[he was perplexed that lenders and their representatives were resisting reducing principal ]
I would be even more perplexed at why these loans were made in the first place.
The fact that a borrower has already established a willingness to default might make it a little tough to justify giving them any further rope. Why bother. Foreclose and get it over with - move along...
They know moral hazard, and play it like a fiddle. But you cannot surrender the instrument to just anybody.
Interesting the bi-modal nature of borrowers. The 30 who toil, for whom forebearance is "wasted", and the cohort who bail, even after help. That sounds kinda likely.
The hearts and minds of the remaining third is what's in play, I suppose.
Foreclosures can take a long time. Maybe the rational explanation (or rationalization) is that by avoiding cramdowns and other adjustments by sticking with foreclosure as a strategy, the banks maintain control of the timing. No one is going to ask a bank to hurry up and foreclose, but there would certainly be pressure for fast cramdowns once the ball got rolling.
Basel Too, in this case, I think many people (like poor Gretchen) are asking why the banks don't reduce principal significantly. These researchers are pointing out it is more complicated than Gretchen thinks.
From: Your Bank
To: Our Best Borrowers
RE: Principal Reductions
Dear Good Borrower,
You may have seen recently in the news or noticed the effect on our stock from our recent efforts to lower the costs of mortgages to our worst customers. Rest assured numerous studies indicate this is best for the bank. It is vital that you continue to stay a good borrower in these difficult times. The alternative is... oh wait. Let us say this another way.
Oh screw it. You know what's going on. That's why we can't lower anybodies principal balances. Suck it up cupcake.
While typically used in a corporate context, the phrase has gained currency in a personal context the financial crisis of 2007-2009.
Under current United States law, bankruptcy courts are not allowed to perform cram downs (i.e., reduce the principal amount or change the interest rate or other terms) on mortgages of bankruptcy filers' primary residences. As a potential solution to the subprime mortgage crisis, legislators and consumer advocates have advanced a proposal to allow cram downs on these loans, and legislation to that effect was introduced for potential inclusion in the Emergency Economic Stabilization Act of 2008.[2]
However, the financial industry strongly voiced opposition to such a measure, claiming that it would create additional uncertainty as to the value of mortgage loans (and by extension, the collateralized debt obligations into which they are bundled). While the provision ultimately was not included in the bill passed into law, the concept still has advocates and new legislation allowing for first-mortgage cram downs may appear in the future.
Bingissimo. Precedent effect and incentives would set off a chain reaction and formally blow what remains of the outstanding asshats on the balance sheet. Bye bye bondholders, share value, credit lines, brand value and goodwill, solvency... Knock on to other asshat classes and securities where the underlying asset is less than the supposed collateral.
Someone needs to show the learned Alan White the extend and pretend clip.
Any reasonable Net Present Value test for modification over foreclosure would have to take in account the cash flow times a discount, which would be the redefault risk and the self-cure risk.
This discount would likely make few modifications make sense. Barrons had a graphic showing the redefault rates after 10 months for modifications was between 30-80%... if we take that lower number and say that is the lifetime risk, you'd have to discount your cash flows by 30%. I can't imagine many cases where the NPV makes modification a more attractive option. The fact that servicers are doing so many and clearly holding off on a massive amount of foreclosures is showing they are trying, at tremendous cost to the MBS investor. But it is really just delaying the inevitable.
"Basel Too, in this case, I think many people (like poor Gretchen) are asking why the banks don't reduce principal significantly."
~~~~
Or why they fought so hard against them and why Obama didn't fight for them ...
Could it be the accounting rule changes ?
From Naked Capitalism:
Nocera then tells us why servicers are not set up to do mods and gets to the punch line:
In truth, servicers and banks don’t yet have powerful enough incentives to do large-scale mortgage modifications. The servicers and modification experts I spoke to this week all agreed that the $1,000-per-modification being dangled by the government was pretty meaningless, given the amount of time, money and effort they require.
So now that the carrot hasn’t worked especially well, the government is taking out the stick. That letter the administration sent out on Thursday did not mince words. It demanded that the servicers begin “adding more staff than previous planned, expanding call centers beyond their current size, providing an escalation path for borrowers dissatisfied with the service they have received, bolstering training of representatives, developing extra online tools, and sending out additional mailings to borrowers who may be eligible for the program.”
And the laggards? Starting next month, the government plans to begin publishing data showing which servicers are doing well and which are doing poorly,
I've actually worked on a principal reduction ~25%. Of course, the loan was owned by a local bank, and the customer had been a loyal customer for many years and had familial roots in the community. So in theory, it can be done. Of course, when the loan is securitized, principal reductions are going to be the exceptions (i.e. Trust Indenture Act). oh why can't we get a better press corps?
interesting OT tidbit about U. of California furloughs In response to urging from university employees, the furloughs are structured so that people who earn more take bigger pay cuts. Those earning less than $40,000 will have 11 furlough days, equivalent to a 4 percent pay cut, while those earning more than $240,000 will have 26 furlough days, which is about a 10 percent pay cut. Mr. Yudof said he expected that faculty members would not take furloughs on their teaching days.
So, it amounts to a progressive tax on UC employees. Also, which faculty member is gonna be the ass that would actually not show up for classes?
The redefault statistic isn't surprising. A very small slice of mods involve principal reduction.
That aside, I do at last see how they're pinned. Your third reason, CR, must be the unspoken clincher - they surely don't like to discuss it, but I have no doubt it's operative.
WASHINGTON - Today Senate Banking Committee Chairman Chris Dodd (D-CT) and House Financial Services Chairman Barney Frank (D-MA) sent a letter to the heads of the bank regulatory agencies asking them to address whether banks are inflating the value of 2nd mortgages on their balance sheets, thereby discouraging proactive efforts to modify and restructure mortgage loans and crippling programs designed to prevent foreclosures.
The employers and the states want near 90-100% output for 70-80% pay. A good deal for them. This is will turn into permanent pay structures over time. Second-world, here comes the USA.
But here is what won't make any newspaper. Clearly the servicers and investors are doing a lot right now. They are doing things that make little business sense due to the tremendous political pressure they face. What is their reward? They get Geitner calling them in and telling them they aren't doing enough! The administration doesn't understand the issue very well, it would be better if they designed a post foreclosure strategy to turn the borrowers into buyers ASAP. A FHA program with higher premiums which allows a buyers to buy the day after foreclosure if certain conditions are met.
Its a much better plan than keeping people in homes they cant afford. It allows the market mechanisms to take over instead of the highly engineered market we have now which bears no semblance to reality.
In South Florida, all that stuff has already happened.
A realtor I know, who has a mtg broker license also, sez
her clients call her and she has to say she can't do
anything for them.
Her latest statement were that there were going to be more and
more ruthless defaults--why pay your mtg,even if you can,
if your house is hopelessly underwater. A medium sized
cramdown might deter these people from walking.
In short this analysis, tho it sounds ok, is so very
much year and a half ago thinking.
"So I wonder if this is again grandstanding, to make it abundantly clear that the Administration is washing its hands of the problem and fobbing full responsibility for the problem back on the banks.
The best solution was to have had judges be able to modify loans in bankruptcy. But Team Obama does not throw its weight behind many of the things it in theory favors (it backs down and calls it "compromise:" at the drop of a hat) and did not have BK mods as high on its list of priorities."
Here I am standing out in a frickin' cornfield again describing how the lights came down out of the sky and swallowed my cow...
From my own, personal, non-professional, uneducated, layman's understanding, if we're talking about securitized notes that are being FC'd - and the vast majority of them are these days - the note holders have already covered the outstanding balance on the note by the time they are foreclosing!!!
"Note" insurance covers the trusts. When a note becomes "non-performing" a claim is put in to cover the note. Therefore, the note holder doesn't need to dump a property ASAP because they've already covered 100% of the loss via the insurance. Any money seen via the sale of the physical property is simply GRAVY . In fact, if I'm correct in my own suspicions, a note holder could potentially recover upwards of ^x the value of a note ($100,000.00 note x6 = $600k) if the conditions are right and one or two people are asleep at the switch - which we know NEVER happens in the industry.
another reason that pols don't want to allow cramdown at this point, especially if the borrower could pay, is that BK will wipe away all dischargeable debts.
So not only is the borrower cramming down the house, but also the car. Also, say good bye to the credit cards debts, any back taxes, etc. Most people won't file BK over all the other stuff, but throw in a $100K+ cramdown carrot, then the efficient breach gets a bit more profitable for the debtor.
You should care about the investors money if you ever hope to have people invest in MBS again and keep rates low.
Unless we plan on having the Federal Reserve to print money to buy mortgages forever and the US taxpayer to back every mortgage. You have to care about the MBS investor, people are treating them like dirt but will be crying when they see they got the shaft and stop investing in MBS.
These days, Iceman, "lenders" pretty much don't modify ...period. The servicers are the ones that handle the modifications... And they're not doing it either.... Despite the fact that the majority of the PSAs stipulate that the servicers get to keep modification fees as "additional servicing compensation". Of course, they're also receiving up to an additional $4500.00 if they DO perform a mod perone of the wonderful new programs bestowed upon us by the new administration....
Well i'm just one person but I can imagine there are others like me that when they go through the bond portion of their portfiolio they make sure there is as close to zero MBS in it as possible. Why invest in people who won't pay you back and who are backed by politicians willing to break contracts to let them do it and keep the house. Its affected my personal investing strategy, I can't imagine it hasn't done the same for the big boys as well.
Effective, it's too late. In fact for too many it was
too late the instant the ink was dry on the mtg from
signing; certainly too late before the securitization
electrons started bouncing around.
Like I said, unless you plan for all the mortgages to be backed by the US taxpayer.. for it to be a completely socialized industry you want people investing in MBS.
It creates greater liquidity and lower rates.
Those evil MBS investors will go away, they will be wished away to the cornfield. And then people will wonder why rates are high and their taxes are higher.
I will never invest in MBS, government backed or otherwise. The politicians have clearly shown that it is the investor who is the problem not the borrower. I'll take my ball and go home and let someone else play.
hhack: cramdown technically is the involuntary imposition of a chap11 plan over the objection of a dissenting class of creditors. the "cramdown" WRT to mortgages is actually "lien stripping."
"before the securitization electrons started bouncing around"
in many ways the economy is like a baby boomer going cold turkey from a cocktail of testosterone, SRIs, opiates and cocaine take every few hours since the mid 80s.
This is one of many unforseen consequences to the command-and-control exercised by the Fed - they are incapable of rolling back the 'advances' of securitization and derivatives in the same way that Castro and the DPRK rulers don't have much interest in reversing the gains of the glorious revolution.
Stepping back for a moment with two metaobservations.
The solution to people in houses they cannot afford is to get them out of those houses.
Default and/or bankruptcy is a solution not an event to be avoided. Legal, relatively transparent and time tested. By comparison no other path has those characteristics.
"The employers and the states want near 90-100% output for 70-80% pay. A good deal for them. This is will turn into permanent pay structures over time. Second-world, here comes the USA."
And the employees on reduced salaries and wages buy 90-100%?
It's better to FC because if there is anything hinky hiding in the payment history, origination or anywhere else in the paperwork it all goes and the note and physical property are effectively laundered and squeaky clean for the next suckerrrr .... home buyer....
Get people out of homes they can't afford and into homes they can. Hit the reset button, design a program to allow them to buy soon after foreclosure and back on their feet. All the rest of this stuff is denying reality and smoke and mirrors.
The solution to people in houses they cannot afford is to get them out of those houses.
Default and/or bankruptcy is a solution not an event to be avoided. Legal, relatively transparent and time tested. By comparison no other path has those characteristics.
Rob Dawg, Yes and yes. Not good for housing - and thus, not good for those of us that own houses and horrible for lenders. But, other paths are no better and probably worse.
In 2001 (may have been 2002, memory is fuzzy), right after my parents got back from a 4 year army tour in S. Korea, I had the opportunity to have dinner with my parents and a gentleman and his wife from Texas who had been involved with the board of Nations Bank, then Bank of America, and then a mortgage security company he started. Basically he explained how they were making these mortgages and then selling them almost immediately in large packages as securities. Almost instant profit, little risk, actually used the term "like taking candy from a baby." I brought up the fact that from my uneducated point of view this was like financial alcehmy and turning lead into gold never worked in the long run. The answer to that was 'well that will be a problem for someone else, not me, I am just following the law. This country was founded upon the smart taking financial advantage of the stupid.' After the dinner I got in a huge argument with my dad about the issue. I said that the whole problem with America was that we no longer made products, we just made money out of nothing. Selling imaginary financial products which only made money do to fee and markups in value for the elite. It was all a scam. Dad said I had class envy, and as long as I thought poor, I would be poor and jealous of those who worked for a living. Jump to now, and in my opinion nothing has changed, it is just everyone knows the emperor doesn't have any clothes on now...my dad now blames deregulation and select individuals who 'gamed' the system. In my opinion, this isn't a select problem of a few people without scruples, but a reflection of the new reality of America. The only way to get rich is to take advantage of someone else.
That's what should have been done with all that wasted money.
Total the mortgage, and reduce the debt proportionally for everybody.
Reimburse the lenders. If it's 10% reduce the payment 10%. Pick a pays
would still default, but maybe not the rest.
But it's too late. They gave the money to the banks.
Actually they gave the banks some electrons and the banks
are not doing anything with those electrons.
"I'd argue for a third reason: If it became widely known that lenders routinely reduce the principal balance for delinquent borrowers with negative equity, this would be an incentive for a large number of additional homeowners to stop paying their mortgages."
This is exactly the primary reason that Lenders don't routinely reduce the principle balances for delinquent borrowers. The fact that this explanation is omitted from the discussion of the cited writers is evidence, as if any evidence were needed, that the cited writers are just blathering on about something they nothing about. There is an erroneous assumption here that because the left arm of the Too Big to Fail Big Dysfunctional Bureaucracies created an incentive system which rewarded the underwriting of risky and fraudulent loans, that the servicing arm is equally incompetent.
mmckinl (profile) wrote on Sat, 7/11/2009 - 5:43 pm
"The solution to people in houses they cannot afford is to get them out of those houses."
