patrick.net

OK, it was just on local Fox 6 news. President Bush wants to freeze rates for 5 years for subprime adjustable loans funded between 2005 to July of this year.

This is not voluntary.

If they simply walk away, take the hit on their credit, and rent, they might actually be better off.

Renting might be more difficult when your credit is shot or maybe this story is exaggerating.

http://www.sacbee.com/142/story/535800-p2.html (might require registration)

Michael Hughes, 24, and his fiancée, Heidi Paulsen, 26, know that displaced feeling. A year ago they lost a $200,000 condo in Folsom.

They moved into the Waterford Place complex in early 2006. Then Paulsen got sick and missed work at a call center. The two got behind on bills and negotiations with lenders led nowhere. In November 2006 they lost the condominium to foreclosure.

At first, things seemed OK, says Hughes. The two found a nice Natomas condo and lived there six months, comfortable but annoyed to be renting again. But the owner had a subprime loan and lost the condo to foreclosure. They had to move again.

"It felt for a brief moment like we had a nice place, and then everything was thrown into turmoil," Hughes says.

Mindful of his worsening credit, apartment complexes and private landlords wanted nothing to do with Hughes. He says he applied to more than two dozen places. Sometimes, he'd tell them about his situation before visiting.

"Don't even bother coming to look at this place," he says several of them told him.

In the end Hughes and Paulsen found a complex that would take them. It was the same place near Rancho Cordova they left when they moved into Waterford. Now the complex saw them as a credit risk, demanding a $1,350 deposit and extra deposits for their pets.

Hughes still checks out model homes and open houses, hoping for a chance. But he knows the score: "A foreclosure is kind of like a scarlet letter on you."

Like a moth to a flame....

Freezing rates? Reminds me of Hoover's attempt at voluntary wage freezes. Tanta over at Calculated Risk should have a detailed write-up tomorrow, for those curious about the details.

Alt-A is the new subprime?

http://www.reuters.com/article/bondsNews/idUSN0452941320071204

"Moody's Investors Service on Tuesday raised its forecast for expected losses for U.S. mortgages known as "Alt-A" residential mortgage debt. Loss estimates for Alt-A bonds reviewed by Moody's increased by an average of 110 percent from initial expectations, with some loss estimates up by as much as 270 percent, Moody's said in a report."

Can someone please explain why any mortgage-holder would not immediately sell the damn thing for a discount, rather than continue to hold it until Paulson's ridiculous mortgage freeze takes effect?

Consider eTrade; their portfolio went for anywhere from 11 to 27 cents on the dollar. Consider what would happen if leverage was involved. Taking a haircut on the payment stream may be preferable in some cases.

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=asetzdsdmBUE

These mortgages usually begin with a rate of 7 percent to 9 percent and then reset to between 11 percent and 13 percent.

This would provide finer-grained targeting, and the bondholders /might/ be willing to forgo the extra interest. Then there's this:

One challenge will be to craft a deal minimizing lawsuits from investors in bonds backed by the mortgages being rewritten, analysts said. The longer that lower rates are extended, the more risk posed to the bonds' values. Republican Representative Mike Castle of Delaware has proposed legislation offering a ``safe harbor from legal liability'' to mortgage servicers.

I can't think of a faster way to torpedo values. Well, other than selling them on the open market, but I guess we're pretending that's not an option.

@DS,

I had a Y2K+7 scare on my ERP this year ... they decided to charge their customers $100K-$1M to fix their own bug

Nice work if you can get it, eh M****M?

Especially when you were told about the problem in 1999.

ozajh Says:
@DS,
I had a Y2K+7 scare on my ERP this year … they decided to charge their customers $100K-$1M to fix their own bug
Nice work if you can get it, eh M****M?
Especially when you were told about the problem in 1999.

lol, yes, you'd know about that one. Our co bought the product in 2000 or 01, apparently, and I think the Julian date disclosure slipped through the cracks somehow. I wasn't there at the time. Besides, there were reasons they were going to commit to the product regardless.

They were just bought out by a SF equity bank recently, and have been busy acquiring competitors also.

On another topic, have you seen
http:/.globalhousepricecrash.com/index.php?showforum=9 ?
I only just discovered them recently, they don't really come up in searches much. You might find it interesting to participate, assuming you don't already...

