I noted this week, with some amusement, that Realty Times featured an article by Tanya Marchiol, who is said to be a real estate investing guru, which espoused the same Principal Reduction solution that I've been writing about for some time. Perhaps the idea will gain traction, now that a guru is behind it, too.
Tanya does a good job of explaining why investors should be jumping on the Principal Reduction bandwagon and why the banks and other mortgage servicers are holding them back. It's all about the money involved - the fees that the servicers are charging, which is much more if they can ride a property into foreclosure than they would be if the loan were redone to include a principal reduction or even in a short sale. She also re-stated a point that I made in my earlier posts that the banks can certainly afford to take the accounting hits on these underwater loans.
Until this issue is addressed we will continue to have a slow (in some placed stalled) real estate market. The people out at the end of these bad mortgages are the only ones in the chain who can't afford to take the financial hit. So, they are holding on to underwater properties, locked into place by the very mortgage products that were made to look, oh, so attractive a few years back.
Tanya did note that the lack of action in Washington towards this solution is also driven by money - campaign contributions to the major parties and politicians - to guarantee that nothing is done to endanger those fees. It will likely take an uprising of the people even larger that the Occupy Wall Street movement to ween our politicians from the teats of the big money banks.
Showing posts with label mortgage mess. Show all posts
Showing posts with label mortgage mess. Show all posts
Sunday, December 4, 2011
Wednesday, November 16, 2011
Nibbling at the bullet and letting Citigroup off the hook…
The new HARP 2.0 rules that go into effect soon are certainly helpful for many homeowners who wan to stay in their homes, but who would like to refinance at current low mortgage rates; however, they do little to actually stimulate the housing market. The big bullet that is yet to be bitten is getting the banks to swallow the lost housing equity in this market and free up more homes for sale.
I’ve seen a number of proposals that hinge on getting the government more involved in the process. Most of them have the government ending up owning the homes temporarily and then eating the losses. To my way of thinking this is just a way to disguise yet another bailout of the big banks. They got themselves into this mess with their loose (some might even say reckless) mortgage lending practices and their greedy practices of monetizing the loans in pools of investment bonds. They need to feel the pain of those mistakes, perhaps by cutting out the outrageous bonuses that they hand out to the very clowns that got them into the mess in the first place.
I read yesterday in this week’s Bloomberg Businessweek that Citigroup has recently been handed yet another sweetheart settlement deal by the SEC regulators. Citigroup agreed to a settlement of $285 Million in an SEC complaint that they knowingly created and sold to investors a complex financial instrument based loosely upon earlier Citigroup mortgage pool bonds. Basically it was a bet on a bet. The thing that the SEC alleged is that the Citigroup people not only knew that this was a sucker bet (it was designed to fail), but they also put their money on the failure – they bet against their own investment. Of course it did fail; however, from the fees and winning bet on its failure Citigroup made as much as $700 Million.
If true (which Citigroup did not have to admit in the sweetheart deal with the SEC) I’d certainly like to know where this betting window is. It’s like being able to enter a nag in the Kentucky Derby, talking up its chances to drive up the betting line, betting against it and winning big when the nag loses. So what if you get fined $285 Million, if you made $700 Million? That is, after all, capitalism at its finest.
How are these things related? Well they both have home mortgages at their core. Both illustrate the government casting about for answers or direction, yet unwilling to take on the corporate corruption that is at the center of much of the mess that we are in. Government at its most basic level is supposed to represent the governed – the people. Our system has devolved to the point where it represents those who can afford to buy the attention of the politicians – special interest groups (who most often bully rather than buy that attention) and wealthy corporations. They are too big to fail or too loud to ignore. In either case their voices and demands most often drown out the voices of regular people.
