The Obama administration is talking about another mortgage modification effort. This one allows lower-interest refinancing for borrowers who aren’t eligible for refinancing:
One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.
A wave of refinancing could be a strong stimulus to the economy, because it would lower consumers’ mortgage bills right away and allow them to spend elsewhere. But such a sweeping change could face opposition from the regulator who oversees Fannie Mae and Freddie Mac, and from investors in government-backed mortgage bonds.
Apparently HAMP has a companion program called HARP that already does this. Since mortgage delinquency is rising after a two-year stretch of downward motion, these programs aren’t working.
The underlying issue is a bunch of underwater mortgages. Cram-down is a real solution to that problem, but we’re not going to get it. Instead, we have ineffectual half-measures, like HAMP, HARP and whatever this new one will be called, that don’t address the real problem. Moving from an 6% to a 4% mortgage will put a few more bucks in a homeowner’s pocket, but it still doesn’t address the issue that s/he is locked into a house that they can’t sell without a tremendous loss. If that person loses their job and is unable to find another one in the same area, they’re financially ruined no matter whether they sell their house or default on their mortgage.
dr. bloor
“Cram down?” Not gonna happen, Friendo. Moral hazard, and all that.
Besides, that few extra bucks each month after the re-fi? Stimulusly goodness!
paradox
For many being hundreds of thousands of dollars underwater (quite common here in California) is not precisely an issue of loss at sale or being unable to move, but rather feeding this huge financing hole that may or may not break even in 10-15 years.
The market will always recover, it’s always said and it’s always happened, but this time feels vastly different. Everything went to hell, the business cycle recovery should have kicked and it only wobbled, soon to crash again. It really could take 15 years to break even for many, many folks.
They’ll look at it long enough and walk, walk to a setup that is no means what they wanted but at least they aren’t financing nothing going nowhere.
Oh oh oh they wrecked my credit rating. Heh. As more of the market and system fails, many will be startled to see the huge numbers just giving it the finger and not caring about rules, hell no else did. Right? This phenomena will only make the problem worse, magnitude unknown.
Villago Delenda Est
Cram down would mean the banksters taking the hit for their own actions on the green felt of the credit default swap caseeno.
Can’t have THAT.
arguingwithsignposts
Cramdown = bankers taking a haircut. We know that won’t happen. It’s the same thing that happens with austerity measures across Europe. Punish the populace so that the investors get enough of their vig back before the whole thing blows.
Whatever happened to “risk” in investing?
Emma
Here in Florida we have the sinkhole of all sinkholes. My house in underwater, but I have a job and I can manage the mortgage payment (though the bank is offering to refinance and I’m considering taking them up on it)and besides, I bought a house I could afford.
The problem is that many people bought houses they couldn’t, lured by the “fantastic deals” being offered by developers and banks ($2500 down! House worth $250,000! Retirement egg nest!). They made it sound like a can’t-lose situation and got a lot of people who didn’t know any better (nothing like recent immigrants for living in hope).
Now everything is going to hell in a handbasket.
Jim Pharo
Maybe we can issue red buttons we can all wear that say “Whip Inflation Now – WIN,” which worked so well when President Ford wanted to be seen as addressing inflation without actually addressing inflation…
satby
@Emma: Well, I bought a house I could afford too, as did a lot of people. What we all can’t afford is a $40K loss (or more) because the places are underwater. Blaming people for buying houses they couldn’t afford is a bit of a red-herring because almost no one can afford their mortgage after months or years of unemployment. Which is where the housing bust started.
gypsy howell
@Jim Pharo:
Better yet, we should all just wear our “WTF?” buttons.
Luthe
@Jim Pharo: It’s “WTF – Win the Future,” silly.
As for re-fi programs, I’ll be happy with whatever brings the foreclosure rate down. This is mostly because I’m working in a New Jersey, where lawyers have rooms full of foreclosure filings that are going to court just as soon as the foreclosure ban officially expires.
Earl Butz
Cramdown is the only mechanism that banks can use to save themselves from 100% losses on these properties, but because that would require a focus on long term thinking instead of next quarter’s earnings, this will never happen.
Eliminating the dream of home ownership for an entire generation is going to have some really dire consequences down the line for banks in the future.
ComradeDread
Cramdown would be nice. I’m not sure why the banks are fighting that so hard. It’s not like they’re already taking major losses on these properties
Spousal unit and I had to take the dual bankruptcy/short sale combo to get out of our house that was then worth 250,000 less than when we bought it and about 200,000 less than what we owed the bank on it.
