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Banks Commence Wholesale, Unsolicited Mortgage-Debt Forgiveness
It was just a matter of time before wholesale debt-forgiveness became the primary source of wealth in the US. The time is now. The NYT reports that "big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked. Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk." To be deemed in "special risk" one needs to simply have an Option ARM mortgage, and be underwater, even if still current on mortgage payments. End result: an up to 50% cut in the actual mortgage obligation. To wit: "Ms. Giosmas, who lives in Miami, was not in default on her $300,000 loan. She did not understand why she would receive this gift — although she wasted no time in taking it. Before Chase shaved $150,000 off her mortgage, Ms. Giosmas owed much more on her place than it was worth. It was a fate she shared with a quarter of all homeowners with mortgages across the nation. Being underwater, as it is called, can prevent these owners from moving and taking new jobs, and places the households at greater risk of foreclosure." Whether this is a strategic step by the banks who wish to avoid tens if not hundreds of billions in fraudclosure and putback related legal costs, charges and reserves is for now unclear, although all signs point to yes. Next up: everyone in America stops paying their mortgage, or demands a 50% haircut on existing debt, now that the example has been made. And in the meantime, banks will somehow continue to keep the mortgages, which they have now cut by up to half, at par on their books following some brand new, thoroughly senseless announcement by the FASB which says banks can mark anything to whatever price they chose in perpetuity. Because otherwise, the TBTF lenders will suddenly find themselves in a massive deficiency on their Tier 1 capital, also known as completely insolvent.
“I used to say every day, ‘Why doesn’t anyone get rewarded for doing the right thing and paying their bills on time?’ ” said Ms. Giosmas, who is an acupuncturist and real estate investor. “And I got rewarded.”
Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.
Bank of America and Chase inherited their portfolios of option ARMs when they bought troubled lenders during the housing crash.
Chase, which declined to comment on its program, got $50 billion in option ARM loans when it bought Washington Mutual in 2008. The lender, which said last fall that it had dealt with 22,000 option ARM loans with an unpaid principal balance of $8 billion, still has $33 billion of them in its portfolio.
Bank of America acquired a portfolio of 550,000 option ARMs from its purchase of Countrywide Financial in 2008. The lender said more than 200,000 had been converted to more stable mortgages.
More details on the example that prompted the NYT article:
Ms. Giosmas bought her two-bedroom, two-bath apartment north of downtown Miami for $359,000 in early 2006, according to real estate records. She made a large down payment, but because each month she paid less than was necessary to pay off the loan, her debt swelled to about $300,000.
Meanwhile, the value of the apartment nosedived. By the time Ms. Giosmas got the letter from Chase, the condominium was worth less than half what she paid. “I would not have defaulted,” she said. “But they don’t know that.”
The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent. Her payments would stay roughly the same.
A few months ago, Ms. Giosmas sold the place for $170,000, making a small profit. Having a loan that her lender considered toxic, she said, “turned out to be a blessing in disguise.”
And so America is now well en route to another spike in class warfare tensions, as has been the default case for the past two years between those who act in a prudent financial way, and everyone else, who are now getting bail outs from the same banks that were bailed out by those stupid enough to pay US taxes in the first place:
The banks say cutting mortgage balances would be unfair to borrowers who remain current as well as impractical because so many loans are securitized into pools owned by investors. Bank of America’s chief executive, Brian T. Moynihan, told the attorneys general in April that cutting principal for current borrowers would send the wrong message to all those who have struggled to pay their bills. His counterpart at Chase, Jamie Dimon, bluntly said it was “off the table.”
Having an option ARM loan, however, apparently qualifies the borrower for special help. The loans, with their low initial payments and “teaser” interest rates, were immediately popular with buyers who could not afford or did not want to pay the soaring prices on houses. The problem was, eventually the rate would reset or the loan balance would have to be paid in full. “Nightmare Mortgages” they were called in a 2006 BusinessWeek cover piece.
Lastly, to all those who were predicting an Option ARM housing market collapse once loans go from Adjustable rate to fixed, the banks now have an answer. And it is wholesale mortgage debt reduction.
