The Permanent Foreclosure Crisis and Obama's Refinancing Obsession - Credit Slips

 Here is a sensible look at the foreclosure crisis with a few reasons why the politics of housing is so ridiculous.  There are no solutions to the problem that have perpetrated on the public by the banking criminal and the Federal Government.  The lowering of interest rates and refinancing does nothing to help most underwater homeowners and it does little to lower payments.  The risk of the perpetual stagnating real estate market are becoming very high.  As we have seen housing prices drop again this past year, we are on the verge of destroying the golden goose that has provided for so much of America's prosperity in the past 50 years.  It is amazing how uninterested the parties that be are in fixing the real problems that have plagued the housing industry for the past few years. 




The Permanent Foreclosure Crisis and Obama's Refinancing Obsession - Credit Slips

The Permanent Foreclosure Crisis and Obama's Refinancing Obsession

posted by Alan White

For the umpteenth time, President Obama has announced that his solution to the foreclosure crisis is to encourage "responsible" homeowners to refinance at lower interest rates. Adopting the Tea Party rhetoric and blaming home buyers who got houses in 2006 for their inability to foresee what few economists foresaw, Obama has steadfastly refused to push for principal reductions and payment suspensions for homeowners behind in payments, lest their luckier neighbors who bought at lower prices become resentful. As a result, he continues to offer help to homeowners who need it least.
Behind the rhetoric is an important policy choice: who will bear the billions of mortgage losses that have yet to be flushed out of the system. Principal reduction modifications for defaulted borrowers would distribute the losses among taxpayers (via Fannie and Freddie), private investors and banks (who hold non-GSE loans), and give underwater homeowners some relief. More importantly, principal modifications mitigate the aggregate losses to the system while accelerating the necessary deleveraging. Refinancing current borrowers does nothing to prevent the huge deadweight losses from continuing foreclosures, at 50% loss severities, on homes whose owners are delinquent. Choosing to do no more for the 7 million or so delinquent mortgage debtors means maximizing losses to those homeowners, but also to taxpayers and investors. It would certainly help to continue driving down home prices, which does benefit new first-time buyers, but at a huge aggregate cost.
In fact, as conservator of the nationalized Fannie Mae and Freddie Mac, the federal government could make the needed modifications of delinquent mortgages happen with a stroke of the pen, more or less. Instead, the Administration proposes the dubious strategy of loading up the FHA portfolio with 4% mortgages at 125% loan-to-value ratios, thus continuing the process of transferring future mortgage losses from banks to taxpayers, and amplifying those losses, while letting the foreclosure crisis continue, just as Mitt Romney proposes. Nothing about the refinancing strategy moves forward the process of realigning mortgage debt to home values. Instead, the strategy relies on the doubtful proposition that home values will soon return to rising at their pre-2007 clip.
Pacta sunt servanda and the housing market and broader economy be damned.

politics as usual. Pork still number one ingredient used in Washington

Politics as usual. 

A nice Christmas present for all you die hard voters revealed as so gullible every election. 

I think it is time to make a case for not voting unless you have a truly reforming candidate.  After all the bravado and chest pumping that took place after the election it is clear no one in congress really cares about the country or the people.  The people don't end up in politics because they want to do what their voters ask of them.  They end up in congress because of the power, the perks and the great health care.  Does anyone know of  a better gig for a middle aged person who may have had some success in the private sector?  I don't. 
Does anyone know of such great opportunity for someone who has had no success in the private sector and typically no experience in anything related to writing bills or effective public speaking?   I don't. 
If it isn't clear that the great majority of Congress is not in the least bit interested in doing what is right for the country. 
I have never forgotten a statement made by one of my political science graduate assistant as he lectured on the psychology of politicians.  He was very clear in making this important point to the class. 
He said "Item number one on the agenda of politicians is getting re elected.  Once they are in office 99% of They quickly change alliances and renege on their statements promising reform and a return to government for the people and by the people. 
The right to vote is becoming meaningless because of the power afforded to Wall Street and the financial institutions.  Who came to the White House for a summit this week?   It wasn't the little guy or the small business owner.  It was the bank executives and J Immelt.  As if they are trying to give credibility to the ponzi scheme run by these perpetrators in order to help them pull off the stunt again. 