But not everyone is in a position to do that, or knows their legal rights. They could use some help.
Emma
@satby: Sigh. I wonder if I can ever make myself clear enough for this bunch. They made it sound like a can’t-lose situation and got a lot of people who didn’t know any better (nothing like recent immigrants for living in hope). I meant by this that the banks were responsible for selling dreams they KNEW would not come true to people who BELIEVED they would.
In Florida it has nothing to do with unemployment (well, now it does but at the beginning it didn’t). It had to do with selling people who were working minimum wage jobs into “easy payments” and “low down payments” and “interest only” mortgages. If it were up to me, I’d prosecute them all for fraud. Unfortunately, what they did was not, and in some cases still is not, illegal.
Hill Dweller
Cram down legislation couldn’t get through Congress in early ’09, when Dems controlled both chambers and Obama was pushing the legislation publicly. As Sen Durbin pointed out at the time, the banks own congress.
There is nothing else that comes close to effectively ending the housing market black hole, so we’re left with ineffectual measures.
jon
The problem is jobs. If there’s a good job near a home, then the home is worth more. If there’s no job near a home, then it’s worth less. If gas prices and bad jobs combine to make a home worth a lot less, then there’s a bigger problem.
Maybe those banks could start by lending small amounts of money here and there, rather than fire lots of workers and make promises to Rick Perry.
Keith
Whether this would be a success depends on the range of liens that could be restructured.
Sure – it will only apply to fed-backed mortgages.
Sure, it might still not allow consolidation of 1st & 2nd liens under a new loan. (Though allowing that to happen would be a good ting).
One thing for cerain, in the example you cite of a 6% to 4% loan the difference in monthly payments is more significant than you make it sound.
Use a 200K loan – going from 6% to 4% on a 30-yr loan would save over $250 per month. That is not chump change. That is significant.
If the old rate was higher the savings increase 6.5% to 4% yields $320+ that was otherwise going to service the higher rate loan.
This would be a good idea – which may be exactly why it will never actually see the light of day.
prufrock
I’m at least $80,000 underwater on my house (Florida). Because of a low interest rate, my monthly payment is very affordable. However, if I lost my job and had to move, the bank would be receiving jangle mail from me. I refuse to be stuck in a house at the expense of my family. Fuck the banksters with a rusty chainsaw.
Sideways.
boss bitch
very sad commentary on our current Congress.
In any case, at least the administration is trying. My friend was recently saved in July so I hope plenty more people can be helped.
Martin
Repost from last night.
This is astonishing. I mean, should be screamed from the rooftops astonishing:
Median white household net worth: $113K
Median black household net worth: $5K
Median latino household net worth: $6K
These are MEDIANS. So Gates/Buffett/etc aren’t affecting these at all. Half of white households are worth more than $113K, half are worth less. Half of all black households are worth less than $5K. This needs to be the new narrative on tax fairness, jobs, and so on.
I’m simply blown away by this. I never in a million years would have thought the disparity was even remotely that large.
—
The mortgage meltdown was a big part of the problem here as it disproportionately hit minority groups, but given how high unemployment rates are in minority communities, mortgage adjustment isn’t going to go very far. It needs to be jobs, and it needs to be jobs that pay livable wages.
Danny
@mistermix
Yes.
And why are we not going to get it? Because it’s not permitted under current law. And what stops us from rewriting the law? Why, 242 republican members of the house of representatives stops us from rewriting the law.
Don’t bury the lead.
HAMP, HARP and whatever’s proposed may be insufficient relative to cram-down but politics is the art of the possible. If we want to see cram-down made possible then the solution is retaking the house. In the meantime we focus on whatever’s possible.
burnspbesq
I have absolutely no sympathy for anyone who bought more house then they could afford based on the insane delusion that housing prices would increase 10 percent per year from the date of the closing until the end of time. If appreciation in value of your principal residence is the linchpin of your investment strategy, you don’t need a new mortgage, you need a new strategy.
If you want to argue about relative culpability in the meltdown of the housing market, argue away. But don’t pretend that there are any innocents here; there aren’t. And as a general rule, I don’t believe in relieving stupid people from the consequences of their own stupidity.
Yes, I’m a cold, heartless bastard. I’ve never pretended otherwise.
ppcli
@prufrock: If this situation took place at the corporate level, the WSJ would make it clear what should happen. That is, say that Goldman Sachs owned a company (call it Home, inc.), and borrowed 8 billion dollars to buy it. The terms of the loan were that if Goldman were to stop paying off the loan, the ownership of Home, inc. would revert to the lender, and that would be the end of it. On the open market, Home inc. is worth 2 billion.
