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Good Plan Gone Wasted
A good portion of the unemployment problem that America faces is structural. Bernanke can Twist all he wants. His maturity extension plan averages $2b of short-term versus long-term paper swaps a day. That is not even a rounding number in the Treasury/Agency fixed income market. Other than adding to the bonus pool at a few of Wall Street’s wire houses, it will make no difference at all.
There are a fair number of people who are now out of work (or underemployed) who can’t seek a job outside of their current location because they are underwater on their homes. Without mortgage relief, they are trapped.
Take the example of the welder in Cleveland who can’t take a promising new job in Nebraska because he is upside down on his mortgage. Assume that this welder has a contract of employment in his hand from an employer desperately looking for workers in the oil fields. All this person has to do to start over is to settle the mortgage in Cleveland. Note: This is a realistic example.
It’s not possible to create a new blanket law that fairly grants mortgage relief for people looking to move and have secured employment elsewhere. However, there are many potential opportunities for mortgage forbearance that already exist. What is needed is a very big stick to hold over the mortgage servicing banks to complete the process.
The “stick” I refer to would have to very threatening indeed. It would have to come from the highest regulatory authorities in the country. It would have to have real teeth in it. It might read like the following (plain language):
From:
To:
.As of today there is a new deal.If a mortgagor approaches you with a request for mortgage forbearance AND this person has proof of employment outside of his/her current location we are telling you to resolve the problem ASAP.Mortgage servicers have a variety of tools at their disposal to address underwater borrowers. These options include the Making Home Affordable Program and programs offered by or through Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture-Rural Development (USDA-RD). Use these programs to mitigate loss.Banks and investors may take losses as a result of this order. We don’t care. If the borrower has a liquid net worth under $25,000 we’re telling you to eat the loss.If the borrower seeking relief has a second mortgage or HELOC, write it off. Don’t you dare deny a borrower forbearance on a second lien. We will eat you alive if you try.You have 15 business days to wrap this up. No delays will be permitted. If you delay the process, and the individual loses the job offer, we will hold you liable. We have lawyers itching to bust one of you.If you do reject a request for mortgage relief from an individual who has a job in another location, you have to report the details to us, and you must explain why you did not play ball.
We will be looking at this with a fine-toothed comb. The first ten of you that we catch screwing this up are going to get the book thrown at you. We will make your life miserable. We will sue you. We will fine you. We will take away your license to operate.If you fuck with this order, we will fuck with you. We don’t care how big you are. We will take you down. We have the power and we will use it.
Okay. Do you like it? I hope you do. I had fun writing it. Please don’t think that I had anything to do with coming up with this idea or the use of a regulatory threat to achieve the desired results. I just copied it, (in spirit) nearly word for word, from the same government Agencies that I mentioned above . It was released today. Here’s the cover page and the LINK:
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If you’re in the military with an underwater mortgage, and you have transfer orders, those government agencies have basically said “Deal with it!” – “Pronto”.
Of course lawyers wrote up the memo from those Agencies. They did however make it pretty clear that they meant business with:
If the Agencies determine that a servicer has engaged in any acts or practices that are unfair, deceptive, or abusive, or that otherwise violate Federal consumer financial laws and regulations, the Agencies will take appropriate supervisory and enforcement actions to address violations and seek all appropriate corrective actions.
That is as close as lawyers get to saying, "If you fuck with us, we will fuck with you".
I'm 100% in favor of the proposal put out by the big agencies that protects folks who are in the military and who have to move. My complaint is that this offer of relief is not made available to a larger segment of the population.
It’s way past time for loss recognition. People have to restart their lives. Banks and government lenders have to recognize losses.
The government finally came up with a good idea. One that would address the critical issues of unemployment and underwater homeowners. Too bad D.C. only saw fit to offer it to their own employees. Go figure.
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Except for the blatantness of it, I've wondered why someone didn't suggest simply mailing checks to folks for, say, $40K. This would have been incredibly simpler, more efficient, more effective and less costly. I mean, if the whole purpose of government is to take from those who produce and distribute it to those who don't or can't, then let's at least do it with the least amount of effort.
Once again, good post Bruce. Can you add this language to the gvt farmers insurance bill about to be RR'd through congress? It would level the playing field abit and give revenuers a reason to wake up in the morning.
Mortgage Rates: Another Week, Another Record Low
by CalculatedRisk on 6/21/2012 03:55:00 PM
Below is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).
Bruce - Great Idea but you are approaching this from a false perspective.
The banking, housing and government sectors do NOT want to resolve this issue in any way that will encourage losses on the TBTF institutions. If a reasonalble resolution was the desired outcome - Don't you think that all the PhD's, bankers and government regulators could have come up with a solution?