DennisN Says:
Somebody really needs to answer Renae Merle. She asked a polite question. It grew to include participation from southern California as well, and various people in Oregon, Arizona, Idaho, and CA refugees in places farther east now post here. Renae, if you are looking for folks in the DC area you may be out of luck.

I flicked Renae an email advising her of the CA focus, and pointed her to Patrick's blog links page which had a few DC links. Which means she needs to start enquiring all over again on a bunch of other blogs.

hmm, why am I here?

Malcolm Says:
OK, it was just on local Fox 6 news. President Bush wants to freeze rates for 5 years for subprime adjustable loans funded between 2005 to July of this year.

OK, so they have to essentially re-regulate deregulated banking, cos the market just don't work, left to its own devices...

OO Says:
DS, maybe Sydney is in a serious housing bubble, Perth and Brisbane are not.

Btw, congrats on Kevin Rudd, I was not surprised at the outcome since we arrived a day before the election, and everyone we talked to was in favor of him.

Most capital cities in Oz are unaffordable compared to wages and by international comparison. People are fleeing Sydney to live anywhere else nowadays, and less glamorous suburbs have been declining in price over the past couple years, along with record foreclosures and genuine firesale auctions. I'm waiting to see if, how and when things will crash, especially with spillover from the US meltdown, MBSs and CDOs failing, an international credit squeeze, rising interest rates, and so on.

It was 'good' Kevin Rudd won the election, I've been in communication with the new Housing Minister for some time by a stroke of luck. However, it remains to be seen how progressive Labor will be, their election platform was very moderate as they wanted to just fall over the line and not offend anyone. The win was mainly about 'WorkChoices' (so-called) and mortgage interest rates...

You may be interested in
http:/.globalhousepricecrash.com/index.php?showforum=9 also, I only just discovered it, not by a search, someone sent me a link. But Oz-centred, not US...

Widely varying estimates of the freeze legislation, and not much detail so far.

I understand regulators will accept FICOs above 660, but will look at them very closely for data supporting inability to pay. Otherwise it's for FICO less than 660. Instead of attempting to sort out the industry's inconsistent definition of 'subprime', they're using FICO score plus distressed loan as qualification.

Voluntary for the distressed borrower. Just to clarify 'mandatory' cited above.

Ability to pay under the new terms is required. Those who have the income to pay their overpriced mortgage don't qualify. Those who can't pay the 'frozen' figure don't qualify. Those willing and able to continue paying that subprime teaser rate (said by Tanta to be quite high) will be 'helped' by the freeze.

This looks like triage to me. An omnibus workout scheme to get around the understaffing/backlog crisis hitting conventional servicing ops. Of the potential pool of troubled borrowers, some are already dead, some will be left to go on living with their illness, and the freeze 'beneficiaries' will be medicated until space is available for them at the morgue.

The future of MBS - where government can intervene in contracts between private parties - looks DOA to me.

@DS,

You misunderstand me. I don't think M****M made any sort of general disclosure.

What they DID do, I believe, is promise one particular customer that the problem would be fixed in the next product release. This was because the customer had discovered the problem themselves during Y2K scanning.

I don't know if there was simply an internal communications problem at M****M, or something more sinister, but the promised fix never got done until, as you posted, time got close enough for them to demand money for emergency remediation.

I favour the internal stuff-up theory myself, because if they were pulling an intentional scam surely they would have treated the customer who found the problem differently to the rest of the user base. For self-preservation if nothing else.

(I also heard a rumour at one point that the "fix" that was applied has just pushed the critical date forward by a decade or so ...)

@Bruce,

Otherwise it's for FICO less than 660.

Now there's a perverse incentive if ever I saw one. Weren't there scams at one point to boost people's FICO scores to qualify them for cheaper loans?

Maybe one could work out how to set up a quick cottage industry to get a high FICO score down to 650 for just long enough to get a bailout, then back up again. (Might be the kind of scheme that would attract a Mortgage Broker suffering from a commissiondectomy, in fact. :twisted:)

ozajh,

Nice to see opportunity where others see only adversity! But wrecking your FICO alone won't get you in the door. And that's assuming this particular door is one anyone would willingly walk through. Well, people will have several choices, none of them very agreeable.

