Bush to freeze some subprimes, bail out irresponsible homebuyers

[Manedwolf]

Silly me. I should have bought a house I couldn't afford on an ARM with a low teaser rate, instead of responsibly renting a place!

I could be enjoying 4000sq/ft of the American Dream right now, with the Big Government standing ready to bail me out and tell the lender they can't make their profit!

Joke's on me! Damn me for being fiscally responsible! Why, I was acting like a traditional Republican, and they can't have that. Thanks, George! 

Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years

Wednesday, December 05, 2007

AP

WASHINGTON 
The Bush administration has hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures, congressional aides said Wednesday.

These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said that President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with officials of the mortgage industry.

Treasury also announced that there would be a technical briefing to explain more of the details of the proposal.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes  as a way to make sure that the break is not granted to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

The higher rates in many cases will boost monthly payments by as much as 30 percent, making it extremely difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

The plan represents an about-face for Paulson, who until recently had insisted that the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced that the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Paulson and other federal regulators began holding talks with some of the country's biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical subprime loan, those offered to borrowers with spotty credit histories, the rates for the first two years were at levels around 7 percent to 9 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

Mark Zandi, chief economist for Moody's Economy.com, said while the administration plan is a good first step, eventually the government will have to go further because of the size of the problem and the threat to the economy.

"This is the most serious housing downturn we have seen in the post World War II period," he said. "It is a threat to the broader economy. The risks of a recession are very high."

http://www.foxnews.com/printer_friendly_story/0,3566,315332,00.html

[Paddy]

I could be enjoying 4000sq/ft of the American Dream right now, with the Big Government standing ready to bail me out and tell the lender they can't make their obscene, usurious profit!

Fixed it for you.

Joke's on me! Damn me for being fiscally responsible! Why, I was acting like a traditional Republican, and they can't have that.

'Acting like a traditional Republican' means borrow, spend, borrow, spend, borrow, spend and see how big a national debt you can accumulate.  Seems to me these 'irresponsible homebuyers' were the ones acting like 'traditional Republicans'.

'Bout time George did something good for working Americans.

[Waitone]

Why is anyone surprised?  What ya wanna bet fed.gov ends up holding all the bad loans in some convenient quasi-governmental organization have a thing or two to do with houses and homes??

[Nitrogen]

Darnit.  I should have gotten that 5,000 sq ft house I couldn't afford instead of the 1900 sq ft house I could afford.

[Sergeant Bob]

Maybe I missed it but, I didn't see where it said the government was actually bailing out anyone, but just made an agreement with the bankers.

I think it is probably a good thing for the economy and the housing market not to have millions of people defaulting on their home loans. Yeah, the people should have been more responsible, but its better for the country.

Oh, and Reilly, we get it, You Now Hate Bush.

[Headless Thompson Gunner]

Bush hasn't bailed out anyone.  The biggest mortgage companies have agreed not to exercise their option to foreclose on certain loans.  They've also elected to reduce interest rates on some of their loans (or, more accurately, they've elected not to raise rates the way they otherwise could have). 

Foreclosing now (and raising ARM rates on folks who wouldn't be able to pay) will cost the lenders big bucks, so basically they've chosen not to do it.  In this depressed housing market they can't expect to sell foreclosed homes at a high enough price to make back their principal.  Smarter for them to forgo some extra interest payments for the time being.  Hopefully in 5 years the loans' outstanding principal will be lower while the value of the collateral will be higher.

Those of you who think you shoulda bought the bigger house and relied on Big Brother to bail you out are shortsighted.  Most of the houses that avoided foreclosure now are going to be foreclosed on in 5 years after the "bail out" expires, when the bank has a higher expectation of getting all of their principal back out.

I'm not sure why the FedGov was part of the agreement.  They needn't have been.  I suppose it does fill in the vacuum for government action.  Like it or not, these days the electorate expects a government response to problems like this, so this gives it to 'em without actually having the gov do anything the private sector couldn't/wouldn't have done anyway.

[sumpnz]

HTG is correct that there's no bail out per se being proposed by Bush.  A bail out would mean direct cash payments to banks/borrowers to stop bankruptcies/foreclosures. 

The irony of all of this is that the very same politicians that were flopping on the floor and moaning about all the people who've been priced out of the house market due to rising prices are also the ones supporting these measure that will keep housing prices from dropping.

Personally, I think the banks that made these bad loans, and the idiots that signed up for them should take a nap in the bed they've made.  If I knew an individual that was in one of these loans and facing the possibility of foreclosure I'd do whatever I could to help them find a way to either refi to a reasonable loan, or sell the house that they really can't afford.  But I really wish the .gov would keep their mitts out of the housing market. 

