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.
.
I see nothing that suggests that "more money" is to be loaned, only that the interest rates, (and therefor the payments are made more affordable) are to be reduced, where contractually able to do so, on the existing mortgage amounts. This should relieve some of the taxpayer's risk due to her insuring the defaults oon those mortgages.
No, the amount the taxpayer has to pony up remains the same..when, not if, those morts default.
Wake me up when we're discussing cramdowns and the FASB isn't pretending the emperor has clothes.
Bullshit, the taxpayer is not going to pony up a penny on my mortgage because I'm not going to default, even if the interest rate was 2%.
It's not surprising that private industry believes Stanford grads are worth so much more than UCB grads. You can't be woken up.
Which is it, shitbag? Can't keep your story straight?!
If these people could all pay their morts (as you claim you can...dubious at best, I figure you're a squatter right now), then why can't they get a re-fi without this program again?
I guess they have to pay back those inflated private school loans somehow...maybe they can close their Nobel prize gap with all that cash...and here's the kicker: I didn't go to Cal, fucktard (I'm just another bear who likes gold).
I think I'll buy every house around yours and annoy you into actually having to pay for a place to live.
If these people could all pay their morts (as you claim you can...dubious at best, I figure you're a squatter right now), then why can't they get a re-fi without this program again?
The discussion involves being able to refi an underwater mort not the ability to pay. Big difference. Particularly if .gov pays refi charges and the new payment is less than market rent.
This is a reward for those who stuck it out and helps stablize the market. I am not sure it will be executed appropriately, but it can be, and if it is, its a winner.
A reward.
I'm subsidizing a "reward" to someone else for honoring their end of a contract and to "stablize" (sic) a market keeping it artificially inflated.
Only a socialist could call this a "winner."
Agreed.
I can easily afford my mortgage, and am financially in the black.
I do not think I could ReFi in any case right now, though- three years ago, I got divorced, and my ex saddled me with her old medical bills. While I could pay them, I will not- I was not aware of them, and did not incur them. I don't need any credit, and therefore do not care whether or not those people ever get paid.
That being said, I also do not need to refinance. While I guess it would be ok to drop to 3.5%, I'm only at 5% to begin with, so it would not exactly be a lifestyle changer.
We already have a program for people with LTV < 125% with decent credit...this is about opening the floodgates for people we damn well know won't stay current. It's a "pay for their default now" or "pay for their refi and their default later" situation.
And I'm a 1st time buyer who has precisely zero interest in "stabilizing" (read: supporting) the real-estate market. I watched valuations skyrocket and didn't bite...I'll be damned if I support idiots who didn't do the same in any way that doesn't involve banks taking it in the ass and valuations returning to the trend line.
You shouldn't get a "reward" for doing what you already said you would. Their "reward" is the fucking roof over their heads.
I will benefit, having saved enough to pay off my loan, but got unemployed and WFC won't negociate down from 6.5%, plus we have equity $500K or so. Problem is, most will re-default, upwards of 60%, because they are asshole liars and jerkheads before they lost one income in the family, which isn't coming back at $30/hr.
If you have enough to pay off your loan and have stayed current, why don't you qualify for HARP? Just not one of the cherry-picked few? Or is your credit trashed (and, if so, how)?
No offense, but you don't exactly have my sympathy beyond the loss of your job (assuming you were laid off and not fired); you signed the 6.5% loan.
We tried, Freddie has our loan. I got laidoff from Albertsons, so only have unemployment (ending) Maybe try again since maybe can use son's income ($60K/yr) now as software enginneer, still living here (22) Owe $222K and we saved 1/2 our income (in self-biz) for 20 yrs, have around $500K cash but need it to live off. Got around $150K in corporates in 2008 but the yield is only ave 5% now cuz I haven't been able to replace those high yields, fixed income is killing us. We're 60.
The time comes that it is better to look ahead than behind, no matter how egregious the fraud behind. This, five years later, is the time IMO, so lets make it happen and live to see a better day.
Sorry about being all cumbaya and shit on a doomer haven, but lets f'n move on guys. Putting money where my mouth is BTW.
Bruce,
Did you see Goldman's settlement involved a 25% principal writedown?
http://www.housingwire.com/2011/09/01/goldman-litton-ocwen-cut-new-york-...
"In addition, Goldman will forgive 25% of the principal balance on New York home loans 60 days or more past due serviced by Litton and owned by Goldman as of Aug. 1."
What's this all about?
Good post Bruce.... that is what I heard as well. A wealth transfer for sure. I believe we will see this played over and over... who wins and who loses. Not enough money anywhere to pay down the debt so pick your winners... it is in the cards in every case.
