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The Fed's Plan - Rumors of News
Go back a week to an article in the NY Times (Link). The guts of this story is that the Administration is working on a plan to Re-Fi residential mortgages on a massive scale.
When I first read this, I ignored it. The scope of the proposal was too large. There was also (IMHO) a fatal flaw. The thinking was that the jumbo ReFi would be made available to only those who had a mortgage that ended up with either Fannie or Freddie. I ask the question, "What about those poor odds and sods who have a mortgage with a community bank?” Do they get nothing while those who owe F/F big bucks get a break? Where is the fairness in that result?
But every day since the NYT story, I have heard the rumblings about some deal being done. It has already impacted MBS spreads. It's back in the news today with an article in the WSJ. (Link) I have to believe that where there is smoke, there is probably some fire.
I went back to the NYT piece. There are some clues. First is that Louise Story wrote the article. She is a fine reporter. Anything that she says has been supported by “real” sources. "Who were these sources?" is a question to ask. Some words from the piece:
Administration officials said on Wednesday that they were weighing a range of proposals.
Read this to mean that people in the Administration deliberately planted this story. This was a “trail balloon” approach. This is very typical for this administration. They leak their intentions in advance. More from the NYT:
But refinancing could have far greater breadth, saving homeowners, by one estimate, $85 billion a year.
The following chart was included in the NYTs article.
The information in the chart and the very precise estimate of “85 billion a year” can only have come from one source. It has to be the FHFA that is doing the talking to the NYT. It had to come from the most senior level. That HAS to mean that it came from the Acting Director, Edward DeMarco.
The NYT functionally confirmed the source of the article as DeMarco with this written quote from him:
“F.H.F.A. remains open to all ideas that provide needed assistance to borrowers” while minimizing the cost to taxpayers, Mr. DeMarco said in a written statement.
Now consider some of the wording in the WSJ article today. Note: This article was written, in part, by Jon Hilsenrath. Jon is well known to be a mouthpiece for the Fed. He gets his thinking directly from Bernanke. Some quotes:
There are several reasons why refinancing has been weak, say Fed officials.
Some Fed officials say that it would be in Fannie and Freddie's financial interest to allow borrowers who are current on their mortgages to refinance at lower rates because it would increase the likelihood that they won't default.
Officials at the Federal Reserve are frustrated that they've pushed interest rates to the lowest levels in decades and yet many borrowers haven't been able to take advantage.
You can take these quotes to the bank. They are from Bernanke. It is Bernanke that is frustrated that his low interest rate policy has not resulted in more ReFi’s. You can also take as a fact that Bernanke wants something done on mortgage relief.
One other fact in the picture. The new IMF head, Christine Lagarde, spoke on the phone to Obama before her speech at Jackson Hole. She must have told the Big O that a program to clear up America’s mortgage mess was her top priority. She made that very clear in her speech the following day.
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Okay. Put these pieces together. What do you have? Assume for the sake of discussion that the President does announce a major new initiative to ReFi F/F mortgages. Assume further that the cost of the millions of ReFi’s would come from existing sources (the $35b of already issued and funded Hope Now Bonds), or better yet, the costs would be crammed down the neck of the banks who are servicing the loans (necessary to get DeMarco to go along). Say, for the sake of discussion, that the targeted mortgages are those who have not yet defaulted, but are desperately in need of a break. That amount would come to about $1.4 Trillion. This is a very big amount. Assume finally that the new mortgage rate would be about 4%. This (if accomplished) would be a very big shot in the arm for the economy as a whole.
Now do a flow of funds for this mega transaction.
I) Homeowners get a new loan at 4% and payoff 100% of the old mortgage.
II) The servicing banks get the proceeds and pay off the old loan.
III) The money is paid to F/F. This money is used to redeem existing mortgage pools of Agency MBS.
IV) Fannie/Freddie have the same asset mix at the end of the day. They still need to finance the new 4% mortgages they are writing.
