This page has been archived and commenting is disabled.
Bernanke Bids for Soros' Danish Covered Bonds; Obama to Make [Be?] Toast
Reposted with permission from EconomicPolicyJournal.com
The big news yesterday was not of the twist type, but of another dance number (or slumber) between Bernanke and Obama. As expected, the Fed will be swapping some of its shorter maturity Treasury securities for longer ones into mid-2012, but it will also start purchasing mortgage backed securities again after an eighteen month hiatus.
Since the announcement of so-called QE-Lite (which preceded QE2), the Fed has kept its balance sheet from shrinking by buying Treasury securities with the proceeds from the maturing Agency and Agency MBS bonds it bought during QE1. No longer. The Fed will now purchase more MBS with this money. The question is: why?
With 30 year rates hovering around 4%, hasn't everyone who qualifies for a refinance already done so? And, that's the point. There are millions of homeowners who don't qualify for a refi because of a low credit score, lost job or simply being underwater on their home. To be useful, low mortgage rates need a fiscal side program to get around these hurdles. As Bruce Krasting pointed out several weeks ago, the FHFA, which regulates Fannie and Freddie, is already moving in this direction:
The second thing of note is that late Friday afternoon a was letter released by the FHFA. There was a very significant softening of the language regarding the terms for refinancing:
FHFA is also considering the barriers to refinancing mortgages that would otherwise be HARP eligible but for having acurrent LTV above 125 percent.
Our objective is to provide borrowers in high-LTV loans who have a history of making on-time mortgage payments with an opportunity to refinance, resulting in reduced credit risk to the Enterprises and added stability to housing.
Bingo! The current ReFi restrictions that require a borrower be no more than 25% underwater and have a 780 FICO are about to be waived.
Krasting continues with more evidence:
The final bit of data comes from the CBO. They did an analysis of what the implications are of big refinancing might be. I contacted the CBO on this and they were very clear that the work they did on this topic was not a report on a specific proposal, but rather a generic review.
It is probably correct that any plan that the administration comes up with will vary in scope from the review by CBO. It is also correct that this review has been done in anticipation of a specific proposal. Therefore the review and the conclusions are worth noting. The key assumptions used in the analysis:
(1) Eligibility includes existing loans guaranteed by Fannie Mae, Freddie Mac, or FHA.
(2) A borrower must be current on an existing mortgage and must not have been more than 30 days late on any mortgage payments during the prior year, but there are no limits on the borrower’s current income or on the loan-to-value ratio of the new loan.
(3) The new loan has a fixed rate of interest, at the prevailing market rate, and a term of 30 years.
The CBO has concluded that there are $4.3 trillion of mortgages that broadly meet the above requirements. These mortgages have been converted to Agency MBS. The report looks at what were to happen if 10% in that universe were restructured. The following chart looks at the results.
We can only speculate about the exact details of the program, but conveniently, George Soros has one out of the can. From the Absalon Project website:
Absalon Project (Absalon) will market the Danish Mortgage Solution on a worldwide basis. Absalon is an extension of a partnership between affiliates of VP SECURITIES A/S and Soros Fund Management that was established back in 2005 with the purpose to implement the Danish Mortgage Model in Mexico. This project was successfully carried through with the creation of a mortgage servicing company in Mexico named HiTo that issued the first loans based on the Danish Mortgage Model just before Christmas 2007. Since then HiTo has introduced more loan types to the Mexican market and is issuing loans on a weekly basis, using the solution provided by Absalon.The Danish way of financing housing through mortgage loans has proven its efficiency and reliability for more than 200 years. It has survived a few crises in its lifetime and also during the current crisis starting in 2008 the Danish Mortgage Model has proven its robustness to the benefit of the borrowers, the investors and the Danish Mortgage Credit Institutions themselves. The project in Mexico has attracted a world wide attention. Combined with the problems that have occurred since the subprime crisis started in the US the Danish Model has gained a lot of interest from all around the world.Absalon Project was created to capitalize on the experiences from the project in Mexico to offer a solution based on the Danish Mortgage Model to customers on a worldwide basis. The offerings range from initial financial analysis of the possible benefits of introducing the model, over the creation of a Business Plan and Marketing Plan to the delivery of software, services and assistance in setting up the business procedures and the integration of the IT systems.
