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Big Mortgage ReFi – MS chimes in
A reader wrote me this morning, “Where’s the Beef?” I’ve gone out on a limb suggesting that something rather large was in the offing regarding a plan for a big mortgage Refi. On 9/21 I said that some details would be forthcoming about now. All I get is silence from Treasury, the White House or the FHFA. I’m not ready to throw in the towel on this one just yet.
It’s one thing when a blogger like me starts a rumor on a Mega Deal like this. It’s quite another when big shots like Morgan Stanley jump on the bandwagon. This from David Greenlaw (Managing Director and Chief U.S. Fixed Income Economist):
Ben White at Politico reports that an Obama reelection campaign source has told him that the Administration may soon try to launch a sweeping "mortgage modification" program This report makes some sense. Recent polls show that Obama is trailing both of the leading Republican candidates. And, if the economy deteriorates, the President is likely to fall further behind. Since it seems increasingly unlikely that the Administration will be able to persuade Congress to adopt all of the measures included in Obama's latest economic stimulus proposal, it's not too surprising to learn that political operatives are starting to push for measures that do not require Congressional action.
Of course, from our perspective, a streamlined refi program would appear to represent another stimulus option that does not require Congressional approval. To be sure, there are significant hurdles to adoption of both streamlined refi and mortgage mod at this point -- the most obvious being the FHFA.
The article from Politico that got Greenlaw excited:
OBAMA CAMPAIGN EAGER FOR BIG MORTGAGE FIX?
Top source tells M.M. that senior Democrats aligned with the Obama 2012 campaign are pushing hard to see a much bigger federal mortgage modification program put into place as soon as possible to start bringing relief to middle class homeowners well in advance of the 2012 election. The new effort would be yet another attempt to address the biggest drag on the economy: U.S. consumers saddled with too much mortgage debt, little or no equity and not enough extra cash to drive the kind of spending necessary to fuel faster growth and more robust job creation.
I think Greenlaw is right. The hang-up to a deal is the FHFA. The Federal Reserve has facilitated a ReFi with Operation Twist and the decision to re-invest principal proceeds from its MBS holdings back into more MBS (a significant policy change).
In order to have a "party" all that is needed is to have FHFA waive both the income and asset requirements for a Refi of performing mortgages held by Fannie or Freddie. Bernanke spoke about this yesterday in his presentation to Congress. He said that that a bank lender should be willing to ReFi a borrower who is current as it increases the probability that the borrower will stay current. I think he was actually speaking to Mr. DeMarco at the FHA when he said these words.
The next chapter of this story has to come from the FHFA. I’m looking for a statement that clarifies the rules for a Refi in the not too distant future. This ball’s in DeMarco’s court.
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I heard the same thing from Bernanke that you did.
btw, you gave me grief last year for proposing something akin to this.
GSE successors eat private losses socialized through this proposal. It has its advantages: clear title is established; the default rate drops; market clearing resumes, as extend-and-pretend diminishes.
Grasshoppers and ants will argue the merits, but this is the first bone the mortgagee has been thrown -- and, since it is also stealth stimulus, final demand may actually get an uptick. Considering the foolishness of other initiatives, this isn't altogether bad -- except, of course, that it will pump the debt and hasten dollar default.
Maybe the losses can be put in a special purpose vehicle in the Caymans code-named Wimpy, or some other off-balance-sheet device, perhaps pushed out to sea, circling in the Sargasso of discarded plastic in the mid-Pacific.
Bruce, I could never understand why Obama just doesn't replace DeMarco.
He tried. At the end of last year. Senator Shelby nixed the nomination. So it did not happen.
DeMarco is a good guy. He will not let the taxpayers get stuck for a bad deal.
I guess if Fannie and Freddie relax their standards and buy these new mortgages, the net result is to transfer the bad assets to the government balance sheet. OMG how obvious!! Taxpayers lose again!!
