DISQUS

I've heard of some CPA's being willing to assist taxpayers in writing off mortgage insurance irrespective of their income level (and before it was officially allowed by congress) on the theory that any money own has to pay purely for the use of money is, by definition, "interest". I don't know whether there's any case law on how that turned out, but it always seemed logical to me.

Don't anybody tell me Melissa Lee hasn't gotten hotter since moving over from Bloomberg.

I predict that this scheme will help many fewer people than 4 million. Half a million, tops - and only the most determined of them. It takes weeks-to-months to get a foreclosure purchase or short sale agreed-to by big servicers. Even with all the documentation lined up, multiple Broker Price Opinions, etc. one can't get the Countrywides of the world to even respond with an answer. What are the odds of a struggling borrower reaching someone with even a modicum of intelligence at their servicer's office, determining whether their loan is even eligible for a mod (must be a FNMA/FHLMC loan), getting the required income documentation to the call center clerk (plan on having to fax it 9-10 times), getting the call center clerk to get their modification approved and getting it actually modified - before the struggling borrower loses their job ? One might as well plan on winning the Powerball.

“This plan will help make home ownership more affordable ... and ... help to stop declining home prices...”

Well, which is it? If you want to make home ownership more affordable, stop stopping the decline in home prices.

No bailouts at all. Not to homeowners. Not to banks. Not to foreign investors in our mortgage bonds (even though we'd like them to keep buying treasuries). Let it all crash & burn to the ground. Those whose credit is demolished and can't borrow for 4-10 years can move in with their sister. Chop Angelo Mozilo's houses into giant rooming houses with a shared bathroom. People could cook on hotplates.

TPO's are dead. Brokers are dead. When the likes of Chase stop funding loans for brokers, why would they want to buy loans from correspondents who had funded them for brokers? Everyone is trying to run as fast as they can from broker business. No surprise there. Working with no-net-worth brokers is as dumb as lenders giving 100% loans to borrowers who have no "skin in the game". Correspondents are currently doing somewhat better because many of them are banks which are viewed by the investors as having deeper pockets. Therefore non-bank correspondents are currently able to swim amongst the school of banks. Investors could easily decide to stop buying loans from non-bank correspondents, though. Nationwide (the insurance company-owned servicer out of Iowa) did that two months ago. And even if investors continue to buy loans from non-bank correspondents, the non-bank correspondents are currently having capacity problems with their warehouse lenders, who want to limit their total line size to 15-20 times net worth. That's woefully inadequate at a time when investors are taking 3-4 weeks to purchase loans. The correspondents can't turn their lines within each month.

It's creating an odd situation where some lenders are overwhelmed with business but still able to eventually close it all, while other lenders don't have the capacity to close all the business coming their way. Which is why if rates dropped to 4% as the Reatlors want, most borrowers would never get those rates. You can't put 20 pound of potatoes in a 5 pound sack.

Sorry, Morgan, to have to disagree with your assertion that, "The mortgage mess is a complex one, it needs a complex solution". I think it already has a very simple solution: Whoever doesn't pay their mortgage according to the contract they signed gets foreclosed. They can move in with their sister for five years, by which time they should have had ample time to save some money and become halfway creditworthy. Banks that are made insolvent by their non-performing assets (which is to say most of the big ones) should be taken over by the government, with the stockholders wiped out, the management fired and the creditors' interests marked down to current market value. Unfortunately, our former "genius" Secretary of the Treasury, Paulson, and his co-conspirator Bernanke have already, in their infinite wisdom, backstopped not only a big chunk of Citi's obligations to its creditors but also Fannie's & Freddie's debts to their creditors. Where we once had a perfect opportunity to force foreign creditors to take their share of mortgage losses on their investments in the US mortgage market (a'la Iceland), Bernanke & Paulson put the US taxpayer on the hook in order to indemnify Chinese & Arabian investors (not to mention PIMCO and many American investors). Even though that bonehead move by Hank & Ben cost us hundreds of billions, we should still reverse course and stop giving away money to the banks. Rescind the TARP & nationalize the big banks. Never forget that another name for "falling home values" is "increasingly affordable home prices for would-be buyers". And never forget that if Bill Gross advises we "zig", we damn well better "zag".