Goldman Sachs would stop paying immediately, and if they didn’t, their shareholders would be howling in anger and suggesting that the top executives be fired. The WSJ editorial page and Business Week, etc. would take the shareholders side.
Maybe we should start up a new slogan – “My friends, people are corporations too!”
PurpleGirl
I have a friend who is financially sophisticated — she’s worked as an economic development analyst, a CFO in several investment firms, etc. She and her husband decided to sell the house they had and get one in a school district that had the high school they wanted their daughter to attend. They bought an older house in an older area, nothing fancy and not overly expensive.
But when she lost her job, she was out of work for close to three years; her bank was about to foreclose when she got a job that paid less than her previous one but it seemed they’d be able to handle things. Her bank played a number of games of losing paperwork and such and foreclosure still loomed. She lost that job. She just got another one. I’m not sure where they are in the foreclosure mess but even if you did everything right, being out of work will jam you up. (Oh, and even though it wasn’t overly expensive, the house still ended up underwater as values in the neighborhood changed and sunk.)
PurpleGirl
@burnspbesq: See my comment @ #22.
Danny
@burnspbesq:
Perhaps, but the big picture is that aggregate wealth of the working middle class has been eroded in the last decade and that lost wealth has been replaced with borrowed money.
That doesnt negate individual responsibility.
But it reminds us that our Galtian overlords are far from innocent here – because it’s them who have been pushing those very policies that transferred wealth from the middle class into their own pockets.
danimal
Cramdown is the housing equivalent of single payer, or perhaps the public option. Yes, it’s the best policy, but I don’t want to suffer for 10-500 years waiting for it to pass. I’ll take any mortgage relief available today over a more perfect policy in the (perhaps distant) future.
@burnspbesq: And Burns, fcuk off.
burnspbesq
@Martin:
“It needs to be jobs, and it needs to be jobs that pay livable wages.”
As long as there is someone in Bangladesh willing to do that job for 50 cents a day, no employer will pay someone 16 dollars an hour to do it in America. Pretending otherwise is not a viable strategy.
RareSanity
That boat has already sailed, unfortunately. The government has basically already made a purchase of bad mortgages via TARP and whatever the hell The Fed was doing with banks around the same time. If it were going to happen, it had to happen then. Banks will never accept the government coming in and telling them what they should be doing with their, now manageable, mortgage portfolios. Why should they? If the portfolio blows up again, they’ll be plenty more government or Federal Reserve money, because they are “too big to fail”. Consider this, for all the “too big to fail” lip service during the crash, what was the actual outcome in regards to banks?
THEY GOT BIGGER! Now they are “too biggerer to fail”.
Understand, when I say the banks will never allow, I mean “they”, through their proxies in Congress, will never allow it to happen. Hell, according to Matt Taibbi’s latest blog, the Executive Branch and the New York Fed are trying to limit any further civil or criminal liabilities to banks right now.
Outside of a group, that could probably travel together in one car, no one in Washington gives two shits about what will actually make the economy better. The reason why it’s even more screwed up, which shouldn’t be possible, is that they are coming at not giving a shit from two different perspectives. Republican don’t give a shit because they think that the worse things get, it’s “Good news for Republicans”. The Democrats don’t give a shit because the banks told them to not be distracted from protecting them by “those people*”.
*: In this case “those people” means the American people.
burnspbesq
@danimal:
“And Burns, fcuk off.”
Hate the message, not the messenger.
Sides, I look silly in FC UK. I’ve got a Brooks Brothers body. No point in pretending otherwise.
RareSanity
@burnspbesq:
I have never understood why people would rather endure the negative consequences of not helping people, they have decided don’t deserve help, instead of helping them and also enjoying the benefits.
What personality trait is that?
“Those people were stupid and bought houses they couldn’t afford! So, I am willing to endure a terrible economy, my own property decreasing in value and a general breakdown in society at large, as long as those idiots get what they deserve!”
That’ll show ’em…
Unabogie
I should note that anyone who now points to Paul Krugman as the sage of all economic advice must also acknowledge that he was calling this a “real-estate bubble” back in 2003. In 2004, everyone I knew who worked in real-estate was saying that the prices were grossly inflated, and there were lots of articles explain why (rent vs own tables, etc).
If you want to trace this problem back to its origins, it was certainly the banks who found that slicing up mortgages was insanely lucrative, so writing as many mortgages as possible was in their interest, regardless of ability to pay back. They just discovered that buying a CDS would cover the losses. What they didn’t care about was what would happen if all of them needed to cash in their CDSs at the same time, which is what happened. So yeah, they were stupid. But so were the idiots buying 2 bedroom homes in the San Fernando Valley for 600k.