~~~~
Even if they can afford them at current market value ?
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria.
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria.
Also you have to foreclose because you remove the ruthless default risk (defaulting just to get a loan mod) and the self-cure risk. The highest NPV for the bank and the whole banks portfolio would be to foreclose. You give people the choice they signed up for.
Liz, well he sold his securities company in 2005 or 2006, well before things started heading south I think. Last I heard, he got sick. Cancer. Remission for a while, but was fighting a losing battle again.
The plan is to foreclose on everyone and kick them out on the street, let the banks seize the properties, change the accounting rules so banks can operate indefinitely while insolvent, then eventually give the banks enough tax money to cover all their losses.
In the end, all banker gambles get paid off with taxpayer money and they own all the empty houses while millions are homeless.
It will just take some time to raise enough taxes to pay off all the banker bad bets. Maybe 10 years. /no snark
My landlord asked for an interest rate reduction on their primary residence recently and got an 18% principle reduction instead. I believe they put 20% down though. The original lender was Wachovia and it sounds like they still held the loan.
because there are way, way more joe 6 packs out there. the inherent moral hazard of securitization worked for 20 years until j6p discovered the joys of home-as-ATM. that lasted only three years or so before the nation was effectively destroyed by it.
'This country was founded upon the smart taking financial advantage of the stupid.' '
How inspiring. Maybe it should be used as a recruiting slogan for the armed forces. "Defend the smart at the risk of your life so they can take advantage of the stupid."
Actually, when even the smart are stupid the outlook is grim.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 7:42 pm
"The employers and the states want near 90-100% output for 70-80% pay. A good deal for them. This is will turn into permanent pay structures over time. Second-world, here comes the USA."
And the employees on reduced salaries and wages buy 90-100%?
Deflation... the thing that happens while we pray for re-inflation.
id put it this way...there are few preventable foreclosures ALLOWED; for if they ARE, the fantasy/forced illusion that the banks are solvent becomes impossible to maintain.
Eventually all these screwy loans, underwater properties will be forclosed. Either due to job loss, payment reset, or willfull default. OK, maybe there will be a small percent who stay and pay on an upside down mortgage.
However, this is going to take years and years of pain. Slow and steady pain may be the plan, rather than jerking the bottom out of the existing financial structure. In some way I can see that the slow way may cause less painic in the streets.
The reason CIT is not allowed to issue FDIC backed bonds to shore up the old Capital structure is due in large part to the neccesity to eliminate thelargest private market competition to GE Capital...
......it's not healthy for anyone, liz. Eventually, when the little guy (your son/daughter) realize pop is a crook and it's the only way to get the stuff that is "So Cool". Eventually, you end up having bankers, politicians, lawyers, and doctors that take advantage of people throughout their lives..........oh wait...........we're there. This is what you get.
I've been keeping this on the d/l but my landlord is in foreclosure and is trying for a loan mod. It's not her principal residence any longer and she stated to us that she need the bank to think she is still living here. Needless to say we aren't playing along.
But I bet she gets bailed out. Ruthless defaulters are way more common than politicians want to admit.
The original lender was Wachovia and it sounds like they still held the loan.
There are no legal impediments (other than capitalization ratios) when the loan is held by the bank.
It's not her principal residence any longer and she stated to us that she need the bank to think she is still living here.
If it's not her principle residence, she can get a cramdown in BK.
"Basel Too, in this case, I think many people (like poor Gretchen) are asking why the banks don't reduce principal significantly. These researchers are pointing out it is more complicated than Gretchen thinks."
Unless you cramdown to 3 X income, what is the point. The borrower will just end up in default anyway. The only factors that allowed borrowers to get by on greater multiples was appreciating prices and full employment, and we have not seen a bottom in housing or a top in job loss, anywhere that I have seen. So, there really is no point in the cramdown exercise unless, at a minimum, there is an up-tick in house values or unemployment abates, in my opinion.
".......she need the bank to think she is still living here"
It seems everyone is conning someone. I thought the 70s were a period of serious "character challenges", but integrity has progressively deteriorated since then.
hhack: cramdown technically is the involuntary imposition of a chap11 plan over the objection of a dissenting class of creditors. the "cramdown" WRT to mortgages is actually "lien stripping."
One more point - All other secured lenders can be crammed-down in Ch11. Mortgages on principal residence are the only exception to the cram-down option. So the cramdown proposal was simply trying to extend the current treatment of secured loans to mortgages.
The bank part in Congress has spoken already - the cramdown legislation cannot be crammed-down against their wishes.
So all the discussions about merits of mortgage cramdowns are pure academic deliberations.
A PI came by to contact the borrower according to the new CA law last year to show the banks are trying everything they can to talk to the borrowers (apparently she stopped talking to them). I let them know we were sole tenants leasing the home and I told her I did so. I will not be party to any games being played.
bANK fAILURE (profile) wrote on Sat, 7/11/2009 - 6:01 pm OT but Im just gonna get it off my chest.
The reason CIT is not allowed to issue FDIC backed bonds to shore up the old Capital structure is due in large part to the neccesity to eliminate thelargest private market competition to GE Capital
I think that most including CR underestiminate the impact this will have. While trucking is now in the crapper, it might get worse....there are others, toooo, many others...JPM gave them 3B and cash burn has been interesting....
bANK fAILURE (profile) wrote on Sat, 7/11/2009 - 6:01 pm OT but Im just gonna get it off my chest.
The reason CIT is not allowed to issue FDIC backed bonds to shore up the old Capital structure is due in large part to the neccesity to eliminate thelargest private market competition to GE Capital
I think that most including CR underestiminate the impact this will have. While trucking is now in the crapper, it might get worse....there are others, toooo, many others...JPM gave them 3B and cash burn has been interesting....
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:01 pm
"Deflation... the thing that happens while we pray for re-inflation."
So we get a midget economy? Rather, I think, a dwarf.
To the dwarf, we are giants. So maybe it is WE who are the wrong size. We could fight a war over it, but only because both models function. If one stopped working, then we could make an educated guess.
The banks are letting people stay in the properties by not forclosing when they could / should. Modification attemps are taking 6 months or more, with no payments made and people in the property. Tenants are staying in properties after forclosure, rent free, with the blessing of the banks.
"To the dwarf, we are giants. So maybe it is WE who are the wrong size. We could fight a war over it, but only because both models function. If one stopped working, then we could make an educated guess.
RIF - midgets are scaled down but normally proportioned.
The banks are letting people stay in the properties by not forclosing when they could / should. Modification attemps are taking 6 months or more, with no payments made and people in the property. Tenants are staying in properties after forclosure, rent free, with the blessing of the banks."
I don't doubt it, josap. There's an old saying: Bad breath is better than no breath.
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria.
I wonder who will be living in those vacants if current owners, who can't afford their mortgages, will be asked to leave...
Fewer people today can afford those homes than at the time they were built.
That's why the mark-to-market part of the cramdown legislation made so much sense.
I personally know one ruthless defaulter. He has already received a mod on his 2nd, approved for mod on his 1st waiting on papers, has had $17,000 forgiven in student loans, and received a 4% interest rate and 5 year payout on credit card debt in exchange for closing his account.
The crisis is way beyond worrying about cramdowns, interest rates, refi and the possibility of redefault.
Financial institutions overleveraged and didn't have the reserves to cover bad loans/investments. The population has also overleveraged and social stability can't be maintained past a certain ratio. Keeping the growing numbers of citizens facing homelessness and hunger in their homes regardless of cause might be a necessity to keep the social fabric from ripping. Do whatever is needed because the repercussions outweigh the costs. Exactly like keeping the banks and credit markets working at all costs.
The entire economy has been nationalized. Time to think about what that means. Conversely I see cascade failure so I see little affect of any accepted solution.
Funny, I seem to remember a new CC bill just passed that the banks aren't too happy about. I also see the banks under tremendous political pressure to prevent foreclosures even though it is in their financial best interest to foreclose.
Thnx, Lothar, never tried them in a BBQ sauce.....will now though - might even experiment some...........BSR puts out a KILLER sweet relish every year.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:13 pm
"To the dwarf, we are giants. So maybe it is WE who are the wrong size. We could fight a war over it, but only because both models function. If one stopped working, then we could make an educated guess.
RIF - midgets are scaled down but normally proportioned.
Dwarfs otherwise.
There are tradeoffs in proportion that come into play requiring nonlinearities. We could not for instance take an elephant and double or halve its size and still have a viable creature. Gravity and other endogenous forces would act upon it differently, though they may be too miniscule to notice. Human beings would probably live longer and healthier lives if we ceased bipedal locomotion, as it places unnatural amounts of stress on our backs and hips. Gravity sucks Then again the financial universe was largely created in an effort to escape the actions of natural forces.
The crisis is way beyond worrying about cramdowns, interest rates, refi and the possibility of redefault.
Cramdowns, refis etc are not just about the money.
IMO, they are more about the national idea of the social contract and the national sense of the social justice.
BSR - pickles are a staple of a lot of Southern Q. I just accelerate the process (and need to add an actual pickle on top of the meat) by incorporating them into the sauce.
It's subtle, but I've gotten good results. I usually use kosher dills, though, for the bite of the vinegar to cut through the tomato sauce and other things (onions, garlic, Worcestershire, etc.).
There's a horrible fascination in watching the Titanic and the iceberg on a collision course.
Re that gentleman from Texas: The problem is moral and cultural. That's the reason for the bad practice and policy, and the prevailing Tragedy of the Commons. The gent from Texas was only living it out.
When Pres. Bush said that Wall Street got drunk, he was referring to the captain and the officers of the watch on the Titanic.
"The banks are letting people stay in the properties by not foreclosing when they could / should. Modification attemps are taking 6 months or more, with no payments made and people in the property."
And that make the problem even worse as the underlying asset continues to depreciate and underwater homeowners look at the prospect of up to 3 years of living rent free if they default.
An aggressive foreclosure policy would have served the USA far better as it would have allowed the MBS to recoup greater recovery and led to a bottom and potential recovery much more quickly.
An acquaintance of mine works through HUD to modify loans on behalf of struggling homeowners. He told of one instance where he got a six figure reduction in principal for a lady. After duly thanking him, for weeks afterward she hounded him to try to get him to renegotiate a $1000+ water bill she hadn't paid in a year or so as well.
I seem to remember a new CC bill just passed that the banks aren't too happy about.
That's a valid point. That said, I wonder how much profit was generated to JPM, BofA or Citi by their mortage business vs. their credit card business (on average, through the credit cycle).
Cramdowns, refis etc are not just about the money.
IMO, they are more about the national idea of the social contract and the national sense of the social justice.
Funny how the idea of social justice varies differently from those who benefit by it than those who have to pay for it.
Outside of social security and medicare I never thought there was this great social contract in America. I always thought it was a place you came and worked hard. It was a place you could take risks and reap the rewards or the pain of your actions.
MrM (profile) wrote on Sat, 7/11/2009 - 6:15 pm
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria. - RD
I wonder who will be living in those vacants if current owners, who can't afford their mortgages, will be asked to leave...
Fewer people today can afford those homes than at the time they were built.
That's why the mark-to-market part of the cramdown legislation made so much sense.
The implication in your first comment is that these people truly cannot afford these same houses at current prices. I agree. This is why we need to trust the systems we have in place already. Foreclose and bk and move on. Without the market speaking through the foreclosure process mark-to-market will continue to be a sham. Think about it. Go to Redfin. Look at REO listings. How many are on the market 10 days and then see 20-30% markdowns? That first number is the mark-to-market the bank believes. The second is often proving too high as well.
/Ring ring... Honey can you get that? It'll be the future calling. Yeah, earlier. Nah, but said they'd call back when we were more prepared. No, how am I supposed to I . .. just pick up the phone willya?"
"An aggressive foreclosure policy would have served the USA far better as it would have allowed the MBS to recoup greater recovery and led to a bottom and potential recovery much more quickly."
Outside of social security and medicare I never thought there was this great social contract in America. I always thought it was a place you came and worked hard. It was a place you could take risks and reap the rewards or the pain of your actions.
Now please apply these concepts to the bank bailout and then look at the bank behavior with respect to California IOUs or mortgage cramdown legislation, not to mention near-record bonuses. The concept of "being equal under law" does not look that universal, does it?
Effective Demand (homepage, profile) wrote (in reply to...) on Sat, 7/11/2009 - 8:25 pm
Outside of social security and medicare I never thought there was this great social contract in America. I always thought it was a place you came and worked hard. It was a place you could take risks and reap the rewards or the pain of your actions.
As a student in modern political philosophy class (the only political science course I ever took), I basically said the social contract was nonexistent and served only to conceal the non-consensual nature of the use of force by government to seize private property and our inability to refuse the deal.
The alternative being banks still broke, defaulters living rent free, housing still unaffordable, a growing unemployed/homeless class, and a pattern of lying about those facts?
"As a student in modern political philosophy class (the only political science course I ever took), I basically said the social contract was nonexistent and a served only to conceal the non-consensual nature of the use of force by government to seize private property and our inability to refuse the deal."
RIF, that can't be entirely true, or our society would be a Hobbesian field of battle, avoiding collapse only by the exercise of monarchical power. No, the cynical abusers live side by side with those who serve willingly because service to others is still alive.
Firemen don't rush into burning buildings for the pay.
Ironic given that the banks have no problem being on the receiving end of a bailout but are unwilling to issue bailouts to consumers.
While I was NEVER in favor of bailing out the banks, I was sympathetic towards the Rick Sentiii rant against bailing out consumers.
I am no longer sympathetic towards that rant. My view is now, given that the government was hell-bent to do something (and doing
something to the tune of nearly a Trillion dollars), I think they would have been better off buying almost every foreclosed home, offering
the foreclosee rent-to-own terms thereby propping up home prices.