Given the place where we are at right now, there is little hope that real solutions to the current housing crisis are forthcoming from Washington. Instead, we will likely see the slow process of correction play out in the form of continued high foreclosure rates and short sales. The only group that apparently is not too big to allow to fail in the eyes of our politicians is that group mentioned in the front of the U.S. Constitution, “We the people…”
I’ve seen a number of proposals that hinge on getting the government more involved in the process. Most of them have the government ending up owning the homes temporarily and then eating the losses. To my way of thinking this is just a way to disguise yet another bailout of the big banks. They got themselves into this mess with their loose (some might even say reckless) mortgage lending practices and their greedy practices of monetizing the loans in pools of investment bonds. They need to feel the pain of those mistakes, perhaps by cutting out the outrageous bonuses that they hand out to the very clowns that got them into the mess in the first place.
I read yesterday in this week’s Bloomberg Businessweek that Citigroup has recently been handed yet another sweetheart settlement deal by the SEC regulators. Citigroup agreed to a settlement of $285 Million in an SEC complaint that they knowingly created and sold to investors a complex financial instrument based loosely upon earlier Citigroup mortgage pool bonds. Basically it was a bet on a bet. The thing that the SEC alleged is that the Citigroup people not only knew that this was a sucker bet (it was designed to fail), but they also put their money on the failure – they bet against their own investment. Of course it did fail; however, from the fees and winning bet on its failure Citigroup made as much as $700 Million.
If true (which Citigroup did not have to admit in the sweetheart deal with the SEC) I’d certainly like to know where this betting window is. It’s like being able to enter a nag in the Kentucky Derby, talking up its chances to drive up the betting line, betting against it and winning big when the nag loses. So what if you get fined $285 Million, if you made $700 Million? That is, after all, capitalism at its finest.
How are these things related? Well they both have home mortgages at their core. Both illustrate the government casting about for answers or direction, yet unwilling to take on the corporate corruption that is at the center of much of the mess that we are in. Government at its most basic level is supposed to represent the governed – the people. Our system has devolved to the point where it represents those who can afford to buy the attention of the politicians – special interest groups (who most often bully rather than buy that attention) and wealthy corporations. They are too big to fail or too loud to ignore. In either case their voices and demands most often drown out the voices of regular people.
Given the place where we are at right now, there is little hope that real solutions to the current housing crisis are forthcoming from Washington. Instead, we will likely see the slow process of correction play out in the form of continued high foreclosure rates and short sales. The only group that apparently is not too big to allow to fail in the eyes of our politicians is that group mentioned in the front of the U.S. Constitution, “We the people…”
Tuesday, November 25, 2008
You read it here first!
Back on September 23rd I opined that the sleazy operators in the mortgage business would find a way back into the game, just as they always have in the past. After all, many of the guys who got the country into the Savings and Loan mess at the end of the last century are the same ones turning up in charge again in the current mortgage meltdown. They are the slick operators who understand how to game the system to make a buck. They wrote most of the bad business that was then packaged up and “monetized” as derivatives by the Wall Street companies that have since gone out of business or been bought up.
Well, last week's Business Week magazine reports that the sleazeballs have repackaged themselves, many changing the name of their operations, and now are in the process of writing bad FHA-back loans. The Business Week article carried the opinion that the next wave of failures that will need to be bailed out will be of FHA-back loans.
At issue are the same practices that got the mortgage industry into trouble in the first place – slick operators writing bigger loans for houses than the borrowers can really afford. The FHA-backed loan process was set up to help people who otherwise might have difficulty getting loan to qualify for the mortgage by having the government (FHA) guarantee the loan. This has attracted the slick-Willy operators in the business like flies to an open garbage can. One reason is that the FHA organization is currently overwhelmed by requests. FHA-backed loans went from about 4% of US mortgages in 2007 to 26% this year. The FHA just can’t handle the workload and police the issuers, too; many of whom are failed sub-prime lenders who just changed their name and shifted to FHA loans from their old line of bank-backed loans.
