Reaction to the new plan on subprime foreclosures

[moh malekpour]

The wall street and stock market are exited about the plan speculating that it is going to rejuvenate the dying housing market and encouraging people to borrow and spend again.

Irresponsible homebuyers who ignored the reality and got themselves in trouble are happy and relieved that once again the government is going to help them out and get their dreams come true.

But today’s articles from conservative to liberal are saying that the plan is not going to do that much good.

Battle Lines Form Over Mortgage Plan

Mortgage relief program a slap in the face to some

Bush’s mortgage plan – the consequences

Bush's Subprime Mortgage Freeze Stymies Bond Market

On Mortgage Relief, Who Gains the Most?

A Buffer? Or a Bailout?

Subprime plan could help 1.2 million

 

[23Degrees]

Thank you for those links - the slap in the face article really describes the potential unfairness - responsible bubble sitting renters locked out. It did not mention that even worse, any resulting accelerated inflation could bring further bad news as while some fools could get a 5 year lock in some teaser rate, these sitters could see landlords attempting to increase rents more than what has been typical as market rents rise due to inflation.

Perhaps some sanity will prevail in the end though. Need to remember the plan is not being called a mandate. This quote, from one of the articles cited above entitled "In Mortgage Plan, Lenders Set Terms" - New York Times, does give some indication that in the end the grownups might actually win out here:

"Indeed, there were rumblings of rebellion among some institutional investors. “Why would anybody in his right financial mind agree to a five-year price freeze, especially when we’re staring in the face of possible inflation?” asked Roger W. Kirby, managing partner at Kirby McInerney, which has represented investors in class-action lawsuits over securities. “Mr. Paulson has overestimated the generosity of people on Wall Street.”"

 

[Doug Wegener]

From one of the links:

"The rescue package suggests that most investors prefer to give up some interest revenue rather than carry out expensive foreclosures of thousands of homes. But the plan won't reduce their losses by much. Analysts at Barclays Capital Research said in a report that the Treasury's plan could reduce cumulative losses from subprime loans by 0.6 to 1 percentage point, "which is not much relief when losses could reach 13% to 15%."

Investors who hold mortgages, meanwhile, would still bear the risk of the loans under the plan, said Doug Dachille, chief executive of First Principles Capital Management in New York, which invests in some mortgage-backed securities. Creditors would also bear the pain of forgone income from mortgages that under normal market conditions would have brought higher interest income."

"There ought to be costs to both the borrowers and lenders, but right now you're just giving a freebie to homeowners," he says. "They still get to live in their house and benefit from any appreciation in the value of the house over the next few years."
*******************************

I dont think I would be a happy camper if I was an investor in these securities.

 

[Riick]

<snipped>
.... does give some indication that in the end the grownups might actually win out here:
<snipped>
“Mr. Paulson has overestimated the generosity of people on Wall Street.”"

Sorry, but didn't the "Grownups" make the mess?
....and using the words "generosity" and "Wall Street" in the same sentence?
....I may not sleep tonite, liable to wake myself up laughing.

 

[Doug Wegener]

http://www.cnbc.com/id/22146721

Excerpt from a public e-mail from Max:

"I had read on your blog that Bush's plan might be little more than public relations. If these terms are true, it was never intended to help anyone. I mean, I knew the program was "voluntary" for lenders to accept, that the borrowers couldn't already be past due and must be able to verify that they can afford the current terms. What I didn't expect is that the borrower must have less than 3% of equity in the home (???), and that the home must be worth more than the mortgage (???). Those two provisos make this plan worthless. And what is the main headline on CNBC's webpage? "Mortgage Plan Could Help Thousands of Homeowners." Unbelievable. Spin, spin sugar."

 

[Austin]

http://www.cnbc.com/id/22146721

Excerpt from a public e-mail from Max:

"I had read on your blog that Bush's plan might be little more than public relations. If these terms are true, it was never intended to help anyone. I mean, I knew the program was "voluntary" for lenders to accept, that the borrowers couldn't already be past due and must be able to verify that they can afford the current terms. What I didn't expect is that the borrower must have less than 3% of equity in the home (???), and that the home must be worth more than the mortgage (???). Those two provisos make this plan worthless. And what is the main headline on CNBC's webpage? "Mortgage Plan Could Help Thousands of Homeowners." Unbelievable. Spin, spin sugar."