Of course, this ignores the fact that the housing bubble needed to be burst. It sucks for the folks getting foreclosed and it sucks for
the folks losing their jobs. But capitalism is all about creative destruction (or is it destructive creation?) and this-too-will-pass. And
until some equillibrium is reached, the economy can't move forward.
"The alternative being banks still broke, defaulters living rent free, housing still unaffordable, a growing unemployed/homeless class, and a pattern of lying about those facts?"
Current business models will not allow a $9. 'widget' manufactured here to retail for $19.95 - if they can be manufactured in China for 90-cents, then it is feasible.
The implication in your first comment is that these people truly cannot afford these same houses at current prices. I agree. This is why we need to trust the systems we have in place already. Foreclose and bk and move on.
Rob, you probably meant to say "move out" . It is quite likely that after the foreclosure and the bankruptcy, the former homeowner will end up renting something similar to his old house but having gone through a very painful phase with lots of negative consequences for jobs, schools, etc. I am thinking of how to avoid that. When foreclosures are epidemic, it is better to inoculate rather than treat the disease.
I agree that realistic mark-to-market is key, and without it cramdowns are not helping much.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:35 pm
"As a student in modern political philosophy class (the only political science course I ever took), I basically said the social contract was nonexistent and a served only to conceal the non-consensual nature of the use of force by government to seize private property and our inability to refuse the deal."
RIF, that can't be entirely true, or our society would be a Hobbesian field of battle, avoiding collapse only by the exercise of monarchical power. No, the cynical abusers live side by side with those who serve willingly because service to others is still alive.
Firemen don't rush into burning buildings for the pay.
I was nineteen. I had a lot of growing up to do. However, I did very well in the class and at the conclusion, the professor thanked me for being there.
There was a lot of pressure from CDS arrangements to have GM and Chrysler go through bankruptcy. Could there be such an arrangement here -- some kind of CDS hedge taken out by the holders of the loans, which covers them (at some level) in the event of foreclosure? If the coverage were full, then they would have no incentive to avoid foreclosure.
CDS deals are not public, so could this not be going on?
The alternative being banks still broke, defaulters living rent free, housing still unaffordable, a growing unemployed/homeless class, and a pattern of lying about those facts?
Watching many of our leaders on TV now smacks of Baghdad Bob, who until the moment Baghdad was overrun, insisted that the infidels were drowning in their own blood. The facts are in plain view, but are relentlessly spun by politicos of all stripes until there is no more truth. The banks are insolvent, the banks are solvent.
"blackhalo...when you throw down like that you gotta throw in globalization and beggar-thy-neighbor fiatscos. "
Well exactly as BSR points out in the post above yours, USAians are in competition with workers in China and we can not compete as long as our costs of living exceed the income of the wealthiest of Chinese workers. I have less of a problem with globalization than I do with TPTB who want to pretend that universal health care and reduced costs of living are not required to be competitive in that environment.
It does seem to me that those at the top of the pyramid, behave as if they are oblivious to the effects of chipping away at the lower levels.
Stalin evicted whole peoples and transported them to Central Asia.
You can't do that sort of thing here, not even if the law permits it, not even to a class of individuals. For one thing, we still have elections.
Umm, internment of Japanese Americans? (realizing, of course, the conditions in American camps were vastly different than conditions in Soviet camps)
"I was nineteen. I had a lot of growing up to do. However, I did very well in the class and at the conclusion, the professor thanked me for being there."
RIF, I know what you mean, but a society without a social contract is a society with no future, and hardly any present.
Yep they work 40 hours, but some of those shifts they sleep through, and they
usually have a second jobs of some sort. The guy who rebuilt my house after
Andrew was a fireman and part of the reason I chose him was that he wouldn't
disappear with my money and lose his pension.
Unlike cops, they have to exercise regularly as part of the job, and they
are usually nice looking, not fat.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:43 pm
RIF, I know what you mean, but a society without a social contract is a society with no future, and hardly any present.
Yes. Intellectually my position made a great deal of sense. But it led to a dead world. The social contract is more of a mythopoeic technology I think.
Just wait. Except for JJ's special sauce bonds- they will always pay back 1%.
My personal investing strategy involves paying off most of my outstanding debt, evening up the assets to darn near nothing, and then doing the ruthless default.
I am more than willing to eventually move when they get around to doing an eviction, after we do a couple of years of stalling.
Good luck to recovering more than 40-45% at firesale boys, an interest mod would have cost 10-15%.
My landlord is a probation officer. A large portion of the reason I rent from him is that all correctional personnel have to maintain decent credit or it is seen as leaving them open for bribes. In all honesty, he's the nicest correctional or emergency worker I've ever met.
No system is perfect, but some are better than others at certain things.
Our systems seem to have combined some of the worst aspects of oligarchy and populism.
There are many redeeming features in our systems, of course.
But when banksters can buy politicians and certain classes of voters are able to vote themselves incomes and benefits at the expense of the productive class, you're going to have conflict.
The good news is that our system is probably resilient enough to sort this out without a revolution or a civil war.
"Umm, internment of Japanese Americans? (realizing, of course, the conditions in American camps were vastly different than conditions in Soviet camps)"
Yes, that too. I'm not defending that.
But the US has real elections and a not completely tamed press. Things that were possible in the old SU are not possible here.
To foreclose on and evict a relatively small number of people is possible. We see it happen all the time. But if the number is too large, it becomes a nasty social problem. If you add increasing unemployment and underemployment to the mix you've got a really foul batter for your social cake.
Ive taken a hankering to reading the European Trib, but I cant keep to the Fen Causway. Course I monitor the comments here like some sort of freeper...just put me on ignore....its better for everyone.
sm_landlord (profile) wrote (in reply to...) on Sat, 7/11/2009 - 8:48 pm
No system is perfect, but some are better than others at certain things.
Our systems seem to have combined some of the worst aspects of oligarchy and populism.
Yes but I do not think it is a recent phenomenon. I think we just have much better visibility into the process now, and that visibility is forcing us to acknowledge just how awful the system really is.
July 21st at 10pm EST on Discovery a new show called "The Colony" is going to air. The premise is some cataclysmic event has occured and a small group of people are randomly thrown together to try and start anew.
Sounds intereseting but hopefully its not a sign of things to come...
"Yes but I do not think it is a recent phenomenon. I think we just have much better visibility into the process now, and that visibility is forcing us to acknowledge just how awful the system really is."
Agreed. There is more visibility, and of course this commentariat is paying more attention than your typical J6P.
There is also the matter of scale. We are a much bigger country than we were even 100 years ago. The problems, complexity, and consequences grow with that scale.
CR, the big hole is here:
"And the Fed economists respond:
We argue for a very mundane explanation: lenders expect to recover more from foreclosure than from a modified loan. This may seem surprising, given the large losses lenders typically incur in foreclosure, which include both the difference between the value of the loan and the collateral, and the substantial legal expenses associated with the conveyance. This is fatally flawed - the massive increase in foreclosures is driving further declines in the overall market
The problem is that renegotiation exposes lenders to two types of risks that can dramatically increase its cost. The first is what we will call “self-cure” risk. As we mentioned above, more than 30 percent of seriously delinquent borrowers “cure” without receiving a modification; if taken at face value, this means that, in expectation, 30 percent of the money spent on a given modification is wasted. Old data- the self cure is falling fast as mortgage descend into seriously under water- you had research that showed this up a couple of weeks ago.
The second cost comes from borrowers who redefault [30 and 45 percent]; our results show that a large fraction of borrowers who receive modifications end up back in serious delinquency within six months. For them, the lender has simply postponed foreclosure; in a world with rapidly falling house prices, the lender will now recover even less in foreclosure. In addition, a borrower who faces a high likelihood of eventually losing the home will do little or nothing to maintain the house or may even contribute to its deterioration, again reducing the expected recovery by the lender. Again BS- lenders are now taking a year to foreclose or more- how much deterioration occurs with abandonment by the borrower? This is just nonsense.
If this is the state of Fed Reserve Research, they need to fire some folks and get some new blood.
"To foreclose on and evict a relatively small number of people is possible. We see it happen all the time. But if the number is too large, it becomes a nasty social problem."
I have a hard time feeling sympathy for those who bought more house than they can afford, in the greedy hope that they could get by on the appreciation. To me it is no different than those who traded on margin during the NAZ bubble, in the greedy hope they could maximize gains.
Government is the social contract. By electing a few to represent the many you give them the power to make decisions and implement rules for the benefit(supposed) of the many. The perversion of self interest over civic duty being the primary reason to seek office and maintain the office is at the heart of the failure in our country. The consequences have arrived but it is the majority paying the tab. Since the collective will pay regardless how about letting our sense of humanitarianism instead of a profit motive guide us into the future?
I need my neighbors to stay in their homes. Cast a large portion of our country into a diaspora and we all reap a bitter harvest.
Umm it will be true I think that the first big repair will mean that the
borrower will leave. But the little repairs and maintenance will be done
and this isn't nothing.
"pavel, our cultural deification of science has led to a profound lack of respect for the genuine value of myth in generating alternatives."
RIF, C.S. Lewis said that Tolkien, and a friend whose name I can't recall, converted him by convincing him that Christianity was a myth that happened to be true.
By electing a few to represent the many you give them the power to make decisions and implement rules for the benefit(supposed) of the many.
Unfortunately, lobbying is much more effective than casting votes. That is an inherent problem with representative democracies in large countries.
Yes. But lobbying is also a much more efficient and more visible form of the old system of payoffs and meetings in dark rooms with big suitcases, which is itself much more efficient, visible, and humane than assasinations, blackmail and torture. Make lobbying illegal and lobbying will still exist.
..... When we are to choose between two candidates, both of which are worthless (the well-worn "lesser of two evils" joke), knowing the 2-parties involved have hand-picked the best-groomed and fully sanitized candidate that has immense revenue collection talents but no other marketable skill-sets to speak of, including integrity, responsibility, and character, things are not the way things were envisioned 200+ years ago. The politicians were NOT meant to spend careers in DC. They were to serve a SHORT term and go back to their farm or businesses.
Also, lobbyists should be given appointment times with our reps only with due public notification and bugging of said meeting. If they can do it - we can too.
I wish just once that a Jesse Ventura type would run independently for President - being perfectly honest about why - because he's the lesser crook than the other - I'd vote for him/her.
Do you really think we're headed towards that in the US? I hope not.
No, I do not think that way.
But I often remind myself of typical beliefs of educated Europeans at the turn of the 20th century that there would be no more wars because of extensive trade connections, liberal cross-border movements of capital and people, general growth of education and social tolerance. How wrong they were...
HOA probably should have had some income or LTV requirements. Of course most of them were probably pretty pleased by the ever increasing home values and might not have wanted to cut that off. Even better would have been if your state had some basic lending regulation, like most do, other than Florida, California, Nevada and Arizona. The problem for those states and the federal gov now, is that they are still trying to re-inflate and sensible regulation would put an end to it.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 9:04 pm
RIF, C.S. Lewis said that Tolkien, and a friend whose name I can't recall, converted him by convincing him that Christianity was a myth that happened to be true.
As a culture, we have regressed to astrolatry. The stars again rule over us. Christianity was very much ahead of its time.
Yes. But lobbying is also a much more efficient and more visible form of the old system of payoffs and meetings in dark rooms with big suitcases, which is itself much more efficient, visible, and humane than assassinations, blackmail and torture. Make lobbying illegal and lobbying will still exist.
Large democracies (say, more than 100 Million) are hard to govern effectively.
Russia, China - not democracy
India - a mess of a democracy
USA - the path of this country since the infamous 2000 elections leaves too many question marks about the nature of its government institutions
Brazil - I do not really know but looking at the list above, my prior view would be skeptical
PS. I am not trying to advocate for break-up of the US a la Orlov - jus' sayin'
Actually, I had a bond portfolio, I'm 100% liquid now during this last rally. Someone putting the puzzle together can figure out why.
My personal investing strategy involves paying off most of my outstanding debt, evening up the assets to darn near nothing, and then doing the ruthless default.
I am more than willing to eventually move when they get around to doing an eviction, after we do a couple of years of stalling.
We argue for a very mundane explanation: lenders expect to recover more from foreclosure than from a modified loan. This may seem surprising, given the large losses lenders typically incur in foreclosure, which include both the difference between the value of the loan and the collateral, and the substantial legal expenses associated with the conveyance. This is fatally flawed - the massive increase in foreclosures is driving further declines in the overall market
You're not thinking like a banker. If you foreclose now, sell to someone else before prices bottom and get 20% down from the new purchaser, you have just shifted potential future losses from the banking system to some poor fool who couldn't wait until prices bottomed.
Effective Demand - I actually bought a cart load of AAA paper in Jan/Feb. some where the yield is 13.2% and I get 3.2 times in ten years. I think things will drag on for awhile making some paper okay to hold.
Effective Demand - I actually bought a cart load of AAA paper in Jan/Feb. some where the yield is 13.2% and I get 3.2 times in ten years. I think things will drag on for awhile making some paper okay to hold.
(in dubious honor of Sears selling xmas stuff already...)
Just hear those slay bells jingling,
Ring ting tingling too
Come on, it’s loanly weather
For a slay ride together with you
Outside of people’s stocks falling
And friends are calling “you too?”,
Come on, it’s loanly weather
For a slay ride together with you.
Giddy yap, giddy yap, giddy yap,
Let’s go, Let’s look at how much we’ve blown,
We’re riding in a wonderland of snow-job.
Giddy yap, giddy yap, giddy yap,
It’s grand, holding nothing in your hand,
We’re gliding along with nothing left but a song
Of a wintry financial wasteland
Target stores have summer goods on final clearance. The current seasonal items are back-to-school. I'm thinking the supply chain is drying up for some classes of products.
