Video: Michelle slams the mortgage bailout on Fox Business Channel Update: Stock traders cheer the Malkin Three-Point Plan!
posted at 3:13 pm on December 6, 2007 by Bryan
Share on Facebook | printer-friendly
President Bush announced his mortgage bailout plan earlier today, and it’s already drawing kneejerk leftish fire from Sen. Clinton. But here’s the more basic issue: Why should Americans who’ve made sound financial decisions have to pay for the mistakes of those who made lousy decisions? There is a first principle at stake in this proposed buyout, but so far Michelle is the only person who’s talking about that.
This clip is from Fox Business Channel earlier today, the first time we’ve have a clip from FBN on Hot Air. You’ll notice a slight video/audio sync issue. FBN is a new channel in the Red Lasso lineup, and they’re still working out a bug or two.
Update: Michelle’s plan finds support on the floor of the stock exchange.
You must be logged in to post a comment.
Blowback
Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.
Trackbacks/Pings
Trackback URL
Comments
Comment pages: 1 2 Next »
You signed it you pay it. You loaned you collect it.
roux on December 6, 2007 at 3:15 PM
Damn. Wish I’d have gotten one of those no principle, super low interest variable rate loans a couple of years back.
All I’d have to do now is skip a payment to look like I can’t pay ao the loan would convert to a super low interest fixed rate.
The gov’t comes to the rescue of dumba$$es once again.
BacaDog on December 6, 2007 at 3:24 PM
Love it!
Michelle’s three point plan:
Suck! It! Up!
We ought to get some bumperstickers on this along with “Boo Freaking Hoo!”
Why should *I* have to pay for someone’s poor financial decisions when *they* signed up for one of these junk mortgages?
And your right – eventually there will be a whole lot of taxpayer money going out to this and it’ll become yet another entitlement.
CrazyFool on December 6, 2007 at 3:29 PM
You can be assured that the bail out is much more for the money men who are now holding the bag than for the home owners.
MB4 on December 6, 2007 at 3:30 PM
I’m not educated enough on this topic to expound, but my impression is that we are all going to pay one way or another. The morons and the moronic banks that lent them money are set to crash the entire economy–or at the very least bring on a rather frightening severe recession–if the circumstances aren’t mitigated somehow. I agree that it totally goes against the grain to bail these people out, but it may be the best option out of several really bad options at this point. Again, I’m no expert and this is just my opinion from reading a handful of articles by Really Smart Guys who actually are experts. Take it for what it’s worth.
aero on December 6, 2007 at 3:31 PM
Dammit… Michelle is 100% RIGHT.
This is a bailout of people who took risks and lost. Awful.
Always Right on December 6, 2007 at 3:31 PM
Let the buyer beware.
I learned that when I was about 12.
Thinking, it won’t hurt your brain and could save you a few bucks. Duh.
fogw on December 6, 2007 at 3:32 PM
You agreed to uphold the terms of your end of the contract. How is it anyone else’s responsibility if you failed to do so? You signed on the dotted line.
ReubenJCogburn on December 6, 2007 at 3:37 PM
Very nice to see Michelle again. I’ve been going through withdrawal.
Didn’t know this was one of her areas of expertise or interest, but what she says is just common sense anyway.
This ‘bailout, moratorium, whatever’ really makes me mad.
Where was the government years ago when I made a bunch of stupid decisions and ran up my credit cards beyond my ability to pay? No one bailed me out then; They would have been on the side of my creditors; as they should have been.
Bush and Clinton are WRONG WRONG WRONG about this; Michelle is right.
LegendHasIt on December 6, 2007 at 3:37 PM
suck.it.up..! picture perfect retort MM!
max1 on December 6, 2007 at 3:38 PM
Makes sense to me.
MB4 on December 6, 2007 at 3:39 PM
And additionally …
You invested in the colateralized debt-backed paper because of its higher rates of return, you accept the higher risk of default on your investment.
As the lady said, suck it up.
thirteen28 on December 6, 2007 at 3:40 PM
My wife and I took the more expensive, secure rate back in 2000. You don’t have to be a braniac to see that if you take the lower rate it is subject to rise. If you gamble, or fail to find another rate that is your choice.
This is Katrina socialism in full bloom.
Hening on December 6, 2007 at 3:41 PM
Does anyone really understand how some of these sub-prime loans work? People seem to be missing the entire issue.
When one borrowed sub prime – the discounted interest gets added to the end of the loan. So for example – If prime was 6% and you have a loan at 5% then 1% per year is added to the end of the loan or to the principle.
Now – add that magic equation to the other sub prime product – “Interest only” mortgages. This magical product allows the borrower to pay only interest – at a sub prime rate. Of course the difference between the prime and sub prime is added to the principle. In this scenario the principle is not only not getting paid down – it is GROWING!
The core issue is that any of these sub prime loans are on a short term – 3-4 years – and were sold with the idea that property values would continue to rise. So when they fall – there is no equity and the “so called” homeowner cannot post the adequate equity to refinance the loan!
There is no help for most of these sub prime loans. The homeowners are really renters – it is an illusion.
Why is this a Fed problem? The States regulate these loans and their Real Estate Rules. How did anyone allow this to happen And – How was anyone DUMB enough to buy a loan like this?
iam7545 on December 6, 2007 at 3:42 PM
Get outta here … ya think???
They love free markets being free when the party is kicking, but once the party’s over and the hangover starts, they go running to the feds for help.
thirteen28 on December 6, 2007 at 3:44 PM
Really, I blame Greenspan for this. He kept cutting rates, which is what built the housing bubble. The result was that we have people who bought up million dollar McMansions – way too much house than they either need or can afford, and now they’re whining for the government to bail them out. KNOW WHAT YOU’RE SIGNING BEFORE YOU SIGN IT!!!