The desperation to "do something" to help underwater homeowners is because BANKS are INSOLVENT if homes are repriced via market forces. Mortgage money was lent out via fractional reserve. If the collateral is written down, the banks are insolvent hence the push to get homeowners to pay something on underwater mortgages. That way banks can still claim the original value of underwater collateral on the books.
I like your work Bruce.
As for helping the economy by putting $2000 into the pockets, I wonder if that will end up on principal repayment as other posters have eluded.
I think the real reason this will be pushed is to release the $2T on the balance sheet of the Fed for Twist. that should carry Bama and the markets into 2012.
Think about it, Bama "did something" for the homeowner and bought some votes. In the meantime, markets surge higher on the Twist and you get that "wealth effect".
At the end of the day there is still more debt that needs to be written down before we get a true economic green light.
Besides, why the hell did uncle Warren just our $5b into BAC. This will free up the robo sign overhang and the AGs will get some cash as well.
This is well thought out. Before anyone junks me its NOT about the economy stupid! its about Warren and the cronies.
L&S,
Great point about Warren making out, well, like a bandit ont his! This whole things stinks more and more the further down the comments I go.
Another really important point is that this only applies to GSE mortgages, yet the great bulk of mortgages originated during the boom years were stuffed into private label RMBSs and this refi will not be available to them. Unless it is. Which makes for a much bigger program.
alot of countrywide mortgages ended up at fannie and fredie, so this program will help banko de americo alot.
who knows, maybe this plan came out of warren b's office.
Really like your stuff, Bruce, thanks for the work.
REFI AND SIGN NOTHING !!!!!!!!!!......YOUR MORTGAGES HAVE BEEN PAID AT ORIGINAZTION ............FIGHT THE FRUAD OF THE BANKSTERS .......LIVE FREE OR DIE
I've heard this often enough to make me curious. What makes you think mortgages were paid at the origination stage? Can you explain or provide a link?
Because if that's right, it creates a legal mess that will dwarf the problem of MBS investors who find that their trusts are bereft of any promissory notes. And that's a massive mess all by itself.
Thanks in advance.
KEEP IT REAL CHEYENNE!! Of course they weren't paid at origination! It's one of the "Tea Party" freeloader insanity fantasies they have that they think is justified by the banksters' mortgage frauds. And they call Obama a socialist, LOL.
You, the buyer borrowing money from the bank to pay the owner of the home for the amount you agreed to buy it from owner of the home for is real. I can't believe some of you can't even comprehend that!
The fraud perpetrated by the lenders that makes the mortgage fraudulent is not that part of the contract.
To think that the fraudulent contract makes the house yours, assuming your mortgage has anything fraudulent in it to begin with, is a Tea Party idea that shows why they attract dumb/crazy people.
The bank DOES commit fraud to the extent that the borrower thinks he's borrowing someone else's savings when he takes out a mortgage. It's not someone's savings. The bank creates legal tender currency out of thin air to offset the asset of the promissory note, on the spot.
The bank gets title to the home in exchange for doing a few hours paperwork to make sure you are 'worthy'. Then, if you default, the bank ends up with the real estate, in exchange for having done a few hours work. It was bought with counterfeit money.
That IS fraud, and it is how Jefferson's warning about waking up homeless on the continent your forefathers settled is coming true.
None of that releases the borrower from his responsibility, though. The borrower is all too happy to take posession of the house based on his note, which makes him a willing party to the crime of counterfeiting.
Who is wronged in the transaction? The same people that would be wronged if you were able to pass counterfeit money. Everybody that uses the money. Whatever crime it is that you would be committing by counterfeiting is the exact same crime that takes place when you take out a mortgage. So the borrower is definitely a party to the crime (which supposedly gets undone when he pays back the note). That's besides the point that he is a dupe, paying the bank interest on his own note.
The problem is that when the deal falls apart, the borrower is out, the public is out the value printed on the mortgage, but the bank keeps the house!
When people wake up to that fact, maybe things will change. If they can never be bothered to figure out how this works, you can expect things to keep getting worse and worse. It won't be the first time!
At the moment you sign your mortgage paper an asset is created to the value of whatever amount was agreed upon. Before the creation of the asset (mortgage paper) the 'money' did not exist. The 'money' the bank puts into your account is created by your bond (promise to pay). There is no consideration on the part of the bank because they did not put up anything of value (i.e. they put up nothing) you were the only one who put anything of value into the contract. The 'money' created is your money (real work). This makes the bank a fraudulent member of the mortgage contract and the contract is not legally enforceable.
I am not sure if this covers the "origination' argument but the whole process is fraudulent from the start.
