Posted on 03/06/2010 3:25:47 AM PST by combat_boots
The mortgage firms are looking at every loan more than 90 days past due and “asking us basically to give them all the documentation to show that it was properly underwritten,” JPMorgan’s Scharf said. “We then go through a process with them that takes a period of time, and literally it’s every loan, loan-by-loan, and have the discussion on whether or not we actually should buy the loan back.”
That's exactly what I said would happen more than two years ago.
EVERY LOAN.
If there was appraisal fraud OR
If there was income fraud OR
If there was DTI fraud OR
If the automated underwriting was gamed OR
If there was asset fraud
THEN the bank gets rammed with a repurchase demand on the bad paper - paper that is 90 days+ and, in essentially every case, dramatically underwater.
The "dream" that this will result in "only" $7 billion in losses (30% of the repurchased amount) is a fantasy.
The most common include inflated appraisals or falsely stated incomes in the loan applications, said Larry Platt, a Washington-based partner at law firm K&L Gates LLP who specializes in mortgage-purchase agreements. The government agencies hire their own reviewers who go back and compare the appraisals with prices from historical home sales, he said.
Ding ding ding ding ding ding.
The truly ugly news isn't found in these mortgages. It is found in the second lines - HELOCs and "Silent Seconds" - that are behind these agency mortgages. Those are worth zero once the first defaults, and when the repurchase demand is perfected the auditors are going to force these loans to be recorded at their likely recovery value - which is zero.
There are literal hundreds of billions of dollars worth of that trash on all of the big banks balance sheets, and all of it is being carried under assumptions that nearly every one of those loans is "money good." 80% of the dollar value of these HELOCs and Seconds are in the bubble areas and of those virtually all are behind an underwater first.
The assumption that these loans are "money good" is blatantly and intentionally false. It is a fiction that our regulators, examiners and auditors have foisted upon the public, and if you rely on it, you will get burned.
Oh, JP Morgan's net income for all of 2009? $11.7 billion.
They recorded $1.6 billion last year for this "expense", and I'm willing to bet that it's double that or more for the coming year, not to mention the impairment or outright write-off of the seconds.
That would be roughly 20% of their net earnings - not exactly an immaterial amount of money.
PS: $21 billion is tiny compared to the tsunami headed these folks' direction. In the end every piece of this bad paper is going to head back to the securitizers and originators. All of it - and the seconds behind that paper are all going to wind up marked to zero, because they are subordinate to an underwater first. It is simply a matter of time before the people who hold these RMBS and the more complex securities structured on top of them decide to come after the banks and, to the extent that they can prove malfeasance or misfeasance, these banks will eat it.
Oh, JP Morgan's net income for all of 2009? $11.7 billion.
They recorded $1.6 billion last year for this "expense", and I'm willing to bet that it's double that or more for the coming year, not to mention the impairment or outright write-off of the seconds.
rut row this is bad....
Their loan loss reserve fund is now $32 billion, and they keep adding to it every quarter. They know what the situation is.
Yea, they think this ‘issue’ will go away with the next bubble...sorry, not this time.
This is going on down to the lowest levels of the financing world. I have posted many times about Florida, where people default on their mortgages and then routinely live in their homes without paying a cent, and without the lender taking steps to foreclose, for TWO YEARS or more.
Fundamentally, this is because the lenders do not want the homes. They can foreclose on them, but there is no one to buy them at almost any price. This means they would move the (defaulted on) home from a "money good" position on their balance sheet to the liability column, with zero prospects of shedding that liability except by accounting for it as a loss.
So the lenders keep their balance sheet fiction, look the other way, and thousands of homeowners live for free for the foreseeable future.
The federal government could take a huge step toward fixing this mess tomorrow by using the unspent Porkulus funds for something that would actually work: "funding" an across-the-board increase in the mortgage interest deduction for homeowners who are current on their mortgage for the tax year.
From the consumer perspective, the goal of loan modification is to reduce monthly housing costs and, thereby, reduce the effective ("real") underwater rate. Changing the mortgage interest deduction immediately means this April 15th millions of homeowners get a large refund and, more importantly, millions will receive an immediate, de facto loan modification.
This approach requires no loan-by-loan evaluation, has no administrative costs, does not impose any approval process on the lender or borrower, etc. All that would be required to participate in this "program" would be designated proof that the homeowner is current on the mortgage.
If Porkulus money is going to be spent, using it to effectively decrease the monthly housing costs for millions and millions of people who are current on their mortgages (thus incentivizing current payments AND helping those in a financial position to help the real economy through discretionary consumer spending) would be highly efficient and effective.
Mr. President: Hello?
How To Inject Financial Liquidity as the Consumer Level Through the Housing Market
Interesting thought, but isn't it just a creative way to prop up the housing market and isn't the housing market too big to prop up?
We have the same thing happening in wino country, re people not paying any monthly mortgage payments from 1-2-3 years.