Both political parties do not want to deal with this as it will envolve pain for anyone trying to resolve it.
Bruce, you seem to address two situations here.
What you suggest appears an excellent idea and I think most would agree. If it could become real, it is a step in the right direction instead of continued wrong moves.
However, there is not realistic recovery in the labor market. Housing was the last working bubble where “Made in USA” applied. Yes, there are USA plants making stuff but computers and robots outnumber humans. We may get to wage parity with Chinese labor, but intense labor will not be in this country until other factors or parity alter the present reality of cheaper there than here.
Housing may have to be owned by the upper income classes and rented out to the other 95% of the population. The process we are in now, may be a grinding down and downsizing for most of the population, and the golden years a fond memory.
Good post Bruce,
I like it, as much as that I don't like the moral hazard aspect, but if it keeps someone off the dole and the bank (not the taxpayer) takes the hit then it serves the purpose of clearing inventory, minimizing loss and getting an otherwise unproductive worker back in the game.
It's time for banks to own up and start realizing that orgies have a downside. A clear credit non-event for the homeowner will, in time, allow him to repurchase someone else's shadow inventory.
Good enough for Govt. employees should be good enough for the guys that pay their wages.
Working Joe wins, taxpayer wins, bank loses some. What's not to like?
Now if we could get Congress to stop shining Dimon's shoes, they could get busy and make this happen.
First of all, welders have been taking out of town contract jobs for nearly 100 years and their families back home did just fine. Companies that need welders quite often need them for just the duration of the project(s) and pay quite handsomely. I have known several welders that spent their entire careers overseas, Alaska, deep water oil rigs, you name it. They made enough to retire by 55 or younger and put ALL their kids through college. If you need an example for your story, look somewhere else. Welders are in extreme demand everywhere and a piss poor example for poverty.
what if the federal government just guaranteed all home prices for the original purchase price? want to move but are underwater? sell your home for the bes price and get a check for the difference. only requirement is that you have to pay off your mortgage. all late charges and penalties and early pay off charges are canceled. Everybody wins homeowner , bank, even those who do not sell.
All of this seems unnecessary. The welder in the example should just walk away and leave the bank with the house. A much simpler solution that doesn't involve a bunch of bureaucrats getting involved.
Exactly. Bruce doesn't know WTF he is talking about. A move to take a job is a major reason servicers grant short sales. And gues what? The government has set some pretty good rules on short sales. They are happening all the time now.
So there is no excuse for any underwater homeowner not to contact their servicer and request a short sale if they need to move to take a job. And if they don't know how to go about it, there is this thing called the Internet.
I have worked with a half dozen folks on the issue of restructuring a mortgage. The process is endless. The banks are assholes. A year goes buy and the paperwork is still in the air.
We don't need the corrupt regulators...if only people would just walk on their mortgage. Strategic default. Move out, lock up the house, mail the keys to the bank accompanied with a "Fuck off" letter, and leave, for good. Why wait for government to do "the right thing" ? If you live in a recourse state, cash out your non-retirement savings/equities to stash in the proverbial PVC pipe, and declare bankruptcy.
Easy peasy lemon squeezy.
Get on with it, America. Yes we Can !
#winning
There appears to be some confusion regarding the relationship between banks and the federal government of the USA. Allow me to dispel this misunderstanding:
The banks have supreme authority over all matters they seek to involve themselves in. PERIOD.
I thought this would have become quite obvious by now.
Give me control of a nations money supply, and I care not who makes it’s laws
I think it is a smoke screen.
Doubt that those agencies will do a damn thing to help the little people; seems like fodder for sheeple consumption.
With fraudclosures ongoing and CORZINE free as a bird the only thing these agencies are likely to do or continue doing is put out impotent "guidance" measures and memos.
+1, Bruce.
What part of .....THE BANKS OWN EVERYTHING, INCLUDING REGULATORS AND POLITICIANS DO YOU NOT UNDERSTAND.....? This shit will never end until the stupid fuckin morons who hand their money over to the banksters for "safekeeping" in deposit accounts all decide to to collectively go to a cash and carry economy and tell the banks to all suck it. That is the only thing that will bring the Parasites to fucking heel. Take away their monopoly money and have a good ole fashion hangin'.....Politicos and Bankers....Regulations mean nothing when you leave the fox to watch the chickens in the hen house. This country is beyond fucked and people blindly go along with the crime and pretend that the banking system we have serves a "higher" more moral purpose so it must be allowed to commit legalized plunder and fraud at the expense of the prudent. Politicians and their little feckless lap dog regulators are useless and complicit in the fraud. Burn it all down and start over, it is the ONLY way!!!!