V) Fannie and Freddie are taking on substantial new risk as they now have a book of 4% mortgages and are much more at risk to rising interest rates.
VI) It takes 90 days for a new mortgage to become a new Agency MBS. During this period F/F warehouse these loans. They finance the warehouse with short-term debt. They take action to reduce their risk by entering into new swap transactions or by buying derivatives to neutralize the market risk.
VII) As the process goes on huge chunks of EXISTING higher coupon MBS are prepaid. Investors in those MBS securities will be forced to re-invest the proceeds.
So who is going to be the biggest recipient of the cash pre-pays? That’s easy to answer. It’s the Federal Reserve. They currently own 1.0 Trillion of Agency MBS. A very substantial portion of the total prepayments of F/F MBS will be paid to the Fed. The Fed’s balance sheet will shrink very rapidly as a result.
The Fed has already established what will happen when principal is prepaid on their holdings of MBS. The have said they will reinvest any proceeds back into new purchases of US Treasury securities. As this chart of the Fed’s holdings show, this has already happened to the tune of $250 billion. The new proposal for the mega ReFi will dramatically reduce the MBS holdings. It will force the Fed back into the market to purchase big amounts of Treasury bonds. This process will take at least a year. But the total amounts could easily exceed $600 billion (QE2 size).
There is a flaw in this logic. On a macro basis, total mortgages loans remain the same. This is only a re-pricing. Not a reduction of total debt. The reality is that the Fed will be buying more treasury bonds, but F/F will have to be selling new bonds to protect themselves against interest rate risk. What will be happening is that the Fed is buying to reduce interest rates while at the same time F/F will be buying protection in the form of swaps, options and new term funding. So the real consequence to the credit markets will be a wash.
There is one solution to this dilemma that achieves the desired outcome. The Fed could easily enter into the swaps/options with F/F to eliminate their basis risk. Think of this as a different version of “Operation Twist”. The Fed wants to reduce long-term interest rates. It does not matter to them if they do it with direct purchase of bonds or if they absorb future interest rate risk by writing derivatives that would neutralize the market impact.
The Fed can’t write $1 trillion of interest rate swaps to the street in order to achieve this objective. There would be far too much counter-party risk for the Fed to do this. But they have no counter party risk with F/F. At the end of the day F/F is the government, so the Fed can say they have no counter-party concerns. The bulk of this would be financed by F/F in short-term markets. The swaps and options with the Fed would alleviate the market risk they would face from the ReFi’s.
Who would be AGAINST this plan? No one that I can think of. DeMarco would be able to say that the plan protects the taxpayers from future losses. Obama would say that he has created a new stimulus of $85 billion a year. Bernanke would love this plan. He would be “Forced” into buying a new big amount of Treasuries. He would have his excuse for QE3 handed to him. That the Fed would be forced to absorb new risk of loss to rising interest rates is of no concern to the Fed. They are in so deep today, another $1 trillion of notional risk would not change the picture. Keep in mind that the Fed is very anxious to pull the next trigger.
Who would be the sources of SUPPORT for a plan like this? Everyone but some Republicans is the answer. DeMarco (FHFA) would get what he wants. Obama would get what he wants (10,000,000 homeowners would love him). The economy WOULD benefit from this as consumers would have new cash in their pockets. Bernanke would get everything he wants (a new QE), and would have the political cover for his efforts.
The only voice of dissent will come from Republicans in the House. But it is very likely that this could all happen without a vote. From the NYT piece:
The idea is appealing because it would not necessarily require Congressional action.
There are too many pieces of this pie to ignore. This is a solution to problems that are both political and economic. I see no significant opposition. Republicans will scream “foul”, but who cares. This can happen over their objections.
I'm looking for something along these lines to be announced soon. It will come in the President’s upcoming speech. None other than Ben Bernanke will be the biggest supporter. That makes it a very feasible outcome.
Will this work? I’m not convinced. I think this is the ultimate "kick the can down the road". But that is the only strategy that is in place today. Delay the inevitable; win the next election. That is the only thing that matters in D.C.