Fannie and Freddie already guarantee these mortgages that are in GNMA, etc pools. The risk to the taxpayer goes down because the borrower's payments go down due to the reduced interest expense. The borrowers then have a higher income to debt payment ratio and therefor are less likely to default and cause taxpayer losses. The losers are the ones that are getting higher than market rates of interest currently (not the taxpayers).
Absolutely true. This isn't about the risk the borrower defaults, not at all. It is about Fannie/Freddie losing the ability to force those defaulted loans back to the originators for rep and warrant breaches.
You should be working for Geithner as a speech writer. These are the words he will use.
If I could get as much as his current pressitutes get, I could be bought.
What's wrong with the logic?
This still does not make sense to me. FHFA waives the income and asset requirements, fine so far. But what bank is going to want to make that refi loan? Bank B would be just taking on Bank A's trash. Bank A and the homes owner would love it, but for Bank B would be a total loser. The only way it might work is if Bank A says to Bank B "I will refi a billion of your bad mortgages if you refi a billion of mine".
Bruce,
I think the political tone-deafness of this proposal continues to be astounding. Let's review who this will piss off:
Obama's base will see this as a back door bailout of the banks (which is accurate) and completely ignoring those millions victimized by the banks (only true for about 10% - the others were EAGER to use their house as an ATM machine). This program will be viewed as Obama"giving in" to the big banks and will result in more of his base staying home next November.
Independents - the Obama administration thinks these are the likely beneficiaries and that is probably true for 25% of them. Of that 25%, maybe half will opt in ... but that doesn't mean they will reward Obama next November because any consumer sugar-high this causes to the economy will have plateued by then and the structural problems in the housing market will still remain. The other 75% independents who see this for the "quick fix" that it is will be more pissed off with a President who has no solutions and are incentivized to express their anger at the voting booths.
Democrats - The only thing more astounding than Obama's incompetence is the Democratic Party's apparent committment to let him pull down the entire party with him. They will make nice smiley faces if Obama puts this plan forward and then will sit back and let the House start figuring out how to stop this process. Any red state Democrats are going to react like "red meat Republicans" and provide votes to defund the parts of the government that would enable these programs.
If I were Obama I would "do the LBJ" and take myself out of the running. At this point in time, he is getting close to a tipping point where the Democrats in Congress have incentive to turn on him and start hearings on impeachment for "Fast and Furious", Solyndra and other high crimes and misdemeanors.
(For the casusal reader, the MSM's "conventional wisdom" is that this can't happen. Yeah, and in October 1972 you could have made a pile a money betting that Richard Nixon would resign before the completion of his second term.)
barliman
Tks B.
We shall see if this happens. Then we will be able to measure the political implications.
This is not going to change things by all that much. It is no help to those 50% underwater. At best, it could help 5% of homeowners.
The banks are not involved in this. Only Fannie and Freddie loans would be eligible. So it's not a bailout of the banks. But that is how it will be perceived.
B
I think it could help a hell of a lot more than 5% of the homeowners. There's lots of us -- yeah, me too -- that are paying a lot more than the market rates on our mortgages, a large percentage of them not underwater. I'm thinking of refiing, but the transaction costs are needlessly high. Everyone out there wants to get some of the action. Presumably this would reduce those costs, at least if they're planning on using the program as a bribe for reelection purposes. (Don't tell anybody, but I won't be voting.)
Toxic assets are going to come off of balance sheets everywhere. Get ready for bank stocks to hit the ceiling. If there was a stock representing tax payers, it would go further into the dirt. Perhaps that stock is the US dollar?
There will be no mega-refi plan. Only changes to existing programs that will enable more borrowers with govt loans to refi. Not a chance for a modification program that involves principal forgiveness. Refi program worst case is revenue flat - mod program will cost taxpayers big. No way
No better than you've defined your terms, it looks like you're disagreeing with Bruce, then making his same argument.
Simply put, given that fedgov owns roughly 95% of the US mortgage market, changes to existing plans can be considered mega.
Please differentiate.
The Fed could print 'n pay every last mortgage off for every citizen in the USA. The FED could print and pay off the entire USA deficit. They already bailed out the banks - why not everyone else? Printing sixteen trillion dollars is easy - already done once. Just do it twice more, and we are rolling in discretionary money to spend on propping up our consumer economy! Nothing could be simpler. Right? Just repeat the below spending - but on the people of the USA, not the banking system. If you have read this before, good, don't whine about seeing it again. If you are reading it for the first time, better - you are my target audience. Spread it around.
The Federal Reserve is neither Federal nor a "Reserve". This private bank run by the "Bank of England" has been stripping the US of its assets since the days of Andrew Jackson. If the $16,000,000,000,000.00 given away secretly, since 2007, to the member banks isn't reason enough to overhaul our entire government financial system then our country is doomed to financial failure. You won't read this in the mainstream media....but it may emerge in the coming elections. Read about this first ever audit of the Fed and understand why we are in such trouble. Tuesday, September 27, 2011 First Ever GAO Audit Of The Federal Reserve(You can click on the site and read the report).
The first ever GAO audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill (HR1207), so that a complete audit would not be carried out. Ben Bernanke, Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve nearly 100 year history were posted on Senator Sanderâs webpage earlier this morning.
sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3 (Summarized below)
What was revealed in the audit was startling:
$16,000,000,000,000.00 (TRILLION) had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the worldâs banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest.
Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs. To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is only $14.5 trillion.
The budget that is being debated so heavily in Congress and the Senate is only $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world. In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion. ****
When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self-identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.
Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and super-corporations like Halloween candy.
The list of institutions which received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows:
Citigroup: $2.5 trillion($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion* ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
IT WILL BE INTERESTING AS TO HOW MUCH ATTENTION (AS WELL AS THE SLANT) THE MAINSTREAM MEDIA GIVES THIS UNBELIEVABLE POSITION OF OUR GOVERNMENT HAS PLACED US IN WITH NEVER PREVIOUSLY HAVING AN AUDIT OF THE FEDERAL RESERVE.
I AM CONFIDENT THAT WE WILL HEAR SOMETHING LIKE THE FED HAD TO GIVE STIMULUS TO WHOM THE $16 TRILLION WENT TOO BECAUSE IF WE HAD NOT ALLOWED THIS IT WOULD BE THEIR COLLAPSE AND THE OURS.
HAS ANYONE EVER HEARD OF CLOWARD AND PIVEN ECONOMICS? (PARAPHRASING) IT INVOLVES TWO HARVARD PROFESSORS WHOSE BOOK SAID TO CHANGE ANY GOVERNMENTâS ECONOMIC SYSTEM INTO A SOCIALIST ONE, IT SIMPLY DRIVES THEIR ECONOMY INTO THE DITCH THEN THE CITIZENS ALLOW THE GOVERNMENT TO DO WHAT THEY WISH TO SAVE THEM
You have posted this same message on every one of my pieces. Enough already.
Not sure what your point is. You use the $16T number out of context. That is a cummulative number. This is about daily rollovers that get added up rather than actual loans.
99.999% of this has been repaid years ago. It was always short term. It is called Repo financing. This is how they system works.
Whatever point you wanted to make by posting this again and again has been made long ago. Move on, and stop posting this on my articles.
Do we have some STRUCTURAL ISSUES?
I believe you are spot on with this Bruce. It serves O's political purpose PLUS it gives banksters the opportunity to FRESHLY encumber properties thereby rendering a previously defective mortgage moot.
So I should decline to refinance my home at 4.2%???? I am current but would like to get the payments down and pull a little cash to shrink my debt. What are your all thoughts?!?
It depends somewhat on the transaction costs, usually thousands of $$$. If Bruce is right those costs could be less if you wait.
