left right politics showbiz tech invest good life gossip fun hot
Mother Jones Hot Air Huffpo Variety Engadget Seeking Alpha Lifehacker TheSuperficial Daily Beast reddit
Daily Kos Michelle Malkin Politico Billboard Boing Boing TheBigPicture Luxist TMZ.com Fark BuzzFeed
ThinkProgress RightWingNews First Read CNN Showbiz Gizmodo FT Alphaville Joystiq Perez Hilton 4chan memorandum
Crooks+Liars Power Line CNN ticker E! Online Techcrunch Josh Brown Kotaku gamer Bastardly Post Secret Techmeme
TalkngPtsMemo Ameri..Thinker Swampland TV Guide Ars Technica 24/7 Wall St. TreeHugger Egotastic hascheezburgr Drudge
The Raw Story NewsBusters The Caucus Ent. News Mashable bloggingstocks Consumerist PinkIsTheNew dooce digg
Wonkette Wizbang fishbowlDC HlywdWiretap Google blog DealBook lifehack.org CelebrityBaby Someth'nAwful trends
Atrios Taki Magazine WashWhisprs DeadlnHllywd Read/Write Jeff Matthews 43folders GoFugYourself Neatorama PSFK
Firedoglake Big Hollywood The Fix MSN Ent. OReilly Radar PhilsStockWorld Autoblog Page Six Cool Hunter BBC
Young Turks IMAO Capital Gains Rot'nTomatoes GigaOM Daily Rec'ng Deadspin BestWeekEver stereogum Timespop
Americablog AceOfSpades Open Secrets Cinematical ProBlogger Zero Hedge DownloadSqd Dlisted CuteOverload media eye
Politicususa Redstate WikiLeaks law Cool Tools Bespoke MediaZone PopSugar Dilbert blog TVNewser
CounterPunch Jawa Report econ law.alltop Scobleizer BtwTheHedges Deviant ArtHollyw'dTuna gapingvoid BuzzMachine
TalkLeft Patterico EconLog Volokh Consp. Apple Blog Minyanville Gothamist x17online DailyGrail MediaGazer
Feministing Townhall.com Freakonomics Legal Insurrec.. Valleywag Fast Money Curbed DailyBlabber Prof. Hex Steve Rubel
PolitAnimal OutsideBeltwy CrookedTimbr Conglomerate mozillaZine RealClearMkts FabSugar Gawker OvrheardinNY MediaBlgNRO
Truthdig Moonbattery MarginalRevo SportsLawBlog Smashing W$J Mktbeat Gridskipper Radar Last.fm Threat Level
Alternet RealClearPoli crime W$J Law BlogTechdirt AbnormalRtrns Material Defamer kottke.org Seth's blog
Media Matters Instapundit CrimeblogsBalkinizationMAKE RandomRoger Sartorialist Jossip PumpkinChuckin mediamatters
The Nation Hugh Hewitt All Crime Credit Slips SrchEngLand Stock Advisors Drink'nMadeEasy Just Jared Maps Mania Newshounds
Maddow Blog PJ Media Smoking Gun FindLaw VentureBeat Slope of Hope Mark Cuban Celebitchy CollegeHumor FAIR

Friday, March 26, 2010

Free Money for the Delinquent

Are only fools continuing to pay their mortgage, if it's underwater, when the government is rewarding those who don't?

Zero Hedge:
A New Wave of Defaults? -- I have been working with a young couple for a year now. They have been up against it. They look pretty typical. They bought an apartment with a first mortgage and low down payment. Then they made improvements with a HELOC. He lost his good job and now works for less. She works long hours and they have a kid.

They are underwater on the 1st mortgage so the HELOC is worthless...

I sent them a link to last week’s Barney Frank letter to the big banks telling them to write down non performing second mortgages. I sent them the link for the BoA story and their program to write down principal for delinquent mortgage debt.

They called just now. They made up their minds. They will not pay either the 1st or the 2nd this month. The “entrance fee” to getting the debt relief they need is to not pay any longer. The cost will be a tarnished credit. They no longer care.

Does this story mean anything in the Macro Big Picture of defaults? I am certain that it does. A rising trend is about to become a rogue wave.

Realty Check / CNBC:
Principal Forgiveness: And Now We All Pay -- The government is officially giving borrowers back home equity. Yep, somewhere between $35 and $50 billion worth. Of course we've all lost over $5 trillion, but who's counting? Lenders still aren't required to do it, but they're going to get an awful lot of taxpayer-funded incentives to do it...

