Do you want to pay for the Sub-Prime freeze?

[clifp]

I've often thought that America should be ashamed of our loan originators for selling mortgage securities rated AAA around the world, when the truth was that many were nearly worthless. Whether we like it or not, this reflects negatively on all of us. So far, home prices have dropped an average of 10% nationally over the past year, if they continue this downward spiral to 30% (which today's WSJ reported as a possibility) someone needs to pay with hard time for their criminal misrepresentation.

I don't know, I think we have to pay for those case of toxic toothpaste, tainted pet food, and toys paints with lead, that we import with something. I think there is a certain poetic justice with giving our oversees trading partners portions of loans to made to people with bad credit on overpriced real estate. Caveat Empor works both ways.

 

[emilylynn]

Here is the link to the Bank of America news spot from earlier today:

Bloomberg.com: Worldwide

 

[Retire Soon]

Here is the link to the Bank of America news spot from earlier today:

Bloomberg.com: Worldwide

Managers of pension funds or insurance companies that are invested in Columbia Strategic Cash Portfolio must be very concerned and worried right now, especially if they have high stakes in this fund. Perhaps this is what Sean Olender was referring to in his editorial in the San Francisco Chronicle that Oldbabe pointed us to earlier. Are these funds being frozen because of an investigation that could possible result in a civil lawsuit or criminal inquiry?

 

[emilylynn]

Another interesting article, this time about the role of the Wall Street underwriters in the subprime fiasco, and how the Ohio AG is going after them.

"Some critics contend underwriters, who generated windfall gains when the mortgage business was booming, pushed lenders and brokers to produce loans that could be packaged into securities.
"It's potentially more than just negligence" on the part of underwriters, he said. "The reward was so high. The demand to purchase this paper on Wall Street was so insatiable that it led people to be very aggressive about acquiring it, without regard to whether or not those signing the mortgage notes were defrauded."

INTERVIEW-Ohio Mortgage Market Probe Gains Steam | Banking & Financial | Reuters

 

[emilylynn]

Here's a very good article providing more details about the administration's "bailout" plan, and providing a good explanation of how how the securitization process restructures the relationship between original lenders and borrowers. It contains a number of startling revelations about how the plan allows for the blanket restructuring of loans without the sign-off of either the borrower or the investor, and how it may limit the ability of individual investors to sue. What's especially interesting is the suggestion that the real impetus behind the "bailout" plan is that it sanctions the use of "flexible" accounting rules which allow financial institutions to keep these assets off their balance sheets.

Saving Banks: How the Mortgage Bailout Strains Accounting - - CFO.com

Speaking of fraud. . .

 

[Retire Soon]

It's also interesting to note that the ASF (American Securitization Forum) told the banks in October that it was OK to reimburse themselves for counseling borrowers out of the securitization trust cash flows, i.e., at the investors expense. What a deal for buyers of these securities!

 

[tryan]

Spoke to my realtor this afternoon ... we agreed this plan is merely a right shift of the hemorage 5 years. Also pointed out that many subprime loans reset to prevent the borrower from rolling MORE debt to the back end of the note. Soooo 5 years from now these people will only be buried deeper (if allowed to continue).

 

[kcowan]

What's especially interesting is the suggestion that the real impetus behind the "bailout" plan is that it sanctions the use of "flexible" accounting rules which allow financial institutions to keep these assets off their balance sheets.

Saving Banks: How the Mortgage Bailout Strains Accounting - - CFO.com

Speaking of fraud. . .

I believe this is now referred to as "Enron-style" accounting.

 

[Retire Soon]

Alan Greenspan wrote an interesting commentary today in the WSJ about what he thinks were the causes of the mortgage crisis.


Free Preview - WSJ.com

 

[kcowan]

I have not read it but I'l bet he overlooks the prolonged low interest policy of The Fed under his watch.

 

[Retire Soon]

I have not read it but I'l bet he overlooks the prolonged low interest policy of The Fed under his watch.

Actually, Greenspan did discuss the role of the Federal Reserve in the housing crisis. He said the the fed kept raising short term rates, but this did not have an effect on long term rates, such as mortgages. Unfortunately, there was nothing the Fed could do about the crisis. Furthermore the housing crisis was world-wide with the exception of two countries: German and Japan. He says there was nothing the worlds central banks could do about the latest wave of human euphoria. Also, he mentioned that the housing crisis reminded him of the Dutch Tulip craze of the 17th century and the South Sea bubble of the 18th century. He thinks the current crisis will come to an end when the inventory of newly built homes are liquidated and home price deflation comes to an end.

 

[starter82]

He thinks the current crisis will come to an end when the inventory of newly built homes are liquidated and home price deflation comes to an end.

Does he really?

 

[skyline]

Wow, I clicked on this link thinking it was a lively discussion about whether Subprime Freezers are worth paying for (I now realize I was thinking subzero, not subprime). Was I way off!

