This is the third of three columns on human behavior and systemic problems. The first column covered in general how our complacency allows us to be taken advantage of, especially when information technology is involved. The second column, based in part on my friend Ralph’s mortgage problems, showed one example of how a class of investors has been able to keep millions of Americans trapped in high cost mortgages, creating a sort of economic time machine that benefits one group at the expense of the other and the nation. This third column, addressed to President Obama, is about a cure for that specific mortgage problem — a cure that would also create a huge, and very cost-effective, boost for the economy.
Dear Barry,
As a nation, we’re out of time, money, and jobs. Despite hundreds of billions of economic stimulus the economy is still in the toilet facing a possible double-dip recession. The new mood of austerity in Washington suggests that more hundreds of billions won’t be available for further stimulus, nor should they be. It’s time to find better solutions that cost little or nothing to implement — solutions that can be directly imposed without having to seek permission from anyone. The foreclosure crisis needs to be addressed, as does the housing market. If solving those problems can also stimulate the economy, well that would be a win-win. If it could be done for no cost at all, that would be a frigging miracle. I think such a miracle is possible.
There are several goals here: 1) slow the pace of foreclosures which would not only keep people in their homes but also help the housing market in general to recover; 2) find a way for underwater homeowners stuck with mortgages at high interest rates to refinance at present very low rates, saving money in the process and creating origination fees for the mortgage industry; 3) give people lower house payments so they can spend the savings, boosting the economy, and; 4) do the whole thing elegantly and at no cost, as if by magic.
The way to do this is for Fannie Mae and Freddie Mac and the Federal Housing Administration and the Veterans Administration and any other government-sponsored mortgage programs you can name to waive the appraisal requirement on non cash-out refinance applications for owner-occupied homes under these programs.
The main problem with refinancing mortgages for underwater houses is the underwater part. And the extent to which homes are determined to be underwater is based on comparing the appraised value of the home to the amount being refinanced. If the mortgage is underwater, refinancing is a no-can-do, so we go through the monkey-motion of mortgage modification — programs that have generally been undermined by the mortgage servicers.
Efforts to help the housing market to this point have been expensive and not very effective. Frankly they’ve benefited mortgage investors and done little or nothing for homeowners.
The trick here is to stop moralizing and pointing fingers and just find a loophole that will allow 30 million mortgage holders to refinance their loans at lower rates. This isn’t a write-down or a bail-out. People will still owe more than their homes are probably worth, but they’ll owe it at current interest rates, not past rates. Their mortgage payments will be lower and they’ll be less likely to walk away from their homes or otherwise go into foreclosure. Their homes will come off the market more or less permanently, reducing the inventory of unsold homes which will inevitably lead to a firming of prices and possibly stimulating new home construction.
Just temporarily eliminate the appraisal requirement for federally insured mortgages. That’s it.
There is no legal requirement that there be an appraisal and, in fact, there is a long tradition in the mortgage business of appraisals not being required for homes that were recently bought or sold. The key is that the homeowner is not trying to take cash out of his house, just lower his interest rate and therefore his monthly payment.
So the Federal Housing Finance Agency would order that for the next 12 months all refinances of existing mortgages for owner-occupied homes under its constituent agencies and not involving cash out will not require an appraisal. The transaction comes down to exchanging a mortgage at a higher rate with one of a lower rate, that’s all. Millions of homeowners will go from 6-7 percent down to 3-4 percent, saving an average $300 per month in the process — the equivalent of a $100 billion economic stimulus for no real cost at all.
Understand that people will still effectively owe more than their homes are worth, so they won’t be able to sell them. But since their payments will be lower they also won’t want to sell them, at least not as much. Foreclosures will ease dramatically and everyone will feel happier. The banking industry will love it because they’ll still have their federal insurance on mortgages while enjoying an explosion of mortgage demand which will create new banking jobs.
Understand these aren’t modifications, they are re-fi’s. Nobody is losing anything.
Yeah, but aren’t we engaging in a ruse? How can this work? Won’t it end up costing the government a bundle?
Nope. Payments will be lower so people can afford their homes, but they’ll still be essentially trapped in those homes, though that’s okay. Eventually the market will recover (sooner because we’re doing this) and those homes will come out from underwater and can slowly go back on the market for resale.
It is simple, it would work, it requires no act of Congress or even a Presidential order. It can be implemented on Tuesday with an impact measurable on Wednesday. It won’t cost the government anything and everyone involved will be happy.
Run with it, Barry. Be a hero.
The banks will definitely not love it. What, you think the banks will just roll over and be happy to give up 3-4 percentage points? Your second column in the series is in fact a good example of why a bank would not want to refinance at a lower rate. Higher rates means more profits and bigger bonuses, you think they will be willing to give up that, as big as their hearts may be?
You don’t understand the mortgage business. Remember I did a mortgage startup that sold to Refinance.com. I actually know about this stuff. The banks typically don’t actually hold mortgages — they securitize and sell them to investors. The banks make their money from origination fees, servicing fees, and profits on the securitization. Investors have been enjoying higher rates because homeowners can’t re-fi, but under this proposal investors get their money back just as they would if the house had been sold or more conventionally refinanced. Their leverage (literally) is gone, but they can’t complain since they’ve been unfairly benefiting for at least three years. The banks will make MORE money, not less.
Then you also know that the securitization agreements have buy back provisions to protect the investors if there are material misstatements or malfeasance in the packaging process. Several law suits are now underway, and many more are coming as investors find the banks sold them a bucket of crap wrapped in silver foil.
The banks of course want to cut a “deal” where they are absolved of wrongdoing (and any criminal prosecutions) in exchange for paying a paltry fine. Given the present political climate and regulatory capture, I wonder who will actually end up paying that “fine”?
Wont the securitization of new mortgages be an issue? since they are by design worth less than what the homes are worth and also they will have a tough time to get a rating that was anything closer to the original.
Yes!
Nailed it Cringe!
I’m not sure that all of your readers understand that the majority of mortgages are sold as investments in pools/tranches based on their risk levels. So the banks aren’t really in the mortgage business anymore. They are only initiating and packaging them up. This is one of the reasons we got in this mess, the writer took on no risk.
By doing your idea, older investments pools would start to cash out (from the refinance). Investors would have to accept a lower return, but they would also theoretically accept less risk.
The only risk to your idea is refinancing people with no income who are going to default eventually. Refinancing would just add more cost to an already bad mortgage.
I know many people won’t like your idea, but these are the same folks that don’t understand how serious the issue is. Housing fuels the economy and we need to look at creative ways to reduce foreclosures and eventually get homes to stop depreciating.
Wouldn’t those refinancing still have to prove income? He said the ONLY difference would be to allow the re-fi without a appraisal, I thought.
Slowing the foreclosure process will only make the housing crises continue even longer.
The quicker it is, the quicker we will reach the bottom of this mess.
Take a look at Japan – they have still not reached the bottom of their real estate bubble that popped 20 years ago.
There is a glut of forclosed houses on the market, and the banks have slowed forclosure proceedures to keep from adding to the glut.
What is the fundamental premise, that people have to be protected from their own bad decisions? That people leapt into the housing market despite obvious overvaluation and ignoring the peril of uncommonly low interest rates, perhaps compelled by incentives such as no-down-payment deals, the ability to write off mortgage interest on their American income taxes, maybe borrowing against their (theoretical) equity in order to finance high-ticket items; without adequately considering the risk of a bubble bursting later on, thereby putting themselves in a position between a rock (their mortgage lender) and a hard place (foreclosure), and now somebody else is “unfairly” profiting from their misfortune while they hang on waiting for the market to (maybe) rebound?
There was a Simpsons episode that explained the situation most clearly for me: on a whim Homer threw a neighborhood Mardi Gras party financed by a line of credit mortgage. But the very next day he got the dreaded letter, “your mortgage has reset”. Then he went to his mortgage broker and angrily accused him, “you told me I wouldn’t have to face this until the FUTURE! But right now this is the PRESENT!”
(in the end Flanders bought their house at foreclosure auction and then rented it back to the Simpsons so they wouldn’t have to move from the family home, then the story became a tenant-vs-landlord battle culminating with the Simpsons getting booted out while Homer stole all the wiring out of the walls).
In short: I don’t think anything should be changed. I was interested in making real estate investments right when the market started taking off in 2003/2004 that all-of-a-sudden I could no longer afford; I’ve been standing on the sidelines ever since. I personally only earn $110,000 a year and can’t afford ANYTHING on the market!
why can’t we protect people from O T H E R S’ bad decisions? Joe Sixpack probably bought his house planning to die in it 45 years from now. and pay on it for 30. he signed up for an affordable deal over the 30.
the collapse of the markets due to schnooks and crooks signing each others’ papers on pretend loans, bogus bonds, and sorta-securities is the problem. that canned the market because it had been turned into a Ponzi scheme, and the last one holding the papers gets to run to Uncle and beg for billions.
Joe Idiot might have bought a McMansion on a 3-year 80/20 balloon, and kept recycling it to clear the credit cards. by now, all the Joe Idiots should have cleaned up their act or moved under their favorite bridge. they can learn a lesson and stay out of our hair. they tried to push that kerappe on the wife and I six years ago. one little question stopped all that nonsense; I asked, “by what fundamental economic law are we guaranteed to be doing 25% better economically in 5 years? let’s talk 30-year-fixed and get our heads out of the clouds…. or wherever.”
Ah, the old moral hazard argument. That went out the window with “too big too fail.” If you are saving the big banks, and not saving people, there is something morally flawed with your system.
What about the old ‘specialization of tasks’ argument that Adam Smith gave us to justify capitalism.
When I bought a condo in the mid 1990s, I found a real estate broker, who used to be a school teacher, who guided me through the process. He directed me to a lending professional that he trusted at a bank that no longer exists. They both were fantastic, and as the process went on, I began to trust them completely. I did know other people who knew something about real estate, so I was able to compare what was happening to me to what they told me. That reinforced the trust. These guys were professionals. I was the babe in the woods.
What is obvious to some isn’t obvious to others. Many home buyers are babe in the woods type. We adopted a ‘specialization of tasks’ system that acknowledges specialization, which means people are going to have giant holes in the general field of knowledge. Regulations were set up to protect people, but regulations were thrown out the window, increasingly beginning all the way back with Jimmy Carter.
I’m not sure you can blame people who made bad decisions for not knowing about obvious hazzards. Look at all the obvious hazzards CEOs walk into, yet NEVER have to pay for. If your looking to wield the old ‘moral hazzard’ hammer you look positively sadistic if all you ever do is wield it on the weakest and meekest of people.
