patrick.net

Your friend is incorrect.

http://www.erate.com/fannie_mae_freddie_mac_mortgage_limits.htm

There was a $729,750 jumbo conforming allowed until very recently.

The new jumbo conforming is $625,500

Yet I'm quite certain this guy was told by Wells Fargo that the conforming limit was not raised above $417K.

So either Wells lied to him, or erate.com is wrong.

Or maybe the Fannie/Freddie limit is $417K but there is some other higher jumbo rate financed in a non-GSE way?

Apparantly the secret handshake is not to say, "Conforming Limit" but rather to say, "Conforming Jumbo Limit"

Of course, you can just go to Wells Fargo

https://www.wellsfargo.com/mortgage/rates/?PHPSESSID=b74a9cacc397f79832857b99c9fc435f

Where it states, "Larger Loan Amounts in Eligible Areas. In federally designated metropolitan areas, qualified customers may be able to borrow up to $625,500 on conforming1 or FHA loans without paying the typical higher interest rates on jumbo loan amounts. Contact a local home mortgage specialist to determine your eligibility for a larger loan amount."

Now, Wells may be electing to not offer the higher jumbo in the Bay Area, but I can assure you they exist. And the GSEs buy them.

Here's an idea that might be interesting, and may reward those who were financially responsible enough to stay on the sidelines during the bubble years. Do you guys think it would work?

You may have read recently that the OCC announced that the re-default rate on mortgage mods after 6 months is greater than 50%.
Why not change the "workout" programs so that any mods by the bank (eg principal forebearance, or reduced rate) are assumable by any subsequent buyer. This means, the modified mortgage deal can be passed on as-is to another home buyer, including the deferred interest, deferred principal or shared appreciation agreements.

Picture someone who took out an option ARM in 2005 with a 2% teaser rate to buy a $1M house. This person defaults, the bank can offer him a mortgage mod, which often this person still can't afford - he is a "weak hand". If he re-defaults, instead of foreclosing and running the risk of a large loss (maintenance, property taxes, selling costs, illiquid market) the bank will instead offer the same mortgage mod deal to any prospective buyer.

Banks could make rate adjustments without writedowns since the better qualified buyer (the stronger hand) now owns the property, and is a substantially lower risk than someone who has proven their financial unworthiness. No more unfair, non-market-based loan mods, and reduced risks for the bank.

FDIC could do this with the ex-IndyMac assets very quickly since they can set their own rules. Same for Fannie+Freddie

Getting a little more sophisticated, prospective buyers could even bid for how much money they would put down, which could help raise immediate capital for the banks.

Soon enough, perhaps Conforming Jumbo will be 417K as well...

Of the three automakers, I actually have respect for Ford. They should have let Mulally keep his Lexus. Every day, Ford workers should look at that Lexus in awe. They should voluntarily dissolve or reform their union so that America can profitably build a car brand like Lexus.

Hopefully, the fine Republicans in the congress can mount a last stand against the auto bailout bill.

@CleansingSphere
I would say this is not a good idea.
As a perspective buyer with the stronger hand you WANT the bank to be motivated to unload the property.
As the bank you WANT to command the best prce you can for the property you very much do not want to own.
The most effecient way for each to achieve their best outcome is the open market.

I am still wondering why banks participate in cram downs at all. Look at it this way: Today the bank has a LTV of 100% on a $1m home. After a single year, that property is worth $800k given the 20% YOY declines. So, after cramming down and watching a redefault the Time Value of Money has cost them $200k on the open market. If they do this again, the lose another $160k.

Banks should be foreclosing as fast as humanly possible, looking at time-on-market statistics (about 90 days in the Bay Area) then discounting to that value up front. In the above scenario, the bank could have foreclosed in a total of 90 days, then (likely) offered and resold the house for $900k as opposed to the $280k loss they are heading for. Even if the governement is in for half of the loss, we are talking $140k as opposed to $100k.
Remember, banks that chose to lend to people with no down and their own poor underwriting absolutely deserve to get crushed for their imprudence. If they had insisted on 20% down, they are covered for the firstyear of declines.

If they had insisted on 20% down, they are covered for the firstyear of declines.

If they had insisted on 20% down, the bubble would have been a lot more manageable, if it even existed in the first place.

Why not change the “workout” programs so that any mods by the bank (eg principal forebearance, or reduced rate) are assumable by any subsequent buyer. This means, the modified mortgage deal can be passed on as-is to another home buyer, including the deferred interest, deferred principal or shared appreciation agreements.

Why would any "strong hand" want to pay the $1 million bubble price for a home, just because the interest and some principle are pushed to the back end? It would be better for the "strong hand" to use that strength to buy at a lower price.