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Rumors, rumors and more rumors
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The article states that his program would be for those current on their mortgage payments. Thus, this program is not a solution for those currently in default. And, therefore, there would not be a re-default, since that word implies a first default - of which there are none in this program. Or something like that.
Complicated, but if it'll fund the Bankster Bonus for this year they'll do it!!
One telling detail, imho: Fannie & Freddie were added to the Reverse Repo Counterparty list just last month. The Fed could do a tri-party reverse repo, where a third party (either JPM or Mellon) would act as agent for the transaction between the Fed and F-F.
The idea is to get the banks to start lending their non-borrowed reserves to the institutions on the RRC list, probably by lowering interest rates currently paid on NBR's. With the usual ridiculous leverage, $1.76 T in NBR could fund $30 T in gov't debt. Spanky would be shortening the debt maturity profie, but what the hell? A small price to pay for draining the swamp that is the Fed's balance sheet.
On a more serious note, it is not the 5 or 6 percent loans going to 4%. Its all the interest only 5 and 7 year variables that this will save. Hundreds of thousands of loans about to face resets from interest only to 25 or 23 year, fully amortized....doubling the payments and forcing default...that are in play.
We all know homeowners with 6% fixed, 30 year amortization loans are being required by law to make good on the spread between their fixed rate and near zero, Fed subsidized short term rates.
What happens if rates spike to 7%, and these homeowners were now in the money on that swap? It would be a TBTF bloodbath, to the point at which the FDIC would probably have to unilaterally cancel the transaction & default everyone to variable.
These interest rate swap contracts in their current form are not conscionable.
Bruce,
Excellent piece as usual, but I have some gaps that you may be able to fill in the blanks:
There are many who are current on their mortgage but are significantly underwater on the value of the house. What "whitewash" gets applied that makes this work as a loan? Current FMV of Home A is $ 150k - current loan is $ 200k at 5%. Homeonwer will gain a a few dollars per month but still owe the $ 200k. Their incentive will not be to spend the $ 200 per month, recent history suggests they will save it to offset rising food and gas prices. No stimulative effect. What am I missing?
Or there area lot of us who are current on our mortgage, who had our mortgage already sold to F/F, are not underwater but have taken the time to notice there is a likely break in the chain of title. Other than the savings on going from a 4.25% rate to a 4% rate (not enough to fill up your SUV), what incentive is there to give up the possibility of having your secured note converted to an unsecured note?
Politically, it is easy to damn this as more government socialism. The "independent" voters are not likely to be favorably disposed to the latest version of Obamanomics. There is no doubt that the Democrats and the bankers will be all over this if they think they can pull it off but why does it look like anything other than another piece of "the hand is quicker than the eye" to John Q Independent?
I don't think people smarter than you have been looking at this for a long time. I think people more deperate than you have been looking at it for a long time.
barliman
So many questions. So few answers.
The deal is if you are current on your mortgage you get this break. It does not matter that you are underwater. They would have to waive that. They could. They would be no worse than before.
In the deal, any break in the chain of ownership would 'go away' when the new deal is signed. Yet another waiver. For you at 4.25 and only getting .25 it would not make a difference. But if you had a 5.5% you would have to consider it.
For the record, I never thought there was much that could be done on that deed thing. If you lived in the house for three years, paid the taxes and the mortgage, the insurance and the utilities etc. the law would say you "acted" as owner. You had all of the rights of an owner including the "Right to quiet enjoyment". So you owned it in the eyes of the law.
There is a theory in law called "Unjust Enrichment". The practice is that one can't make a windfall as a result of a clerical mistake. This would play in every court case.
Want to go that route? Get a lawyer, spend big bucks and wait five years. I say you will lose.
I think the time when this deal would "slide through" the sytem has passed.
I think the "social mood" excluding certain metropolitan areas has left both political parties and the financial elite out of the loop. This looks like a slam dunk in Manhattan ... but I think there would be more anger over this proposal than its proponents have envisioned.