My father worked a large beverage company. He created multiple inventions to improve the way palletizers and conveyor systems work, increasing factory work flow and he pretty much gave these ideas to the conveyor companies for free, my father viewed his job as to increase work flow in his plant. My father made a nice middle wage income. He retired in 1992. He lost most of his retirement five or six years later in the East Asian melt down due to a stock broker who had placed him in a far east mutual fund run by the stock brokerage firm.
The fact is, my father shouldn’t have been investing. He should have just had annuities. The stock brokers, and everyone else, benefit from the inventions my father created, creating cheaper products and a more productive economy, which he saw as him just doing his job as a professional in a certain field. To bad they didn’t return the favor.
Seems to me the little guy ought to get a break from the moral hazzard crowd. They may have made a mistake in real estate markets, but every day they get up and go to work, or try to, to do an honest days work. The fact is, if professionals in banking did the same thing, there wouldn’t be a problem.
@BarackObama #beahero https://www.cringely.com/2011/09/be-a-hero-barry/ or do you have your own way to get him to read?
How to handle some of the other impediments to refinance?
What about other requirements like income verification, and credit check? Many underwater mortgages began life as no-doc “liar loans”
What about payment history? I think HAMP rules are 12 months current payments.
What about loan to value requirements?
What about closing costs?
There is some merit in this idea, but I do see a couple of problems. 1) Its debatable how much it will slow the rate of foreclosure, for two reasons a) Many of the people who are defaulting cannot afford a mortgage period, and never should have received one. Tens of thousands of loans have been modified to 2.5% coupons and are redefaulting at very high rates. b) Even if we all pretend the borrower is not underwater, he still is if he tries to sell the home. If he loses his job, struggling to maintain that losing proposition makes no send. 2) If foreclosures don’t slow appreciably, this is arguably bad for home prices, as it does not allow the market to find a clearing, affordable price where it can begin to function normally again. I am painfully aware of the suffering of those being foreclosed on, but your proposal also arguably makes it hard for young families to afford a home. Maybe that’s a good thing, and the new generation should rent, but that doesn’t support home prices…
The BIG screw job is to the investors that bought the securitized mortgages, you missed that….and it’s a HUGE deal!
Do you expect pension funds (the main holders of these) to roll over, play dead, and take the loss?
They signed up for X% return, and they shoudl expect it… unless you believe contracts should be abrogated for the general good, and I don’t.
So, there’s definitely a “loser” in your “win-win” deal, you just didn’t think hard enough to find it.
How are these institutions and people who own Zombie Mortgages (as Bob called them in the earlier posts) any different than those holding the “I get paid before ANYONE gets paid” debt from GM and Chrysler that had to take a hair cut in their bankruptcies?
We just waved a wand and told them “the rules have changed, get over it.”
So it could be with those who own the Zombie Mortgages. They were expecting a higher return for a longer period of time. They won’t get it. Suck for them, but, they get their investment back and they are alive to fight another day. Someone is going to take one for the team.
I don’t always agree with Bob’s prescriptions but I think this is one of his better ones. Easy for me to say because I am not holding Zombie Paper but still, I think it may be the lowest cost solution to the problem (from a societal pov).
Joe J.
Hate to break it to you Joe, but YOU (and your progeny) are the bag holders for the “Zombie” mortgages because the banks were allowed, even encouraged to sell them to Freddie Mac, Fannie Mae. Heck, now even the Federal Reserve has this trash on its balance sheet, in clear violation of the federal law that chartered it.
We’ve been sold down the river to protect the bankers that clearly pull the strings and run this country. Clinton, Bush, Obama, it doesn’t matter, they are just guys with strings attached. Wake up.
“We’ve been sold down the river to protect the bankers that clearly pull the strings and run this country.”
That’s the second time today that I’ve read that sentiment. The first time was here:
https://www.truth-out.org/goodbye-all-reflections-gop-operative-who-left-cult/1314907779
a snippet from the link above:
“As Spencer Bachus, the Republican chairman of the House Financial Services Committee, says, “In Washington, the view is that the banks are to be regulated and my view is that Washington and the regulators are there to serve the banks.””
@Joe: Any argument that says “sucks to be [name group here]” is not the win-win solution Cringely had in mind.
There is no solution to our indebtedness/bankruptcy as a nation that doesn’t include somebody taking a loss. Might be the reason we haven’t solved it yet, huh?
Who will it be?
[Taxpayers, if we’re not careful]
Those people who hold the mortgages on homes owned by those with good credit scores who are underwater expected that their loans would be refinanced or sold as time progressed. A significant risk of mortgage lending is that the loan will be refinanced if interest rates fell. My loans have averaged less that 3 years. There is literally no one who originated a mortgage loan in the hope that crashing home prices would prevent refinancing or sale of the home. Such a bet would be insanely risky.
Allowing refinancing restores the deal both sides made at the time the mortgage was originated. You get to refinance as interest rates go down.
“So, there’s definitely a “loser” in your “win-win” deal, you just didn’t think hard enough to find it.”
Oh, Bob knows there’s a loser. It’s just a loser that many readers will believe deserves to lose, since they’ve been “unfairly benefiting” from the current environment. Not that it’s right to hose them — after all, a contract is a contract, and no “easy” solution will solve this mess — but this is where emotion takes over.
To me, Bob’s biggest mistake is believing Obama will approve of a plan that costs $0. Saving taxpayers’ money is definitely not the point here, and anything which does not require increasing taxes in some way is not a “solution” to this crowd.
Your understanding of the mortgage market in the United States is weak. He is only talking about Agency mortgages. What those investors signed up for was no government guarantee behind the credit risk (except GNMA and FHA) – and that has been the law since the Johnson administration. Investors profited to the tune of a couple of basis points for the implied-ness of the “guarantee” – which is not really a guarantee at all.
So were it not for the government changing the written contract after the fact (“abrogating” them), these securities would have experienced massive credit losses – and the reduction in price due to even a large pickup in prepay speeds as a result of a national mortgage rate program pale in comparison to the losses that would have been experienced had the government not allowed the original contracts to be paid as written in the first place – that is, out of the paltry reserves of FNMA and FHLMC.
Your post sounds like a “keep the government’s hands off from Medicare” argument. Advocating against a national mortgage rate for the Agencies because that would be government intervention in the marketplace is really missing the point.
The mistake is believing “Barry” has the balls to do anything for America. The campaign accusation of Obama as appeaser has proven all too prescient. Our country will not recover as we have no Churchill in the wings to lift us up once again. The rabble on the right are little more than lapdogs for the same insatiably greedy bastards who’ve bankrupted the world. And on the left – Hillary? She might be able to beat Rick Perry but she doesn’t stand a chance against the puppeteers who’ve been pulling the Clinton strings for decades.
Churchill, of all people? Churchill was voted out of office as soon as WW II ended in 1945, because he opposed all domestic reforms to create a better and more equitable society after the war.
Going back to ‘Barry’, he just caved to the big corporations again over EPA regulations fro cleaner air.
I think he’ll go down in history like Jimmy Carter – a weak, ineffectual guy with good intentions – and a one-term President.
Your words on Churchill are mean spirited half truth.
Whilst it is true the conservative party lost the 1945 election it is pertinent to say it was an election year so timing was to that degree co-incidental. Also, there several arguments discussing the reasons for that loss, your reason only one of them.
Whilst it is true the conservative policy opposed some proposed social reforms of the time the long term consequences of the National Health Service could be argued to have been not a great result and vindicate his broader view.
He remained in parliament for many years and so was personally re-elected. He served as both defence minister and prime minister again in 1951 until 1955 when he resigned (he was eighty years old at that time).
I always find it strange how Americans almost worship Churchill. He was a good war leader, but not a good peace-time leader.
As for the NHS, for all its faults, it actually works pretty well. Ask Britons how many of them would swap the NHS for the American system of rapacious health insurance companies and health care only for those who can afford it, and I think you’d find that 95% of Britons would stick with the NHS.
And by the way, Britain doesn’t have election years. A government lasts as long as it lasts, with a 5 year maximum limit. The government can call an election any time. That maximum had been set aside during WWII, so that’s why there was an election in 1945.
You seemed to have missed the point. Neville was naive. Winston wasn’t. He represented Britain in it’s finest hour. Comparatively, Obama value lasted less than a minute. America elected a man of color. End of story.
Why ruin the presentation of your good idea by referring to the President as “Barry”? That is not his name. It is a derogatory term used by right-wing assholes. Your opening and closing undermine your credibility.
The President’s friends call him Barry, are they “right-wing assholes” too? Take your partisan drivel somewhere else.
Is Cringely one of his friends? I don’t think so.
Rush refers to him as Barry, so yeah, the comparison is valid.
Dear Barry? How about Dear Mr. President? Usually you have to show respect to earn respect and this is definitely true in the marketplace of ideas. Last time I checked, X is not on a first name basis with our POTUS. I check this site out a lot because it doesn’t stoop to the low brow/ low base of many internet blogs. Maybe there’s some good ideas in there but I found it hard to take X seriously because the beginning salutation and the ending charge lacked seriousness. Instead it echoed the worst qualities of our dysfunctional political discourse. I’m sure he thought he was being provocative but instead this came off as hackery.
J: I’m probably a “right-wing asshole” by your bigoted standards, but referring to Obama as “Barry” doesn’t hit my ear right either, unless one has that familiarity with Obama which Cringely doesn’t.
Is “Be a Hero, Barry” a cultural allusion of some sort? I remember a song, “Billy, Don’t Be a Hero” — is that the key here? Feeble, if so.
“Why ruin the presentation of your good idea by referring to the President as “Barry”? That is not his name. It is a derogatory term used by right-wing assholes. Your opening and closing undermine your credibility.”
Isn’t that just left-wing asshole Obama-worship? And I can’t believe you passed up a chance to accuse him of racism.
So, what did your left-wing buddies call Bush when he was in office? Oh I forgot, _now_ we have to be respectful of the office of the president.
I’ve been wondering for almost a year why a variant of this hasn’t been a serious policy proposal, and I’m very glad to see you making a strong case.
One other item worth including: waiving the demonstrated income requirement. In an economy like this, a number of people are dealing with long-term unemployment or underemployment by being self-employed. When they go up against the refinancing machine, they’re usually asked to demonstrate two years’ worth of self-employment income. I would suspect that a large portion of your target re-fi population is not salaried at the moment, and this will still catch them out since their self-employment income, even if it spans two years, will not likely match the salary in place when their homes were purchased.
Even without this second waiver, though, your proposal ought to be the subject of this Thursday’s address.
The problem with waiving the income requirement is the new mortgage holder doesn’t have any clue the homeowner can pay. The homeowner should still have to provide they can make payment $x.
