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Thread: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratorium

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    Default another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratorium

    (snip)"WASHINGTON (AP) -- Freddie Mac lost almost $26 billion last year, ominous news for taxpayers who are footing the bill to rescue the mortgage finance company and its sibling Fannie Mae.

    Freddie Mac, which has lost a total of almost $80 billion since the housing crisis started in 2007, is bracing for more pain. The McLean, Va.-based company said a record 4 percent of its borrowers are at least three months behind on their payments and facing foreclosure.

    Its chief executive, Charles Haldeman, warned Wednesday of a "potential large wave of foreclosures" still to come. "(snip)




    In case this little bit of information has escaped you ( which it might have if you only get your financial news from US MSM ), as gov't agencies Fannie Mae and Freddie Mac's 'stealth' policy has been to avoid foreclosure proceedings against as many delinquent mortgage homeowners as possible. This has allowed a huge number of homeowners to continue living in their houses despite the fact that they can't afford to make mortgage payments. This has also allowed Fannie and Freddie to avoid having to officially book losses and take the associated official write-downs. Also, this has kept a large number of properties from being placed on the market which would otherwise further depress local real estate price levels. All of these actions tended to make the US economic situation appear better than it actually was ... in exchange for creating larger future Fanny / Freddie losses.

    However, following this policy for the last couple of years has also allowed 'unofficial' ( unrealized ) losses at Fannie and Freddie to skyrocket to unfathomable levels. Since Fannie and Freddie are now officially backstopped by the US taxpayer, it appears that there is finally some acknowledgement that unrealized losses on delinquent mortgages cannot be allowed to continue growing even more gargantuan. Given that Fannie and Freddie are by far the largest mortgage lenders in America, if the foreclosure process is now allowed to proceed it will have a significant negative impact on the delinquent homeowners, on local housing market prices, and on US taxpayers in the very near future. However, in the opinion of some, accepting such pain now is far better than postponing and facing much greater pain two more years down the road.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    OOPS ... somebody in Washington must be reading this BBS LOL !

    (snip)"Can Kicking Efforts

    The program has failed, but the can-kicking has only gotten worse. My "California Commercial Banker" friend writes:

    The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program. The Treasury proposal would require all borrowers who are 60 or more days delinquent on their mortgage to be sought out for participation in HAMP. Mortgage companies would need to try to contact the borrower at least four times by phone and twice by certified mail over 30 or more days before going to foreclosure.

    As a banker for the past 18 years, both ideas are complete nonsense to the point of being downright.

    First, most financial institutions do not have the man power nor the financial resources to support such ludicrous cow flop. Those institutions would incur additional expenses.

    Secondly, if I were a bank CEO, my response would be something like this: Fine Mr. president, if you are going to control how and when we exit a distressed loan situation, then we will require even larger down payments and more prudent underwriting guidelines to qualify for a new home loan to avoid your plan entirely on all new loans going forward.

    Thus, Mr. President, your proposal will tighten credit further, killing what little demand there is for real estate.

    Lastly, forcing banks to go through this process on every loan in foreclosure would force banks to maintain non paying or non performing loans on their balance sheets even further in time. Those are dead assets producing no income which further impairs their balance sheet.

    And aren't we trying to clean up the banking industry?"(snip)

    from


    Given typical government agency efficiency, this will probably mean essentially zero foreclosures for the balance of 2010 !

    ~
    Last edited by Melonie; 02-26-2010 at 04:17 PM.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    Since most banks have very little ability to decide if modification of a loan is preferable to foreclosure, requiring HAMP seems like a good idea. Or, we could restore the bankruptcy court's cram down power.

    HTH
    Z

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    What do you think the social consequences of foreclosing on EVERYONE with 3 months payments in arrears? Maybe there are some positive benefits in this that would be greater than displacing millions of people onto the streets, many of whom had no part in causing this fiasco which was caused mainly by massive collusion between the government and the financial industry. Maybe those people need to be given a break in the same way that the country is helping out Katrina and Haiti victims, none of whjom had any part in what befell them.

    Who cares about "booking" losses. The losses are already there, though hidden by the complex obfuscations of the accrual bookkeeping method. The lossess at Fannie and Freddie are almost nothing compared to the losses at corporations gambling with, and taking no responsibility for, our tax dollars since they knew the Fed would have to back them. It's like having a Sugar Daddy bailing you out if your gaming at Vegas or Atlantic City get into your mad money spending, for which you actually deserve the consequences of your folly.

    The REALLY unfortunate thing is that banks haven taken no part of such profligate practices are suffering because of the tidal wave of inadquate cash flow put into place by the practitioners of financial tsunamis. Those banks deservedly need help and ought to get it.

    Maybe those stinkin' crack smokers who caused and/or allowed this mess ought to be foreced to givce up their assets to help bail out the suffering. Those are the ones who deserve to be stressed out in prison.
    Last edited by threlayer; 03-04-2010 at 11:21 AM. Reason: correct multi typos
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    we could restore the bankruptcy court's cram down power.
    ^^^ well at least having a bankruptcy judge rule for a 'cram down' would allow ( or more correctly, force ) the realization of mortgage loan / bond losses, with associated hit to the lenders / investor's bottom line. 'Cram downs' would in turn force the 'soaking up' or 'writing off' of non-performing mortgage loans, eventually returning lenders / investors balance sheets to 'realistic' valuation levels ( as opposed to ongoing 'mark to make believe' ) and allowing them to regain financial 'health' without the perpetual aid of the US govt ( i.e. zero percent interest rates).

    From the standpoint of the delinquent homeowner, a 'cram down' ruling would at least force the homeowner to start paying SOME amount towards their mortgage on a regular basis, providing SOME cash flow for the lenders / investors. The 'real world' fallout of this HAMP ruling is that, thanks to typical gov't agency efficiency, it will be a miracle if all of the existing delinquent mortgages could be processed for HAMP eligibility within a year ! In turn, the lenders / investors receive no cash flow for a year, the homeowner gets to live in his house free of charge for another year, and the property devalues even deeper over that year. And that doesn't even address the 'second wave' of option ARM, prime ARM and Alt-A ARM interest rate reset defaults that will be occurring in 2010 and 2011 while the gov't is still trying to process HAMP applications for subprime ARM delinquent mortgages that are already out there.

    (snip)"Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

    “The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

    Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

    “Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.” (snip)

    And of course, even if the other problems with HAMP were ignored, there is still the embedded cost to the US taxpayer of 'incentivizing' the lenders ...

    (snip)"The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.

    “This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”

    Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.

    “Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”

    A good question, Mr. Geithner conceded.

    “What to do about it,” he said. “That’s a hard thing.” (snip)

    from


    Maybe those people need to be given a break in the same way that the country is helping out Katrina and Haiti victims, none of whjom had any part in what befell them.
    Yse, but, those Haitians ( and their children and grandchildren ) are not going to be taxed to pay for the benefits they are now receiving ! Those Louisiana residents are not going to be more heavily taxed to pay for hurricane reconstruction ( although residents of the other 49 states will be ! ). Bottom line here is that HAMP is not 'free', nor are all of the resulting losses of HAMP refinancing going to be borne by the original lenders / investors. When you look carefully under the hood, HAMP is a combination of a new 'bailout' mechanism for mortgage lenders, and a new social welfare benefit for certain Americans who are able to meet HAMP qualifications, funded by tens ( maybe hundreds) of billions of future taxpayer dollars.

    ~
    Last edited by Melonie; 02-27-2010 at 07:28 AM.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    Who cares about "booking" losses. The losses are already there, though hidden by the complex obfuscations of the accrual bookkeeping method.
    Technically, it matters a whole bunch to the US taxpayers who must continue to make billions of dollars worth of dividend payments to private investors on behalf of Fannie and Freddie. Until mortgage loan losses are realized on the books, and Fannie / Freddie bonds are appropriately revalued, US taxpayers continue to subsidize the 'fat cat' Fannie and Freddie bondholders and stockholders


    (snip)After the next government payout, Fannie Mae’s borrowings will carry an annual dividend cost of $7.6 billion, which the company said it will repay by borrowing more money from the Treasury. “This amount exceeds our reported annual net income for all but one of the last eight years, in most cases by a significant margin,” the company said.

    The company said the ability to tap continuing cash infusions from the Treasury this year “is critical to keeping us solvent and avoiding the appointment of a receiver.”

    The loss in the fourth quarter was driven in part by a $5 billion writedown on low-income housing tax credits that the Treasury Department barred the company from selling. Rival Freddie Mac took a $3.4 billion charge for the same reason.

    Losses at Fannie Mae are likely to grow with rising unemployment and costs to implement President Barack Obama’s plans to reduce foreclosures, the company said. (snip)

    from


    On the bright side ( from the point of view of US taxpayers ), the Federal Housing Finance Authority at least had the 'balls' to block the planned Fannie / Freddie resale of tax credits to 'fat cat' investors ...

    (snip)"The Treasury and the companies’ regulator, the Federal Housing Finance Agency, blocked Freddie Mac and Fannie Mae from selling their low-income housing tax credits, which can only be recognized if the companies expect to be profitable.

    The Treasury found that an agreement Fannie Mae had to sell about half of its credits would have cost taxpayers more than the company would gain from the deal, according to a November letter to that company"(snip) also from Bloomberg

    ... the scam that Fannie almost got away with was to resell (at a discount vs face value) low income housing tax credits that it had accrued via financing low income homeowners and rental properties ( and could not use itself because there are no Fannie profits thus no Fannie income tax liability to apply the credits against ) to the 'fat cat' investors so that THEY could apply the credits against their own income tax liabilities ( at perhaps a cost of 50 cents paid to Fannie for every dollar of tax credit income tax reduction ) !

    ~
    Last edited by Melonie; 02-27-2010 at 08:30 AM.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    Even if every house was foreclosed tommorrow how does that "put the carpenters back to work"? IE re-start home buildiung? It is not like those house will just disapear. If there are millions of empty houses on the market for sale at bargain basement rates what builder in there right mind is going to build any more new ones?