The larger the inflated mortgage, the less the banks want to do anything. We know of one couple, who haven’t made a mortgage payment for 3 years this May. Their original purchase appraisal 5 years ago was 2.5 million. Everytime a home sold in their locked gate community in a formerly exclusive country club community at a higher price, they either refied or took out a second/third/?. The guy’s business/probably a Ponzi Scheme, folded 3 years ago in April. Yet, he got the seconds and other loans on the home to keep their very high standard of living going and apparently the ponzi scheme re his folded business. We have heard estimates up to double the original appraisal in extra loans taken out on this home. We keep hearing of people and small businesses, who/which invested in his Ponzi/Madoff scheme in the last two years and lost everything. We expect him to move to another state and start over as no one is filing charges against him.
A younger relative, who has a home in a country club community east of Gay Frisco, said that not paying mortgages has become bragging rights with guys at club bar/restaurant/club house. Fortunately, he took the option not to belong to the country club as it approaching bankruptcy due to the deadbeats not paying their dues and charges.
“This is going on down to the lowest levels of the financing world. I have posted many times about Florida, where people default on their mortgages and then routinely live in their homes without paying a cent, and without the lender taking steps to foreclose, for TWO YEARS or more.
Fundamentally, this is because the lenders do not want the homes. They can foreclose on them, but there is no one to buy them at almost any price. This means they would move the (defaulted on) home from a “money good” position on their balance sheet to the liability column, with zero prospects of shedding that liability except by accounting for it as a loss.
So the lenders keep their balance sheet fiction, look the other way, and thousands of homeowners live for free for the foreseeable future. “
“Fundamentally, this is because the lenders do not want the homes. They can foreclose on them, but there is no one to buy them at almost any price. This means they would move the (defaulted on) home from a “money good” position on their balance sheet to the liability column, with zero prospects of shedding that liability except by accounting for it as a loss.
So the lenders keep their balance sheet fiction, look the other way, and thousands of homeowners live for free for the foreseeable future. “”
Nice racket, ain’t it? ;-)
This meltdown is equal opportunity and well diversified. Even the big spenders don’t have $500-???? per night to escape to places like Quail lodge from their McMansions in their local country clubs
http://www.quaillodge.com/announcement.html
Media Alert: September 9, 2009
Carmel Valley’s Quail Lodge Hotel to Close
On September 9, 2009 the owners of Quail Lodge Resort and Golf Club (”Quail Lodge”) announced the closing of the hotel portion of Quail Lodge on November 16, 2009. Acquired in 1997, Quail Lodge has been unable to produce a net profit for the last eight years, despite tens of millions of dollars invested to fund capital expenditure and operating losses to maintain the AAA Four Diamond property in Carmel, CA.
The current intention is for the Golf Club and its Clubhouse to remain open for its 300-plus members and to service events, although services will be reduced.
At this time there are no plans for the sale, re-development or other uses for the hotel property. The owners do not anticipate the reopening of the hotel.
All media inquiries should be directed to:
Sarah Cruse @ Quail Lodge.
The owners of Quail Lodge must have lost a fortune!
Now that I believe.
Furthermore, the Feds are rigging the game many times in the cases of smaller banks, forcing loans to be declared losses, forcing banks to give loans to ‘certain’ people, and essentially putting the bank in such a situation that the Feds close the bank....in order to take it over....because said bank did what the Feds said to do.
Chase has put billions and billions away, ‘offshoring’ its workforce and working those not in management until all hours with little pay and almost no bonuses. They know that rainy day is coming when the money will be needed, but you are always “Chasing ‘it’” at Chase, hence it’s nickname, ‘prozac nation.’ No lie.
“The owners of Quail Lodge must have lost a fortune!”
Somebody lost a small fortune.
We need to be aware scams that are ongoing at formerly prestige vacation places for vacations, weddings and family reunions. Many of these former 4-5* resorts/inns/hotels want cash for a deposit for a stay at their places. Only use credit cards with companies like Capital One, who have no problem getting your money back from criminals.
A month ago an exclusive Wedding Mill Place in San Luis Obispo went belly up and many couples/parents who had deposited up to $10 grand for an upcoming wedding got stiffed.
The world according to meDavid Weyrich, give your Villa Toscana couples their money back now! Posted Wednesday, Feb 3rd, 2010
My condolences to any of you who were unwittingly duped into giving David Weyrich money in the hopes of having a wedding at Villa Toscana.
It seems the pricey Paso Robles nuptial hotspot has closed up shop in the midst of Monday’s foreclosure on several high-profile Weyrich properties.
Tell me this: How much would it suck, in the first week of February, to get a call from your site’s wedding planner telling you that the place you picked for your dream June date just went belly up?
Oh yeah, and the 10 G’s you forked over to reserve the weekend? Good luck getting that back.
That’s the totally non-triumphant news that L.A. groom Michael Swan is dealing with this week, among others who had reservations at Villa Toscana, as reported by Tribune reporter Melanie Cleveland.
Who is paying the taxes on all those properties?