Look, I support efforts to alleviate the problem, but I don’t think we solve this problem by pretending it’s all about the greedy banks OR the deadbeat working stiffs. A LOT of people saw green and acted like morons.
Emma
@burnspbesq: Well, at least you know yourself. Which is, IMHO, half the battle. The other half is trying to become more human. Not doing so hot on that one, buddy.
wrb
This is quite a significant proposal, as I see it. Shooting to good because you want the unachievable is stupid. This will make a big difference for a lot of people, and perhaps more importantly prevent a bunch of foreclosures. The market is continuing to crash and without something to put the breaks on, it will suck the whole economy with it. This is also a major stimulus. It creates new money in the publics hands just as sure as any other method, and it is something the government can just do.
Equating it with HAMP is a mistake. HAMP was voluntary, requiring bank cooperation. Despite getting more than $20k in public money per rewritten deal.
This is exactly the sort of clever use of the tools at hand that the administration should be pursuing. And they should be praised for doing so LOUDLY. It won’t be perfectly fair, but fuck it, the situation it too dire to worry about perfection. Those who don’t benefit directly will benefit from the stimulus.
Derf
Other than to whine what exactly is the point of this post? You offer no solutions. You just say “it’s not working” as if you know that a simple swipe of some magical wand is all that is required. Or maybe the mortgage fairy perhaps?
wrb
I wonder how aggressive the government could get with this. If the paying zero or negative interest, why charge 4%. Interest was reduced to 2% a whole lot more money would be pumped into the economy, foreclosure rates should plummet, and the housing market would get a huge boost.
Drawbacks, other than fairness?
Jonny Scrum-half
There seem to be several different scenarios with respect to real estate. One is described by PurpleGirl@22. Another is a situation where someone bought a home that is now worth less than the mortgage, but the homeowner still has his/her job and, presumably, can continue to make the mortgage payments. A third is a situation where someone bought more house than he/she could afford under ridiculous terms like, for example, no/little money down and interest-only payments for a period.
In the third scenario, I don’t see the tragedy in the owner having to walk away from the house. There was no big down payment, and the “mortgage” payments are similar to rent payments. Sure, it’s a pain to move, and it’s too bad that the owner was misled about owning a home, but I don’t see the great harm.
I also don’t see any great harm where someone who can afford the mortgage payments owns a home that happens to be “under water.” Presumably the owner thought that the home was worth the purchase price when he/she bought it. I suppose that this becomes a real problem if the owner has to move, but I wonder how often people absolutely have to move.
So, the only situation that poses a real problem is where the owner loses his/her job, as described by PurpleGirl. However, the loss of a job would be a problem even in an appreciating housing market. The only complication here is that the owner likely will lose the equity in the home because the mortgage exceeds the home’s value, resulting in foreclosure.
I’m not minimizing that as a problem for the homeowner, but I don’t see why that’s a situation that requires national action to make everything right. Many people lost a lot of investment money in the stock market, but I don’t hear a call for everyone to be made whole for those losses. Why is the housing market different?
Myles
This is a macro problem and not amenable to solutions like cramdowns. Basically, as soon as you’ve solved the homeowner side of the equation by cramdown you’ve just destroyed bank core capital, and now you have another financial crisis on your hands again.
The only solution to a macro problem is also macro: that is, a bout of higher than normal inflation which would erode all obligations in the economy, including existing housing debt. This is a monetary problem, not a legislative one.
Dennis SGMM
@Unabogie:
This. Many buyers, most lenders, nearly all real estate agents, worked together on it.
You can pile on burnspbesq if you want to but here in SoCal it was like a second Gold Rush. People were falling all over themselves to buy homes at any price so that they could cash in on that sweet inflation of housing prices. The same thing happened here back in the Eighties. There was a belief that all you had to was buy a home, move the For Sale sign to the other end of the lawn and you’d cash in. Literally. That time, home values tanked around twelve percent in the aftermath. This time, the whole country jumped in and now we’re fucked.
dcdl
What drives me crazy after so many years of the housing bubble burst is that there are people still saying people bought housing they couldn’t afford. That may be true to a point, but I think those people have already lost their house by now. How about losing work? My husband lost a 1/3 of his income when work cut back his hours. We’ve looked for work nothing out there. 1/3 of his income was our housing payment. We could barely afford it after the loss of work and were continuously dipping into savings until that was gone, next credit cards, then 401k loan. We tried refinancing, but with the housing market depreciated our house did to and we would be back to paying PMI. So whatever we would have saved with a lower interest rate would be made unaffordable with PMI. I know what it is, but really what is it? A scam?