You notice that too huh?

 

[Workbox]

You notice that too huh?

I think everybody in the industry did. Once it is defined to the masses, there will be another media issue to take their attention away.

 

[Austin]

Let me tell you guys a true story to illustrate the politics underlying this sub prime mess. In the city I work in, they just had the most expensive campaign for a seat in the Virginia House of Delegates in history. These two guys spent over 1 million dollars in the recent campaign. I can remember a time when you could buy a seat in congress for that kind of money. The present office holder is very well to do and retired having sold his business. He is a Republican and has been in office for 6 years and did a good job. He has some great ideas.

His opponent is a Bill Clinton imitation. He ran for city council two years ago and won at the top of the ticket of 5 elected. He did it by going door to door and asking people for their votes. Every night he was in restaurants shaking hands and talking to people so he felt the stars indicated to him that he was the next Bill Clinton. The Democrats latched onto him because he appeared to be a vote getter.

He has no job presently. He has had five jobs in the last two years most recently he finished training as a Wal-Mart associate manager. After completing the training program he quit. Two weeks before he filed to run in the house race his wife was sued for 1 million dollars because she quit her former job selling medical equipment and stole the client list and took it with her to her new company. She went door to door campaigning and while doing that was selling medical equipment to people she talked to. She got my aunt one of those free motor scooters to ride her around the house. Problem is it is too big for the house. My aunt loved this guy because he was going to do things for the common people.

This town is known for small town politics and most of the campaigning takes place in letters to the editor in the local paper which was aflame during this campaign. The newspaper found out about his wife being sued but since he was a Democrat and a man of the people they decided to sit on it. Word got out and in true Clinton fashion he turned the issue around on his opponent and accused him of smearing his wife and dirty campaigning. He claimed the suit was politically motivated by the Republicans because he was a candidate; problem is the suit was filed before the filed to run in the election.

I read the letters in the paper and they were a hoot. The basic message illustrated by these letters was that this dude was a man of the people. They said he is one of us common people. The reason they supported him, according to the letters, was they wanted him to go to the legislature and pass legislation to give them what they could not get on their own. Raise the minimum wage; bring in high paying jobs; cheap medical care; and drop the requirement of having a HS diploma in most jobs etc. In other words, bring the world down to our level so we can have the same privileges that the winners of life’s lottery enjoy like big houses that we can’t afford. Therein lays the saga of the present financial mess. The game of lets pretend we are all equal and have a right to the same things in life over played their hand and we all end up paying the price.

PS: I forgot the best part of this story. Guess who is this representing this dud's wife in her 1 million dollar suit? Its his cousin. My office is directly across the street from the court house and lawyers park in front on the street all the time. This lawyer's license plate number is something like Lawyer 2 and he always has a "Vote Democratic" bumper sticker on it. I was talking to the meter maid one day and she said she has written hundreds of parking tickets on this vehicle. A couple of months ago the city published in the newspaper the names of all delinquent real estate tax payers including the amount owed. This lawyer owed $93,000 in back real estate taxes in the city. He too is a man of the people.

 

[Terrel L. Shields]

“Mr. Paulson has overestimated the generosity of people on Wall Street.”"

I'll predict a whopping slew of lawsuits over this issue.

 

[Lloyd Bonafide]

Rate Freezes Won't Solve Foreclosure Problem

http://www.seekingalpha.com/article/56460-rate-freezes-won-t-solve-foreclosure-problem

The wires are reporting that the White House is working on a plan that would freeze rates on adjustable rate mortgages for certain borrowers, in an attempt to help curb the rapid increase in home foreclosures expected in coming months.

While it certainly will help the situation, consider a slide from Countrywide (CFC)'s Keynote Presentation at the 37th Annual Bank of America Investment Conference in September which showed the following:

Causes of Foreclosure (July 2007)

58.3% Curtailment of income
13.2% Illness/Medical
8.4% Divorce
6.1% Investment property/Unable to sell
5.5% Low regard for property ownership
3.6% Death
1.4% Payment adjustment
3.5% Other