Suck! It! Up! indeed!
crazy_legs on December 6, 2007 at 3:44 PM
As a surviving mortgage industry loan originator, I’m torn. There is $1,000,000,000 (yes, that’s one trillion dollars) of sub prime ARM’s scheduled to reset by the end of 2008. The first 300 Billion of these loans that reset this year have nearly broght us to a recession while draining the liquidity from the biggest lenders in the world. Half the lenders who originated them are bankrupt (nearly 200 YTD have gone bye bye), and a quarter of the bond funds secured by them are BK (hello Bear Stearns!). OK, so I get it. If we let 3 times this amount reset in 08, we’re looking at a shock our economy will take years to recover from..so overall this plan makes sense. But the crumballs who originated these loans have cashed their commission checks years ago, and the buyer’s who used these loans to leverage home purchases way over their heads get off with a freeze? That rubs me the wrong way.
DrW on December 6, 2007 at 3:46 PM
I think this action is being misunderestimated. From the AP report:
If all it accomplishes is to stop a Hillaristic taxpayer funded bailout, I am all in favor of it. As it is, it seems like an agreement among the lenders to agree to keep rates low for people who still making payments. It looks like it is the case that lenders may be willing to keep these rates low only as long as their competitors also do it, so it makes sense for it to be brokered by the government, if only to avoid anti-trust charges.
I think this is a great example of how government can function to preserve orderly markets without spending taxpayer money, and so is to be commended.
pedestrian on December 6, 2007 at 3:47 PM
The poor decision-makers do need to suck it up. But I reiterate–we’re all apparently going to pay a price here, whether we bail them out or not. And the price might be higher in the end if we don’t bail them out. When those funds collapse, it will hit our retirement portfolios, the banks’ ability and willingness to lend money to even well-qualified buyers, the price of all kinds of credit, the price of goods (after the ripple effect of a faltering economy causes inflation), and so on. I’m not enough of an economist to make an exhaustive list, but this is why I think the president is taking what seems to be a counterintuitive and unpopular action in this case.
aero on December 6, 2007 at 3:48 PM
Let’s just get it over with. The State should disarm us. God should be eliminated from Society. And we all should get our places in line, queuing for luxuries like bread, cheese and milk.
I can’t wait for the Soviet-style, dingy, gray housing. The collapse of our country continues. The State will provide. Obey the State. All will be well.
OhEssYouCowboys on December 6, 2007 at 3:49 PM
iam7545
you’re mixing up ‘negative amortization’ with subprime ian. sub prime simply refers to loans that do not meet Fannie Freddie or Govvie regs. neg am refers to the process that you described where the ’spread’ between the Note Rate and actual interest paid is added to the loan balance, thus negatively amorizing. however, these loans have a cap of usually 110% to 15% which, upon hitting, the homeowner is forced to begin making a fully amoritzing payment. this is part of the problem we face in this crisis, but not all all subprime loans include neg am. in fact, a rather small percentage have neg am features.
bw
DrW on December 6, 2007 at 3:50 PM
This is so similar to the stock market dump that happened in Clinton’s last year in office. The people who could least afford it bought stocks on margin and took it right in the backside.
This time, with the real estate market, the people who got in were speculating on the prices of homes continual rise only to get caught in the meatgrinder of declining home prices and rising interest rates.
So what is the lesson here for all to see? When the people that can least afford to enter any particular market, be it stocks or real estate get in, it’s time for everyone else to get out.
The game has been played this way for years.
swami on December 6, 2007 at 3:51 PM
I’m such a dumbass. Took at 30-year fixed at 5.875% 3 years back. Family is having some financial difficulties now and am thinking of downgrading the house to make ends meet. Already sold the second car off. Might make it through, okay, though.
If only I had known, I would have gotten one of those teaser deals and gotten the taxpayer to bail me out. Guess I’ll just have to suck it up and handle my own mess. What a sucka!
RW Wacko on December 6, 2007 at 3:53 PM
drW – thx
iam7545 on December 6, 2007 at 3:54 PM
I would rather have the buyers keep paying their own mortgages, even at a frozen rate that they don’t deserve for their stupidity, than to have more massive waves of foreclosures and the whole house of cards collapse on all of us. The banks get more money from a paying buyer than from empty houses sitting on the market for pennies on the dollar. Therefore the banks can more easily afford to keep lending money to those who deserve it, and the economy keeps functioning.
aero on December 6, 2007 at 3:54 PM
Let the greedy “home owners” and the greedy money men crash and burn.
There are always winners and losers.
It will hurt the economy short term but help it long term.
And think of all the people who will be able “down the road” to buy a house for a reasonable amount rather than at these still ridiculous tulip bubble levels.
MB4 on December 6, 2007 at 3:55 PM
Mortgage SHAMNESTY for deadbeats.
D2Boston on December 6, 2007 at 3:57 PM
Speaking of tulips, I wonder if back during the bursting of the tulip bubble governments tried to bail out the greedy tulip idiots.
MB4 on December 6, 2007 at 3:58 PM
The taxpayers are doing the bailout, its the shareholders in the banks who are going to pay for this. It is to their benefit to do this, because it would be more expensive to foreclose the house and lose the loan altogether. It may be the case the banks figure if they do this together, everyone wins since a recession is prevented, whereas if just one bank does it, the other banks benefit more than they do from helping their customers stay on their feet.