The polls all show a strong and growing distrust of government. Why would someone feel better knowing their mortgage is going to be owned by the U.S. Government (which has be known these last 31 months to throw its weight around) than one of the TBTF's?
For the record, there is a lot that can be done about "that deed thing". There is an enormous amount of precedence established on chain of title at all levels. It takes a truly peculiar outlook to think that waving all of that away is as simple as its proponents say it would be. This does not fall into "unjust enrichment" because one would still owe the money they signed up for on the note - the lender would hold an unsecured loan without recourse to disclosure. The borrower has not been enriched by a random clerical error but due to the premeditated, consolidated efforts on the part of the lenders to bypass existing real property laws for their own profit. (I am pretty sure that is called fraud)
BTW, this would greatly enhance the potential for renegotiation of the principle downward on a more level playing field. If the lender wants the note rescured by the real property they would have to incentivize the borrower to do so. (I an not yelling at you, Bruce - just trying to catch the eye of those scrolling past my reply)
The TBTF and the politicians they have bought are eager to "SETTLE" this on a huge scale so they can get a pardon for MERS and all the laws they broke and taxes/fees they have bypassed. They are eager to not have to a million plus cases before tens of thousands of judges. The TBTF are far less sanguine than you about "going that route".
Your replies as a whole make it seem like many have already drunk this Kool-Aid and found it pleasing. From my perspective, it looks more like an economic, financial and political Jonestown waiting to happen.
barliman
Bruce,
You are so right about everything so I hate to nitpick, but...
The "unjust enrichment" in such a case isn't based on a mere "clerical mistake," rather it is based on a tortious act of fraud: the banks and brokers attempting (intentionally) to circumvent recording statutes and fees.
I suspect defaulted squatters may even have legitimate claims under the "adverse possession" laws of many jusrisdictions (i.e., the 'lawful' leinholder refused to exercise its rights by not foreclosing despite the 'squatter' maintaining a hostile, open, possessory interest in the property while paying all necessary taxes).
This would be true if the deck wasn't stacked, but you have to assume that judges across the country understand the enormity of the apple cart the will upset if they rule in a homeowner's favor completely. It's far more likely that the lender will either win the case outright or face a penalty that does not include evisceration of the security interest. For the record, I'm with you, as it should result in criminal prosecutions across the land, but I think normalcy bias is storng in the judiciary...
There are tens of thousands of judges in this country who don't get to live in Washington, DC or on estates in Connecticut. Their normalcy bias is likely yet to be formed because the state AG's have stepped in front of them. If there is no "grand bargain" struck that covers all states - especially New York, they will be likely to view the resulting mess of lawsuits as guaranteed employment ... until they decide to run for higher rung on the political ladder. IMO, If the TBTF can't get a national pardon, they will declare bankruptcy as their next best path.
barliman
I suspect you're right with regards to many judges, but I happen to practice before one (a California Superior Court Judge) who has a habit of following the law and letting the chips fall where they may. Though I don't practice in this area of law, we have had discussions on this subject, and he has made it clear that he would disallow a foreclosure where the lender was unable to establish a clear title to the property. For him, it's simply a matter of law.
I hope there are many more judges like him. Of course, the issue may be moot with 57 years worth of foreclosure backlogs in New York State:
http://globaleconomicanalysis.blogspot.com/2011/08/first-time-foreclosure-starts-near-3.html
My god: if "Unjust Enrichment" were a strong legal theory we'd live in a different kind of world.
It does apply, but only to 'Us'.
Nice political analysis. I suspect this is the next move.
A modern equivalent of the Roman Caput plan.
It will be nifty neat-oh for Christmas! We're saved! All the debt slaves look at is there monthly payment...voila...it is lower. They can go charge up a storm.
Snag is, that $350K mortgage at 4% ain't gonna be affordable at 4+%....so the debt slave can not sell. But that realization will take time. The pavlovian drool from the debt slaves will create a small river for a year or so.
