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Boyce, Hubbard & Mayer | Streamlined Refinancings for up to 30 Million Borrowers
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?
-- Chris
Streamlined Refinancings for up to 30 Million Borrowers
By Alan Boyce, Glenn Hubbard, and Chris Mayer
Executive Summary
Frictions 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 problem
a) 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 Offer
a) Every homeowner with a GSE mortgage can refinance his or her mortgage with a new 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:
http://absalonproject.com/wp-content/uploads/2011/09/BHM-V11-final.pdf
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While the switch from +5% to 4% is nice it is this clause that is by far the most important.
“Under this plan, the United Statesshould mimic the Danish mortgage system and give mortgage borrowers the right to purchase their mortgages out of these pools at market prices. Under such a plan, performing borrowers, through their servicer, broker, banker, or other financial intermediary, could purchase bonds at market prices. The bonds would be presented to the trustee which would accept its’ liability and thus allow borrowers to pay off their mortgages. Because these bonds would trade at a discount to par value when rates rise, borrowers would earn a “profit” by paying off their mortgage below par. In fact, if rates rose, borrowers might be able to use such profits to help offset the impact of lower house prices, effectively stabilizing the mortgage market and the economy.” Pg 10
Let say that the USA attempts to print its way out of this fiscal mess, show hands on how likely that path is. This would significantly reduce the present value of these fixed security instruments, (ie what good is fixed 4% 30 year MBS with inflation running at +15%).
Anyway under this plan, if someone held an asset that increased in value as the US dollar lost value they could own their house for a fraction of what it would cost now if they placed excess cash into said asset before the take off in the inflation rate.
Now all we need to do is to figure out what asset has historically increased in relative value as someone prints more paper? Oh what could that be?
Refinancing at 4% will not save people from foreclosure when many have a mortgage that is greater than their home's value while unemployment and cost of living continues to increase.
This just won't happen. The government can't force the banks and everyone else involved to refi at non-commercial terms.
Besides, banks are already so swamped with refi apps they're having to slow down the approval process. They just don't have the staff to handle them all. After all, the numbers of refis depends on the ups and downs of rates, and rates just collapsed, so we've already got a big rush to refi underway now. What is the government going to do, hire an army of temp refi processors to try and speed the process up? This is just silly.
I don't suppose the banks could hire such an army (were they inclined to shoot themselves in the foot thus).
If the federal government manages to keep citizens owning homes in spite of the financial physics of their financial condition, then the government essentially exercises de facto control on where citizens of whatever demographic may reside, spend, drive, vote, pay taxes, etc. The nation has never parted from slavery, simply transitioned to guilded versions of pogroming, ghetto-fying, etc. Saturate a district with voters on the dole. This latest redistribution is simply fresh white socks on the same old pig.
Keep it simple: fix the interest rate. 4 percent sounds good. The banks already say "there's no demand for lending anyways" so they won't care obviously. We already know the overnight is set at zero for the next two years so it seems if they want to stop being part of their own problem then this should "get the fires burning." All credit history can be ignored when making rate decisions...just stick to the dollar amount lent and leave it at that.
And yes.. we want a free toaster, too. And a 42 inch flat screen and an i-phone.
And I want the principal on my first mort to not reflect the larcenous ramp of the last 15 years of bogus appreciation due to securitized sausageworks.
No sale.
If you can't afford it at 6.5%, then you can't afford it at 4% or 3% either. What you need is not a refi. You need mail them the keys and find a place to rent.
I'm not interested in bailing out the real-estate industry, REITs, bankers, or keeping people in homes they could never afford in the first place.
""If you can't afford it at 6.5%, then you can't afford it at 4% or 3% either."
You're an absolute fucking nit-wit.
You're claiming without any evidence that if I can't afford the payments on a $1,000,000 loan at 6.5% (which is $6,320 per month) then I can't afford the payments at 3% ($4,216 per month) either, $2,104 a month less!
How co you come up with this? What if my income is $7,000 a month?
Here, here! I agree. This whole sham is to placate a large group who would normally vote democrat.
Millions have already gotten months to years of rent/payment free housing already. (Could this be why consumer spending has held up so well???)
You're a partisan moron. There are plenty of lilly-white SUV-driving Republicans huddled in McMansions on which they are not paying a dime each month too. Get real or GTFO.
This proposal strikes me as a gimmick. It's not friction in the mortgage market; it's outright fraud. It's things like NINJA loans, MERS breaking the chain of title, and rating subprime MBSs as AAA, when they were little better than junk bonds that created this mess. It's banks keeping a massive shadow inventory of houses and marking them to unicorn. It's the hangover from the irrational belief that "housing always rises in value," that was drilled into the heads of US citizens 24/7 by the media and other wishful thinkers over the last 20 years.
<sarc>And you guys want to cut a few points off the interest rate for a subset of borrowers? Oh yea, that's really getting at the root of the problem. </sarc>
And magically the loan converts from non-recourse to recourse in the fine print. "No need to actually read the docs, it's just boilerplate..."
Good catch, and that too, unless prominently displayed, is a type of consumer fraud. Sooner or later, it will bite them in the ass. These guys are consistent. They never learn.
I am completely 100% for this. The loans are made with the contractual understanding that they can be repaid early. Why should mtg holders get 7% when the going rate is 4%?
This is about making it easier for the average American to get access to MARKET RATES, it is not a bailout.
Because you signed a loan for 7%. Next time, buy a house you can afford and stop trying to pick other people's pockets because you chose poorly.
That's absolute fucking nonsense. There is no prepayment penalty on my motrgage so why should I not be allowed to pay it off? And why, if I can find someone to get a new mortgage from, should I not be allowed to do so even though the rate is much lower?
The banks got away with paying me less on my savings accounts when rates went down. Why shouldn't the banks get less as well?
If you can pay your mort off and can get a new mort, then we have nothing to discuss. But you're complaining that you can't get a mort at a lower rate, aren't you?
No bank is beholden to give you a loan just because you don't like the one you have.
Did you not read the info that went along with your savings account? My CD ladder is paying the same rates as when I bought the certs in 2007, despite the Fed rates going in the toilet.
You won't get far with the "life should be fair" argument in a capitalist society.
First, I can pay off the mortgage if I want to, but that's not an issue and it shouldn't be one either. The mortgage was used to buy gold in my case and that gold has doubled in value.
Second, I'm not complaining that I can't get a mortgage at a lower rate. I can, but I don't like the front load that comes with all the vultures in the mortgage business. This program appears to eliminate much of that front load and reduce the risk to the taxpayer of default of the borrowers which the taxpayer guarantees now. The lower the interest, the lower the payment and the lower the risk of default by the average homeowner. Even a cave man should be able to understand that. I don't know why so many here, including you, seem to not be able to understand it. Maybe you have a reading disability and didn't comprehend or read the proposal pdf? Maybe you're shills for the hedge fund and mortgage industry? Maybe you're Chinese? Maybe you're just plain stupid?
The GNMA MBSs that contain these mortgages have no right of prepayment penalties. They are getting higher than market rates only due to the constipation in the banking system. Many of these GNMAs are owned by China. It adds to the deficit, to the detriment of all Americans.
I did read the information that went along with my savings accounts. That is the reason that I refuse to even consider CDs. Those savings accounts have been paying substantially 0% for some time now. Most of those savings have been converted to precious metals by now.
Taking $70 billion from Peter and giving it to Paul does not increase the wealth in Peter and Paul's economy. It merely redistributes it. While the redistribution might be "fairer" or desirable from some other perspective, it does not increase wealth. That Glenn Hubbard is one of the authors of this scheme tells you all you need to know. It's still funny to see him squirm in the documentary, "Inside Job."
It increases Paul's wealth compared to Peter and if Americans are the Paul and the Chinese are the Peter in the equation, it increases Americans' wealth at the expense of China. This should be a selling point.
China has a lot of above market interest GNMAs.
I know it's been a while since people had to think about what wealth was, and god knows after recently finishing my first economics class, I see why the word "wealth" is so distorted and lost on most americans. How does having a home loan increase someones wealth, oh it doesn't, it's a liability. The only "wealth" we are helping secure is that of the banks, as they get instant repayment for loans that are no longer worth what they were originaly sold at and probably won't be able to collect on in the comming years.