The new holder does have a risk that the loan is worth more than it’s worth, but I feel that’s a much lower risk than someone having zero income. The home will always be worth *something*, and the homeowner will try to avoid foreclosure anyway.
Robert, that’s a fair point. I guess I’m imagining a scenario whereby in-place (i.e., with the same bank, for Freddie/Fannie-owned mortgages) refinancing would be more likely/possible. At this point in time, which is the bigger risk? That people who are already struggling to make payments struggle less or that someone with an appetite for risk in a volatile housing environment gets burnt?
If someone with a decent credit score and a history of no missed payments could avoid being forced underwater by an appraisal (per Cringely’s original recommendation) and avoid being disqualified because of the mitigating employment/income scenario, it seems like the end result would be a step toward restoration of stability in the housing market.
The “waiver” only means that some hard-to-identify group takes the loss.
If you don’t know who the chump is, by definition you’re the chump.
Sorry Bob, there is no easy or painless way to “fix” a debt bubble. The bad debts have to be recognized and cleared from the system. If this had been done in 2008, the economy would have experienced a deep recession for 6-12 months, dozens of large banks would have closed, and several large corporations would have been reorganized. Today we would have a growing economy free of the debt overhang and the trillions of additional interest future generations will pay as interest on it.
Instead, we allowed the banks to hide their bad debts or fob them on the GSEs, bailed out the likes of GE and GM. Rather than use federal funds to protect depositors, we protected bank presidents (and their bonuses) and we bailed out state government pension funds in a cynical vote-buying ploy.
Yes Barry could still be a hero, he could pull the charter of the Federal Reserve, nationalize the money center banks, and announce a reversion to a sovereign currency.
This is a bad idea for at least 2 reasons:
(1) There are people in homes that they never should have bought (i.e. they couldn’t afford them). As others have stated, this will prevent the “invisible hand” of the market from functioning. There are plenty of people waiting for home prices to return to rational levels (in some places that hasn’t happened yet), but by doing this, you’re giving over-extended homeowners
Look. Lower interest rates allow people to buy homes they otherwise couldn’t afford. I’m going to spend $3K/mo on a home. Now I can buy a $600K home instead of a $400K home, because now lower interest rates mean that $3K/mo buys a $600K home. Whoopee! Except in 5 years, when I have to move, now interest rates are at 7%, and any prospective buyer has to contemplate a $5k monthly payment for the same home. So the seller has to drop the price, regardless of intrinsic home value, because mortgage rates affect monthly payments, which affect the buyer pool. So now the seller, the same buffoon who lapped up 5 years of almost interest-free mortgage payments, is bitching again. (BTW, my numbers might be way off, I just threw out some numbers for illustration, I didn’t bother to calculate monthly payments.)
Let the market work. When I bought my home, there was no guarantee I would keep my job. That is my responsibility to stay employed & make my payment. Owning a home isn’t an American right, it’s a privilege, and with it comes an obligation called a mortgage (for most of us non-Warren-Buffet types). There is no guarantee that home values always rise. Generally yes, but if you buy your home as an investment, not as a nest, you are taking a risk, LIKE ANY OTHER INVESTMENT. If it’s a nest, you need to make that payment, just like a renter. Regardless of circumstances (we all have our crosses to bear), you have to make good on your commitment, otherwise there are consequences.
(2) As others have stated, these mortgages are sold as investments. Bob, can I sell you a CD guaranteeing 5% with a 10-year lock-in, and then change the return to 2% after I have your money? I’d take that deal.
Well said. A deadbeat is a deadbeat, and the same people who today are whining for a handout on their mortgage would probably ask for the same if they couldn’t make their rent payment. The fact is homes were sold to lots of folks that had no business getting a mortgage in the first place.
Another consequence of the current situation is the impact that low interest rates have on savers and retirees. A million dollars in a savings account these days earns a piddly return, actually a negative return if taxes and inflation are factored in. How the heck does that make any sense? The Federal Reserve’s ZIRP is literally stealing money from prudent people and encouraging the reckless behaviors that got us into this mess. Cringely’s mortgage plan requires low interest rates and just piles on to this bass-ackwards scheme.
“he fact is homes were sold to lots of folks that had no business getting a mortgage in the first place.”
Duh, but that’s all water under the bridge. Bob is just trying to make things somehow WORK in the future. Without all the insane backstabbing and arguing. It’s time for a simple solution to these problems and for pragmatic thinking. It’s also time for the thieving money managers to get out of the way. Way to go Cringely. Too bad nobody’s listening…
So your solution to crack addiction is to supply addicts with government-subsidized crack? We all know the real solution to the problem, it’s just that we don’t want to bear any pain or we believe that the pain can be deferred to some future date.
Actually, it would be getting crack addicts into government subsidised rehab programs.
Which is kind of the point here – have the government act so that people are less likely to lose their homes, rather than continue to let the problem fester or grow worse.
Julie,
1 – The bailout shouldn’t have given $700 billion to the banks. It shouldn’t have paid AIGs debts. Every Credit Default Swap investor should have been wiped out. The “invisble hand” of the market should have led to the collapse of many of the banks in this country. The housing market would have self corrected.
2 – The mortgage lenders should have done their due diligence. Anyone that offered a NINJA (No Income No Job or Assets) mortgage should take a bath, and any credit agency that falsified numbers should as well, that is before throwing any individuals involved in jail. And, if systematic, the companies should be liquidated with assets going pay off some of the debt they caused.
You have to understand, Bob is one of those people “in homes that they never should have bought (i.e. they couldn’t afford them).”
Bob knows about computers and has contacts, experience and insight into that field. He should stick to writing about that.
Bob’s interest in mortgages coincides directly with finding out he’d made a bad financial decision with the purchase of his house in Charlotte; all of his writing centers around what can be done to rescue him from that decision. He has a myopic view of the situation, and an eye only for solutions that can personally benefit him.
I haven’t seen this exact idea proposed but other ideas related to refinancing underwater mortgages have been floated and it seems it’s not as easy as a simple Presidential order. The FHA is an independent entity led by a holdover from the Bush era (since Obama’s appointment was blocked by the GOP).
http://blogs.barrons.com/focusonfunds/2011/08/31/kink-developing-in-plan-to-let-homeowners-refinance-at-lower-rates-nly-agnc-up/?mod=BOLBlog
Brian
Ages ago I taught in the graduate planning school at University of Illinois Circle Campus. The Dean at the time was a friend of the Comptroller of the Currency. Learning this I mentioned that the requirement for appraisal on residential property was simply a requirement of the Comptroller of the Currency and could and probably should be eliminated because it had little impact on the ability of the borrower to repay the loan. It was just an old habit that produced paper to fill files of banks to check off the box on a regulation. Research by George Gau some years earlier showed that the appraised value of the home ranked about 17th in importance of factors predictive of default. Most important, not surprisingly, we factors related to the borrower’s ability to repay–things like income, marital status, number of children, other debts, etc.
Why should it matter that a house is appraised at say $200,000 when the borrower can only afford a home of $100,000? Appraisals do gum up the works, but they are really just another case of CYA imposed by a regulator for reasons that have lost (if they ever had) relevancy.
“Why should it matter that a house is appraised at say $200,000 when the borrower can only afford a home of $100,000? Appraisals do gum up the works, but they are really just another case of CYA imposed by a regulator for reasons that have lost (if they ever had) relevancy.”
In a nutshell, you have summarized one of the underlying reasons for our current predicament. Regulators have been marginalized and coopted, or just bought off, and no longer act as regulators. The system runs open-loop and now largely serves the interests of a few oligarchs and political interests at the top. Gains are privatized while losses (and risk) are socialized.
Why am I not surprised that academics like yourself, Mr. Obama, and his cronies, see nothing wrong with that?
FrankC: For the record, I am not an academic but one who worked in the real estate industry for over 30 years. The issue I addressed was one of risk assessment. In the case of mortgage risk, appraised value whether done by some person close to the property or in some office in Washington has little or nothing to do with the likelihood of default. The borrower’s ability to repay is paramount and there are characteristics of a borrower that matter. To make loans to those who cannot afford to repay them doesn’t make appraisals necessary either on origination, on repackaging, on refinancing, or on any other contractual arrangement between borrower and lender.
Belief in regulation and regulators over the myriad day-to-day free market actions of people negotiating together is naive and unsupported by evidence.
As to the rationale for socializing losses, ask Barney Frank or the persons behind the extensions of the CRA like Janet Reno. How did that work out?
You are right, who really needs an on-site appraisal in this age of instant information? In fact, why even bother with the hoary tradition of locally-recorded real estate transactions and all that warranty deed, ink signature nonsense from the Middle Ages? Let’s replace it all with a modern system, we’ll call it MERS, and the transactions will flow unencumbered by petty bureaucrats, tax office peck sniffs, and other overseers. Linda Green will “sign” as needed, at least until the day our lobbyists can convince Congress that she too can retire.
You are on to something Mike. Keep up that creative thinking and your future is a bright one in the banking world.
/s
@MikeYoung, regarding risk assessment:
Honest question: say I am a lender considering giving someone a home mortgage. Of course, my first concern is, can this person pay back the debt (i.e. is he a good credit risk)? Assuming the answer is yes, I would think that I would still want to protect myself—just in case he can’t pay, I don’t want to be stuck with a house that’s worth significantly less than what I loaned (for example, house is worth $100k but I loaned the guy $200k).
So while the appraisal may have little impact on the borrower’s statistical likelihood to pay back the loan, it seems to me that the lender would still have some interest in it from the “CYA” perspective.
Home Appraisals are a good thing for the lender. Why? Because it helps to show that the collateral (the house itself) would be a sufficient asset in case of having to call the loan (mortgage) to cover the outstanding balance of the loan. Or in other words, is the seller ripping of the buyer by getting a price that is way too high that should the buyer default the lender would not be able to recoup their investment.
Then you also have the impact on taxes. The appraisal is also used to determine the tax status of the house. Remove the appraisal and you remove the way a lot of localities get their taxes – that is, it’ll still be taxed at the higher rate, thus the monthly payment would still be a lot larger.
Now, how the appraisal is calculated is a different issue – they look at similar homes that have sold in the last 3-6 months), and only 3-4 of them at that. We should perhaps question the methodology of appraising as opposed to the appraisal itself.
The big question is where Fannie/Freddie/etc are going to get the money to overpay every underwater mortgage by tens of thousands of dollars. Is the Fed going to print the money and then expect the taxpayers to pay it back?
The flip side to this is the deflation that needs to happen. We should reform bankruptcy laws to make it much easier to write off debts including mortgages and, somehow, student loans.