You bring up a very important issue. I have been looking at houses in the local market on the internet, and assisted a friend in putting two into escrow. Most of them fit the same pattern. They were sold with in the past six years at double the current offering price. The owners are hopelessly under water.
Spent last weekend at the campground of one of your "debt slaves". I was surprised just how keenly aware they were that they "owned" a home that they couldn't sell. They will realize this is all smoke and mirrors before it is finished being announced.
barliman
Yeah, but they'll take that lower monthly payment without a thought. "This will get people spending and improve the economy!" they'll say. In a year houses will start going up! I can sell then!
And that short term loss of stress, coupled with being able to lever up the credit card or car loan by $100+/month will feel SOOOOOOOOO good.
Book it.
For this to really work, the refi needs to be 110% of the current mortgage balance. Gotta have a kick start for GDP in there somewhere.
There are four reasons why Bruce is correct. Only one of them is the "real" reason.
1. Politically, this would be a good deal for Obama. This is targeting middle class boomers who vote --- the "independent" vote that Obama will need in 2012.
2. Economically, this would be a good deal for consumer spending, at least short term. It will have the same effect as an immediate middle class tax cut without the corresponding deficit increase.
3. Morally, this is questionable because it cuts rates that MBS bondholders presently enjoy. On the other hand, such bondholders have received a "windfall" return for the past several years due to the inability of these very borrowers to refi even in a declining interest rate environment. I've made good money in NLY and HTS from these poor borrowers --- a 13% dividend for 3 years. Thanks to Bruce's analysis, I sold it all today and will wait to see what happens with this refi plan before buying back in.
4. The REAL reason this plan is being proposed is that it moves these borrowers off the ledge, i.e., where they are presently just a payment or two away from a strategic default. They presently cannot refi because they have no equity. The rumor is that this plan will refi up to 125 LTV for those with FICO's over 630. This is the demographic the banks and Fed fear most. If these people walk away, the bank losses will dwarf the losses to bondholders from the refi plan. THAT is the real motivation behind this plan, not the first three.
Of course, there is no free lunch. When interest rates inevitably rise, the F/F portfolio full of 4% mortgage bonds will suffer a cataclismic loss. Just a rise to 6% will cut the value of these bonds in half. That's when taxpayers will be handed the final bill. But the "beauty" of this plan is that it separates the gain (now) from the pain (later). Ponzi finance at its best.
This deal will not happen at the expense of F/F. DeMarco has made that clear. You can take him on his word.
This means the Fed will absorb that risk. They will be paid for it (swap premiums).
This is what the Fed wants to do. They want to easy credit and increase incomes. They are already taking monumental risk on the existing balance sheet.
In for a penny, in for a pound. This an "all in" bet.
Then they must have planned in 1910 that the fed would last for precisely 100 years, and now they're ready to see it vanish.
Though I don't believe this for a second, I suppose this is one possible "predator theory": consume everything until it is almost completely destroyed, then you retire to your cave for a long winter hibernation (maybe 20 or 30 years) and let the producers build up a new healthy economy. Then you return and suck all that wealth dry. But I don't believe it. I believe the predators are ready to destroy everything this time. And I hope they do... including themselves.
"Just a rise to 6% will cut the value of these bonds in half. That's when taxpayers will be handed the final bill."
That's the justification QE4.
Rumor i've been hearing in addition to this is... amazingly...the Fed Chairman is going to cart out some dude by the name of Fred Hapanowicz as announce he's just hired this guy as part of the Fed's committment to full employment. This will allow Friday's job number to be positvie...as in "one job was created and his name is Fred."
Good analysis of an underhanded way to solve a big chunk of the MERS debacle (and save BAC?), getting people to sign new notes & mortgages that are properly recorded.
... then down the road here comes a huge wave of fast-track foreclosures when people can't make those lower interest mortgage payments or realize they're stll way underwater and just stop paying or walk away from it, and the housing market goes from steady decline to full implosion.