Let's face it, the underwater issue (that is borrowers owing more on their loans than their homes are worth) is now far bigger than the subprime issue and the unemployment issue. Yes, it's concentrated heavily in five states, but it still manages to plague home prices nationwide. People are walking away in greater numbers than ever before, and people who want to stay are unable to get into modification programs because of their overwhelming negative equity...

And for those of us who acted responsibly? No pain no gain.

As I tell my kids every day, life isn't fair.
Calculated Risk:
HAMP Principal Write-downs -- There are a number of changes to HAMP (Home Affordable Modification Program) announced today...

The key changes are principal reductions and larger payments to 2nd liens (including for HAFA short sales). For short sales, the 2nd lien payment has been doubled from 3% of the outstanding balance to 6% - although this is probably still below the typical recovery rate for 2nd liens...
Megan McArdle / The Atlantic Online:
More Mortgage Meddling: Will it Work This Time? -- The easier you make this, the more moral hazard there will be. You may not care, thinking that this is just about transferring money from banks to needy people--but with the aggressive deployment of FHA loans, that ultimately means the taxpayers are going to be on the hook for a lot of marginal mortgages. Given how badly the FHA has already been overstretched by the collapse of the private market, this is worrisome...
The Corner / The National Review:
Herb Allison's Lapidary Words -- Indeed, the administration is clearly having night terrors about a second financial crisis being spurred by a deepening wave of mortgage defaults, so the program is full of Rube Goldberg stuff to bribe and cajole bankers and keep them from foreclosing on defaulting borrowers. The Post reports that the "new effort also increases the incentives paid to those lenders who find a way to avoid foreclosing on delinquent borrowers even if they can't qualify for mortgage relief."

Let's repeat that. These borrowers: A., are delinquent; B., don't qualify for any existing mortgage-restructuring programs; so, C., Uncle Sam is just going to keep throwing money at the bankers, basically shelling out whatever it takes to keep these delinquent borrowers in their houses, these delinquent loans on the books, and housing prices leaning on yet another political manipulation of the real-estate marketplace. And the theory is: this will stabilize the market. Real-estate investors may seem kind of stupid sometimes, but they are not that stupid...
Principal forgiveness 'reignites' home-equity loan debate -- Balances on first mortgages can't be cut without extinguishing second loans

Before first mortgages can be dramatically modified in such a way, any home-equity loans that stand behind those assets have to undergo painful changes too. In theory, these second liens may have to be wiped out before principal on first mortgages is cut.

U.S. banks have roughly $1.5 trillion of residential mortgages on their balance sheets, but they also hold another $600 billion or so of home-equity loans, according to Barclays Capital data.

The prospect of having to write off a chunk of that $600 billion may be making some banks reluctant to cut principal on first mortgages...
Money Blog / Consumer Reports:
Will other banks follow B of A's mortgage forgiveness program? -- Is this a good move for B of A and its mortgage customers? Should other lenders do the same? Or is loan forgiveness of this kind likely to encourage people to default in the hope of getting a similar break?...
Housing Wire:
FHA Mortgage Workout Lacks Incentives and Creates Problems: Industry Sources -- New plans to push lenders to offer principal forgiveness and originate Federal Housing Administration (FHA)-backed refinance mortgages are leading borrower advocates to argue that the program isn’t enough to entice lenders and servicers to participate. Additionally, industry players are concerned over the potential moral hazard the initiative potentially presents.

The Obama Administration announced the allocation of $14bn in Troubled Asset Relief Program (TARP) funds to incentivize lenders to provide principal reductions and refinance underwater borrowers into FHA-backed mortgages.

Under the terms of the voluntary program, lenders will be required to write down at least 10% of the mortgage principal for borrowers who are current on their payments. The program is open to borrowers whose mortgage isn’t currently insured by the FHA. The principal reduction must bring the new FHA loan to value (LTV) to 97.75% and make the new payments account for 31% of the borrower’s monthly income...
The Big Picture:
Delinquencies Continue Rising -- Serious delinquencies continue to rise – in the 64% of the market covered by Mortgage Metrics, there are now about 3.4 million loans either seriously delinquent or in the process of foreclosures. Completed modifications actually declined in each of Q2-Q4 of 2009. (Foreclosures have been flat).

Thus, as this chart suggests, the various programs amount to little more than window dressing hiding the underlying weakness of the Real Estate market...

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia