CR outlined on his show how the Fannie/Freddie HAPR refinances will escalate in March when they change to automated underwriting, and loosen the guidelines by not requiring appraisals or income verifications. See more details here:
https://bubbleinfocom.wpenginepowered.com/2012/01/11/harp-no-income-refis-in-march/
In the State of the Union address last night, President Obama said he will send to Congress a proposal to expand the refinancing to loans carried by private lenders. An excerpt from the nytimes.com:
The new plan would require Congressional approval, a difficult hurdle for any legislation in the current polarized environment. Still, some Republicans have expressed support for expanding the availability of refinancing, and White House officials insisted that the plan was not an act of theater.
“I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates,” Mr. Obama said Tuesday night in his State of the Union address. “No more red tape. No more runaround from the banks.”
Administration officials said they would release the full proposal in the near future.
The new program will be directed at people whose mortgage debts exceed the value of their homes, according to a senior administration official who spoke on the condition of anonymity because the details have not yet been finalized. The official estimated that the program could benefit two million to three million homeowners who have loans that are not guaranteed by the government, and that the program’s cost would not exceed $10 billion.
The proposal is the latest in a long series of largely unsuccessful efforts by the administration to bolster the housing market. Like most of its predecessors, the plan is focused not on borrowers facing foreclosure but on those who have been able to keep making the payments on their homes. Reducing housing payments for those borrowers will allow them to spend more money on other things. It also could help to stabilize housing prices by encouraging them to stay in their homes.
They haven’t rolled out the details yet, let along convince Congress that they should add 2-3 million more refinances of private loans to the 1 million projected to be helped by HARP.
But if they did, the last sentence is the key – it will bring fewer homes to market, which may or may not ‘stabilize housing prices’.
What his program will do is stagnate the market further, because there will be fewer distressed sales selling for retail price or less (which would stimulate sales!). Instead, the housing inventory will be dominated by equity sellers who insist on listing their homes for retail-plus prices, and holding out.
This additional program will force buyers to contend with lowly-motivated sellers – the ones who will sell, if they get their price. Will buyers be willing to pay more?
It’s hard to imagine a better can kick.
If you’re 22 months delinquent on your mortgage, all you have to do to stay an additional 22 months is to request a new refinance “without all the red tape”.
Voila!
Old bank gets made whole. Clock starts again on your short sale/foreclosure. Taxpayer get to chase around a bunch of ne’er-do-well squatters living in my house for another 2 years (at least).
I’m not politically motivated, but yeah, this would really suck.
WASHINGTON — The Federal Reserve said on Wednesday that it intended to hold short-term interest rates near zero “at least through late 2014,” extending its most basic and longest-running response to the financial crisis by at least another 18 months.
The decision means that the Fed does not expect the economy to complete its recovery from the 2008 crisis over the next three years. By holding rates near zero, the Fed hopes to hasten that process somewhat by reducing the cost of borrowing.
“While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated,” the Fed said in a statement released after a two-day meeting of its policy-making committee. “Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed.”
SELL SOME HOUSES!
The housing market is slowly slipping into a government controlled entity.
If the slide continues there’s going to be a day where you can trade your vote for X number of days in a government owned property.
“I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates,” Mr. Obama said Tuesday night in his State of the Union address. “No more red tape. No more runaround from the banks.”
Responsible homeowners can and have been refinancing all along. Our President wants to extend refinancing to those who are explicitly not responsible buyers.
Obama sounds like a farmer with terminal cancer looking for a loan on next year’s crops…
Beware.
It’s an election year. Time to roll out the vote buying programs. The obvious problem is this is going to cost the taxpayers or pension funds a lot more than 10 billion dollars. For every winner in a program like this there has to be a loser.
Ponz and Dawg – I think we’re missing some thing here.
“Like most of its predecessors, the plan is focused not on borrowers facing foreclosure but on those who have been able to keep making the payments on their homes.”
Government red tape is always a problem but anything that speeds up getting back to “normal” is worth a try. Buyers are seldom satisfied with prices – paying too much when the market’s booming and not pulling the trigger when the market has been hammered. Human nature and a great reverse market indicator.