Going to cash may be more important than just making a point. If enough citizens move to cash, the current movement to a cash-less economy, where a bank is involved with EVERY TRANSACTION may very well be derailed. This movement to cash-less-ness delivers everyone into the arms of their bank and any fees they decide to tack on.
Dangnabit son, it takes two snakes to cross a river, any fool knows that!
In this type of scenario it was the banks who gave money to the "morons" to buy real estate at what turned out to be bubble prices and in most cases neither party went over the details with a sharp pencil.
The banks would prefer not to own the set of "everything" that includes delinquent borrowers' homes.
I disagree. Owning property is infinitely better than having an eventual lump sum of fake paper notes. Especially when you can get free notes, use them to turn those properties into a continual source of note income. How you ask? When the properties get rented out by a business owned and financed by the bank. The banks don't have to do anything other than shuffle money around to create a virtual never ending profit. Lords don't become landlords, they give their 3rd cousin twice removed financing to become a landlord and then skim from the profit, forever. Ensuring their lineage maintains its ability to exist in a state that it has grown accustomed to. And, ensuring our lineage gets squeezed for everything it's worth.
The banks gave the money to the "morons" in the hopes they would take it and sign their future labor over to providing an asset that would, should an unfortunate economic situation arise, become theirs. Now, what banker organization controls the ebbs and flows of the United States economy, possibly through the use of interest rate manipulation...?
Two things come to mind that I never took too seriously growing up. One, the saying that the greatest trick the devil ever pulled, was convincing the world that he didn't exist. The other is the idea of selling your soul the the devil. Know the dark, but be the light.
Hey, Bruce!
It's an ELECTION year!
Enjoy the latest flavor of Hopium.
How is this any different from the homeowner just walking away from his underwater home? Either way the bank (and/or the government) eats the loss. This way.....his credit score remains unaffected? If so maybe it would be easier to disqualify certain types of mortgage defaults from dinging an individual's FICO score.
It all depends on the numbers involved – how much loss the bank can be forced to eat, how underwater the homeowner is etc.
It still may be a better deal for that guy with the welding job offer to just walk away and go rent a place in Texas.
Maybe Texas should set up a competing plan for incoming workers.
Yeah, I don't think any good faith buyer (3% or more down payment) who bought a home during the bubble , was underwater and foreclosed on or did a short sale should have their credit score affected. There are millions of people and they are the natural market of new homebuyers who can absorb all the shadow inventory.
3% down is 'in good faith'?
I'd love to do business with you. I got $9,000 from when my aunt died. You can have that, and now lend me $300,000 of your money.
Hey, 3% and good faith, and we're in business - as long as I'm on the borrowing end, anyway.
Sorry to hear about your aunt, but lemme tell you that if I sold you a piece of property and accepted 3% ( and I did say or more) down on it and financed it for you based on my own goddamned appraisal of it don't you think I, as the banker, with supposedly more expertise on the local real estate market than you, am somewhat responsible for your predicament if, two years later you can't sell it for half that.
Now the banks that ran into trouble making bad loans based on their own appraisals got bailed out. All I'm saying is the people that relied on their representation that the home they were buying was worth the money I loaned them to buy it with, should not have their credit destroyed as a result of my mistake.
Maybe.
3%=good faith buyer is a bit of a stretch though.
My understanding is that your credit score is a factor in determining security clearance level in the military. At least, your credit score must be above a certain threshold to have higher clearance levels.
As a result, going bankrupt or having delinquent payments can cause your clearance to be lowered. If this is the case, it would explain why they are rolling this out for service personnel.
Bankrupcy is a factor in security clearances. Period.
Ditto "Sounds good, except the losses get eaten by the rest of us, some of us who have been prudent with our affairs and have been screwed for nearly 5 years now with no interest income. Personally, I lost $148,000 on the sale of my home from what I paid for it. I have already given, don't want to give no more. Let the whole thing collapse, it won't be any worse than the slow motion train wreck we are living in. Even when I was earning north of $250K per year, I never bought a home over one years salary and paid it off in 5 years. The property taxes on my current home(free and clear) are more than the entire mortgage on my first home. Cannot continue to reward and pamper irresponsibility. So many things wrong today, frankly my friend, I don't giveve a damn. How about the prospective employer, who will reap the rewards of the welder's labor contribute to his situation in trde for a long term agreement for employment?"
EFF WALL STREET AND WORLD BANKS THAT CAUSED THEIR OWN PROBLEM AND EVERYONE ELSE'S TOO AND CORRUPTED GOVERNMENTS, THREATENING EVERYONE.
