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FHFA To Treasury: Forget Principal Forgiveness
FHFA Acting Director Edward DeMarco offered some prepared remarks today making it abundantly clear that his preference is for forbearance over forgiveness in the great mortgage hole in the US balance sheet's dam. As Bank of America's Chris Flanagan noted this evening "[DeMarco] effectively nixed the idea of broad-based principal forgiveness by Fannie Mae and Freddie Mac" in his comments on the Treasury's incentives to forgive principal on underwater borrowers. Citing three factors - NPV Impact to taxpayer, moral hazard, and operational costs - the FHFA Director indicated that forbearance (simply put - delaying foreclosure) is effectively a shared appreciation mortgage (SAM) without the operational complexities of a more formal SAM. BofA concludes: "his preliminary remarks on the incentive approach to principal forgiveness of GSE loans [mean] that there will be zero to minimal scale of such an approach." Back to the drawing board for the Treasury (or more forced-through unintended consequences?).
30Y Mortgage spread to 10Y TSY remains close to all-time lows...
Acting FHFA Director DeMarco Effectively Says No to Principal Forgiveness by GSEs
In prepared remarks today, Acting FHFA Director Edward DeMarco offered preliminary thoughts on the use of Treasury incentives to forgive principal on underwater borrowers and effectively nixed the idea of broad-based principal forgiveness by Fannie Mae and Freddie Mac. DeMarco cited three key factors in the analysis:
- NPV impact to taxpayer. The Treasury incentive payments would be considered as an offset to the NPV benefits of a principal reduction modification.
- Borrower incentives. This is the moral hazard issue associated with principal forgiveness. DeMarco noted that less than 1 million of the 11 million underwater borrowers would benefit from forgiveness. He expressed specific concern about keeping the remaining borrowers current on their mortgages, most of whom have always been current. He clearly expressed concern about incentivizing these borrowers to claim hardship or go delinquent on their mortgage.
- Operational costs. He noted that forgiveness guidelines would have to be clearly rolled out to over 1000 servicers and that there would be costs associated with such a rollout. Moreover, he cited opportunity costs relative to other retention programs, such as HARP. These operational costs need to be factored into the benefit analysis of principal forgiveness.
DeMarco expressed a clear preference for forbearance over forgiveness, and indicated that forbearance is effectively a shared appreciation mortgage, with far fewer operational complexities than an explicit shared appreciation mortgage. He indicated that he would like to wrap up the discussion on principal forgiveness within the next few weeks.
We conclude from his preliminary remarks on the incentive approach to principal forgiveness of GSE loans that there will be zero to minimal scale of such an approach.
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They only forgive banks their debts. The bastards will pay some day.
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Moral hazard? lol......good one.
DeMarco's hot tub "accident" or small plane crash in 3, 2, 1....
A terrible accident cleaning his revolver...
....behind his back....
....hands in zip-ties....
....the bullet went through his head, richoted off the doorknob, flew into the bedroom, taking a right turn and stiking his spouse between the eyes.....
tough problem to solve, however, the moral hazard argument makes sense.
This douche nozzle cites moral hazard? Huge fucking balls. No brains, but HUGE fucking balls.
Tomorrow's news:
FHFA Director Edward DeMarco was fired on Wednesday, in a surprise move by the Obama administration. Barney Frank, former chairman of the House Financial Services Committee, was tapped to take his place.
So... you're saying Obama tapped Bawney's ass?
There is a moral hazard with debt forgiveness, but no moral hazard with pumping house prices up in 2004-2007 so that first time home buyers in their 20s were fucked for the rest of their lives?
zombie household balance sheets. Not good for an economy that relies 70% on consumers.
Socialism for the rich, capitalism for the poor.
The world is upside down.
"I like the way you think"
Sam Kinison Back to School
That is one of the central tenets of fascist economics, as implemented by Benito Mussolini.
"his preliminary remarks on the incentive approach to principal forgiveness of GSE loans [mean] that there will be zero to minimal scale of such an approach."
Finally, some positive news covered on ZH.
Forebearance? After this summer's inevitable aftermath of additional 20% -30% devaluations in home values maybe he'll rethink his position. OTOH, when more properties go glup, glup (underwater) will more mortgage holders opt for a strategic default? Remember last summer when Van Jones was calling for a mortgage payment strike? Now would be even a better time for a mortgage payment strike as the TBTF Banks and the FED are tettering on the brink of collapse.
maybe, mr_m, but why? are housing prices his problem?
mrPolo seems to have some decent agruments; this is "equivalent" without any legislation or paperwork
he may have failed to mention (wink, wink) this strategy may keep swaps from triggering; plus, the deal is still foreclosable and we know banksters!
also, doesn't this give us the added benefit of m2"shared"~~a new unicorn, BiCheZ! cherd
now, if you want to start a mortgage strike, isn't that like taking out an equity loan? with falling equity, too? i guess at some point they would examine your affairs (like they haven't, already); and if you were making a "statement" maybe they would foreclose instead of forbear?
so, yeah, the FHFA will throw around 'equivalent' and 'shared' and 'forbearance' b/c they get to keep the hammer on the property
in RE/propertyLaw, the hammer is the hammer
that's how you get paid
Moral hazard!!! Unbelievable.
Interesting display of ignorance by the early commenters on this one.
DeMarco has been consistently opposed to principal modifications since they:
... so THAT is the OUTCOME all the early commenters WANT? ...
and YOU (collectively speaking) are calling DeMarco a "bastard" and a "douche" ????
Wake up and click your way back over to HuffPo-FairyFartville.
This is ZeroHedge.com not Unicorns&Greenshitsville.com
Bye-bye
barliman
Hey, watch what you say. My unicorn has a multi-colored twisted tusk, and he's sensitive about it.
That's cool but if he has green shits, you need to take him to the vet.
barliman
i agree with you Barliman.
Oh, that's right - moral hazard only applies to the peons. When Too Big to Jail organizations slough off their toxic crap onto the public sector to save their own asses, it's not considered moral hazard - just business as usual.
Regardless of WHO sloughs "their toxic crap onto the public sector to save their own asses" they are still a DOUCHE !!!!
Individual, corporate or enabling politician or academic appointee - ALL are POND SCUM
So - just to be clear - YOU ARE supporting the idea that the mistakes people make are NOT THEIR RESPONSIBILITY but must be carried by OTHERS WHO DID NOTHING WRONG ???
barliman
Nope. Just pointing out the blatant hypocrisy in "Mr. Consistent" denying to one class of persons that which has already been granted to another class of persons. I think everyone should suffer for their own mistakes - including and especially the corporate persons whose losses I am currently (and will be, for the rest of my natural life) backstopping with my tax dollars.
So - just to be clear - YOU ARE supporting the idea that a two-tiered system of laws, justice, and legal exceptionalism for the politically connected is a GOOD THING for the financial health of EVERYONE in the nation?
Didn't you listen to TOTUS today? Those aren't YOUR tax dollars, they're the governments, and they'll keep 'em if they want to.
Nope ... and if you had been reading the multiple posts on ZH regarding DeMarco you would know he isn't either.
He has been the target of every SCUMBAG BAILOUT SUPPORTER in Washington, D.C. including BAHNEY FWANK, Pelosi and Reid who have tried everything they can to get him replaced.
REALITY - stop by and join in some time.
barliman
I guess you missed the point - the moral hazard horse left the barn going on 4 years ago. THAT's reality. Wake me when DeMarco claws back my money and reconveys the garbage back to its points of origin OR begins the write-downs. Until then, he's just another hypocritical bullshit artist.
GOT IT
Ignorance uber alles - if it doesn't fit my world view. It's wrong.
MORAL HAZARD - don't have to worry, it was ALL handed out 4 years ago - there is NO MORE risk of it happening again
Write Downs - the defintion of Moral Hazard are NOT moral hazard because YOU want it and therefore IT MUST BE GOOD\
DeMarco didn't lose your money - you did, you self absorbed twit.
barliman
you are intentionally misunderstanding ms. erable. she (?) says the banksters ALREADY got theirs and in spades. moral hazard ain't the problem. it's WHOSE moral hazard. in olden times all would have gone bankrupt and a restart would be possible. now we have bank bondholders protected from even a dime of loss and criminal management protected from prosecution while, at the margin, cheated homeowners are required to pay every cent of their debt. not only is this unequal treatment before the law, it prevents organic recovery (see japan 1989 to today). not to mention the debt slaves of credit cards and student loans that cannot be discharged even in bankruptcy.
it's no good to say you don't agree that either the rich or the poor should be bailed out when the rich already have. your view has been made obsolete by reality and you must address it. and ad hominem is the weakest of arguments.
