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Thread: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd !

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    Default weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd !

    if you are 'poor' and live in Ohio, it appears that other state taxpayers are about to be saddled with subsidizing low interest fixed rate mortgages to allow you to keep the house that you couldn't afford to buy in the first place - at a cost to Ohio taxpayers of $100k per subsidized home refi loan!


    (snip)" March 23 (Bloomberg) -- Ohio, which had the highest foreclosure rate among the 50 U.S. states at the end of 2006, plans to issue $100 million in taxable municipal bonds next month to help homeowners refinance mortgages they can't afford.

    Proceeds of the bond issue by the Ohio Housing Finance Agency will provide financing for about 1,000 loans with a fixed rate of about 6.75 percent, said Robert Connell, the agency's director of debt management.

    ``We believe that it is incumbent on this agency to do something to assist these folks to enable them to keep their homes,'' Connell said. ``A $100 million bond from this agency is not going to solve Ohio's foreclosure problem. We hope to at least make a dent.''

    A March 13 survey by the Mortgage Bankers Association found that Ohio had highest rate of homes in foreclosure nationwide. The state, whose economy has suffered amid declines in manufacturing, also had the highest rate of subprime loans in foreclosure. Subprime mortgages are granted to people with poor credit histories or high debts and often have rates at least 2 or 3 percentage points above safer prime loans.

    Earlier this month, Ohio Governor Ted Strickland, a Democrat, formed a task force to stem home foreclosures in Ohio. The group will develop strategies to assist homeowners facing foreclosure and educate homebuyers.

    April Rollout

    Ohio will begin rolling out the refinancing program on April 2, Connell said. The loans will be limited to homeowners whose income is up to 125 percent of the median income of their county.

    ``It will be available to the residents of Ohio to take them out of their adjustable-rate mortgages, their interest-only mortgages and avail them the opportunity to move into a fixed rate mortgage which may now benefit their individual financial situation,'' Connell said. "(snip)

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    If they can't afford their current loans, what can they refi into?

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    I think this is just a sign of how bad the forclosure rate is in some states. If forclosures become common enough it will impact the whole housing market as well as the econmy.
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    If they can't afford their current loans, what can they refi into?
    In Ohio they will soon be able to refi into a below market interest rate fixed interest rate 'state gov't backed' mortgage ... with other Ohio taxpayers picking up the tab for the interest rate subsidy, as well as 100% of the default risk !

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    Thanks for posting this Melonie! I think this is bullshit! But it's also sad. People sign away their lives and homes literally!

    I think that mortgage lenders in general need to be regulated much much more. But that's a given. It's becoming more difficult to become an appraiser now, and you can lose your license if you fuck up or are dishonest, but if a mortgage lender does that, there are no consequences!

    It's just unbelievable that taxpayers have to pay for this. I wonder if this will be a national trend.

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    It's not just the poor anymore ...


    http://today.reuters.com/news/articl...src=rss&rpc=22

    Mortgage crisis hits million-dollar homes
    Thu Mar 29, 2007 2:52 PM ET



    By Walden Siew

    NEW YORK (Reuters) - Sheriff Leo McGuire presides over foreclosure auctions in Bergen County, New Jersey, where the bidding for a home reached $1.2 million last June -- a record for one of the wealthiest counties in the nation.

    Homes sold on the auction block for as much as $852,000 this month -- more than quadruple the median home price in the United States. County officials believe they are close to setting another record soon.

    In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure.

    Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities such as Independence and Clarkston -- once the summer retreat for Henry Ford, founder of Ford Motor Co.

    "Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside," says Guzek, who works for GreenPath Debt Solutions, a nonprofit service based in Farmington Hills, Michigan. "People across all income brackets are having financial hardship."

    For those on the frontlines of the growing U.S. mortgage crisis, these are the early signs that the explosion of subprime loans made to mostly poorer borrowers is reaching higher ground. The damage is hitting homes financed through jumbo loans for more than $400,000 and so-called Alt-A loans that are a notch above subprime and a step below prime.

    Americans already are facing foreclosure at a record pace, according to the Mortgage Bankers Association. Lenders started foreclosure actions against more than one in every 200 U.S. mortgage borrowers in the last quarter of 2006.

    About 2.2 million foreclosures due to bad mortgage loans may cost U.S. homeowners $164 billion, mostly from lost home equity, according to the Center for Responsible Lending, a Durham, North Carolina-based research group.

    In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent, the highest since early 2005, when RealtyTrac, a online marketplace for foreclosed properties, began tracking data. The overall rate of foreclosures also is on pace to increase by a third this year.

    "Everyone's looking at subprime. The rock they aren't looking under are the adjustable rate mortgages and teaser rates and low money-down loans," said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world's biggest bond manager. "It's going to affect prime as well."
    Nature knows no indecencies; man invents them. ~ Mark Twain


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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    When I first saw the news story about 'state gov't subsidized' refis in Massachusetts, I actually thought they were joking. However, with the Ohio story and other blurbs from various state politicians it does indeed appear that a new 'entitlement' benefit is being promoted.

    That new 'entitlement' benefit seems to be that anybody who was able to sign a trick mortgage over the past few years such that they could get into a house that they couldn't afford in the first place will now be 'entitled' to keep it regardless of whether or not they can actually afford to make the mortgage payments.

    Actually this isn't a new 'entitlement' after all, since prior to the change in bankruptcy laws many state laws effectively legislated the same 'benefit' by denying the lender / creditor the 'right' to foreclose on their property, throw out the delinquent occupant 'owner', and sell the property at auction to recover at least part of their principal. However, what's different now is that the financial risk has been transferred from the banks and mortgage lenders to the taxpayers !

    The real irony is that the people who will actually wind up paying for this new 'entitlement' for deadbeat homeowners are the working people whose taxes will be raised to cover these gov't refi mortgage bonds. Because of those increased taxes in part, as well as a tightening of mortgage lending standards in general, these working people are virtually guaranteed that they will never be able to afford to buy the same home that they will actually be paying for someone else to continue living in !


    I also agree that the pain of trillions of dollars worth of mortgage defaults is NOT going to stay confined to sub-prime lenders. The 'big banks' have tremendous exposure to the mortgage bond market (not to mention the derivatives contracts related to that market / interest rates etc.).


    Back to the subsidized refi's being proposed, so far none of the 'fine print' has shown up in the press ... i.e. speculations about ...

    when the occupant dies, do his beneficiaries have to 'pay back' the amount of state subsidies the occupant received from the gov't refi program over the years in order to inherit the house with a clear title ?

    Failing the relatives ability to pay the state back for the value of the subsidy, does the state get title to the house ?

    If there are no 'strings' attached, this would mean that working class people are being taxed in order to increase the capital gains of the deadbeat's heirs when the house is inherited and sold !
    Last edited by Melonie; 03-30-2007 at 05:04 AM.

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    Quote Originally Posted by Vamp View Post
    "Everyone's looking at subprime. The rock they aren't looking under are the adjustable rate mortgages and teaser rates and low money-down loans," said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world's biggest bond manager. "It's going to affect prime as well."
    Finally someone said it!

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    ^^^ actually, quite a few experts have been 'saying it' ... but by some mysterious coincidence none of the negative analyses seem to make it into mainstream financial media !!!

    the latest from Professor Roubini ...



    (snip)"Last week this blog argued that the subprime mortgage meltdown would spread to other aspects of the subprime lending: credit cards, auto loans, subprime consumer credit. Today we got news that even Harley Davidson’s motor hogs are being financed with subprime loans: 20% of their hogs loans are subprime and the 30-day delinquency rate on such loans has increased from a 3.6% between Q1 of 2005 and Q2 of 2006 to 5.18% in Q4 of 2006, an almost doubling of delinquency rates in two quarters.

    Let us then consider the various aspects of this “Subprime Economy”.

    First, notice that subprime credit cards are now in the tens of millions since their growth has mushroomed in the last six years (see this MarketPlace story on the problems and predatory practices related to subprime credit cards and subprime fast cash). If a subprime – in terms of credit score – individual has difficulty in servicing his/her various debt obligations the first default usually occurs on the credit card debt. Defaults on credit cards occur before defaults on mortgages because financially stressed households would not want to jeopardize their home ownership first. It is easier to somehow refinance credit card debt than try to avoid foreclosure on a home after default. So, the stress on balance sheets of subprime borrowers will first appear on their credit cards debt and their willingness to service such debt.