There may be some hit to the taxpayer if this includes the provision to not count a loan write-down as taxable income, which really amounts to kicking someone when they are down, except it has to be there to prevent fraud.
pedestrian on December 6, 2007 at 3:59 PM
The taxpayers AREN’T doing the bailout
oops
pedestrian on December 6, 2007 at 4:00 PM
Yes, likely so. The fact that it is voluntary should be an indication. It saves them from waiting for the properties to go through foreclosure. We’ll see if the bondholders go to court over the agreement.
Hillary’s idea is much much worse. Bush, so far at least, is avoiding federal money and new legislation.
dedalus on December 6, 2007 at 4:00 PM
Dude, it’s like in the Constitution. You know, “From each according to their ability, to each according to their need…”
eeyore on December 6, 2007 at 4:00 PM
I have got plenty of cash on hand.
I will help pick up the pieces.
Winners and losers.
MB4 on December 6, 2007 at 4:02 PM
Well, we’re currently renting and saving the down payment on our next home purchase. I don’t know whether to hurry and get something sooner, with less of a down payment than I’d like but probably a lower interest rate, or wait until all this explodes and buy afterwards, when the interest rates will certainly be much higher but houses might cost a lot less. A quandary.
aero on December 6, 2007 at 4:08 PM
[pedestrian on December 6, 2007 at 3:47 PM]
That is another way of understanding it, Pedestrian. I’ll have to think about it from this angle for a while. Thanks.
Dusty on December 6, 2007 at 4:09 PM
Michelle for Prez.
MadisonConservative on December 6, 2007 at 4:09 PM
I’m with Michelle 100%. So many times, (every time, actually), I wish Michelle had been our president instead of Bush.
FloatingRock on December 6, 2007 at 4:11 PM
You’re right. $200M of taxpayer money, but that’s peanuts these days, admittedly. Still bad policy, though, long-term. You need to reward the smart money and punish the bad, otherwise the smart money goes elsewhere (overseas).
RW Wacko on December 6, 2007 at 4:13 PM
Uh, the article you linked stated in its first paragraph, “conservatives say [it] amounts to a bailout of people who made bad financial decisions.” The formulations aren’t precisely the same, but clearly both statements are talking about the American taxpayer having to bail out those Americans who’ve made bad decisions. It’s great that she’s saying it, but to pretend that she’s the only one doing so is unnecessary.
Not to be mean, but why should they? I’m not economics expert, but if rates are kept artificially low for one segment of the population, won’t that create problems elsewhere (e.g., lower savings interest rates or higher loan interest rates for those who don’t qualify)? If it’s a political move, that’s one thing, but to pretend it’s something for nothing is not realistic.
calbear on December 6, 2007 at 4:19 PM
These loans should have never been allowed to be made because they violated banking regulations and loan guide lines that have historically been enforced.
Before you all start jumping all over the people that signed on the dotted line maybe you should ask how banks were able to concoct the scheme of securitization for these loans.
It is the investment bankers and Federal Reserve that are responsible for the creation in the sub prime markets in the first place.
I urge all of you that are blaming the guy that signed onto one of these loans to read how the SEC and Federal Reserve looked the other way on this whole fiasco so that some very big players walked away with billions that they knew would have to bailed out.
Here is an excellent article that illustrates this banking scheme in plain English at the August Review.
I am not excusing the speculators and individuals that got in over their heads but the fact is that most of these loans should have not even been made in the first place.
The Federal Reserve and SEC are supposed to prevent these kind of ponzi schemes as a matter of their charters to the American People.
ScottyDog on December 6, 2007 at 4:23 PM
Everyone who loaned the money took a risk. Part of risk is the opportunity to loose. Everyone who borrowed assumed an obligation. To bail out the morons is fundamentally unfair. If it means some banks go under, and some corporate execs don’t get a six figure bonus and some people loose their homes, I ain’t gonna cry.
The problem for those concerned about the dollar’s value, is this is going to lower it even more.
Last year we were in an apartment pay $1000 for rent. The guy across the hall was on assistance and only had to pay $25! Now I’ve got a 30 yr fixed, and I’m actually able to pay more toward principle, but because we were prudent, and didn’t over extend ourselves, we in effect get penalized? This is why government bailouts are bad. It rewards bad behavior by circumventing “natural” corrections.
Iblis on December 6, 2007 at 4:24 PM
I for one do blame the money men more than the sheeple, just as I blame the plantation employers more than the illegals for illegal immigration.
MB4 on December 6, 2007 at 4:30 PM
If you look the graphs of the number of resets scheduled to happen in 2008 and 2009, and beyond, it’s pretty frightening what that would do to the economy, given the impact that has already occurred. If this move dodges that bullet, it’s pretty amazing what has been accomplished in terms of avoiding a massive recession. Since banks make more money in good times than bad, that is probably enough incentive for them to forgoe potential income.
But they probably wouldn’t realized those higher rates anyway since people would just dump their houses rather than pay the higher rate. That dumping of houses into a weak market would have reduced the value of their collateral on all their other loans also.
pedestrian on December 6, 2007 at 4:31 PM
That is right, and if you can’t collect then you need to watch an episode of Flip This House.
TheSitRep on December 6, 2007 at 4:35 PM
Ok lets take a deep breath. Some definitions first. Sub-Prime is those with not so good credit that took loans out with lower rates on 2/28 or 3/27 arms. The negative ammortization loans or “Pick a payment” loans are NOT subprime. You had to have good credit and assets in the bank and a STRONG appraisal to get these and were limited as far as loan to value so that it would take a while to reach max equity.