I never intentionally misunderstand a moron - or in this case Ms. Erable.
I don't give a shit WHO ALREADY GOT THEIRS
I DESPISE EVERYONE WHO THINKS THEY ARE NOT RESPONSIBLE FOR THEIR ACTIONS and are thereby ENTITLED to their own TAXPAYER FUNDED BAILOUT.
I also DESPISE the practitioners of MORAL EQUIVALENCE
Time to face facts, Jeff. The bank bondholders who think they are going to come out of this whole are going to find out they are monumentally WRONG
NOTHING HAS BEEN SAVED - the end result will still be BANKRUPT BANKS that will now take down the nations that bailed them out.
NO ONE is going to get OUT FROM UNDER or BE FORGIVEN THE DEBT they took on of their OWN FREE WILL.
IF they made themselves debt slaves by paying for OVERPRICED EDUCATION or buying THREE iPADS for everyone in the family, their ASS IS STILL GOING BROKE
IF that hurts your feelings - GREAT !!!! Get your whiny, bitch ass back over to HuffingtonPost!
barliman
You can be against moral hazard as a concept and against differentially applied moral hazard at the same time.
Stop being daft already.
Or you can be logically AND morally consistent and want both sides of the equation held to account ...
... and, historically, they always are held to account - doing it my way involves less mass violence ... if you care about that sort of thing.
barliman
a juvenile homophobic and a partisan hack. reality is a scary thing barliman?
hilarious.
If you are living in a partisan world where YOU don't see those three individuals as primarily responsible for the housing bubble and coming economic collapse ...
... reality is going to have you shitting yourself on a DAILY BASIS.
barliman
IT IS NOT THAT SIMPLE:
1. THE BANKS CREATED MERS AND SECURITIZED LOANS -- WHICH MEANT THEY SOLD YOU A LOAN BACKED BY A HOME WITHOUT CLEAR TITLE WHEN YOU DETRIMENTALLY RELIED ON THE BANK AND THE TITLE COMPANY TO ENSURE YOU WOULD HAVE CLEAR TITLE; YOU DID NOT GET WHAT YOU PURCHASED
2. MERS PROCESS INFLATED THE VALUE OF ALL HOMES; YOU PAID MORE THAN YOU SHOULD HAVE BECAUSE OF THE ILLEGAL CONSIRACY TO AVOID RECORDATION LAWS AND INFLATE PRICES - THIS IS WAS A RICO TYPE CONSPIRACY;
3. THE BANKS CANNOT TELL YOU WHO OWNS YOUR NOTE, PROBABLY THE FEDERAL RESERVE AT THIS POINT; YOU ARE PAYING THE WRONG PEOPLE AND YOUR MORTGAGE IS NOT BEING DISCHARGED;
4. IN NO OTHER CASE ARE THE CRIMINALS (BANKS) ALLOWED TO PROFIT FROM AN ILLEGAL ENTERPRISE AT THE EXPENSE OF THE VICTIMS; I.E. BAIL-OUTS FOR THE BANKS NOT THE HOME PURCHASERS WHO ARE NOT "HOME OWNERS" BECAUSE THEY CAN NOT ACHIEVE CLEAR TITLE;
5. THE LAW WILL NOT REQUIRE YOU TO COMPLETE A CONTRACT EXECUTED IN BAD FAITH, WITH MISREPRESEENTATIONS ON ONE SIDE, WITH CLEAR FRAUD ON ONE SIDE, IN ANY OTHER CIRCCUMSTANCE;
6. YOU CAN SAY YOU ARE BEING RESPONSIBLE BY PAYING THE LOAN, BUT YOU ARE JUST MAINTAINING THE STATUS-QUO OF THIS ILLEGAL ENTERPRISE, YOU ARE NOT BEING RESPONSIBLE TO YOUR FAMILY BECAUSE YOU ARE THROWING AWAY YOUR RESOURCES;
6. I HAVE BEEN TRYING FOR TWO PLUS YEARS TO FIND OUT WHO OWNS MY LOAN, NOBODY KNOWS, AND NO ONE HAS THE NOTE - THAT MEANS MY PAYMENTS ARE BEING SPREAD AROUND LIKE CANDY TO FOLKS WHO ARE NOT ENTITLED TO PAYMENT (THIS SHOULD NOT BE READ WITH A SIGH, BUT SHOULD OUTRAGE EVERYONE WHO THINKS WE LIVE IN A COUNTRY OF LAWS);
7. IF YOU OWNED COMMERCIAL PROPERTY, INSTEAD OF PURPORTEDLY OWNING A "HOME", YOU WOULD NOT MAKE THE PAYMENTS TO PERSONS OTHER THAN THE HOLDER OF THE NOTE IN DUE COURSE, WHY WOULD YOU WHEN IT IS YOUR HOME?