So, the Business Week article concludes that sometime soon the FHA will be lining up for a taxpayer bailout. The default rate has reportedly already climbed to 5.7%, which is 53% higher than the national average; and, cases of fraud are on the increase as the wolves in this business learn how to game this system. There doesn’t appear to be any end to the cycle of sleazy operators finding new ways to get around rules and common sense and to do bad business, at least not when at the end of every tunnel there is a taxpayer bailout waiting.
It’s time for some major perp-walks and prosecutions, and to allow some major bankruptcies; and, then to enact some good, common-sense oversight regulations. How many times are we going to put up with the likes of the Dewey, Cheatum and Howe Mortgage Company figuring out new ways to write bad mortgages on our dime.
Well, last week's Business Week magazine reports that the sleazeballs have repackaged themselves, many changing the name of their operations, and now are in the process of writing bad FHA-back loans. The Business Week article carried the opinion that the next wave of failures that will need to be bailed out will be of FHA-back loans.
At issue are the same practices that got the mortgage industry into trouble in the first place – slick operators writing bigger loans for houses than the borrowers can really afford. The FHA-backed loan process was set up to help people who otherwise might have difficulty getting loan to qualify for the mortgage by having the government (FHA) guarantee the loan. This has attracted the slick-Willy operators in the business like flies to an open garbage can. One reason is that the FHA organization is currently overwhelmed by requests. FHA-backed loans went from about 4% of US mortgages in 2007 to 26% this year. The FHA just can’t handle the workload and police the issuers, too; many of whom are failed sub-prime lenders who just changed their name and shifted to FHA loans from their old line of bank-backed loans.
So, the Business Week article concludes that sometime soon the FHA will be lining up for a taxpayer bailout. The default rate has reportedly already climbed to 5.7%, which is 53% higher than the national average; and, cases of fraud are on the increase as the wolves in this business learn how to game this system. There doesn’t appear to be any end to the cycle of sleazy operators finding new ways to get around rules and common sense and to do bad business, at least not when at the end of every tunnel there is a taxpayer bailout waiting.
It’s time for some major perp-walks and prosecutions, and to allow some major bankruptcies; and, then to enact some good, common-sense oversight regulations. How many times are we going to put up with the likes of the Dewey, Cheatum and Howe Mortgage Company figuring out new ways to write bad mortgages on our dime.
Monday, September 8, 2008
Bye-bye Fannie and Freddie; hello Uncle Sammy…
The U.S. federal government, citing the need to protect the interest the financial system, mortgage availability and taxpayers, will take over the devastated mortgage giants Fannie Mae and Freddie Mac.
Treasury Secretary Henry Paulson explained the decision to bail out the two companies who account for about half of all outstanding mortgages in the U.S. stating, “Fannie Mae and Freddie Mac are so large and interwoven in our financial system that a failure of either of them would create great turmoil in financial markets here and around the globe.”
Fannie Mae and Freddie Mac have lost billions in the U.S. housing crash over the past several years and further losses would result in bankruptcy as more homeowners default on loans.
Federal Reserve chairman Ben Bernanke acknowledged the importance of the bailout noting, “These necessary steps will help to strengthen the US housing market and promote stability in our financial markets.”
Under the deal the management teams of each company will be replaced and the companies will be given access to extra funding to run their business. The Federal Housing Finance Agency will administer Fannie Mae and Freddie Mac until a long-term solution is set.
So all of a sudden we , as citizens, all become part owners of a mortgage company, since it is our money and our government that is now the world’s largest mortgage holder and mortgage guarantor. I guess we won’t have to worry about calling it Frannie Mae after all; we can just call it Uncle Sammy.
There could be really interesting turns to this whole saga, now that the politicians in Washington will get a shot at it. The Democrats will likely want to suspend all foreclosures, for fear that they hurt the owners self-esteem and the Republicans will want to sell the whole thing to some cronies on the theory that some good will trickle down to the poor homeowners from their fat cat friends.