The US-tailored proposal was released September 1, 2011 and got a nod from RC Whalen, who wrote at ZeroHedge (emphasis ours):
Below is the intro for an important paper by Alan Boyce, Glenn Hubbard, and Chris Mayer, which lays out the finances of the mortgage market in great detail and argues for refinancing of all GSE-covered loans. For home owners, this proposal offers hope to obtain the refinance which is their lawful option but is being denied by the large bank/GSE mortgage cartel.For investors in RMBS, this proposal is a disaster, a massive pre-payment on vintage RMBS and the loss of tens of billions in net interest margin for the financial system. This paper hopes to shift $70 billion per year from bond investors to consumers and thereby help the economy. The US banking system made $28 billion last quarter. Got your attention now?-- ChrisStreamlined Refinancings for up to 30 Million BorrowersBy Alan Boyce, Glenn Hubbard, and Chris MayerExecutive SummaryFrictions in the mortgage market have restricted the ability of tens of millions of borrowers from refinancing their mortgages, hampering monetary policy, slowing the economic recovery, and leading to excessive numbers of foreclosures. We propose a streamlined refinancing program that may benefit up to 30 million borrowers with government-backed mortgages, leading to possible savings of $70 billion per year in lower mortgage payments. Below we describe the current barriers to refinancings, how our plan would overcome these barriers, and why this plan is in the interest of taxpayers, the GSEs, and other mortgage service providers. We also discuss possible critiques and implementation issues and how such issues can be addressed.1) The problema) As of June 2011, more than 75% of GSE3 borrowers with a 30-year fixed-rate mortgage (FRM) have a rate of 5% or more, despite the fact that market-determined mortgage rates have been at or below 5.0% for nearly every month in the past two years and are currently around 4.25%.4 Under normal credit conditions we might have expected three times this many eligible mortgages to have been prepaid, as happened during the last refinancing wave from 2002 to 2003.5 This suggests tens of millions of borrowers have not taken advantage of a seemingly attractive refinancing proposition.b) We believe that inefficiencies in the origination and servicing process, combined with GSE surcharges (so-called loan level pricing adjustments and adverse market delivery charges), falling home values, and conservative appraisals have made refinancing nearly impossible for most Americans.c) In addition to blunting refinancing, these mortgage-market frictions are slowing the economic recovery by limiting the benefits of low interest rates for household spending. Unable to refinance their mortgages the way corporations have been able to refinance their debt, consumers are left with weak balance sheets and mortgage payments often above of the cost of renting, contributing to excessive delinquencies and foreclosures. These constraints on refinancing have a disproportionate impact on middle-class borrowers with origination balances under $200,000 and poorer credit and whose employment opportunities have been hit especially hard by the recession.2) The Offera) Every homeowner with a GSE mortgage can refinance his or her mortgage with anew mortgage at a current fixed rate of 4% or less, with the rate subject to change up or down with the price of Agency pass-through Mortgage-Backed Securities (MBS). For borrowers with an FHA or VA mortgage, rates would be higher, but these borrowers should be included in any large-scale refinancing program.b) The homeowner must be current on his or her mortgage or become so for at least three months.c) NO other qualification or application is required, other than intention to accept the new rate (that is, no appraisal, no income verification, no tax returns, etc.).Read the rest of the paper at link below:
d) Minimal paperwork, other than what is needed legally to refinance in homeowner’s jurisdiction. The Bureau of Consumer Financial Protection may provide a one-page substitute for TILA, RESPA, and HMDA filings to further reduce paperwork and costs.e) Homeowners can choose between a 15- or 30-year amortization schedules for newly issued mortgages.f) Homeowners may only refinance existing first-lien mortgage debt and cannot cash out or roll multiple mortgages into the new mortgages.g) GSEs would be required to issue new MBS in large, highly standardized, transparent, and homogeneous pools, as current Ginnie Mae II Jumbo securities are now issued.h) Existing servicers would be relieved of their liability for past “Reps and Warranties” violations as long as the mortgage is current today and is at least a year old.i) Existing second-lien holders would be asked to resubordinate to the newly refinanced first mortgage.8j) Existing mortgage insurance contracts should be rolled to the new first mortgage.9k) New title insurance policies must be done in a streamlined process and at low cost, likely a few hundred dollars at most.10
The whole paper is worth a read, and did anyone catch (h) above? That would tidy up some lingering problems, wouldn't it. [In fact, we might be tempted to wonder why New York Attorney General Eric Schneiderman, who's not nearly as anti-Wall Street as his "E.S." predecessor, is so aggressively blocking the BAC and Bank of NY Mellon settlement. We're sure it has nothing to do with campaign contributions from the amateur tennis circuit...but that's a thought for another day).]