Just like before, it's to help banks and screw homeowners.
The ONLY way to stop the housing collapse (crash) is massive principal reduction, with reamortization and lower payments.
Take 2 trillion, 3 trillion, whatever, away from Wall Street bailouts, pay down everybody's mortgage $40,000, and give everybody else a $40,000 home purchase voucher.
The housing market would snap back overnight, banks could unload their huge backlog of foreclosures, realtards and homebuilders could stop living on catfood, everybody benefits
...except TBTF zombie Wall Street banks
...which is why it won't happen and the housing market will careen down the tracks to full implosion.
I was thinking the same thing. Combine Bruce's points with partial mortgage reduction and you get "Dear Delinquent Homeowner, If you promise to start paying again we will reduce the total amount of your mortgage and refinance at 4%. Oh, and by the way, your new mortgage is backed by the US Government." That should clear up a few bank balance sheets! Now we know why there is so much back end support (e.g. Obama and Buffet) for BAC, they will be saved in a few weeks and they just need to ride out the storm until then.
@ cranky
I think you've come the closest to what I think is going on. In my opinion, this is the most ridiculous analysis I've seen Bruce post. Most of his stuff is good. But this. pfffftt.
This plan has one objective; to satisfy existing mortgages that originated with Countrywide, so Fannie, Freddie, or any other owner of them can't "put" them back to Bank of America for reasons of misrepresentations in underwriting. In 2007 Countrywide originated $800 Billion in mortgages. That was just one year. I read somewhere that a pension fund or someone analysed the Countrywide mortgages the own and found that 92% of them had material misrepresentations. Countrywide originated a few Trillion in mortgages and Bank of America may end up owning them as a result of litigation, unless of course, they are satisfied. That is the objective. The Federal Reserve can create a Trillion dollars anytime without going through all this crap. No one in Washington cares if a person saves $250 a month from a re-finance. Their $200,000 mortgage is probably on a house worth $150,000. Be serious --- This plan is designed to help Bank of America because they fucked up and bought Countrywide; so whatever. That's how they roll but at least call it what it is.
i like the way you think! and you look pretty good for your age too!
Holding out for 0% down and 0% APR. Let them sweat!
So this would prevent forclosures how? A drop from 5% to 4% would save about $50 a month on a $150k loan. The principal of the loan isn't the problem, it's the taxes and mortgage insurance. My home loan is only $580 a month but with all the escrow garbage my payment is $920. $340 a month goes to insurance and taxes. Just the eliminaton of the FHA insurance would no the exact same thing in the short term.
Long term it doesn't matter what you refinance to if you don't have a job that pays enough to even make a $500 a month payment.
It's financial repression ... and of course we look for the other shoe to drop. What are the unintended consequences? Do foreigners dump treasury bonds for gold?
Moral Hazard.
Bruce, have you seen the Diana Olick blog post on cnbc.com.
She talks about the practical problems with implementing a big refi program.
I suspect we will see a announcement for a big plan that will claim big numbers, but it won't result in many more actual refis that any of the previous attempts.
Thoughts?
Olick is just repeating the words of Louise Story at the NYT. Forget her.
I repeat what I said above. You get a letter, It says:
"Your mortgage rate is cut to 4%. This won't cost you a dime. You get a new 30 year maturity to boot".
You wouldn't sign that? 10mm will.
Yes, there is a closing and new documents and signatures and all sorts of things. That does not have to happen on day one. It could be six months before the ink is dry. The benefits start when a short-form letter is signed. Not so hard.
What about the banks and pension funds who paid a premium for agency MBSs and/or are carrying them at premium mark-to-market?
Wouldn't this blow them all up?
I have a problem with this re-finance business.
My nice re-finance her home and I said you should have checked to see if anyone actually owns the home, but it was already done with.
So my Q is if the bank you took the re-fi out with didn't own the home orginally then what did the bank give in exchange for the ri-fi loan.
Seems to me nothing was exchanged, but fraud was committed.