This comes under the ” B O do the right thing” banner. He does not do this.
Look at the “healthcare bill”.
Look at ” Finance Reform” ?????
“Three Wars”????
Look at all the support he gave the Consumer Woman. She made sense and he backed her not at all.
Any time a bill in congress hit 2000 plus pages I know I am screwed. My brother has the real solution. President, House and Senate get to keep there jobs and all staffs reduced to zero. Lobbyist would have 536 people to talk to. We would save trillions.
B. O. is now in the Multi Millionaire club and he could care less about the little guy. Of course we pay him for this.
I would love to refinance with the same effort it took to get the big second. That took 15 minutes. No Appraisal, no questions, no nothing. You get the loan.
Now if he really wants to help. I would be happy to borrow from the Feds at 4 percent for thirty years no points. Let them resell the paper.
B of A would buy it of course.
There is a financial institution by the name of Ocwen Financial that is doing sort of a pilot program of allowing 3000 of their Underwater Homeowners participate in their Principal Reduction program. Here”s a short version of an article that was published in August 2011.
Principal Reduction Program and Financial Planners
“The key to solving the underwater mortgage crisis”
There are some proactive ideas floating around in the Financial Sector that show promise in helping to solve the Underwater Mortgage crisis. One idea being implemented by Ocwen Financial Corporation has to do with Mortgage Principal Reduction. Ocwen is one of the largest servicers of distressed home mortgages in the country, began offering more than 3,000 underwater borrowers Mortgage Principal Reduction in a test that began a year ago.
The Principal Reduction test program works like this:
Program restores some equity in the borrowers’ property, which helps motivate them to stay current on their modified loan payments and avoid foreclosure.
Modify underwater borrowers’ loans so that their payments are reduced to a manageable amount and cut their principal debt over time
Make the deal dependent on their scrupulous on-time monthly payments of the new amount plus sharing of a portion of any future profit they make on the house sale.
Reduce loan balance to a level where you will have 5% positive equity in the house. That is, rather than the original amount that has you drowning, (set your debt at 5% below the appraised value of the house.)
Modify the mortgage so monthly payments reflect the reduced underlying principal balance. Then, in annual increments over the next three years, the lender will write off the amounts of the original debt balance that we reduced. In exchange, they will expect that homeowners do two things: Stay current on your loan payments, and agree to let lender share 25% of any future gain you make on the house at resale.
Results of this program so far:
The results to date: 79% of the customers offered the program in the test signed up, and the re-default rate has been just 2.6% — far below the 40% to 50% rates within similar time periods seen in some federally sponsored loan modification efforts. Ocwen, which services 460,000 loans and is acquiring a portfolio of 250,000 more next month from Goldman Sachs’ Litton Loan Servicing unit, said the test was so promising that it’s now taking the program national. Ocwen Chief Executive Ron Faris says the key to the program is that the shared appreciation approach allows for a restoration of equity for borrowers, which is “psychologically important” and greatly affects their motivation to keep current on the modified payment terms. It gives them a stake again and gives them some hope.
Financial Planners can enhance the Principal Reduction Program:
I would add the following provisions to the Ocwen Financial program to motivate and entice Lenders to participate.
Any lender that promotes a similar program would assign a Financial Planner that would work with the homeowner and analyze their unique financial situation.
The Financial Planner works for the lender and is paid from a small portion from what the Homeowner saves in their newly reduced mortgage payment.
The Financial Planners function is to come up with a workable financial plan for the homeowner to follow based on their monthly income and expenses and create a blue print for the Homeowner to follow. This means educating and implementing a retirement savings program, rainy day fund, college fund and vacation fund. The financial planner can also suggest investment products offered by the current Lender. This means the Lender recoups’ some of the lost Principal Reduction funds in the form of IRA‘s, 401 K’s., Money Market Accounts and other investments. They then can use these investment premiums to reinvest in their company to increase their profits which in turn will help stabilize the Housing and Financial Markets.
The Financial Planner also makes sure a plan is put into place to pay off credit cards and possibly have their employer the (Lender/bank) consolidate the credit cards and facilitate the means to pay them off
The Financial Planner is also keeping the interest of the Lender in mind, almost guaranteeing that the Homeowner does not default on the mortgage.
The whole point here is the Financial Planner is helping the Homeowner develop a plan to stay on tract, pay their mortgage, pay off credit card bills, save for retirement and free up disposable income. This means the homeowner will now have disposable income to buy goods and services that will stimulate the economy. This means job creation and new home purchases. Part of the new jobs created would be thousands of financial planners hired across the country by the Lenders offering the Principal Reduction program. With 11 million Home Mortgages underwater, that’s a lot of Financial Planners that need to be hired. Think what that would do to the National unemployment statistics. Most importantly, Financial Planners would get millions of back on the road to good ‘responsible’ financial shape. The Homeowner wins, the Lender/Bank wins and the Economy wins.
I like the above program because both the lender and the homeowner work together to solve the Underwater Mortgage Crisis. The Homeowners stays current on their mortgage, follows a financial “blue print” developed by the “Lenders” financial planner. Also, based on financial planner’s recommendations, Homeowner pays off their credit cards, creates an investment portfolio and now has disposable income to spend on goods and services. The lender receives a return on their investment by receiving 25 % of profit from the sale of the home, a revenue return in the form of Homeowner purchasing their investment products and the end to the stampede of Home foreclosures.
Now all we need is an Administration with the courage and vision to implement this program.
My question is – why is the “onselling” of mortgages allowed in the first place? I can’t somehow change the terms of the mortgage on my own, so surely I should have to approve the mortgage holder passing it to someone else? What is wrong with the institution I borrow the money from keeping the mortgage, and making a profit from the interest I pay them to “buy” the money?
Robert, Ken,
Your life and liberty were packaged and sold to the banks back in 1913. All our money is debt now. Take ten minutes to watch a lucid explanation of how we arrived at this juncture:
https://www.youtube.com/watch?v=l37RhdFGVsM
..well, at least the second article in this series was well crafted! I agree with the previous posters, this is clearly not a win-win for the holders/investors of the debt, who happen to be pension funds, banks, and hedge funds. So are the wall street types going to sign up and agree to lower returns. Fat chance. WIn Win? Heck no! Unfortunately there is no free money / pot of gold solution. Only more fleecing of the taxpayer. Hello japan style economy going sideways for 20 years.
I’m curious, since there are a lot of holes in your “solution”, is this third blog post generating the views that you were hoping for in your metrics plan? I’m assuming this article is only meant to stir up controversy, posts, and ultimately view counts .. 🙁
It’s an interesting idea, but there’s a side effect that you haven’t addressed. All of those mortgage backed securities that contain the mortgages to be refinanced will mature (or whatever the word is for paying out in full), but the new mortgages will not yet be securitized. In order for them to be securitized, an accurate assessment of the likelihood of default has to be established, which has to be based, in part, on the value of the home relative to the size of the loan. So either fannie and freddie and other securitizers (are there any others now?) will have to buy mortgages for inclusion in MBSes on the basis of inaccurate appraisals and manage to sell those mortgages to investors, or else the banks will actually have to hold on to the mortgages. So it isn’t free. There’s an assumption that the owners of current toxic mortgage backed securities will exchange them for new securities composed of mortgages written on the very same homes at the same value. I don’t imagine that they will. Nor do I imagine that banks are going to refinance 30 million mortgages and just hold on to them. And doesn’t the federal govt own (or guarantee) a lot of those MBSes now. You’d be asking the banks to take back a bunch of risk that they had successfully passed on to other parties, largely the taxpayers.
I don’t know much about the mortgage industry, but I do understand basic economics, and this:
“The new mood of austerity in Washington suggests that more hundreds of billions won’t be available for further stimulus, nor should they be.”
…is just wrong – or at least half wrong. It’s just about literally crazy, with negative real interest rates, for the US to be ‘austere’ right now. Some are calling it ‘Hoover-nomics’, but that is grossly unfair to Hoover, who a.) did try (too little too late, but he tried), and b.) didn’t have the benefit of hindsight that we do. What’s our excuse? I don’t understand how so many sophisticated, intelligent people – not just Bob, of whom I am a huge fan, btw – can be so comfortable with Finance while at the same time being almost clueless about (yes, basic) Economics. It’s just baffling. It this mindset, amorality is fine for Business, but when it comes to economic policy of the government, a huge moralistic pall falls over everything: people deserve the pain! Liquidate! It’s just weird.
Regardless, don’t hold your breath waiting for Obama to be a hero. It’s no tacit endorsement of any GOP candidate to observe that the Obama WH is just flailing, and the last thing they’ll do is take any sort of chance. Although they are rapidly approaching the time when the ‘last thing’ is all they have left, so who knows?
Pretty much in total agreement.
The government can borrow money at a rate of 2%. They should borrow as much s they can, finance reconstruction of infrastructure and go a step further and build even more new infrastructure. We need $2 trillion in infrastructure repairs. Add to that $2 trillion in new infrastructure: ultra light rail (for free, as Bob advised many years ago… let the increase in property taxes near the rail stops pay for the service) for inside of cities, and super fast trains for transit between cities.
Fact is, it doesn’t matter if these expenditures generate return, if it gets the economy going, but if they do, fine. It doesn’t all have to be financed. End the Bush tax cuts and that will pay for most of the expenditures.
The fact is the Republican party is an insurrectionist destructive institution bent on destroying the agencies of good governance for the benefit of a small clique of very rich and very conservative people. They are treasonous organization inside the government.
I give this country ten years. That’s it. It’ll break apart. Mexico might even re-aquire California, Arizona, Utah and New Mexico, and if they are willing to hold their noses, Texas. The South will re coalesce as a confederacy until Florida succeeds from the South. Maybe the north from Main to Washington will hold together, but that’s if the South doesn’t grab the Great Plains states. Maybe the north, if it is well behaved and well manages itself, can then enter into confederation with Canada.
Oh yes, there will be blood.
I’m not an authority on mortgages — and I don’t believe Cringely is either despite his startup experience in the bubble — but I doubt there is a free lunch here given how wildly distorted the mortgage market became. What Cringely recommends sounds like some variety of robbing Peter to pay Paul.
I am curious how Cringely is managing his expectations of Obama as the “Smartest Guy in the Room” these days and Cringely’s belief that he is one of the smart guys in the room who voted for Obama and continues to support Obama, though in this article you can sense the desperation leaking out.
If Obama doesn’t “be a hero” will Cringely think the less of Obama? Is Cringely honest enough to face that?