Option ARMs were never quite as bad as predicted, partly because the crisis pushed down interest rates so far that the resets were relatively mild. Many owners did default on them, but others, like Ms. Giosmas, were quite happy to pay less for years than they would have under a conventional loan. She used option ARMs on her investment properties too.
“They saved me,” she said. “Why would I want to pay a lot more every month? I’d rather have it in my pocket.”
Not surprisingly, this will be the same rhetorical question posed next by everyone who still has a mortgage, and not only by those, roughly 28% of all, who are underwater on their mortgage. Which means that wholesale mortgage reduction for everyone in America is next on the docket. Which also means that the "rent" component of personal income is about to surge from the current $50 billion annualized to well into the triple-digits, or about 1-2% of GDP, just enough to offset recession yet again.
And that's how you create wealth in the modern, centrally-planned USSA.
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Rawhide
http://www.youtube.com/watch?v=F5N35kQAPv0&feature=related
+1 Thanks. Happy 4th.
Good thing the bastard Bernanke & goofy Geithner didn't learn of this before it started. They would have tried to shoot it down in a New York second.
You are very naive if you think that theBernank, Timmay, and Hank Paulson among many others whose names you'll never know were not part of the team that concocted this 'solution'.
Opportunity is always quietly evident in Chaos.
I could have bought a $500K McMansion and become extremely underwater. But as a responsible adult, I bought a small house for $100K and paid it off in less than 10 years. Now how is this fair to me.
I am guessing that "Friends of the Banksters" are getting the sweet forgiveness deals.
Please....silver is predictable:
http://missivesinstitute.blogspot.com/2011/07/silver.html
I'm new to the site. Just checking to see how this actually works. God bless your patience.
You had BETTER Learn Fast!!! Or you are REX lunch!!!! Disclaimer; just kidding. welcome aboard.
Hey, I've got an idea. Let's take the creation of new money, and suspend what the Constitution says about it, and instead give the authority over to a private company. This money creation consortium will be trustworthy, so they will have the word "Federal," right in their name. In fact, they will be so trustworthy that we won't be allowed to audit what they do. No need to!
So whaddya say, good idea?
I am a renter and 'did the right thing' by living within my means. This is the wrongest thing I've ever heard of. From now on, for the first time ever, I will look out only for number one. Screw everyone else, the spongers have consumed enough.
what do you mean, "from now on"?
There will be a bomshelll @ http://missivesinstitute.blogspot.com/
It's about the timing.
If house values are marked down 50%, property tax revenues are going to plunge. The Fed will be forced to Print Trillions more and Bail out States via banks as they are already doing in New Jersey via "loans."
I'm pissed that Barry, Timmy and The Bernank are not handing out free tubes of KY so the pain for Savers and Frugal is not that bad.
The banks are being sued and facing putbacks. Getting the borrowers to sign new enforceable notes and mortgages will probably take care of a lot of the pending or potential litigation. The state AGs will likely go away. The banksters will, or course, NOT be prosecuted. The bad guys win again.
Obviously there's been some sort of back-room deal worked out where bank losses on written-down mortgage balances will be reimbursed by the Fed ...with printing-press money no doubt.
Why is this happening now? Two words: Obama's re-election.
Think about it. The vast majority of people buying homes way over their heads, being irresponsible, likely voted for Obama and would vote for him agian ...especially if they just got half their mortgage balance forgiven.
I see this as an Obama re-election campaign ploy as much as anything.
A secondary benefit to banks is fresh note documents that can be properly recorded.
This is QE disguised as loan modification. Just like previous QE went to banks, this will go to banks also. No difference.
I have maintained that QE will continue in some way shape or form. This is QE continuing in another form.
Fuck the crap. its over
Investors May Lose as Congress Saves Money on Adviser Oversight
http://www.bloomberg.com/news/2011-06-28/investors-may-lose-as-congress-...
Has it occurred to anyone that this is what would have happened if there was no TARP, and all the mortgages and MBSs were untangled in bankruptcy? There is a good chance they are being untangled now with multiple mortgage owners.
If housing is going to keep going down, and it is, then the banks are using their printed money to try to get ahead of a flat out route in the real estate market.
TARP was the worst legislation ever.
A new entitlement! Debt Reductions! So who pays for all of this? The FDIC? Bank depositors? It certaintly won't be the banks, since they have infinite bailout assurances!
But didn't Geithner in 2009 declare "infinite" taxpayer guarantees for all those Fannie and Freddie loans? So we're all on the hook for the losses!
This is NOT going to have a happy end!
So we're all on the hook for the losses!
Technically yes, but in practical terms I don't think so. $14+ trillion govt debt is never going to be paid back.
It doesn't matter how big the debt gets, they can't raise taxes. Raising taxes would destroy what's left of the economy.
Banks are better off getting back a large part of the mortgage, rather than nothing at all. It makes sense.
time123
admin at http://invetrics.com
Banks are avoiding [ Reserve Requirement Hikes] AKA: true asset values. Got it?
They are cherry picking their balance sheets before Uncle Sam does.
I will have an epic op-ed coming up @ http://missivesinstitute.blogspot.com/
I might have a random heart attack before it's published, so I appologize for having an untimely death before I get it done if that were to happen.
how many times are you gonna post that...?
Mr. Gallin has made the "adjustment"
Any comments on
1. if the following video has any meaning (even if from fox)?
2. how this news changes matters? with loan mods, will the defaults go down or will the markets go down again to take these owners underwater again?
http://www.youtube.com/watch?v=a3g6Yr5S7cg
The prolems at GM and Ford, and....the CDX There have, however, been some changes: Market participants, apparently taking comfort in incoming economic data, revised down their expectation in early May of around x percent to the current reading where the black line flattens out at under x%......
Lay low ,my man.
Now, you all know I don't shout very much, BUT PLEASE! IT IS NOT CALLED A FUCKIN UNDERWATER MORTGAGE!
What the hell is wrong with negative equity???
I stand corrected.
It can be called an underwater mortgage:
"Mortgage help: The flooding along the Missouri River is putting a financial strain on people whose homes or farms are under water, but some help is available. Iowa officials say homeowners who have been displaced by the flood and are struggling to keep up with their mortgages should call the state mortgage help line at 877-622-4866. Resources to help homeowners in Nebraska are listed online at the state Department of Banking and Finance's website: www.ndbf.ne.gov/consumers/foreclosurehelp.shtml."
Moral hazard, round two!
This just encourages people to overpay and overborrow and over-risk! There is no risk any more when people know that they can just borrow up to the gills and their debt will be reduced later. Why shouldn't everyone go out and max out their credit cards and debt if they know they're now entitled to debt reduction? Why not?
I'm so glad I now know about this new entitlement the government is giving me. An entitlement to have my debt reduced. Now, I'll go out a borrow as much as I can next week, and then I'll go to a credit couseling agency and demand a debt reduction the following week.
My best friend did this. Over the course of one year, he borrowed $30,000 on his credit cards. He borrowed the money for various high-risk ventures in real estate investing, grant money applications, and Forex trading. He borrowed with wild abandon! Then, just one month after he maxed out his credit cards, he went to a credit counseling agency and they negotiated a 50% haircut on his credit card debt. Now, one year later, he is just two payments away from liquidating his much-reduced debt. He says they'll give him a new credit card as soon as he makes that 2nd payment.
What behavior does this teach? What mentality does it reinforce? Take risk with abandon! A bailout is guaranteed! Risk is irrelevant!
And who ends up paying all that debt? The banks? Hardly! If they are lending depositor's funds, then the FDIC will pay it, and ultimately, the TAXPAYERS will foot the bill. In the end, it is just another entitlement and redistribution of wealth scheme from deadbeat borrowers to our government and taxpayers. This only hastens the decline of our society and our government. There is no more contract law and no more rule of law.
It's as if they WANTED to hasten the destruction of the United States!
http://www.youtube.com/watch?v=F5nvxUwxI7o
TAX REVOLT!!
Two things.
Firstly, if the bank offers this then surely that means they don't have the paper and the original loan is worthless, if you have a mortgage it might be worth asking about a writedown as this would tell you if they have paper or not. (and if they haven't then you can tell them to swing for the rest)
Secondly, we hear about this ordinary woman getting her loan written down, what about the execs at the banks with a $30million dollar loan on a ranch, will that be written down as well ?
Isn't that the whole point of this exercise, get good paper from the plebs and have the bank buy their ranch ?
.