We can expect to see much finger pointing, pontificating and harrumphing in Washington in coming weeks and months, as they go through their “find someone to blame” charades. Then they’ll find a way to dump tons of good money after the bad then sell off everything for pennies on the dollar.
Perhaps the TV folks could make a daily reality show out of the whole thing. It would have to be better than much of what is on TV now. They could get Howie Mandell to put people’s mortgages in one of the 20-something cases and let them play deal or no deal for it. Based on what I’ve seen of people’s greed on that show, they’d mostly end up with nothing and still owe their mortgage, but it would be fun to watch.
I suppose that this is good for real estate in the long run; but, in the short term, I can’t imagine this speeding up the process of cleaning out the foreclosure inventory or short-sale houses. Anyone who has ever dealt with the federal government can’t believe that this will speed things up. Perhaps if they declare some sort of moratorium of foreclosures for a while, that would help get the inventory down; but what happens when they have to deal with the huge overhang of bad loans that they’ve just assumed? There is still a big bullet to be bitten by someone, sometime and we all know where that money is coming from, don’t we? I suspect that Uncle Sammy will end up like the guy on the left, before this is all over. Maybe that's just a taxpayer dressed up in an Uncle Sammy the mortgage broker outfit. I think I'll go stare at my green dot for a while. Uuuhhmmm!
Treasury Secretary Henry Paulson explained the decision to bail out the two companies who account for about half of all outstanding mortgages in the U.S. stating, “Fannie Mae and Freddie Mac are so large and interwoven in our financial system that a failure of either of them would create great turmoil in financial markets here and around the globe.”
Fannie Mae and Freddie Mac have lost billions in the U.S. housing crash over the past several years and further losses would result in bankruptcy as more homeowners default on loans.
Federal Reserve chairman Ben Bernanke acknowledged the importance of the bailout noting, “These necessary steps will help to strengthen the US housing market and promote stability in our financial markets.”
Under the deal the management teams of each company will be replaced and the companies will be given access to extra funding to run their business. The Federal Housing Finance Agency will administer Fannie Mae and Freddie Mac until a long-term solution is set.
So all of a sudden we , as citizens, all become part owners of a mortgage company, since it is our money and our government that is now the world’s largest mortgage holder and mortgage guarantor. I guess we won’t have to worry about calling it Frannie Mae after all; we can just call it Uncle Sammy.
There could be really interesting turns to this whole saga, now that the politicians in Washington will get a shot at it. The Democrats will likely want to suspend all foreclosures, for fear that they hurt the owners self-esteem and the Republicans will want to sell the whole thing to some cronies on the theory that some good will trickle down to the poor homeowners from their fat cat friends.
We can expect to see much finger pointing, pontificating and harrumphing in Washington in coming weeks and months, as they go through their “find someone to blame” charades. Then they’ll find a way to dump tons of good money after the bad then sell off everything for pennies on the dollar.
Perhaps the TV folks could make a daily reality show out of the whole thing. It would have to be better than much of what is on TV now. They could get Howie Mandell to put people’s mortgages in one of the 20-something cases and let them play deal or no deal for it. Based on what I’ve seen of people’s greed on that show, they’d mostly end up with nothing and still owe their mortgage, but it would be fun to watch.
I suppose that this is good for real estate in the long run; but, in the short term, I can’t imagine this speeding up the process of cleaning out the foreclosure inventory or short-sale houses. Anyone who has ever dealt with the federal government can’t believe that this will speed things up. Perhaps if they declare some sort of moratorium of foreclosures for a while, that would help get the inventory down; but what happens when they have to deal with the huge overhang of bad loans that they’ve just assumed? There is still a big bullet to be bitten by someone, sometime and we all know where that money is coming from, don’t we? I suspect that Uncle Sammy will end up like the guy on the left, before this is all over. Maybe that's just a taxpayer dressed up in an Uncle Sammy the mortgage broker outfit. I think I'll go stare at my green dot for a while. Uuuhhmmm!
Subscribe to:
Posts (Atom)
Posts
