my lord here comes mortgage foregiveness

Discussion in 'Economics' started by piggie2000, Dec 28, 2009.

  1. if this happens i forsee social chaos as 10's of millions stategically default to get there share of the pie. it creates a total unfair system. i forsee a 10% 10 year bond



    Fannie, Freddie Backstop May Foreshadow Mortgage Forgiveness Share Business ExchangeTwitterFacebook| Email | Print | A A A
    By Jody Shenn

    Dec. 28 (Bloomberg) -- The U.S. Treasury Department’s expansion of its capital backstops for Fannie Mae and Freddie Mac may foreshadow a shift in the government’s mortgage- modification tactics, Keefe, Bruyette & Woods analysts said.

    The Treasury announced Dec. 24 that the two mortgage- finance companies, which were seized by the U.S. almost 16 months ago, could tap an unlimited amount of capital for three years, up from as much as $200 billion each. The companies’ needs would be unlikely to exceed the prior limits “even in a stress case scenario,” Bose George and Jade Rahmani, the New York-based analysts, wrote in a report today.

    “Given this outlook, we believe that the main driver of this significant change is the flexibility it gives the government to take more aggressive action to support the housing market, including potentially going down the road of allowing some form of principal writedown,” the analysts wrote.

    Under the Obama administration’s Home Affordable modification program, loan servicers reduce borrowers’ payments to 31 percent of their pretax incomes through means starting with interest-rate cuts. The program, which is meant to curb soaring foreclosures, doesn’t reduce the size of homeowners’ debt, even with more than one-fifth owing more than the value of their properties, according to Seattle-based Zillow.com.

    Shifting to principal forgiveness to cure so-called negative equity that makes borrowers more likely to abandon loans whose payments they can afford may prove more costly for Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, by sparking “another wave of delinquencies as people look at it as a rational choice” to default to seek the aid, George said in a telephone interview.

    The larger backstop would be available to protect against the “moral hazard issue,” he said.

    Second Mortgages

    A change in tactics in the U.S. modification program is needed as the “current version has been a failure,” in part because of trouble in getting the necessary documents from homeowners, George said.

    Dealing with second mortgages, which aren’t owned by Fannie Mae and Freddie Mac, would be “essential” to any move to principal forgiveness, though “I don’t know what the solution to that will be,” he said.

    Through November, servicers had permanently modified 31,382 mortgages under the Home Affordable program, which was announced in February as targeting 3 million to 4 million loans, the Treasury said Dec. 10. A total of 728,000 of the modifications were under way.

    Fannie Mae has tapped $60 billion of its lifeline so far and Freddie Mac has been provided with $51 billion.

    To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net

    Last Updated: December 28, 2009 15:59 EST
     
  2. The principal on these mortgages WILL be written down. There are two ways ...

    1. Traditional - homeowner is foreclosed upon. Mortgage holder acquires the deed and then resells for some % (almost certainly far less than 100) of what is owed.

    2. The way speculated about in that article - mortgage holder writes down principal of the loan before going to foreclosure. Homeowner now has a mortgage that is worth less than the value of the home. Homeowner stays in home. Lawyers will not be happy as this cuts them out of the loop.
     
  3. djkla

    djkla

    Some might say that the homeowner now has a mortgage that reflects the true value of the home.

    Seems to me that home prices still go down.
     
  4. So.... Government is going to give a house to mortgage borrowers who were fraudulent, non-qualified, flakes, and those who acted in bad faith. And for those who have been financially responsible... BUPKIS?
     
  5. It's a genius plan really. Why do you think the FED has been buying all the MBS this year? I think most of those were backed by FRE and FNM. In the current contract state, it's pretty much unlawful to tell a lender that they have to reduce the principle.

    If they could do to mortgage lenders the same thing that they did to the Chrysler bondholders, they would. Banksters say no way.

    But....if the gov't owns those notes.... who is to stop them from reducing the principle to a "reasonable" level, and passing that loss onto the taxpayers??? It's just another way to "DISTRIBUTE THE WEALTH."
     
  6. The government gave a trillion dollars to fraudulent, irresponsible, greedy banks and brokerages...why not give houses away to fraudulent, irresponsible, greedy people?

    This country is long overdue for a revolt.
     
  7. Illum

    Illum

    They should foreclose and then rent to them, and if they then can't make rent, make them move out. At least that would resemble a free market, and erase the anger of someone who didn't abuse the system, they take away the equity in the home.
     
  8. For all practical purposes, doesn't that Nationalize housing in the USA, since banks have, for all intents and purposes, already been Nationalized!?!
    GAWD ALLMIGHTY...what's next?
     
  9. Illum

    Illum

    Toilet Paper lines.

    Some Vodka comrade? ess guud, berry guud

    :)
     
  10. You articulated my sentiments exactly. Now I wonder if all of those mortgages coming up for resets in early to mid-2010 will really cause a double dip recession as many have been predicting. If millions of people get bailed out of their underwater mortgages and foreclosures do not increase, maybe the stock market will continue to rise afterall. Taxes will go through the roof, but primarily for the high income Republican taxpayers, which will not adversely affect the Democratic voter base. Maybe Bernanke deserves to be the Time Man of the Year afterall by preventing a depression via the most massive redistribution of wealth in history.
     
    #10     Dec 28, 2009