This first sign came from the Presidents’ speech. He spoke of a ReFi. But he had not one word of detail. Still there are clues:
My administration can and will take some steps to improve our competitiveness on our own.
We’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent.
I know you guys must be for this, because that’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.
The WH provided a breakdown of where the new stimulus money would be spent. There was not a nickel in the proposal to cover the cost of any new ReFi program. Note that O states that he can do a big ReFi “On our own”. This means that he has the money in his pocked to do something. He does not need congress to okay a new plan. (There is $25+b of old TARP money, there is an additional $35b available from the previously funded “Hope Now’ program.) The point is that there is money around with no string attached for the President to pursue a ReFi.
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 a current 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.
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.
The bottom line is that 2.9mm homeowners would get a benefit of $7.5b (each year) and the net cost to the government would be a one time hit of only $600mm. A nice trick. Note the individual gain and losses. The losses come from a write down of the value of MBS held by both the Fed and the GSEs.
So how can this be? Where does the money to achieve these results actually come from? That’s easy. It comes from the poor bastards outside of government who own the Agency MBS. From the CBO:
Those investors are expected to experience a disproportionately large fair-value loss of $13 to $15 billion.
Ah! It all makes sense now. Savers are going to pay for the ReFi. The CBO makes this fact very clear:
Most of that wealth would be transferred to borrowers.
Based on all of the above I believe that there is a ReFi plan in our future. This is what I think it means:
I) We get a program that targets $800b to $1 trillion of mortgages.
II) The program will start on 1/1/2012 and end 12 months later.
III) The consequences to the MBS market will be deferred for 4 months. Thereafter the increased monthly redemptions will flow through the MBS market at a rate of 70-80b per month. While painful, this will not result in a collapse of the MBS market (but it could…)
IV) If $1T of Refi were accomplished, it would result in increased demand for yield curve protection by all participants in the mortgage market. This would, by itself, tend to push up interest rates in the 10-30 year maturity.
V) To offset the market implications of #IV the Federal Reserve could respond by absorbing the risk. This could easily be accomplished with “Operation Twist”. If the Fed were to sell some of its shorter maturities of Treasury bonds and simultaneously purchase coupons with an average 15-year maturity, the market implications of the Mega ReFi would be neutralized.
We are going to see a ReFi proposal along the lines described above announced in the next few weeks. This will justify the Fed to initiate $1 trillion of Operation Twist. That announcement will come on September 21st.
MBS holders will get hit on the head to the tune of $25b. But no one cares about them any longer. Punish the savers.
.
This is interesting, and I hadn't come across it expressed so succinctly before.
What's the model for valuation of the loan? Or was it "fixed" contractually at time of issuance? How was default-risk valued vs. collateral value?
The loan must be purchased at par, the original loan value.
That is why this cant work. A reduction in interest rate is a change in loan terms and is forbidden by contract language within the MBS.
The only option is to purchase the entire loan out of the MBS, a prepay.
Where is the money going to come from to prepay every loan above a five percent interest rate?
What happened to secured creditors of GM?
Just sayin'.
There is a chance the man with a gun will come into the room and say there's a new set of rules.
I'd think some kind of quid pro quo would be more likely. Banks take a hit but gets increased access to "liquidity."
If the gummit were at all willing to consider restructuring the banks, this would've been fixed years ago.
Investors in MBS understand prepayment risk. They are short a refi option to the consumer. Holders of MBS have benefitted from the inablility of borrowers to exercise the right to refi if rates go lower due to home price declines along with stricture underwriting and appraisal. Dont feel sorry for investors. The GSE/taxpayer have all the credit risk to the loans and suffers from the inablility of people to lower their mortgage rate an improve their ability to stay in their house - by the way, they PAID for that refi option in the rate (about 75bp extra). As long as the GSE do not give up any meaningful rights under existing rep and warranties on the original loans, the plan is a no brainer for FHFA.
TROLL ALERT
Investors understand refi risk. They do not understand a statist idiot changing the rules in the middle of the game. A refi on a hopelessly underwater deal, at a lower interest rate? What color is the sky in your world? This is class warfare, pure and simple.