8. IF WE DID NOT LIVE IN A PLANNED ECONOMY, WE WOULD NOT HAVE TO WORRY ABOUT MORAL HAZZARDS, BECAUSE THERE WOULD BE NONE. - THERE WOULD ONLY BE INCENTIVES TO OPERATE IN YOUR OWN BEST INTERESTS AND NOT ACCORDING TO FALSE INCENTIVES ESTABLISHED BY BUREACRATS TO MAKE YOU JUMP THIS WAY OR THAT.
I AM ABSOLUTELY IN FAVOR OF A MORTGAGE PAYMENT BOYCOT. WHY HAVE AMERICANS BECOME SO PASSIVE, SO UNWILLING TO STAND UP FOR THE RULE OF LAW, SO WILLING TO CEDE POWER TO BANKS AND BUREAUCRATS?
Normally ... I can get worked up about MERS.
but you have the half truth/half fairy tale mix going on - and I won't take the time or energy to differentiate fact from your widlly interspersed fantasy.
Breaking chain of title does not absolve any debt - it may make it unsecured under certain circumstances.
MERS is the largest, self documented RICO violation ever. I would LOVE to see bankers losing ALL their ill gotten gains ... but the state AG's bent over and took it up the ass t make sure that couldn't happen.
barliman
I agree the debt is still owed, and as soon as the holder in due course steps forward to collect the debt, they should be paid, but not before.
.
How can you have detrimentally relied when, at the time you signed the note and mortgage, it was either not yet assigned or the assignment was expressly consented to in the documents? The issue can best be spotted when looking for damages (not a premature lawsuit)... for example, those claiming bad title have no damages until a second creditor claims an amount due... to my knowledge, this does not occur (because despite the documentation being missing, the banks have at least worked things out amongst themselves). In other words, when you sell your MERS house, the closing agent will pay off your mortgage... and you will not owe any more money... the title issue is then moot.
DO YOU REALLY THINK HOMEOWNERS HAVE EXPERIENCED NO DAMAGE UNTIL THEY SELL THEIR HOUSE? WATCH AS THE LAWSUITS INCREASE BY FOLKS WHO BOUGHT FORECLOSED HOMES BUT ARE THEN SUED WHEN THEY RESELL THEM TO NEW BUYERS BECAUSE THEY ARE WARRANTING CLEAR TITLE. NO, THE DAMAGE HAS BEEN DONE, IT MIGHT NOT HAVE BEEN FULLY EXPERIENCED, BUT THE HOUSING MARKET IS NOT UNDAMAGED FROM THEIR ACTIONS.
You want to know what happens in the real world when a foreclosure sale is improperly conducted? The purchaser enters an agreement with the bank (forecloser) to create a unified front against the person seeking to set it aside... the bank picks up the tab on the legal fees and, if not, the title company does. If the sale is invalidated, the purchaser collects the sale price from the bank/title company... and any improvements likely become a lien on the land through the state's betterment statute... or, alternatively, paid by the bank/title company. The deadbeat homeowner is then promptly foreclosed upon again and the process repeats (although probably with a higher probability of finality the second time around).
You also have issues of adverse possession... laches... sales might be void, but they can also be merely voidable (a divergence of law that baffles me, but still exists)... aside from legal trump cards existing. It's not as simple as you're trying to portray. However, in the end, the law has mechanisms that will not only clear title, but put each and every piece of land to its best use... just give it a little time.
PS, your #1 is incredibly poorly written given it's broad enough to apply to initial loans, not merely foreclosures.
