values will rebound like the S&P did from 666 to 900.
Problem is, the govt isn't buying up houses to support the market.
Yet.
@CR - what happens with your 125% example when housing reaches the bottom you predict. Wouldn't that put it 35-45% underwater in a year or two?
If N Korea crossed the border and threatened US forces, Obama would release authority to the local commander and the Korean peninsula would go nuclear.
Why? It's US doctrine, just as it was in Europe. We're not going to have a repeat of Task Force Smith.
The N Korean know that.
The Divine Leader doesn't worry me at all.
I think I read somewhere on this blog,
Nothing will improve until the debt load is taken off of the public...this is one way to do so...
give it up, the taxpayer is already on the hook, line and sinker...
Its, just no one is willing to admit it in govt....
That is not wishful thinking.. that is a desperate prayer. They do not fancy it.. they NEED it.
//"it will just be a few years until prices reach peak values again."//
"The Divine Leader doesn't worry me at all."
he does me. He'll blink. He's never gone "all in" in his entire life.
The creation of IO was because 30-year was bottoming out.
Decline of rates created the bubble, bubble drove down rates, it's a feedback cycle.
--Somebody smarter than me has pointed that from 1999-2003, median prices tracked the inflation adjusted payments on a 30 year fixed mortgage. After that , the use of wonky mortgages exploded.
A Disclaimer. I'm in the Mtg biz.
This actually is a good thing, no matter the cost. When you have people willing to honor their debt obligations in entirety if only at a lower rate, you are rewarding good behavior. Most mods fail. Most refi's at 105% at least so far, do not.
It' s not so hot when you've got a non-gubmint loan but that change will come soon enough.
My .02
Soylent Green Is People.
@lost - there may have been posts about transferring private debt to public, but it's the cummulative debt of public/private/corporate that needs to be brought in line. All of this gov't money in the last year, and the accumulated debt has grown slightly. They're trying to turn the ship broadside into the tidal wave.
"he does me. He'll blink. He's never gone "all in" in his entire life."
If that's the case, it would be in the interest of the Chinese to apply some pressure from their side. Anyway, The Divine One is in their sphere of influence.
The Chinese also know what US doctrine is, and they should know it's probably the only thing we have that's non-negotiable.
@Soylent
-- This actually is a good thing, --
Small problem though, the USA is broke. In fact they are in debt. Now they want to weaken the underwriting conditions of already bad debts?
Dream on. Remember, the USA is broke.
edit: perhaps you all would prefer the 10y to go > 12%?
editedit: b4 xmas!
The only way this can possibly make sense is if the plan is to have double-digit inflation beginning by the end of 2010.
But you still need to step back and look at places like Detroit. Even during inflation, even during the housing boom, prices were still falling there for over 20 years. For those people, this plan is like asking for a tapeworm to cure their swine flu.
Anecdote--
My son lives in a house in Berkeley that the owner quit paying her mortgage on last August.
Wells-Fargo filed a NOD early this month (10 months after last payment). Think they're overwhelmed?
BTW, I couldn't find the NOD on the County Public Records web site until, after playing around, found that it had been filed with the woman's name misspelled. Once again, overwhelmed and sloppy.
@Soylent - In principle, I agree with you about honoring debts, but BK and non-recourse is there to keep people from becoming debt slaves. It could be argued (and has been) that gov't played a big role in creating what is essentially paper debt. Fixing the problem is going to need to hurt a lot more than it has so far.
mp, the North Koreans have been calling all American bluffs since before they had exploded their first nuclear warhead.
It has been US doctrine to utilize low-yeld, tactical nukes even if the opponent is not a nuclear power. This doctrine was an attempt to keep the deterrent of the aging, and mostly useless nuclear arsenal. It may escape Pentagon planners the political dimension, though. The first nuke the US launches, will also be its last. Not because of nuclear retaliation, but because the pillars of the Empire, most NATO countries, Japan and South Korea will either break their alliance with the US, or have their governments overthrown by domestic revolt. That is certainly the case in Germany and South Korea.