If you want to increase peoples wealth, don't make them take another loan, no matter what the interest rate, but instead just excercise debt forgiveness, let the banks explode, let people have some form of real capital without liability strings attached. I know this is a crazy idea, but as long as we are talking about giving things away for free, this is the route that would have the most beneificial effect for the many.
Otherwise, I vote nobody get's anything and it all burns, requiring a rebuilding from the ashes. But that means recognition of pain and mistakes, which I don't see happening.
And a billion asses to wipe with them.
They're just as good as your CDs.
this plan needs a theme song: and a catch line like Cash for Clunkers:
'BANKING QUEEN" FREE DISC WITH EVERY REFINANCE STREAMLINE NO DOC, LOAN.
http://www.youtube.com/watch?v=a5NrqqK60OI
and you can use moneYline: "Foodstamps for closing costs."
and you can go streamline no doc, if your a registered Democrat,
but full doc only with 4 pts to fraudie mae, penalty fee if Republican,
and paid your mortgage on time like a Sucker with the other 50% who played by the rules.
ODUMBA catch line: throw out spread the wealth out,
IN; "spread the points".....spare foreclosures you can believe in:
Clinton on top: we feel your Shortsales!!!!
LOL; wait till you get the health care lines for care next year.??? LOL.
STOP wait wait this cant be done you need an appraisal, for 30,million homes of which 6 M are foreclosed, 15 M underwater,, and the EPA, rules mold, inspections and appraisall unions want the Bacon under schtimulus full union wage scales . but their no appraisers,
THATS IT, HIRE ALL THE 15 MILLION AS APPRAISERS, TO DO 2 HOMES
A PIECE, JUST DO WALK THRUS NO DOG SHIT ON THE CARPET
MOLD ACCEPTABLE.
like census workers: with full wage appraisals, and solar panels as requriement for Solyndra panels to be installed, $ 1 B writeoff.
and an illegal alien in every basement, required.
FNMA FHLMC guideliens, titles: burn em all:
No credit report, no tax retuirn, no paystubs, no job, no house and
no standards,
Do you hear the squeal?
Blarney Frank must be pooping a ton on TV now,
"Pooper thru the scooper thru foreclosures..."
"Foodstamps for closing costs, like cash for clunkers.
its a farce. KICK THE CAN KICK THE CAN KICK THE CAN.
KICK THE CAN, WITH A SCHTIMULUS CHICKENS, COMIN HOME TO ROOST!!!
If 10% of the population owns 80% of the wealth, then perpetually requiring the remaining 90% to prop up an economy with just 20% of the available resources is an effort in economic slavery.
Another way of looking at my favorite viewpoint! I figure that 10% is responsible for 80% of our debt also! WTSHTF I hope that 10% is held accountable.
No to mention severely limiting or preventing many homeowners from selling their home and buying another one in a different place when moving to a new job. Yet another example of hostage capitalism at its finest.
Considering that most Americans don't have $1000 in savings, where is the money going to come from to do the re-fi's for 30 million Americans? At a cost of $3000-4000 per re-fi, you're looking at an easy $100b just to get these lower rates, in order to save $70b according to the article.
I think that's the main point of the plan. Seems the M.O. of the FIRE industry is to generate as many transactions as possible, since money skimming always happens at transactions. That all of this activity produces absolutely nothing of value is a prime indicator of the empty shell of an economy that has become the US.
O.T., but yesterday I was perusing the wikileaks cables, and came across one from the Shanghai embassy in 2009 discussing how US multinationals were limiting layoffs in China, while dumping workers wholesale in the US.
U.S. CORPORATIONS LIMITING LAYOFFS [In China!] DESPITE GLOBAL CRISIShttp://cables.mrkva.eu/cable.php?id=191254
"The major U.S. corporations that comprise the U.S.-China Business Council are limiting layoffs even though they are feeling the effects the economic downturn, Godfrey Firth, Chief Shanghai Representative of the U.S.-China Business Council told Econoff on February 10, 2009. In contrast to 2001 when--following the burst of the tech bubble--U.S.-based multinationals did not include China operations in their planning for worldwide workforce downsizing, over the past several months China operations have been part of the calculation, Firth said. Nonetheless, the layoffs have been limited, said Firth, in the range of hundreds of employees out of a workforce of thousands for a typical company.