I say that we are at the Obama tipping point. If Obama doesn’t come down from the mountain — or more accurately the golf courses at Martha’s Vineyard — with some decisive revelation worthy of this buildup and the nation’s economic crisis, Obama is sunk, and all the smart guys and gals who made him President too.
“I am curious how Cringely is managing his expectations of Obama as the “Smartest Guy in the Room” ”
When the only people in the room are John McCain and Sarah Palin and Obama and Biden, Obama *is* the smartest guy in the room. It may not be adequate, but it’s the choice we had. I can’t speak for Bob, of course, but given that choice, I certainly don’t regret my vote for BO at all. I do regret that it was such a crappy choice, but…oh well.
jb: No. It is one thing to choose the lesser of two evils in an election — that’s what Americans usually do.
It is another thing to be taken in by an inexperienced con artist like Obama and believe that he is the “Smartest Guy in the Room” or that he will cause the oceans to recede and the planet to heal or some other messianic nonsense that voters like Bob and millions of other Obama voters did.
Bob is only now figuring this out.
It’s going to be a terrible hangover for Obama supporters to discover Obama is not that bright as an intellect, not that effective as a leader, and has hardly a clue about economics. It’s going to be a terrible hangover for the country.
The sheer populist irrational hysteria that elected Obama president in 2008 is one of the most shameful episodes in our history.
“It’s going to be a terrible hangover for Obama supporters to discover Obama is not that bright as an intellect, not that effective as a leader, and has hardly a clue about economics. ”
I disagree Hux, but only partially. Clearly a lot of his supporters saw what they wanted to see in Obama, rather than what was there, which you can’t entirely blame Obama for. Being from IL, I knew that he was a fairly conservative (in the historically true sense of the word), fairly conventional politician, and if you look at how he campaigned, that’s pretty much how he presented himself (at least substantively). I do think he is very bright, and I doubt he has too much trouble understanding economic issues, but as I’m sure you’ve noticed, intellect isn’t sufficient for leadership – and that’s where he falls down. He would be a perfectly acceptable president in another time, and I think he’s done some very good work as it is. And he’s no more of a con man than many presidents (people also conned themselves, frankly).
The dirty secret is that Obama faithfully represents many Democrats – esp.nominal ones – and Independents, and some nominal Republicans too, when he compromises too easily, etc. – all that ‘post-partisan’ crap which I was appalled to learn was not just campaign talk, but something he seems to really believe in. Leadership is making a judgement regardless of what your supporters think they want, and that he generally doesn’t do that is his basic problem – but he IS behaving in a way many people said and still say they want. ‘Compromise’ is not a value in and of itself, but lots (millions) of people think it is; and, as frustrated and disappointed as even I am with Obama (having known him already) I don’t think he deserves all the blame you’re putting on him. Millions think they can vote once every four years and then completely forget about politics. Doesn’t work that way, does it? Republicans, crazy and destructive as they are, certainly know better on that score.
jb: Clearly we live in different worlds. Anyone who imagines that Obama is conservative has fallen for Obama’s “blank slate” appeal.
I understood Obama was a left-wing ideologue, if not worse, when I learned that he had attended a black power church for twenty years, taken Rev. Wright on as a close friend and mentor, and launched his political career from the home of Bill Ayers and Bernardine Dohrn — ex-Weather Underground leaders.
Not surprisingly, Obama has taken a hard left approach on just about everything. I know your side has a narrative about how he tries too hard to be bipartisan and has caved to Republicans, but that’s as silly as believing the hype that Obama was the second coming of FDR, JFK and MLK all rolled into one.
If Obama is as smart as you believe and your political insights are as accurate as you believe, why has Obama presided over the most striking collapse of public confidence since Hoover?
(can’t reply in the right place)
Yes, we live in different worlds, Huxley. I live in the non-Postmodern world – the actual world -where a fact is different from an opinion, and terms like ‘hard left’ have independent historical meaning, and don’t mean just whatever one feels like they should mean; where the actual policies of both Carter, Clinton and Obama are more conservative than Eisenhower’s, where Fed. tax rates and regulatory strictures are at 60 year lows (fact, not opinion). I live in the world where ‘conservative’ actually means fiscal responsibility, clean government, and respect for customs and institutions, rather than insurgent radical politics which exploit loopholes (i.e. debt ceiling hostage gambit); and where conservatism definitely does not mean deliberately running deficits for 25 years (Clinton and HW Bush excepted), *cutting taxes while starting two wars and expanding medicare*, etc. I live in the real world, where people are not relegated to a childish ‘your side/my side’ dichotomy. We live in different worlds because I believe in facts.
You have every right to live in your fantasy world, where perception is reality, and believing something makes it true. But I don’t think it’s fair to make other people live in it.
JB: To be sure, one or the other of us lives in a fantasy world. I don’t see much point arguing specifics with you and in any event you offer few facts to support the case for your world.
So let’s look at results.
As I saw Obama in 2008, he was the least experienced candidate since William Jennings Bryan, with a hard left history, who was elected on the basis of fluffy hope and change rhetoric. I figured that he would press a hard left agenda, be rebuffed because he was out of sync with the more conservative American public and because he would be incompetent as an executive since he lacked experience. I figured him to be a one-term president who might even resign or refuse to run by 2012.
My worldview has provided valid predictions that are being borne out over time.
Your view however is that Obama is a bright, capable conservative executive. That doesn’t match the current world we live in.
What went wrong? Who is living in a fantasy world?
@jonnybutter: what you fail to recognize in Obama is his lack of leadership abilities. It’s not simply that he’s inexperienced, but that’s he’s incapable of being a leader. (Thus his whole “lead from behind” approach. Real leadership means being out in the front, leading the way, not “leading from behind. Any real leader knows this.)
While Obama may seem more conservative than some, he is still very much an ultra-liberal as much of his policies have shown. He’s only shown a more conservative side since the 2010 election rebuking the democrats.
And fiscally responsibility is a phrase that Obama at worst doesn’t understand, at best doesn’t know, but most likely neither knows or understands. (Same goes for Hilary Clinton, Nancy Pelosi, and Reed.)
Nice little trick, but I don’t think it’s gonna fix the highways near me that are literally falling apart. Nor will it protect the water supply, put laid off cops and firemen back on the job, stop a war, ensure safe drinking water, protect air quality, or just about everything else that needs fixing in this country. What it does do, it reminds me of Churchill’s playing-around-the-edges strategy in World War II. Let’s take the fast route to Germany, let’s go up the soft underbelly of Europe. Tough old gut. We were still fighting in Italy on VE Day, almost two years of war in the Med and we were no place. Hitler had less than a year to run after D-Day.
So which is more effective, tinkering around the edges, or attacking the core of the problem with every resource? Mind you, I’m not saying don’t do this little scheme, just don’t expect much from it.
Those broken highways, are not their concern. The power elites are happy today because the Chinese economy appears to be on track for a “soft landing”, and the Pacific conveyor belt that cycles your dollars into Tupperware won’t have a hiccup. Your job citizen is to watch TV “news” to gain political insight (left or right, it doesn’t matter), take on more debt (public or private, it doesn’t matter), and to consume. It is your patriotic duty to consume far more than you actually need so the amount of debt can increase. Now get back to work on this Labor Day weekend And feed the debt machine – lol!
Get real Cringely! You thing “government of the people for the people” is true?
YES if its “some people are more equal than others”
Get the Republicans back in power so they can finish the job of stuffing USA!
Its all spin the last realist politician was Carter and look what the Republicans did to win — kept US diplomats in prison for the good of themselves!
SEC can’t find Madoff
CIA FBI can’t stop 9/11 because they can’t join all the dots.
FANNIE MAC can’t account.
Congress can’t govern or make good laws.
Let the criminals run the courts and gaols.
YOU see a pattern here Robert X (what does X mean)?
Admit it USA is stuffed.
One person is nothing 10 million people are nothing
The big lie is all — Pray that your 72 virgins have teeth and aren’t ugly!
Your friend “Barry” had to steal from a kids show (Bob the builder) his campaign slogan “Yes we can”. You think he has intelligence, only if you bought his slogan!
He’s great at rhetoric that’s all!
Forget him and bring back the Republican Party — they have a divine right to govern!
Look what they did to Carter and Clinton.
Be realistic and have USA change to a monarchy with Bush III.
Dude, you need a louder megaphone. You should be on TV. And you should be doing guest appearances on other (credible) shows.
There is a Lender by the name of Ocwen Financial that is currently doing a pilot program with 3000 of their Underwater Homeowners. Here is short version of an arrticle that came out a couple weeks ago.
Principal Reduction Program and Financial Planners
“The key to solving the underwater mortgage crisis”
There are some proactive ideas floating around in the Financial Sector that show promise in helping to solve the Underwater Mortgage crisis. One idea being implemented by Ocwen Financial Corporation has to do with Mortgage Principal Reduction. Ocwen is one of the largest servicers of distressed home mortgages in the country, began offering more than 3,000 underwater borrowers Mortgage Principal Reduction in a test that began a year ago.
The Principal Reduction test program works like this:
Program restores some equity in the borrowers’ property, which helps motivate them to stay current on their modified loan payments and avoid foreclosure.
Modify underwater borrowers’ loans so that their payments are reduced to a manageable amount and cut their principal debt over time
Make the deal dependent on their scrupulous on-time monthly payments of the new amount plus sharing of a portion of any future profit they make on the house sale.
Reduce loan balance to a level where you will have 5% positive equity in the house. That is, rather than the original amount that has you drowning, (set your debt at 5% below the appraised value of the house.)
Modify the mortgage so monthly payments reflect the reduced underlying principal balance. Then, in annual increments over the next three years, the lender will write off the amounts of the original debt balance that we reduced. In exchange, they will expect that homeowners do two things: Stay current on your loan payments, and agree to let lender share 25% of any future gain you make on the house at resale.
Results of this program so far:
The results to date: 79% of the customers offered the program in the test signed up, and the re-default rate has been just 2.6% — far below the 40% to 50% rates within similar time periods seen in some federally sponsored loan modification efforts. Ocwen, which services 460,000 loans and is acquiring a portfolio of 250,000 more next month from Goldman Sachs’ Litton Loan Servicing unit, said the test was so promising that it’s now taking the program national. Ocwen Chief Executive Ron Faris says the key to the program is that the shared appreciation approach allows for a restoration of equity for borrowers, which is “psychologically important” and greatly affects their motivation to keep current on the modified payment terms. It gives them a stake again and gives them some hope.
Financial Planners can enhance the Principal Reduction Program:
I would add the following provisions to the Ocwen Financial program to motivate and entice Lenders to participate.
Any lender that promotes a similar program would assign a Financial Planner that would work with the homeowner and analyze their unique financial situation.