If we need at least $1.5 trillion to recapitalize our banks (with or without nationalization), how much money will other countries need to address their similarly insolvent banks? Maybe we better not count on being able to borrower limitless sums from overseas...

Better buy plenty of ink for the priting presses. Expected price of a loaf of bread in 2015: $20.

My guess is that they haven't fully thought through everything. (No surprise there!). Just because they authorize the GSE's to allow 105% LTV, does that mean that Fannie & Freddie will do such loans without mortage insurance? Fannie would buy a 97LTV loan right now if it had mortgage insurance, but MI can't be obtained in 97% of the USA because even though FNMA & FHLMC don't denote "declining markets" anymore, the MI companies sure as hell do. And they don't insure 97% LTV loans. Will buyers of FNMA & FHLMC mortgage-backed securities be OK with uninsured 105LTV loans in the pools? Or is it to be assumed that special securities need be crafted and that only the Fed will buy them?

If I were the borrower and my mortgage payment were to be capped at 31% of my income, I'd be doing everything humanly possible to make my income look as low as possible. I wouldn't disclose my part-time job, wouldn't provide the paystub that shows my annual bonus, etc... If I were self-employed, this max 31 DTI provision would incent me to cheat on my taxes. Could only one spouse of a married couple apply for the modified loan, leaving the other spouse's income out of the picture?

These schemes are attempting to undo decades of development of securitization & contract law. There will be unforeseen consequences on a grand scale - especially since the personnel are not in place to monitor the program to insure compliance.

I predict that this program will be approximately as successful as Barney Frank's "Hope for Homeowners" from 2007 - another example of ignorant chutzpah, thinking he could just legislate his vision of how things ought to be and that everyting would magically fall into place.

Of course we don't have the money to subsidize huge principal reductions. Ultimately we'll have to take just as big a hit, though, when we nationalize the banks & sell them for much less later. Subsidizing principal write-downs would be a much worse idea, though, because vast numbers of people who could otherwise muddle through with their current indebtedness would be incented to get in line for their government-funded bailout. We have an orderly process in place to deal witthe collpase of the housing bubble: It's called foreclosure. It's ugly for a while and it's tough on the neighborhood, but it won't last forever. Let us never forget that another name for "falling home values" is "increasingly affordable housing for would-be buyers".

Ladies, You gotta choose: Do you want a man who has money or a man who looks like he has money? Pick one, not both. For 99% of the population they're mutually exclusive. And after 16 years in the mortgage business, seeing people's income, debts and savings, the most important conclusion I've come to is that car expenses are what keep people from accumulating wealth. Pick the guy driving the 5 year old Corolla and you'll probably have financial security. Pick the guy with the new Lexus SUV (and its $900 payment) and you'll have arguments about money, bill collectors calling you from the moment you wake up, and probably eventual divorce. The guy who seems exciting when you're 24 looks like a loser when you're 40. It's easy in this country to spend money you don't have. What's hard is saying "no" to imprudent purchases. Pick the guy who's a grownup.