Republicans and Democrats are no different.  They all love the camera and would never pass up the opportunity to say something idiotic into a microphone. 
It looks like all of you that voted for change in 08 and then for new change in 2010 have been duped by the smooth talking snake oil salesmen of congress. 
Decision Points
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you have to read this book if you want the true story of the mortgage meltdown

Get a Kindle and download Econned before we become victims of another fraudulent scam headed by the banks and the treasury. 

Raising the Estate Tax?

I thought this was America. A place where people could work hard, be productive, get ahead and build their wealth without having the government try to take it all from them. Why is it whining when the rich people complain about taxes but it is ok for the whiners who resent successful people???? I think it about time the government cuts the ridiculous spending. First and Foremost why doesn't B Obama give back the 400 k that he gets paid to be president? Just for starters.....then cut the salaries on all the senators by 12% and cut out their vouchers for flying back home every weekend and let the go back and stay for two weeks and then go back to DC in dc two weeks (one round trip ticket per month). After they make a few sacrifices they can all sit down and talk about raising taxes. The estate tax is un-American plan and simple. Remember there was revolution, a revolt partly again excessive taxation.

Steve Forbes on Mark to Market accounting

Steve Forbes is just plain wrong when it comes to the issue of mark to market accounting. The reason the banks and insurers are in death spirals is because they took assets that have depreciated well beyond the original amount of a mortgage or policy. The reason mark to market account is hurting these companies has nothing to do with paper losses but more to do with what ensuring the companies have adequate reserves in case strong economic downturn. The reality is now being seen by everyone. The banks were horrible at forecasting real estate values have been overly involved in MBS and CDS markets. It doesn't matter if someone is paying or not on a loan that is 300,000 underwater because that particular loan is a powder keg waiting to blow. It is a toxic asset regardless of the payment history. If the collateral doesn't matter and we should do away with mark to market accounting my full article can be found at

http://morefinancialreality.blogspot.com/

Home owners between rock and hard place

this is an excerpt from an article I wrote earlier this week but I thought this section should be repeated consider the Obama plans for housing have been revealed. Thursday, March 5, 2009 I am all for free markets and personal responsibility and think there are people that have tried to game the system. However, the vast majority of homeowners are not losers. Mortgages are still being paid on time by well over 90% of the people in the country. The individual homeowner has been used as a whipping post in order to let the banks and brokers milk the system for 2 more years while try to keep people from realizing they have to make a very important financial decision with their real estate. When values were down 15% the case could be made that is it much more valuable to keep the home and your credit in tact rather than walk away. However, the story is not the same when people are 35-45% or more underwater. The home can become an albatross around someone’s neck and the financially prudent thing to do would be to walk away if something drastic isn’t done with the principal. I would imagine there are many bright, successful, hardworking winners out there that may have to make just such a decision if we continue to see falling prices. (Which is not out of the question if we keep letting the big banks yank the chain of government whenever they need capital)? Can any financial adviser actually look a homeowner straight in the eye and say although your home is 50% underwater, you will be paying mostly interest over the next 10 years with little principal reduction, your 20% down payment is wiped out, and the economy is crap, and the government seems set on bailing out big banks while housing prices tank, but all that being said, you should go right no paying your mortgage and hope your home goes up 150% in the next 10 years in order to get you back to even? I highly doubt anyone with integrity could tell their clients that this sounds like a good idea. Santelli says some great things on air but this wasn’t one of them.

banks still complaining

I need an explanation as to why the "responsible" bankers would have trouble making money if they lend to "responsible" borrowers. What is the spread on interest rates now? The target rate is close to zero and the fed is still pushing to get rates to 4% for consumers. Banks are paying little if anything on many of their checking accounts and little on savings accounts. They are paying more on some CDs or other investment vehicles to attract capital but if they lend they should make plenty of profit. Why are banks always whining about something when they have all the rules in their favor? When the larger banks like Citi or BofA can charge 20-25% to consumers while they can go to the fed window and funds for next to nothing, it is hard to feel sorry for them.