One thing I think has not been much remarked on so far is the effect of the freeze on financials: it will temporarily slow damage to the ABX and delay the failure of derivatives and their counterparties. So it's a delaying tactic for distressed markets as well as for distressed homeowners. But, at least as it looks so far, not a fix or a bailout.

So far, Wall St has had a muted response to the bailout. The market is up, including financial stock, but it hasn't been a slam dunk this morning.

EBGuy,

Great observations by Meredith Whitney. ( I suppose largely b/c they agree w/ mine!) I've been hammering on that w/ anyone that would listen. I can't wait until lenders consider FICO about as reliable as the "rhythm method" of contraception!

What is it that she said? The rudest awakening?

DennisN,

Maybe it was a little tongue in cheek but Michelle Malkin lives/covers the D.C area. She pondered why we cheer lower food, oil and clothing costs but all of a sudden, more affordable home prices are somehow unthinkable!? Since she has a cattle prod at-the-ready for the WaPo I doubt seriously they would cite her as a reference, no matter how much they were in agreement.

I am just now thinking about inflation and the 'delay.'

Lets suppose you bought a $1m home and if it were marked to market it would go for $700k today (using Krugman's 30%). As today's articles state, most people would walk away from a home instead of taking the $300k loss. However, if the governement could buy you time, how much time and in what manner could they fix this?

Well, if inflation was allowed to run up to 7.4%, it would take 5 years to go from a $700k home back to a $1m home. There would be no wage pressure as the 'freeze' means you can afford your home under current earnings. The trick would be everything else would be getting more expensive at that rate. Letting oil run up forces us to make energy independence choices. We also get manufactoring back as imports get expensive. US outstanding debt gets inflated away by 30%.
The biggest problem would usually be the cost of food - but the US is a world leader in agriculture. Mebber this isn't such a bad solution? Investors are asked to find their own 7.4% inflation hedge.

I have decided to try to give balance to this forum by at least examing the pro freeze option. WHaddya think?

SP Says:

> Can someone please explain why any mortgage-holder
> would not immediately sell the damn thing for a discount,
> rather than continue to hold it until Paulson’s ridiculous
> mortgage freeze takes effect?

The reason for the rate freeze is to allow the bond/mortgage holders (that give boat loads of money to politicians in both parties) to dump the stuff. Right now I would be lucky to get $0.20 on the $1.00 for a pool of subprime MBS.

The large campaign contributors holding the subprime MBS are hoping that the rate freeze will move the subprime meltdown and foreclosure spike stories off the front pages so they can slowly dump the billions of crap on their books at something close to par.

FAB, you may be right.

But my impression lately is that those markets have gone cold since August.

Another scenario has the Paulson treasury pushing the inevitable onto the next administration.

would it be easy for one member of family to drop off the $8/hour workforce and be elligible for freeze?

FormerAptBroker Says:
The reason for the rate freeze is to allow the bond/mortgage holders (that give boat loads of money to politicians in both parties) to dump the stuff. Right now I would be lucky to get $0.20 on the $1.00 for a pool of subprime MBS.

Okay, I can see that. However, if I was a bagholder on one of these MBS', I just saw my returns slashed by arbitrary government fiat, after the collateral values already turned sour in a hurry. It is unlikely that I would get much more than 0.20 anytime soon on the market - since the borrower's finances look like they will either stay the same or get worse over time.

The only hope is to hold on to this toilet-paper and pray that the Kleptocrat-in-Chief (tm) would make arrangements for a taxpayer-funded organization to take it off my hands. While I am as cynical about the government, this would seem like a very slim hope.

It just puzzles me to no end that such a large-scale juggle is being held together on such shaky underpinnings - how come nobody has cut and run yet? WTF are they doing to keep all these guys in line?

ozajh Says:
Maybe one could work out how to set up a quick cottage industry to get a high FICO score down to 650 for just long enough to get a bailout, then back up again.

Hey, if the Paulson Put (tm) works, I see no reason for the free-market to supply the necessary enterprise to fill this demand.

Given the general quality of 'solutions' so far, I am sure nobody has given much thought to actually following up every six months to check if the FB still qualifies for the freeze. That kind of close-the-gap thinking is too much to expect.

As an aside, it is about time to dust off this old joke:
Q: What is the collective-noun for a group of Bankers?
A: A Wunch of Bankers.