Michelle was spot on with her interview about a full blown bailout, not good. Thats not what this is. Lets break it down. Its supposed to affect 1.2MM homeowners, it wont reach nearly that many. You cant be more than 30 days late on the mortgage AND THEN you have to prove that you cant afford the new adjuste payment. This is NOT going to reduce their interest rate as some have stated. If the teaser rate was 7.5 for 2 years then it will freeze at 7.5 and most of these subprime loans are not interest only. Only a fraction are. Someone mentioned that its just the greedy lenders. Trust me when I tell you that lenders are not in the home owning business. They despise it. They foreclose, pay attorneys fees, sell the home and take the loss. 78 lenders have gone out of business in the last 6 months because investors have pulled out. Brokers are closing shop left and right. That is good.
There is also a new program called FHASecure that is helping a lot of these people, this program covers people that MUST be late on the mortgage after the adjustment period. If your loan has adjusted and you arent late on the mortgage you dont qualify for this program but you do qualify for standard FHA underwriting. This “bailout” will help maybe 250K homeowners at most. Its also not automatic, people have to call and ASK about it.
And lets get into specifics. Lenders such as Chase, Wells Fargo etc. dont make money of the interest, they sold that loan loang ago. They earn around 2.00 per loan that they service. Pres. Bush spoke with these servicers, they STILL HAVE TO CONVINCE the bond holders and/or investors to accept this. Not an easy task when private investors were guaranteed returns.
Ramifications – Taxpayers are funding nothing. Doing this will help prevent SOME foreclosures and will help sustain a floor on housing prices. Nothing hurts the value of your home more than foreclosures in your area. Try and sell your house after recent foreclosures, there is no arguing to a buyer or a lender that you shouldnt suffer the penalty. Its all based on appraised value, appraisers must use that sale as one of the comparables.
This is minimal and will help sustain prices A LITTLE. In the last 5 years, I put a lot of people in homes using these ARMS. The difference between the rate on an ARM and a fixed rate was just crazy. The difference between me and others is I instructed these people on what to do so that I could refi them in a year to get them a conforming rate. Moonlighting brokers did not. Most are good people but are in a jam. Trust me, I am not for bailouts. FHASecure helps those that are late, this helps those that arent. Hopefully it will get most to realize they cant afford their homes, put them on the market and get a smaller home.
broker1 on December 6, 2007 at 4:36 PM
Your average person is naturally stupid about financial matters. The financial firms are not. The teaser rates and all that junk were preying on the uninformed, and yes, the greedy. Greed is natural. I was in the San Fran area 5 years back, and everyone was raving about these mortgages, how you can afford the huge house, payments are low, blah blah blah. These were my coworkers, friggin’ financial analysts. If financial analysts (corporate, not personal) couldn’t figure out the inherent risks with these types of mortgages, how is Joe Blow? That being said, you lay down that kind of money, you sign that contract, it IS your responsibility, ultimately. But yeah, MB4, I don’t blame the little guy as much as the financial houses and mortgage brokers.
RW Wacko on December 6, 2007 at 4:36 PM
As usual, Michelle takes it right back to the Constitutional principles. Very well done.
Valiant on December 6, 2007 at 4:40 PM
Since the government is going to start “bailing out” these types of high-risk loans, doesn’t that promote more of them in the future?
Doesn’t setting that precedent eliminate the “risk” of these types of loans in the future?
nottakingsides on December 6, 2007 at 4:42 PM
Both sides of the aisle have becomes so predictable.
redrock on December 6, 2007 at 4:47 PM
The way I see it, and I’ve been the business since 1991, is this won’t help many homeowners at all and it certainly isn’t going to help the industry.
The program is too narrow to help a majority of homeowners. The number of homeowners being helped won’t let us avoid the worsening of the crisis or the massive numbers of foreclosures coming down the pipe.
It won’t help the mortgage industry because it’s backbone is securitization of mortgages. Screwing over the mortgage investor will certainly hurt securitization, not help it. Without securitization, lenders do not lend. If you think mortgage money is tight now, just wait.
It won’t help the real estate industry and market because we will still have record foreclosures which will continue to push real estate values downward at a historical clip.
Also, by obliterating the integrity of mortgage securities, lenders who are still holding mortgage paper will take huge hits to the value of their portfolios. It may push some very large players into non existence.
The ones benefiting are the politicians because they get to look compassionate at everyone else’s expense. Them and the relatively few homeowners who get their payments frozen.
The solution to the problem, if there is one, is to reinstate efficiency and integrity to the mortgage backed securities market. By doing so, lenders will lend again and provide liquidity to an economic sector that is desperate for it.
No one is addressing the main issue, which is the process of securitizing mortgages.
voiceofreason on December 6, 2007 at 4:53 PM
Exactly the opposite. Subprime ARMS are gone, government trying to regulate the rate adjustment of these loans to higher rates will desuade investors from offering them. This is the free market, these investors offered these loans in the same good faith that borrowers took them. That homes would continue to increase. Same can be said of the investors and venture capitalists of the Dot.com boom. Its called SPECULATION.
Lets not forget, this administration and ones that preceded were vocal about getting as many people as possible into homes. These investors did it, so did hedge funds, and they got burned. The ride is over now, and these subprime arms wont come back.
One last thing. What is affecting these loans the most is not the adjustment of these loans, its that a lot of these were what is called “Stated Income” loans. People took a slightly higher rate so that they didnt have to document their income THINKING that their families income would rise in the future. To a lot of people, it didnt happen and some actually lost their jobs.
Investors offered these programs and servicers such as Wells Fargo etc. sold these in bulk. They would bundle 100MM of these loans and pay people like me 101.00 of par. Which means they paid me 1 point of the loan amount, then they would sell it to these investors at 103.00 which means they made a net 2 points. They couldnt loan enough money.
broker1 on December 6, 2007 at 4:55 PM
There was a time when a young couple would save their money and may take a small loan.