Terminus & Milbank--
Thanks for the responses. This issue first came to my attention on this site actually. There used to be commenter around here named Mako, who (as I recall) is, like me, a lawyer. Real estate and commercial law are WAY outside my practice area, and he would bring this issue up again and again. I never really got it and had a hard time believing it.
Then again, in the last 10 years I've come to believe a lot of things that I originally rejected just 'cuz. That's why I consider this issue open 'til I see something definitive.
In any event, I seem to recall someone implying that the Fed paid originators cash for the note, which then made the rounds and got sold again and again.
In light of the fact that Bear Stearns and Countrywide sold the same note more than once, and further in view of the fact that some RMBS trusts have no notes in them at all, I'm hesitant to reject the theory out of hand.
Terminus--you have any legal cites in support of your position?
To understand the fraud conceptually, google 'Money As Debt' and at least learn the mechanics of how our fractional reserve paper money system works.
The fallacy in the line of reasoning is that any court in the land will go by reason and logic to upend a century's prior practice. As a lawyer, I expect you know that most people have some kind of Perry Mason fantasy that if they only point out the unconstitutionality or injustice of a law or action of government, the judge or jury will side with them as soon as they see the facts. As a lawyer, I expect you know better than most that it just ain't so.
It doesn't matter what kind of fraud was committed in the act of borrowing against your personal note. It doesn't matter what kind of fraud was committed in the sale and resale of your note. The entire monetary system is built on fraud at its foundation. The courts and law enforcement are there to enforce the status quo. In the end, the man with the gun says what the law is. The ONLY thing that will change any of this is public opinion, and it has to get pretty heated before any actual changes take place. The only thing that motivates a judge or a politician to change something is a direct threat to their position or their own skin.
These 'show me the note' arguments are fascinating, and I cheer them on. Just like I cheer on those who point out the unconstitutionality and unlawfulness of our tax system. But don't ever bet a dime on winning any points in court. Ain't gonna happen. What will happen is that government, bankers, and their enforcers will continue down the same road for as long as they can get away with it. That much, you can count on.
TaxSlave--
"The courts and law enforcement are there to enforce the status quo."
While that view is certainly an oddsmaker's dream, its batting average isn't 1.000. Remember Mark Pittman? He beat the banks. Shit, he beat them like Obi-wan beat Vader, posthumously. He took down Bernanke from the grave.
http://scholar.google.com/scholar_case?case=3477959921372842887&q=bloomb...
(Yeah. It's a 2nd Cir. opinion, but SCOTUS denied cert, leaving that decision the law of the law. Strange no one has followed up with a million FOIA requests to the Fed.)
The truth will out. Anyone can find the truth if he pursues it. Leave oddsmaking to the pros.
Thanks for Money as Debt. I'll check it out.
I assign this to my students. It makes for a great class room session. They get it.
MONEY AS DEBT
http://video.google.com/videoplay?docid=-2550156453790090544
I would hardly classify most MBS holders as "savers", this isn't exactly a retail product. We're talking about large financial institutions. Given that we're on the edge of a downward positive feedback loop in the economy caused by a balance sheet recession that creates insuficient consumer demand due to de-leveraging I think it's actually a half decent idea. (assuming you're not in the "let's crash everything now and start over" camp) Considering that most of the affected institutions should have gone bankrupt in a truly free market anyways I have little sympathy for them if they end up taking some pain from this.
Nothing "half decent" about it. Why should the homeowner be absolved from his burden? the homeowner and the banker should take a hit on this "investment". The next time around, both the lender and the borrower will be more careful and do their "due diligence" BEFORE entering into a contract. Capitalism rewards winners and punishes losers. All these half baked measures only prolong the agony and spreads the pain. Cut it off already and lets move on. Let market forces determine the TRUE value of a home or investment. It is only govt that steps in (supposedly for the "good" of the people), it DISTORTS true market pricing. Homes are the perfect example. They are too expensive because of govt subsidies. Let the fallout begin.
Exactly. Some of the biggest losers in this will be already-battered pension funds...
Any individual who has an investment in a bond fund has an exposure to MBS. There are trillions in these funds. So in that sense MBS is a retail investment. It's just that "retail" has no idea what is behind the fund they invest in.
OK. So nobody wants their ox gored. Who pays? Who should pay? Why should anyone suffer? Who should suffer? How is this done fairly? Can it be done fairly? Why do anything at all. All this editorial masturbation is useless. Looking out for number one is the game being played today. So all of us are responsible and should pay prorata for the bill?
Here's my answer: Burn this sombitch to the ground, scrape up the ashes, dig a hole and bury the ashes, and start over. There is no salvaging nor reversing of these trends without it.