This is no homeowner rescue plan

"President Barack Obama has proposed a $275 billion plan intended to help as many as 9 million troubled borrowers refinance or restructure their loans. About $75 billion would be used to rescue homeowners by agreeing to pay lenders for altering troubled mortgages while reducing borrowers interest rates as low as 2 percent. "

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTX3K2Tvs5cs&refer=home

This is no homeowner bailout plan. It is another attempt by the administration to save the failing banks and to protect the assets of the banks. There are over 8 million homeowners underwater according to this bloomberg article. Another 5% decline in home prices will lead to another 2.2 million borrowers to sink below the surface. (source: first American Core Logic) This plans says nothing about banks having to write down any of their losses. The entire burden of the losses are resting on the backs of the homeowner. By the time the borrowers jump through all the hopes to see if they qualify they could be underwater by another 5 %. If the administration is going to saddle the homeowner with all the burden of this crisis then so be it. However, they need to stop with the PR stunts that have the facade of homeowner rescue when they really are just more bank baliout plans.

http://financialrealityrevisited.blogspot.com/2009/03/we-might-be-following-japan-10-year.html

Former AIG CEO still spinning

The CEO’s are still spinning like their lives depended on it. (seen on bloomberg TV)

Hank Greenberg, former CEO of AIG, is still saying that mark to market shouldn’t be used in a thin market. He still thinks his former company should be given a pass on mark to market so they can recover over time. I think we all maybe could use a suspension of mark to market because the market is thin, but we aren’t getting it. Why should we give it to AIG? I can’t believe the hubris of these people. They actually believe they deserve such special treatment because they are so important or “too big to fail”. It is completely ludicrous. The federal government has fleeced us all to try and save this horribly run institutions because they couldn’t afford to cover all of the toxic crap they have amassed over the years. They government is coming out and saying that this companies are too big to fail but what they are really saying that they can’t afford to fix the mess they are in so they need to just wait it out. It is complete smoke and mirrors. The banks are getting treated as if they are arms of the government—and yes I am sure you could make an argument that all banks are arms of the government, not just Fannie and Freddie—but the reality is that the banks want to get tomorrows pricing today and believe that they deserve to be bailed out while individual home owners are left in the bank bailout dust. Geithner comes out and says all of this help is not for the banks. He said that it is all for the American people. His nose grew about 3 inches during the 10 second clip and I am sure his integrity shrunk like an inverse s& p etf the past year.

It is complete and udder lies that this is for the American people. Nothing is being done for the America people who are holding the bag in trillions of dollars in real estate losses. The banks refused to write down principal and are dragging the economy down every single day. Another talking head that usually seemed to be for the people, Steve Forbes, has turned into a shill for the big banks as he pounds the table for suspending mark to market accounting. It is hard to believe that so many “brilliant minds” are so self serving and working so hard to try and pull the wool over the eyes of the public. The new era of change has become the same old same old era as we dig deeper into our own pockets to passive the cry babies running the banking system. Any single ceo that says they took money from tarp funds although they didn’t need it because the government forced them to take it should be fired immediately. Any ceo that says they needed it then and don’t need it now or that they didn’t use it for their lavish throw downs and golf shin digs should be fired as well. Ken Lewis should fired for saying such stupid things like Merrill Lynch and Country wide are going to be stars of the year for Bank of America. What does stars mean anyway? Does it mean they will only need 10 billion in government bailout money this year? Good for Ken. I hope they are his stars of the year but he still needs to get his head screwed on straight not say such stupid things in public. I think he would have learned his lesson back in 2009 when he said what a tremendous deal he pulled off when purchasing Merrill Lynch. He may be right about his acquisitions but his public relations grade is still a major F. One thing he has in his favor is that he can keep saying how great his company is over and over again as long as the fed will bail them out when the truth is revealed that the company is really terrible. Eventually, enough government money will allow him to be right. It may be 5 years or 10 years but looks like there will be no disaster bad enough to removed him or any CEO of a major bank. If this current meltdown hasn’t removed them, nothing will in the future. All of Obama’s tough talk has become all bark and no bite and the banks now have ceo’s that are as entrenched as government employees.

Obama says time to buy!

I saw some tape of President Obama on Bloomberg today and he said it was time to buy. I wonder home much of that nice $400,000 salary he is putting in the market without hedging his investment. Granted he doesn't have to worry much about living expenses for the next four years (at a minimum, could be more of course). I think the administration is perplexed by the meltdown on Wall since they have taken over the office. Yes of course I have heard every excuse in the book about inherited this and previous administration that and that its going to get worse before it gets better. However, it seems the Obama plan hasn't been as well received as they expected on January 20, 2009. There is plenty of skepticism among investors that they might not even have a plan to put in to play. Evidently most investors were hoping for more from this "dream team" that is now the lead dog. I still say that the press did far too much to promote the idea of change and did far to little to uncover the "stimulus" that would fuel such a change in tone and result in Washington.

