They say that life's losers end up in government bureaucrat jobs, since they couldn't cut it in business.
Well, FDIC Chairman Shelia Bair has now proven that point.
Her brilliant idea espoused this week is for mortgage lenders to violate the terms of the contracts they signed with homedebtors and FREEZE THE TEASER RATES they offered on their toxic loans, for the life of the loan.
Scenario A: Smart person plays by the rules, takes out a 30-year fixed mortgage at 6% for a house they can afford
Scenario B: Dumb person or housing gambler takes out a 1-year ARM 3% teaser rate mortgage for a house they can't afford (or one they can and wouldn't it be great if that rate doesn't reset!)
So now FDIC Head Monkey Bair wants the mortgage lender to freeze the 3% rate on the dumb homedebtor. Uh, I don't think so! Ever hear of a contract? Ever hear of moral hazard?
I don't even know where to start with this stupid idea, except to note how dangerous it is to have Heckuva Job Brownie II running the FDIC right now. But I leave you with this point, shouted for full effect:
PEOPLE WHO MAKE $50,000 A YEAR SHOULD NOT "OWN" $1,000,000 HOUSES. GOVERNMENT SHOULDN'T WANT THEM TO, LENDERS SHOULDN'T ALLOW THEM TO, AND SOCIETY SHOULDN'T BAT AN EYE WHEN THEY LOSE THEIR HOMES AND MOVE INTO SOMETHING THEY CAN TRULY AFFORD.
FDIC to mortgage servicers: Freeze ARM rates
Top bank regulator suggests industry cuts losses now to prevent foreclosures.
NEW YORK (CNNMoney.com) -- The heat on U.S. mortgage lenders and servicers was turned up a few degrees this week when the country's chief bank regulator publicly proposed that they permanently freeze interest rates on subprime adjustable-rate mortgages (ARMs) for many homeowners.
"Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it," Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor's conference.
October 06, 2007
FLASH: Now even the FDIC is run by ignorant clueless monkeys who have no idea how the world works
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If they do this then I want my 2% fixed rate loan for 30 years.
This is shameful
OK, some math.
We have 2 loans, A and B.
A borrows 100K @ 3% and B borrows 100K @ 6%.
The monthly payments are $417 and $586 respectively. Now assume that we have Bonds for sale, one backed by mortgage A and one backed by mortgage B. Given that a share backed by the 6% mortgage is worth exactly $100, how much would you as investor pay for the one backed by the 3% loan? I would pay 417/586 = 0.7116 or $71.16. That means holders of bonds backed by the 3% mortgage take about a 30% haircut by making the 3% teaser rate permanent.
Now you can cry foul all you want, the important news here is that somebody will take it on the chin. Mainly investors of subslime mortgages are on the hook. What do you think that will do to the sentiment of bond investors? As we've seen so far, there seems to be some tightening in the credit markets. There will be less money available and the money that will be available will be at much less favorable terms. Like 20% downpayment, higher rates, etc.
That means much less buyers, more inventory and lower prices.
I know some of you might be a bit disappointed that those deadbeats don't get thrown out of their ill gotten houses, but a bunch of financial types takening a good beating is kind of fun as well...no X-mas bonus for you sucker! Either way, prices are going down.
Mind-bogglingly ignorant. To make this kind of statement this woman must be so deeply and profoundly stupid as to challenge credulity. This is the head of the FDIC? Someone this dumb? No wonder there's an economy-crippling housing bubble with ignoranuses like this at the top of the FDIC.
Mail your damn keys if this crap goes through.
Better yet interest free, with a tax credit to help these poor people that were lied too. Come on HP'ers lets start a Paypal collection to help, these poor people. This is worst than Katrina.
This is called a loan modification. From leaked documentation from countryfried they have to buy back any loans they modify to help the homeowner save the house.
I say let them. Countrywide will be insolvent in days (who am I kidding... they're insolvent now...)
In the end this would be a giant kick in the nuts to prudent homeowners that locked in fixed 30 yr rates and it will cause banks to go under... I'm surprised a government employee thought of something like this...
Hell while they're at it why don't they have the BEP run off some $10,000 bills and just hand them out like candy? Everyone will be happy then.
Right?