This is known as the, "Trickle me Elmo", school of Economics.
The TARP, Stimulus I and II are finally being felt at the street level, though it does help to live on the right street.
At least some consumer benefit, albeit given to hundreds of thousands of deadbeats, has cascaded down to some of the people.
Now we know the real deal that was made between the MBS fraudsters and the FED TreaServe.
surprise, surprise...
The only street it is being felt on is the street with all of the Homeless Tents.
I wonder if the IRS will forgive the added incomes taxes do to these "reductions"?
It's not taxable if it is their primary residence. The tax only applies to multiple owners of home and they don't live there or renting them out. It also has to be underwater.
Nothing but a scam for those who pay their bills. I lobbied in 2009 for the complete buyout of primary residence mortgages to solve the problem and create an economic boom, people said I was nuts. Now, it appears only the "losers Mortgages" as Rick Santelli put it once, will get relief. The rest will pay their share and the losers' share. The FED/Treasury ended up wasting the amount of money it would have taken to buyout all mortgages back in 2009. And it has solved nothing. All it did was get Wall Street bankers and thieves even richer.
The Mortgage Forgiveness Debt Relief Act and Debt CancellationIf you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
Centrally-planned? You mean the opposite.
Three pages of comment, 478 posts, I am not going to read all of them as there were other things I wanted to do today, but in any of the hundreds of comments did anyone see any posts that relate to the tax ramifications of these reductions in principal?
Doesn't the IRS see these as gains, "income" or "gifts?" Fine, they lower the principal to a reasonable market level, but then you get to pay 35% of that reduction to the IRS in tax for the year, how does one cope with a 52,500 (.35 of 150,000) tax bill that the IRS is not going to amortize over 30 years. And, what recourse do you have to refuse such a reduction in the event it does result in a huge tax bill? Is this a gift or a punishment designed to get more people out of their homes now?
I know that the Oregonian this morning had a story about how foreclosure sales have essentially been put on hold, in my own case I mailed the keys back to Chase in June 2009 and they slapped a foreclosure notice effective July 15 2009 on the door. It still sits there empty, and the last time I spoke to them a couple months ago (they had also slapped me with a $1,500 per year insurance policy that covered only their financial losses in the event of the house being a total loss in a disaster event) they told me that the foreclosure was cancelled.
http://www.oregonlive.com/finance/index.ssf/2011/07/what_oregons_foreclosure_mess_means_and_when_itll.html
This woman in Veronia sued and got the foreclosure on her house halted so now all foreclosures in the state are essentially halted.
Since 2007, lenders have launched about 100,000 foreclosure actions in Oregon, according to RealtyTrac, one foreclosure data service. That's resulted in just fewer than 35,000 sales. But sales have slowed this year. Through May, they're on pace to total just more than 9,000 in 2011, down from 15,500 foreclosure sales last year, RealtyTrac data show.
The irony for me is that I do not even want the house, I gave it back and would be happy to grant clear title to the house with no obstructions, also the bank can still get paid in full since the mortgage was guaranteed by the USDA Rural Development, once the house is sold for less than half what they say I owe they simply submit a bill for the difference to USDA which then becomes the owner. But as long as the house remains listed in my name at the assessors office I am responsible for it, thus the extortion rate insurance.
These banks have to be doing this because either they are MASSIVELY incompetent, or they have figured out a way to make more money by keeping things on hold. I can't start to clear up my now destroyed credit until this monster is out of my life. And maybe they are doing this for that reason, payback, they know the house might go up in flames, or rot into the ground and have to be razed, and the longer they hold onto it the longer my credit is fucked, the more chance they have of collecting in full on that insurance they bought in my name.
This ought to be illegal, it is either my house or theirs, if mine I will go live in it or rent it out and buy a $350 homeowners policy, and they should not be able to buy policies on buildings they do not own, it is like mafia protection, don't pay your monthly mortgage and we buy huge insurance and destroy the place so we can get paid by the insurance company, after the tweekers strip the place of copper and fixtures which I would probably also then owe them for. If theirs then I should not be left for years in legal limbo. I honestly believe this is all meant to force people into bankruptcy in order to get out from under, and if that is what I must do then I will, but I will also leave America for good and take my income with me.