U.S. corporations are handling layoffs differently in China than they would in the United States, said Firth. In China, companies do not announce job cuts, and then send out pink slips. Instead, managers quietly go around to employees and discuss options--for instance, early retirement.
Firth suggested that U.S. corporations are feeling indirect pressure from Beijing to keep layoffs to a minimum. He cited high-profile press coverage given to Premier Wen Jiabao's State Council meeting on employment of college graduates as an example of signaling this message to Chinese and foreign enterprises."
One can't help but see the irony of US corporations responding to pressure from Beijing on behalf of their workers.
I guess that George Soros (Google: Absolon Project) is now short a lot of banks. Hmmm I wonder if we will here about this in the president's speech?
By the way, Thank You Chris
And from Blankfeins book of the prophets:
"The Vision of the Flying Scroll"
I looked up again and saw a flying scroll.
The angel asked me, "What do you see?"
I answered, "I see a flying scroll, thirty feet long and fifteen feet wide."
And he said to me, "This is the curse that will go all over the land. One side says every thief will be taken away. The other side says everyone who makes false promises will be taken away.
The Lord All-Powerful says, 'I will send it to the houses of thieves and to those who use my name to make false promises. The scroll will stay in that person's house and destroy it...' "
Zechariah 5:1-4
Zechariah 5:1-4
stick your Bible-thumping where the sun don't shine.
stick your Bible-thumping where the sun don't shine...
Is that "Bible" with a capital "B"?
Simply pointing out a rather obscure yet fairly relevant tie in to the issue at hand. Bankster hating is nothing new as well as the liars and thieves that have bifurcated countless mortgages by way of MERS that may as well be flying scrolls, as first deeds of trust are in an ether world of their own. imho.
The issue isn't interest rates on your mortgage dropping a point or so. The issue is affordability in the first place. Nobody talks about the criminality of a 4-5% mortgage in the first place and forcing homeowners to pay for insurance against default on that loan that goes to the bank. The banks want defaults on newly signed loans. Because there is no competition you are forced to take a bad deal if you want a home. Even at 4% you will still pay 90% of the value of your home in interest over 30 years. This only leads to massive infation in home values that can never be made up through wage gains. Home ownership becomes an ever greater burden as a percentage of income.
In the current job market it has become an impossibility for nearly anyone under 30 to save enough for a 10% down payment in a decent neighborhood without living with their parents for the first few years of thier career. How does this change?
Either home prices must fall to a more historical level as a ratio to income, after WWII a home cost just over a years salary for the average worker, or we need to change the entire concept of mortgage lending.
Our current system rewards corruption so the first thing is to place a ban on the securitization and selling of mortgages. The originator of the loan must remain the sole servicer of the loan unless said entity goes bankrupt. Then those loans may only be bought by another true bank. Second, something must be done about interest rates. You might be bale to get a better deal than paying double the value of your home fromyour local mafia boss. A mortgage rate should be based on the rate the banks are willing to give depositors, which right now is 1/2% or even lower. The banks are getting money from the gov for 0 s why do the people get screwed.
Perhaps a home loan doesn't get an interest rate at all but points added to the loan for bank income. A flate rate of 10% of the loan for up to $250k and 30% for homes above that to discourage excessive consumption. If you want a McMansion then you'll pay more for it Making $25kon a job that really takes about 20 minutes of real effort is pretty good and most people would be able to pay off the loan in 10 years or less.There would be no need for a 30 year death deed.
Yes! The usury is the real crime and bank should be JUST BANKS! Add to the list of crimes all this proprietary trading that is stealing real value from the economy and it does not take a genius to realize how unsustainable it all is.
I don't see how fiddling around with interest rates is gonna fix anything, when the principal owed is so much bigger than the value of the underlying asset. This is just tinkering with the edges as the center is imploding. And do we really want to keep playing "clever" debt games..? Isn't that part of what got us into this mess in the first place?