The only thing I can figure here is that cleansingsphere is hoping for an inside sale so as to avoid the competition of the market place? That is very dangerous. A ban that gives you an inside price is abrogating its fiduciary duty to its shareholders. Transactions MUST be at arms reach.

Duke Says:

> I am still wondering why banks participate in
> cram downs at all.

Banks only participate in "cram" down when a court "makes" them reduce the principal balance owned.

> Look at it this way: Today the bank has a LTV of
> 100% on a $1m home.

"Banks" have never done 100% LTV loans (at least on paper, but due to some crooked appraisers banks have done some 100% or even 110% LTV loans in recent years).

Some fun:

http://humorland.wordmess.net/20081025/what-the-real-crisis-is-like/

(Perhaps not so funny)

It all started when some leader decided to redistribute wealth.

As stated above, the key is "Conforming Limit" versis "Jumbo Conforming Limit"

Or, can also be referred to as "Conforming Jumbo Limit".

Not every bank/broker will deal with the Conforming Jumbo. But, for sure, you can get Jumbo Conforming.

PS, there is no credit crunch that the consumer sees. Everyone can still get credit.

Chuck Ponzi

What wants to be a millionaire?

Not any Zimbabwean.

I know what species did those horrible things...

You may have read recently that the OCC announced that the re-default rate on mortgage mods after 6 months is greater than 50%.

I said this wasn't going to work. There is simply no way you can keep someone in a house they can't afford short of paying them to keep it. Sadly, I would not be surprised if the Fed tried this at some point.

Anyways, here's my solution.

Foreclose on the property, kick the deadbeats out *immediately* and then cut the price by 10% a month until it sells.

Anything else is just going to prolong the agony.

There are lots of potential buyers out there with cash and good credit (I'm one of them!) that still priced out of the market.

The many foreclosures in cities like Antioch are already being snapped up by investors. Likely to be rental property until the new owners die and their kids decide to sell.

People like to forget that Toyota in the very beginning made crappy cars, and they got bailed out by Japanese government aka taxpayers, and now look at them. lol

Bap33,

What I would like to see is instead of bailing out the next big lender, like Citibank, the Fed just nationalizes it.

They then create a special lending program for first-time buyers through that bank based on the requirements you have provided.

Beyond that I think its fine for those that played and game (and won) to be rewarded for their prudence. Just let them compete on a fair playing field against worthy buyers.

Slumlord,

I *wish* I could go on TV next to Peter Schiff and point out that he almost exclusively invests in government managed enterprises and socialist/communist countries.

"What wants to be a millionaire?

Not any Zimbabwean."

Billionaire is the new millionaire and Zillionare is the new Billionaire.

By the way as for the USA debt, Quadrillion is the new Trillion.

PS: Repeal the 17th Amendment NOW!!

"Banks should be foreclosing as fast as humanly possible, looking at time-on-market statistics (about 90 days in the Bay Area) then discounting to that value up front."
Unfortunately banks, like the rest of society, are populated by idiots. They wouldn't recognize their own self-interest if it hit them in the face.
Enough, nationalize them.

By the way as for the USA debt, Quadrillion is the new Trillion.

Nothing in the universe grows faster than hyperinflation. Men's ability to bring chaos is intringing.

Octillion is the new quadrillion.

OH YES I FORGOT!

In the USSA it is a bailout for all connected so we now have:

AMINSURE - AIG insurance
AMMORTGAGE - FREDDIE/FANNIE mortgages
AMBANK - Citi for banking
AMCAR - Cerebus (Chrysler) Ford and GM

Not a connected entity but where we get inspiration:
AMTRAK - Passenger rail
Created from a disinvestment in this mode of transportation and a subsidy of air and roads. By the way, GM and others conspired and were convicted and the directors paid confirmed fine in 1951 of $1 for taking away our street cars.

http://en.wikipedia.org/wiki/General_Motors_streetcar_conspiracy

USSA is the United Socialist State of America in case any had a doubt.

The original AMCAR!

http://en.wikipedia.org/wiki/National_City_Lines

kewp Says:

> Anyways, here’s my solution.
> Foreclose on the property, kick the deadbeats out
> *immediately* and then cut the price by 10%
> a month until it sells.

Then Bap33 Says:

> kewp, I agree with your plan of foreclosure and sale
> for SFH, but would add that the buyer MUST occupy
> and can not own any other SFH, and the property
> MUST be owner occupied for 50 years. And any
> new buyer within 50 years MUST occupy and not
> own any other SFH. That would keep those that played
> the game and won from cornering the rental market.