Counterpointer... Marla is in the zone now. I could give an eff what anyone at DB is doing now, authors or readers. Though I still think BL must be ridiculously hot somehow. Maybe she's just that good of a writer...
Effective Demand and Rob Dawg and a few others have already said what I think about cramdowns and loan mods better than I could. But I would like to point out to all the people here saying that people who committed to pay more for homes than they could afford, or than they would actually pay, don't deserve to live in homes more than all the renters out there who decided not to buy the same homes because they thought paying the asking price was irresponsible. For every 100,000 people who can't pay their mortgages, there are 100,000 renters who can do so responsibly, but are not being given the chance because prices are still too high. And they are still too high because the homes are being kept off the market. It makes no sense. A chunk of current owners, the ones who are the least responsible/capable financially, need to switch places with a chunk of rentere - the ones who are the most financially capable and responsible. This is not that easy, but it's also not that hard, unless we make it hard by drawing it out.
"I need my neighbors to stay in their homes. Cast a large portion of our country into a diaspora and we all reap a bitter harvest."
I am a renter. So I am "cast into a diaspora"? And all of your neighbors, even the ones who can't or won't repay the loans they took to pay for their houses, deserve to stay in those homes more than I do? And it would be unfair to exchange places with them? I have to scratch my head at the thinking going on here. As someone said, some people want free ponies for everyone.... well, for the people they know and like.
Mortgage contracts taken out by leveraged buyers are a form of an option contract with the so called homeowner owning the mortgage debt and the option to buy the property outright at some time in the future or sell the property before the contract period ends. We all understand this is the basis for citizens buying property using leveraged mortgaged options.
The reality is that unless the property increases in value rather quickly the option buyers incentive is always to walk unless they want to full fill the option contract for whatever stated time, 30,15 or 5 years. In order for a leveraged mortgage market to function without significant default, RE values must always increase and rapidly.
Blackalo point is central to the problem at hand, we have deflating RE values which destroy the value of our mortgage financing structure which is focused on leveraged buyers using option mortgage contracts to buy/sell RE they do not own. No amount of financial innovation low down payments,interest only,arm, 30 year, 40 to 100 year financing can cure the problem since RE must always go up for this system to survive.
The alternative is cash system or private financing.
Based on my experience in losing my home of seven years and experiencing in the last three years the legal and regulatory institutional disregard for the federal mortgage loan borrower, Here is a very simple solution. It is readily apparent that the average homeowner cannot afford an attorney with a real estate background, the banking knowledge and federal regulatory experience to protect their rights and give them a voice in confronting and negotiating with their federal mortgage holder to prevent their residential property foreclosure.
I have based my solution on what the Office of Thrift Supervision stated in writing (December 21, 20061) in response my complaints against AmTrust Bank, “There are no applicable federal consumer banking laws and regulations”. From my viewpoint that is translated that the borrower who has been harmed by a federal thrift bank has no rights and no voice to contest, object or legally question the issues of the lender bank within the same regulatory system in which this bank lends mortgage money.
The answer to foreclosure actually is very straight forward - include the federal mortgage borrower in the process. Let the borrower become an equal participant in the solution of a problem through neutral arbitration with their federally chartered bank who legally owns and holds their mortgage.
The Solution is like the Smoke Detector in a house. When there is a fire the smoke detector goes off. My smoke detector is the borrower. By allowing the borrower to file a complaint to a third party within the regulatory system that has authority to arbitrate, it alerts the regulator who supervises the bank that there is a consumer or operating problem. From there the regulator can determine what kind of red flag has been raised, how serious the problem is, and if it requires more attention.
To create a transparent federal mortgage loan transaction and fair equity, and to insure ethical conduct of the parties throughout the life of a mortgage loan, give equal rights to the parties of equal weight by engaging a neutral designated arbitrator to help problem solve a fair and equitable solution to the issues raised by either party.
Establish rights for a mortgage borrower to question, object or contest what they consider unethical lending behavior on the part of the federally chartered savings bank within the same regulatory system in which the bank lends mortgage money. This would result in productive and effective solutions to problems that normally would turn into a lawsuit or foreclosure.
How much of an impact does that 180BN to AIG have in backing up the Credit Default Swaps
that are insurance for the mortgage holders when people do default?
Seems to me that as long as the insurance pays off, there would be little incentive for
the mortgage holder to take steps to prevent default.
Oh, and MBS' are not inherently evil.
It was the intentionally falsely rated MBS' that became evil.
Banks would stuff a few good mortgages in with a buncha ALT-A, Liar Loans, Self reported zero down
and exploring mortgages, I mean, banks would bundle a tranche of mortgages intended to explode
on the borrower, place that tranche on the securities market, call their buddy over at Moody's and buy themselves
a fancy new Triple A rating for that tranche, and then sell, sell, sell.....
They'd then peddle the original mortgage to Fanny or so some other sucker, buy insurance on the note from AIG
and made money 3 different ways on mortgages that were STRUCTURED TO EXPLODE....
It really was/is a very nifty shell game.
And all entirely legal too, because, well, the banks and their buddies in the US senate made it so.....
Bailing out AIG was the key to it all. let the taxpayer pay off the insurance claim when a loan defaults
and there's no longer any incentive to keep that loan from defaulting.
Exactly why we need cramdowns ...
cramdown would really test the limits of an "implicit" guarantee.
Free homes for free men! Women and children included, of course.
What is a cramdown? I am sorry but I just can't figure it out.
With cramdowns the loss can be attributed to a third party legally also helping
securitized mortgages ...
But the banks, thanks to the change in accounting rules, can postpone true valuations
while they siphon off hundreds of billions from the economy to buffer their balance sheets
in a process that will undermine the economy for years and years to come ...
[he was perplexed that lenders and their representatives were resisting reducing principal ]
I would be even more perplexed at why these loans were made in the first place.
The fact that a borrower has already established a willingness to default might make it a little tough to justify giving them any further rope. Why bother. Foreclose and get it over with - move along...
Lenders behaving rationally? When did that change?
Was it rational to make zero-down liar loans?
No doubt someone could argue that it did.
Basel Too
cramdown would really test the limits of an "implicit" guarantee.
~~~~
If I am not mistaken most states let one walk away from 1st mortgages ...
mmckinl:
talking more along the lines of FRE/FNM
Wasn't the efficient markets hypothesis at least partially discredited by the observation that humans are not rational actors?
if human beings were rational economic actors, then there would be very little need for advertising.
What no "cramdown" in the Glossary?
They know moral hazard, and play it like a fiddle. But you cannot surrender the instrument to just anybody.
Interesting the bi-modal nature of borrowers. The 30 who toil, for whom forebearance is "wasted", and the cohort who bail, even after help. That sounds kinda likely.
The hearts and minds of the remaining third is what's in play, I suppose.
Guess that's "tri-modal".
Foreclosures can take a long time. Maybe the rational explanation (or rationalization) is that by avoiding cramdowns and other adjustments by sticking with foreclosure as a strategy, the banks maintain control of the timing. No one is going to ask a bank to hurry up and foreclose, but there would certainly be pressure for fast cramdowns once the ball got rolling.
Basel Too, in this case, I think many people (like poor Gretchen) are asking why the banks don't reduce principal significantly. These researchers are pointing out it is more complicated than Gretchen thinks.
best wishes
From: Your Bank
To: Our Best Borrowers
RE: Principal Reductions
Dear Good Borrower,
You may have seen recently in the news or noticed the effect on our stock from our recent efforts to lower the costs of mortgages to our worst customers. Rest assured numerous studies indicate this is best for the bank. It is vital that you continue to stay a good borrower in these difficult times. The alternative is... oh wait. Let us say this another way.
Oh screw it. You know what's going on. That's why we can't lower anybodies principal balances. Suck it up cupcake.
Regards,
Your Bank
Cram Downs ~ wiki
While typically used in a corporate context, the phrase has gained currency in a personal context the financial crisis of 2007-2009.
Under current United States law, bankruptcy courts are not allowed to perform cram downs (i.e., reduce the principal amount or change the interest rate or other terms) on mortgages of bankruptcy filers' primary residences. As a potential solution to the subprime mortgage crisis, legislators and consumer advocates have advanced a proposal to allow cram downs on these loans, and legislation to that effect was introduced for potential inclusion in the Emergency Economic Stabilization Act of 2008.[2]
However, the financial industry strongly voiced opposition to such a measure, claiming that it would create additional uncertainty as to the value of mortgage loans (and by extension, the collateralized debt obligations into which they are bundled). While the provision ultimately was not included in the bill passed into law, the concept still has advocates and new legislation allowing for first-mortgage cram downs may appear in the future.
Bingissimo. Precedent effect and incentives would set off a chain reaction and formally blow what remains of the outstanding asshats on the balance sheet. Bye bye bondholders, share value, credit lines, brand value and goodwill, solvency... Knock on to other asshat classes and securities where the underlying asset is less than the supposed collateral.
Someone needs to show the learned Alan White the extend and pretend clip.
C
Any reasonable Net Present Value test for modification over foreclosure would have to take in account the cash flow times a discount, which would be the redefault risk and the self-cure risk.
This discount would likely make few modifications make sense. Barrons had a graphic showing the redefault rates after 10 months for modifications was between 30-80%... if we take that lower number and say that is the lifetime risk, you'd have to discount your cash flows by 30%. I can't imagine many cases where the NPV makes modification a more attractive option. The fact that servicers are doing so many and clearly holding off on a massive amount of foreclosures is showing they are trying, at tremendous cost to the MBS investor. But it is really just delaying the inevitable.
Edit: here is the redefault graphic from barrons posted over at the big picture: How Often Do Loan Mods Fail ? | The Big Picture
They are just now figuring this out!
And yes it is complicated, so is a modification, so is a forclosure.
Get over it and get on with it.
To: My Fine Bank
From: A Good Borrower
Re: Your latest bright idea
You may have noticed the latest tax increases, Treasury debt load, and monetization that has been undertaken to bail your sorry a** out of BK.
I want my cramdown, or I walk!
Regards,
An Angry (formerly good) Borrower
"Basel Too, in this case, I think many people (like poor Gretchen) are asking why the banks don't reduce principal significantly."
~~~~
Or why they fought so hard against them and why Obama didn't fight for them ...
Could it be the accounting rule changes ?
From Naked Capitalism:
Nocera then tells us why servicers are not set up to do mods and gets to the punch line:
In truth, servicers and banks don’t yet have powerful enough incentives to do large-scale mortgage modifications. The servicers and modification experts I spoke to this week all agreed that the $1,000-per-modification being dangled by the government was pretty meaningless, given the amount of time, money and effort they require.
So now that the carrot hasn’t worked especially well, the government is taking out the stick. That letter the administration sent out on Thursday did not mince words. It demanded that the servicers begin “adding more staff than previous planned, expanding call centers beyond their current size, providing an escalation path for borrowers dissatisfied with the service they have received, bolstering training of representatives, developing extra online tools, and sending out additional mailings to borrowers who may be eligible for the program.”
And the laggards? Starting next month, the government plans to begin publishing data showing which servicers are doing well and which are doing poorly,
Geithner to Scold Mortgage Servicers Later This Month « naked capitalism
It's toooo laaaaate for small cramdowns.
What should be care what lenders think?
They have proven beyond that shadow of a doubt that they know nothing.
I've actually worked on a principal reduction ~25%. Of course, the loan was owned by a local bank, and the customer had been a loyal customer for many years and had familial roots in the community. So in theory, it can be done. Of course, when the loan is securitized, principal reductions are going to be the exceptions (i.e. Trust Indenture Act). oh why can't we get a better press corps?
interesting OT tidbit about U. of California furloughs
In response to urging from university employees, the furloughs are structured so that people who earn more take bigger pay cuts. Those earning less than $40,000 will have 11 furlough days, equivalent to a 4 percent pay cut, while those earning more than $240,000 will have 26 furlough days, which is about a 10 percent pay cut. Mr. Yudof said he expected that faculty members would not take furloughs on their teaching days.
So, it amounts to a progressive tax on UC employees. Also, which faculty member is gonna be the ass that would actually not show up for classes?
The redefault statistic isn't surprising. A very small slice of mods involve principal reduction.
That aside, I do at last see how they're pinned. Your third reason, CR, must be the unspoken clincher - they surely don't like to discuss it, but I have no doubt it's operative.
Dodd, Frank Do 180 Degree Turn on Mark to Market
WASHINGTON - Today Senate Banking Committee Chairman Chris Dodd (D-CT) and House Financial Services Chairman Barney Frank (D-MA) sent a letter to the heads of the bank regulatory agencies asking them to address whether banks are inflating the value of 2nd mortgages on their balance sheets, thereby discouraging proactive efforts to modify and restructure mortgage loans and crippling programs designed to prevent foreclosures.
Dodd, Frank Do 180 Degree Turn on Mark to Market « naked capitalism
The employers and the states want near 90-100% output for 70-80% pay. A good deal for them. This is will turn into permanent pay structures over time. Second-world, here comes the USA.
good articles: Blogger: Blog not found
watching $SPX $ES_F $SPY $FAZ $FAS Monday we probably rally. buy? $GOOG $AAPL $BAC ? $GS maybe?
But here is what won't make any newspaper. Clearly the servicers and investors are doing a lot right now. They are doing things that make little business sense due to the tremendous political pressure they face. What is their reward? They get Geitner calling them in and telling them they aren't doing enough! The administration doesn't understand the issue very well, it would be better if they designed a post foreclosure strategy to turn the borrowers into buyers ASAP. A FHA program with higher premiums which allows a buyers to buy the day after foreclosure if certain conditions are met.
Its a much better plan than keeping people in homes they cant afford. It allows the market mechanisms to take over instead of the highly engineered market we have now which bears no semblance to reality.
In South Florida, all that stuff has already happened.
A realtor I know, who has a mtg broker license also, sez
her clients call her and she has to say she can't do
anything for them.
Her latest statement were that there were going to be more and
more ruthless defaults--why pay your mtg,even if you can,
if your house is hopelessly underwater. A medium sized
cramdown might deter these people from walking.