This isn't tinkering around the edges. Read the pdf, and all the footnotes. It would be a huge shot in the arm for the economy. As it points out, MBS investors knew all along the lower rate refi risk but have enjoyed 3 yrs of higher interest because of tighter lending standards and the economy. The RepubliCons will see immediately this likely works, and will oppose it, watch.
The only realistic way to clear titles is via the courts. Otherwise the Federal Government would have to nationalize this function. Maybe Obama will do this by executive order.
Read the pdf, all Reps & warranties violations would be dropped and if a bank doesn't go along, they would be banned from doing biz w/ GSEs in the future.
Yes, but...
The mortgage pools are flawed on many grounds, more useful in judicial states rather than deed in trust states, because you can use standing issues to queer to whole effort to foreclose, but...
A quick refi does get the banksters out of a whole range of consumer fraud, due diligence, and mortgage insurance issues. In spite of their facade, they are shitting bricks on some this stuff. Burn, baby, burn.
Yep, greed clouded the banks senses and now the sustainable usury is rapidly dropping. This gets interesting when even the relative few remaining employed folks throw their hands up in the air as well and say "fuck it". Basically, it very quickly could become a situation of the banks versus everyone else.
To which one must respond, "Why on earth, when you get down to the structural legal basis of private property ownership, would the top cops - the state attorneys general - even consider putting our title system at risk by participating in a settlement with the banks?" Which law schools have trained so many to despise an orderly and peaceful existence under long-standing property law?
Disgusting and dangerous.
Modern law schools train students in "getting theirs" not justice. Just try and hire an attorney for a civil litgation case these days. If the case doen't involve large sums of paper, good luck.
Those who got foreclosed will be pissed, they might camp out on the lawn of their lost house.
Many will re-default because they used savings, borrowed 401Ks, no job, but it would help us because we saved enough to pay loan off and Wells won't give us a modification because cash is trash in qualifying.
This is shit on a stick for any number of reasons. A few points that should be obvious, but clearly are not to some.
1. This will destroy the value of the MBS pools. There will be an ADVERSE SORT. All the good loans, those on time, with high interest rates will refi. The past due, underwater, liar loans will stick to the wall. Think about it. The loan pools will be left with nothing but crap. Only a Commie like Barry could like this blatant asset grab.
2. All the interest rate risk is taken on by Fan/Fred and MAGNIFIED. When interest rates rise, as they must, the negative cash flow will be huge.
3. There is no money to pay the fees. This shit is all underwater, or the problem would not exist. Barry will offer a few million, like pissing in the ocean, or try to force the fees onto Fan/Fred. This is armed robbery.
4. Still, yet, again, there is the moral hazard. This rewards the fools, liars, and frauds, at the expense of those playing by the rules.
5. The banks get off scott free on their frauds, which is the obvious point of the whole thing.
This government is the enemy of all good men.
The Chinese have large amount of GNMA pool securities. They would see these paid off and the substitutes get a much lower interest rate. Whether the Chinese continue to invest in GNMAs with the lower rates is the $640 billion question.
There would be a significantly lower current account deficit due to reduced interest payments to China.
you have no idea what you are talking about. We are talking about AGENCY MBS pool that have no credit risk (investor will receive par on underlying loans either refi or default). Interest rate risk is NOT taken on by FAN or FRED. In fact, it will accelerate the reduction in the size of the portfolio due to aceelerated paydowns. The interest rate risk will be taken on by the buyers of the new MBS pools - money managers/hedge funds/foreign central banks, domestic banks etc. It actaully rewards people who hAVE PLAYED BY THE RULES. Need to be current on loan to refi. With respect to the banks, they would need to work out rep and warranty issue. Very misinformed post. sorry dude.
Don't know who this royal "we" is, but I know Washington. If this trial balloon works, the scam will be rapidly expanded. That is why fund managers have their panties in a knot. In any case, the loss of interest income is the same. You must be a lawyer. You clearly never passed accounting 201. The average return to the fund will be destroyed. The "investor" bought an expected cash flow and interest rate, not thinking it was hostage to the Chicago mob.
It matters not how the taxpayers get raped. You are arguing form over substance.
The whole point of this farce is to get the banks off the hook and give Ben more of our money to waste! Get up to speed or get out of the way.