Heck we tried HAMP. What a joke we ended up owing Wells Fargo $8000 at the end with a approval for a ‘lower’ mortgage $300 dollars more than what we were paying. They said there was a clerical error and we would have to start over. At the same time since we were ‘late’, another scam, they started the preforeclosure proceedings until we could get a caught up. Again we dipped into our 401k. BTW, we were never late, but they consider you late during the trial period and chock on all sorts of charges and stuff.
We are renting our house for a loss right now. Have looked into Deed in lieu of Foreclosure. Got screwed in that one. Looked at Short Sale. Bank won’t really work with us.
My whole point of the rant is people sometimes can’t afford the payment, because of work and have tried refinancing, but because of the loss of value on the house still can’t afford the payment with PMI.
wrb
@Jonny Scrum-half:
It isn’t. In a slow-motion and purposely concealed way (banks delaying foreclosures and delaying selling their foreclosed properties so that their true weakness isn’t revealed and so they don’t just completely collapse the market) there is, in housing, the same sort of world-treatening crisis developing that the financial sector faced after Lehman, and to which the government responded with TARP and over a trillion dollars in emergency loans from the Fed. If the whole economy isn’t going to be fucked much worse than it is already is, this crisis needs a response just as forceful.
The ongoing wealth destruction is colossal and horrific. Much of the middle class is losing everything. The assets are being scooped up by the same funds that caused the crisis. Only the wealthy benefit.
This by the way is one of the suggestions Brad DeLong made the other day. It will now be disparaged by the same people who were demanding its implimentation the other day.
I’d been musing over it, thinking it perhaps the only one that might work.
wrb
@Myles:
That would be best, but we’re stuck with a Fed that seems to disagree,
Judas Escargot
@RareSanity:
Conflation of “money” with “morality”.
Back in early 2008, I heard some grizzled old greybeard on CNBC warning about the subprime market being “full of people who bought houses they don’t deserve.”
I remember thinking wtf does ‘deserve’ have to do with anything?. You can either afford the place, or you can’t. But the Calvinist gene is still strong in this culture, so that word “deserve” keeps cropping up. Some folks just don’t “deserve” houses. They don’t “deserve” health care. They don’t “deserve” a college education.
Want to know the real reason nobody’s doing anything to create jobs in the US? If you’re unemployed, you obviously don’t “deserve” a job, either. Or you’d have one. Duh.
I doubt there will be any rational solution to the housing problem. The culture would have to change, and that’s not going to happen in time. Even if the political will to do something was present, there doesn’t seem to be anybody smart enough in charge anymore to plan and execute anything so complicated.
Myles
@wrb: That would be best, but we’re stuck with a Fed that seems to disagree,
It’s much much harder to legislatively recapitalize banks (what’s the chances of another TARP passing?) than to force cramdowns. And cramdowns logically dictate bank recapitalizations, because every dollar that is crammed down is a dollar gone from bank assets.
I wish the idiots who post at FDL or whatever would understand this basic equivalency: once you start cramming down, not only is it hard to stop (cramdowns built their own downward momentum on price), it could well mandate another bailout. Eeeeck.
On the other hand, if Obama can get very Keynesian economists appointed to the FOMC, this would be a lot easier.
Chrisd
For the past couple of years, I’ve made it a point to spend more time reading about U.S. history rather than getting bogged down in current events. One common theme emerges, over and over, no matter what slant of American history you consume–this is one cold nation. Give me liberty; IGMFU. No way around it.
wrb
@Myles:
One place I’ve wondered whether some Bully Pulpit pounding might actually work (and I’ve only wondered, I’m not at all sure that it would) Is in calling out the Fed for ignoring their mandate to control unemployment. They are not doing their duty. Demand they do what it takes to bring unemployment to 6% within a year.
Perhaps it will influence their actions, perhaps it would lead to some resignations, and if not it could make very clear that the obstacle to recovery is the Republican-Appointed body that will act radically to save the bankers but just doesn’t seem to care about the people, so much so that they ignore their own mandate.
Myles
@wrb: Perhaps it will influence their actions, perhaps it would lead to some resignations, and if not it could make very clear that the obstacle to recovery is the Republican-Appointed body that will act radically to save the bankers but just doesn’t seem to care about the people, so much so that they ignore their own mandate.