Draw up some plans and get some brothers, cousins, and uncles and build a house in a few days.
Often the house was paid for “lock, stock and barrel” the very minute the last nail was drove in.
Today there is a propensity for people to have false pride and finance way more house then they need. The desire to give the false impression of affluence is the downfall of many a man.
If you want to read what the wise ol’ Ben Franklin said, check this out:
The Way To Wealth
I have read this to my children several times.
TheSitRep on December 6, 2007 at 4:57 PM
TheSitRep on December 6, 2007 at 5:00 PM
Government does all kinds of bailouts. These people are getting this bailout, the benefit to you is that there may be some other disaster in the future where you need help. Certainly government does too many bailouts, but this one isn’t going to cost you anything. If anything, if a recession is avoided the benefit to the taxpayer is gigantic, given the additional tax revenue and reduced welfare costs.
While bailouts do increase risky behavior, there needs to be some risk-taking in order for the economy to run at its best. These loans caused a boom in housing and benefited a lot of people. There were some stupid mistakes on Wall Street and elsewhere for sure, but they are already bearing a huge load from this, thanks to their not properly accounting for liquidity-puts (google it).
pedestrian on December 6, 2007 at 5:01 PM
I will say what has bothered, well perhaps not bothered but made me shake my head. For example, I have gotten people approved through Fannie Mae and Freddie Mac with debt ratios of over 60%. This means that ALL of their debt is 60% of their GROSS income. That is not what people take home, after taxes their debt ratios are closer to 80%, which means that when they get get their paycheck, 80% of that check is spoken for. I couldnt live on that, it is what it is, but I have never understood the idea of underwriting on GROSS income.
broker1 on December 6, 2007 at 5:02 PM
So pedestrian–
What’s your advice to me? I’m currently renting and saving as large a down payment as I can manage on the purchase of our next house. Should I try to buy sooner, with less of a down payment than I’d like, before the melt-down? Or wait until after, when the house will presumably cost less and we’ll have a larger down payment but we’ll probably get stuck with a much higher interest rate?
aero on December 6, 2007 at 5:07 PM
Someone with more knowledge than I, please tell me why I am paying PMI?
cjn on December 6, 2007 at 5:10 PM
This is one of the biggest mis-information campaigns that lenders and mortgage companies use to get people to get loans.
Greenspan has ABSOLUTELY ZERO EFFECT on long term mortgage rates. Actually when the fed reduces rates it causes long term rates to RISE. When the FED reduces rates it affects rates on Lines of credit, credit cards, auto loans etc. It has No effect on mortgage rates. It is the PRIME RATE that they reduce, so it actually lowers rates on adjustable rates because they are tied to PRIME plus a margin. If you want to follow where mortgage rates are going, follow the 10 year note. There is an inverse relationship between the yield on the 10 year note and long term rates .
But because everyone thinks that when the FED reduces rates that it affects mortgages, all you see and hear are ads on the radio and TV saying “The fed reduced rates today! Call us!” Its just a way to get the phone to ring.
broker1 on December 6, 2007 at 5:14 PM
Because thats how it works. If you dont put 20% down when you purchase a home or have 20% equity in your home when you refinance you will have to pay PMI. That is insurance that covers the difference between 80% of the value of your home and what you owe. The only way around it is to get what is called Lender paid PMI. You take a slightly higher rate and they will self insure the loan. PMI is tax deductible now though so its not as bad as it used to be.
broker1 on December 6, 2007 at 5:18 PM
With securitization it is no longer possible for someone to renegotiate with the bank. Isn’t Bush stepping in to preserve some value for a subset of loans that would otherwise go into default?
Things will likely continue to get worse in the housing sector, and the economy in 2008 looks like it might be little better than flat, but the market liked what it saw today from Bush and Paulson. The market was even happier that Bernanke blessed their action and thinks it means he’ll cut 50bp on Tuesday. Look at how the “XLF” spider shot up after 2PM.
One final consideration: Republicans are going to have a tough time in November 2008, especially in Senate races. Bush needs to do what he can to prevent the GOP from running against a recession. The 1992 recession cost his father his job and gave us the first Clinton.
dedalus on December 6, 2007 at 5:19 PM
broke1 wrote
There is also a new program called FHASecure that is helping a lot of these people, this program covers people that MUST be late on the mortgage after the adjustment period
go back and read the latest HUD Mtgee letter Broker. the homeowner does NOT need to be in arrears or late on their mortgage to use FHA secure.
DrW on December 6, 2007 at 5:22 PM
So were the mortage companies scamming me? If they didn’t use the PMI that I was paying for mortgage insurance, then what did they use it for? And, Don’t the ‘designer loans’ have PMI, too?
cjn on December 6, 2007 at 5:22 PM
Congress overhauled bankruptcy laws, which now requires most to work out debt repayment plans but homeowners get a mortage bailout.
Unreal.
The Ugly American on December 6, 2007 at 5:23 PM
aero
if a Dem wins the WH, rates will increase dramatically. there is a direct corellation between which party is in the WH.. Dems mean higher rates, Repubs mean lower rates. just look at Prime over the past 50 years and you’ll see exactly what I’m talking about.
so the question you gotta ask yourself is, do you feel lucky? well, do ya…?
DrW on December 6, 2007 at 5:26 PM
Im not concerned. 100% financing programs are still as strong as they ever were, even though you hear the contrary, and I remember when gas prices were reaching 50 bucks a barrel that people would stop spending and we would go into a recession. Not happening. This economy is resilient and I believe we will be fine.