In short this analysis, tho it sounds ok, is so very
much year and a half ago thinking.
30% are paying on their own?? Really? As of when?
Yves Smith ~ Naked Capitalism
"So I wonder if this is again grandstanding, to make it abundantly clear that the Administration is washing its hands of the problem and fobbing full responsibility for the problem back on the banks.
The best solution was to have had judges be able to modify loans in bankruptcy. But Team Obama does not throw its weight behind many of the things it in theory favors (it backs down and calls it "compromise:" at the drop of a hat) and did not have BK mods as high on its list of priorities."
Here I am standing out in a frickin' cornfield again describing how the lights came down out of the sky and swallowed my cow...
From my own, personal, non-professional, uneducated, layman's understanding, if we're talking about securitized notes that are being FC'd - and the vast majority of them are these days - the note holders have already covered the outstanding balance on the note by the time they are foreclosing!!!
"Note" insurance covers the trusts. When a note becomes "non-performing" a claim is put in to cover the note. Therefore, the note holder doesn't need to dump a property ASAP because they've already covered 100% of the loss via the insurance. Any money seen via the sale of the physical property is simply GRAVY . In fact, if I'm correct in my own suspicions, a note holder could potentially recover upwards of ^x the value of a note ($100,000.00 note x6 = $600k) if the conditions are right and one or two people are asleep at the switch - which we know NEVER happens in the industry.
I'm being lazy tonight... I attempted to go through this over on CreditSlips awhile ago... A Further Thought on Securitization Regulation - Credit Slips
Someone please prove to me that I'm wrong so I can stop believing this myself. So far, no one has been able to.
Occam's razor is in effect here. Lenders don't modify because they understand that they lose more money doing this, all things considered.
another reason that pols don't want to allow cramdown at this point, especially if the borrower could pay, is that BK will wipe away all dischargeable debts.
So not only is the borrower cramming down the house, but also the car. Also, say good bye to the credit cards debts, any back taxes, etc. Most people won't file BK over all the other stuff, but throw in a $100K+ cramdown carrot, then the efficient breach gets a bit more profitable for the debtor.
You should care about the investors money if you ever hope to have people invest in MBS again and keep rates low.
Unless we plan on having the Federal Reserve to print money to buy mortgages forever and the US taxpayer to back every mortgage. You have to care about the MBS investor, people are treating them like dirt but will be crying when they see they got the shaft and stop investing in MBS.
iceman, I would like to believe this, but in reality they understand
nothing.
In fact, there is no "they".
"Dodd, Frank Do 180 Degree Turn on Mark to Market"
[tinker, tinker, tinker] Whoosh!
[tinker, tinker, tinker] Crash!
[tinker, tinker, tinker] BOOOM!!!
Dodd and Frank are children loose in a fireworks factory.
Mortgage Backed Securities were such a good idea.
. . . . . not!
Effective Demand
Who needs MBS investors ?
FRE and FNM were originally not for profit and could be again ...
with gov money ...
These days, Iceman, "lenders" pretty much don't modify ...period. The servicers are the ones that handle the modifications... And they're not doing it either.... Despite the fact that the majority of the PSAs stipulate that the servicers get to keep modification fees as "additional servicing compensation". Of course, they're also receiving up to an additional $4500.00 if they DO perform a mod perone of the wonderful new programs bestowed upon us by the new administration....
Joe Goodpay: Hey, Neighbor Bob! How's it going?
Neighbor Bob: Pretty good. Just found out our bank lopped sixty large off our mortgage balance. Seems they're nervous about us maybe trying to walk.
Joe Goodpay: Ya don't say? Why would they think that?
Neighbor Bob: Probably 'cause we haven't made a payment since last October.
Joe Goodpay: Wow. Sixty grand, huh?
Neighbor Bob: Yep. Credit's dinged, sure, but I reckon we can deal with that. Free money's free money.
Joe Goodpay: Right. Well, see you later, Bob. Gotta catch the wife before she writes that next mortgage check!
Well, mmck, they certainly aren't profitable now!
Time for an Orwell quote:
""If you want a vision of the future, imagine a boot stamping on a human face - forever.""
so a cramdown or any change would change amount of loan and mess up cds,cdos?
cramdowns do the most damage to the Securitization market.
the more the cramdown, the less the security.
Goodpay and neighbor.
Already done and over with in South Florida. Except
no principal reduction, only walking.
Goodpay would probably get into the spirit of the
thing anyway, unless he's within sight of the waterline,
from below.
Well i'm just one person but I can imagine there are others like me that when they go through the bond portion of their portfiolio they make sure there is as close to zero MBS in it as possible. Why invest in people who won't pay you back and who are backed by politicians willing to break contracts to let them do it and keep the house. Its affected my personal investing strategy, I can't imagine it hasn't done the same for the big boys as well.
"the more the cramdown, the less the security."
security - I do not think that word means.....
lawyerliz
Well, mmck, they certainly aren't profitable now!
~~~~
They were doing great before they were privatized ...
Now under orders they have to buy billions of dodgy MBS
to support the banksters ...
Thank you so much for your explanation of cam down.
feel free to clean up my 'cramdown' glossary entry, anyone...
the syntax is a bit goofy, and it obviously needs the proper does of snark.
Effective, it's too late. In fact for too many it was
too late the instant the ink was dry on the mtg from
signing; certainly too late before the securitization
electrons started bouncing around.
bANK fAILURE
cramdowns do the most damage to the Securitization market.
the more the cramdown, the less the security.
~~~~
LOL
Bankster Fraud does the most damage to the securities markets ...
The does of snark.
Are they married to the stags of snark?
Poor old securitization market.
C
Like I said, unless you plan for all the mortgages to be backed by the US taxpayer.. for it to be a completely socialized industry you want people investing in MBS.
It creates greater liquidity and lower rates.
Those evil MBS investors will go away, they will be wished away to the cornfield. And then people will wonder why rates are high and their taxes are higher.
I will never invest in MBS, government backed or otherwise. The politicians have clearly shown that it is the investor who is the problem not the borrower. I'll take my ball and go home and let someone else play.
hhack: cramdown technically is the involuntary imposition of a chap11 plan over the objection of a dissenting class of creditors. the "cramdown" WRT to mortgages is actually "lien stripping."
"Time for an Orwell quote:
""If you want a vision of the future, imagine a boot stamping on a human face - forever.""'
They've got you covered:
Yahoo! 404 - Page Not Found
so its better to foreclose because loan doesnt change nor do cds,cdos?
"before the securitization electrons started bouncing around"
in many ways the economy is like a baby boomer going cold turkey from a cocktail of testosterone, SRIs, opiates and cocaine take every few hours since the mid 80s.
This is one of many unforseen consequences to the command-and-control exercised by the Fed - they are incapable of rolling back the 'advances' of securitization and derivatives in the same way that Castro and the DPRK rulers don't have much interest in reversing the gains of the glorious revolution.
Stepping back for a moment with two metaobservations.
The solution to people in houses they cannot afford is to get them out of those houses.
Default and/or bankruptcy is a solution not an event to be avoided. Legal, relatively transparent and time tested. By comparison no other path has those characteristics.
"The employers and the states want near 90-100% output for 70-80% pay. A good deal for them. This is will turn into permanent pay structures over time. Second-world, here comes the USA."
And the employees on reduced salaries and wages buy 90-100%?
It's better to FC because if there is anything hinky hiding in the payment history, origination or anywhere else in the paperwork it all goes and the note and physical property are effectively laundered and squeaky clean for the next suckerrrr .... home buyer....
The moral hazard problem is unsolvable. You either just continue to eat losses in foreclosures, or you modify almost every outstanding mortgage.
"The solution to people in houses they cannot afford is to get them out of those houses."
~~~~
Even if they can afford them at current market value ?
Ummm, this is known as, tah-dah, deflation.
People will be grateful to have any job shortly.
I agree completely Dawg.
Get people out of homes they can't afford and into homes they can. Hit the reset button, design a program to allow them to buy soon after foreclosure and back on their feet. All the rest of this stuff is denying reality and smoke and mirrors.
why i get access denied?
...they do not include the most common modification: capitalization of late payments and fees.
BK individuals start cranking out recognizable revenue at the same rate Bankrupt Governments start cranking out cars.
The solution to people in houses they cannot afford is to get them out of those houses.
Default and/or bankruptcy is a solution not an event to be avoided. Legal, relatively transparent and time tested. By comparison no other path has those characteristics.
Rob Dawg, Yes and yes. Not good for housing - and thus, not good for those of us that own houses and horrible for lenders. But, other paths are no better and probably worse.
what happened to last post
In 2001 (may have been 2002, memory is fuzzy), right after my parents got back from a 4 year army tour in S. Korea, I had the opportunity to have dinner with my parents and a gentleman and his wife from Texas who had been involved with the board of Nations Bank, then Bank of America, and then a mortgage security company he started. Basically he explained how they were making these mortgages and then selling them almost immediately in large packages as securities. Almost instant profit, little risk, actually used the term "like taking candy from a baby." I brought up the fact that from my uneducated point of view this was like financial alcehmy and turning lead into gold never worked in the long run. The answer to that was 'well that will be a problem for someone else, not me, I am just following the law. This country was founded upon the smart taking financial advantage of the stupid.' After the dinner I got in a huge argument with my dad about the issue. I said that the whole problem with America was that we no longer made products, we just made money out of nothing. Selling imaginary financial products which only made money do to fee and markups in value for the elite. It was all a scam. Dad said I had class envy, and as long as I thought poor, I would be poor and jealous of those who worked for a living. Jump to now, and in my opinion nothing has changed, it is just everyone knows the emperor doesn't have any clothes on now...my dad now blames deregulation and select individuals who 'gamed' the system. In my opinion, this isn't a select problem of a few people without scruples, but a reflection of the new reality of America. The only way to get rich is to take advantage of someone else.
Yep, Yancey, yep.
That's what should have been done with all that wasted money.
Total the mortgage, and reduce the debt proportionally for everybody.
Reimburse the lenders. If it's 10% reduce the payment 10%. Pick a pays
would still default, but maybe not the rest.
But it's too late. They gave the money to the banks.
Actually they gave the banks some electrons and the banks
are not doing anything with those electrons.
Not any more, Vonbek.
Where is this guy now, Vonbek?
"I'd argue for a third reason: If it became widely known that lenders routinely reduce the principal balance for delinquent borrowers with negative equity, this would be an incentive for a large number of additional homeowners to stop paying their mortgages."
This is exactly the primary reason that Lenders don't routinely reduce the principle balances for delinquent borrowers. The fact that this explanation is omitted from the discussion of the cited writers is evidence, as if any evidence were needed, that the cited writers are just blathering on about something they nothing about. There is an erroneous assumption here that because the left arm of the Too Big to Fail Big Dysfunctional Bureaucracies created an incentive system which rewarded the underwriting of risky and fraudulent loans, that the servicing arm is equally incompetent.
Dawg
Nice meta. Like it. Not quite sure why the Gretchens don't get it. Wood/trees, I guess.
C
mmckinl (profile) wrote on Sat, 7/11/2009 - 5:43 pm
"The solution to people in houses they cannot afford is to get them out of those houses."
~~~~
Even if they can afford them at current market value ?
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria.
"But it's too late. They gave the money to the banks. "
~~~~
lawyerliz hits the nail on the head again ...
trillions of dollars worth and more to come in lost GDP ...
GEE, Doesn't seem there is much you can do
I guess we could always let this whole housing and bank thing play itself out.... Nah
here's a good explanation on the relationship between servicers, lenders, borrowers, and MBS, and the legal hurdles for modification.
Broken Credit Blog — Mortgage Foreclosure Short Sale Credit Report Loan Modification » Securitization Trusts & Loan Modifications At Odds
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria.
Also you have to foreclose because you remove the ruthless default risk (defaulting just to get a loan mod) and the self-cure risk. The highest NPV for the bank and the whole banks portfolio would be to foreclose. You give people the choice they signed up for.
Tim waiting for 2012
GEE, Doesn't seem there is much you can do
I guess we could always let this whole housing and bank thing play itself out.... Nah
~~~~~
That's what they are doing ... letting it play out ...
after giving the banks trillions ...
It's called the "Audacity of Hope "
Liz, well he sold his securities company in 2005 or 2006, well before things started heading south I think. Last I heard, he got sick. Cancer. Remission for a while, but was fighting a losing battle again.
The plan is to foreclose on everyone and kick them out on the street, let the banks seize the properties, change the accounting rules so banks can operate indefinitely while insolvent, then eventually give the banks enough tax money to cover all their losses.
In the end, all banker gambles get paid off with taxpayer money and they own all the empty houses while millions are homeless.
It will just take some time to raise enough taxes to pay off all the banker bad bets. Maybe 10 years. /no snark
Excuse me, it must have been said a thousand times already, but
why is moral hazard ok for rich bankers, but not Joe 6 pack?
My landlord asked for an interest rate reduction on their primary residence recently and got an 18% principle reduction instead. I believe they put 20% down though. The original lender was Wachovia and it sounds like they still held the loan.
testing
testing
"but not Joe 6 pack? "
because there are way, way more joe 6 packs out there. the inherent moral hazard of securitization worked for 20 years until j6p discovered the joys of home-as-ATM. that lasted only three years or so before the nation was effectively destroyed by it.
J6P is learning quickly, LL.
'This country was founded upon the smart taking financial advantage of the stupid.' '
How inspiring. Maybe it should be used as a recruiting slogan for the armed forces. "Defend the smart at the risk of your life so they can take advantage of the stupid."
Actually, when even the smart are stupid the outlook is grim.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 7:42 pm
"The employers and the states want near 90-100% output for 70-80% pay. A good deal for them. This is will turn into permanent pay structures over time. Second-world, here comes the USA."
And the employees on reduced salaries and wages buy 90-100%?
Deflation... the thing that happens while we pray for re-inflation.