US troops in South Korea are perceived as direct successors from their Japanese colonial oppressors, and the US servicemen are in the country as much to prop the client state as to defend it against the North Koreans.
Nukes and firepower have not saved the Soviet Union, they wont save the US either.
Tout empire perira - All empires one day perish, and as irony will have it, most go to Afghanistan to die.
re - "edit: perhaps you all would prefer the 10y to go > 12%?"
My TBT would sure prefer that. A lot.
@Soylent
-- This actually is a good thing, --
You forget about all the current holders of MBS who are getting screwed.
Who in turn will never by an MBS again.
Which kills the MBS market.
Which the US housing finance system depends on. The Fed isn't going to be around forever buying all those MBS (or, if they are, we are really screwed).
All, thx for the response re NK. About what I expected, which is to say that the NK missile threat is not credible. Which is why I think the administration's moves recently are confusing. By revving up the missile defense system, Gates is giving credibility to the NK. I think Shylocracy suggested that this is maneuvering to prepare the way for military intervention, but that would be crazy.
"The Chinese also know what US doctrine is...."
I hope so, mp, but if you'll remember the Chinese leaders were the ONLY people told by Nixon during the "ping-pong diplomacy" days that we wouldn't back Taiwan (Formosa at the time) if the Chinese were to invade. The American people nor the Taiwanese were ever advised of the sell-out until recently according to declassed docs.
"Tout empire perira - All empires one day perish, and as irony will have it, most go to Afghanistan to die."
That's tomorrow's problem, not today's.
...@125% or more, how many years before there would be equity in the house
At -30% per year home price declines, how many more years before the house will have lost 80% of its value?
How much steeper an asset price collapse is it going to take to demonstrate the futility of paying off or refinancing legacy debt?
I agree completely. An honest approach would be to say that we want to make this option available to homeowners and we believe that in some cases this option will be in their best interests. We recommend that you seek professional advice to determine if that's true for you.
Of course if they did that they'd get unending grief for having recommended amoral behavior or would be accused of being in the control of the professional advisers lobby.
That's tomorrow's problem, not today's.
I'm not so sure of that.
"It is interesting to see Russia jawboning about a new reserve currency. It is absolutely in their best interests. It would be ironic if the real threat from Russia was not military or political, but economic."
As of now it's difficult to see Russia as an economic threat to anyone but its energy customers, and even then, that would be self-limiting and short-term.
@Yalt - accused of recommending amoral behavior? The gov't? ROFLOL!
Interesting post over on Across the Curve. Touches on the uselessness of the credit market indicators and questions the inflationary effects of the Fed's balance sheet expansion (at least thus far). My question is "why are the banks sitting on these mountains of excess reserves?"
Hope no one previously posted.
Here is an excerpt from a piece by analysts and economists at Brown Brothers. I think it nicely summarizes why inflation fears are overblown. It begins following the colon:
"Various credit spreads, like LIBOR-OIS and TED would suggest there has been a dramatic improvement in capital markets. The rally in the stock market points in the same direction and a handful of banks have returned TARP money. But the sad truth of the matter is that the deus ex machina of credit creation is still terribly impaired.
And to appreciate this is partly to understand another reason why inflation fears are overstated. The Federal Reserve’s balance sheet has expanded to $2.055 trillion from $871 billion last May. The expansion has been financed primarily in two ways: Extra Treasury bill issuance by the Treasury Department which is in essence given to the Fed, and by creating reserves, “printing money” in the vernacular. Therein is where many see the inflation risk.
The reserves in excess of what is required, hence they are called “excess reserves, are the fuel for inflation, the monetarists amongst us argue. The key though seems to be what the banks are doing with these reserves. The short answer: nothing. That is to say, that the banks are sitting on a virtual mountain of excess reserves which are kept with their creator, the Federal Reserve itself.
