Obama May Press Banks to Cut Mortgage Payments

[Pirate Smile]

Source: The New York Times


Vowing to fight eviction, Frank Torres barricaded himself in his foreclosed house in Carson, Calif., for several hours last week.

WASHINGTON — President Obama’s plan to reduce the flood of home foreclosures will include a mix of government inducements and new pressure on lenders to reduce monthly payments for borrowers at risk of losing their houses, according to people knowledgeable about the administration’s thinking.

The plan, to be announced Wednesday, is expected to include government subsidies for reducing a borrower’s interest rate, which a lender would have to match with its own money.
But officials cautioned that subsidies for lower interest rates would not in themselves help many troubled homeowners, because lenders were still likely to view many of those borrowers as bad risks and refuse to restructure their loans. As a result, they have been casting about for sticks as well as carrots to persuade the lenders to take part.

-snip-
That change, sometimes described as a mortgage “cram-down,” would greatly increase the bargaining power of borrowers in negotiating new loan terms with their lenders. The banking industry has vehemently opposed it, warning that investors will stop financing mortgages if they know that a judge can unilaterally change the terms at a later date.
But Mr. Obama and Democratic leaders in Congress support the change, and Democratic lawmakers had already been planning to attach such a measure to a catch-all spending bill that Congress will soon have to pass to keep the government running.

-snip-
The plan to subsidize lower interest rates for distressed homeowners would involve the government and the lender each contributing matching amounts to reduce a person’s monthly payment, possibly by several hundred dollars a month.
Supporters contend that the measure will be comparatively simple to execute and less expensive than many other options that have been considered. Mr. Obama’s top advisers have vowed to spend at least $50 billion to help homeowners keep their houses, and they already have the authority to tap the remaining $350 billion in the Treasury Department’s financial industry bailout fund.


Read more: http://www.nytimes.com/2009/02/17/washington/17housing.html?_r=1&hp

[geckosfeet]

1. I wish rates would drop to 4% - I want to refinance,,,

[barb162]

13. Rates are really low now historically

but then again I was born in 452 BC.

[Phoenix-Risen]

2. A couple of small problems

1. On average if a homeowner is more than 20% upside down they will walk.
2. If the mortgage company reduces the mortgage balance for the "troubled homeowner" the guy next door is going to want in on the deal too.

[lostnotforgotten]

3. Until We Have Global "Cram Downs" There Will Be Continued Problems

eom

[barb162]

14. WTF is a cramdown?

never heard of that.

[Kool Kitty]

25. I never heard that term before, either.

What is a cram-down?

[izquierdista]

31. The opposite of a cram-up

But they both mean the same: "you fucking bankers have screwed things over for the last time; we can either cram the new mortgage down your throat, or you can cram the old one up your ass."

[GiveMeFreedom]

68. LOL n/t

[lostnotforgotten]

46. A Cram Down Is Were The Mortgage Holder is Forced To Rewrite The Loan

based on the real value of the property, not the artificial value of the property.

So, a mortgage that was valued at say $ 200,000 is cram downed to say $ 100,000.

Needless to say this represents a lot of lost equity for homeowners and also lost interest revenue for the banks.

[Kool Kitty]

66. Thank you for explaining that.

:)

[getthefacts]

4. I agree with

number 2. I think people will start asking why they are not getting the same deal. What if a homeowner feels entitle to default just to get a lower interest rate?

However I disagree with number 1. When people walk from their homes, they still need a place to live. I believe most people would opt to pay for something they own instead of renting, even if it has lost some of its market value. Using that same logic, people would walk away from their car loans also.

[Phoenix-Risen]

7. Oh but they are bailing on car loans too,

In the mortgage business we call it "jingle mail" when the house keys come in an envelope. And talk to a car dealership about "returns"

[barb162]

16. Okay, explain something to me please.

Every single time a person buys a new car in the last century, the car loses value the minute you buy it, just like a refrigerator or any other item that is now "used." But people always kept paying the car loans. So why are there returns now.

[superconnected]

30. Many people who can't make their house payments, can't make their car payments either

so give them back. I've done that once - couldn't make the car payment and insisted the deal broken credit-be-damned. This is a bad bad economy. People don't have jobs. They can't pay for cars right now. They'll let their car go before their house. They'll Dump the car loan, get a cheap used car and pay cash for it - because they have to. Been there.

