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.
.
Might be a good short! A way to profit on this even if you don't have a mortgage.
Great work Bruce.
So many questions. How good is the CBO analysis, will this really save 100K foreclosures in the face of an increasing recession? Will this get dwarfed to insignificance by the emo Greece/Euro theatrics? How much Fed money does this put back into the QE lite system? It would seem the announcement should be before or coinciding with the Fed FOMC announcement. Thanks for the info.
What does this mean for cash, bank stocks, PMs, and interest rates across the board? I still don't see how this translates into a stronger consumer. Many people have stopped paying their mortagage altogether. Now you are going to try and "get them to pay what they can afford" - FAIL. As to people who are currently paying a higher rate, why wouldn't they simply divert the new funds they have (from the lower mortgage payment) into paying down more principle - FAIL. Besides, local counties are obviously getting ready to raise tax rates in anticipation of this windfall-FAIL again. As the above commentor said- "Man, we're screwed no matter what path is taken." Got physical? And by that, I mean anything of physical value to your survival and comfort.
"Now you are going to try and "get them to pay what they can afford"
Not "what they can afford". What the approximate fair rental value of their home is. Or perhaps a bit more. Most people would rather not move if they don't have to and the financial system can take advantage of that.
Many people have stopped paying their mortgages because it was a bad investment to do so. They bought the home as an investment, because they were conditioned to believe that it was a good one. Now they realize that to continue paying is not in their best interests.
"and give a lift to an economy still burdened by the drop in housing prices."
Obama is a moron. Falling home prices is a gift to the economy. It clears out Ponzi pricing. It clears out those who overpaid, and cannot afford, the homes they purchased. And falling home prices = cheaper housing for young families, who can (a) afford their homes, (b) afford taxes to support the local government, and (c) have disposable income to support the economy and save.
Low home prices are exactly what this country needs, not the Ponzibubble pricing of 2003-2007. But this president and this Administration are either too stupid to understand, or too corrupted by banker money such that they will support Ponzi pricing so the banks don't realize mortgage losses.
@ Sequitur
+ green
Yes, the marketplace, left alone in 2007 - 2009 would have been very painful, but would have cleared up the worthless debris very vast (like in 1919 - 1921). And we (probably) WOULD be in a nice recovery if our .gov overlords had not stepped in with Yet Another Program(s).
Obama called Congress "You guys", LOL!
Pretty close to calling them "You people".
Is congeniality that easy to confuse with an attempt at false domination, chucklehead?
Does that make Boehner or Cantor "That One"?
Congeniality? From Barry Obama?
I don't think so.
Folks get this confused. He was not Miss Congeniality, he won the Nobel Peace Prize AND Miss America:
http://pcrdds.deviantart.com/art/Obama-Miss-America-184146618
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.
This will accomplish nothing LONG term, as HIS new programs will eat this up fast.
As anyone fortunate enough to still have company insurance, you know that your PART of the pie has alrteady gone up over 2010 out of pocket, an Avg of $2500.00-$4500.00 per yr.( our's did to the tune of $4,000,for same coverages).
This is one more scam to get elected.
Like a FIX for a junkie.
PS: Anyone w/401k's, and IRA's, and CD's still going on, best start cashing out YESTERDAY.
As Bruce alluded, the Savers are going to get FRANKED.
I don't think it is a scam. I doubt .gov's ability to execute the plan as they suck at that, but not a scam.
One part of this being overlooked by many is that the reduction in payment will in many cases make it cheaper to keep paying than to rent. This is significant.
Why default only to rent for a higher monthly payment for something you will never own? This is good policy, and if executed correctly in tandem with bulk sales of REOs will put a bottom in on housing.
Nice work as always Bruce.
I hope they allow deadbeats to make say three payments to show they can and become eligible becuase if it is cheaper monthly to keep paying (vs renting) they will do so in droves.
"Savers are going to get FRANKED."
The increase of price of gold in USDs for the last two years strongly suggests that the savers have already been gored. What we're seeing now is merely the realization of their goredom. "Yesterday" was two years ago, but there will necessarily be more goring to come, so better late than never.
@ DosZap
+ another green, I wish I could have made it 5!
As usual, almost ANYTHING .gov tries now is bad. Just another scam for the normal thieves to rob us some more. This one is pretty good because it is so foggy, a wealth transfer in the gloom...
I took your advice in 2008 and cashed out my IRA. Yes, took the taxes and penalty hits. Paid MUCH more Income Tax year than I ever had (and have even until today). Much of that money is in carefully hidden physical gold.
And that ex-IRA money is MINE, and I sleep better for it.
and "beaned" too!
http://www.youtube.com/watch?feature=player_detailpage&v=evdbooUlBas
and, just like "Cash for Clunkers", the $8,000 tax credit for new home buyers, etc, etc, this fixes our economic problems,. Right?