It is not a rule change. Frst off the program is limited to 125 cltv or less. Second, it is clear in the prospectus that the govt has the right to do this if it is conisdered a loss mitigation strategy . Third, whether underwater or not, the govt has the credit risk for the original loan amount so allowing people to refi into a marker rate does reduce credit exposure to GSE. Think of it this way, if the borrower was not underwater and had a 6% mortgage rate he would have refi's already. Or, if underwater and rates go down 100+ basis point and if the govt can charge extra 25bp in guarantee fee and the borrower can save the rest, is the taxpayer/govt/borrower in a better position. Improtant thing is market rate and NO principal forgiveness.
So much bull shit, so little time.
1 It is a rule change, because original agreements contemplated MARKET FACTOR refi. Not a rape the taxpayer/buy votes for Obummer style of refi that the private sector would NEVER DO!
2 It does increase risk by kicking the can into a falling market, and delaying inevitable foreclosures. Losses will be higher.
3 It reduces income to the investors, check that, it STEALS INCOME from investors for Marxist/Keynsian reasons that not even a mother could love.
4 It greatly increases interest rate risk, by reducing rates on long term debt when market rates would be/will be higher, much higher.
5 It covers up the crimes of the banksters and holds housing prices at artificial and stupid levels.
6 There's a lot more, but why argue with a looter? Let the markets clear. Central Planning never works.
1- Not a Obama fan - cant stand the man but not the point. It is not a raping of the taxpayer it will benefit taxpayers. Private sector would do it it they HAD the credit risk. You fail to recognize that the HOLDERS of agency MBS do not have the credit risk .
2 - DOes not kick the can down the road. We are talking about people who have NOT missed any payments in at least 12 months and have ltv between 80-125 (but original ltv below 80) . Government/taxpayers are not collecting above market rate interest. The GSE fee was fixed (too low) at the time of origination.
3- It reduces income to investors who greatly benefitted from the "banksters" who actually own many of these MBS who also hold the keys to the refi room. They get hurt the most.
4 - It does increase overall duration supply in the market but that happens everytime rates fall and people refi. Rates are market rates - u may not agree with the level but billions trade at these levels everyday.
5 Plan has nothing to do with banksters and may or may not impact housing prices. If all these borrowers had ARMS (like Europe) that floated off FF rates, then all theses borrowers - despite their high LTV - would be pahying much lower rates for past 3 years.
6- The looters are the banks that benefit from keeping refi's low.
Saving the "middle class" one mortgage at a time. (re-election time)
or
No ReFi for you ! ( not a campaign contributor)
It is not a rule change. Frst off the program is limited to 125 cltv or less. Second, it is clear in the prospectus that the govt has the right to do this if it is conisdered a loss mitigation strategy . Third, whether underwater or not, the govt has the credit risk for the original loan amount so allowing people to refi into a marker rate does reduce credit exposure to GSE. Think of it this way, if the borrower was not underwater and had a 6% mortgage rate he would have refi's already. Or, if underwater and rates go down 100+ basis point and if the govt can charge extra 25bp in guarantee fee and the borrower can save the rest, is the taxpayer/govt/borrower in a better position. Improtant thing is market rate and NO principal forgiveness.
The owner of a specific MBS tranche has no incentive to bargain with anyone. Contract language is clear. You can buy the individual loan out of the MBS at par value or you can fuck off. No mbs owner has to accept a change in terms from the originator.
Fortunately contract language on the MBS do not allow the originating bank or anyone to change the terms of the loan. The originating bank may buy back the loan at full value. That is clear in the contract.
The tea party will not stand for the money printing nevessary to buy back every underwater loan at full value then give the homeowner a fresh new loan.
The TEA PARTY? Which is not even a party but the fascist wing within the GOP, they will not stand for it? Or what? The teabaggers can go fuck each other.
For loans in MBS pools, if term of loan is changed, they are just required to buy the loan out from the pool at par. Again, must be part of a loss mitigation strategy. Hard to argue against allowing higher LTV borrowers (whose ltv went up due to HPD) to refi into a lower MARKET rate and say it does not improve position of the GSE.
not to mention the $1000s in fees associated with these refis.Kinda makes that $300 per month in savings look not as sweet. Another gift to the banks
One of the GSEs recently bought B of A's servicing business. Maybe they'll get it right this time and on an in-house basis.
.gov will bear the cost of the refi or this plan is DOA
You mean .taxpayer will bear the cost of the refi or this plan is DOA.
