The Senate voted 91-5 in favor of the Helping Families Save Their Homes Act of 2009 (S896), which includes legal protection for servicers that modify residential mortgages. Five Senate Republicans voted against the housing bill.
The safe harbor protects mortgage servicers from lawsuits by investors holding relevant modified mortgage bonds.
The provision is intended to encourage more servicers to modify more mortgages, but critics say it will hurt private investors whose funds help maintain banks’ liquidity and stimulate lending.
Modifications often involve altering original mortgage terms and forbearing a portion of the principal for lump repayment at the end of the loan life. The reduced principal lowers monthly payments, increasing affordability for borrowers and consequentially reducing the monthly return for investors.
If the mortgage is securitized, then the principal payment coupons, or pass-throughs, will also take a hit. For the long investor, change to term is a bad thing and likely to shake-up an already nervous financial market.
However, the aim of the bill essentially provides legal protection for servicers to alter mortgage contracts and, as the argument goes, investor contracts where mortgages have been securitized.
The bill also changes the borrower certifications under Hope for Homeowners, a program that encourages refinancing into Federal Housing Administration-guaranteed mortgages. The bill’s changes mean borrowers going forward must provide proof they didn’t intentionally default on their mortgage in order to qualify.
The bill provides the Federal Deposit Insurance Corp. with increased borrowing authority, extends the time period for restoration of the insurance fund from five to eight years, provides a temporary extension of the FDIC’s $250,000 deposit insurance limit. Supporters of the bill say these changes will bolster confidence in the FDIC and meet banks’ lending needs.
“During this time of economic uncertainty, bankers recognize the importance of maintaining public confidence in the FDIC,” American Banker Association executive director Floyd Stoner. “We also believe that it is important to strike the right balance between maintaining a strong deposit insurance fund without unnecessarily taking money out of the system.
Written by Diana Golobay, from Housingwire.com
I like the idea of a lot of investors losing some money as opposed to some being wiped out or shoveling truckloads of tax money into banks.
“The bill’s changes mean borrowers going forward must provide proof they didn’t intentionally default on their mortgage in order to qualify.”
I’m wondering, who is going to “police” this? Most of our banks and so called mortgage companies have become criminal organizations. All they want to do is get the loans in and out the door quickly (the beauty of securitization).
So. Who is going to make sure everyone is now acting properly? All documents are in fact correct. Who? Who?
The Ponzi scheme continues.
If you look at history, theft on this grand scale usually ends when one or more countries INVADE the gangster country that is causing all of the economic chaos.
This is bad I feel. While I applaud the make sure people didn’t intentionally default, the rest is bad. It will curtail new money for new mortgages which means fewer buyers and more price drops — which I suspect is precisely the opposite of what these bill supporters want (of course this may take 2 years to work through).
Also how will they police this? My wife was at the gym the other day — several agents are at the club when she is. One was talking about all the people in Sacramento who have purposely defaulted, lived rent free for 12 to 24 months, saved money and then go across the street a buy a house for much less. And the kicker. This woman thought this was a very good thing for these people to do. And what is the penalty to those who do get caught doing this? If they put in a mandated $500k fine and 5 years jail if you game the system and get caught, perhaps this provision would work, but without that what’s the downside to anyone who has decided that they don’t have to honor their debt, they can do whatever they want as long as it benefits them and justify this as saving themselves and everyone does this. If everyone does this there will be no more investors for mortgages.
Now this points out the real key issue. I honestly believe there is a major shift from doing the right thing morally because at the end of the day the economy has to have people do the right thing to do whatever is best for you even if it means going back on a promise to pay someone who did something for you.
Sad, very sad. But from this point forward, anyone who defaulted and did not do so because they lost their job or had a major medical emergency is simply a lie and a cheat.
Protect the banks from below. Protect the banks from above. Protect the banks at all costs.
This should mean sky-high rates, or the end of mortgage-backed securities.
Why would anyone invest otherwise?
“This should mean sky-high rates, or the end of mortgage-backed securities.”
Would this drive down prices even further?
I actually think this may accelerate a trend towards more direct placement. It is becoming to expensive to support a financial industry that serves no one but themselves.
It’s not that Banks are being “protected” intentionally. It’s just that investors don’t have a lobby/bribe to protect themselves in congress. So they’re the one getting screwed.
Direct placement in the Bank of Obama.
I’m not one for diabolical, Trilateral conspiracy theories, but let’s consider where this could end up.
Barney Frank and buddies run off the MBS investors, and rates start rising.
With no one to buy Fannie/Freddie loans, the Bank of Obama becomes the new portfolio lender – instead of selling piecemeal they keep the loans, like banks used to do in the old days, and collect the interest for 30 years or until paid off.
