Posted on 12/02/2007 5:14:51 PM PST by shrinkermd
As much as $362 billion in U.S. subprime home mortgages with adjustable interest rates are due to reset at potentially higher rates in the coming year, according to Banc of America Securities, risking a wave of defaults by borrowers unable to afford the new monthly payments. That in turn could exacerbate a wave of write-offs by investors who now own those mortgages. Losses related to bad mortgages already have reached the tens of billions of dollars and have led to turmoil in the world's financial markets.
Fears that the problems could accelerate have led the U.S. Treasury and the mortgage industry to develop a plan that would postpone the higher rates for some borrowers.
The success of the plan, details of which are still under discussion, may hang on the many investors in securities backed by mortgages. A coalition of lenders negotiating with the administration includes investor representatives, but the securities are held world-wide and it would be impossible to get everyone's approval. A deal could also spark lawsuits from investors who believe they're being cheated out of their money.
Unlike in years past, when just a bank and a borrower were involved in a mortgage, today's loans have been bundled together, sliced into securities and sold to investors. That has created problems for officials trying to help borrowers, because so many parties are involved.
Alan Fournier, a fund manager at Pennant Capital Management LLC, Chatham, N.J., predicted that the plan being pushed by the Treasury Department will prolong the pain of the housing slump. He said it would merely delay inevitable foreclosures for some people who can't afford their homes, while allowing holders of mortgage-backed securities to put off marking down their assets
(Excerpt) Read more at online.wsj.com ...
“There’s a part of this that’s just morally repugnant. The problem is that the policy makers are talking to servicers about giving away other people’s money,” said Mark Adelson, a principal of Adelson & Jacob Consulting LLC, which consults on securitization and real-estate issues. “It’s not the servicers’ money, but shareholders’ and investors’ money.”
I think that wholesale modifications to existing loan terms are going to face strong resistance from at least some of the people who have invested in securities derived from those loans.
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It’s quite true that these measures amount to confiscation of property from investors to protect the interests of the conduits that sold them this crappy paper.
However, there is definitely precedent for this, for example, when ownership of gold was outlawed for American citizens in the 1930’s, and the dollar was revalued from about $21 per oz to about $35 per oz once the docile public had turned in its gold.
Any idea that your property is safe from a government that has systematically trashed constitutional constraints on its behavior is delusory. For holders of the financial paper backed by these loans, one can only advise: BOHICA.
Postpone is more like it. The Bush Administration has nothing to lose by brokering this deal. If foreclosures rise dramatically and home values fall preciptuously during the election year, it will be bad for the Republican candidates. However, if the Republicans lose anyway, the damage occurs when the Democrats are in charge.
however, don't I feel silly having actually bought what we could afford, not buying every fancy car or Humvee or 4 wheeler or gone on fancy vacations because I didn't want to run up the HELOC or my cc.....
my, to just get what I could, to save, to delay purchases, to not buy that vacation home or investment home because it didn't feel right....
gee I could have had the govt step in and help me speculate up the ying yang and the wazzuuu..
To add to the mess, it’s not entirely clear who does own the mortgage. The loans were sliced, diced, cubed, quartered, etc, sold, and resold. Deutsch Bank tried to foreclose on some properties in Ohio, and a judge ruled that while DB owns the asset-backed securities (aka “ass-paper”), nobody could come up with the mortgage paperwork itself. Can’t make this stuff up.
It is funny how the ‘make money in real estate’ ads are still running here. :)
“To add to the mess, it’s not entirely clear who does own the mortgage. The loans were sliced, diced, cubed, quartered, etc, sold, and resold. Deutsch Bank tried to foreclose on some properties in Ohio, and a judge ruled that while DB owns the asset-backed securities (aka “ass-paper”), nobody could come up with the mortgage paperwork itself. Can’t make this stuff up.”
For a more clear picture of the paperwork mess, see:
http://calculatedrisk.blogspot.com/2007/11/cfc-bk-investigation-its-about-costs.html
and
http://calculatedrisk.blogspot.com/2007/11/deutsche-bank-fc-problems-and-revenge.html
and for an excellent source of ongoing commentary, check this site http://calculatedrisk.blogspot.com and its links regularly; they’re knowledgable and level-headed folks.