Fixed it for ya.
Mariposa de Oro - Thank you.
Correct. But as I wrote, there is 25+ billion that has already been allocated. No need to get congressional approval.
Say the cost is 2,000 per. Say they do 5mm. That's 10B. They have the money to cover that cost.
Bruce the cost is not 2000.
In order to refinance the original loan has to be prepaid.
You cannot change the terms of a loan within the MBS. The loan must be purchased at par value from the specific MBS.
HOW MANY LOANS CAN BE PREPAID FOR 25 BILLION?
THE COST IS NOT 2000 IT IS THE FULL PURCHASE PRICE OF THE ORIGINAL LOAN. THE CURRENT OWNERS OF THE LOAN DO NOT HAVE TO ACCEPT A CHANGE IN TERMS. A CHANGE IN INTEREST RATE IS A XHANGE IN TERMS.
There are always pre-pays. Good times and bad. With the ten-year at 1.9% there will be many refi's, even without a plan by Treasury/FHFA to simplify the process.
I didn't just come up with this stuff. It was first in the NYT. FHFA opened the door last week with its letter. The president spoke about it.The CBO did an analysis on this.
The $25b is the cost of doing the refi. It has nothing to do with the principal. We have had HAMP and HARP for years now. These programs resulted in prepays of mortgages. This is no different. Except that it is bigger and structured to work. I don't think the problems you describe are the issue.
Meanwhile, back in the real world.
"The U.S. media is abuzz over last week’s bankruptcy of thin-film solar manufacturer Solyndra LLC, with some conservative politicians trying to use the demise of the start-up to argue against federal financing for green energy. But the Chinese media is focusing on a far more important solar power development: two major energy plans that will lay the policy roadmap for China’s clean energy development over the next decade. The first is the 12th Five Year Plan for Renewable Energy Development, covering 2011 to 2015, which focuses on sources of renewable energy such as hydropower, wind, solar, and biomass. The second is the Emerging Energy Industry Development Plan, covering 2011 to 2020, which also includes nuclear energy, clean coal, smart grid, and alternative fuel for new-energy vehicles. The State Council, China’s national cabinet, is currently reviewing both plans, but it looks like the renewable energy plan for 2011-2015 will come out first. Details of the plan are already leaking to the press, and thus far, it looks like the biggest story will be solar. According to the latest leaks in the Chinese media, the new renewable energy plan will raise solar targets to unprecedented levels: 10 GW of installed solar capacity by 2015, including 9 GW from photovoltaic installations and 1 GW from solar thermal electric power generation, and 50 GW total installed capacity by 2020.[1] The United States is currently ahead of China, with 2.6 GW installed solar capacity at year-end 2010. The United States is also leading in solar equipment, with $1.9 billion in overall net exports in 2010, and a $247 million trade surplus with China. But as Chinese policymakers prep for a major push on solar, U.S. policymakers are gearing up to slash funding for the basic support programs that created this impressive lead, and that means we could easily lose our edge to China. For China, these new targets are truly big. As of year-end 2010, China had around 700 megawatts of installed solar capacity, so meeting the new 2015 target will require adding another 9.3 GW to the grid—a capacity expansion of over 1,000 percent during the 2011-2015 five-year plan period.[2] Thus far, the big China renewable story has been wind. During the 11th Five-Year Plan for 2006-2010, the Chinese government funneled money and policy support into the wind sector. As a result, in 2010 China surpassed the United States in total wind capacity, and there are now four Chinese wind turbine manufacturers among the global top 10, up from zero just five years ago. Now the Chinese have decided that solar is the next big thing. Internal critics of China’s clean energy planning process can point to overcapacity in wind power to argue that aggressive targets and subsidies are no longer needed in clean energy.[3] In the wind sector, China’s 11th Five-Year Plan awarded local officials for investment and capacity expansion, and those officials responded by building more wind farms than the transmission grid could handle. Behind closed doors China’s traditional fossil-fuel interests—particularly the large and politically connected coal conglomerates—are using the overheating wind market to argue against preferential policies for renewable energy. Those interests are strong, and their resistance has reportedly disrupted the clean energy target-setting process and delayed these two long-awaited policy packages.[4] Unlike wind, however, photovoltaic electricity generation is still trailing behind. Over the past five years, wind projects received 72 percent of China’s new clean energy investments, but solar received just over 6 percent. There is no overheating or excess capacity in solar, so China’s fossil-fuel interests have less political capital to resist aggressive state support programs. Solar development has also reportedly gained a new political boost from the Japanese nuclear disaster. Chinese leaders are under pressure to dial back their nuclear power targets, but they have already pledged to expand non-fossil fuels to 15 percent of the country’s energy supply by 2020. To stay on track, any nuclear slowdown must be offset by another clean energy source such as solar, wind, or hydropower, and among the three, solar is the only sector that is not currently facing internal political challenges. The new benchmarks being set for solar are a big increase over China’s previous solar targets. China’s 2007 Medium-and Long-Term Development Plan for Renewable Energy set a 2020 solar capacity target of 1.8 GW. That target has been climbing steadily, but even as recently as June 2011 many Chinese media outlets and government officials were quoting a 5 GW solar target for 2015 and a 20 GW target for 2020.