The Financial Planner works for the lender and is paid from a small portion from what the Homeowner saves in their newly reduced mortgage payment.
The Financial Planners function is to come up with a workable financial plan for the homeowner to follow based on their monthly income and expenses and create a blue print for the Homeowner to follow. This means educating and implementing a retirement savings program, rainy day fund, college fund and vacation fund. The financial planner can also suggest investment products offered by the current Lender. This means the Lender recoups’ some of the lost Principal Reduction funds in the form of IRA‘s, 401 K’s., Money Market Accounts and other investments. They then can use these investment premiums to reinvest in their company to increase their profits which in turn will help stabilize the Housing and Financial Markets.
The Financial Planner also makes sure a plan is put into place to pay off credit cards and possibly have their employer the (Lender/bank) consolidate the credit cards and facilitate the means to pay them off
The Financial Planner is also keeping the interest of the Lender in mind, almost guaranteeing that the Homeowner does not default on the mortgage.
The whole point here is the Financial Planner is helping the Homeowner develop a plan to stay on tract, pay their mortgage, pay off credit card bills, save for retirement and free up disposable income. This means the homeowner will now have disposable income to buy goods and services that will stimulate the economy. This means job creation and new home purchases. Part of the new jobs created would be thousands of financial planners hired across the country by the Lenders offering the Principal Reduction program. With 11 million Home Mortgages underwater, that’s a lot of Financial Planners that need to be hired. Think what that would do to the National unemployment statistics. Most importantly, Financial Planners would get millions of back on the road to good ‘responsible’ financial shape. The Homeowner wins, the Lender/Bank wins and the Economy wins.
I like the above program because both the lender and the homeowner work together to solve the Underwater Mortgage Crisis. The Homeowners stays current on their mortgage, follows a financial “blue print” developed by the “Lenders” financial planner. Also, based on financial planner’s recommendations, Homeowner pays off their credit cards, creates an investment portfolio and now has disposable income to spend on goods and services. The lender receives a return on their investment by receiving 25 % of profit from the sale of the home, a revenue return in the form of Homeowner purchasing their investment products and the end to the stampede of Home foreclosures.
Now all we need is an Administration with the courage and vision to implement this program.
I am a CPA and I have followed the housing crisis closely. I have a very thorough understanding of what caused the crisis and what the inhibitors are that are causing the long delay in the US economic recovery. I see the current financial crisis as a financial investment opportunity. I have made a huge cash-out, refi on my principal home at record low mortgage rates. I am busily participating in vulture investing and making arrangements to acquire foreclosed real-estate.
In my opinion, the solutions proposed by the author of this column are absolutely dead-on correct and should be implemented as soon as possible. Additionally, the Ocwen Financial pilot program mentioned by others in comments to this column represents an excellent example of how these ideas can be implemented in an effective fashion.
TrueRock, the house next door has been purchased by so-called vulture investors, twice, since 2008. The first guy put about $10K of fix up work into the place and when he finished the market had dropped to where he couldn’t break even. He bolted, walked away, and a second vulture flew in to snap up the great deal on this bank owned bargain. Eighteen months later the house is still for sale, and the market says it’s worth about $20K less than what Vulture #2 paid for it. I guess his mother never warned him about trying to catch falling knives.
Funny how a depression and falling RE market can turn flocks of clever “vultures” into dead ducks.
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http://motherjones.com/politics/2011/02/income-inequality-labor-union-decline
and then do it otherwise my comments above stand!
I can’t believe that this really is a “no-cost-to-anyone” solution: some investor somewhere, possibly the U.S. taxpayer, is going to be left holding the bag. And as several commenters have pointed out, it doesn’t address the problem of mortgages for the long-term-unemployed, or for people who never should have gotten mortgages in the first place… but it’s a step in the right direction, helping the people who still have income but are currently underwater.
To the commenters saying “this will only delay the inevitable; we have to go through the fire,” remember that the main reason so many mortgages are underwater right now is because so many OTHER mortgages are underwater. The main reason so many foreclosures are happening today is that all the foreclosures happening today are bringing down home prices. If there were no foreclosures anywhere in the country for the next year, some banks would lose some money on truly bad loans, but housing prices would start to recover, people would be able to resell and refinance, and there would be less need for foreclosures. If Cringely’s suggestion reduces the number of foreclosures in the short run, it will actually reduce the number of foreclosures in the long run too.
You may also be interested in the Danish mortgage finance model; see,
“A Credible Solution to America’s Mortgage Crisis: If Carlsberg Did Mortgages”
https://www.creditwritedowns.com/2011/09/covered-bonds-for-america.html
(Also available at
https://www.arpllp.com/disclaimer.asp
Click on “Accept” in the bottom left corner.)
Surely though one way to handle both sides of some of the debate is this – allow people to default without owing anything on the debt.
Yes – like in other countries – simply let people walk away without the debt hanging round their neck. That will take the rump of unworkable stuff out of the market and would work well in combination with your plan.
I *know* there will be some objections to this!
Craig, that liability your want to remove from the borrower’s shoulders is an asset on the lender’s balance sheet. The problem we have today is that the lenders used leverage and they can’t afford to take even a small loss (5%-10%) on these mortgages or they will be wiped out, bankrupt. Many lenders bought “insurance” to protect them selves in this delicate situation only to find that the insurer (cough AIG cough) couldn’t pay even a tiny fraction of the claims against the policies they wrote.
Yes, common sense says that somebody has to take the loss for these dumb mistakes. The problem I see is that the banks have convinced our politician “friends” that the general public should bear the burden and pay the price while they soldier on and spend those bonuses.
Is this a great country or what?
I’m not sure there is a quick fix for this one.
Sorry, Cringe, but your normally clever ideas are missing now. Seriously, what bank is going to take a note on a house for 50% of its value? That’s the problem, the market went south, and homes have lost so much value they can’t serve as collateral for the notes they were bought with.
I’m upside down magnificently – In the Phoenix area, my mortgage balance is around $225k, the county thinks my home is worth $55k, and the identical house next-door is on the market for $105k – and no buyers at that price. HOW can a bank take my mortgage knowing the home can’t collateralize? My interest rate is 6.38%, but I can and do make the payments, and I have no interest in bailing. I want to buy another home and rent this one, which is entirely practical.
But the question is, what bank refinances me? My home is worth a fraction of my mortgage. How can a bank do that? Well, for answers:
1 – Government subsidy. Wait, the government is also out of money.
2 – Bank just ignores the numbers. Well, do their investors? Nope.
3 – Bank sells this to investors as actually good loans. Let me get this one straight; Investors will take half the interest rate for the same notes? Does 4300 a month make the difference to homeowners? I’m guessing for a homeowner out of work, that $300 is not the problem. It’s the other $900. Or $1200.
Sorry, but this mortgage thing is not solvable until unemployment goes down. How about blowing some real money on job creation, like public works jobs and maybe some government research projects, say manned space flight? Maybe a few jobs drilling for oil in the U.S, which also means we could be buying oil from ourselves.
Just sayin’.
Very perceptive. Your are touching on the periphery of one of the greatest financials cons of all time. Yeah, they (GS, JPM, etc.) double dipped, and they are getting ready to wet their wicks a third time.
The truth is the only thing that will fix this problem in the end is INFLATION.
Banks hate inflation, people with (lots of) cash assets hate inflation. Old people (who vote) on fixed income hate inflation.
But inflation is the only thing thats going to fix this in the end why?
Because inflation deals with “underwater loans” by reducing the real value of the principal over time, it encourages consumption since saved money is worth less stimultating the economy, it makes the workforce both more mobile and more manageble by making wages increase each year so you can reduce real costs without cutting wages (if you can get away with it) and people are not stuck in homes that are underwater and so stuck in jobs they want to move on from.
There is a lot of fighting against inflation but in the end its the only thing thats going to work.
RLoyd,
Inflation acts as a hidden tax on the wealth of everyone in an economy. Sure, several years of 10% annual inflation would probably “fix” the mortgage mess for some people, but a gallon of milk would cost $10. The wealthy upper-crust of society likely wouldn’t care, but folks living on fixed incomes would be devastated. Read the history of Weimar Germany or Argentina in 2001 for examples of why inflation isn’t a good solution for solving the problems of excess debt.
Exactly. Do you think most peoples income will keep up with this inflation? Not likely and will end up hurting them even more.
Well yes i do expect their incomes to keep up – thats part of what inflation means. I will agree it hurts people on fixed income.
But we are talking about choosing who hurts here to fix the problem. Its not the case that no one is hurting so why do anything.
My belife is that in the end ONLY inflation can solve this problem and “save” the middle class, so i belive that this would be the best policy to advance now.
re the “hidden tax on everyone” comment before well yes thats the point things have to be sorted somehow.
Didn’t the AIG insurance pay off at least part (if not all) of the mortgage backed securities that went bad already?
If so, then AIG or the government took possession of the bad mortgages, right?
Can’t some smart company unwind those securities and sort out the now devalued loans – returning them to local owners who could refinance at the discounted true values of those loans?
Let’s see, the government paid the insurance on the liar loans. The investors have been made whole… and the rich guys are holding out for a full payoff – a second time!
What are we missing here?
What’s more, early pay offs are the normal drill. Let the interest rates drop on existing loans and let individual home owners buy back the market rate paper on their houses saving large percentages of what they owe or used to owe, since the note holders have already been covered by AIG insurance.
Only the greed of the monied class keeps this simple solution from the debtor class.
Dear Barry? How about Dear Mr. President? Usually you have to show respect to earn respect and this is definitely true in the marketplace of ideas. Last time I checked, you are not on a first name basis with our POTUS. I check this site out a lot because it doesn’t stoop to the low brow/ low base of many internet blogs. Maybe there’s some good ideas in there but I found it hard to take you seriously because the beginning salutation and the ending charge lacked seriousness. Instead it echoed the worst qualities of our dysfunctional political discourse. I’m sure you thought you were being provocative but instead this came off as a hackery.
I think you have to earn respect and so far Barry has not done that.
Right back at you.
Sure miss the MP3 feeds!
https://www.calculatedriskblog.com/2010/07/slam-dunk-stimulus-ms-missing-something.html
I wonder how many letters the President gets per year espousing some strategy that is “guaranteed” to help the economy.
Just repeat after me – “The People In Power Know Best. The People In Power Know Best. I Just Live Here.” Say this about 500 times and you too can become a “good” citizen.
Tha’s what I said all during Vietnam until I finally caught on.
After pushing and shoving and caving to get on TV, the president’s advisers immediately began warning that the long-yearned-for jobs speech wasn’t going to be that awe-inspiring.