[Pirate Smile]

5. Living next to a foreclosed house is extremely damaging to the property value of the neighbor.

Hopefully, preventing that from happening will count for something.

[defendandprotect]

As is homelessness .....

after trying to survive these recklessly made mortgages, needless to say,

these people have many new problems! It's probably impossible for them to

walk away even with the ability to rent an apartment! Or to hold onto their cars!/?

[defendandprotect]

51. dupe ---

after trying to survive these recklessly made mortgages, needless to say,

these people have many new problems! It's probably impossible for them to

walk away even with the ability to rent an apartment! Or to hold onto their cars!/?

[Waiting For Everyman]

9. If the neighbor isn't "troubled", he can refinance.

Enough with the whining from those who are comfortable, and trying get in on any relief for extremely distressed people. This is about making the payment within reach, not about getting a reduced price on the house. If they want to walk anyway, they're gone, so that's just silly. This is for those who see their home as a place to live, not as an investment fund.

[Phoenix-Risen]

12. You can't refinance if you are upside down

That's where one of the problems is. No mortgage company is going to finance a property for more than it's appraised value.

As a matter of fact many loans are written so that if the financed asset falls below a certain LTV ratio the loan can be called.

[mbperrin]

33. How would you know what your neighbor's finances are?

I have no idea what any of my neighbors' mortgages are, and I'd be surprised if any of them knew our house is long paid for.

[electron_blue]

47. I assume you have not discovered Zillow.com yet.

When possible, it lists public information about prices houses sold for, when and other information. Try it out. See if it is accurate for you.

[mbperrin]

52. Well, it shows the tax value, and that it's one story.

Everything else is blank.

But I guess my real question was, who snoops around their neighbor's info looking for jealousy items, anyway?

I don't have a personal dog in the fight, both our homes and all our rental properties are long paid for.

I do think that occupied houses are better than empty ones for the neighborhoods and the tax base, and I also think the banks cut every corner they could, legal or not, to absolutely collect all they could in the short term.

So I want the bankers discouraged from doing this in future, and I want to keep the houses occupied.

That's my thinking, and my goals. Yours may be and certainly can be, completely different.

But does what I'm saying make sense in terms of where I'm trying to get?

[flvegan]

6. Subsidies to help with profit? Fuck those lenders.

Tell them to lower their rates. They still make money, and don't need the govt to buttress their exorbitant rates.

[Phoenix-Risen]

10. It's not just the rates

many time it's the loan to value ratio. if a homeowner is looking at a mortgage balance of $300,000 on a house that only has a market value of $200,000 they might just throw up their hands and bail. That is what is happening.

I'm dealing right now with a number of clients in one subdivision with 340 homes, 98 of which are bank owned. Obviously it has killed their market values. What would you do?

[flvegan]

11. That's a novation, and that would be a disaster.

Good way to fuck up priority in a title chain, though.

[Phoenix-Risen]

21. Yes it is, and do you know what the IRS calls it?

A debt forgiveness and therefore taxable income. It's one of the hidden dangers of a short sale.

[barb162]

15. But it screws up their credit ratings for years so why do they do it.

Plus in a few years the house can be back up to the original value it was let's say, 3 years ago.

[Phoenix-Risen]

17. Now you sound like a Real Estate agent

In some parts of the country property values have fallen 30 to 50%, do you want to bet that in 3 years they will be back to those levels? In parts of Spain and Ireland values have fallen 80%.

You may be right, I'm not as optimistic.

[barb162]

20. But where do you go? In a trailer or an apartment when you can stay

in the house? WHat I'm saying is, at least in the house , it's going to be yours and it's your big space, versus paying someone for some tiny apartment that will never be yours, plus ypur credit rating gets goofed up.

[Phoenix-Risen]

24. Ok, I'm not recommending this but

Lets just say I'm aware of this happening. Assume you are way underwater in your current house but you have kept up the payments and your credit is still good. You have a decent job and you want to stay in the same neighborhood. You become aware of a home 2 blocks away that is the same as the one you have but is selling for substantially less. If you qualify you can buy the 2nd home and default on the first. It's called "Buying and Bailing" in the business.

http://www.nuwireinvestor.com/blogs/investorcentric/2008/06/buy-and-bail.html

As to your credit, with the amount of properties on the market there are plenty of lease purchase or contract for deed opportunities available for people with "iffy" credit.