We are so far down the road to our own demise that no one has any idea where the hell we are. Whether true or not, the "conspiracy theorists' who posit that the Anglo American Banking cartel wishes to destroy the American middle class and return us to a feudal society makes more and more sense with each passing day.
I am seeing strange poverty related phenomenon on the streets where I live that that I have not seen since I was in India in 1972. 4% mortages ain't gonna fix that.
Just another con by TPTB - - -
Do you have "Tent Cities" springing up everywhere too? Seattle, WA!
I think Bruce has hit the nail on the head on this operation. A big refi of underwater, income deficient types. Really nothing but a glorified cheap rent program, except you are still stuck in your property and have little mobility. In medieval times this was called serfdom. Not clear to me what the economic benefits of this are.
One obvious economic benefit to the community at large is a greater number of people staying in their underwater-mortgage homes and therefor less community blight due to abandoned homes. If the average underwater "homeowner" has the option of paying a reduced mortgage payment that is no higher than the rent he would have to pay someone else, why wouldn't he stay put and continue to pay? This is the reality for many homeowners today.
As a homeowner that is not underwater on his mortgage, I would prefer that my neighbors that are underwater stay put (at least the tolerable ones) and that my neighborhood not become another inner city Detroit littered with trash, homeless people and weeds growing up through driveways.
Why is it OK for the banks and financial services industry to benefit from the current hugely negative interest rates (at the expense of the savers) and not the average J6P borrower?
Quote: Why is it OK for the banks and financial services industry to benefit from the current hugely negative interest rates (at the expense of the savers) and not the average J6P borrower? Unquote
...Because taxpayers and folks who paid their mortgages and bills and did nothing wrong all their lives will be forced to pay the bills?
Enough already, for fuck's sake!!!
Because the J6P borrower bought a home he couldn't afford and should be renting.
Why should I, as a first-time buyer, be punished for saving enough to actually qualify for a loan I can afford while the market continues to levitate well above any rational level of valuation just so people who don't qualify for a re-fi (without these shenanigans) get a free pass and another bite at the apple?
Why should I, as a taxpayer, be forced to subsidize your anti-blighting efforts and support for the value of a home you can still afford the mort on?
If you want to help your neighbors with their morts, crack open that checkbook yourself motherfucker!
"Why should I, as a taxpayer, be forced to subsidize your anti-blighting efforts and support for the value of a home you can still afford the mort on?"
Why are UCB grads so fucking stupid? You, as a taxpayer, will not be forced to additionally subsidize my property ownership. In fact, the opposite is true. If you weren't so fucking stupid, you might understand that. Taxpayer costs go down. Why should it matter whether I can afford my mortgage or not? I didn't ask the mortgage holder to sell the mortgage to FNMA, nor did they ask my permission before they did it. They did it because it was profitable to them (BofA) and because the mortgage was "conforming".
"If you want to help your neighbors with their morts, crack open that checkbook yourself motherfucker!"
I prefer you crack open your checkbook instead, asshole. And it looks like that's what's going to happen. Thanks, pal!
Your financial acumen in a nutshell; enjoy squatting in your blighted shithole, moron!
A "twist" on mortgage market policy rewrites good paper with high relative interest and shorter duration left into new good paper with lower interest and longer duration.
It's all about churn and extending duration nowadays.
Value is twisted.
Keep the debt dream alive.
I am sorry, but I don't think you really caught the gist of the situation. You have reported on what appears to have happened, but you have left the dirt under the rug.
This is a plan where people are allowed to refinance because it is the only way to get their signatures on documents that will sign away their right to litigation for fraudulent origination, transfer, securitization and every other trick the bundlers did to destroy the concept of ownership. By refinancing, they lose what they had, and you can bet the new contracts are going to have no way out for these people sucked in by a fraud. This is by the bank, for the bank, and a way to put the money back in the hands of anyone but the homeowner.
Are you ignorant or jaded?
Fresh new signatures on fresh new notes = mortgage fraud lawsuits go away. I made this very point here a couple of weeks ago.
Yes, it's a side-show to escape the consequences of title malfeasance...but "sucked in by fraud"? That these idiots received loans in the first place is the primary fraud on which an entire edifice was built.
Thanks your clear perceptions.
While attention is directed to the obvious money, it is misdirected from money-equivalent items, namely, rights, favors, hidden promises, tradeoffs and other covert benefits.
Actually, the essence of our economy is covert value-transfer, enabled by definition as non-transparency. One cannot become super-rich with full disclosure...behind all great fortunes are great crimes.
I believe you are correct. If one did get a new refi the terms would eliminate the borrowers ability to later protest the debt because of a flaw in the old documentation. This would "fix" the ROBO problem for maybe 10% of existing loans.
That is a dent. It does not make that problem go away.
Also, keep in mind the terms. This is only for those who are current on mortgages. A very high percentage of those have, no doubt, a clean title. If that was not the case they would have stopped paying a long time ago.
Not ignorant, but jaded.
This is only for those who are current on mortgages.