It is time to clean out all of Washington. NO incumbents. And fire all of the beaureaucrats.
I don't find it that difficult to believe that someone could be dumb enough to take out a loan based solely on what their realtor or mortgage broker told them they could afford. But I do find it hard to believe that they might not have known the meaning of the words "adjustable" or "teaser rate". These people had to have known what they were getting themselves into when they signed on the dotted line. What this woman is proposing is equivalent to a handout for the monumentally stupid. On a case by case basis maybe a 92 year old that got swindled out of his/her life savings should be helped out but why in the world would anyone want to help the Casey Serins of the world that helped drive these prices up to begin with. I know you have a soft spot for the kid Keith but I can't imagine why.
Way to rattle the Sabre Sheila. Like this is going to happen...
a) What would motivate a mortgage service company to do this?
b) Even if they wanted to do this how could they? That loan has been ground into CDO sausage and re-packaged to Joe foreigner.
Sheila should get a t-shirt that says "Why am I so stupid?"
At first look, this is outrageous. But this might actually not be *that* bad. At least it forces the lender and investors to eat the loss. IMO, it's better than FHA or GSE loans which put the taxpayer on the hook.
Lender's and investors made a stupid bet, let them eat it. Yummy.
Now, if gov offered to offset the difference that would be crazy.
Another problem: Many of them couldn't afford the teaser rate long-term and intended to flip at the 2 year/tax-free mark.
American Taxpayers
P-W-N-E-D
DOPES!!!
Indeed it is shameful....
Even if the rates are frozen for these morons, prices will still collapse.
This angers me.
TPTB have ALL lost the plot, so it would seem.
Next to these people we monkeys look smart.
I can not wait to see what Edgar has to say about it.
heh
I agree with the FDIC chair. The lenders should do this or atleast look into doing it. It most likely would cause less losses than them having to take on a foreclosure. They could extend it for say 5 years and see if maybe the market changes at that time. The client may move or refinance the loan during this timeframe. Additionally, this would not be a bailout from government. Which I am completely against.
How's it feel to be a renter now suckers?
How about the investors who bought the MBS and CDO and were expecting an 8% return? Without those investors, home loans will drop by 80%.
I think you took her comments out of context. The idea was to TEMPORARILY freeze the teaser rate for a few years and then readjust to a higher rate making up the difference in lost interest income or taking a part equity position in the property in lieu of higher interest. Alternatively, she wants banks to refinance to a fixed rate those that are unable to do so in order to save the loan. These ideas are not new and will really only help about 10% of the deadbeats. Problem is in getting all the stakeholders to agree to loan modifications. Same old story. I say, let them eat cake.
RE: They say that life's losers end up in government bureaucrat jobs, since they couldn't cut it in business.
Was this line from Annie Hall?:
""Those who can't do, teach. Those who can't teach, teach gym."
This explains the mentality of those who want to freeze teaser rates and convert interest only loans to full amortization. Problem solved!
It all makes sense now. We must find a way to reward greedy bankers, home builders, flippers, Realtwhores and brokers. And of course home debtors who were convinced that little white lies on loan applications would be their key to owning the home of their dreams. Screw those who played by the rules.
But the problem will be far from solved. Those teaser rates provided a minimum payment option which created a negative amortization scenario for most overextended home debtors. These people were already having trouble making the minimum payment, so making a full interest payment along with the principle will be too much for them to handle.
The economy is in meltdown, most house prices are 25% to 40% too high. Getting a permanent teaser rate on a $600,000 loan made on a $350,000 house will not solve anything.
V.L.
The more of these proposed policies I hear about, the more inclined I am to stop paying taxes to this now not only incompetent but utterly, utterly corrupt government. We're going full on banana republic now.
Working hard, saving and paying taxes so that Barney Frank can give the money to people committing mortgage fraud would make me a real sucker. I guess I was before since they've been giving that money to their campaign-donating-contractor buddies since there was such a thing as campaign finance, but this is just too much.
Gross.
Ee (renters) are fucked and it's quite easy to see why
70% of Amercians own
30% rent
Look at things as a politcians. Which group will you try to make happy? Obviously the 70% at the expense of the 30%.
HPers can write all the emails letters you want to the fdic, to congress, to Bush and to newspapers. At the end of the day it's a numbers game and we're on the wrong side of the equation.
I was convinced the 50% price drops were coming. All the fundamentals pointed to it. Now I don't think it will be happening anymore. The government will do everything in its power to prop up housing prices. We have this fdic scheme, FHA limits are increasing. Freddie/Fannie limits are increasing, tax forgiveness was passed. And it will not stop until every asshole making $20K gets to keep his $800K homes.
I'm pretty sure where ever we are now with prices IS the bottom. It's over.
If the contracts are so onerous and against public policy as to require the Fed's largese to set them aside or freeze aggregious terms, then, those who are honest and hold "traditional mortgages" or those that acted responsibly have a valid claim to have theirs set aside as well.
What upsets my sense of equity is that the US is rewarding speculation and punishing responsible financial discipline. This is the hall mark of a "kleptocracy", or communism with the marxist idealogy replaced with pure greed and corruption.
The federal agencies and their political masters are the barbarians raging through the ruins of what was once a great country. "Pax Americana" is over.
I don't think many of the subprime loans were offered at 3% ARMs. A real life example, my fiance's teaser rate on an 80/20 loan for the 80 was 6.25%. Then, after two years, it adjusted to 9.25, and now it is 9.75. She has a good job, and only bought a 140000 loft, so she can afford the increases. But for those who could manage the initial teaser rate but cannot handle the adjusted rates, what sense does it make to adjust the loans? Increased foreclosures do nothing positive for anyone, including the homeowner, the banks, and the economy.
I think that your example of 3% for the million dollar loan is a bit far fetched, and those are not the homeowners that her plan is trying to help.
whoaaaaaa.....
time to get an uber low teaser rate!!!!!!
SORRY, moral hazard.
That is b.s. There is no home for the housing market. THEY CANNOT FIX IT! If they leave people in their teaser rate, why would I buy a house at my currently quoted rate of 6.75%? This method would freeze the housing market like this for the next generation. RE agents would never make a sale again.
That sounds great as long as I can go out and get one of these crazy loans too before this goes into effect. But seriously,I have an idea, maybe they should subdivide all the McMansions into quads and force all people who default to live together at a price they can really afford. Then they can resell all the ones that would have been forclosed at realistic prices, and avoid the moral hazzard. Or better yet, maybe they can force Bob Toll, Mozillo, Lereah, and any other of the crooked cast of characters to give back all the ill gotten gains. In fact, maybe they can also throw in Greenspan, Moodys, S&P, and all the big boys on Wall Street and fine these guys on the basis of a "fraudulent deception homeowner rectification act" to right this mess. Oh I forgot, this is America, nevermind.
I can't believe my eyes.
As fraudulant ,misleading,and one sided as the majority of loan contracts were then I'd say good for the home debtor,IF.....He/She figured out contract law by him/her self.The sick part of it all is that the stupid assed voters in the US expect ,and are getting "big brother "interference with their personal lives,and finances.
Don't be pissed Kieth-The majority has made the choice to have Govenment wipe their butts.Thus the government gets to TAX them,Regulate Them,and especially.....Educate them,or should I say DE-Ed them.So EFF Them. They are "Subjects",and Serfs.
Ofcourse America will be overrun with BullSh!t. If I lock in a 30 year 6.10% loan then fine.My contract will be in my favor,and the bank will have major penalties for any undisclosed obligations of the contract.The sheep have no clue as to their own power when it comes to contracts,or even statutes that they all are penalized by.Screw em.They think it's all hunky dory as long as the music plays on,but if it ever stops the vast majority will be bled dry by inflation/devalution,stagflation,
fines,penalties,stock ripoffs,and Taxes.The FDIC is only hiding it to get the US into the next bubble.
To the government it is all good if the Joe/JanesSixpacks hand over control of their finacial affairs to government.
VOTE FOR RON PAUL
This line of thinking stems from the "stopping foreclosures will keep my house price from plummeting" school of thought. The real ignornance is not realizing that new fixed teaser rate loans must be mandated to keep housing prices where they are.
This idea is so dumb I fell off my chair when I read it. I thought you were pulling our collective legs, here Keith, so I had to check it out. However, the story behind the link suggests that this is what the head of the FDIC said.