[defendandprotect]

54. Presumably the "bailer" has equity in the first house . . . where does he get

a downpayment to buy the second house?

Unless there's an extreme angle here, I don't see this happening.

[Phoenix-Risen]

60. No, the reason for bailing is that they are upside down,

no equity, owe more than the home is worth, underwater! That's the motivation for the "bail and buy." It also doesn't mean that they are in default or are even struggling to make the payments.

You are also assuming that everyone has all their assets in home equity, that's simply not the case.

Read the article I linked to, and Google "bail and buy". It's an eye opener.

BTW, the reason I wouldn't recommend it is that many times it can be considered mortgage fraud, but the chances of getting caught in todays world are remote.

[HarukaTheTrophyWife]

45. They've fallen 80% in parts of Ireland?

Man, I wish I had money to buy property over there.

[mbperrin]

35. Really, it's the rates, because even now ARMS are being adjusted

upward, even though real interest rates are zero or even negative.

Greedy bastards continue to pretend that there's some reason to raise payments by several hundred dollars per month.

ARMS need to be illegal, just as surely as any other loansharking.

When I worked in banking 30 years ago, a return of 2% on assets to banks was considered sterling, and no more was sustainable, because the real growth rate of the US economy since 1789 is about 2% per year.

Then the current group of circus clowns, croupiers, and other con folk got to running banks, with completely predictable results, and completely predictable futures, unless a little fiscal sanity is returned.

[defendandprotect]

55. Well . . . FIRST, they de-regulated ....

and its frightening that I don't hear a word from Congress and Obama about

Re-REGULATION.

[defendandprotect]

53. My sense of this is really that the banks and mortgage holders are

reacting to this with extreme penalties on the mortgage holders, rather than

someone who can still pay the original mortgage throwing up their hands?

And it seems all the homeowners are actually suffering this devaluation -- the

only difference being they can hang on and still pay their mortgages.

Provided, however, the subdivision doesn't become a wasteland where no one wants

to live, sinking the value of all the homes even further!

[defendandprotect]

8. Weren't people paying these mortages until they were absurdly increased . . . ????

The Chevy dealership in my town just announced its closing -- it's a huge place --

do many car repairs and were doing leasing. The reasons they cite is that there

will be no more leased cars and seemingly a lot to do with GMAC which is suddenly

charging extreme rates for things that used to be free --

AND, the problems of paying for health care for their employees!

GMAC bought a lot of mortages and seems to be prime in screwing over those trying

to pay those mortages. Is this info only known at DU or does it reach the White House???

Come on . . . !!!

[barb162]

19. The ARMs shouldn't have been used by a lot of people

I just can't believe how many people went into those deals, KNOWING they'd be adjusted upward. If people would have done fixed rate and gotten more reasonable houses.....

[Kool Kitty]

23. I think a lot of people did that because

they were told not to worry, they could re-finance the loan before the rate adjusted upward. That's what they said on the CNBC special, "House of Cards", that I just watched.

[Mr. Hyde]

28. Lots of folks thought they would be "flipping" before the rate reset too. They got what they deserve

[Kool Kitty]

65. I wasn't defending what they did, I was only offering

it as a possible explanation.

[defendandprotect]

56. These loans were made recklessly . . . which is what capitalism is about . . .

a slow and steady market with few ups and downs makes little profit --

It is only in uncertainly where the few with money can make extreme profits.

[SlowDownFast]

64. Perhaps they'll learn that next time they need to read the small print

and not put such trust in gov't and financial institutions. There is no free ride and these institutions do not always have your best interest in mind...

...and just to reiterate:

JAIL THESE MUTHERFUCKING PIGMEN BANKERS AND POLITICOS WHO STARTED THESE PREDATORY LENDING PRACTICES!!!

[defendandprotect]

67. Yep . . . Let's be clear that capitalism is merely organized crime . . . !!!!

[mbperrin]

36. Whole lotta people were told that rates could adjust DOWN as well.

Course, that was a lie, just like the rest of it.

We thought about financing a vacation home, but 6 different lenders offered us only ARMS. We took a 5 year note from the seller at 7% as is, nothing down, legal fees at closing. Been relaxing in the tall pines for about 10 years now in our paid for, reasonably financed cabin.

Haven't dealt with bankers in 20 years. Feels great.