In the most recent two-week bank statement period, these excess reserves stood at almost $800 billion—yes, a little more than the entire TARP allocation. Prior to the crisis, excess reserves were minimal—a couple of billion dollars. What this means is that nearly two-thirds of the dramatic expansion of the Fed’s balance sheet that so worries many investors is still with the Fed itself. It is not chasing assets or goods. It has not truly entered the circuit of capital. In essence, the inflation risk is being exaggerated because the “real effective” expansion of the Fed’s balance sheet is being exaggerated."
The Fed isn't going to be around forever buying all those MBS
Only for the next 20-30 years until the bumper crop from the go-go 00s goes stale.
OTOH the 10y could hold up, and the $ fall into the crapper: Zero Hedge: There Goes The Dollar
Chainswa wrote:
My question is "why are the banks sitting on these mountains of excess reserves?"
There are no credit worthy borrowers that want to borrow.
//US troops in South Korea are perceived as direct successors from their Japanese colonial oppressors, and the US servicemen are in the country as much to prop the client state as to defend it against the North Koreans//
@Shylockracy - Source, please.
"It has not truly entered the circuit of capital. In essence, the inflation risk is being exaggerated because the “real effective” expansion of the Fed’s balance sheet is being exaggerated."
And all those reserves are just going to sit there forever, right, right??? I think he's missing the point...they're going to be unleashed sooner or later.
They've ALREADY loaned more than the collateral is worth. This proposal changes nothing except the monthly payment they get out of the borrower.
Why is this so hard to understand? Any mob boss knows that the maximum rate of bleeding doesn't always get the most blood out of the turnip.
What is so hard to understand about cutting your losses sooner versus dragging the process out and making the losses greater later on?
The GSE's should be foreclosing and either find whatever buyers are willing to pay cash for the stuff or turn the properties over to an RTC. The longer they wait to cut their losses, the bigger their losses will be later. Why do you think we've gone from the 105% LTV idea to a 125% LTV idea. Because the 105% LTV idea didn't help and only made the potential losses bigger.
Even a mob boss knows there'[s a limit to how many markers he can give a guy on a losing streak.
@don't - the dollar can't do that - Geithner and BB have promised they will defend the dollar. They'd never lie to us. (or to China and the ROTW)
'//US troops in South Korea are perceived as direct successors from their Japanese colonial oppressors, and the US servicemen are in the country as much to prop the client state as to defend it against the North Koreans//
@Shylockracy - Source, please."
By whom are they considered successors to the Japanese?
"...that the banks are sitting on a virtual mountain of excess reserves which are kept with their creator, the Federal Reserve itself."
Now, if anyone wants to look for a conspiracy, there's the place to look.
It seems likely to me that there is a agreement between the Fed and banks to keep this money out of the system, leaving it in Fed balances so the banks can earn their way out of the hole they're in.
I don't understand why anyone would think that offering refinancing will cause more people to mail in the keys and is tantamount to "encouraging the value of the collateral to drop."
The re-fi changes the loan from non-recourse to recourse, right? The USG can seize your assets if you walk away.
COME ON YOU QUADRUPLE WITCHING KERMIT PARTY, YA!!!!!!
The same thing goes on in local government. They may not call it that but it does happen. Whenever a local government allows a Corporate firm to get a tax free incentive to bring their plant to a town that is bribery. I'm sure many small town or city politicians who have dreams of higher office consider how these firms that they allow into their communities for these tax incentives, will eventually want to rep
recommended : Econ & Finance Articles
When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate.
Taxing citizens to create bureaucratic government agencies and programs that fail to accomplish their mission while continuing to grow in size as politicians use them to reward the contributors to their re-election campaigns.
sm_landlord (profile) wrote (in reply to...) on Fri, 6/19/2009 - 1:10 pm
We are now an entitlement society, where high self-esteem in taught in the schools. Maturity is not encouraged in this environment. Hard times are thus unacceptable, so little good will be learned. People will just whine for more handouts. When they get them, they will learn that whining works, and down the tubes we go.