 

[Zoocat]

Bumping this up

 

[Retire Soon]

Yesterday, the U.S. Senate with a vote of 91-1 approved a bill that would make FHA Loans available to hundreds of thousands of people who may face foreclosure. A similar proposal has already passed in the House of Representatives. President Bush has already indicated he is in favor of FHA giving a helping hand.

These bills would allow FHA to increase their maximum loan amount from $362,790 to $417,000, which will be a benefit to some states with higher real estate prices. Additionally, it would decrease the down payment from the current 3% to 1.5%. I presume this would mean minimum equity in the case of refinances.

Those familiar with FHA loans know that borrowers are required to pay 0.5% in mortgage insurance as part of their payment. In this way, money should never come out of taxes.

Personally, I question the wisdom of such a move. Real estate prices are still dropping. I haven't heard anything about credit requirements, so I don't know if they are going to lower their requirements and take borrowers with bad credit, but I hope not.

If prices do indeed continue to drop, which many think they will, what will be the incentive for someone to continue making high payments with negative equity in their home? If the bust continues and prices drop another 20% in the face of a recession with people losing their jobs, will FHA have enough money in their insurance funds to cover rapidly mounting foreclosures? When they have depleted all of funds in this account, will taxpayers then be responsible for paying the banks back their money?

 

[emilylynn]

Yesterday, the U.S. Senate with a vote of 91-1 approved a bill that would make FHA Loans available to hundreds of thousands of people who may face foreclosure. . . Those familiar with FHA loans know that borrowers are required to pay 0.5% in mortgage insurance as part of their payment. In this way, money should never come out of taxes. . .

We knew it was coming. If the target recipients of these loans are the "hundreds of thousands of people who may face foreclosure," then I would have to conclude that this is one huge taxpayer bailout. A 0.5% mortgage insurance premium is kind of laughable in view of the kind of risk that this kind of program is assuming.

 

[youbet]

will FHA have enough money in their insurance funds to cover rapidly mounting foreclosures?

Hmmmmm..... Thinking..... thinking..... thinking..... NO

When they have depleted all of funds in this account, will taxpayers then be responsible for paying the banks back their money?

Hmmmmm..... Thinking..... thinking..... thinking..... YES


Generally, I'm not in favor of a tax payer bailout. I think this is a tax payer bailout.

House flippers, home equity spenders and folks who bought McMansions they couldn't afford don't deserve a bailout at the expense of more conservative, everyday Americans. Sadly, there doesn't seem to be a way to separate them from the few deserving cases.

I keep connecting in my mind this thread and the concurrent thread discussing Gore and global warming. Over-sized houses are a key contributor to America's high per capita energy consumption. Yet, we seem determined to encourage "huge homes for all" with religious zeal. It just doesn't make sense.......

 

[samclem]

This is where, obviously, I must lack either the financial savvy or the compassion of a Congressman. They can clearly see why the government should drag me from my $140K house and put me in jail if I won't pay extra taxes to bail out the speculator in the $400K house. They see the logic, and I don't.

 

[Gumby]

..

 

[samclem]

From whence cometh the "good deal"? If the teat is divine providence, no quarrel have I. If it be mine own purse, then it causes the heart discontent.

 

[Gumby]

..

 

[youbet]

Absolutely! In fact, you're stating the obvious. I readily admit to this myself. And it's true in many other cases. For example, when I find some folks saved tax dollars using some complicated tax scheme and I didn't, it bugs me. When I find out someone else has found a way to access some public venue in a privileged way and I can't, it bugs me. When someone hides money and qualifies a parent for medicaid nursing care and I paid cash, it bugs me. Etc., etc., and on and on. To a much lesser extent, if at all........ Whenever, and without exception, the pie is being sliced and we're all standing there with our plates in our hands, this is true.

 

[BigMoneyJim]

If property values have gone down, is FHA refinancing an option? How many of these doomed loans are now upside-down?

When they have depleted all of funds in this account, will taxpayers then be responsible for paying the banks back their money?

Probably, but maybe this shifts the fallout until after an election where blame dodging may be easier to accomplish.

 

[youbet]

Probably, but maybe this shifts the fallout until after an election where blame dodging may be easier to accomplish.

Help me get up to date on this....... Did the current administration, or the current Congress, do something that changed lending rules? Or is there some action specifically related to mortgage loans, either the administration or Congress took I'm not remembering that enabled this current situation?

I actually hadn't been linking this situation to partisan politics...... Perhaps my head is in the sand?

 

[barbarus]

the problem is that all financially prudent people are getting a BAD deal. The Fed is forcing down the interest rate to goose up the economy which both cheats the fixed income investor out of a fair rate of return and increases inflation for all Americans.

Possibly you daytrade though, in which case, never mind.