    Next, defaulting on a home is more likely and earlier – for those who own a home - than defaulting on an auto loan because most individuals in the US need a car to drive to work. So facing debt servicing stress they are more likely to stop paying their mortgages than stop paying their auto loans as re-possessment of cars by creditors is faster than for homes. Again there are now tens of millions of subprime auto loans in the US. And there is now evidence that such subprime auto loans are also under distress. As reported by Bloomberg today under the title “Subprime Defaults May Spread to Auto Bonds, S&P Says” a study shows a sharp increase in defaults on auto loans:

    Bonds backed by automobile loans may be hurt by rising subprime mortgage defaults as people with poor credit struggle with their household debt, according to Standard & Poor's. Capital One Financial Corp., Wachovia Corp., Wells Fargo & Co., and other lenders have lent more funds to people with bad credit scores in the past few years to sustain growth, S&P said today in a report by analysts led by Mark Risi. The loans are also for longer terms, increasing the probability of default, the analysts said. About 68 percent of 2006 subprime auto loans were due in five years or more, Risi said. ``There could be some fallout from subprime in auto loans,'' Risi said in an interview. ``We don't have much data yet. We're still in collection mode. It's probably going to be hard to say for a while.'' …S&P classifies asset-backed car loan securities as prime, non-prime, and subprime, Risi said. About 0.31 percent of the prime loans made in the first quarter of 2006 have defaulted a year later, according to S&P. That compares to 0.8 percent for non-prime and 3.02 percent for subprime car loans. Prime loans have cumulative losses of less than 3 percent with credit scores of 680 or more and current annual percentage rates of between 0 percent and 7 percent under S&P criteria. Non-prime pools have net losses of between 3.1 percent and 7.5 percent with credit scores of between 620 and 680 and interest rates of between 8 percent and 13 percent. Subprime securities have net losses above 7.5 percent with borrowers scoring less than 620 and annual percentage rates of more than 13 percent. About 71 percent of subprime auto loans in 2006 were used to purchase used cars and 68 percent of those loans are for more than five years, S&P said. Five years before, only 58 percent of subprime loans were for used cars and 33 percent were for more than five years. Subprime auto borrowers who are also homeowners may have ``exposure to affordability products and the related payment shock,'' said Risi.

    But it is not just a problem of subprime mortgages, credit cards and auto loans. As reported yesterday by Douglas Kass (who has a column on street.com) there is also now evidence of a sharp increase in delinquency on the subprime loans that finance the purchase of Harley Davidson’s famous motorcycles, or “hogs” in Americana jargon. When default rates almost double in two quarters on Harley’s hogs you know that this subprime problem is a real hog for the economy. "(snip)

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    That's still sub prime, I was referring to someone saying people from other levels of credit worthiness defaulting.

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    ^^^ I took you comment in reference to difficulties / losses within 'mainstream' big bank lenders as well as 'subprime' lenders.

    But indeed a significant portion of upper middle class homeowners with formerly 'good' credit ratings are finding that their ability to refi has been killed by stagnant / declining values of their homes. Without this source of 'extra cash', and with the stock markets turning stagnant as well and cutting off cap gains, they are now just as subject to rising energy / utility prices, rising food prices, rising college costs, rising insurance costs, and negative job security as anybody else. Also they are MORE subject to the effects of increasing property taxes, increasing state income taxes etc.

    Therefore any upper middle class homeowners who also chose to consume to the max are also feeling the 'squeeze' of rising expenses without rising earnings. The only real difference is that there is more of a 'buffer' or time delay between a negative turn in monthly after tax cash flow versus default / foreclosure for upper middle class people than working class people ... mostly due to their having more assets to liquidate (like stock shares, second homes, boats etc.) to cover their shortfall for a while.

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    Default Re: weekend commentary ... subsidized home ownership for the 'poor' starts April 2nd

    new wrinkle ... Moratorium on foreclosures



    If this flies it will result in a massive liquidity crisis, as any remaining mortgage lending investors will start running for the hills before the gov't passes new laws which would prevent them from recovering (any portion of) their investment collateral from bankrupt homeowners who can't be evicted when they go into default.

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