Also, I'd really like to see some areas (cough, Seattle, cough) experience a serious drop in prices.  I might actually be able to justify buying a house again in the short term if that happened rather than waiting for another 5-8 years for my invested savings to grow big enough to provide enough of a down payment. 

[K Frame]

"Bush" is bailing no one out.

Please fix your headline and your screed, Manedwolf.


"'Acting like a traditional Republican' means borrow, spend, borrow, spend, borrow, spend and see how big a national debt you can accumulate.  Seems to me these 'irresponsible homebuyers' were the ones acting like 'traditional Republicans'."

That's funny, given that the Democrats invented that very concept, you'd think that all the liberal types would be applauding...

[Waitone]

Back in the days of Mayberry and Barney Fife and Opie and Aunt Bea banks owned the mortgages they made.  Not so today.  Collateralized mortgage instruments are all over the economy.  They show up in everything from money market funds through to retirement accounts.  Loans have been put into a blender and whirled, pureed and poured out, and sold as "reduced risk" investments.  Over time they were assumed to be "risk free" investments.  They featured attractive rates of returns when they could be sold at a greatly reduced risk.  After all, what is more secure than a cash flow from a homeowner?  Now everyone who invested in those instruments anticipating enhanced future cash streams now will not see it because those who created the problem and profited from its existence found help from fed.gov.  A few weeks ago a court in Ohio dismissed 7 (IIRC) foreclosure cases when the "banks" couldn't demonstrate to the court's satisfaction that they in reality "owned" the mortgages.  The mortgages had been collateralized.  Talk about a shot across the bow!  Bad, bad decision.  Bush and his buds have responded to acute near term pain while ignoring longer term blow-back.  This decision will be regretted.

Once again our buds in the banking system walk off leaving someone else holding the bag.

[HankB]

"Acting like a traditional Republican' means borrow, spend, borrow, spend, borrow, spend and see how big a national debt you can accumulate.  Seems to me these 'irresponsible homebuyers' were the ones acting like 'traditional Republicans."

No, it doesn't. It means being fiscally responsible.

The Republican House and Senate that Bush enjoyed during most of his tenure abandoned traditional Republican values, instead spending money like drunken sailors in a bordello after two years at sea.

Notice that they lost control of both the House and Senate - and deserved to.

[ilbob]

no bailout that I can see as the feds won't be spending a nickle on this.

just a deal between the players most affected to try and limit the financial impact of the sub-prime debacle. i suspect the feds have to be involved or it would be considered collusion and probably illegal.

hopefully the feds will have learned their lessons and make sure that people have to put down a reasonable down payment and only take on loans they can actually afford. but I am not betting on it.

a big part of the problem is many of these loans were upside down when they were granted. just plain stupid.

[El Tejon]

Manewolf, why do you hate America?

I know what you mean and the McMansion owners make me sick, however it has hit everywhere.  This summer my neighborhood association had a couple move out in the middle of the night, back down to Virginia they scurried (we have a lot of transplants here), never to return.  The home sat vacant until October.  A neighbor (this one from Texas) cut the grass and tore down the 4th of July decorations.

I'm with ilbob, I just don't understand why these mortgages where granted in the first place.  I have heard that the banks were under pressure to extend loans to more and more individuals (I got my mortgage in '97 and had to undergo an anal probe just for my moderate loan).  Can anyone confirm this?

Government creates the problem, and then government "fixes" the problem.  Old story, different date.

[K Frame]

"Can anyone confirm this?"

What, confirm your mortgage lender anal probed you?

Did he kiss you when you left the office? That would be more than enough confirmation! 

[MechAg94]

I guess I have a 700+ credit score and not much debt so I didn't get the 1st degree when getting a loan. 

I agree that people need to learn to live with problems of their own creation.

[Glock Glockler]

Tejon,

During the refi boom all looked rosy and everyone thought that values would keep skyrocketing, so with the risk mitigated there was something of an arms race between lenders to offer more creative and generous programs.  There were even programs where, for a higher rate, one could get a mortgage with 0 income/asset/employment documentation.  While this is rather incredible the real question is whether or not you scheduled another appointment with the doc  

[Brad Johnson]

I place blame in three places...

1) People with no concept of money management getting in over their heads because they were too friggin stupid to put pen to paper.  Hey, it's all about the monthly payment.

2) Shady lender officers/offices who preyed on people with no concept of money management and who were too friggin stupid to put pen to paper.  Hey, it's all about the monthly payment.

3) Underwriters offering increasingly strange non-traditional mortgage products and using poorly defined and disturbingly vague underwriting criteria that is wide open to abuse.