Is “more clear picture” more comforting, or not? There’s no shortage of bad news, I don’t really need more ;)
I feel the same way.
Hear hear. If I were one of these investors, I'd be looking for something else to invest in from now on, something whose return doesn't get cut by 25% or so one fine day with the stroke of a government pen.
It would follow that this would be the end of the availability of mortgages in the United States.
The problem is that if a lot of loan money were not made available to high risk purchasers, real estate prices could not have risen to the same level that they did. Sellers would have had to sell to borrowers at rates that they could afford.
There is an entire circle of middle-men who are complicit. Real estate brokers, banks and mortgage brokers, wall street companies that packaged the debt, bond rating agencies, hedge funds who bought the stuff at enormous leverage ratios borrowing short and lending long, and the operators of penions, endowments, and other "trust" funds who were seeking to maximize returns at "zero" risk.
The entire business was a gargantuan multi-trillion dollar money-making juggernaut.
There was an enormous group of liars and frauds in the middle of it all. Sellers, builders, and brokers profited enormously.
Those who are injured are first buyers who bought at high prices on terms they could not afford because the market manipulators had gotten them there, and investors who were induced to put money into these things on the belief that it was secure.
More generally, all of us are injured. It has distorted our economy and driven it in the direction of overvaluation and overconstruction of real estate rather than putting capital into productive enterprise. The cost of the bailout and damage to our international reputation will haunt us for years. The creation of credit dollars against real estate equity has driven up costs and forced all of us to buy with some level of credit that which we would have preferred to pay for with cash. Governments have built spending plans based on the increased tax revenues from inflate tax assessments, resulting in growth in bureaucracy and regulation as well as investment in services and construction of questionable value.
So no, the "investors" made a lot of bad decisions and are in part to blame for the resulting mess.
Maybe, you won’t feel so silly, in a year or two. Difficult to say at this point, but clearly there are some problems down the road, to say the least. I’m not a doom-and-gloomer, but I ain’t gonna ignore reality!
That could very well be true.
However, how does that compare with foreclosing on the properties if the loans are unpaid? Is there liability in that case as well?
Not being a smartass, I’m being serious.
Actually, from what I heard, if they paid on time before the adjustment and it was apparently only the increased rate that hurt them, they qualify.
If they were late even before it adjusted, no dice.
First, it will not be the servicers agree, but rather the owners of the mortgage notes. Second, the servicers for the most part are a bunch of guys who open envelopes, deposit checks and call up folks who they think can be induced to speed up their payments. They don't have any assets and will quite happily go bankrupt. Third, the servicers are not the cause of any damages. Once it is headed for bankruptcy, the contract has in effect been broken and all that is left is to pick up the pieces. You can be sure that any settlement agreements in all of this will discharge all parties of any liability for the losses incurred by reaching the new accommodation.
Or, it could be meant to stave off much worse legislation that a Democrat could propose.
Well, you can still make money in real estate.
Just not the way they say on TV...but you really couldn’t make money that way 3 years ago, either.
Hint: It’s work, just like anything else.
Nor I. What is silly, however is that the valuation of my house has more than trebbled in seven years because of this glut of easy money. I didn't do anything to earn the money, I don't believe in free money, and don't believe I will ever actually see that. What I am seeing however is the semi-annual statements from the tax assessor who thinks it is easy money.
Foreclosure risk is factored into the pricing of the tranches. You bet wrong, and you lose money, but it is a known and expected risk. Having someone change the interest rate on you, however, for political expediency, probably wasn’t part of the deal.
If the servicer carries out the foreclosure in a commercially reasonable matter, there shouldn’t be any liability. If the servicer hasn’t done the paperwork properly, there may be.
I don't think you are accurately describing the big mortgage servicers like Wells Fargo, BofA, Countrywide.
Once it is headed for bankruptcy, the contract has in effect been broken and all that is left is to pick up the pieces.
You are familiar with Section 1322, aren't you?
"modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence"
You can cure the default through the plan, but you have to start making the regular payments if you want to keep the house.
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