GET ON WITH DEFAULT OR BANKRUPTCY OR BANKERS SUICIDES OR INCARCERATION OR WHATEVER, AND FOR GOD'S SAKE GET IT OVER WITH ALREADY.
DC needs happy soldiers because they need spears when the peasants revolt.
tough letter to follow.
excellent Bruce.
Bruce, I agree and have been arguing this for 3 years.
True price/demand equilibrium, and demand/supply equilibrium, can never be achieved while banks having access to cheap money from Bernanke and the right to mark their balance sheet 'assets' to unicorn values (seemingly perpetually), and therefore, the housing market can't and won't clear. The forest fire that should've been allowed to clear the scrub in 2008-2009 but was extinguished by trillions in wasted taxpayer dollars (current and future ones) via TARP, QE/POMO, Twist, etc. only delayed what will inevitably be the real bottom.
As for jobs: It's stuctural. Labor is the cheapest commodity of all. The U.S. is so far behind the curve in tax, business and economic efficiency that the ony jobs created en masse will be lower and lower wage ones (since there's been absolute policy failure on assisting the actual market in creating high wage ones).
The worthless government promises have to deflate & the scope of government has to shrink dramatically. Markets aren't going to clear for anything until that happens.
Governments always go for dumb alternatives that makes things worse .......expect the Amero as their next wacky answer.
Sounds good, except the losses get eaten by the rest of us, some of us who have been prudent with our affairs and have been screwed for nearly 5 years now with no interest income. Personally, I lost $148,000 on the sale of my home from what I paid for it. I have already given, don't want to give no more. Let the whole thing collapse, it won't be any worse than the slow motion train wreck we are living in. Even when I was earning north of $250K per year, I never bought a home over one years salary and paid it off in 5 years. The property taxes on my current home(free and clear) are more than the entire mortgage on my first home. Cannot continue to reward and pamper irresponsibility.
So many things wrong today, frankly my friend, I don't give a damn. How about the prospective employer, who will reap the rewards of the welder's labor contribute to his situation in trade for a long term agreement for employment?
lost $93k here, trade agreements were/are my 'the fuckining'
Like you say, you are screwed too. Recognizing losses and getting on with it will make things better for you too.
Bruce, I agree that banks should take their losses and let the system clear. But, It should be done by not backstopping them anymore. When I do a trade that goes south, nobody bails me out. It should be done not by regulation, but by just letting them fail like we used to do. Remember, there where previous versions of the fed in our nation's history before the current one. I, for one am tired of bailing out bums, whether they be banks or homeowners that lived above their means.
As with so many things we have to deal with moral hazard. As with immigration and so many other issues, many of us would be willing to take the hit if we knew this wouldn't actually make the problem worse. I'd go along if you said, OK, but you will never get another mortgage without 20% down, and the loan originator had to back it up. Most of our problems are due to gambling with other people's money and you are suggesting we keep it up. In many areas of the country homeowners are upside down simply because they didn't put anything down on their homes. Hell, most people had more invested in a lease than they did a home they would have purchased when considering security deposits plus first and last month rents. If we continue to solve the worlds problems by stuffing them down the few people's throats that have tried to do the right thing, you will never see the world upright again.
Always enjoy reading your articles Bruce..
Really enjoyed this piece.. plain English indeed!
keep 'em coming - IB +100
Yea another gov program, poor idea.
The banks and fed reserve fractional reserved their way into this mess, let them fractional reserve their way out without involving the taxpayer
Bruce makes it sound like the Federal Reserve and regulating agencies are on a different side than the banks and mortgage servicers. They are on the same side! The goal is to extract all wealth from people now and into the future by any means and they all work together on this.
You're not thinking this all the way through...A whole new industry of fraudulent employer verification services would spring up.
Having trouble using the 'out-of-town-job' loophole to walk away from your underwater mortgage? No problems...
One call to Nudge, Nudge, and Wink employment verifiers and that new job in Blowfart, ND is now on your record.
Screw moving...just stay in your house and pocket the difference.
DocX v2.0...for home"owners!"
Bruce, I did indeed enjoy reading it as much as you did writing it...
Right On!
Yes. It is a lovely rearrangement plan for the deck chairs and it is even possible that the captain might approve.
However ... the ship is about to hit an immovable iceberg and we need to throw the captain overboard and turn the fucker around!!!!
SO ... STOP FUCKING AROUND WITH THE DECK CHAIRS!!!!
the best course of action is to tell his new employer he is moving up there and hand in the keys to his house..
Jingle-Mail, Jingle-Mail, Jingle all the way! ;-)
Eat shit gold bugz!
???
In the imortal words of Sheryl Crow "appropo to nothing"...