I put the least amount of fault on the national underwiters (though they are still much to blame).  The lending guidelines they developed were based on statistical probabilities.  Unfortunately, not being as regulated by the fed as more conventional product lenders, they used guidelines that were a bit, um, stupid.  They also forgot (or ignored that fact that) there are people out there who can and will take advantage of every opportunity, even making a few opportunities where none is supposed to exist.  Thats where a bunch of independent brokers, along with some larger national b-paper lenders, figured out a way to monkey the system and get people in on loans that shouldn't have been made in the first place.  The underwriters knew but didn't make any changes, figuring it would all "come out in the wash."

I have personally observed a lending officer telling a borrower not to worry about saving money for their insurance and property taxes.  "Nah, don't worry about that.  You can pay it with your income tax refund."  They figure the loan on an ARM, finagle an opt-out on the payment for taxes and insurance, then push all kinds of shady strangeness to get "income" that shouldn't be figured into the D-to-I ratios.  They also figure in a HUGE fee and point structure (can you say "commission"?).  They apply to the underwriter with these skewed and artificially inflated numbers.  The underwriter, who set themselves up with their loose and poorly defined lending guidelines, accepts the application at face value.

The borrowers don't give a shrimp what's going on.  All they know is this guy (their "friend") is getting them a $500 payment and no out-of-pocket closing expenses on a $100,000 house when everyone else was telling them it was going to be 5% down plus $3000 closing and an $1100 payment.  Chances are they've always lived paycheck-to-paycheck, and probably always will.  Their only concern is what's going out on the first of each month and trying to get their deposit to the bank before the check bounces.  Taxes and insurance are things that happen some other time.  Seller is paying my closing costs?  Great!  Where do I sign?  These people tend to have selective hearing in the extreme.  You can go on all day warning them about every possible pitfall, advising them on financial strategies, and setting expectations.  In the end all they hear "No cost to move in.." and "Monthly payment is $$.."  Everything else is wasted breath.

So you have dodgy underwriters offering strange products using vague guidelines, idiot borrowers who's only concern is their monthly payment, and shady local brokers who would shaft their own mother for a paycheck.  The result, as expected, is what we see today.

Brad

[Headless Thompson Gunner]

I guess I have a 700+ credit score and not much debt so I didn't get the 1st degree when getting a loan. 

I agree that people need to learn to live with problems of their own creation.

That's just it, the people are living with the problems they created.

The banks screwed up big time when they made all of their subprime loans.  They are now faced with a situation where they have to choose between giving up much of their expected interest or foreclosing on some of their loans at a time when foreclosure is a really bad idea.  They smartly chose the option that minimizes the financial impact on themselves, upon the homeowners who took out the loans, and upon the economy at large.

I really don't understand what all the bellyaching is about.  Y'all do realize that this deal doesn't cost the taxpayer a dime, right? The only people who suffer under this deal are the banks who made foolish loans, and the people who bought those loans as an investment stupidly thinking there wasn't any risk involved.

[Paddy]

I'm with ilbob, I just don't understand why these mortgages where granted in the first place.

That's easy. Greed. Quick and easy brokerage fees, commissions, discount points and junk fees paid with borrowed money from the loan proceeds.

[Brad Johnson]

I'm with ilbob, I just don't understand why these mortgages where granted in the first place.

That's easy. Greed. Quick and easy brokerage fees, commissions, discount points and junk fees paid with borrowed money from the loan proceeds.

Along with borrowers too dang stupid to use a calculator.

Brad

[Paddy]

Along with borrowers too dang stupid to use a calculator.

The lenders are the 'professionals'.  The borrowers are the consumers.  The borrowers are required to sign a unilateral 'agreement' prepared by the lender.  Those agreements contain purposefully complicated legal language in fine print for the purpose of obfuscating the terms of the loan.  So the borrowers rely on the 'assurances' of the friendly loan officer who's about to ripoff part of their loan in the form of fees.

Don't blame the victim for the crime.

[Brad Johnson]

Along with borrowers too dang stupid to use a calculator.

The lenders are the 'professionals'.  The borrowers are the consumers.  The borrowers are required to sign a unilateral 'agreement' prepared by the lender.  Those agreements contain purposefully complicated legal language in fine print for the purpose of obfuscating the terms of the loan.  So the borrowers rely on the 'assurances' of the friendly loan officer who's about to ripoff part of their loan in the form of fees.

Don't blame the victim for the crime.

They ain't a victim if they undermine themselves by actively not listening (selective hearing).  They ain't a victim if they don't track their finances at the basic level of "income must equal or exceed outgo".  They ain't a victim if they take the advice of the guy down at the sewage treatment plan over the advice of someone who deals in real estate for a living.  And they dang sure ain't a victim if they know that taxes and insurance will be due at the end of the year and don't put anything back for it.