[5] If the latest reports are correct, the new targets will be twice as high. Chinese markets are already heating up over the news. According to the China Securities Journal, if China achieves the new 10 GW benchmark, the solar sector will likely expand by up to RMB 440 billion ($68.9 billion) over the 2011-2015 period.[6] Many marketwatchers actually expect the sector to grow even faster, possibly reaching 15 GW by 2015, which would entail an even larger expansion of up to RMB 690 billion. The Chinese government has already handed out at least RMB 10 billion to subsidize around 642 MW (0.642 GW) in solar generation projects since 2009. And in August 2011 the National Development and Reform Commission launched a feed-in tariff for solar power generation. The new tariff sets benchmark prices for solar energy—minimum prices China’s grid operators must pay for solar power—and the tariff will soon be paired with clean energy quotas to guarantee market demand. These policies are already a strong first step toward providing a stable and attractive Chinese solar market. Most of the 11th Five-Year Plan solar policy support, however, went toward larger-scale photovoltaic projects located primarily in the west. China already has a power transmission problem—supply is concentrated in the west and demand is concentrated in the east—so adding more large-scale western solar projects, though economical from a facilities perspective, has further strained the west-to-east transmission grid. China’s new renewable plan aims to address this imbalance by encouraging more smaller-scale distributed solar generation projects in the southern and eastern regions where China’s power demands are highest.[7] Chinese leaders hope that the shift toward smaller-scale projects will also encourage more small- and medium-enterprise participation. China’s big central-government state-owned enterprises, which have massive resources and soft budget constraints, won most of the existing large-scale photovoltaic tenders by bidding below market value, thus shutting small- and medium-sized companies out of the market and driving down quality. China’s big state-owned firms are generally less interested in small-scale, smaller-profit generation projects, so supporting those projects should open up new market opportunities for private enterprises.[8] This is an important competitive step for China’s solar power industry because, unlike the state-run giants, China’s smaller private enterprises have hard budget constraints and stronger incentives to innovate. Chinese leaders are betting that increasing private-sector participation will accelerate the overall market shift toward more advanced solar technologies. The 2011-2015 renewable energy plan also includes new targets for water, wind, biomass, and other renewables.[9] Connected wind capacity should reach a new target of 100 GW by 2015, up from 13.9 GW at year-end 2010, of which 25 GW should be distributed wind capacity. Hydropower should grow from 210 GW at year-end 2010 to 290 GW by 2015 (including 260 GW from conventional hydropower and 30 GW from pumped water storage), and biomass should reach a total installed capacity of 13 GW by 2015. The new plan also sets China’s first nationwide targets for geothermal energy (100 MW by 2015), tidal power generation (constructing one or two 20 MW projects by 2015), and ocean projects (building five 10 MW generation stations by 2015).[10] The United States has no major ocean power projects, but it will be difficult for China to catch up to the relatively strong U.S. lead in geothermal energy. The Obama administration’s U.S. Recovery Act kick-started the U.S. industry with geothermal stimulus funding, and those projects will add around 8 GW to the grid over the next few years. Chinese leaders have not yet released the details on the specific subsidies, tax incentives, and pricing structures they will use to achieve these new renewable targets. The policy support package will most likely include a new quota system, which will require grid companies to purchase a certain percentage of their annual energy acquisitions from non-water renewables.[11] Overall, the new plan aims to boost renewables to at least 9.5 percent of China’s total energy consumption by 2015. China is aiming to catch up with the United States, where renewable energy was 8 percent of total energy consumption in 2010 and could potentially reach 15 percent by 2015. Expanding the renewable energy sector will move China in the right direction on their three biggest energy problems: supply shortages, an over-reliance on dirty coal, and the fact that most of their conventional energy supplies are in the west and most of the demand is in the east, which currently puts too much strain on the transmission grid. Chinese leaders are also banking on renewable energy to provide a new tier of better paying “green collar” jobs to boost more workers up into the middle class. And here in America? We also suffer from an over-reliance on fossil fuels, and we also need higher-wage green collar jobs. Unlike the Chinese, however, our policymakers are not quite so forward-looking."