But rates have risen by then, so they’re collecting 7%, 8% and/or 9%….and maybe more?
But if they’re able to keep treasuries under 5%, and widen the spread, they could make money. The spread between the 10-year treasuries and 30-year mortgage rates was always 1.75%, which bulged recently to 2+ because lenders priced in more risk/profit in this era.
But like we saw yesterday at CR the gap is back to roughly 1.75%.
Here is the link to chart comparing 10-year yields to mortgage rates:
CR’s Chart
The Bank of Obama clears out the investors, and then goes to work manipuating the gap back up to 2.25% to 3.0%, and makes the money themselves, all under the guise of a “crisis”.
There’s a lot of plates spinning at once, but it could end up something like that. But in the meantime, buyers are glued to the sidelines, and the unintentional consequence is that prices fall further, making problems worse.
Oh, it’ll accelerate more than a few things.
F that, irresponsible people get to be bailed out and I get lied to by INDYMac and the FDIC and lose $60,000., there is no justice in this world.
…and 35 Republicans voted “Yes”, including John McCain.
AAAaawwwwwwwwwwwwwwwwwwwwww
They all drank the kool-aid. The thing that kills me is that these banks have the nerve to come after the sellers for deficiency judgements, when they are getting bailed out six ways from Sunday. There seems to be no price to pay for the Banks but the people get hit again .
“But from this point forward, anyone who defaulted and did not do so because they lost their job or had a major medical emergency is simply a lie and a cheat.”
From this point forward? Hasn’t that always been the case?
GeneK
You are right — they have always been a lie and a cheat. I am just saying its time that people are more vocal about this — I’m done saying poor person loosing their home. (I did see a bit on the bay area news that profiled a bitter jealous renter and they did show the view of how is this all fair to those who saved and did not lie, cheat or steal to make an irresponsible investment decision)
With the laws and rules changing every day, what’s the point of a contract? What the government has done is look at who has money and stolen it. Maybe you think they’ve always been doing it, but I’m suggesting they’ve gotten a whole lot better.
what’s the point of a contract?
A friend of mine owns a bank building that was leased for 30 years to Home Savings. When WaMu bought Home, they consolidated and closed the branch. But WaMu still owes on the lease contract, and they paid as agreed.
When JP Morgan took over WaMu, with the endorsement of the FDIC, JPM told him “Too bad, we’re not paying you anymore.”
JP Morgan = too big to obey the law.
Where are Barney Fwank and his fwiends when we need them??
Jim,
What is this going to do to the wall of coming foreclosures (prime, jumbos)? Are the ones which should enter the pipe (NOD) still going through (i.e. new law is too late)?
So,
Is there a price limit to the “safe harbor” provision, or are the loan servicers now free to give principal reductions to players who are upside down on $2M houses? If it’s not limited to conforming loans then I think I’m gonna puke.
Jim, wasn’t part of the TARP buying bad assets and maybe making some taxpayer money back?
Jim,
Did you notice that you’ve inspired CR to start doing videos complete with commentary? He’s even shooting from a moving car!
The Bank of Obama clears out the investors, and then goes to work manipuating the gap back up to 2.25% to 3.0%, and makes the money themselves, all under the guise of a “crisis”.
—————-
If we could rely on the govt using that money judiciously, it would be preferable for “us” (taxpayers) to make that money instead of sending it to some banker slugs who will just spend it on more yachts, blow, and hookers.
Imagine if they could use that money for nationalized healthcare! 🙂
(ducks head)
I’m still trying to learn as much as I can about this industry and the processes that go on. Maybe someone call explain to me what the role of mortgage insurance is in all these defaults. For many of these low down loans I thought mortgage insurance was there to cover the lender in case the homeowner couldn’t pay.
Can someone explain why mortgage insurance wasn’t the safety net for all these foreclures?
Thanks,
Can someone explain why mortgage insurance wasn’t the safety net for all these foreclures?
Primary Mortgage Insurance (PMI) has typically been required on loans greater than 80% LTV. However, until recently PMI was not tax deductible, but mortgage interest is. So, homebuyers were encouraged to take out a second home loan so that the first loan could sit at 80% LTV avoiding PMI. Eventually, this turned into a 80/20 scenario where you’d buy a house with a 80% loan a 20% loan and put no money down.and
Since prices have gone down greater than 20% in some areas, and there’s no PMI on the first mortgage due to the second loan. The banks who loaned the 20% second loan typically get nothing. Even if there was PMI on all the loans, the company that is responsible for paying the insurance claims would go out of business.