Nope. They ain't a victim.  They are stupid with a capital "S" and I have no sympathy.

Those that really were vitimized are indeed worthy of concern and care.  But I've been on the other side of the mirror.  I had a front-row seat watching people people get into this mess.  More than that I have a firsthand knowledge of Why, and it's not because they were railroaded.  It's because they were (and often still are) Professional-Grade dumbasses.  Trust me, there's far more of them than there are people who truly were taken to the cleaners.

Brad

[Paddy]

Many of these people are your customers, Brad.  I'm surprised you have so much contempt for them. They're paying a so-called 'professional', in good faith, to represent their interests.  They deserve fair and ethical treatment, no matter how 'dumb' they are. 

This is exactly why we need government regulated consumer protection laws.

[Glock Glockler]

The lenders are the 'professionals'.  The borrowers are the consumers.  The borrowers are required to sign a unilateral 'agreement' prepared by the lender.  Those agreements contain purposefully complicated legal language in fine print for the purpose of obfuscating the terms of the loan.  So the borrowers rely on the 'assurances' of the friendly loan officer who's about to ripoff part of their loan in the form of fees.

Don't blame the victim for the crime

All borrowers are required to sign a "Good Faith Estimate" which has all the fees listed, it also has the monthly payment listed broken down into principal & interest, taxes, and insurance.  If the mortgage is adjustable there are other documents they must sign explaining the adjustments. 

It's all there in black and white, if the borrower signs it's their own responsibility. 

[Stetson]

Along with borrowers too dang stupid to use a calculator.

The lenders are the 'professionals'.  The borrowers are the consumers.  The borrowers are required to sign a unilateral 'agreement' prepared by the lender.  Those agreements contain purposefully complicated legal language in fine print for the purpose of obfuscating the terms of the loan.  So the borrowers rely on the 'assurances' of the friendly loan officer who's about to ripoff part of their loan in the form of fees.

Don't blame the victim for the crime.

Horsehockey!  I just boought a house in February, there was legal jargon I didn't fully understand so I took it to a lawyer and he explained it.  Victim?  Not even....Idiot maybe but not victim

[Brad Johnson]

Many of these people are your customers, Brad.  I'm surprised you have so much contempt for them. They're paying a so-called 'professional', in good faith, to represent their interests.  They deserve fair and ethical treatment, no matter how 'dumb' they are. 

This is exactly why we need government regulated consumer protection laws.

The contempt comes from seeing someone (several someones, actually) actively choosing to ignore straightforward advice and counsel given in good faith.  If someone jumps off a cliff after being directly warned it's a bad idea, that's their problem, not mine.  I patently refuse to accept any professional or personal responsibility in that situation.  I also refuse to sympathize with their plight.  It's their mess, let them clean it up.  Maybe they'll learn something.

As for my conduct, it will always be fair and ethical.  Regardless of their choices during the transaction my professional counsel, and the reason for it, will not change.  They will still get the best advice I can give based on the best information I have available.  But "fair and ethical" doesn't include bailing out some dipstick after the fact for mistakes they chose to make.  Mistakes that directly conflicted not only with my advice but also with common financial sense.

So, no.  No sympathy unless they were truly and deliberately mislead (which, in the majority of cases I'm personally aware of, was simply not the case).

All borrowers are required to sign a "Good Faith Estimate" which has all the fees listed, it also has the monthly payment listed broken down into principal & interest, taxes, and insurance.  If the mortgage is adjustable there are other documents they must sign explaining the adjustments. 

It's all there in black and white, if the borrower signs it's their own responsibility.

You want to know something really amazing?  Most conventional borrowers, especially those who've bought and sold a home before, will grab the GFE right off the bat and hang on to it for dear life.  Most b-paper borrowers could care less.  One glance and it's trashcanned.  The only thing they care about, or care to hear any way, is what the monthly payment will be.  And by "don't care" I mean exactly that.  They will beat you to death over the monthly payment to the exclusion of all else. 

I try, I really do, to get these folks to understand what they are getting into.  But when you've explained something for the umpteenth time only to have it fall on deaf ears you become a bit jaded.  At some point you lose faith in their desire to fully (or even partiall, for that matter) realize their situation.  You're still going through the motions - explaining, providing contrast and perspective - but you can tell by their eyes they simply don't care.  All they want to do is to show up at the title company, sign some stuff, get their keys, and leave.  Personally I'd like to slap them back into consciousness and grill them until I'm satisfied they grasp some level of their obligation.  Unfortunately I can't do that.  All I can do is fulfill my duties and fully and professionally as I can, then walk away.

Brad