Link would have been better.
Citation would have been second runner up.
Various unflattering comments about oldmanagain deleted.
jeez are you in love with central planning BS-- what a bunch of crap.
Good Gawd, the Wall of Text.
Next time, just post a link.
Leo, is that you?
Thinking about this reminds me of the old Roadrunner cartoons.
The coyote (us) thinks he has a new chance to "get" the roadrunner (the banks). All we have to do is to try the same thing that left us looking like a pancake last time!
We get more (LTV +125) cheap money (I'm thinking 2% will be the final number) whether we can afford it or not (loosened lending standards) just as the animator (Chairsatan) is going to give to give the roadrunner another boost (free money in one form or another)!
What could go wrong !?! ..... Other than the PIIGS defaulting, fiscal contagion (most people ignore the 30 day demand of payment clause in your mortgage boilerplate) and moral hazard becoming SOP ever after ????
Enough of the cartoons - if the "settlement" with the banks started by acknowledging and enforcing where chain of title has been broken - the banks would have to individually incentivize homeowners to "resecure" their note with the title - with a nudge from the government for principal reduction (liberals would wet themselves with happiness) and market forces come back into play.
Some, most?, all? of the TBTB will go under putting actions having consequences back into the game and getting us in position for the "virtuous cycle" to reassert itself.
Short term pain for long term gain (it supposed to be part of the market functioning correctly). And the government can focus resources on what it should have been doing all along - putting crooks in jail.
barliman
"putting crooks in jail"...yes, yes, yes. The "chain of title" of the overlapping RICO criminals enterprises is long.
We need balls-to-the-walls prosecutions of Countrywide, the mortgage industry, the appraisers, credit rating agencies, Freddie and Fannie, Citi and the big banksters, Goldman Sachs (including Hank Paulson) and other Wall Street banks, AIG, and federal co-conspirators at U.S. Treasury (including Hank Paulson), SEC, OTS, Federal Reserve, especially FRBNY, and those members of Congress who aided and abetted the greatest financial crimes in U.S. history.
If Bruce is correct, what happens to mortgage reits? Can they hedge against this risk?
@ Sequitur...that's my question too. I can't say for certain what will happen but in this environment I gotta assume that REIT's get crushed. That's based on how companies like SLM and FMD got rolled up when the student loan industry was effectively nationalized. Three years on, they aren't coming back.
As tasty as AGNC and IVR look w/ their fat dividend Bruce seems to lay out a case for thinking twice.
Thank you. Already put in my sell order at the market open. Bailing on me REITS for now, if nothing happens can always reestablish in 2012.
Investment opportunities grow thin. Only thing I've got now is some utilities and PMs, you can't trust a goddamn thing in this market, yet inflation eating cash alive. Homes still have bubble pricing. Many stocks in a bubble + HFT + QE to infinity. Too much money chasing too little yield.
Good thing we found this site, 99.999999% of the people won't. If you are retired and are on fixed income, what a shit sandwich the Fed, the banks, and central banks worldwide are feeding you.
I know this goes against all we have learned these last few years, but longterm (2+ years) I am scaling back in to value and consistent dividends. Just starting might I add.
Fundamentals will reassert themselves and .gov will get out of the picture in time. If not, we really are doomed. I went way heavy liquid prior to the current crash and frankly see some resiliency in these markets. Q4 2011 will tell the tale. If we get the bump I expect, the picture will begin to clear and real markets will return. One traders opinion.