“The issue isn’t the size or the newness of the ideas,” one said. “It’s less the substance than how he says it, whether he seizes the moment.”
The arc of justice is stuck at the top of a mountain. Maybe Obama was not even the person he was waiting for.
So sayeth Maureen Dowd, arch-liberal commentator and basher of conservatives. MoDo has written off Obama as “One and Done” in her recent column.According to her, Obama insiders are already trying to scale back expectations for the big job speech Thursday.
If Obama had great solutions for the economy he would have provided them by now. This is the crisis that elected him in 2008. He has “pivoted” back to the economy and jobs about a dozen times already. He has yet to provide anything other than big government spending stimuli and silly tweaks like checking your tire pressure.
Whether he lacks the courage to be hero as Cringely posits in this article or was never really smart enough to be president in the first place doesn’t matter now. No one expects Obama to offer real solutions in this big speech. He will trot out tired old tax-and-spend ideas and blame Republicans for not “putting country over party,” which is Obamaspeak for not doing what he wants them to do.
Obama already wants to, but he’s blocked by the acting director of the Federal Housing Finance Agency, Edward DeMarco. He’d need Congress to cooperate to get this through.
https://www.washingtonpost.com/blogs/ezra-klein/post/the-most-powerful-man-in-housing-policy/2011/08/25/gIQAouktrJ_blog.html
How about we just get the f’n govt out of the mortgage business as they are the ones that created this problem in the first place. When will liberals learn that solution to government created problems is not always MORE government. You guys never see the problems and pitfalls you are about to create (or just don’t care).
18 years ago I got a nice mortgage for my present home. The rate was 8.25% (which was good for the time). I had to prove I could make the payments. The appraised value of my house was greater than the loan amount. A bank issued and administered the loan. The mortgage was funded from an AFL-CIO pension fund. They got a good return on their money too.
Today we have pension funds with money tied up in bad investments based on securitized mortgages. The borrowers may or may not had to prove their credit worthiness. The value of the home was also inflated and not realistic.
The question today is who should we hurt? Do we force people with bad loans to keep them? Or do the people holding the securitized mortgages get hurt?
I side with Bob’s recommendation. Let people with bad mortgages refinance.
Okay some pensions and investment funds may take a hit. We’re talking about simple loans here! Anyone who expected to make more money than the market interest rate for mortgages was clearly delusional. If the market rate is 6%, then your investment should be worth about 6%.
The big thing Bob’s suggestion brings to the party is TIME.
By letting people refinance their bad mortgages, they get something important TIME. In TIME with a fair loan, they can build equity in their home. They could build enough equity to offset the difference between the purchase price and the current market price for their home. They will then have the option to SELL their home. While it will be a paper loss, they may not have to bring any money to the table to sell the home.
In TIME the value of people’s homes could again appreciate. It may not reach the levels of 5 years ago, but appreciation is possible. If people can refinance and stay in their homes 5 to 10 or more years, the appreciation could be enough to offset some of the difference between the purchase price and current market price.
If we give people TIME we give them two processes to recover financially. If we don’t the lose to society will be greater.
Time waits for no man.
Time is money.
Time flies like an arrow, fruit lies like a banana.
Time for foolin’ is all gone.
Jerry Pournelle offers his version of heroic measures ( http://jerrypournelle.com/chaosmanor/?p=1837 ) that could start improving the jobs and economy picture within a year. Basically he advises making it easier for small businesses to get exemptions, repealing Dodd-Frank and Sarbanes-Oxley, and begin weeding out the federal regulatory practices that we don’t need or can’t afford that are dragging the economy down.
Those are truly heroic measures. Once the economy is moving and people are working again, we don’t have to jigger mortgage refi rules to buy time. Of course Pournelle comes from a conservative/libertarian perspective foreign to most liberals and Democrats, and perhaps to Bob as well.
The big debate today is between larger and smaller government. It seems that the larger government contingent can’t hear the smaller government argument. They hear the Tea Party complaining and assume that the Tea Party wants the government to do something. But what the Tea Party wants is the government to stop doing things, especially to stop spending so much money.
Evidently you and Pournelle forget the Enron fraud that was the trigger for Sarbanes-Oxley, not to mention the trigger for Dodd-Frank. If the corporate executives were the economy-growing, job-creating heroes that the right seems to dream about, why do they keep committing fraud to temporarily boost profits for themselves at the expense of the national interest?
If we’d stop breeding smarter criminals, we wouldn’t need complicated government regulations. The law is like the immune system of society, and it constantly has to breed new defenses to counter new attacks from crime.
Bruce: Evidently you forgot that you are unable to read minds. Sure, Sarbanes-Oxley was written and passed to prevent frauds like Enron.
However, SOX adds disproportionate expense to smaller companies versus larger companies and to American companies versus foreign companies. It also discourages IPOs, once a key financial incentive to entrepreneurs and startups, particularly in Bob’s beat, Silicon Valley.
Is SOX worth the economic drag it imposes on all corporations to prevent fraud in a few? Welcome to the world of trade-offs.
The liberal response to all problems is to pass more laws or impose more taxes. Obviously we need some laws and we need some taxes, but at what point do these become counterproductive? This question does not seem to occur to liberals.
To follow up on your disease metaphor, the more powerful the immune system becomes the more likely auto-immune diseases become.
“If we’d stop breeding smarter criminals, we wouldn’t need complicated government regulations.” Also, we’d stop forcing smart people to work around the law, if we didn’t have complicated government regulations.
The big gap I see in your logic is how are you going to force the banks to refinance an underwater mortgage at a lower interest rate? The rate for an underwater mortgage with no appraisal would automatically be higher than the prevailing rate. And current rates aren’t _that_ much lower than they were during the height of the boom. Maybe a couple of points. So unless someone got suckered into a more expensive loan than they would normally qualify for, they probably won’t save much on the interest.
They might save some on the monthly payment by extending the payment schedule out another 5 years or so, but interest rates? Don’t get your hopes up. The banks don’t have that much incentive to get the housing market moving again.
Great idea Bob. Barry won’t touch it though – not enough in it for him and his party. It’s a little risky for him in that it might turn the crummy housing market unstable (worse than just bad) at about election time. Oops. What he might do is hold your idea, or something like it, out as a carrot for another term. Yes, he’s that cold and calculating.
This is exactly dead on. I recently tried to refinance my home, with the current interest rates, I could lower my monthly payments by 20%! Or even pay off early. But after 7 years of paying, and improving my home, and no other refinances, even with perfect credit, the appraisal of my home came back less then the cost of the new roof and siding I just put on! Its a situation I have no exit from, I don’t want to keep investing in something “worth so little”, my payments are lacked in high with a 6%+ rate, and so on.
Tomorrow night we find out if President Obama has a clue about jobs. A day later we should have a good idea of our congress’ priority — the economy and jobs; or making the president and the other party look bad.
We already know Barry doesn’t have a clue, he has demonstrated thay beyond any doubt. Why would he, he has never had any experience in the productive sector. I hope in the future the citizens will realize that electing a do-nothing know-nothing community organizer to run a country is a bad idea.
Do you honestly expect the President of the United States to to take seriously a letter addressed to “Dear Barry”?
How `bout “Dear Soon To Be Out Of Work Barry”….
I doubt that a well educated man who has been a scholar and professor of Constitutional Law will ever be out of work. And what President is ever unable to work … even Richard Nixon, after he resigned in disgrace, was paid to speak in front of large groups with speaker’s honoraria enough to keep him in his Manhattan Coop.
The only real job our President ever had was working at a Baskin-Robbins in Hawaii, and he jokes fondly about giving away “free” ice cream to his friends.
Unfortunately, he’s still at it to this very day!
Why would the banks go along with it? As you put it that would be $300 a month less that the bank is getting. Except for loans given directly by the a federal agency the incentive is still on the bank to do nothing and just keep getting the higher interest rate.
That the customers can’t get cash out would help prevent people from abusing this since there is some cost of loan fees title etc associated with a re-fi and lower rates would make the payments less burdensome so people would be willing to stay with it and make the payments rather than just walk away from the home. But why would a bank decide to just forgo that extra money they were making? I can forsee that this would proceed like the loan modification programs in that many people would apply and just never have the loan re-fi approved.
To work there would not only need to be the carrot of lower payments to home owners but a stick. Perhaps a threat or policy that the Federal insurance on the mortagages of people who apply for a re-fi meet certain requirements and are current on thier loan who are not allowed to re-fi be revoked? I don’t think that the one time application fee to refinance is going to really encaurage banks to give up that extra money they can make by just being lazy or incompetant with paperwork and never getting around to it.
Other than that I like the concept. Almost no cost, people are not given anything for having spent beyond thier meansm, and the government is not setting the rate but just allowing people to have access to the financial markets and loans to be made like the bailouts were supposed to have done before.
No, no, no. Any bank would be happy to refinance another banks loan because of the closing fees and another good asset on the books (assuming a good-credit customer). Title companies, attorneys, loan officers, and others would benefit and jobs would be created, at least temporarily. Once inflation really kicks in, only the fixed-income crowd would lose. It’s a GOOD plan, albeit with only temporary results.
You are both right: the banking industry would fight this tooth and claw to avoid the lost interest. However, if a refi program were passed, they would start stabbing each other in the back as fast as possible to steal each other’s customers. Mu-wha-ha-ha-ha!
Can’t say for sure if it’s a good idea, but there sure isn’t any love lost for the banks. “Save us, so we can screw you!”
Banks will benefit by not having an increase in foreclosure inventory that they end up sitting on and ultimately selling for way less than the previous mortgage. The benefit to the bank is that instead of selling the house later at a lower price, they get to continue collecting mortgage payments and receive the full value of the loan once the house is ultimately sold. That alternative is way more attractive then losing money on the loan – which is what happens when you foreclose or walk away. It’s a win for banks and consumers. I don’t understand why my bank would not want to offer me a refinance on an underwater mortgage when I have good credit and ability to pay when the alternative is me not paying, foreclosing and leaving them holding the bag that’s worth 20% or more less than they thought they were going to get!
Barry? Really?
Moving on.
Your plan seems too good to be true, so… it is. You’re suggesting the banks allow homeowners to refinance at a rate below the current market rate. Skipping the appraisal step accomplishes nothing.
Say I bought my house for $200K and it’s now worth $100K. I’m considering walking away from the loan, because I’m underwater. If I can refinance my home for less than $200K, it seems like a win, but it all depends on the actual number. If I can refinance at $150K I’ll still walk away, despite the great deal. If I can refinance at $90K I’ll keep paying but that’ll never happen — why wouldn’t the bank just foreclose and sell my house for the $100K it’s worth?