Correction:
Hey, if the Paulson Put â„¢ works, I see no reason for the free-market NOT to supply the necessary enterprise to fill this demand.

FAB,

I'd actually read ETrade got $0.27 on the dollar but I think there were substantial Alt A holdings in the portfolio so your figure is... right on the money!

SP,

As you're aware, it is the Policy of the Administrator to discourage the frequent changing of screen names. Ahem, however, if you don't nail down Kleptocrat-in-Chief (TM) most assuredly someone else will.

DinOR

Asst. to the Administrator

SP Says:

> However, if I was a bagholder on one of these MBS’, I just
> saw my returns slashed by arbitrary government fiat, after
> the collateral values already turned sour in a hurry.

Their will not be any reduction (slashing) in cash flow under the plan, the bond holders just won’t see any increase in the cash flow for 5 years.

> It is unlikely that I would get much more than 0.20 anytime
> soon on the market - since the borrower’s finances look
> like they will either stay the same or get worse over time.

Remember just a few months ago people were paying above par for subprime MBS. If things stabilize the big banks should be able to create some CDOs and unload all of it by the end of the summer.

The banks (and the people that run them who are paid bonuses based on profits) don’t ever want to mark this crap to market since it will not only hurt bonuses but will trigger a lot of margin calls.

FormerAptBroker Says:
Their will not be any reduction (slashing) in cash flow under the plan, the bond holders just won’t see any increase in the cash flow for 5 years.

From expected- vs. actual- return viewpoint, it is the same difference, n'est ce pas?

I believe you're right about the intent of the plan and the reluctance to mark-to-market -- I am just a little skeptical whether it will actually hold tight, though.

The only thing left is to see WHO gets the contract to run this thing - Halliburton/KBR or Blackwater. :-)

BTW, speaking of SUV Bailouts...

I had my shortwave radio while I was slinging some code last night - an
interesting discussion with some guy from Deutsche Bank about "the American financial crisis" - European media is much more blunt and to the point than the rah-rah, happy-talking US media, and the commentator was freely using terms like katastrophe and schmelzen and zusammenbruch.

Anyways, the most startling piece of information I got from the show was that there has been an alarming spike in defaults in _ALL_ classes of credit in the American market. Housing, Auto, consumer credit-card, student loans, and even payroll delays in the small-business/contractor sector. And it has progressively got worse month-to-month since mid-2007.

Aside from the prognosis of a dismal shopping season, the other conclusion was that the American consumer is completely overdosed on credit and monetary profligacy from the Fed will do drown the economy in liquidity and contribute to rampant inflation, but won't help anyone.

My German is not very good, and my attention was mainly on the stuff I was working on, but the message seemed pretty unmistakable.

European media is much more blunt and to the point than the rah-rah, happy-talking US media, and the commentator was freely using terms like katastrophe and schmelzen and zusammenbruch.

But I have a feeling that European banks may fare worse in this "katastrophe."

Aside from the prognosis of a dismal shopping season,

I haven't heard as much negativity around that as I had expected. Could the shopping season actually be faring well??

Bruce Says:
December 6th, 2007 at 6:01 am
"Voluntary for the distressed borrower. Just to clarify ‘mandatory’ cited above."

Mandatory to the lender and the investors who are having the government force a revaluation on them.

Just to clarify.

>>>>European media is much more blunt and to the point than the rah-rah, happy-talking US media, and the commentator was freely using terms like katastrophe and schmelzen and zusammenbruch.

What else is new? US media is completely useless and is basically a propaganda machine. Tha's why we have web sites like patrick,net. The only thing the manage to be blunt about is Putin and Chavez, and in those cases they exaggerate wildly and make them out to be worse than they really are (see: propaganda).

For example Chavez: He just lost a big referendum, and guess what, he took it in stride and accepted the result. If it were Bush, he would have invented some crisis and instituted martial law.

The only thing the manage to be blunt about is Putin and Chavez, and in those cases they exaggerate wildly and make them out to be worse than they really are (see: propaganda).

Putin is great. Under him, Russia created many billionaires.

Chavez has a nice jet.

Mandatory to the lender and the investors who are having the government force a revaluation on them.

If this was done in Communist China there would be outcry from the US MSM.

Malcolm, yes. We both like clarity.

As to abrogating contract law, I do wonder how this will fare in the Congress. Someone's sure to twig. . .