Most foreclosures are speculators in Vegas and California, and some in Florida I believe have been factored in. I, personally, am on a mission to target market these people in ARMs into better products and Im doing a great job of it. Optimism baby, optimism.
broker1 on December 6, 2007 at 5:26 PM
Let them eat cake.
Labamigo on December 6, 2007 at 5:27 PM
I’ve heard Fred Thompson say, “Let the market work this out.” So there’s your presidential candidate with guts.
Joshua P. Allem on December 6, 2007 at 5:36 PM
I do commercial workout and restructuring work and have seen some impact from the subprime disaster. I also live in the Cleveland area, which has been devastated by the “crisis.”
The entire thing is a mess. The hedge funds and other institutional investors who bought subprime CDOs are in trouble because they bought debt that’s riskier than they thought. The servicers are in trouble because of cash flow problems created by delinquent borrowers. As for the borrowers — many of them took a risk and got burned. Others were poor people who were taken for a ride by various unscrupulous people — and I have some sympathy for them (but not a whole lot of sympathy).
In Cleveland, one huge problem we’ve had with the subprime mess is that so many houses are going into foreclosure that it’s really damaging entire neighborhoods and communities. There are neighborhoods in Cleveland where half the houses on the block are abandoned and in foreclosure; scavengers come by and rip the copper piping out of the houses to sell for drugs… Vagrants come around… Soon the entire neighborhood (including the “good guys” who own their homes or have mortgages they can afford) plummets in value and people get caught holding the bag.
My point is that these kinds of messes reverberate and cause all kinds of externalities. Make no mistake – “honest” borrowers who “played by the rules” *WILL* get hurt by subprime one way or the other. To the extent that very mild government intervention can alleviate that “collateral damage,” I don’t hate it.
Sorry for my rant.
Outlander on December 6, 2007 at 5:38 PM
Glad to hear that. I like good news. I hope you are right. Aren’t you concerned though that people have used escalating house values over the past 5 years to fuel their spending, and that the current decline might result in a belt-tightening for consumers that will slow GDP?
dedalus on December 6, 2007 at 5:41 PM
FHASecure is specifically for people who were late or are late because of the adjustment. FHA generally requires mortgage payments be on time in the previous 12 months. If you ARENT late then you can just refi using standard FHA underwriting guidelines. I.e. There is no need to use FHASecure if your mortgage payments are on time. FHASecure requires that your mortgage payments were on time for 6 months prior to the adjustment.
This is why I said in order to use THIS PROGRAM you must be late on your mortgage. That is why when I was on a conference call with an FHA rep back in Sept. many people actually asked “So should I tell my borrower to NOT make his payements?” I couldnt believe it.
broker1 on December 6, 2007 at 5:45 PM
Which actually is my point. I wasn’t talking about fixed rates (which is what my wife and I got. No ARM for us, thankyouverymuch). The Fed (Greenspan) kept lowering the prime more and more, which lowered adjustable rates, which got these people into these enormous McMansions. Now that rates are going up, suddenly they can’t afford these mega-houses. They took the risk, they should’ve known. I have no sympathy. We apparently learned nothing from the dot-com bubble and subsequent Clinton recession. An economy can’t sustain itself if it’s built on a house of cards, and this housing thing was at least just as dubious as the dot-coms.
crazy_legs on December 6, 2007 at 5:47 PM
Something is seriously wrong with “red lasso”: it tried to establish OUTBOUND TCP involving several strange ports, and I’m not going to let any site do that!
I’ll look elsewhere for Michelle’s presentation.
landlines on December 6, 2007 at 5:48 PM
Of course there is always that risk. But 3rd quarter GDP numbers revised to 4.9%? That is absolutely sick. Wages increasing, continued growth, and the folks seeing their 401ks doing well I think is good news. I just fear the media. With all this good news, polls show consumer confidence a little low, and that is the media. All you hear is recession coming.
All I know is this. The real estate and mortgage industry had a HUGE braincramp and it fixed itself. Crappy products are gone, and only people that can afford a home will get one. Not only that, but one of the biggest problems has been fixed. Lenders are scrutinizing appraisals like never before. Some are even requiring 2 independent appraisals on transactions. One done by their in house appraiser.
But I do believe bankruptcies will increase a lot, but the way you can rebound from a BK these days and get Credit cards again, unlike in the past, spending will continue.
broker1 on December 6, 2007 at 5:55 PM
…..but (without benefit of having seen Michelle’s piece), any time you find someone agreeing with a Clinton on economic matters, it’s time to bring in the guys with nets to grab the person, sit the poor lost soul down, and have a serious intervention session!!!
landlines on December 6, 2007 at 5:55 PM
I agree with much of what you’ve said. However, there is some underlying value in the real estate, some collateral that the lenders can grab. Many of the dotcom investments disappeared with investors getting nothing and employees being left with pink slips and a tax bill for options that were worthless.
dedalus on December 6, 2007 at 5:55 PM
My apologies I guess I didnt explain in full. When the fed reduces the prime rate and I say it affects ARMs, it doesnt affect the start rate. It affects some of the margins. And I mention SOME. Most ARMs are tied to the LIBOR . For example, if you buy a house and your teaser rate is 7.5% but the margin is 4% with a 2% yearly cap and 6% lifetime cap then that means after 2 years your first adjustment would be up to 9.5%. If the fed lowers the prime rate the ADJUSTED rate would be a little lower. Not the teaser rate.