If you're the only left in you neighborhood after all your original neighbors have been foreclosed on and the drug addicts have move in and are now your new neighbors burning the house next door to you, door by door and stud by stud for heat, will you still feel the same? How would you like to be the last lucky property owner in Detroit where the garbage is no longer collected and the city can no longer afford to provide you police services?
"Here's my answer: Burn this sombitch to the ground, scrape up the ashes, dig a hole and bury the ashes, and start over. There is no salvaging nor reversing of these trends without it."
This may be, metaphorically, part of that burning to the ground and starting over, i.e. removing some of the value of the mortgages from the holders and transferring that wealth (or the lack thereof) to the underwater mortgagees (that admittedly don't deserve it). You and I can't help it if our neighbors mortgaged their properties to such an excess. Should we be the ones that ultimately suffer for that?
We shouldn't -- and we won't. Don't think that TPTB aren't aware that there are far, FAR more responsible citizens here than the others. And we don't have faulty memories, nor bottomless wallets.
The little old ladies in my family have been buying agency MBS for years. They were buying back in the 90's through Edward Jones. It has been easy as stashing cash in CDs.
Its all about nationalization of housing. Hi, Im from the Fed Gov and Im here to help. Sign right here. Thanks a bunch. Now I own your property. Slander of title is the oldest trick in the book.
Your comment prompted my remark following, although not strictly on point. It seems that all of us must not forget that a "home" is a pile of bricks, lumber, and sits on a plot of dirt. It's not sacrosanct nor holy. A "dream" of owning a home is but a chimera thrust upon the people by those who would benefit from its realization. I have a house that I care for and am current in paying for. The last thing the oligarchs want to do is piss me off by giving away yet more money to those who were careless or taken in by the hype. I'd not stand for it -- and they know this. Bruce's outline serves many of the purposes of the financial class. It gives the Fed cover for Op Twist, relieves the pressure in many markets, gets the financiers to pony up after many long years of making inordinate profits (after the banks having unloading the liability onto others, of course) . What's not to like? Other than more troublesome meddling in the markets and preventing true leveling of values... Characteristics which define the supposed free market that we should all be enjoying. The old axiom of following the money is the key to divining the motives and methods of these devilish crooks. Beware.
Pimco's loaded to the gills with agency MBS. Hard to see them rolling over for this desperation play....even though " implied guarantees " means just that.
Do these brainiacs really think a re-fi on 125+ LTV will trump decreasing valuations for homeowners ??? Ridiculous. Today's shadow inventory stats prove them wrong before they even begin the process. This scheme is just one more variation of extend/pretend.....guaranteeing an ever increasing timeline for reaching stabilization in real estate pricing.
Disgusting.
PIMPCO is not stupid. The contract language is clear. The loan can be prepaid at par. A change in interest rates is forbidden unless the owner of the MBS (not the originator but the owner) agree.
PUMPCO would love to have all those discounted MBS paid off at par. That is why they are loaded to the gills.
Yes, and all the dumb money sitting in Mortgage REIT's is about to find out that there is some risk in assuming a 17% dividend is a sure thing....
The president's proposal is the Boyce-Hubbard-Mayer plan covered by RCWhalen here last week. It is meant to provide a permanent stimulus (difference between mortgage payments at 6 percent and 4 percent lasting 30 years), keep risky homeowners from walking away and defaulting, and put some stability back into housing markets. There is no perfect solution, but some serious reviewers are saying this could work.
It's only "permanent" if they don't default down the road anyway.
If those documents have new terms they may not be able to get out from under it. They garnish till you die, kinda like student loans.
Plus there's a helluva lot of commissions to be made by the financial services industry refiing and repackaging all those mortgages. And that industry gives big at election time.
All the more reason to give this plan the finger.
Bruce,
I laud your efforts, your drive for understanding the situation.
You start right, you long for a diagnosis. However, there are several weak points in your diagnosis. Some of these are:
1) You expect logic from an irrational person and his outfit.
2) You ignore that he is a politician, a pathological liar.
3) You think he is able to solve this (while I doubt that he can even comprehend it).
So here is my diagnosis: His balls, if he has any, are being held by the banksters. His latest actions through FHFA vigilance is just reaching for their balls. These attempts give him a false hope that he can create an impass, a kind of prisoner's dilemma, where he can be their superior. Until then he has to lie and promise to keep his minions in line. This latter will be easy as he is a professional. Time is the essence. And he doesn't have much left! His whole outfit is crumbling.
I would like to be optimistic about this, but I just don't see the derivative market and holders of all this "wealth" taking a haircut without the taxpayers eventually paying for it.
Might want to sell NLY if you are in it.....