Think about the incentives here. Suppose for a moment that this scam was actually introduced. Then everyone with a subprime loan would benefit from going into foreclosure. It would come down to a choice between a) working hard to meet those house payments, or b) getting a lower rate by going into foreclosure. Heck, I know which one I would choose.
What about the balance sheets of the lenders? This scheme would generate a massive hole. Those jokers borrowed money wholesale at market rates (probably 6-8 percent), offered two year loss-leading teaser rates, and expected to make up the difference in the following 28 years. Now the FDIC is demanding that they write down these loans, so that the borrowers interest rates in payment terms stays constant. This is a recipe for a financial crisis. To put it in the bluntest of terms, this is financial idiocy. The FDIC clearly don't understand how banks work.
Bring it on, I say. Once, the subprime home debtors get a discount, it will unleash a set of financial consequences that will destroy the mortgage market for a generation. The idea of contract will no longer mean anything, property rights will be negated, and saving is futile.
This is just another in an sea of half assed concocted ideas at bailing out the troubled mortgage industry.
What many of these "heroes" fail to realize is that whatever "fix" they attempt to initiate, somewhere someplace A LOT of people are going to get screwed, and get screwed BIG TIME.
This HOUSING MESS is so big and so widespread that there really isnt any quick fix!
The best solution, to let the market correct itself over a long term, to let housing crash and stabilze to where it should be,- this is what many should want but dont want because it will be PAINFUL to too many people.
And we are all here to witness whats about to happen as possibly one of the biggest stories in American and World financial history.
It is better to bail out the homeowner (the little buffoon) than the Lender (the big buffoon). The FDIC sees this as the most win-win scenario for the Bush Administration (The King Kong of Buffoons) unless some big corporate donors to their party come forward right now. Their position on things like this are always subject to change.
When the Republicans appoint foxes to the henhouse (eg Incompetents to Government positions) why is anyone surprised when Government doesn't work?
We are getting exactly what we deserve.
In my lifetime we have gone from citizens (with responsibilities) to consumers (useless eaters).
Glad I am old.
This woman has friends and relatives who have ARMS if in fact she does not have one of her own.
Once loans are put into mortgage-backed securities and sold to investors, loan servicers must abide by the terms of the mortgage note. They can't just make a decision to not adjust someone's interest rate if that's what was disclosed to the investors when they purchased the security. It would be a violation of securities laws, actually.
Not only is this yet another ill-conceived "solution" by an uninformed government official for people who, for the most part, made stupid decisions, but also it's not even doable.
And, speaking of ill-conceived solutions - don't get me started on the proposal to waive the tax hit on short sales. This will actually encourage more people to walk away and the # of foreclosures will increase!
Unbelievable! In fact, it's so stupid, it won't even be considered.
The System isn't broken. It's FIXED. Everything is going along as planned in the largest wealth transfer in modern history.
These fools (bankers, politicians, etc.) will do anything to keep these gamblers afloat, keep prices inflated, and keep the economy bloated. Anything to keep the fantasy moving along.
A Rose by any other name is still a bailout!
RayNLA
This will encourage people to be stupid gamblers in the future because the looter government will just bail them out.
"Nothing is your fault and nothing is your responsibility" is the message future generations will hear.
Where do I get me teaser rate loan? I want a piece of this action!
From the article:
"Bair proposed that servicers convert only those ARMs that haven't reset yet and only for borrowers who are current in their payments and occupy their homes. Loans taken out by speculators who don't live in the homes they bought would not qualify for the automatic conversion."
It's still pretty outrageous. And I don;t get how this works when the servicers collecting the payments and the "owners" of the CDO's have no relation to the Banks that made the loans and that Bair oversees.
What do they propose for all the neg-am loans?
This is F*CKED up.
What a CRIMINAL idea Sheila!!
Is this what America has truly come to?? We wait, save our money, work hard and plan for the right time to buy a home we can afford, and are PENALIZED, while the sub-prime idiot crooks of this country have no money and no common sense, make a STOOOPID and irresponsible decision to buy a home they can't even come close to affording and THEY ARE REWARDED!!????