Sorry
broker1 on December 6, 2007 at 6:00 PM
Very well said.
broker1 on December 6, 2007 at 6:02 PM
posted at 3:13 pm on December 6, 2007 by Bryan
It is clear from most posts and from your post that the majority of Americans have no idea what the hell they are talking about. We have between 1.2 to 1.8million homes close to forclosure just this year. Another 300-500 billion worth of loans due next year. If all these houses go into forclosure can you say “Great Depression” can you say bread lines, soup lines. Can you say massive unemployment. Can you say runs on banks, can you say NO credit extended to anyone. This includes credit cards, car loans etc. Can you say a massive drop in consumer spending, can you say more layoffs, can you say worldwide depression.
So if we do not bailout these homeowners all of us will pay and pay big. This is not an isolated problem. these loans are in EVERY banks books both in the US and in all the world markets. We are staring at a major cliff and about to fall off. Suck it up indeed. I would rather my government spend my tax dollars to keep my standard of living at the present level then allow our economy to go into a major depression.
As a side note some of this problem can be laid at illegal immigration. these are the “subprime” borrowers that people are talking about. no documentation loans, no job history, no legal address. Every wonder that most of the forclosures are in CA and FL. Two of the biggest states with illeagal populations. They are not in our credit score system
unseen on December 6, 2007 at 6:05 PM
While I tend to agree that in California MANY mansions were bought with Negative Ammortization loans and I am in your camp. Believe me when I tell you that MOST of these people in trouble are those that were finally able to buy their first home for 80K dollars and give their kids a backyard and it truely is heartbreaking.
Remember this as well. These homebuyers listened to their mortgage guy and their advice. We got paid more to put these people into ARMS then Fixed. I never did lie so dont lump me in please. But just like someone that goes to the dealer to buy a new car and negotiates a great price and then they get to the financing part and they dont care about the rate, they want the car. Well these people wanted a home for their kids. We shouldnt be so quick to judge.
broker1 on December 6, 2007 at 6:10 PM
Outlander on December 6, 2007 at 5:38 PM
At least some people get it. I just hope people can understand the major consequences that we have hanging over our heads. this is the biggest crisis we have faced since 9/11. It is not just some poor people or some deadbeats. It is the entire world economy at stake.
unseen on December 6, 2007 at 6:11 PM
Many people are making the argument that you can’t just let the market take its course. The problem is that there is nothing the government can do that will make this better, and in all likelihood government involvement will make it worse. The housing “bubble” was really the inflating of house value and personal worth on paper that had no connection to reality. The problem is that at some point these numbers always correct back to reality. The government can’t prevent it all they can do is shift who bears the brunt of it. By providing a bailout they remove the impact from the lenders and move it to the American taxpayer. The paper wealth is still going to disappear and the economy is still going to suffer for it. However, with a bailout the lenders will still be in business and will learn the valuable lesson that no matter how stupid their lending policies are the U.S. government will bail them out if only than can get enough of their fellow lenders to go along with them.
Buford on December 6, 2007 at 6:13 PM
But I do believe bankruptcies will increase a lot, but the way you can rebound from a BK these days and get Credit cards again, unlike in the past, spending will continue.
broker1 on December 6, 2007 at 5:55 PM
but that’s the problem. You will no longer be able to get any type of credit like before including credit cards. All ready Capital one is warning of increased defaults on cards and auto loans. It this is not stopped our entire economy goes down the drain.
Suck it up. yeah right. I’ll be sucking it up in the soup lines. like my Great Grandfather did.
unseen on December 6, 2007 at 6:16 PM
Good points. 4.9% is a huge number. A lot of P/E multiples look really good right now since earnings announcements have been solid but prices have only been moving sideways due to fears about 2008. The White House and Fed have GDP growth numbers of around 2.5%. Goldman’s estimate is about 1.5%.
Part of me shares your optimism, but it will be hard for the markets to advance meaningfully while CEO’s and investors fear the unknowns about the subprime mess. Whether one agrees with Bush’s effort today or not, I think his intention is to introduce some confidence into the markets.
dedalus on December 6, 2007 at 6:18 PM
Buford on December 6, 2007 at 6:13 PM
The problem is if you let the market it work it out you will have to go through a major depression. The market is based entirly on fear and greed. If you let the market work it out you will have another FDR that takes even more freedoms away from you. with a little government intervention now there is a chance to avoid a major government intervention later.
unseen on December 6, 2007 at 6:19 PM
That’s my point, too, unseen. It’s not like the ones who were stupid will be “sucking it up” in isolation. We can’t build a bubble around them that magically insulates the rest of us from the fallout. I think some form of bailout is the lesser of evils. Since this proposal appears to have minimal impact on taxpayers in general, I’m for trying it. Sorry, Michelle–in principle, “suck it up” is the right response. But in practice, I think far too many innocent bystanders end up sucking it up, too, and trying this is better than waiting for the full impact of this thing to hit.
We’ve all grown a little spoiled on an economy that seems to be able to rebound easily from just about anything. This one looks like it might be too big for that, though. Combine it with the looming entitlements crisis, and it could get very, very bad in the very near future for the U.S. economy as a whole.
aero on December 6, 2007 at 6:22 PM
The problem is that at the national level there is pretty much nothing the government can do to alleviate “collateral damage.” Protecting neighborhood integrity, etc… is something local governments have to do.
The economy is going to suffer, nothing will prevent that. Trillions of dollars in fantasy paper wealth are going to disappear from the economy. The real fact is that this wealth never actually existed and the government can’t create it out of whole cloth. The involvement of the federal government is going to accomplish nothing except shifting some of the cost from those that caused this problem to those that didn’t.