Paying more ? No way !
I think the idea has merit but it’s gotta pass congress so it’ll never happen in 2012.
“The official estimated that the program could benefit two million to three million homeowners who have loans that are not guaranteed by the government, and that the program’s cost would not exceed $10 billion”
I don’t think lining debtors pockets with $3k will make much difference to the market. This plan sounds about as effective trying to bail out the titanic with a tea spoon. Socal real estate is denominated in more than mere thousands.
I thought this was aimed at people making their payments but whose LTV (loan to value) exceeded current requirements. I believe these people currently cannot refinance and take advantage of low rates. So this plan is to keep them from walking away from their homes. If so, it sounds like a good idea to me.
Mish had a nice post about it.
http://globaleconomicanalysis.blogspot.com/2012/01/obama-proposes-mortgage-bailouts.html
Post states: “For starters “responsible homeowners” don’t need mortgage relief.”
Seriously? All of us don’t know lots of people hanging onto their homes by a thread? If you don’t you must hang out with a very rich or fortunate crowd. By allowing those barely making ends meet to lower their housing costs, they will then take that extra money and buy goods and services, which will stimulate our economy.
And when balking at the program’s cost, one should take into consideration and compare that to what the cost of doing nothing is or by waiting until there is even more of a crisis and then doing something. If the housing crisis had been dealt with strongly when it first started, the cost would have been minor compared to the cost to deal with it after waiting and allowing it to unravel our entire economy and housing market.
Just like in medicine, it’s cheaper to deal with it when it is minor than to stick your head in the sand and wait until it becomes an emergency condition.
From latimes.com:
Obama administration officials released few details about the initiatives Wednesday. There was not even a price tag on the refinancing plan, which will be part of legislation to be outlined in the coming days, the White House said.
The proposal builds off the Home Affordable Refinance Program, which was revamped last year to ease rules and reduce fees to make 1 million to 2 million homeowners eligible to take advantage of historically low mortgage rates. That plan applied only to loans owned or backed by mortgage finance giants Fannie Mae and Freddie Mac, but the new plan would apply to any mortgage, the administration said.
Jed Kolko, chief economist and head of analytics at real estate website Trulia.com, said other potential government initiatives would “help the housing market more directly.” Such initiatives could include converting foreclosed homes into rentals or increasing loan modifications.
“This is primarily economic stimulus,” Kolko said. “It puts money in the pockets of people with mortgages. It won’t impact the housing market much.”
I think you are all unable to see the benefits of this program because of your dislike of the President and being captive of the right wing media like the UT.
This plan has major benefits. First, mortgage rates are low. If I have a 250K mortgage with an 8% mortgage, over the life the loan, getting into a 5% loan reduces the total cost of my house immensely. I fail to see the downside here except that banks, who have a magnentized moral compass, will have to take some haircuts.
FRBResident,
Your viewpoint is naiive and polarized along party lines.
Who’s going to pay for this? This isn’t a victimless crime. If you’re refinancing out of a bank loan, the bank is getting bailed out at the cost of the taxpayer when the loan owner defaults. If you’re refinancing out of the “bankrupt” FNM/FRE mtg, interest previously received needed to shore up the GSE is decreasing, so taxpayers have to make up the difference. Either way, taxpayers make up the difference, there is no free lunch.
The American revolution started by a protestation of taxes on tea. This is a blatant socialization of private losses, so you might expect that anyone who pays taxes and will have to pay more in the future for the president’s experiment in spreading the wealth to buy votes will not like the plan.
Yeah… I don’t like it, even the glossed over rainbows and pink ponies version presented in the SOTU. Everything valuable has a cost, the more valuable, the higher the cost.
Chuck
The Associated Press quoted Stan Humphries, chief economist at Zillow as saying the refinancing could allow 10 million more homeowners to refinance and, by preventing foreclosures and freeing up money for Americans to spend, could give the economy a $40 to $75 billion jolt.