That is the message you have given Americans--You have to be as corrupt and theiving as your Govt. officials to make it in this world!! God, I want to
PUKE!!
.....and government stepping in and voiding legitimately established contracts is surprising to you? Please......! Roosevelt voided gold contracts in the 30's so he could confiscate gold and devalue the dollar. I imagine Idiot McFigureheads handlers have already penned an executive order for him to sign doing something similar before his term ends.
And yes......as someone who will soon make an exit (Thank god) from govt service I can assure you that you are correct.....it is largely populated with rigid thinking pinheads!
even if this does happen, it would kill the concept of teaser rates going forward. who wants to loan money for 30 years at 2%?
lenders and holders of these loans were gamblers too, they would be punished.
I can not wait to see what Edgar has to say about it.
heh
Hi fmw!
If brains was dynamite the FDIC couldn't blow their nose. It doesn't matter what they do, I just can't wait for the pain!
So how long can the FDIC last during a string of bank failures? I assume they have enough cash to handle a few midsized and/or a few dozen small banks, but what happens when a big boy craps the bed? How much in deposits can the actually cover until they need 'emergency' financing from the feds? Does anyone here know?
Keith is overreacting, as he usually does. Most of the rest of you are overreacting also.
A debtor's ability to rewrite loan contract terms has long been enshrined in the bankruptcy code. The EXCEPTION to this provision was the mortgage on the debtor's principal residence. Corporations and other high rollers could avail themselves of the loan cramdown provision, but ordinary homedebtors could not. There is now a bill pending in the House of Representatives which would eliminate the exception for the debtor's principal residence.
I haven't seen any 3% loans. I am seeing them at 6% or more and about to re-set at 6 points over the LIBOR rate. Many of these debtors will not be able to keep their homes anyway, but a small percentage will be able to avoid foreclosure if they can avoid big upward adjustments in their rates. As a few other enlightened souls have pointed out, this will be better than a foreclosure from the lender's perspective.
http://tinyurl.com/395e6s
For a partial explanation look at a U.S. Supreme Court case: Till v. SCS Credit Corporation
Talking about ignorant monkeys (who vote), here's another one for your vast collection of Republican perverts:
U.S. Prosecutor Held in a Child Sex Sting Kills Himself
(NYT) — A federal prosecutor charged with traveling from Florida to Michigan to have sex with a 5-year-old girl committed suicide on Friday in prison, his lawyer said.
The prosecutor, J. D. Roy Atchison, 53, was arrested on Sept. 16 leaving a plane in Detroit as part of an Internet sting operation led by the sheriff’s department in Macomb County, Mich.
The authorities said he had been chatting online for two weeks with an undercover detective who posed as a mother offering to let men have sex with her young daughter.
At the time of his arrest, the authorities said, Mr. Atchison, of Gulf Breeze, Fla., was carrying a Dora the Explorer doll, hoop earrings and petroleum jelly.
Mr. Atchison was an assistant United States attorney in Pensacola and a volunteer coach for girls’ softball and basketball teams in Gulf Breeze. His wife and three children were said to be as stunned by the charges as other residents of their affluent town.
Let it go folks, here we have another so called "family values conservative" hard-core Republican. And yes, he was a Republican, as confirmed by many investigators. You are a bunch of geniuses...and thanks for destroying the country. Praise the lord...hicks.
http://tinyurl.com/34jkqp
The bush built supply side scheitt sandwich started by ramping up easy lending policies gone rediculous.
Who are these republican jerkweeds that manipulate my markets daily in attempt to provide cover for their wrong to start with supplyside crap that makes it impossible for the averege income earning family to purchase the averege house today using traditional lending standards?
But they allow the ones that can't afford to keep their house to stay in their house? Some system.
I think this is a good idea. Banks have two choices:
a) Foreclosure and get maybe 50 percent of the loan value back.
b) Instead of maybe 9 percent of interest, settle with four. No foreclosure, borrower continues paying back the loan.
Of course stupid Americans would rather see more desperate homeless people rather than see their government actually helping those poor people.
chairman@fdic.gov
I want to buy a house.
Where a my guaranteed low fixed teaser rates?
Hi Edgar!