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    ^^^ well, if a large company moves its corporate headquarters from, say California to say South Carolina, the carpenters in South Carolina will need to build a whole bunch of new housing to accomodate the new / relocated employees. Foreclosure on California houses makes that possible by allowing former California headquarters employees to get clear of their California home mortgage obligations. But if foreclosure proceedings are in 'limbo' due to HAMP or a foreclosure moratorium, then former California corporate headquarters employees are unable to free themselves from financial obligations re their California house. This prevents them from accepting an offer to relocate to the new South Carolina headquarters, and leaves them as 'long term unemployed' in California.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    Quote Originally Posted by Melonie View Post
    ^^^ well at least having a bankruptcy judge rule for a 'cram down' would allow ( or more correctly, force ) the realization of mortgage loan / bond losses, with associated hit to the lenders / investor's bottom line. 'Cram downs' would in turn force the 'soaking up' or 'writing off' of non-performing mortgage loans, eventually returning lenders / investors balance sheets to 'realistic' valuation levels ( as opposed to ongoing 'mark to make believe' ) and allowing them to regain financial 'health' without the perpetual aid of the US govt ( i.e. zero percent interest rates).

    From the standpoint of the delinquent homeowner, a 'cram down' ruling would at least force the homeowner to start paying SOME amount towards their mortgage on a regular basis, providing SOME cash flow for the lenders / investors.... ~
    OMG, we agree. Will wonders never cease?

    The 'real world' fallout of this HAMP ruling is that, thanks to typical gov't age ncy efficiency, it will be a miracle if all of the existing delinquent mortgages could be processed for HAMP eligibility within a year ! In turn, the lenders / investors receive no cash flow for a year, the homeowner gets to live in his house free of charge for another year, and the property devalues even deeper over that year. And that doesn't even address the 'second wave' of option ARM, prime ARM and Alt-A ARM interest rate reset defaults that will be occurring in 2010 and 2011 while the gov't is still trying to process HAMP applications for subprime ARM delinquent mortgages that are already out there.
    On the other hand, when the bank forecloses, it gets no income stream and locks in a loss. Modification or a cram down in bankruptcy restores the income stream. I guess we couldn't agree for long. All is right with the world.

    (snip)"Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.
    The banks have re-created themselves as zombie banks by pursuing their foreclosure folly. Zombie banks are exactly what we do not need. Rather, we need banks that are able to assess value, risks and opportunities and loan accordingly. Unfortunately what we have is banks that can do none of those things, so they proceed to make the problem worse.

    Z

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    The banks have re-created themselves as zombie banks by pursuing their foreclosure folly. Zombie banks are exactly what we do not need. Rather, we need banks that are able to assess value, risks and opportunities and loan accordingly. Unfortunately what we have is banks that can do none of those things, so they proceed to make the problem worse.
    again we agree ... I think. The concept of Zombie banks originated in Japan, where the gov't facilitated Japanese banks to continue carrying non-performing loans without forcing them to 'mark to market' the loans actual ( reduced ) value and without forcing them to book losses. This is essentially the same thing that is now being facilitated by the US gov't and US bank regulators.

    When a non-performing mortgage is foreclosed on, the bank / investors holding that mortgage are able to recover some amount of 'auction' value in cash, and are forced to write off the bad loan. However, they also are able to reduce their future loss risk on this non-performing loan to zero, as well as being able to use the (reduced) cash recovered to make new and hopefully better performing loans. But when a non-performing mortgage is allowed to remain in foreclosure delay 'limbo', the bank / investor cash remains 'locked up' in the non-performing loan, no (reduced) cash can be recovered and thus that trapped cash is not available for making new and hopefully better performing loans.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    Big banks have decided that playing the market Vegas-style makes more money for them than traditional banking. Until we (Congress?) reel in the excesses of Reaganonomics in the banking industry, this profligacy can and will happen over and over.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    ^^^ it wasn't Reagan but Bill Clinton who forced banks to start writing subprime loans for minority / inner city residents with credit ratings / income to mortgage payment ratios that were historically proven to represent a high risk of default.

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    Default Re: another 'stealth' US gov't benefit about to end ? Freddie Mac mortgage moratoriu

    Yes. Right about Clinton at the behest of the Fed's Chairman, Alan Greenspan, who now agrees he was altogether wrong all along, thinking that industry would 'police itself.' But I'm talking Reagan who greatly de-regulated the banking industry, causing the banking executives to think they were big shot investment executives. That was a very dangerous transformation. That's where most of the background fault lies.

    You keep talking about the inner city subprime loans, when in actuality many many more middle-class people than those poor caused by far the majority of the problem. (And then there was all that collusion between the regulators and the finance industry which amplified it so much more.)

    The princilple of of the incrased availability of loans was to give the inner city poor a stake in their neighborhoods so that decay and crime would be reduced without a great increase in police forces and court overloading. There was a reason behind all that. But as in the fascinating CNBC's production "House of Cards" of a year ago and Frontline's "Card Game" recently, the real exploiters were businesses, not people wanting a better stake in their own lives.

    To hear you talk about it, one would think that 'bleeding heart' liberals were just trying to find yet another way to give away rich people's money, Robin Hood style. And that is just not the truth.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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