I agree that it is early and the Obama Administration has had to take a big bite out of this problem. The issues now seems to be that we all agree there is a lot to be done and that the has downward momentum but the political rhetoric used to get elected may be causing a slight back lash. I hope they find the right solutions sooner rather than later. We all need that to happen as soon as possible regardless of our party affiliation. The catch 22 with building high expectations with lofty goals all based on "change" is that when it is your turn, people expect extraordinary results. You can not fault someone for aiming high but at times a little forward progress with tempered expectations might go a long way. (running the country is no easy task....certainly would could all agree with that premise.)

But the past 5 or 6 weeks might shed some light on just how difficult the situation is and that the Obama camp is trying everything it can to right the economy. It is time people realize that the previous administration was on the same program. Maybe that way every one can stop blaming the ghosts of the past and start focusing on solving the issues at hand.

Lets hope we all end up on the same page that moves the country forward sooner instead of later.

Santelli misses mark with rant

CNBC reporter Rick Santelli had a small meltdown the other day on live television after the Obama administration released their plan to help struggling homeowners. I think he was way off base and looked a little foolish. The big picture blog talked about today about an article in playboy that said the entire rant and subsequent opening of the Chicago tea party website may have all been staged. I don't know if it was but it definitely seemed out of character for Santelli. He ususally has a lot of very insightful things to say.

I was very surprised by Santelli's remarks even though it never surprises me when someone says something that seems so purposefully antagonistic. The other thing that blows me away is how simple minded some of these “bright” people seem to be regarding the economy or the state of housing. The plan Obama put out was a complete PR Stunt and if saving a few dollars a month will be the deciding factor for a family to stay in a home that is 150,000 under water so be it. The reality is that we have people that are now in trouble with their mortgages because of job loss or other significant factors that may or may not include being a loser. This was never a subprime crisis regardless of how dizzy cnbc was from spinning so hard last year. It was an issue deeply rooted in the financial paper and credit default swap markets. There is no way a minute number of foreclosures could bring down the entire world financial system if these derivative products were not involved. I am sick and tired of hearing anyone try, including santelli, to blame this crisis on a few homeowners who tried to scam the system. It will happen again and people will try to flip homes and get short term mortgages etc etc in order to get ahead but it could never take down the world economy without the crafting of Wall Street. By blanketing the entire group of people who may be having trouble keeping their homes as losers santelli is being foolish to say the least. He would be more accurate to call the Wall Street bankers and financial “geniuses” losers. They are the ones that have been leeching and sucking off the government now for two years as if they have the right to claim tax payer money as their own. It is idiotic to think this PR stunt by the government will really help anyone without significant principal write downs. By the time someone jumps through all the guidelines and hoops required they could be another 20 or 30 k in the hole. I am all for free markets and personal responsibility and think there are people that have tried to game the system. However, the vast majority of homeowners are not losers. Mortgages are still being paid on time by well over 90% of the people in the country. The individual homeowner has been used as a whipping post in order to let the banks and brokers milk the system for 2 more years while try to keep people from realizing they have to make a very important financial decision with their real estate. When values were down 15% the case could be made that is it much more valuable to keep the home and your credit in tact rather than walk away. However, the story is not the same when people are 35-45% or more underwater. The home can become an albatross around someone’s neck and the financially prudent thing to do would be to walk away if something drastic isn’t done with the principal. I would imagine there are many bright, successful, hardworking winners out there that may have to make just such a decision if we continue to see falling prices. (Which is not out of the question if we keep letting the big banks yank the chain of government whenever they need capital)? Can any financial adviser actually look a homeowner straight in the eye and say although your home is 50% underwater, you will be paying mostly interest over the next 10 years with little principal reduction, your 20% down payment is wiped out, and the economy is crap, and the government seems set on bailing out big banks while housing prices tank, but all that being said, you should go right no paying your mortgage and hope your home goes up 150% in the next 10 years in order to get you back to even? I highly doubt anyone with integrity could tell their clients that this sounds like a good idea. Santelli says some great things on air but this wasn’t one of them.