It’d be completely ineffective because the intransigent ones in the Fed are the regional Fed chairs, who are usually much more conservative. The whole institution of voting regional chairs in fact belong to a diff. era and is now obsolete. Calling out the Fed in general doesn’t change this because the regional Feds are not within Obama’s purview. Bernanke is a perfectly fine Keynesian economist as far as these things go. (Of course, as with all monetary policy, this idiocy of regional Fed chairs is actually way worse in the Euro central bank.)
(Just for kicks, some of the regional Fed boards are so bad that their members aren’t even real bankers but corporate executive types.)
wrb
@Myles:
I think the public has the idea the boards are supposed to to serve the public good, but looking at the structure, it appears that they are designed to serve the banks, and more blatantly than I’d realized.
The regional board members are elected by the region’s banks. Regulation by the regulated.
So of course when the interests of the banking sector conflict with the the interests of other sectors, the votes of the regional directors are cast on the side of the banks.
That is a remarkable capture of a remarkable amount of power.
KG
ah, something I actually know something about… here are the nasty little facts:
banks aren’t (and never have been) interested in doing modifications. they were, from day one, a PR stunt that people actually took seriously.
HARP is a joke because it doesn’t help the people who need help. you can only do a short refi under HARP if you have been current on your payments the last two years. If you haven’t been, then you’re boned.
HAMP is also a joke because in order to qualify for it or other most modification programs your income to debt ratio has to be at least 120%. In other words, the only people who qualify for modifications are people who essentially don’t need them.
HAFA, the short sale program, is also a complete joke and waste of time. No one qualifies and if you don’t ask out of it to get into the bank’s own short sale program, you’re going to waste a few extra months.
Nor does it help that home prices keep dropping (for a variety of reasons), making it ever more difficult for people to make sales. And, for that matter, home sales have started to drop.
catclub
@wrb: IN the words of Gomer Pyle: “Surprise, Surprise, Surprise!”
Who did you think was on the Fed Boards? Hippies?
Anniecat45
@burnspbesq —
Most people out here in reality land don’t have an investment strategy. That’s for the upper middle class and above. Most of us work long hours and try to raise kids. There’s no time for anything else.
People like me have been told for 50 years, by a three-part harmony chorus of banks, real estate brokers, and big building companies, that the best investment we could make was in a family home, and that people who did not buy homes were stupid and irresponsible. This became the conventional wisdom, so much so that I’ve had people tell me to my face that I was a chump not to buy real estate.
Into this setting, for people who could not afford a house, comes a variety of new mortgages, complete with workshops to tell us how they worked. I went to a couple of those, and a lot of my friends went to others. Every single one of them told us all that if we had a good record of paying the initial low house payment for a couple of years, the house value would rise sufficiently that when our original loan payment rose, we would not have a problem refinancing into a new loan with a payment we could afford. And this message was confirmed and reinforced in a great many sources of economic or investment information, including most of the sources somebody would consult if they were not familiar with investment strategy and did not have a lot of time and inclination to do in-depth research. Somebody with a lot of investment savvy — @burnspbesq, I’m talking to you — can sneer all you want at this but as noted above most people who buy homes don’t have that kind of savvy and when told that they can get both a place to live and a long term good investment for one payment, well, yes, a lot of people would take that deal.
In case you care enough about other people to be curious, burnspbesq, I never did take that deal — I live in San Francisco and could never find anything I liked that I could afford, so I remain a happy tenant — but most of my friends, especially those with kids, did. Most of them are now underwater, and struggling to meet their payments, but they are doing their best to meet their payment and stay in their homes. They don’t want to do cramdown because they don’t want to declare bankruptcy, so cram-down would be useless for them. They just want a refi with a payment they can afford.
You’re not required to help other people, burnspbesq. But if you’re going to sneer at others, you damned well better make sure your own investment strategy is completely infallible and you’ve foreseen and provided for all possible consequences and future life events, including job loss and catastrophic illness.
You have, haven’t you?
wrb
@catclub:
I guess I assumed they were appointed by those we elect. I’d never looked into how the regional boards were appointed.
That such huge power over the national and world economies has been taken by an industry’s trade group is impressive.
PurpleGirl
@Anniecat45: Brava!
uptown
but Dennis G. tells us we can’t complain about the President’s bad policy decisions, because he’s black and has had to deal with bad things in his life that us lefties just can’t understand (or something like that).
Another Bob
Cue the Obama apologists explaining why this is the best that he could have done given the “political realities” of the situation. To some of us, it just looks like yet another case of the administration looking out for the interests of Wall Street while doing little or nothing to help regular people.