To Tom Lawler,

The reason loosening up standards weakens the system (even as it allows a few unqualified to get lower rate loans) is that THANKFULLY we had recently switched from giving loans to anyone with a pulse to giving loans only to people who can pay the loan BACK. The issue is not merely the short-term possibility of making life a little easier for a few people on the edge; it is about whether we want to continue/reinforce/return to loosey-goosey lending in order to reinflate the biggest credit bubble in the history of the world. We spent much of the last two decades implicitly teaching people that it didn't matter if they saved zero money. They could still get a low-no down payment mortgage loan. It didn't matter if they didn't maintain a good credit history, they could still get a low rate mortgage loan. It didn't matter if they were subsidizing a lifestyle they couldn't afford with serial cash-out refinances; there was always another opportunity to suck more paper "equity" of of their house, and home values only go up. Where the hell does it end? When the hell does it end? Let me remind you, Tom, that we all now own Fannie & Freddie. We can't only worry about returning the housing market to "normal" (whatever the hell THAT means). We need to insure going forward that the new NORMAL is sustainable, because the way it had been done was demonstrably NOT sustainable.

If you think these sad sacks with their 7.5% rates need a 5% mortgage, then YOU lend them YOUR money. I know that Fannie is (and therefore I am) already on the hook for the old 7.5% loan, but I'd rather recover what we could through foreclosure than lend more money and increase our future risk.

This is a joke - even if FNMA doesn know it's a joke. Eliminating the need for appraisals on FNMA-held loans will only work if the borrower calls up the current servicer, they mutually determine that it's a Fannie loan (not Freddie or securitized through another channel) and the current servicer gives the borrower whatever the F rate they deem to give them (while making massive profit re-selling the new loan). Any borrower calling up a different lender (especially if they've waited 3 weks for a call-back from their current servicer) will need to get a new loan. As will anyone hoping to consolidate 2 mortgages or get a little cash-out. And if this appraisal-loosening is relevant to that borrower, it probably means they have an LTV > 80, which means they'd need a simultaneous 2nd (almost wholly unavailable) or MI. Well guess what - MI companies aren't insuring new loans without appraisals, nor are they insuring loans without full income documentation. In many cases, they're not insuring loans with DTI's > 41 or 45 (DU/LP approvals notwithstanding). This BS proposal will have even less effect than Fannie's getting rid of the "declining mkts" designation in DU. The MI companies still have their own declining mkts zip code lists (essentially everywhere except South Dakota) and the appraisers still call a declining mkt declining mkt.

What's even funnier about this BS proposal is that I'll bet that FNMA execs think they're helping. What a total joke.

The Fed's unprecedented foray into manipulating mortgage rates, while costing $56 billion so far (and $444 B left to go), has not nudged many people into buying a home (for the obvious reason that prices are still falling). What's also interesting is how little refinance borrowers' cash flow is affected by refinancing: If someone has a $200k loan at 5.875% with 28 years left and they refi onto a $205,000 30 year fixed @ 4.875%, their P&I drops from $1,214.53 to $1,084.88. So their payment goes down by $130. That's a fairly minor payment adjustment, in my opinion. It certainly wouldn't incent many people to go buy an SUV and save GM from bankruptcy. Not to mention that the only people who qualify for conventional refinances nowadays are already sitting pretty with equity in their homes.

Whenever the Fed is done buying agency MBS's, rates will spike up, which means that the present value of those $500B in MBS's will drop to...?...$450B? That's a pretty big cost just for the government to subsidize the refinance rates of people who were already in pretty good financial shape - with lots of equity in their homes.

I love how the Michigan attorney general says that but for being defrauded, people could be buying cars - and thereby helping the economy. Dumb people buying cars they could't afford is a big part of why people are now crushed with debt. The best financial decision that most people could make would be to drive their current car until it rusts through the floor (at which point they could power it like Fred Flintstone).

I contend that 2009 is 1930. A lot of people nowadays are saying: "This isn't nearly as bad as the Great Depression. When Roosevelt took over, unemployment was over 20%..." They forget that Roosevelt wasn't sworn in until 1933 - that's three & 1/3 years after the stock market crash of 1929. If the crash of 2008 follows the pattern of 1929, we may be 2-3 years away from the bottom of the stock market.

Graph of the Dow in the '20's:
http://www.djindexes.com/mdsidx/index.cfm?event...

Graph of the Dow in the '30's:
http://www.djindexes.com/mdsidx/index.cfm?event...