The Federal Reserve, the AP said, was more cautious, estimating that 2.5 million additional homeowners might be able to refinance.
The idea has merit but obviously nothing of significance such as this will pass this year.
““I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage””
“The new program will be directed at people whose mortgage debts exceed the value of their homes, according to a senior administration official who spoke on the condition of anonymity”
I’m sorry, I still can’t wrap my head around the concept of “responsible”, as encompassing any entity – be they homeowners, mortgage originators/holders etc. finding themselves in negative equity territory. Abandoning all traditional guidelines, regulation and practices; along with a feeding frenzy buying and selling bubble creating atmosphere does not equate anything remotely resembling “responsible”. And, that is how we got here.
“Reducing housing payments for those borrowers will allow them to spend more money on other things”
Right-o, it’s a two-fer. Take approx. 2.5 million underwater mortgagees (aka debt slaves) give them each an additional 3 grand, and suggest they go on a spending spree (sound familar). While accomplishing an artificial pump of about 7.5 billion (see cost less than 10 billion) to the general economic stats reports.
A “responsible” thought never occurs to anyone to encourage, suggest or even hint using the 3 grand to pay down that still underwater new mortgage. That a “responsible” action like that might be in the best interests of everyone – the debt slave, the federal government, the tax payer, you know – the country.
And, if Mish is correct in that this cockamamie crap (aka plan) includes makes current mortgage holders whole – average mortgage 200K, underwater by 25%, times approx 2.5 M you finish the math.
Sol,
I’d bet dollars to donuts that the average “underwater” mortgage balance is not $200K. Much, much higher.
Chuck
Well Chuck it’s just an estimate, but whatever, I don’t see congress feeling the love for any plan lobbed over from the President’s office. So it probably won’t happen anyway.
Mostly I’m just “sick and tired” (this is actually one of the first phrases I spoke as a baby, because my mother said it often enough, lol) of lack of responsiblity and consequences.
How do people underwater lack responsibility and consequences? Their fault was timing (i.e. buying at the peak of the market) – how were they to know the market would collapse, making home prices and the economy plumet? These people are making their payments, so lumping them in with people who are not, is not fair. And even if they refinance at lower rates, their home will still be underwater,so they will still have the consequence of that.
Housewife:
The lack of responsibility and consequences comes from the use of the house/home as an ATM to finance boats/RVs/toys. Far, far too many of the property now underwater is a direct result of too many people wanting to “have it all…and have it now”.
While your point of not lumping in all those in dire straits…there are a boat-load of homes that are now submarines simply because of the spending habits of their occupants/owners. (My apologies to the mariners in the crowd…far too many nautical analogies!)
@dd, assumes facts not in evidence. Sure, there’s HELOC abuse issues, but the market’s been so battered, that many who aren’t in that category also got bruised.
@Chuck, I didn’t say it was free, but I certainly implied that it would be a good use of money. If it costs the banks – fine. They, frankly, failed to live up to expectations with the cash injections. If it costs the taxpayers- also fine, as the benefits from improvement to the economy, and stabilization to housing market create externalities that are positive to everyone.
Housewife-
Their only fault was timing. That was remarkably put, I rest my case.
Sol and dd – can you please provide link to information substantiating that a major cause of homeowners being underwater is due to home equity loans? If home prices dropped 33% from the peak, anyone who bought during that time and did not put at least 33% down would be underwater. I looked but was unable to find on the internet where HELOC’s, not price declines, was the major factor in underwater homes and would appreciate it if you could provide that reference. I am more than willing to reconsider my opinion/statement based on facts (but not on opinion or anecdotal stories), so would appreciate your help locating those facts. Thank you.
Thank you to housewife on cell phone and former RB resident for sticking to an analysis based on available data. The people who are arguing this is a bad idea seem to have all sorts of preconceived notions about how others conduct their finances, but no systematic information to quantify there assumptions. Shame on them.
Housewife/et al:
Never indicated the “major cause” was equity tapping…only noted there were too many properties underwater due to this.
