Posted on 12/07/2007 5:57:26 PM PST by jiggyboy
A day after the White House unveiled a program to salvage the mortgage market, people are already talking about how borrowers might game the system.
To qualify for the fast-track program, borrowers must have a FICO score of less than 660 and it can't have increased by more than 10% since they took out their original subprime mortgage.
Because income isn't checked, some experts worry that borrowers who might otherwise be able to afford higher payments will try to lower their FICO score to qualify for a rate freeze.
"The message here is to get your FICO score down," Mark Adelson, a structured finance expert, said. "Don't pay some bills, but keep up with mortgage payments."
(Excerpt) Read more at marketwatch.com ...
So what’s better for the mortgage company? Freeze the interest rates and/or refinance and have a chance of keeping cash flow from the loan going or end up stuck with an overpriced piece of property they can’t sell or will sell at a loss anyway? Sounds like an overall win-win.
Why do so many people worry that somebody’s going to get something people think they don’t deserve? This is unquestionably a two-sided deal here. I guarantee you if the mortgage companies didn’t think they would benefit from this they would never in a million years have agreed to it. But no one talks about the mortgage companies having to make deals to stay out of bankruptcy because their brokers got greedy.
Thanks for bringing some sanity to this thread.
This has little to do with contracts between banks and borrowers and everything to do with how these mortgages were packaged and sold to overseas investors that took it on good faith that since they were loans in the US mortgage industry, they are good investments. Mega-billions stand to be lost by overseas investors. If the US loses the faith and confidence of overseas investors, we’re a third world country in a matter of a couple of years.
That's because it's better to have people paying their mortgage than owning a bunch of foreclosed properties that they will have to sell at firesale prices.
This sub-prime business on the surface is fake. There was a court case recently that foreclosure was denied. Because nobody could produce the mortgage in court.
What ever happend to getting a mortgage from your local bank and just paying the bank? A negotiated basic contract.
Some people discovered a way to screw people on both sides of a basic contract out of money.
Actually less, about 1.0 - 1.25% of all US based mortgages are affected by the ‘subprime meltdown’. I don’t understand what’s the big deal about. Even though there’s no public funds involved, and it’s a voluntary program by the lenders who figure they’re better off doing an en-masse refinance than an en-masse foreclosure, somehow this is a ‘bailout’, and ‘catstrophe’ and ‘buy gold run for the hills’ and ‘meltdown’.
I think everyone is collectively hyperventilating. Everyone (inlcuding the govm’t) should get a brown bag, breathe some CO2 for a bit and chill out. Reduce global warming or something...
A lot of those institutions, though, are the institutions that negotiated the deals. It’s simply a business judgment on their part. They recognize that if they don’t freeze rates for some homeowners, then those homeowners will default, and that leaves them even further in the lurch.
> But no one talks about the mortgage companies having to make deals to stay out of bankruptcy because their brokers got greedy.<
Maybe if the execs didn’t get a 10 million dollar Christmas bonus this might be a little easier to accept. I also don’t like the idea that corrupt, greedy brokers made a fortune from these sloppy loans.
This is what I'm complaining about. Everybody is just assuming and taking it on faith that this is better for the institution holding the mortgage but I have seen absolutely no numbers to back this up.
The instututions holding these mortgages didn't come up with this scheme. If Paulson, Clinton, Mozillo, Rubin, et al say this is better for the institutions then let's see the numbers that show us why unabashed socialism is once again the fallback position.
BTW here is a summary of the program. The three-percenters are in “Segment 2” in the “34-page document” link. (”Segment 1” is/are people who can probably refinance on their own; “Segment 3” are people who are probably screwed.) In other words, “Segment 2” is what this thing is all about.
Note his ominously abrupt end to his summary:
“I am going to stop this post here because I am pretty upset with this plan. I had reported yesterday that I am cautiously optimistic about this new Hope Now deal and that the devil is in the details.”
“The devil has reared its ugly, horny head in this ASF guide.”
“I called this a “big” step forward yesterday by Paulson and Hope Now. I’m going to recant that statement and say, “This is an ity bitty baby step forward and it looks like many homeowners and housing counselors will continue the “same” battle they have been fighting with mortgage servicers before this new plan was announced.”
I’ll be very interested to see how this plays out come Monday.
The numbers have been all over the web the last 6 months or more. "Unabashed socialism"??? On the contrary, this is capitalism at it's absolute best. Entrepreneurs doing what they have to do to keep the cash flow going without giving away the farm. The people you name have absolutely nothing to do with this. And, more than anything else, this is all about preserving the good faith and confidence foreign investors have in US investments. Without foreign investors this country will dry up and everyone knows it.
Well there are a lot of numbers on how many subprime loans were originated and how many are in trouble and so on but those raw numbers are at one end of the statistical scale and the way they’re bunched up into a mortgage bond is at the other.
I need to see something that tells me how many mortgages of the 1000-mortgage “tranche” called “Investment Vehicle Alpha” that pays X percent would go into default with this plan and without this plan.
I just don’t think that’s even possible for an institution holding “Investment Vehicle Alpha” to figure out what kind of mortgages are in it.
The way I understand it is the investment packages are rated according to risk and given the appropriate return based on the stated amount of risk. The biggest problem is that the foreign investors were intentionally or otherwise mislead on the amount of risk involved. Possibly because not even those that sold the securities knew fully how risky the loans were to begin with. In other words credit became so loose that defaults literally are threatening the economic security of the country if not the world. With prime interest rates so low for so many years, in retrospect, it’s easy to see how this happened. Just plain cheap money for everyone to buy.
Don’t get too hung up on the numbers you want to see. They’re just a small part of this solution. The bigger part is renegotiating loans and terms so that on a micro scale the mortgage companies can continue receiving cash flow from the loans and on a macro scale the adjustable interest rates on the loans don’t trigger rampant inflation. Understand we’re talking trillions of dollars here. Forget about some consumer getting a sweet deal for nothing.
That’s the way I understand it.
Umm, yes they did. The group that came up with this plan were mostly bankers and lending institutions.
This plan, and the many follow on extensions and patches to come out of Congress, will make a downturn into a decade long disaster, just like it did in Japan.
Some “bankers and lending institutions” initiated the mortgages, but for the most part immediately packaged as many of those mortgages as they could into bonds and sold them to foreigners, pension funds, etc. That’s the letter you get about a month after your first payment telling you to start sending it to a new address.
Yes, but it is still those financial institutions who are managing those portfolio of loans they securitized and sold to investors. And yes, investors were also involved in coming up with this plan. Is everyone happy? No. But the reality is, this is just the first step. Investors and banks are gonna have to make more concessions to more people or they will be stuck with notes that are worth only a fraction of what they are right now. Foreclosing is not only an expensive process, the amount they recoup from selling the foreclosed home is usually only about 1/2 of its market value.
He is right. I think they estimate this plan will only cover about 250,000 loans and of those about 150,000 will actually take advantage of it. There are 2 million or so loans set to have their rates adjusted, so this is just a small step.
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