Worse than that, actually... the TAANSTAFL folks with assets subsidize the free-riders, thus reinforcing their delusions, until the point at which the TAANSTAFL have nothing left to take or simply stop producing and drop off to the shill gambling/entitlement economy. The productive economy in the middle feeds the safety net below and its attempts to save or invest are raked by the top via transaction and management fees by the royalty. That continues to siphon out all the productive wealth until there is no middle left to feed the system. It's the model of a failed third world state.
one more time:
125% LTV or HIGHER!!!
why not 175%LTV cash out refi's.
Makes about as much sense as the rest of the crap the Elephants and Asses have pulled over the last decade (or longer!)
USG can seize anything they want.
What are you going to do about it, terrorist?
Bottom line: The first quarter brought the greatest credit collapse of all time.
Mish's Global Economic Trend Analysis: Flow of Funds Report Offers Hard Evidence of Deflation
Isn't that the point? By reducing the monthly payment this plan makes it slightly less likely the borrower will mail in the keys.
It's obvious you don't live in Detroit.
"The first quarter brought the greatest credit collapse of all time."
Well, yeah. Didn't everyone here already KNOW that?
Being a debt slave is a choice.
An MBS buyer is taking a risk. That risk does not always carry rewards. If MBS buyers drop away, there is always other ways to finance property - AKA covered bonds.
Yes, the USA is broke, but should we all simply renounce our obligations because we are "upside down"? That makes as much sense as paying the government money as equity rose - albeit phantom equity. Sheesh, do you stop making your car payment once you drive off the lot because you just surrendered 25% of your equity?
The alternatives are all pretty gruesome. If your neighbor gets $100k whacked off their mortgage balance as "principal forgiveness" then what is to stop you from doing it? Then what is to stop everyone from doing it and crash the banking system.
Before you respond... I do think principal forgiveness is the best and only way out of this. The bank would forgive 25-50% of your current debt, restructure the payment based on the rate you have, then have a equity participation requirement if you sell your home over the modified loan balance. Its fair, universal, and can be "one and done". Yes, it will kill MBS holders. I could care less. 50% of something is better than 100% of nothing.
-- the greatest credit collapse of all time. --
Um no. That was when I stopped trusting my (former) girlfriend.
""why are the banks sitting on these mountains of excess reserves?""
Perhaps due to in a deflationary environment, the reserves gain value sitting there practically risk free as opposed to risky lending?
When the time comes, the FRB can make those reserves disappear in a hurry. The Treasuries, not so much.
@dont you believe it
"OTOH the 10y could hold up, and the $ fall into the crapper"
Those are the 2 options IMO. Short term I'm mostly cash while deflation reigns, with small short LT Treasury and short dollar positions. I fully expect to move all the cash into one of these positions as we get more clarity on which path to the Dark Side Uncle Benny is going to choose.
"It seems likely to me that there is a agreement between the Fed and banks to keep this money out of the system, leaving it in Fed balances so the banks can earn their way out of the hole they're in."
The are getting paid for their reserves...
The banks earn interest on those balances, which they are borrowing at ZERO interest.
The plan might be for the banks to earn their way out, just as they did during the S&L debacle.
Anyone here try to place a CD back then? The banks sure as hell didn't want my money.
E-mail I just received from a June graduate of a top university:
"Right now I'm just looking for a job. I did the first half of a yoga teacher training the day after I graduated, I am going to canvass for Prop 8 for clean energy for the month of July, take the Cbest to become a Substitute teacher and the GRE for grad school, and hopefully stay in the area!"
This is the future they face!
I just know I'm missing the subtleties (I claim information overload) but gotta love that this comes out the same day that Dallas Fed releases a letter advocating guess what (I won't spoil it)
Taming the Credit Cycle by Limiting High-Risk Lending
Taming the Credit Cycle by Limiting High-Risk Lending - Economic Letter, June 2009 - FRB Dallas
"Taming the Credit Cycle by Limiting High-Risk Lending" contends that a maximum loan-to-value ratio--the restriction of a loan's amount to no more than a specified percentage of the underlying real estate's appraised value--would guard against the speculative borrowing that leads to credit booms."