Exactly. This will be sold as a Reward for those who "did the right thing" and paid their mortgage on time, even though they are underwater.
But you know, if a person chooses to pay their mortgage on a 25% underwater property, then they should probably take the deal. It's definately another back door bailout for the banks -- lessen the put-backs. But so what. People are free to be stupid. Whatever.
I think it is a great idea. A 200k mortgage refinanced from 6% to 4% drops the payment by around $300. This is real stimulus.
Of course, if it is like .gov's other plans the devil will be in the execution of said plan. They have a tendency to screw that part up, time after time. I keep my fingers crossed they will get it right for once, but their record says otherwise. They will somehow screw it up where only 200k people qualify when they thought 10M would.
No doubt that a clean, 'forecloseable' title is one side benefit to the re-fi plan, but to claim that is the 'only' reason for the plan is preposterous.
Speaking of 'ignorant or jaded,' have you even bothered to read the Cervantes opinion?
http://docs.justia.com/cases/federal/appellate-courts/ca9/09-17364/09-17364-2011-09-07.pdf?1315433613
Just more evidence that these 'fraudulent conveyance' lawsuits are going the way of the Dodo...
Nicely put. The local governments will also raise taxes and collect this new income. Government and banks win again.
"Punish the savers."
The 21st century's mantra
+ $1850 and green, Rich V
REAL savers save in GOLD!
Bruce's digging is excellent. Here he digs up Yet Another Program (YAP) to move some money from here to there. YAP will indeed take from those save and have been prudent to give to those who have not (all the while giving .gov and the Banksters more and more, don't these guys ever get full?).
+ $1850 to you to Bruce K. Your pieces have been hysterically funny at times (and hence of great value) and you have dug up some important pieces of large scale financial thievery that just drives us crazy because the perps are never punished.
YAP....love it. Perfect all-purpose description.
Herein referred to as "Hoarders".
+ 1 LOL
Funny how "savers" and "job creators" have become synonymous with the INVESTOR CLASS thanks to the neocon dictionary of doublespeak and spun truth, and fascist playbook of K Street.
The so called savers are the top 1% of the population in household wealth, while the deadbeat mortgage shirking unwashed so hated at ZH would be the millions who bought houses and counted upon competent fiscal and economic management from that 1% investor class, that was their savings, their equity that was going to put little Jenny and Mike through college. A fund they could draw upon to supplement their meager social security which by now they know will not afford them an adequate income when they can no longer work. Well the shocker was to the millions of savers because they already can no longer work, their jobs are gone. And they woke to find out that they had also been fucked out of every last dime of their equity as well.
And now we are supposed to feel sorry for the investor class which has on paper lost money in MBS when said investment SHOULD have been illegal to start with, but even if it were a legitimate investment they took the risk for heftier returns than they could get elsewhere and now that they lost money "SNIFF SNIFF WAW SNIVEL" we should bail THEM out? You invest your money and you lose it because you are too stupid to invest properly too fucking bad. I do not remember seeing any governmental agency guaranteeing MBS the way FDIC insures savings accounts. But, the same cannot be said for houses which are more than an investment, they are homes and not to attend to their value will see millions more on top of the already millions who have been evicted. You might get some twisted smug satisfaction out of that but it is suicide on a national scale to allow so many of our people to be disenfranchised and disowned.
I have NO sympathy for the investors that lost money and I believe in my whole heart that for the government or Fed to bail them out is criminal misuse of funds. Be glad I have no power because if I did it would be treated as a capital crime.
Here is a question for you, if you put your life savings into gold at 1600+ an ounce because you just are certain it is going much higher, and then for whatever reason it drops back to $300 per ounce, should the government bail you out of the losses on your bad investment? The only reason some investors are getting a bailout is that they are very VERY wealthy, you or me? No gaddamned way and we all know it. It is because those with the most money have the most power, those that need a bailout least because of their excessive wealth on unearned income are the only ones getting bailed out. The only reason we are even getting a jobs bill is because it is an election year coming up, if there were no elections starting in 4 months there would be no extension of unemployment benefits.
so buy the XLY! A Santa Claus rally? Maria sings "There's a rally on Wall Street...?" I love this movie, its better than "It's a Wonderful Life.."
what do you call a country that punishes success and rewards failure?
USA
Anything that happens in The next 16 months wil only be about votes.
Freedom Liberty and Justise will have to wait.
I'll vote for Obama if he pays off my entire mortgage. Why the fuck not??? This shit is ridiculous.
I call it a country that will receive a harsh lesson in "enlightened self-interest", as in tens of millions of producers saying "fuck it".
Who is John Gault?
@ Laz
I call it a Banana Republic.
a banana has to ripen in a certain way.... we be learnin' that pretty soon.
http://www.youtube.com/watch?v=RFDOI24RRAE
Be more specific. Criminal successes? Or just realizing the rewards that are legally and contractually available in paying of a higher than market rate mortgage early?