I believe my total costs in this are going to be $1500 which is on the low end. Considering waiting like Bruce is suggesting but it's hard to pass up the drop in points and lower payment.
The only reason not to refi is if you plan on suing your servicer for a broken chain of title.
Otherwise, take the money and run.
OK that was kinda my line of thinking from the outset. It was either tell them to go to hell and stop paying my mortgage or refinance at a much lower rate while I can. Thanks again for the advice!
Wait, aren't they likely, after congressional negotiation, to re-fi only the underwater notes? Wait and see -- until the last day of your "escrow", then hop to the next rock.
If you are not underwater refi. May even want to look at 15yr rate of 3.375 if u can handle the payments.
No I am not underwater but I was trying to pull enough out to pay off my debt but that isn't going to happen. Thanks for the free advice, much appreciated!
the chain of assignments are BROKEN......the Servicer has NO STANDING to foreclose
And since 48 Attorneys General don't give a shit about those details, neither do most judges. (Meanwhile, the other two are holding out for bigger paydays/higher seats.)
The states are completely bankrupt, owing fedgov billions in unpaid unemployment insurance loans. They will have no choice but to accept whatever 'settlement' is handed down.
I'm in a non-judicial state, with MERS as both the trustee and the beneficiary on my deed of trust. That this is unethical means nothing in a criminal-justice system.
should provide a boost to consumer spending, but it would take too much time to show up this Xmas season, but next, right into the election.
Mortgage mod is politically smart for the Debt Brother, but, economically speaking, it just brings us another step closer to implosion. It would seem to strengthen the case for desperate inflation measures to offset debt buildup, and therefore be bullish for PMs.
When, by the way, will the CFTC in the person of Goldmanite Gensler finally acknowledge the evidence against JPM? Or has the USA entirely abandoned the rule of law?
http://www.scribd.com/doc/67350783/Silver-Gorillas-CFTC-Etc-1
http://www.babybulls.com/PDF/11-10-04_RANTING_ANDY_TOO_MANY_TOPICS_FOR_A_COMPREHENSIVE_TITLE.pdfI'm sorry I hit your red arrow because I thought I was voting for implosion.
we haven't abandoned the rule of law, we have simply set aside the process by which we determine if the rule of law should apply
This is such an easy fix. Burn them all down and claim the insurance. We would have to hire more firestarters, firemen, insurance adjusters, build more houses etc. Then all we would have ot do is bail out the Insurance companies. I am signing up as firestarter. Easy peasy.
On a more serious note the subject did come up in the Bernanke testimony the other day.
Also, the taxpayer is already paying for this dearly whether there is a blanket rewrite or not already. Their is no "fair" way out of this mess so spread the pain. Taxpayers have already had their pain. Bankers should take a hit now.
Anyone sitting in a home now, current or not, allow a refi to 4% regardles of credit with a real mark to market whatever that is. Anyone unwilling and not current will be foreclosed upon. This starts the clean up of MERS, puts money into the States and gets people paying into the banks again. After that let the chips fall where they may. Cash flow is the main problem right now and this addresses it.
Whatever shitty bank was their last ATM remains on the hook and eats the writedown. End of story.
The environmental impact study and the interference from the EPA would mean the enactment of your proposal sometime in the year 2020... after the termites have beat you to it.
Really Bruce, you have come late to the table, and what you have brought everyone to eat is inedible. Why would the country want to refi bogus loans that can't be proven to exist even in non judicial foreclosure actions, and never in a court setting? Do you want the answer? It is to fuck the people that own the homes out of their rights and property, just like mortgage modification, or didn't you know that? You see, few to none of the existing mortgages are enforceable because no one owns the documents as required under the Uniform Commercial Code, and every god damned loan was paid off by bailouts, insurance, MBS, CDS and every other kind of creation of what we laughingly call banks. If the nice people sign up for refi, they lose their rights. You know that, and you don't mention it anywhere.