If we get a 15% rally over the first 4 months of 2009, it might be time to shift everything to cash.

Those predicting a bottoming soon assume no "outside" shocks, like a devalued yuan & a trade war. In fact, I think they don't so much THINK the economy will turn around as FEEL that it will turn around. We need to keep in mind that shit happens. Unforeseen shit.

Lottery: the stupidity tax. Are you exempt?

Hillarious. THANKS Who are these buyers who are going to swop down upon all of the listings? Certainly not people who have been foreclosed or did a short-sale, because they'll be on hold for a few years. It won't be more Mexicans because they're going home.

I don't want to bail anybody out. Nobody.

Fannie & Freddie helped create the problem of "pushed" appraisals. When they started charging 1/2 point (6-7 years ago) for a 71% loan-to-value "cash-out" refinance, and at the same time defined "cash-out" as a loan paying off any 2nd mortgage (even if it was "seasoned" for 29 years) that hadn't been used to purchase the property, they created an incentive to game the systme. I think they started charging that 1/2 point on 71% LTV cash-out refi's in part because they assumed that appraisals were bogus and that a purported 70 LTV might well really be an 80 LTV. Nevertheless, the fact that they started charging 1/2 pt for 71 LTV c/o refi's incented loanofficers to ask appraisers to push the appraisal a tad bit. Fannie's greed demanded it. Fannie & Freddie simply didn't deserve to get a $1,050 delivery fee on a $210,000 loan just because the appraisal came in at $299,000 instead of $300,000. The fact is that Fannie & Freddie got greedy with their delivery fees, creating a perverse incentive to push appraisals.

Wells routinely went into 2nd position behine Option ARMs. They simply noted the balance of any already existing first mortgage from the credit report and did not demand to see a copy of the Note to determine whether it had neg am potential. That they went into 2nd position behind Option ARMs is particularly odd given that they were not much into doing Option ARMs as first mortgages. I attribute the odd diverging risk tolerance to the fact that Wells Fargo Home Mortgage was (and still is) largely run by the old Norwest mortgage folks from MN. When Norwest bought Wells, Norwest's generally conservative mortgage bosses kept running mortgage. The banking side of Wells was much more the province of the Californians. So, in typical gold-rush fashion, the banking side was as loosey-goosey as they needed to be to drum up maximum loan volume.

It calls to mind an old Bob Seger lyric that should should have special resonance for Dick Kovacevich (chairman of Wells & former Norwest CEO):

"She stood there bright as the sun on that California coast
He was a midwestern boy on his own
She looked at him with those soft eyes,
So innocent and blue
He knew right then he was too far from home he was too far from home".

Thanks, Morgan. Falling values may bring some buyers out of the woodwork, but falling values also cause more people to be further underwater, calling into question the wisdom of continuing to pay on an underwater mortgage. So falling values will create more foreclosures, which will push down values further etc. At some point it will end, but we're not there yet. And let's not forget that loans to would-be investors now require at least 20% down (effectively, 25% to get a decent rate) AND that (under new Fannie & Freddie rules) the investment property buyer can have no more than four financed propeties - including their primary and second residences. So it's exceedingly difficult for would-be investors to swoop in and buy up a bunch of properties, unless they can pay cash or get all-but-nonexistent portfolio loans. Most people don't want to be landlords, so the pool of would-be investors is already limited. Getting a 2nd mortgage on one's primary residence to use as 25% down on a rental property is more difficult than 2 years ago. Now that those would-be investors are limited to 3 financed rental properties (in addition to their primary residence), there are just not that many people in a position to speculate on investment properties, no matter how low prices go. Throw in the fact that anyone whose credit has been destroyed by foreclosure won't be able to get a loan even as an owner-occupant for years, the disappearance of stated income loans and it becomes obvious that there are simply not enough qualified buyers to re-inflate the housing bubble. Don't forget that FHA seller-funded downpayment assistance died on 9/30/08. I agree with Morgan that it was a scam & should not be re-instituted, but a big chunk of 2008 homebuyers used Nehemiah-like programs that no longer can be used. They now need 3.5% down for FHA and geting a gift from grandma may be tougher now that her mutual fund fell by 40%.