But 'cos these are Fannie and Freddie owned already it makes sense to raise LTV, that's it right? Only tax payer losses, yah, maybe that's it.
@Soylent Green is People wrote:
Before you respond... I do think principal forgiveness is the best and only way out of this. The bank would forgive 25-50% of your current debt,
I don't believe banks will do that. They seem very reluctant to reduce principal balances, only doing so after exhausting all other work out options. I think banks would only do that broadly if forced to by law.
Banks are sitting on these mountains of excess reserves precisely by design. When the Fed began paying interest on reserves, it created a way to basically transfer wealth to banks, allowing them to earn their way back to solvency, while at the same time preventing hyperinflation from taking hold (sterilization).
If this is the game plan, then how many years to earn their way out of a hole?
ghostfaceinvestah (profile) wrote on Fri, 6/19/2009 - 12:18 pm
* reply
* Ignore user
"It seems likely to me that there is a agreement between the Fed and banks to keep this money out of the system, leaving it in Fed balances so the banks can earn their way out of the hole they're in."
The are getting paid for their reserves...
"Banks are sitting on these mountains of excess reserves precisely by design. When the Fed began paying interest on reserves, it created a way to basically transfer wealth to banks, allowing them to earn their way back to solvency, while at the same time preventing hyperinflation from taking hold (sterilization)."
Yup, yup, yup.
Well, a quick glance at the history of Korea after WWII will make plain why the presence of US troops is seen as a humiliation by a large swathe of the South Korean population. You don't even need to refer to their proud history of cultural, political and ethnic unity for 600 years under a single dynasty. All it takes is to look at the dictatorships installed by the US in South Korea after the war with the North, and you will start understanding their mass psychology. Americans have been exposed for too long to the propaganda that leads them to see themselves as "liberators", when most of the historical record in the XXth century points elsewhere. Now, back to South Korea, most Americans would be amazed and perhaps shocked to realize how many South Koreans see the North Korean A-Bomb with pride. If push comes to shove, the South Korean regime will be fighting for its life, and in the chaos, in which direction the lower ranks of the army will point their guns is an unsure matter.
This is about the best measure - hardest to jigger anyways (props EHP)
http://research.stlouisfed.org/fred2/graph/?s[1][id]=EMRATIO
Soylent Green Is People. (profile) wrote on Fri, 6/19/2009 - 2:13 pm
The alternatives are all pretty gruesome. If your neighbor gets $100k whacked off their mortgage balance as "principal forgiveness" then what is to stop you from doing it? Then what is to stop everyone from doing it and crash the banking system.
Before you respond... I do think principal forgiveness is the best and only way out of this. The bank would forgive 25-50% of your current debt, restructure the payment based on the rate you have, then have a equity participation requirement if you sell your home over the modified loan balance. Its fair, universal, and can be "one and done". Yes, it will kill MBS holders. I could care less. 50% of something is better than 100% of nothing.
Why not start inflation-indexing housing prices and values, allowing them to adjust with the times and economic conditions? END the ridiculous and socially-useless notion of a home as an investment vehicle, which allows the travesty that is the FIRE economy in the first place. Stop allowing these silly games and making ordinary people risk their livelihoods in this way. Let people speculate in tulip bulbs and beanie babies, not necessities like food and housing. Take all the speculative profit out and I guarantee people will still be buying homes.
It's all C.R.E.A.M
Cash Rules Everything Around Me.
Protect ya neck!
As of now it's difficult to see Russia as an economic threat to anyone but its energy customers, and even then, that would be self-limiting and short-term.
Russia has a small (for the size of Russia), reasonably educated population, a huge resource base, and a favorable geographic location. The looting and corruption from the 1990s and early 2000s is diminishing, and if you need something done in space fro a reasonable cost, look no further. I would keep an eye on them. That, and the thousands of nuclear warheads and delivery systems they have.