Comrade Coinz is exactly correct ....
"In the end, all banker gambles get paid off with taxpayer money and they own all the empty houses while millions are homeless."
and so is lawyerliz ...
"why is moral hazard ok for rich bankers, but not Joe 6 pack? "
I tried to post a minor comment and got something from "drupal" saying the site was
temporarily unavailable?
id put it this way...there are few preventable foreclosures ALLOWED; for if they ARE, the fantasy/forced illusion that the banks are solvent becomes impossible to maintain.
deleted - double post
Eventually all these screwy loans, underwater properties will be forclosed. Either due to job loss, payment reset, or willfull default. OK, maybe there will be a small percent who stay and pay on an upside down mortgage.
However, this is going to take years and years of pain. Slow and steady pain may be the plan, rather than jerking the bottom out of the existing financial structure. In some way I can see that the slow way may cause less painic in the streets.
OT but Im just gonna get it off my chest.
The reason CIT is not allowed to issue FDIC backed bonds to shore up the old Capital structure is due in large part to the neccesity to eliminate thelargest private market competition to GE Capital...
there I said it...
I hear helecopters....
My comment was:
That I had known a few minor con artists and they always seemed
to be sick. I think that lying to oneself and others has that effect
on the body.
"Deflation... the thing that happens while we pray for re-inflation."
So we get a midget economy? Rather, I think, a dwarf.
......it's not healthy for anyone, liz. Eventually, when the little guy (your son/daughter) realize pop is a crook and it's the only way to get the stuff that is "So Cool". Eventually, you end up having bankers, politicians, lawyers, and doctors that take advantage of people throughout their lives..........oh wait...........we're there. This is what you get.
lawyerliz
trouble on and off at CR throuhout the day ...
Congress is getting ready to enact the new cyber security rules ( spying )
and want everybody on board ...
I've been keeping this on the d/l but my landlord is in foreclosure and is trying for a loan mod. It's not her principal residence any longer and she stated to us that she need the bank to think she is still living here. Needless to say we aren't playing along.
But I bet she gets bailed out. Ruthless defaulters are way more common than politicians want to admit.
The years of empty houses mean no houses.
No value at all.
You guys understand that?
The banks think houses maintain themselves.
They don't.
Rot rot rot rot rot. . . .
The original lender was Wachovia and it sounds like they still held the loan.
There are no legal impediments (other than capitalization ratios) when the loan is held by the bank.
It's not her principal residence any longer and she stated to us that she need the bank to think she is still living here.
If it's not her principle residence, she can get a cramdown in BK.
"Ruthless defaulters are way more common than politicians want to admit."
as are ruthless banksters ...
ahh the name "Gretchen Morgenson" on a Saturday....such fond memories...CR, you could have been a bit more witty, or sharp.
"Basel Too, in this case, I think many people (like poor Gretchen) are asking why the banks don't reduce principal significantly. These researchers are pointing out it is more complicated than Gretchen thinks."
Unless you cramdown to 3 X income, what is the point. The borrower will just end up in default anyway. The only factors that allowed borrowers to get by on greater multiples was appreciating prices and full employment, and we have not seen a bottom in housing or a top in job loss, anywhere that I have seen. So, there really is no point in the cramdown exercise unless, at a minimum, there is an up-tick in house values or unemployment abates, in my opinion.
".......she need the bank to think she is still living here"
It seems everyone is conning someone. I thought the 70s were a period of serious "character challenges", but integrity has progressively deteriorated since then.
Funny, that is all I ever hear the news and politicians talk about. Those evil bankers.
"The banks think houses maintain themselves.
They don't.
Rot rot rot rot rot. . . . "
Old story: During GD I landlords kept tenants in buildings for ten years just to maintain occupancy.
Or, the cramdown is huge--to that 3x level, which I think
is too high anyway.
hhack: cramdown technically is the involuntary imposition of a chap11 plan over the objection of a dissenting class of creditors. the "cramdown" WRT to mortgages is actually "lien stripping."
One more point - All other secured lenders can be crammed-down in Ch11. Mortgages on principal residence are the only exception to the cram-down option. So the cramdown proposal was simply trying to extend the current treatment of secured loans to mortgages.
The bank part in Congress has spoken already - the cramdown legislation cannot be crammed-down against their wishes.
So all the discussions about merits of mortgage cramdowns are pure academic deliberations.
A PI came by to contact the borrower according to the new CA law last year to show the banks are trying everything they can to talk to the borrowers (apparently she stopped talking to them). I let them know we were sole tenants leasing the home and I told her I did so. I will not be party to any games being played.
"Funny, that is all I ever hear the news and politicians talk about. Those evil bankers. "
~~~~
Until we need cramdowns or better credit card laws or the banks need accounting rule changes ...
bANK fAILURE (profile) wrote on Sat, 7/11/2009 - 6:01 pm OT but Im just gonna get it off my chest.
The reason CIT is not allowed to issue FDIC backed bonds to shore up the old Capital structure is due in large part to the neccesity to eliminate thelargest private market competition to GE Capital
I think that most including CR underestiminate the impact this will have. While trucking is now in the crapper, it might get worse....there are others, toooo, many others...JPM gave them 3B and cash burn has been interesting....
bANK fAILURE (profile) wrote on Sat, 7/11/2009 - 6:01 pm OT but Im just gonna get it off my chest.
The reason CIT is not allowed to issue FDIC backed bonds to shore up the old Capital structure is due in large part to the neccesity to eliminate thelargest private market competition to GE Capital
I think that most including CR underestiminate the impact this will have. While trucking is now in the crapper, it might get worse....there are others, toooo, many others...JPM gave them 3B and cash burn has been interesting....
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:01 pm
"Deflation... the thing that happens while we pray for re-inflation."
So we get a midget economy? Rather, I think, a dwarf.
To the dwarf, we are giants. So maybe it is WE who are the wrong size. We could fight a war over it, but only because both models function. If one stopped working, then we could make an educated guess.
pavel
The banks are letting people stay in the properties by not forclosing when they could / should. Modification attemps are taking 6 months or more, with no payments made and people in the property. Tenants are staying in properties after forclosure, rent free, with the blessing of the banks.
OT.........Yesssss.........the Mrs is making the first batch of sweet pickles this year.
........Has anyone ever tried "armenian yard-long cukes" for sweet pickling?
"To the dwarf, we are giants. So maybe it is WE who are the wrong size. We could fight a war over it, but only because both models function. If one stopped working, then we could make an educated guess.
RIF - midgets are scaled down but normally proportioned.
Dwarfs otherwise.
"fantasy/forced illusion that the banks are solvent becomes impossible to maintain."
Is there really anyone who has done the math, and is not a member of the "Green Shoots" patrol, that is convinced of that?
BSR - sweet pickles (and juice) are excellent in many BBQ sauces. If you're into that.
"pavel
The banks are letting people stay in the properties by not forclosing when they could / should. Modification attemps are taking 6 months or more, with no payments made and people in the property. Tenants are staying in properties after forclosure, rent free, with the blessing of the banks."
I don't doubt it, josap. There's an old saying: Bad breath is better than no breath.
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria.
I wonder who will be living in those vacants if current owners, who can't afford their mortgages, will be asked to leave...
Fewer people today can afford those homes than at the time they were built.
That's why the mark-to-market part of the cramdown legislation made so much sense.
BSR: no but mrs bank failure laid in 17 jars of pickled something over the last 3 days...
I personally know one ruthless defaulter. He has already received a mod on his 2nd, approved for mod on his 1st waiting on papers, has had $17,000 forgiven in student loans, and received a 4% interest rate and 5 year payout on credit card debt in exchange for closing his account.
edit: make that "strategic" defaulter.
The crisis is way beyond worrying about cramdowns, interest rates, refi and the possibility of redefault.
Financial institutions overleveraged and didn't have the reserves to cover bad loans/investments. The population has also overleveraged and social stability can't be maintained past a certain ratio. Keeping the growing numbers of citizens facing homelessness and hunger in their homes regardless of cause might be a necessity to keep the social fabric from ripping. Do whatever is needed because the repercussions outweigh the costs. Exactly like keeping the banks and credit markets working at all costs.
The entire economy has been nationalized. Time to think about what that means. Conversely I see cascade failure so I see little affect of any accepted solution.
Funny, I seem to remember a new CC bill just passed that the banks aren't too happy about. I also see the banks under tremendous political pressure to prevent foreclosures even though it is in their financial best interest to foreclose.
Thnx, Lothar, never tried them in a BBQ sauce.....will now though - might even experiment some...........BSR puts out a KILLER sweet relish every year.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:13 pm
"To the dwarf, we are giants. So maybe it is WE who are the wrong size. We could fight a war over it, but only because both models function. If one stopped working, then we could make an educated guess.
RIF - midgets are scaled down but normally proportioned.
Dwarfs otherwise.
Then again the financial universe was largely created in an effort to escape the actions of natural forces.
There are tradeoffs in proportion that come into play requiring nonlinearities. We could not for instance take an elephant and double or halve its size and still have a viable creature. Gravity and other endogenous forces would act upon it differently, though they may be too miniscule to notice. Human beings would probably live longer and healthier lives if we ceased bipedal locomotion, as it places unnatural amounts of stress on our backs and hips. Gravity sucks
The crisis is way beyond worrying about cramdowns, interest rates, refi and the possibility of redefault.
Cramdowns, refis etc are not just about the money.
IMO, they are more about the national idea of the social contract and the national sense of the social justice.
BSR - pickles are a staple of a lot of Southern Q. I just accelerate the process (and need to add an actual pickle on top of the meat) by incorporating them into the sauce.
It's subtle, but I've gotten good results. I usually use kosher dills, though, for the bite of the vinegar to cut through the tomato sauce and other things (onions, garlic, Worcestershire, etc.).
We love our Q down here in the South!
There's a horrible fascination in watching the Titanic and the iceberg on a collision course.
Re that gentleman from Texas: The problem is moral and cultural. That's the reason for the bad practice and policy, and the prevailing Tragedy of the Commons. The gent from Texas was only living it out.
When Pres. Bush said that Wall Street got drunk, he was referring to the captain and the officers of the watch on the Titanic.
"IMO, they are more about the national idea of the social contract and the national sense of the social justice."
Engrave it. Hang it on the wall.
"The banks are letting people stay in the properties by not foreclosing when they could / should. Modification attemps are taking 6 months or more, with no payments made and people in the property."
And that make the problem even worse as the underlying asset continues to depreciate and underwater homeowners look at the prospect of up to 3 years of living rent free if they default.
An aggressive foreclosure policy would have served the USA far better as it would have allowed the MBS to recoup greater recovery and led to a bottom and potential recovery much more quickly.
An acquaintance of mine works through HUD to modify loans on behalf of struggling homeowners. He told of one instance where he got a six figure reduction in principal for a lady. After duly thanking him, for weeks afterward she hounded him to try to get him to renegotiate a $1000+ water bill she hadn't paid in a year or so as well.
I seem to remember a new CC bill just passed that the banks aren't too happy about.
That's a valid point. That said, I wonder how much profit was generated to JPM, BofA or Citi by their mortage business vs. their credit card business (on average, through the credit cycle).
Cramdowns, refis etc are not just about the money.
IMO, they are more about the national idea of the social contract and the national sense of the social justice.
Funny how the idea of social justice varies differently from those who benefit by it than those who have to pay for it.
Outside of social security and medicare I never thought there was this great social contract in America. I always thought it was a place you came and worked hard. It was a place you could take risks and reap the rewards or the pain of your actions.
MrM (profile) wrote on Sat, 7/11/2009 - 6:15 pm
Especially if they can afford the same house now. The lender exercises the terms of the loan. the borrower exercises the terms of the loan. The market and price discovery work. New loans are generated using more rational criteria. - RD
I wonder who will be living in those vacants if current owners, who can't afford their mortgages, will be asked to leave...
Fewer people today can afford those homes than at the time they were built.
That's why the mark-to-market part of the cramdown legislation made so much sense.
The implication in your first comment is that these people truly cannot afford these same houses at current prices. I agree. This is why we need to trust the systems we have in place already. Foreclose and bk and move on. Without the market speaking through the foreclosure process mark-to-market will continue to be a sham. Think about it. Go to Redfin. Look at REO listings. How many are on the market 10 days and then see 20-30% markdowns? That first number is the mark-to-market the bank believes. The second is often proving too high as well.
/Ring ring... Honey can you get that? It'll be the future calling. Yeah, earlier. Nah, but said they'd call back when we were more prepared. No, how am I supposed to I . .. just pick up the phone willya?"
YouTube - Dead Can Dance - The Host Of Seraphim
C
"An aggressive foreclosure policy would have served the USA far better as it would have allowed the MBS to recoup greater recovery and led to a bottom and potential recovery much more quickly."
Politically infeasible.
Outside of social security and medicare I never thought there was this great social contract in America. I always thought it was a place you came and worked hard. It was a place you could take risks and reap the rewards or the pain of your actions.
Now please apply these concepts to the bank bailout and then look at the bank behavior with respect to California IOUs or mortgage cramdown legislation, not to mention near-record bonuses. The concept of "being equal under law" does not look that universal, does it?
Effective Demand (homepage, profile) wrote (in reply to...) on Sat, 7/11/2009 - 8:25 pm
Outside of social security and medicare I never thought there was this great social contract in America. I always thought it was a place you came and worked hard. It was a place you could take risks and reap the rewards or the pain of your actions.
As a student in modern political philosophy class (the only political science course I ever took), I basically said the social contract was nonexistent and served only to conceal the non-consensual nature of the use of force by government to seize private property and our inability to refuse the deal.
"Politically infeasible."
The alternative being banks still broke, defaulters living rent free, housing still unaffordable, a growing unemployed/homeless class, and a pattern of lying about those facts?
"As a student in modern political philosophy class (the only political science course I ever took), I basically said the social contract was nonexistent and a served only to conceal the non-consensual nature of the use of force by government to seize private property and our inability to refuse the deal."