Anyone thinking that 4.5% mortgage rates will stop the drop in values is on drugs - or at least not at all attuned to the changed guidelines of the mortgage industry.

Here's a plan to stabilize home values: Don't just do something; stand there. Values will stabilize, trust me.

I would postulate that most borrowers who are re-defaulting on modified loans aren't doing so because of unemployment. Even with the unemployment as bad as it is in some areas, it's not high enough to explain a 50% re-default rate - unless you believe that most loans went into defalt the first time because of unemployment (or unstable employment). I would guess that Mr Mortgage has it right that people (esp in So CA, FL & NV) don't want to pay on a $450k loan when the property is worth only $300k. Cutting the rate to 4.0% and/or stretching out the term to 100 years doesn't change the fact that they're way upside down. People who could pay are taking a walk. And let's not forget that many of the properties that were foreclosed over the last couple of years - and are now languishing on the resale market - involved fraud, flipping and zero-down reduced doc loans to straw buyers.

Regarding the overall issue of whether it's "too late" to rescue mortgages: I would say that it's not so much "too late" as "too complicated". You rightly ask: "How do we distinguish which homeowners can still be saved, and which are so far gone that they’ll have to be left by the wayside?" You neglected to ask: "how do we know which homeowners are even in need of 'help' in contrast to those who, in a premeditated fashion, are ceasing to pay their payments - which they had the means to pay - merely in order to put themselves in a position to get a bailout (modification)?".

The only way that foreclosures would be significantly diminished would be to start handing out bailouts ("modifications") that in many cases will be unnecessary and/or overly generous. Other homeowners, seeing such bailouts being offered will start to "game" the system in order to get their own free loan write-down. It's completely predictable. The first example that comes to mind: While ceasing to make mortgage payments you list your house for sale through a FSBO assistance company (one that puts it on the MLS). Meanwhile you make the house utterly unappealing, with dog crap in the yard, a noxious odor upon entry, etc. After 60 days "on the market" with no offers, you've established a reduced value of your home which you can use to extract a generous modification from your lender. I'm sure other more creative ways to "game" the modification/giveaway system will be crafted by people more devious than me.

There is simply no effective single solution to "the foreclosure problem". Every property is a case-by-case situation. And then there is the as-yet-unanswered question of whether servicers really have as much lattitude as they've assumed they have to make loan modifications and apportion the resulting losses to the investors in the mortgage pools. The suit last week against BA/Countrywide demanding $8-80 billion recompense for mortgage pools that were diminished in value due to modifications, if decided in favor of the claimants, could cause servicers to decide that they will face smaller losses by going through the normal, predetermined foreclosure process than if they try to sidestep that process, modify the loans and then stand accused of having violated their underlying investors contracts, being therefore unable to pass along any of the losses.

Seems to me that it's way too much of a cluster-fvck for Sheila Bair at the FDIC to be able to fix it by simply declaring that loans should be modified en masse.

Are you saying that there were 66% more closed sales in Orange Cty in Nov 2008 than there were in 2007? How about average sale price? What has happened to home values for a given home type? "More sales" might appear to indicate a bottoming, but it might not be a real bottoming: Where I am, I'm seeing foreclosed properties being listed for sale @ 30% of their last sale price (albeit with the last sale seeming to have involved shameless fraud). More importantly, I see some list prices for 2-4 unit properties at approximately half of the value one would impute using decades-old methods of rent-multipliers, etc... In other words, at a certain point, banks are just giving properties away and that will bring out some buyers. I'm not sure that means that home values are bottoming, though.