Yep you need to go thank your Stae AG for screwing the people of your state in this last 25 billion dollar deal. Foreclosures will begin in earnest this year now the state AGs in conjunction with this administration just screwed homeowners. That deal gives the banks a green light to foreclose if you signed on the dotted line regardless of the robo signing and other criminal activities.
Like Barliman stated you signed on the dotted line you are responsible for your debt. The banksters are laughing as they again got off easy and knew thihs would have cost alot more if property laws were enforced.
DeMarco favors the Zombie solution. Do nothing and pretend you will get paid in full some day. Mark to fantasy means you never have to admit you are broke and stuck with millions of homes worth squat.
OT: It's not obvious to me how to submit an article to ZH team, so I'm just posting it here.
I used to think that the reason that my friends and family didn't get it was because economics was "complicated". But this 5 minute video changed my mind.
Look, even a 12 year old gets it! So what's everybody else's excuse?!
A 12 year old on the Corrupt Canadian Banking System:
http://www.youtube.com/watch?v=axS-QdUkMqk&feature=player_embedded
Please share this everywhere! There's no more excuse for ignorance.
http://StockMarketBottom.com
Bailing the banks out was the moral hazard. Too late. They've flipped the meaning of the term to mean a moral hazard on the part of the borrower. This is a dirty trick to flip blame. DC trolls have tremendous contempt for the average person. What they're basically saying is that if they negotiate with the borrowers, then other borrowers will pick up on what they're doing and want to negotiate as well. There's no moral hazard there. All debts are negotiable. It's not a handout to realize a debt is unserviceable. What the fear is that because the government Guarenteed this garbage at par that they'll be the bagholders.
This is the worst of all possible worlds. The instructions to FHFA should be to liquidate the mortgage portfolio, no longer guarentee debt, shut down Fannie and Freddie, default on outstanding Guarentees on an announced date and allow the market to clear. Investors will buy this debt up at something much lower than par and negotiate with people. It's already occurring with non-agency bonds.
A thought: these guys think mortgage revenues are going to be a new form of government revenue. Same with socialization of student loans. The government wants in on the loan origination business.
I agree bailing out banks was the biggest moral hazard. But people that bought a house in a extremely obivious housing bubble should not get a pass. I lost a ton in the internet bubble and learned an invaluable lesson that will last the rest of my life. I will also pass that lesson on to my kids if I can. Let us not deprive those that bought a house in the housing bubble of that invaluable lesson.
A bubble created by central banks and other banksters for just such a purpose?
Like he said, "Moral hazard? TOO LATE."
Why haven't you lerned that lesson?
Shouldn't there be TWO parties learning lessons here?
Let us not deprive the OPM-shuffling copuloids that created the housing bubble this invaluable lesson.
And ya'll bitchez thought Obama was gonna "pay my mortgage!"
You didn't get your checks this month?
Forbearance - means kick the can down the road. Everyone in FedGov must have awesomely detailed thighs at this point from all the can-kicking. Of course it also protects the banks and allows time for the fake-settlement about fraudclosure to become settled, wouldn't want any Supreme Court challenges to the latest fraud from the combined bank/FedGov swindler cartel to get in the way.
BUY PHYSICAL GOLD, END THE CENTRAL BANKING SYSTEM
Presedential Executive Order before the electon = win!
I see, bail out the banks, insurance companies, car companies and provide endless liqidity to trading houses but DON'T YOU DARE FORGIVE AN INDIVIDUAL'S DEBT - THAT WOULD BE MORAL HAZARD.
Yeah, right, like moral hazard hasn't already been breeched and burned into everyone's Corzined minds yet.
Dipshits.
Where I once would've recommended mailing in the keys, I know find myself inclined to recommend arson.
Bankruptcy. It's not that hard. If you're underwater the sooner you declare or walk away the better. What do the rents look like?
I walked away from my house when I was upside down on it - lived in it mortgage and rent-free for about 8 months before fucking off to rental "you fix this shit when it's broken" land.
What a relief it was.
I think we already have forbearance since a large number of underwater mortgage foreclosures are about 18 months. I think after 6 months with no payment it should easy to determine the final outcome. After six months, the borrower is walking away from an underwater mortgage and no length of delay (unless permanent) is going to get the borrow to repay. Forgiveness isn't going to work unless the mortgage is decreased below the value of the property, If you reduce the mortgage by 10% and the property is 30% overvalued the borrow is still going to walk away.