In contrast to the CBO plan, Absalon envisions re-papering the entire MBS-eligible US mortgage universe--not just those that cannot refinance now. But, there's another striking feature that contradicts the CBO analysis. Remember part (a) of the deal:
a) Every homeowner with a GSE mortgage can refinance his or her mortgage with anew mortgage at a current fixed rate of 4% or less, with the rate subject to changeup or down with the price of Agency pass-through Mortgage-Backed Securities (MBS). For borrowers with an FHA or VA mortgage, rates would be higher, but these borrowers should be included in any large-scale refinancing program.
These are not 15 or 30 year fixed rates envisioned by the CBO, but the equivalent of adjustable rate mortgages. Though not as common as fixed-rate in the Danish system, these floating-rate bonds are prevalent and are fixed to CIBOR two or four times annually.
If you think interest rates are going to stay low forever, great. If you think they might be materially higher sometime in the next three decades, then it might not be so wise to trade in your 5.5% 30 year fixed. Regardless, yesterday Bernanke has pledged to keep mortgage rates low long enough to jump start whatever Obama's new mortgage program is, Absalon or not, and to buy the new MBS bonds with the lower coupon.
»
- EB's blog
- 6102 reads
- Printer-friendly version
- Send to friend
- advertisements -
http://www.youtube.com/watch?v=LVQ0MXp-8ds&feature=list_related&playnext...
cmon Berflunky lets twist again, Obummer it wont last long,
c-c-c-c-c- cant we all just Twist and Fraud along?????
There is absolutely NOTHING that George Soros is involved in which is good for anyone else. If you believe for one second that George Soros gives a phuck about anything other than how he will end up with all the marbles, then you are living in a dream world. Georgy boy has done nothing but screw the average American citizen at every turn..... He is Mr. Bilderberg...He is Mr. Eugenics. There is most likely some clause in his new Mortgage contracts where eventually he owns your soul.
What this does is get the homeowner out of a loan which the 'pretend lender' cannot prove their ownership; the pretend lender cannot produce the original mortgage, note, application, or anything else concerning the original loan or application. What I have found recently: Deals are being made with the county. Buyers/Corporations are given Property TAX EXEMPTION for purchasing vacant/foreclosed dwellings for well over Fair Market Value (e.g., $40k over $75k market value = Total $115k) in exchange for renting said property to low income persons at 'affordable rental rates'. IT SEEMS TO ME, that the government is getting into property ownership in order to control the masses as portrayed in Orwell's '1984'.
U.S. Govt needs to announce a plan called 'The Big Fix' where they put millions back to work fixing, improving, rebuilding the nations bridges, roads, dams, electrical grid, etc.
At least the money would go to the good of everyone!
Great idea. Maybe they can cautiously dip into their budget surplus that came from judicious use of tax revenues and careful long-term planning for a growing population.
The last paragraph is the most important. If these new refis are not fixed they will blow up in everyones' face. The US Treasury bill is not going to retain its safe haven status forever, as soon as another asset class takes over this role interest rates will rise rapidly and we will be back to square one with a very smart and attractive woman named Ivy Zelman telling us that mortage resets are about to kill the economy.
by owning vast amounts of MBSs the Fed is in a unique position to forgive debt. What will revive the US economy ( housing and consumer spending) is a debt holiday-- just saying--If it walks like a duck and quacks like a duck----
What does danish have to do with housing? Isn't America fat enough already? Man, this is going from bad to worse.
Everything the Fed has done (and might do as described above) acts to DEFLATE real incomes, as it removes the most productive assets from investor's portfolios.
But more importantly the banks will get a new and valid title.
banks will get a new and valid title...
In exchange for a 30 or 15 year ARM on a note with 1-29 years still left on it, held by a home buyer that has to prove no income, assets or other ability to repay.
Seems the oligarchs are attempting to reset the existing model designed to capture the people again, but this time getting their MERS fiasco covered more completely.
Trouble will not come a second time.
Nahum 1:9
Yes, and with VARIABLE RATE mortages. Keep your eye on long-term profit potential when Soros is involved.
Do you get a free windmill with that? Mexico ? EEK.
Yes, the danish mortgage covered bond model has been a huge success. Huge success in making it possible to build a massive housing bubble and making it possible for normal people with normal incomes to lever them up to the eyeballs.
danish pastry and danish nymphs...something eyeballs love to notice, all on natural leverage. Bonds are for covert idols of brick and mortar cakes that nobody would buy except slaves in bondage.