Either way, your “miracle” doesn’t work — either the homeowner still has to pay more than the home is worth OR the bank has to decide to lose money. Neither homeowners nor banks are willing to deliberately lose money, so how does this work? The President is supposed to order Fannie/Freddie to just throw money away? I suppose that would improve his poll numbers but it would only increase the debt problem.
Why not have Fannie/Freddie treat underwater homes like stocks? What if Fannie (who owns my mortgage) offered to buy 50% stock in my house? Just like having 50% ownership in a private company, I’d owe Fannie 50% of the dollars if I sold my house. Until then, my mortgage payments would go down by half. I would be responsible for all utilities and maintenance, just like now. If I fall behind on maintenance, the cost of fixing the problems would come out of my share. I wouldn’t be motivated to sell, because my 50% wouldn’t be enough to buy another house. When the housing market finally recovers, I’ll sell when my house is far enough above water — the years of saving on payments plus my 50% will make the deal worthwhile for me. The appreciation in value will make the deal worthwhile for Fannie.
I’m sure that wouldn’t work either and someone else will surely explain why. I guess it goes to show: if there were an easy solution, we wouldn’t be in this mess. Maybe Barry’s not so stupid after all…
The US Government DID buy stock in failing financial institutions because they where “too big to fail”. The US Government DID buy stock in failing auto manufacturers and saved a failing industry, including all the suppliers of parts to those manufacturers – and made money on the deal, to boot. Why can’t the US Government become ‘partners’ in ownership on these underwater mortgages? The Republicans will love it because it saves their major corporate financial institutional contributors from having the bear the risk of loss themselves. I’m sure that JPMorgan-Chase and Bank of America would love being taken off the hook fro what they, and the distressed companies they bought, did to the American (and world) economy. So, how do we, the American people, get compensation for saving their corporate butts? Tax their profits. Tax them big and tax them hard. Why should the common Joe and Jane of Main Street, USA foot the bill – either through a decrease in income or a reduction in federal benefits (Medicare/Social Security/Social Welfare Programs, & etc.)? The people who, since the repeal of Glass-Stegal, profited most from this mess should be made to clean it up, and not the American people.
The point is for the homeowner to be able to stay in the home until the housing market recovers, thus their value eventually exceeds their loan balance. So they are not ending up paying $200k for a home worth $100k. They are instead staying in a home paying a loan balance of $200k and continue paying until it exceeds enough value to profit from the sale – which will happen in time.
Barry, you are out of a job soon enough!
Clearly this proposal is actually on the radar. See the link to the Congressional Budget Office’s analysis of just such a plan:
https://www.cbo.gov/ftpdocs/124xx/doc12405/09-07-2011-Large-Scale_Refinancing_Program.pdf
Why are we calling him Barry?
Personally, I like the name “Barry-O”, but I suppose “Mr. President” works as well, especially for some purposes.
Mr President does need to step off the yellow line and start doing something for people who don’t vote Republican, though.
“allow 30 million mortgage holders to refinance their loans at lower rates”
30 million mortgage holders won’t refinance at today’s rates, they’ll refinance at tomorrow’s rates. When demand increases, prices go up.
To reiterate Bob’s intro:
As a nation, we’re out of time, money, and jobs. Despite hundreds of billions of economic stimulus the economy is still in the toilet facing a possible double-dip recession. The new mood of austerity in Washington suggests that more hundreds of billions won’t be available for further stimulus, nor should they be.
I agree with that. However, to no thinking person’s surprise, in tonight’s really big speech Obama offered still more stimulus spending in the hundreds of billions now to (maybe) create jobs with money that will (maybe) be paid for later.
But the point is to PASS THE BILL NOW. PASS THE BILL RIGHT NOW. PASS THE BILL RIGHT AWAY.
Is Obama cowardly? Is he stupid? Is he stubborn? I don’t think it matters anymore, because he is done. This is the same speech, the same solutions, and the same straw men he has been trotting out for years now. They haven’t worked so far and most Americans don’t believe they are going to work any time soon.
Obama is now a lame duck.
This would be a good time for anyone who has ever babbled about how Obama is the Smartest Guy in the Room to engage in some self-reflection.
“Nobody is losing anything.” ?? My impresson is that much of the worst “toxic” mortgage assets have been sold to the US government, so what’s left in the investors hands are providing a better return than those mortages will if refinanced for half or two thirds of the current interest rate. I expect that the poor rich people that bought the mortage securities will become a very squeaky wheel.
Banks will want to load fees on to this re-fi transaction that we;ver never heard of before. I just got from Bank of America a several page pamphlet explaining all the fees that they are adding in October. The good news is that there is no fee for a checking account so long as I keep $15,000 Minimum balance in it – What a deal!
All in all though, it’s a good idea for stabilizing the housing market. Of course, there will be pickup drivers on both sides of the deal trying to abuse the program. I’m not sure how Barry can mandate this without first havng a committee spend 6 months writing rules to try to keep the a-holes in line.
A stick that could be used to make the banks participate could be a nice little pamphlet that explains how their government guarantee is going to terminate, but they can avoid that termination by simply processing these re-fi applications as directed. It may not be in the agreement they had with Fannie when they made the loan, but neither were there fees when I opened my checking and savings accounts. The banks will surely understand, right?
Exceedingly helpful many thanks, I reckon your trusty readers may possibly want even more content like that keep up the great hard work.
Getting hung up on “the name” Barry … really people .. sheesh. Try and look past a little light hearted creative license and look at the deeper issue. Im sure if Bob was sending a formal letter to the POTUS he would use his official title … Duh.
Its a very interesting read and might be worth more consideration.
Apparently it’s all right to call the prez Barry now. It supports Obama’s current strategy of channeling Harry Truman’s 1948 campaign, as in “Give ’em h*ll, Barry!”
Which means that what we saw last night was a campaign speech, not a thoughtful attempt to fix the economy. Note all the “PASS THIS BILL RIGHT NOW!” demands.
If it is so urgent, why did we have to wait until after Obama’s expensive vacation in Martha’s Vineyard? And why was he playing games to schedule the speech to step on the Republican debate?
His left-wing base is eating up the Fighting Barry Truman image. To the rest of us it’s just the same song and dance of “spend now, maybe pay later” that Obama has been performing for the past 2 1/2 years.
Given that Republicans control the House by a large margin and that the proposals are fiscally irresponsible by conservative standards, I don’t see how this bill passes or that Obama even thinks it can pass.
Therefore the speech becomes nothing more than cynical political grandstanding that lays the strategic foundation for attacking Republicans in next year’s election.
Which is OK if you accept the realpolitik of American elections but in 2008 Obama sold himself as above such cutthroat politicking and voters believed him.
Maybe voters are too stupid to notice this shift. Maybe they will believe that if we only blew another half trillion on more stimulus like Barry says the economy would have recovered.
I’m betting that voters aren’t that stupid. I’m betting that the Smartest Guy in the Room is either too dumb or desperate to offer better choices and that he will join the roll of one-term presidents in 2012.
Huxley,
Just for the record. He scheduled his speech on the first day that Congress was supposed to be returning to work. A welcome back from vacation for everybody.
B O said nothing about morgages at all last night. I am sure you noticed.
Propublica published an interesting analysis of a pair of sentences in the speech, “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…. 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 sounds a lot like your advice. Care to weigh in, Robert?
https://www.propublica.org/article/one-obstacle-to-obamas-new-plan-to-help-homeowners-a-govt-regulator
“That’s a step that can put more than $2,000 a year in a family’s pocket,”
Did it ever occur to Mr. Obama or his Keynesian advisors that record low interest rates and rampant inflation are killing the bedrock of our economy, namely capital formation? That $2000 can be spent on Chinese-made trinkets, or it could be saved. With today’s ridiculously low interest rates, there is no incentive to save the money and it likely will be spent for consumption or lost in the rigged casino known as Wall Street.
Perhaps Mr. Obama believes that the federal government can pick up the torch of capital formation and do a better job? He’s a legend in his own mind.
Awfully useful many thanks, I do believe your visitors would most likely want a whole lot more writing along these lines maintain the good hard work.
If Obama’s first stimulus was a movie, it would be called “Ishtar,” then the speech he recently gave the other night could be called “Son of Ishtar.”
Have a great day Barry. 🙂
Bob, this is your most lamebrain, idiotic, plain STUPID idea EVER.
And that’s saying a LOT.
Are you trying to break your record? Is that what’s happening here?
No wonder nothing you do ever succeeds.
Look into a lobotomy, Bob. In your case it would raise your I.Q.
It should be obvious even to a retard like Bob, that if you refinance all the mortgages at lower rates investors get hurt. And who are those investors? Many are pension funds and mutual funds. So Bob is actually saying let’s hurt the widows, orphans, teachers, police officers and fire fighters who are in these pensions.
Not a lobotomy, perhaps senility or a alzheimer’s… those would all increase Bob’s IQ.
Excellent idea, There are 4 causes of our current economic problems: government policy, lack of investment, housing bubble overhang, and high household debt to GDP ratio. This plan is the only feasible plan I have seen that attacks 3 of the causes. It reduces household debt, helps the housing market, and encourages the investors in those mortgages yielding 7% to move their money somewhere more productive. Good one!
Not a lobotomy, perhaps senility or a alzheimer’s… those would all increase Bob’s IQ.
Bob,
That’s a fine plan but it (almost) already exists. Last fall, I did almost exactly what you suggested, traded my 6% 5-year-old 30-year mortgage for a shiny new 4% 15-year mortgage (because I’m in a better financial position now than I was 5 years ago), and there was no appraisal. When I called my credit union to ask about refinancing, the person I talked to said there was a program available for me, and the terms were (my vague recollection):
1) it requires that I am in good standing on my current loan
2) it requires that my loan was bought by Frannie or Freddie
3) it requires that I get my new loan from the same place I got my old loan from
4) it waives the need for an appraisal
I was told by someone more versed in finance that this was “the Obama plan.” Except for requirement #3 above, it’s the same thing you’re proposing. Of course, requirement #3 takes us right back to the problem you pointed out in your second column; the bank has little incentive to switch me to a lower rate. But since the loan is owned by Fannie/Freddie already, that doesn’t matter, does it?
Anyway, I think your plan has already been implemented. And we still have an alleged crap economy (well, high unemployment for sure, but corporate profits seem pretty good).
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It looks like “Barry” is actually going to go ahead with The Cringely Plan:
https://www.cbsnews.com/8301-500202_162-20124562/obamas-new-call-we-cant-wait/
“Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises.”
I guess to answer Don Sakers’s question (first comment to this column) is yes.
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