Judas Escargot
@Chrisd:
You’re not wrong.
Also add that so much of the “IGM” crowd has historically got theirs through gubbmint largesse. Those hallowed 19th cent. homesteaders were taking possession of lands given them by govt, so they could build farms using seeds, tools and other goods delivered to them by a govt-subsidized train system.
Or Enron, or the oil companies, or the Kochs, who work in sectors that require govt funds to function. Given rhetorical cover by folks like McMegan, whose U. Chicago tuition was paid through govt contracts to her father.
Try to find a multi-generational family fortune that wasn’t somehow subsidized, bankrolled, or stolen outright from the government. You’ll be looking for a long time.
Comrade Kevin
@uptown: You really are colossally stupid, you know that?
uptown
@Comrade Kevin:
Hmmm, you must have missed this…
Off Colfax
Don’t worry, everyone! After HAMP is proven to be a failure by the GOP via the complete defunding of the program, we’ll have to move on to the Home Employment and Life Program (HELP) in order to truly pull the country out of the downward spiral.
Naturally, anything that has HELP in the name of the bill will be immediately defunded by the GOP. That means, of course, that Pelosi and Reed will have to compromise on a High Efficiency Mortgage Program (HEMP).
Of course, HEMP will be proven to be a failure by the GOP as well. Which means that we’ll need a Second High Efficiency Mortgage Program (SHEMP). And after that would come the Mortgage Option Equivalent law (MOE).
And then the pundits and Teepers throw a Three Stooges routine while the rest of America burns to the ground.
Tonal Crow
You have a strange definition of “a few more bucks”. Converting a $200,000 6% fixed-rate 30-year mortgage into a 4% loan saves $244/month.
Mass refinancing of federally-guaranteed mortgages is a fantastic idea. And not just for homeowners, but for the economy at large. And not just substantively, but procedurally, because the traitors in Congress will find it difficult to block.
Yes, it’s not all that can (or should) be done. So?
Comrade Kevin
@uptown: No, I didn’t miss anything. It’s not my problem if you can’t read English, or choose to deliberately misunderstand something.
replicnt6
@Anniecat45:
This.
Thank you Anniecat45.
TK-421
I am very, very hopeful and supportive of whatever the hell the Obama Admin wants to try here. Fingers crossed that the plan works this time…
Beyond that, wow are some people completely irrational about this and I’m beginning to understand why our nation and our government is so f–ked up. Memo to, well, everyone here: on this specific issueit doesn’t really matter who’s to “blame” for this mess. The mess is here and we have to deal with it, in a serious and responsible way. Obsessing about blame doesn’t move us forward on solving this problem.
There are a lot of indications and opinions of experts that say this foreclosure mess will never be solved unless we either A) lighten the debt load on individual homeowners (i.e. principal modifications) and/or B) give everyone lots of income security and growth (i.e. fiscal stimulus) so they can afford their existing debt burdens.
Sitting back and saying “f–k you, you deserve this pain!” will not improve your own economic situation, burnsbpesq, and you’re fooling yourself if you think you’re immune to the economic problems others are enduring right now. It might happen to you, too, and I doubt you would enjoy people dancing on your own economic grave. Being a heartless bastard is no way to go through life, and in this case is remarkably counterproductive. What you expressed is EXACTLY what I hear from teabaggers all day long down here. Is that who you want to be associated with? Because, unless you change your attitude on this issue, that’s exactly who you are.
Also, even though I agree with this sentiment, insisting that we “make those f–king bankers pay!” is probably not going to persuade them to agree to principal mods. It’s in their best long-term interests to take a haircut, and their stubborn pursuit of short-term interests over these past few years hasn’t actually worked. Somebody should be able to persuade them to stop their Faustian idiocy, and as much as I want to believe otherwise I don’t think torches and pitchforks are going to accomplish that.
Everyone- the government, the banks, the homeowners- have a long-term interest in fixing the foreclosure mess, and principal mods is one of the few ways out. Despite what some politicians and bankers might wish, there is no way to “ride this out” and trying to ride this out is probably only going to make the problem fester and get worse.
Let’s get behind whatever the hell this next plan is, and hope the bankers see the light and sign on.
Brachiator
Yep. Yep. Yep. Yep. Yep.
Wages have been stagnant for years, people are losing jobs or end up underemployed. If they can’t afford the house now, and their ability to afford the house in the future is eroding, playing interest rate games won’t help.
By the way, to give an idea of the extent of the new problem starting to hit, foreclosures are including homes that were bought by people using the First Time Home Buyer’s Credit. A credit meant to stimulate the economy is collapsing on itself.