"Banks are sitting on these mountains of excess reserves precisely by design. When the Fed began paying interest on reserves, it created a way to basically transfer wealth to banks, allowing them to earn their way back to solvency, while at the same time preventing hyperinflation from taking hold (sterilization)."
And the reserves will stay there forever?
"And the reserves will stay there forever? "
No, of course not.
So what's going to happen when the reserves are released?
The FRB makes the reserves go away by the reverse of the process of creating it...numbers in a computer.
"The FRB makes the reserves go away by the reverse of the process of creating it...numbers in a computer. "
Exactly. And, essentially, the net addition to the money supply will be interest earned by the banks, which will may be somewhat inflationary.
Maybe not, depending on how credit destruction ends up.
Have a good day.
I don't understand why anyone would think that offering refinancing will cause more people to mail in the keys and is tantamount to "encouraging the value of the collateral to drop."
You're not getting it.
If I'm going to sell, I have to come up with the extra 25% LTV at selling time. How am I going to do that? I might be able to come up with 5%, but that's probably stretching it.
The way it works in slums is - once you're in negative 25% equity territory, you stop paying. Period. Because it's only going to get worse. Negative 5% may be manageable, -25 is just beyond hope. I grew up in a neighborhood like that. Property values were constant from roughly 1978-1995 - regardless of inflation. Meaning a house that sold for 75K in 1978 sold for 75K in 1995 - while inflation ate away at equity. In other words - the person who took a 15-year mortgage in 1978 for that house had 100% equity by 1992 - but in 1978 dollars he had a whopping 25K in equity 1992. By 1995 he had 20K in equity. People don't figure this out all at once, but they all eventually figure it out and the only people who remain are people who have no intention of putting a dime into the house because it''s throwing money down the drain - if they wanted to live in a nice house they'd live in a nice neighborhood; what they want is to live in something that costs them next to nothing because either that's all they can afford or they're socking their money away for future use.
Most people haven't lived in areas where non-appreciating real estate is a fact of life. The current climate is their first taste of it, and they think it's an anomaly. It ain't necessarily so.
I'm not thrilled with the prospect of another RTC, but it's a better idea than this. And I'm just talking about the the idea as an idea - if they implemented it, there would be few takers - and the one's who took it would regret it soon afterward. When the light bulb goes on and they regret their decision, they stop paying.
There's nothing to get--you aren't making a coherent argument. (And by the way I live in a near-slum and there's a true slum not more than a mile away. Declining asset values are nothing new to me.)
If people are going to stop paying, period, then it doesn't matter whether they're offered a refinance or not and this proposal is simply irrelevant and certainly not the disaster you claimed earlier when you said this was going to cost the GSEs untold sums of money because it's going to drive collateral prices down.
If, as you admit in your last paragraph, there will in fact be a few takers who will regret it soon afterward and will stop paying later, then that's a bit of cashflow the GSEs wouldn't otherwise have seen and it's a few extra months there'll be someone living in the house. There'd be no advantage to them in handling these foreclosures now instead of later because their servicers simply can't handle them all now.
No one, and I mean not a single person, is going to leave their house BECAUSE of this refinance offer who wouldn't have if the offer wasn't made. But that's what was implied by your claim that the proposal was encouraging collateral values to drop.
Shylockracy,
Your last post jumped the shark of trolldom straight to disinformation. SK has benefited enormously from its industrialization and modernization under its current system. Does SK have political problems...absolutely. But to suggest that there is any meaningful group in the South other than NK agents that would welcome invasion from the North is a farcical joke. SK could very well produce its own missile arsenal and warheads in short order if it so chose. The people of SK more than anyone understand how lousy things are in the North.
I don't see anything in Shy's post that suggested South Koreans would welcome an invasion--he seemed rather to be saying that there'd be popular resistance to a SK regime perceived to be overly aggressive against the North (and especially so if that aggression were seen to be at the behest of the US and not an internal Korean decision), perhaps to the point that there'd be a change of regime in the South.