RIF, that can't be entirely true, or our society would be a Hobbesian field of battle, avoiding collapse only by the exercise of monarchical power. No, the cynical abusers live side by side with those who serve willingly because service to others is still alive.
Firemen don't rush into burning buildings for the pay.
Ironic given that the banks have no problem being on the receiving end of a bailout but are unwilling to issue bailouts to consumers.
While I was NEVER in favor of bailing out the banks, I was sympathetic towards the Rick Sentiii rant against bailing out consumers.
I am no longer sympathetic towards that rant. My view is now, given that the government was hell-bent to do something (and doing
something to the tune of nearly a Trillion dollars), I think they would have been better off buying almost every foreclosed home, offering
the foreclosee rent-to-own terms thereby propping up home prices.
Of course, this ignores the fact that the housing bubble needed to be burst. It sucks for the folks getting foreclosed and it sucks for
the folks losing their jobs. But capitalism is all about creative destruction (or is it destructive creation?) and this-too-will-pass. And
until some equillibrium is reached, the economy can't move forward.
"The alternative being banks still broke, defaulters living rent free, housing still unaffordable, a growing unemployed/homeless class, and a pattern of lying about those facts?"
Perhaps.
Current business models will not allow a $9. 'widget' manufactured here to retail for $19.95 - if they can be manufactured in China for 90-cents, then it is feasible.
blackhalo...when you throw down like that you gotta throw in globalization and beggar-thy-neighbor fiatscos.
The implication in your first comment is that these people truly cannot afford these same houses at current prices. I agree. This is why we need to trust the systems we have in place already. Foreclose and bk and move on.
Rob, you probably meant to say "move out" . It is quite likely that after the foreclosure and the bankruptcy, the former homeowner will end up renting something similar to his old house but having gone through a very painful phase with lots of negative consequences for jobs, schools, etc. I am thinking of how to avoid that. When foreclosures are epidemic, it is better to inoculate rather than treat the disease.
I agree that realistic mark-to-market is key, and without it cramdowns are not helping much.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:35 pm
"As a student in modern political philosophy class (the only political science course I ever took), I basically said the social contract was nonexistent and a served only to conceal the non-consensual nature of the use of force by government to seize private property and our inability to refuse the deal."
RIF, that can't be entirely true, or our society would be a Hobbesian field of battle, avoiding collapse only by the exercise of monarchical power. No, the cynical abusers live side by side with those who serve willingly because service to others is still alive.
Firemen don't rush into burning buildings for the pay.
I was nineteen. I had a lot of growing up to do. However, I did very well in the class and at the conclusion, the professor thanked me for being there.
There was a lot of pressure from CDS arrangements to have GM and Chrysler go through bankruptcy. Could there be such an arrangement here -- some kind of CDS hedge taken out by the holders of the loans, which covers them (at some level) in the event of foreclosure? If the coverage were full, then they would have no incentive to avoid foreclosure.
CDS deals are not public, so could this not be going on?
-Bill
The political infeasibility of doing the right things just demonstrates how sick our economy and political system have become.
Effective, that IS a social contract.
blackhalo wrote:
"Politically infeasible."
The alternative being banks still broke, defaulters living rent free, housing still unaffordable, a growing unemployed/homeless class, and a pattern of lying about those facts?
Watching many of our leaders on TV now smacks of Baghdad Bob, who until the moment Baghdad was overrun, insisted that the infidels were drowning in their own blood. The facts are in plain view, but are relentlessly spun by politicos of all stripes until there is no more truth. The banks are insolvent, the banks are solvent.
Every assertion is simultaneously true and false.
Stalin evicted whole peoples and transported them to Central Asia.
You can't do that sort of thing here, not even if the law permits it, not even to a class of individuals. For one thing, we still have elections.
sm_landlord (profile) wrote on Sat, 7/11/2009 - 8:38 pm
The political infeasibility of doing the right things just demonstrates how sick our economy and political system have become.
+1, but has a political system ever rewarded doing the right thing except as a side effect of furthering its own agenda?
"Firemen don't rush into burning buildings for the pay."
.....actually, pavil, a lot of them I worked with DID. Along with the retirement, schedule, C-shift jobs/businesses, longevity, etc.
@ C,
That was a pretty morose video.
I feel compelled to counter it
YouTube -
"blackhalo...when you throw down like that you gotta throw in globalization and beggar-thy-neighbor fiatscos. "
Well exactly as BSR points out in the post above yours, USAians are in competition with workers in China and we can not compete as long as our costs of living exceed the income of the wealthiest of Chinese workers. I have less of a problem with globalization than I do with TPTB who want to pretend that universal health care and reduced costs of living are not required to be competitive in that environment.
It does seem to me that those at the top of the pyramid, behave as if they are oblivious to the effects of chipping away at the lower levels.
Stalin evicted whole peoples and transported them to Central Asia.
You can't do that sort of thing here, not even if the law permits it, not even to a class of individuals. For one thing, we still have elections.
Umm, internment of Japanese Americans? (realizing, of course, the conditions in American camps were vastly different than conditions in Soviet camps)
"I was nineteen. I had a lot of growing up to do. However, I did very well in the class and at the conclusion, the professor thanked me for being there."
RIF, I know what you mean, but a society without a social contract is a society with no future, and hardly any present.
Black Star Ranch (profile) wrote on Sat, 7/11/2009 - 8:42 pm
"Firemen don't rush into burning buildings for the pay."
.....actually, pavil, a lot of them I worked with DID. Along with the retirement, schedule, C-shift jobs/businesses, longevity, etc.
Moral hazard, thy name is legion... thy assistant is cash!
CR,
No offense but did you put "Gretchen" and "think" in the same sentence? Have you been drinking?
bahh we need a wine glass icon
Yep they work 40 hours, but some of those shifts they sleep through, and they
usually have a second jobs of some sort. The guy who rebuilt my house after
Andrew was a fireman and part of the reason I chose him was that he wouldn't
disappear with my money and lose his pension.
Unlike cops, they have to exercise regularly as part of the job, and they
are usually nice looking, not fat.
Agreed, Jane agreed.
Plz, wine glass???
Effective, that IS a social contract.
Correction - that WAS the common understanding of the social contract.
It was flushed down that $35,000 commode in the Merrill Lynch CEO office.
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 8:43 pm
RIF, I know what you mean, but a society without a social contract is a society with no future, and hardly any present.
Yes. Intellectually my position made a great deal of sense. But it led to a dead world. The social contract is more of a mythopoeic technology I think.
Which is why I said "A" social contract.
I agree.
We need a wine glass icon.
Legal, relatively transparent and time tested.
Also, we have the institutional infrastructure already in place and open for business.
All other options and "solutions" involve reinventing the wheel with attendant startup costs and delays.
You have a bond portfolio?
For how much longer?
Bonds will be nearly worthless.
Just wait. Except for JJ's special sauce bonds- they will always pay back 1%.
My personal investing strategy involves paying off most of my outstanding debt, evening up the assets to darn near nothing, and then doing the ruthless default.
I am more than willing to eventually move when they get around to doing an eviction, after we do a couple of years of stalling.
Good luck to recovering more than 40-45% at firesale boys, an interest mod would have cost 10-15%.
Nothing like stupidity and cupidity.
Someday this war's gonna end...
Liz,
My landlord is a probation officer. A large portion of the reason I rent from him is that all correctional personnel have to maintain decent credit or it is seen as leaving them open for bribes. In all honesty, he's the nicest correctional or emergency worker I've ever met.
No system is perfect, but some are better than others at certain things.
Our systems seem to have combined some of the worst aspects of oligarchy and populism.
There are many redeeming features in our systems, of course.
But when banksters can buy politicians and certain classes of voters are able to vote themselves incomes and benefits at the expense of the productive class, you're going to have conflict.
The good news is that our system is probably resilient enough to sort this out without a revolution or a civil war.
"Umm, internment of Japanese Americans? (realizing, of course, the conditions in American camps were vastly different than conditions in Soviet camps)"
Yes, that too. I'm not defending that.
But the US has real elections and a not completely tamed press. Things that were possible in the old SU are not possible here.
To foreclose on and evict a relatively small number of people is possible. We see it happen all the time. But if the number is too large, it becomes a nasty social problem. If you add increasing unemployment and underemployment to the mix you've got a really foul batter for your social cake.
"CDS deals are not public, so could this not be going on?"
I'm sure that is the case, the downside being that AIG wrote a lot of those naked CDS.
my weird blogroll:
Hipster runnoff
Industrial Waste
Balloon Juice
Ive taken a hankering to reading the European Trib, but I cant keep to the Fen Causway. Course I monitor the comments here like some sort of freeper...just put me on ignore....its better for everyone.
MORE WHINE !!!!
*edit Yu had to make an appearance
@Mike in Long Island - reminds me of something. Can't put my finger on it.
C
HomeGnome - post link to wife's foodie blog again, please? Meant to link it but lost it.
Liz, your admiration of firefighters over policefolk is... interesting.
Be fun to hear what the other ladies on the board think about that dynamic! LOL
"really foul batter for your social cake. "
Sour Dough Mix?
Along with the wine glass, we need a bong icon in honor of CSC.
Lothar, thanks for looking.
Jaunty Gourmand
sm_landlord (profile) wrote (in reply to...) on Sat, 7/11/2009 - 8:48 pm
No system is perfect, but some are better than others at certain things.
Our systems seem to have combined some of the worst aspects of oligarchy and populism.
Yes but I do not think it is a recent phenomenon. I think we just have much better visibility into the process now, and that visibility is forcing us to acknowledge just how awful the system really is.
Ah, CSC.
:bongicon:
What profiteth a man...
There are a few who are doing it by creating value - too damn few - but a few.
That is the big question, aptly phrased by my BIL over beer and cigars (too damn hot for scotch) - are you creating value or just extracting value?
Ok, all you computer geeks and nerds, who talk about stuff I can't and
don't want to comprehend----give us a wine glass icon.
Whine glass, wine glass, whine glass, wine glass. . . .
@Counterpointer
That song was in the movie Matilda/Ice Age
Things that were possible in the old SU are not possible here.
This is of course true.
Then again - I am sure this is what reasonable people in Russia thought in 1910 or in Germany in 1930
".actually, pavil, a lot of them I worked with DID. "
Maybe for the adrenalin rush.
July 21st at 10pm EST on Discovery a new show called "The Colony" is going to air. The premise is some cataclysmic event has occured and a small group of people are randomly thrown together to try and start anew.
Sounds intereseting but hopefully its not a sign of things to come...
"Yes but I do not think it is a recent phenomenon. I think we just have much better visibility into the process now, and that visibility is forcing us to acknowledge just how awful the system really is."
Agreed. There is more visibility, and of course this commentariat is paying more attention than your typical J6P.
There is also the matter of scale. We are a much bigger country than we were even 100 years ago. The problems, complexity, and consequences grow with that scale.
Warehouse 13--nice trash.
CR, the big hole is here:
"And the Fed economists respond:
We argue for a very mundane explanation: lenders expect to recover more from foreclosure than from a modified loan. This may seem surprising, given the large losses lenders typically incur in foreclosure, which include both the difference between the value of the loan and the collateral, and the substantial legal expenses associated with the conveyance. This is fatally flawed - the massive increase in foreclosures is driving further declines in the overall market
The problem is that renegotiation exposes lenders to two types of risks that can dramatically increase its cost. The first is what we will call “self-cure” risk. As we mentioned above, more than 30 percent of seriously delinquent borrowers “cure” without receiving a modification; if taken at face value, this means that, in expectation, 30 percent of the money spent on a given modification is wasted. Old data- the self cure is falling fast as mortgage descend into seriously under water- you had research that showed this up a couple of weeks ago.
The second cost comes from borrowers who redefault [30 and 45 percent]; our results show that a large fraction of borrowers who receive modifications end up back in serious delinquency within six months. For them, the lender has simply postponed foreclosure; in a world with rapidly falling house prices, the lender will now recover even less in foreclosure. In addition, a borrower who faces a high likelihood of eventually losing the home will do little or nothing to maintain the house or may even contribute to its deterioration, again reducing the expected recovery by the lender. Again BS- lenders are now taking a year to foreclose or more- how much deterioration occurs with abandonment by the borrower? This is just nonsense.
If this is the state of Fed Reserve Research, they need to fire some folks and get some new blood.
Someday this war's gonna end...
"To foreclose on and evict a relatively small number of people is possible. We see it happen all the time. But if the number is too large, it becomes a nasty social problem."
I have a hard time feeling sympathy for those who bought more house than they can afford, in the greedy hope that they could get by on the appreciation. To me it is no different than those who traded on margin during the NAZ bubble, in the greedy hope they could maximize gains.
Government is the social contract. By electing a few to represent the many you give them the power to make decisions and implement rules for the benefit(supposed) of the many. The perversion of self interest over civic duty being the primary reason to seek office and maintain the office is at the heart of the failure in our country. The consequences have arrived but it is the majority paying the tab. Since the collective will pay regardless how about letting our sense of humanitarianism instead of a profit motive guide us into the future?
I need my neighbors to stay in their homes. Cast a large portion of our country into a diaspora and we all reap a bitter harvest.
"Then again - I am sure this is what reasonable people in Russia thought in 1910 or in Germany in 1930"
Do you really think we're headed towards that in the US? I hope not. Those people only had file cards and informers, not microchips.
Umm it will be true I think that the first big repair will mean that the
borrower will leave. But the little repairs and maintenance will be done
and this isn't nothing.
pavel, our cultural deification of science has led to a profound lack of respect for the genuine value of myth in generating alternatives.
@Mike - OMG. That'll be why I kept getting flashes of cartoons...
In the meantime, was checking Afro Celt - this is more roaming than dooming:
YouTube - Afro Celt Sound System - Persistence of Memory
C
Nitey nite everybody.
It's been as usual, absolutely great.