[defendandprotect]

48. There were a lot of extreme deals made for benefit of the lenders .. . PLUS GMAC

then picked up a lot of these mortgages and proceeded to even further F-U-

the borrowers. This was aggressive/reckless salesmanship which put these people

into these loans. There were at least two reports of GMAC's questionable activities

with the home mortgages they took over reported here at DU -- probably more.


Meanwhile, the fact that GMAC bought up mortgages sunk their ability to finance cars/

leasing, as I understand it.

[Oregone]

18. Offer direct government to consumer low interest loans!

There is little other way to solve this crisis.

[defendandprotect]

49. NATIONALIZE the banks, preferably . . . No more bail-outs for capitalism --- !!!

Trust we don't need to be hit in the head with a brick to see that capitalism cannot

succeed unless it is highly regulated. Unregulated capitalism is merely organized crime,

as we should be able to very clearly see right now.

And, America has experienced this before. Capitalism will always fail except in doing

what it's intended to do, i.e. move a nation's wealth and natural resources from the many

to the few.

Let's move on to democratic socialism and stop punishing ourselves!

[Laelth]

59. Unregulated capitalism is merely organized crime.

That's brilliant. Hope you haven't copyrighted it. ;)

:dem:

-Laelth

[PSPS]

22. Won't work

Most of these are due to NINJA loans. The guy making $40K/year got a liar's loan to buy his $750K house with an option ARM that allowed negatively-amortizing payments, frequently no payments, for the initial term. So now he has this mortgage he can't afford on a house that's worth 50% or less than the loan amount. This lunacy won't help at all. Even a zero-percent 40-year loan on the real value of the house would be unaffordable, let alone a 4% "subsidized" cram-down. So there really is no place for this scheme to go.

Let the foreclosures continue. These people should be renting. Taxpayers shouldn't be buying people's houses for them. It's the foreclosures that are bringing housing prices back to where they should be. The fact is that there is plenty of mortgage money available today for a QUALIFIED buyer (provable income, 35% loan-to-income ratio, etc.) These attempts to prop up the bubble are a big mistake, and they can't work anyway as I've described above.

[Phoenix-Risen]

26. You sir are correct

The only way out is to let the crap fall where it may, and the sooner the better.

[mbperrin]

37. You ARE going to prosecute the criminal loan-originators,

bankers and mortgage brokers, who structured and offered these instruments, correct?

They will be part of the "crap that falls where it may", right?

[Phoenix-Risen]

41. If they did anything illegal

the problem is that laws were changed that allowed these forms of "creative financing." Many of the current practices were not legal prior to the 1998 deregulation of the finance industry.

[mbperrin]

42. Isn't due diligence still required? Isn't systematic failure to exercise

due diligence fraud?

And if fraud is used for financial enrichment, doesn't it become criminal?

Because surely even Phil Gramm didn't have the power to make it legal to allow pure lying on applications with absolutely no checking at all, did he?

So I'll settle for your "if they did anything legal" as an admission that bankers at least do bear some responsibility for this huge mess, and are not the victims, under any circumstance. Thank you!

[SlowDownFast]

62. That would be that plan.

Folks who should have never owned those houses can go back to renting, and the bankers who schemed these predatory lending practices get severely fined and/or go to jail.

Anything else is just a ruse and will not solve anything. It is indeed a clusterfuck that needs untangling and you can't side with one or the other when both are responsible for it.

[SlowDownFast]

61. Glad to see at least some people get it.

When responsible, frugal homeowners who played by the rules have to pay the mortgage of their neighbor who got the same house but make half as much and put zero down on an ARM loan, I think it will be cause for "some" to be a just a tad upset.

They might just start seriously asking themselves,"Now why is it that I pay taxes, again?" - as if they weren't already getting that notion.

Don't get me wrong - the bankers who schemed these predatory lending practices ABSOLUTELY MUST suffer penalties/prosecution or the unrest in the market and society will remain and even escalate.

[Mr. Hyde]

27. $1,000/month versus $800/mo. What's the difference after you've been laid off?

This seems like a minor stop gap measure that will do very little to head off the next surge of new foreclosures that will probably follow the last few months worth of lay offs and I'm sure it will go over real well with those who have already been foreclosed on as well as those who made painful but fiscally responsible decisions and don't require govt. intervention. The only thing that will fix this mess in a way that benefits Americans is massive job creation and that means good paying, dependable, full time jobs in all sectors. You can't borrow or print your way out of this. You can't shuffle bad assets around and pretend like they aren't there. You can't tax your way out of it. You can't tax cut your way out of it. America needs lots of newly employed people to suddenly take an interest in buying houses and goods, preferably goods manufactured right here in America... IMO.