That doesn't seem unreasonable to me; there's certainly a lot of popular sentiment in favor of reconciliation. It goes without saying that if an SK government toppled over this question, it's replacement wouldn't come from the North.
then that's a bit of cashflow the GSEs wouldn't otherwise have seen and it's a few extra months there'll be someone living in the house.
And the question remains whether the value dropped more or less than the cashflow.
No one, and I mean not a single person, is going to leave their house BECAUSE of this refinance offer who wouldn't have if the offer wasn't made. But that's what was implied by your claim that the proposal was encouraging collateral values to drop.
I disagree. I think the floating of a proposal like this turns the light bulb on for more people. No, they won't TAKE the offer, instead they'll realize "Screw it, it's not worth trying to keep up." Those who do take the 125 offer will continue the cash flow... until the 150% LTV offer gets floated. Then lots of the 125'ers stop paying.
I'm talking about the logical stupidity of the game; in reality the game has pretty much stopped but the government is behaving like a junkie who swears the next chase of the dragon is his last one ever - just making it worse.
"I don't see anything in Shy's post that suggested South Koreans would welcome an invasion"
Agreed. South Koreans do want reunification though, and have made concessions to the north. So be it. I only wish the US would remove our tripwire troops at the DMZ r...we cannot afford, on any level, further military involvement anywhere. Let the Chinese sort it out. Korean hatred for the Japanese would seem to preclude their involvement.
i understand your political view and you no doubt call everything "socialist" rather apply any thought to it but please explain to me how allowing people to carry the mortgage to a new home is "government housing". We have a simple problem - if somebody bought a home that is now worth less than what they paid for it their equity has been eroded. and if they sell at current prices it is lost. People are therefore frozen in place and will be until the market values return. That (a) prevents price discovery a prerequisite for clearing up the market (b) reduces jobs in the entire home purchase and sale food chain.
How is the lender any worse off if instead of having a mortgage on house A the lender has a mortgage on house B worth exactly the same amount. The first way out of the loan (that quaint banking idea) is the income of the borrower hasn't changed and the second way out the collateral is exactly the same.
Funny how a regime that's so powerful and strong, so self reliant, so.. well just plain victorious. Hasn't just rolled South and liberated the country ? Seeing as they don't give a rats about world opinion it's so strange that even given the fact we're tied up in two wars, they've still not used their massive overwhelming strength & superiority just to roll south. Perhaps it's because their leadership is realistically aware of what modern warfare is and just how badly their ass would be handed back to them.
BTW the Russian's and Chinese helped their nuclear program, plus the nuclear tech supplied by AQ Khan. I think you're reading a little too much North Korean propaganda and believing it.
They have the biggest artillery force in the world, and Seoul, together with most of the US personnel is within range. In the first three hours of a conflict Seoul and most of the US forces will have been pounded so badly that they will hardly be able to greet the 1 million highly motivated N. Korean troops overrunning their positions.
My understanding is that they've spent most of the last 55 years digging gun emplacements into the mountains and can put something like 100K "map quadrant" artillery shells an hour on the world's 8th largest city. Certainly the artillery pieces will be subject to precision bombing and counterbattery fire, but not before Seoul is substantially damaged.
I really don't think we have a conventional warfare option over there at the present.
[How is the lender any worse off if instead of having a mortgage on house A the lender has a mortgage on house B worth exactly the same amount.]
And that is exactly what I did the last time I moved house in that quaint backward little country I came from (England). House A had Mtg A, wanted to buy House B (cost more). Transferred Mtg A to House B and took out new Mtg B. Cost to do so? Less than taking out whole new loan since no redemption costs on Mtg A and Mtg B was small loan with same lender and lender wanted to keep me (like, why wouldn't he? So he made it cheaper than competitive lenders). Result: Bliss. Why it is impossible in the US I have no idea (that was a snark BTW). Oh maybe something to do with (a) Not Invented Here Syndrome (b) screw the borrower all ways to Sunday every darn time (c) US borrowers are more stupid than elsewhere (okay, not those ones here obviously, I know thaaat).