Buford on December 6, 2007 at 6:23 PM
There will not be a government bailout. It wont happen. FHASecure and this new negotiation is just to reduce the damage. As far as stupid lending policies, its not the lenders that had the policies. There are investors that buy these loans and they tell the lenders what types of loans they are willing to buy. Whether it be ARMS, stated income loans, NO DOC loans, whathave you. Those investors are gone, and the market has responded. Over 70 lenders have shut their doors because they no longer have products to sell.
If you had someone come to you and say “I am willing to buy loans from you without proving income or an appraisal and I will pay you a 3% premium on them” Wouldnt you do your damndest to go sell that loan?
Everyone needs to remember, Wells Fargo, Countrywide et al are really not “lenders”. They are servicers. They sell their loans to the investors that tell them what types of loans they will buy. With the majors its generally Fannie Mae and Freddie Mac. But with them you need decent credit, and they have made pricing on ARMs so unattractive EVERYONE is getting into a fixed mortgage. I havent closed in ARM in over a year. The market is fixing itself and if we can convert a majority of those ARMs coming due into fixed products we will be just fine.
broker1 on December 6, 2007 at 6:26 PM
I’m probably not qualified to debate the macroeconomic nuances here, but FOX Business Network in HD?
Duuuuuuuuuude.
ScottMcC on December 6, 2007 at 6:29 PM
aero on December 6, 2007 at 6:22 PM
Yes we are on the edge. It is the spoiled, financially uneducated among us that need to “suck it up” and help save this country from an epic implosion. Our entire economy is based on debt. If that credit dries up than consumer spending falls and if consumer spending which account for 70% of our economic activity dries up then our economy goes bust. Add into to this that with the lost jobs massive unemployment we will have a steep falloff in tax rev. the government will be unable to borrow the money because yes wait for it….the credit market will be dried up. therefore the government will be bankrupted in short order and we will not have social secruity, medicare, medicaid, food stamps, or a military that is based overseas. Argintina is a good case study.
So it’s us who need to suck it up and give a helping hand to those that made foolish descions. After all it was our education system that caused this to happen in the first place.
unseen on December 6, 2007 at 6:31 PM
Buford on December 6, 2007 at 6:23 PM
It buys time. 5years is alot of time to grow our way out of the problem.
unseen on December 6, 2007 at 6:32 PM
Talk of depression is completely unwarrented really. Foreclosures have been up exponentially for a few months now and yet the economy keeps chuggin along. The level of foreclosures wont INCREASE, they may continue but not increase.
Its unfortunate but we are not a society that saves. We earn and we spend, its what we do its our culture.
broker1 on December 6, 2007 at 6:33 PM
I haven’t had a chance to check it out. Based on the one clip I saw they were lagging CNBC in the “Money Honey” department, but given the eye candy on Fox News I’m guessing the producers are on top of it.
dedalus on December 6, 2007 at 6:34 PM
broker1 on December 6, 2007 at 6:26 PM
Agreed we need time and to spread the pain out over years. So that the market can fix itself. It is the huge wave coming due that is the threat to our economy. If we can reduce the wave then we can manage the clean up before the next wave comes.
unseen on December 6, 2007 at 6:35 PM
FOX Business Network
Is like watching Mtv in order to learn how to play the drums.
CNBC is much better if your going to invest in the market.
unseen on December 6, 2007 at 6:36 PM
First the market isn’t based on fear and greed. The market is based on real values of real assets and is warped out of reality by fear and greed. Now and then reality rears its ugly head and the market corrects and there is nothing anyone can do to stop it. Of course fear will make the market over correct so that those who recognize value can make a fortune picking up properties at a bargain.
Second, how the federal government is currently operating is far worse than how it did under friend of Stalin/President for life FDR. I don’t buy the argument that we should accept a little more government meddling now so we can avoid a lot more later. If we accept any now we will get even more later. Not since Reagan’s first term has either party acted like they were interested in a limited government, and we should be calling on the Republican party to show us they actually are the party of conservatives and not just Democrat lite.
Buford on December 6, 2007 at 6:37 PM
Wow that is pessimism for ya! Credit is actually coming back, at least in my sector. Investors are slowly coming back and what stuns me is when this bubble burst, I expected unemployment numbers to dive with layoffs in construction and the housing sector. Alas it didnt happen.
Investors that left the market have one good thing in common. GREED. They want those returns again and they will get them, albeit with stricter guidelines. People will always want to buy homes. Still cheaper to own then to rent.
broker1 on December 6, 2007 at 6:39 PM
How does this move “dodge that bullet”? These loans will never go up? Or do we have this problem in 2013?
Are we also going to do the same bailout every year for each new set of loans that hit the bubble? Or do we still collapse in 2009?
And, if we simply keep the interest artificially low for everyone indefinitely (sorry, until this magically fixes itself), how long until the lenders lose enough to collapse? This can’t help their stocks, their cashflow, or their capital for new loans…
Taking one step back doesn’t really count as “dodging the bullet”, it’s still going to hit you.
gekkobear on December 6, 2007 at 6:41 PM
It will buy time just like FDR bought time by extending the depression years longer than it would have lasted if he had left well enough alone. Sorry, the toothpaste is already out of the tube on this one. Having the Government smear it around all over the counter top isn’t going to help get it cleaned up in the long run.
Buford on December 6, 2007 at 6:45 PM
Bushs plan would freeze the rates for 5 years. These rates arent that attractive so everyone will do what they can to get out and into a fixed product. As far as this happening agai, it wont. Noone is offereing attractive ARMS any longer. Those that are taking them are sure that they will sell their house in that fixed period.
I personally think this was purely a politcal move. Pelosi is already screaming that it wasnt enough.
broker1 on December 6, 2007 at 6:46 PM
Comment pages: 1 2 Next »