That anyone would write such a misguided pile of bullshit without disclosing this, and their interest, is sickening. The way it is written, it has the stench of the MBA. To pretend it is going to do anything for the homeowner or the country is dishonest as hell. At least everyone knows you are a shill for the worst level of society. Voluntarily fucking every person with a broomhandle is your goal, and apparently your pleasure? The people of this country have already paid for their homes, you know it, the banks know it and it is all starting to bubble to the surface of the septic tank in which you reside. Someone publish this wall street tool's picture in his neighborhood and see how fast he becomes anonymous. And please, don't forget to fill your pockets with rocks when you climb back in the the toilet.
Human garbage on display folks. The sociopath at work in their native habitat.
Calm down. Take a few breaths.
I'm a fucking writer!. I'm not a decider. I'm not a banker. I'm fucking retired for 15 years.
Read what I said. This is an update based on information from Morgan Stanley and Politico. I'm just providing data here.
As someone says below, don't shoot the messenger.
Yours Truly,
Satan
Wow Piranhanoia, you really have your head up Bruce's ass and by the sound of your vitriol you obviously don't like the smell of his turds.
I think if you want to yank a chain, you should go hide in the closet and see if you can perform a circle jerk with your pie hole.
So far, you're accusing Bruce of trying to sell what is obviously a WH scam to get Obama re-elected.
It would be one thing if Bruce was concocting this witches brew all by himself, but where the hell is he gonna find any patsies to provide the monies to loan out to losers with underwater mortgages.
Only the WH, the Fed, the Treasury, and some evil doer WS banks have got access to that kind of cash.
I won't argue your point(s), but I will object to your characterization of the author. Bruce has done good work. If you expect every aspect of every argument to be presented in every post then you'll get nothing but an unread article... and comments bitching about how L-o-o-o-n-g the article is from those too lazy to actually read. Get some reality in your life and look for the real culprits. It ain't Bruce.
Piranha - I don't think the federally originated or guaranteed loans have the defects in their documentation that the private MBSs have. They do have defects in their inception - people who couldn't afford the home to begin with, and are unable to make the payments. But note this program only applies to those who are actually making payments and are current.
The inequity of this is that the many millions who are not in federally insured loans from the 2003-2008 time period, but are buried deep within tranches of defective private MBSs, which are deeply flawed, used MERS as a means of mortgage transfer, have terrible foreclosure problems, and other deep and profound defects, will not be able to access this program.
and how have we paid for our homes? If so, and I dont know it I would like to know so I can stop paying my mortgage.
Wow! Talk about shooting (or stoning) the messenger!
I don't diagree with your opinion about the enforceability of the loans BUT...Try going through the motions and you will find out how f*cking crooked the lawyers are. The judges for the most part will agree with you but when push comes to shove, they will rule in favor of the lender.
think about this... in non-judicial foreclosure states, if you are the homeowner... YOU must run out and file a lawsuit seeking an injunction, and you must pay an injunction bond up front sufficient to protect the lender's potential losses... otherwise the process goes forward and the house is sold fairly rapidly. how many people do you think can hire a lawyer skilled enough to fight the banks on these issues.... with the money to post a large bond? in my state (non-judicial), the foreclosures roll on without any pause...
Same here. As I mentioned in another post, MERS is both the trustee and the beneficiary on my deed of trust, yet the courts have not deemed that a conflict of interest.
first of all you don't have to accept one of these refis, and Bruce did mention in an earllier post, most of the points you make here. at this point why should anyone worry about a game of button button. it's never going to get to that, and if it does, all you end up with is the title on a pile of smoldering ruins, probably
You are correct about MERS etc. but unfortunately that reality is not what is going to fly. Too much money at stake. Am I too cynical? Probably.
Awesome pic!
Banksy, in Toronto. Would have been more suitable for Wall Street.
If they push write downs I "might" start paying my mortgage again.
Then again...... maybe not.