Brachiator
@burnspbesq:
So, you were against the TARP, and the bailouts of banks in the UK, Ireland, Iceland, etc.?
There is no point in bashing you on this, but again, I would ask for a clarification. Lenders were gatekeepers. They knew that people did not qualify for loans. But they saw that they could make huge profits on fees even if the mortgage holder defaulted, and so violated their own lending rules. And they often lied, and told people that they qualified. Or they verbally told Latino applicants one thing, but gave them an English language document that said something else altogether. And then they came to the government for a bailout, saying that if they weren’t made whole, the entire financial system would collapse. And again, variations on this played out over the housing markets in Spain, Ireland, Iceland, the UK and elsewhere.
So I can understand not having sympathy, but it seems like pain and punishment has not been distributed with any kind of equity.
mclaren
Nobody seems to grasp the basic economic fact that mortgage modifications are a non-starter because they would require America’s insolvent banks to write off those mortgage cramdowns as actual losses.
As long as the banks can hang in there with “extend and pretend,” they don’t need to put actual losses on their books. So America’s banks can continue to look as though they’re actual operating viable businesses, instead of the zombie death-march red-ink-drowning involvent bankrupt institutions they really are.
We’re living in a fairytale economic fantasy right now in which America’s financial systems pretends it’s not insolvent, and the U.S. government pretends the FIRE sector which now makes up most of the U.S. economy, is actually a going concern instead of a collapsed Ponzi scheme.
One of the few economists who talks about the reality underneath this ongoing masquerade is Harvard’s Umair Haque, who calls America’s current economic system a Ponziconomy.
We’re stuck between a rock and a hard place, folks. Economically, we can’t go forward by devaluing all those bad loans and writing ’em off because that would reveal the true insolvency of America’s financial system and crash the entire system. We can’t go backward to the happy era of bubblicious crazy housing and stock valuations because those valuations were all based on scams and lies which have now blown up and collapsed.
So we grind along for another lost decade or two, extending and pretending.
There’s no simple solution to this one, folks. No quick easy fix. The aftermath of a giant Ponzi scheme bubble always takes decades to unwind, and it’s economically brutal.
mclaren
@burnspbesq:
TRANSLATION: “Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.” — Andrew Mellon, 1930
Been there. Done that. That policy created the Great Depression.
No, you’re just stupid and ignorant. Read a book on basic macroeconomics sometime and learn something. You might start with John Hicks’ “Value and Capital” (1939) and Keynes’ “General Theory of Employment, Interest and Money” (1936). Along the way, look up the ISLM model and the J curve.
Tonal Crow
@mclaren:
The proposal is not “modification”, but mass refinancing. The program would pay off existing mortgages owned by banks and guaranteed by Fannie/Freddie, meaning that banks wouldn’t “write off” anything. Fannie/Freddie would then own the replacement mortgages, and would collect the interest from them, some (most?) of which they would pay to the Federal Reserve in exchange for the loans they would need to issue the replacement mortgages.
Fannie’s/Freddie’s risk would actually fall, because they’re now on the hook for the guarantees on relatively high-rate mortgages, which would presumably fail more frequently than the relatively low-rate replacement mortgages that they’d issue.
This program would basically be a pretty effective form of quantitative easing. I suppose that means Perry will renew his threat to lynch Bernanke, and perhaps append a threat to lynch Obama.
mclaren
@Tonal Crow:
That doesn’t make any sense. The difference between the income stream of the reduced mortgage interest payments and the income stream of the original mortgage interest payments comes to trillions and trillions and trillions of dollars.
At some point, that difference must be recorded in somebody’s ledger. Basic accounting requires it.
And by the way, where do all those trillions of magical dollars to pay for this buyout come from? The Money Fairy?
Tonal Crow
@mclaren: On income streams, the existing eligible mortgages are held by banks. Those mortgages’ terms allow prepayment, so the banks have no contractual say in whether they get refinanced. The mass refinancing would be a mass prepayment: the banks would receive each mortgage’s outstanding principal balance plus prepayment penalties (if any), just as the mortgage contracts require.
And as I already noted, the “trillions of magical dollars” would come from the Fed’s electronic printing presses, just as did the “trillions of magical dollars” that the Fed previously used to purchase CDOs and long-term T-bonds in QE1 and QE2.
This program would be a big win for homeowners, a big win for the economy, somewhat of an income loss for the banks (though it would improve their cash balance sheets), a big win for Obama, and a big loss for the traitors who call themselves “Republicans”.
What’s not to like?