This doesn’t make sense to me...
We were told these bad loans were bundled, sold around the world, and people didn’t even know who was holding the loan.....so how can they look at each loan on a per loan basis????
These days due diligence is a must if one is going to leave a large deposit on anything.
“We were told these bad loans were bundled, sold around the world, and people didn’t even know who was holding the loan.....so how can they look at each loan on a per loan basis????”
In many instances, they can’t.
That's an interesting idea.
One problem, though, is that folks are often unable to meet their mortgage payments because of lost income. Lost income often means much smaller net income tax owed, and thus, part or all of the increased tax deduction might be lost as there isn't sufficient tax liability against which to apply it.
A couple of ideas that would enhance the value of such a program would be to permit the tax deduction to apply against payroll taxes, or to make it a refundable tax credit.
One problem that none of this would overcome in any substantial manner would be with folks who have mortgages greater than the value of their homes. My understanding is that many of the folks becoming delinquent on their home mortgages are folks who owe more than the house is worth, could afford the mortgage payment, but just don't see any reason to pay a mortgage that may have a balance that is hundreds of thousands of dollars greater than the value of the house.
Also, as this would prop up property values, it would be difficult to withdraw the program once the economy was in full recovery.
sitetest
One problem, though, is that folks are often unable to meet their mortgage payments because of lost income. Lost income often means much smaller net income tax owed, and thus, part or all of the increased tax deduction might be lost as there isn't sufficient tax liability against which to apply it
Yes, every policy is going to have some people "unfairly" (at the individual level) excluded and included. But tying the de facto tax cut to owners not in default removes a lot of the "moral hazard" objections. It also gives the money (the increased deduction) to those who still have a certain level of financial viability.
IOW, this program is not so much to save homes or preclude foreclosures (although it would accomplish that in many cases), the goal here is to make millions of people who are not completely down and out already feel like they can spend a few extra dollars. It is the discretionary consumer spending, a $100 here, a $100 there, that is the ONLY thing that will create JOBS. And JOBS -- not an increased mortgage deduction --- are the only thing that will help the folks you're talking about here.
Also, what do you think about the idea of allowing the deduction to carry over against future income? I think that would be helpful and not cost the guvmint a dime more than the deduction would anyway.
A couple of ideas that would enhance the value of such a program would be to permit the tax deduction to apply against payroll taxes, or to make it a refundable tax credit.
Now, that's very interesting. I'm going to mull that.
One problem that none of this would overcome in any substantial manner would be with folks who have mortgages greater than the value of their homes.
On its face, you're right. However, as a practical matter, I disagee with this point.
You know how when you buy a house the RE agent tells you what the house will cost you each month factoring in (amortizing) the present mortgage interest deduction? Well, what if that MID were 4 x what it is now? Wouldn't that effectively lower your monthly housing cost?
True, that doesn't change your loan balance on paper. But it changes how much YOU PAY to make that loan payment.
Say you owe $300K on your house and you used to pay $2K a month for your mortgage and your MID was worth $200 a month. Your housing cost per month was net $1800. But if your MID is increased to $800 a month, your housing cost is net $1200 a month.
So, yes, you still owe $300K, and you may still be technically underwater because you owe more than your house is worth. However, don't you feel better much better about how much you are paying for your house? This is another way of saying consumer confidence --- which is CRITICAL --- is substantially boosted by this. Multiply that by millions of households and pretty soon the real economy starts percolating a little faster and a little faster.
The article had some other stuff about guaranteed second trusts to allow for refinancing.
Also, as this would prop up property values, it would be difficult to withdraw the program once the economy was in full recovery.
Shhhhh!! We need permanent tax cuts!! But, anyway, Congress could put in a sunset provision at the get-go, as they did with the Bush taxcuts, which they seem to have no problem allowing to expire even though the economy is completely in the tank.
Manefestations of the concept of "caveat emptor" (Let the buyer beware) Meanwhile, I'm forced to pay for the priviledge of taking a continuing education course in order to keep my state license on the subject of "ethics."
This course is so obviously constructed by leftist attornies who insist that in today's society, the rules have changed to "let the SELLER beware" or we'll strip you of both your reputation AND your occupation so you too can become another "ward of the state!"
Your postings are also demonstrating the manifestation of "squatter's rights," as now pushed vigorously by ACORN for all those mandated Community Reinvestment Act no-down Adjustable Rate Mortgages AND the too big to fail hazzard of loaning the nuevo rich countryclubbers too much to collect!!!
Meanwhile, the rest of us poor, dumb chumps in the middle class who were raised on "the buyer damn well better beware" and avoid the shame of "debtor prision" put bumper stickers on our SUVs that say:"I owe, I owe, so off to work I go" cause we git no squatters rights or anything else but the loss of the pursuit of happiness in America!!!
Democrats have wrought all this damnable desperation just to overwhelm our most successful capitalistic system that they abhor and are so ashamed of for America. G.D. those abhorent Democrats!!!
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