"I need my neighbors to stay in their homes. Cast a large portion of our country into a diaspora and we all reap a bitter harvest."
No easy solutions. It's a messy world.
By electing a few to represent the many you give them the power to make decisions and implement rules for the benefit(supposed) of the many.
Unfortunately, lobbying is much more effective than casting votes. That is an inherent problem with representative democracies in large countries.
Mrs. and Mr. HomeGnome: FOOD LUST ALERT!!!
Ahem, I worked for a chef (not in his restaurant, but watching his boys) and I did learn one or two things.
Bookmarked!
"pavel, our cultural deification of science has led to a profound lack of respect for the genuine value of myth in generating alternatives."
RIF, C.S. Lewis said that Tolkien, and a friend whose name I can't recall, converted him by convincing him that Christianity was a myth that happened to be true.
HomeGnome,
Why not put Mrs. HG's link in as your home page in your profile? Just a thought...
MrM (profile) wrote on Sat, 7/11/2009 - 9:02 pm
By electing a few to represent the many you give them the power to make decisions and implement rules for the benefit(supposed) of the many.
Unfortunately, lobbying is much more effective than casting votes. That is an inherent problem with representative democracies in large countries.
Yes. But lobbying is also a much more efficient and more visible form of the old system of payoffs and meetings in dark rooms with big suitcases, which is itself much more efficient, visible, and humane than assasinations, blackmail and torture. Make lobbying illegal and lobbying will still exist.
"For one thing, we still have elections."
..... When we are to choose between two candidates, both of which are worthless (the well-worn "lesser of two evils" joke), knowing the 2-parties involved have hand-picked the best-groomed and fully sanitized candidate that has immense revenue collection talents but no other marketable skill-sets to speak of, including integrity, responsibility, and character, things are not the way things were envisioned 200+ years ago. The politicians were NOT meant to spend careers in DC. They were to serve a SHORT term and go back to their farm or businesses.
Also, lobbyists should be given appointment times with our reps only with due public notification and bugging of said meeting. If they can do it - we can too.
I wish just once that a Jesse Ventura type would run independently for President - being perfectly honest about why - because he's the lesser crook than the other - I'd vote for him/her.
Do you really think we're headed towards that in the US? I hope not.
No, I do not think that way.
But I often remind myself of typical beliefs of educated Europeans at the turn of the 20th century that there would be no more wars because of extensive trade connections, liberal cross-border movements of capital and people, general growth of education and social tolerance. How wrong they were...
Great Idea, EnergyEcon!
"I need my neighbors to stay in their homes."
HOA probably should have had some income or LTV requirements. Of course most of them were probably pretty pleased by the ever increasing home values and might not have wanted to cut that off. Even better would have been if your state had some basic lending regulation, like most do, other than Florida, California, Nevada and Arizona. The problem for those states and the federal gov now, is that they are still trying to re-inflate and sensible regulation would put an end to it.
But would you vote for a Gnome?
IF you knew I had stolen the Trolls Treasures?
But would you vote for a Gnome?
If you promise higher social spending and lower taxes - sure I would!
HomeGnome (homepage, profile) wrote (in reply to...) on Sat, 7/11/2009 - 9:08 pm
But would you vote for a Gnome?
In preference to a lapdog, an ass or a parrot, there would be no question.
Don't blame me. I voted for Kodos.
Well if by your guile it was after they had been turned to stone - not only yes, but hell yes!
HG:
Burning River beer is the best.
Dortmunder Gold is Best!
But I'll have one of each just to be sure...
I'd vote for you, Gnome. And I'd give Mrs. HomeGnome full reign over every cooking channel of production/consumption/education in the country.
We need a Culinary Czar.
My precious.... they took away my precious!
//IF you knew I had stolen the Trolls Treasures?//
Americans swap homes for hotels as recession bites
Americans swap homes for hotels as recession bites
| Reuters
And all this time I thought you were a Cthulhu supporter...
pavel.chichikov (homepage, profile) wrote on Sat, 7/11/2009 - 9:04 pm
RIF, C.S. Lewis said that Tolkien, and a friend whose name I can't recall, converted him by convincing him that Christianity was a myth that happened to be true.
As a culture, we have regressed to astrolatry. The stars again rule over us. Christianity was very much ahead of its time.
No precious for me, Lucifer.
After seeing my dad with that ridiculous gold herringbone chain in the 80's...
Yes. But lobbying is also a much more efficient and more visible form of the old system of payoffs and meetings in dark rooms with big suitcases, which is itself much more efficient, visible, and humane than assassinations, blackmail and torture. Make lobbying illegal and lobbying will still exist.
Large democracies (say, more than 100 Million) are hard to govern effectively.
Russia, China - not democracy
India - a mess of a democracy
USA - the path of this country since the infamous 2000 elections leaves too many question marks about the nature of its government institutions
Brazil - I do not really know but looking at the list above, my prior view would be skeptical
PS. I am not trying to advocate for break-up of the US a la Orlov - jus' sayin'
HomeGnome,
The success of a system is determined not by it's capabilities, but by it's ability to resist unexpected failures.
@Counterpointer,
The Afro Celt was interesting - reminded me of some stuff Peter Gabriel did which then sequed me into
YouTube -
arrived at through here
YouTube -
Did you get a chance to listen to Black Joe Lewis and The Honeybears the other day?
YouTube -
And all this time I thought you were a Cthulhu supporter...
His minions take many forms. I take it you liked the Summer Solstice musical interlude?
You have a bond portfolio?
For how much longer?
Bonds will be nearly worthless.
Actually, I had a bond portfolio, I'm 100% liquid now during this last rally. Someone putting the puzzle together can figure out why.
My personal investing strategy involves paying off most of my outstanding debt, evening up the assets to darn near nothing, and then doing the ruthless default.
I am more than willing to eventually move when they get around to doing an eviction, after we do a couple of years of stalling.
Let me know how that works out for you.
We argue for a very mundane explanation: lenders expect to recover more from foreclosure than from a modified loan. This may seem surprising, given the large losses lenders typically incur in foreclosure, which include both the difference between the value of the loan and the collateral, and the substantial legal expenses associated with the conveyance. This is fatally flawed - the massive increase in foreclosures is driving further declines in the overall market
You're not thinking like a banker. If you foreclose now, sell to someone else before prices bottom and get 20% down from the new purchaser, you have just shifted potential future losses from the banking system to some poor fool who couldn't wait until prices bottomed.
The success of a system is determined not by it's capabilities, but by it's ability to resist unexpected failures.
That's why cockroaches will inherit the Earth
Ewww...
Time to watch a movie and take my mind elsewhere
Good night, all!
"I take it you liked the Summer Solstice musical interlude? "
Loved it. That was quite a find.
Survivor: The Black Swan Series?
Anyone else here listening to Marla spinning Radio ZH? I know there's some crossover readers, but not sure about the listeners.
I feel more comfy here asking than over there. Different crowds.
ZH certainly has an interesting crowd. Some angries from DB, for instance.
C
But somewhere Bess Levin is in a miniskirt on a CEO's desk, and that keeps them reading...
Effective Demand - I actually bought a cart load of AAA paper in Jan/Feb. some where the yield is 13.2% and I get 3.2 times in ten years. I think things will drag on for awhile making some paper okay to hold.
Effective Demand - I actually bought a cart load of AAA paper in Jan/Feb. some where the yield is 13.2% and I get 3.2 times in ten years. I think things will drag on for awhile making some paper okay to hold.
good night all
Lothar - LOL! In that case they need to work on their lines...
C
(in dubious honor of Sears selling xmas stuff already...)
Just hear those slay bells jingling,
Ring ting tingling too
Come on, it’s loanly weather
For a slay ride together with you
Outside of people’s stocks falling
And friends are calling “you too?”,
Come on, it’s loanly weather
For a slay ride together with you.
Giddy yap, giddy yap, giddy yap,
Let’s go, Let’s look at how much we’ve blown,
We’re riding in a wonderland of snow-job.
Giddy yap, giddy yap, giddy yap,
It’s grand, holding nothing in your hand,
We’re gliding along with nothing left but a song
Of a wintry financial wasteland
Target stores have summer goods on final clearance. The current seasonal items are back-to-school. I'm thinking the supply chain is drying up for some classes of products.
deleted (again) hoocoodanode commenting still perilous on phone
Counterpointer... Marla is in the zone now. I could give an eff what anyone at DB is doing now, authors or readers. Though I still think BL must be ridiculously hot somehow. Maybe she's just that good of a writer...
Back to school is big for clothing and shoes.
If parents don't / won't spend on the kids things are really bad and Christmas will be a total crash.
zero hegde tracking down the problem one muzakmatch jukebox at a time.
that bloghouse eurotrash loop of fire dancers hitting the E aint my bag baby.
Effective Demand and Rob Dawg and a few others have already said what I think about cramdowns and loan mods better than I could. But I would like to point out to all the people here saying that people who committed to pay more for homes than they could afford, or than they would actually pay, don't deserve to live in homes more than all the renters out there who decided not to buy the same homes because they thought paying the asking price was irresponsible. For every 100,000 people who can't pay their mortgages, there are 100,000 renters who can do so responsibly, but are not being given the chance because prices are still too high. And they are still too high because the homes are being kept off the market. It makes no sense. A chunk of current owners, the ones who are the least responsible/capable financially, need to switch places with a chunk of rentere - the ones who are the most financially capable and responsible. This is not that easy, but it's also not that hard, unless we make it hard by drawing it out.
"I need my neighbors to stay in their homes. Cast a large portion of our country into a diaspora and we all reap a bitter harvest."
I am a renter. So I am "cast into a diaspora"? And all of your neighbors, even the ones who can't or won't repay the loans they took to pay for their houses, deserve to stay in those homes more than I do? And it would be unfair to exchange places with them? I have to scratch my head at the thinking going on here. As someone said, some people want free ponies for everyone.... well, for the people they know and like.
I think I am going to do a cramdown tonight. I deserve it!
I think I am going to do a cramdown tonight. I deserve it!
a society without a social contract is a society with no future, and hardly any present.
And your point is? As in, we have a future that in any way resembles the present?
Mortgage contracts taken out by leveraged buyers are a form of an option contract with the so called homeowner owning the mortgage debt and the option to buy the property outright at some time in the future or sell the property before the contract period ends. We all understand this is the basis for citizens buying property using leveraged mortgaged options.
The reality is that unless the property increases in value rather quickly the option buyers incentive is always to walk unless they want to full fill the option contract for whatever stated time, 30,15 or 5 years. In order for a leveraged mortgage market to function without significant default, RE values must always increase and rapidly.
Blackalo point is central to the problem at hand, we have deflating RE values which destroy the value of our mortgage financing structure which is focused on leveraged buyers using option mortgage contracts to buy/sell RE they do not own. No amount of financial innovation low down payments,interest only,arm, 30 year, 40 to 100 year financing can cure the problem since RE must always go up for this system to survive.
The alternative is cash system or private financing.
Based on my experience in losing my home of seven years and experiencing in the last three years the legal and regulatory institutional disregard for the federal mortgage loan borrower, Here is a very simple solution. It is readily apparent that the average homeowner cannot afford an attorney with a real estate background, the banking knowledge and federal regulatory experience to protect their rights and give them a voice in confronting and negotiating with their federal mortgage holder to prevent their residential property foreclosure.
I have based my solution on what the Office of Thrift Supervision stated in writing (December 21, 20061) in response my complaints against AmTrust Bank, “There are no applicable federal consumer banking laws and regulations”. From my viewpoint that is translated that the borrower who has been harmed by a federal thrift bank has no rights and no voice to contest, object or legally question the issues of the lender bank within the same regulatory system in which this bank lends mortgage money.
The answer to foreclosure actually is very straight forward - include the federal mortgage borrower in the process. Let the borrower become an equal participant in the solution of a problem through neutral arbitration with their federally chartered bank who legally owns and holds their mortgage.
The Solution is like the Smoke Detector in a house. When there is a fire the smoke detector goes off. My smoke detector is the borrower. By allowing the borrower to file a complaint to a third party within the regulatory system that has authority to arbitrate, it alerts the regulator who supervises the bank that there is a consumer or operating problem. From there the regulator can determine what kind of red flag has been raised, how serious the problem is, and if it requires more attention.
To create a transparent federal mortgage loan transaction and fair equity, and to insure ethical conduct of the parties throughout the life of a mortgage loan, give equal rights to the parties of equal weight by engaging a neutral designated arbitrator to help problem solve a fair and equitable solution to the issues raised by either party.
Establish rights for a mortgage borrower to question, object or contest what they consider unethical lending behavior on the part of the federally chartered savings bank within the same regulatory system in which the bank lends mortgage money. This would result in productive and effective solutions to problems that normally would turn into a lawsuit or foreclosure.
Michael LittleBig
POB 16588
Rocky River OH 44116
How much of an impact does that 180BN to AIG have in backing up the Credit Default Swaps
that are insurance for the mortgage holders when people do default?
Seems to me that as long as the insurance pays off, there would be little incentive for
the mortgage holder to take steps to prevent default.
Oh, and MBS' are not inherently evil.
It was the intentionally falsely rated MBS' that became evil.
Banks would stuff a few good mortgages in with a buncha ALT-A, Liar Loans, Self reported zero down
and exploring mortgages, I mean, banks would bundle a tranche of mortgages intended to explode
on the borrower, place that tranche on the securities market, call their buddy over at Moody's and buy themselves
a fancy new Triple A rating for that tranche, and then sell, sell, sell.....
They'd then peddle the original mortgage to Fanny or so some other sucker, buy insurance on the note from AIG
and made money 3 different ways on mortgages that were STRUCTURED TO EXPLODE....
It really was/is a very nifty shell game.
And all entirely legal too, because, well, the banks and their buddies in the US senate made it so.....
Bailing out AIG was the key to it all. let the taxpayer pay off the insurance claim when a loan defaults
and there's no longer any incentive to keep that loan from defaulting.