I just cannot overlook solid companies with great dividends at this point. Translation: I see safety here over any upside in treasuries at this point.
agency MBS reits get hurt. They invest heavily in premium agency MBS - their yield would go down and would have to reinvest into longer duration more difficult to hedge assets. Banks would also get hurt for similar reasons along with losses in their MSR book.
agency MBS reits get hurt. They invest heavily in premium agency MBS - their yield would go down and would have to reinvest into longer duration more difficult to hedge assets. Banks would also get hurt for similar reasons along with losses in their MSR book.
No they dont get hurt. You dont understand MBS contract language. It would be a huge win for them to get full value for all the underwater loans they own. I will take full prepayment over default risk any time.
no.. You do not understand how agency MBS works. You are misinformed. Holders of AGENCY MBS do not have principal risk - jsut timing of principal return risk. You have NO IDEA what you are talking about.
Exactly. They have prepay risk only. They cant be forced to accept a cramdown where the terms of the loans within the MBS are changed. The originating bank can buy out the loan at full value, prepay the loan. Loan terms cannot be changed without the consent of the person who purchased the mbs from the bank.
What's not being talked about is the moral hazard programs like this are creating in our younger generation. Kids getting out of college today with 10's and 100's of thousands of dollars in college loans they can't begin to pay with part time jobs paying $7.75 hour. Many voted for Bozo and are watching him give free money to banksters and people who made bad decisions. Think those loans are getting paid back? Talk to some of them. Listen to where their heads are at. Then ask how much of the $1 Trillion in student loans will ever get repaid.
They are mad, they are smart and they have nothing to lose.
This is really another subject altogether, but Student Loans cannot be discharged period. Unless they change the laws, student debt is with you until the day you die or until it is paid off.
It kills me when I see some jerk off technical school on TV telling kids to come and learn to make video games then saddles them with 6 figures of debt and offers no job prospects. It is really sad.
I'm expecting .gov to put travel restrictions on anyone who owes .gov money. My 23 yo daughter is a student loan debt slave, (she won't listen to me about this),and will probably be about $80k in debt should she complete her engineering program. I live outside the USSA and am concerned that there will come a time in which she will not be able to travel outside the country until her debt/bondage is paid. So if I want to see my baby girl I'll have to enter the gulag (yuk) or pay her ransom. Thanks Uncle Scam!
A sad and quite possible option after things get really bad. This and many other reasons are why my kid isn't even a US citizen. Probably won't be either, if things don't turn around by the time she's 18.
That's not "moral hazard."
That's education.
words of wisdom from re-fi contactees---- "Who me? I ain't signing that shit" or how about "fuck you sucka --you holdin the bag and I'm livin large free of charge--why I wan'a fuck wid dat???
point is-- what if Obama gave a re-fi party and no body came?--LOL Can't push rope.
Ropes can be used to create monster knots.
Just look at how the gubmint came in and roped up GM.
Contract law was a casualty of the first battle.
Next will be the collection of "revenue enhancements" at the point of a gun
and the waving in the air of a peice of paper from some Judge.
Due process, Bitches !
Bruce - Isn't default risk on agency MBS backed by the full faith and credit of the US Treasury thanks to the policies of the US Government? How are private holders of MBS going to take principal losses?
While at first blush, the forced re-fi program seems to benefit underwater homeowners, I think it will be yet another program that fails: Few, if any, homeowners have been current who are underwater 25%+. Re-fis bail out the banks from both fraudulent documents. Increasing numbers finally get it that housing prices have been flat for 10 years and won't go up 25%-50% in the foreseeable future so re-fi means becoming a renter with an option to buy at a price much higher than fair market value.
The owners of MBS securities sold to them by originating banks cannot be forced to accept a refi. Contract language is clear. The only option the originating bank has is to buy out the individual loans at full value.
Not going to happen.
Maybe I read this too fast; however, if Agency MBS prices fall as higher coupon mortgages are anticipated to be called away, MBS investors would buy Treasury's (i.e., push prices higher and yields lower, not higher) as a hedge to declining MBS prices. It seems Twist is a massive hedging program by the Fed to protect its MBS position and in doing so it conveniently will be buying to be auctioned longer dated Treasury's that otherwise might not be well bid.