-------------------------------------
RE; deposits can the actually cover until they need 'emergency' financing from the feds? Does anyone here know?
The UK PTB gave Northern Rock Bank 20 billion to cover the run on their bank 2 weeks ago.
tim73 said...
I think this is a good idea. Banks have two choices:
a) Foreclosure and get maybe 50 percent of the loan value back.
b) Instead of maybe 9 percent of interest, settle with four. No foreclosure, borrower continues paying back the loan.
Of course stupid Americans would rather see more desperate homeless people rather than see their government actually helping those poor people.
*******************
Your opine is extreme imo. Let them rent.
A) The same house they will get foreclosed on when their rates re- set will cost them LESS TO RENT than their mortgage was in the first place !!! Homeless??? I think not.
B) Isn't 4 % below the sub-prime? The implication is obvious.
While not wanting to defend the monkeys, one may need to take a step back and look at the overall picture. Tanta on calculated risk has some fairly in-depth analysis on how bk legislation has changed over the years and what went on when it was changed. Part of this were cram downs which boil down to modified loan terms. Worth a look if you dare to be nerdy: http://calculatedrisk.blogspot.com/2007/10/just-say-yes-to-cram-downs.html
So she has the power to re-write signed contracts? Wow...this is beyond stupid.
" AND GET ON WITH IT"------ WOW!!!
1. Anyone who gives the issue about 30 seconds of thought knows that the servicers have no power to renegotiate the terms of the loan. The power is with the note holders - which could literally be a dozen institutions. Fat chance. How could the head of the FDIC be so ignorant?
2. For those who know anything about accounting, even if the holder were one domestic institution, to change the terms of the loan will change its value -down - with an immediate mark to market. At least if (some of) the borrowers default over time the hit is more uncertain and is spread out. The damage to US financial institutions were this type of stupidity come to pass is unkown, but probably very bad.
3. What probably bothers me the most is this condescending attitude that the note holders don't know whats in their own interest, or if they do, are somehow a pack of capricious meanspriteds who simly want to throw people out on the street. Most institutions will act in their own interest.
4. A massive change in debt terms forced by the US government will severely restrict the availability of any new money entering the scene, probably making the situation worse. Does this woman really want the Chinese to dump $500 billion of CDOs on the street? The dollar is weak enough without this moron going out and trying to make it worse.
5. This lifelong republican is totally disgusted with these people in charge. Don't get me wrong - I would never vote for the socialists in the democratic party.
A word from the trenches: this FDIC nonsense sets the tone for the banks. A story from Saturday...
Went to a major national bank here in the US to see about a mortgage. My wife and I decided that it's time to low-ball.
The experience was actually quite good. We're low-risk, boring borrowers who were raised without a great deal of money, so we can pinch a penny 'till Lincoln screams.
It was all going along swimmingly. We were looking to borrow an amount that would set our monthly payment at about a quarter to a third of our income, when the banker stopped us.
"You know," he said, "We consider a payment plan low risk if it is less than 55% of your monthly gross. You can get a lot more money, up to 417 thousand dollars."
"What?" I yelped. "That can't be right. More than HALF of our combined monthly income? That's crazy. We don't want to be beholden to you for that much."
The banker was a bit taken aback. We offended him. Poor guy was, in his words, "Just trying to give us more money." And I don't hold it against him, just as I don't blame the Sears clerk for trying to sell me the extended warranty or the used car salesman for trying to get me to upgrade to a car I can't afford. He's a salesman, what can you do?
But this is how homeowners run the risk of becoming latter day sharecroppers: when bank becomes comparable to "crazy joe's used car lot, where bad credit/no credit is no problem!" you know there are a bunch of really lousy loans out there.
And why not? The FDIC will rescue everyone!
Something you guys haven't posted or thought of yet.
One of the bills currently on the desk of Congress would allow bankruptcy judges to "cram down" the outstanding total amount of the mortgage along with the monthly payment, to make the loan something that the holder of the note could afford.
Wouldn't that be fun? BK judge is beholden to absolutely nobody - not REIC, not MSM, nobody. And yet, he's now setting the value of the mortgage? Byebye, gratuitous appraiser inflation.. all before lunch!
House prices need to be tied to incomes? Shocking!
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