BK yes where there is smoke there is fire. What are the spreads saying and MR MBS market pray tell? Good work.
I don't like it at all, but what do we do with all the toxic assets? How do we move them?
How would this help the homeowners underwater and not paying anything? Millions of people are living free. They don't give a damn if the interest rate is 1% or 20%. What about the millions who have crap credit scores...will they be refinanced? Little details. Most with good credit have refinaced down to 4% to 5%. Only the high risk deadbeats and unemployed need to be refinanced IMO.
Credit scores won't matter when there are votes at stake.
What about US? Saved $500K lost our job, have equity and could pay off loan and WFC won't even MODIFY FROM 6.5%?
YEA, 20% DOWN too.
What about those who just got foreclosed on? MAYBE WE URGE THEM TO SQUAT ON THE LAWN OF THEIR FORMER HOUSES?
Obviously we need the money to live off at 60y/o, we can't shell out $220K we owe and we have $500K equity so they aren't interested, they'd rather we die poor.
FUK THE WHOLE SYSTEM, at 62, we're EXTRACTING EVERY BENEFIT WE CAN, only 3 yrs paying the goddamn Kaiser health insurance, I'd tell them to get fucked too if not for assets. Fking $700 mo health insur.
Did you or did you not sign the 6.5% loan motherfucker?
Property taxes are probably your next biggest bitch.
They are my biggest single expense. Best option might be to dump the anchor, downsize to a rental, upsize the PM stash and wait for the reset to trade back to property.. maybe elsewhere.
spot on, everyone will get 4%
Funny, I just read where F/F was allowing Congress to GIVE away the Repos?.
Hmm...let's see who will go down the toilet with the drop in coupon paid.
Well surely it either has to be Fraudie and Funny (F/F), since they will not be earning the rate of return they thought they were going to get when they hedged off the interest rate risk. Net loss of what 1% on 4 trillion = $40 billion multiplied by the duration of the mortgage portfolio of what 8 years? = $320 billion? Ok, an easy pill to swallow for the um...tax payer who guarantee F/F via the scallywags in the Fed and the Treasury?
Ok, who else might get hit. Perhaps the bond investors who lent F/F the money to buy the mortgage pools in the first place? I guess coupon drop ought to be a default event, but won't be treated as such by the scallywag Trustees if its not in the Trustees interest to act like Trustees. You know I wish I could do this, you know, borrow at 10% then say, well no I am only going to pay at 2%; what a hoot. These bond investors thought they had a 5% coupon and now its a 4% coupon so they collectively take a $320 billion hit? Well who cares its only german landesbanks and sovereign wealth funds. I bet the Chinese are very pleased that they switched out of F/F into Treasuries at flat a fe wyears ago!
Just a minute, let's see...$320 billion divided by 50 million people who desparately need it (U6 unemployment at what 16% and 46 million on food stamps?) why not give the desparately poor $6,400 after all they have to spend it, because they are sick of food stamp quality food. Pity it would only last a year really at $123 a week. But after all $320 billion is only 2% of GDP.
Another injection of 2% of GDP by stealth means! Someone takes a loss to boost GDP, yay...much better than tax increase.
And pension fund blows up
Hearing Solyndra (from yesterday) is gone.....
FATAL FLAW!!! The loans are 'broken' and only a total idiot would sign a NEW loan when they can, instead, go to court and challenge who actually owns the loan (quiet title).
DO NOT SIGN A NEW LOAN without seeing the original wet document and verifying the title holder followed the letter of the law in title ownership transferring!
There are two problems with this that I see (from a homeowner's perspective)
1) I actually plan to stay in my house and die in it. I have 24ish years left on my mortgage, so, yay, I can add 6 more to that. That seems like a long term lose to me. (most people, aren't in my boat though)
2) The more obvious one though, is this is the magic bullet to fix all the lost paper loans out there. Refinance the loan, shred the old documents (ha!, like they exist) and poof, now we have new loan/title/note and the banks can forclose without fear.