Re a link to HELOCs as a significant (you define what that means) role in the current crisis, I am not going to do your work for you…however, there is evidence (again, let’s define that on a universal basis) that many HELOC participants are in this situation — and MAY be the benefactors of assistance programs already in place.
FYI…also, I am not opposed to this idea…just to how it might be applied to those who used their property/home/house as an ATM and are now likely to drink from the public fountain.
The idea has merit and has the potential to prevent millions of foreclosures. It could also in the process cost the tax payers substantial losses and, as always in these crisis prevention programs, moral hazard is ignored.
Mathinmiramesa:
“…an analysis based on available data…”???
Oh, puhleeeaase…just do a very little digging re this overall subject. There is ample “data” that HELOC participants might benefit from these programs — including the latest proposal.
I have no “preconceived ideas” about how others conduct their business — again, there is ample indications that too many people used their homes as ATMs during the RE crisis.
As for your “Shame on them” comment…this seems to borrow from AZ Governor (using this term very loosely) Brewer at the airport this last week. When you point a finger at someone else, you usually have three pointing back at yourself.
Housewife:
First, let me clear up your latest question –
“can you please provide link to information substantiating that a major cause of homeowners being underwater is due to home equity loans?”
I have never stated in any way, shape or form that a major cause of homeowners being underwater is due to home equity loans. Please reread anything I’ve written. And, no I will not provid you with a link for information substantiating, because it’s not my premise. And, I don’t perform research for others for free.
A few causal observations –
I question why many more people don’t put more studied thought toward comprehension about what they are undertaking and agreeing to in the first place, when it comes to important binding financial contracts. I question why many more people didn’t feel and see what was happening during the bubble years. I question why so many are persuaded an equity stake in a real estate venture wasn’t advisible from an investment strategy standpoint any longer (as you so aptly state – “If home prices dropped 33% from the peak, anyone who bought during that time and did not put at least 33% down would be underwater”). If the traditional underwriting model had been operational during the bubble years, say with a minimum 20%, yes people would still be upside down, but not nearly as upside down. I question why more people don’t consider downside risk – any market can suffer collapse, and that there are very real consequences when it happens. People can lose jobs, income, their health.
It’s like no one thought about or talked about this stuff anymore. That wasn’t part of the equation anymore, when it comes to thinking, planning for, and undertaking major contractual and financial obligations.
I believe – Less people would find themselves today underwater, if they had made any (or bigger) equity stakes in their homes to begin with (see above comments regarding 20% downs). They would have been somewhat hedged and better prepared. Many more people might have choosen not to make purchase near the height of the bubble, had they been better informed, through educating themselves first, following market activity and researching historical data. Less people would have agreed to exotic contracts, had they spent the time to throughly read them, comprehend them, and to even go so far as to seek legal counsel when in doubt, or to further their own understanding of what they were undertaking.
Responsible decision making requires real work. Without it, many more consequences than originally bargained for, can and will start raining down. Such is now the case.
And, my remarks regarding responsibility and consequences aren’t restricted to just the mortgagees. There are plenty of players in a variety of associated fields of occupation related to real estate, finance, regulation, oversight and enforcement to go around that share in that responsibility and whom should also share in what consequences result.
Hi Sol – thanks for the thoughtful post. I agree with you and dd that HELOC’s could have put some people underwater and some areas of the country were likely more prone (especially here in SoCal). But my concern is what happened to the majority of people, and how can we help them. I am especially concerned about towns that were hit hard economically and whose home prices just plummeted because companies closed down or relocated (think midwest or northeast). I think the group that reads this blog is vastly more informed and more sophisticated than the average american and has knowledge of financial trends and risk. Someone in their mid 20’s had never seen home price declines in their lifetime so may not have imagined it possible. I would like to see more compassion for the average hard working, especially blue collar/just making ends meet person, and if some checks and balances need to be put in (i.e. exclude people with large HELOC’s) then suggest that, rather than just torpedo whole program ideas and leave people to drown, which will in the long run affect all of us anyway. Interesting exchange of ideas and thoughts. Thanks for keeping it respectful.