With Bap33’s restrictions the prices of REOs would drop even lower since homes with rental restrictions sell for less than similar homes (as we have seen with “Ellis Act” properties that can not be rented) and it would eliminate buyers with even a modest little 600 sf A Frame cabin in the mountains (since they are technically SFHs). Why would anyone want to buy a home that they could not even rent for a summer or rent for a year while working on a project overseas unless they got a deep discount?

Then Eliza Says:

> The many foreclosures in cities like Antioch are already
> being snapped up by investors. Likely to be rental property
> until the new owners die and their kids decide to sell.

Even with most property in Antioch (aka the East Bay’s “Suburban Ghetto”) down at least 50% from the peak it does not make any sense to “invest” there. There are a small numbers of REO homes being sold to speculators/dreamers who even after making six figure down payments will still need to come out of pocket tens of thousands a year if they want to keep speculating and dreaming that someone will pay $600K to own a home in a horrible city full of gang members and cars with huge rims and thumping stereos. In the early 90’s many speculators/dreamers bought homes in North Hollywood, Van Nuys and Panorama City since the prices were down 50% from the peak and they were speculating and dreaming that the prices would soon bounce back. In 8 or 9 years the prices did come back, but 99% of the speculators/dreamers had already given up…

As predicted, good Republicans are mounting a stand against the automaker bailout. Taxpayers should not have to subsidize artificially high labor costs.

kewp,

I understand and agree with you. I am not for the bailouts per say, but I am just saying that Lexus would not be around if the Japanese had not bailed out Toyota in the beginning.

As far as established companies like the big 3, I say let them fail. The gov should help new car companies that may rise in from the ashes.

HAIKU: RELIEVED, '70s-STYLE BOOMER REALIZES IT WAS ALL JUST A BAD DREAM!

Crank the Led Z. and
pass the V. Take a big hit,
it's all about me...

I understand and agree with you. I am not for the bailouts per say, but I am just saying that Lexus would not be around if the Japanese had not bailed out Toyota in the beginning.

If Hitler did not invade Poland, the Baby Boomer generation would not be around.

I say give all the bailout money to Tesla, at least you can get something out of it.

Let the big 3 die, ok, on second thought, keep Ford around, they still build good trucks, I won't ever buy anything from GM or Chrysler anyway, let them die.

Why Tesla? Why any bailout at all?

I like Ford and I am a fan of Alan Mulally. Let him drive his Lexus!

Hah ...

Don't celebrate the Auto bailout stalling. All that is happening is political posturing. The Detroit bailout will happen. Which politician wants to be blamed for an economic collapse ? They don't care if the economy collapses or not. They simply don't want to be blamed for it.

Gemini (cars, transportation) Full Moon in Mutable Grand Cross tomorrow. Fasten your seat belts.

The Fed bottom line grew by $123Billion this past week. The bulk of that, $85B, was in "other assets", which I am assuming is where the Freddie, Fannie and FHLB bonds are hiding out. TAF also grew by $40B+, although the latest auction was not fully subscribed.
The Fed continued to pay down the Treasury supplemental account again this week by $36+B. Funding for the pay down and increasing the balance sheet came from deposits by member banks -- up by $143B.

Peter P,
If Columbus had not discovered the new world then we would not be having all these problems....

If Columbus had not discovered the new world then we would not be having all these problems….

If Adam was man enough to kill the snake...

For those who wanted (in a previous thread) to blame Barney Frank and democrats for subprime mortgages, have a look at his letter to the Editors of Wall St Journal.

http://www.huffingtonpost.com/rep-barney-frank/wall-street-journal edito_b_150350.html

I am totally fine with subprime mortgages if the defaulting homeowners get kicked out promptly and the lenders get no bailout from the taxpayers.

Justme,

Very interesting link you had, very convincing. (Plus, a nice picture of Jennifer Aniston wearing only a tie in a side ad).

Now consider $175 million in lobbying by Fannie/Freddie and thier acquisition of junk (whether called sub-prime or not). Why do you think Fannie/Freddie needed a bailout, if thier exposure to "sub-prime" was minimal? Didn't F&F's willingness to take so many loans off originators hands contribute to easy credit for lower quality borrowers and thus the housing bubble? Didn't Barney Frank strongly resist efforts to regulate Fannie/Freddie, even if he pats himself on the back for promoting affordable rental houses?

New York Times Sep 03
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'

http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=print

As predicted, good Republicans are mounting a stand against the automaker bailout.

I am way beyond caring. It is the equivilent of fighting over the deck chairs on the Titanic. I am looking out for my own little butt now. Bailout fataigue.

Stock drops excite. Gas prices excite. Now if Santa wants to drop real estate prices, that would be really exciting.

None of this stuff is going away any time soon, as long as real estate prices refuse to go down the bowl.