[4lbs]

29. Anyone see the piece on "60 Minutes" Sunday night regarding World Savings and Frank Bishop?

That set the stage.

Quite a few people were given mortgages with payments that didn't even cover the monthly interest.

The new homebuyers were given a choice of 4 monthly payments. The lowest one was less than the interest. The second just covered the interest, but that was it. The third one was more normal, mostly interest with a little principal. The fourth one ended up being the most expensive but also paid off the mortgage quicker.

Well, seeing as how they gave loans to people that were borderline in the first place, guess which payment those people would choose if given the chance? That's right, the lowest one that didn't even fully cover the interest.

These "interest-deferred" arrangements kept pushing the unpaid portion back until it could go no further. After several years, they barely made a dent at all. Much, much less than a standard arrangement would.

Then everything changed and the homeowner discovered their mortgage payments increasing significantly. Well, if they could barely afford the lowest payment, how the hell were they going to be able to afford a much higher payment all of a sudden?

Here's the thing, they were never told about all this at the beginning. They were explicitly told everything was ok, no problem, keep making those low monthly payments.

The loan officers "cooked" the applications however needed so that they would be approved by underwriting. They told the applicants to state that their annual income was $60K or $72K even if it was only $36K. Then they didn't "check" on that. They just accepted it.

Instead of giving out quality loans, they made money by handing out a bunch of loans, regardless of the quality.

[Lance_Boyle]

32. "they were never told about all this at the beginning"

BULLSHIT. The terms were disclosed in the contract they signed to purchase the mortgage. In the exceedingly rare event the terms were not properly disclosed, the lender committed fraud and should be punished. But it makes no sense to punish lenders (or reward borrowers) for buyers' failure to take responsibility for their purchases. You have to be pretty fucking dense to not know that the "A" in ARM stands for "adjustable." And frankly I don't think such stupidity warrants taxpayer-funded bailouts.

[PSPS]

34. I agree

These people who took the liar's loans knew exactly what they were doing. Their thinking was that the ever-expanding bubble would further increase the already exaggerated value of the house and, at recast time, they'd either "flip" the house or refinance it with yet another liar's loan so they could make another three to five years' worth of less-than-interest negative-amort payments, and then do it yet again.

No, these houses must be foreclosed. The sooner the better.

[mbperrin]

38. As long as the bankers go to jail, fine.

Because if you truly believe that the bankers were duped by the borrowers into making these loans, I feel sorry for you....

[Lance_Boyle]

43. the lenders made stupid loans - the lumps they take are not getting

those loans repaid. The borrowers borrowed stupidly. The lumps they take are not getting to keep the houses they couldn't afford. Pretty clear cut. There's no prison term for stupidity in lending or borrowing. But there is the loss of income for the lender when its forced to foreclose, and the loss of use of the house for the borrower when they get kicked out. Seems pretty just to me, in light of these terms having been spelled out plainly in the contract.

[mbperrin]

39. You've been to every closing and seen every transaction, and in every

case, the poor innocent bankers were duped by these fiendishly clever and determined borrowers?

I do smell bullshit, and it seems to be coming from your direction...

[Lance_Boyle]

44. greed on both sides at those closings

not right for only one side to take its lumps.

[SlowDownFast]

63. Both parties need to pay the "price" of unrealistic lending/borrowing. n/t

[defendandprotect]

57. This is obvious fraud by lenders, complicated yet again by some

of these mortgages being sold off to even bigger criminals --- GMAC?

Where, oh where, is RE-REGULATION????

[4lbs]

58. Phil Gramm and most of the GOP say we don't need it.

:sarcasm:

[w4rma]

40. Should be credit card payments, too. (nt)

[defendandprotect]

50. And where oh where is RE-REGULATION of the financial industry . . .?????

...RE-REGULATION of banking . . . ???

Otherwise, we will be doubling back forever bailing out capitalism ---

Let's Move on to a new system --- economic democracy ---

democratic socialism --

And let's make sure that it is the Congress -- our elected officials ---

and not the Fed/a private bank -- dictating our economic policies---!!!