Posted on 04/12/2008 4:41:25 PM PDT by Lorianne
IT was the nation’s lending institutions and mortgage originators that got us into this credit mess, but it is consumers, taxpayers and those companies’ shareholders who will end up shouldering most of the costs.
The latest example of this is in the mass freezing of home equity lines of credit going on across the country. Reeling from losses on their wretched loan decisions of recent years, lenders are preventing borrowers with pristine credit and significant equity in their homes from tapping into credit lines that they paid dearly to secure.
In the last 30 days, lenders have sent several hundred thousand letters advising borrowers that their home equity lines of credit are frozen, estimated Michael A. Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on home loans.
Major lenders — including Washington Mutual, IndyMac Bank and the Greenpoint Mortgage Unit of Capital One — say that declining property values are prompting the decisions to cut off credit.
Banks have the right, of course, to rescind these credit lines at any time under the terms of the contracts they struck with borrowers. And as home prices have tumbled in many parts of the country, banks are undoubtedly trying to protect themselves from exposure to additional losses.
One especially exasperating aspect of now-you-see-them, now-you-don’t equity lines is that borrowers are not receiving refunds for fees they paid to secure the credit in the first place.
These fees can be significant, Mr. Kratzer said: on a $50,000 line, for example, fees of $1,500 are common. If the line is being frozen at, say, $25,000, why shouldn’t the borrower be entitled to receive a refund of $750?
(Excerpt) Read more at nytimes.com ...
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Blaming everyone else but those RESPONSIBLE for their BAD DECISIONS:
“IT was the nation’s lending institutions and mortgage originators that got us into this credit mess, but it is consumers, taxpayers and those companies’ shareholders who will end up shouldering most of the costs. “
It is the CONSUMER that is responsible for their decisions.
It should be the INDIVIDUAL CONSUMER that made the bad decision held responsible for the CONSEQUENCES.
I never understood why anyone would jeopardize their home to pay off credit cards and to pay for things which have no lasting value. What’s up with paying for a car, a plasma TV or a vacation for the next 15 to 30 years? I don’t get it.
It looks like when a home is foreclosed, only the most senior lein holds the title. All of the subsequent HELOCs, if they are from another lender, will get wiped out, except on the books of the banks that issued them. In this environment, I’d shut down the lines of credit too.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Already moves are in place to have Fannie Mae and Freddie pick up some of the bad debt. You'll be paying for it - if you're “compassionate”.
Till Bush Jr. came along, I'd never seen “compassion” associated with irresponsibility as he routinely redefines it. Bush is a disgrace. Now I understand what HE means by “compassionate conservatism”.
I'm so sick of being legally robbed each and every payday by the government to pay for incredibly irresponsible people. I'm ready for the much vaunted balkanization of this country. It's beginning to look like the only way to fix it. I have ZERO hope in McCain and even less if that's possible for the dumbocrats.
Who do you believe is responsible for the credit mess, if not the consumer?
The default rate on subprime loans is between ten and twenty percent. The default rate on all loans is two percent. I wouldn't say that's wretched.
What's your source for that?
FOX
Give me a sec maybe I can find the link.
If not a search on FR should bring it up.
Bush is behind this ... you know ... the “compassionate conservative” crap ... .
So the effort to keep the economy going by continuing the expansion of credit (which is the goal of FED monetary policy when it lowers interest rates way below the rate of inflation)has come to a crashing halt.
It is the inevitable end to a credit driven financial boom.
What is the government doing to help?
A. The housing mess will take a while to unwind. But given that this is a presidential election year, pressure to help homeowners is growing.
The Senate, by a 82-12 vote last week, approved business tax breaks and a $7,000 tax credit for buyers of foreclosed homes. The House is hammering out its on proposal.
The administration has taken steps to help struggling home owners, such as expanded federal mortgage assistance.
The Federal Reserve has made deep cuts in interest rates and may cut again this month. That should ease some of the financial pain as adjustable loans reset.
...
What specifically is the administration doing?
A. It expanded a Federal Housing Administration program so more homeowners who are having trouble making mortgage payments can refinance into more affordable government-insured loans. Some 2 million people are facing foreclosure this year. The administration also authorized the mortgage-finance companies Fannie Mae and Freddie Mac to buy more home loans and brokered help for homeowners through a private-sector mortgage industry group.
Some lenders have agreed to offer a five-year rate freeze for people who have not missed payments. Also, some have offered a 30-day foreclosure pause for those behind in their payments.
President Bush wants Congress to pass legislation that would lower the down payment requirements for FHA-insured loans. He wants to give a $168 billion economic aid plan adopted in February time to work and has argued against a second one, but without completely rejecting the idea. Rebate checks will be in the mail next month.
The Treasury Department has proposed a longer term overhaul of financial regulations, but that measure is not expected to be submitted to Congress this year.
...
And the Fed?
A. The central bank started reducing interest rates late last summer. It has taken the key short-term rate under its control _ the federal funds rate, which is the overnight lending rate between banks _ down to 2.5 percent from 5.25 percent. That should help lower the rate of adjustable rate mortgages that reset.
The Fed is expected to cut rates further when it meets later this month. It also has indicated it stands ready to do even more by adding money to the system, including making temporary loans totaling about $400 billion to banks.
Q. Won't housing markets eventually stabilize on their own?
A. As housing prices fall far enough to stimulate demand, the market will self-correct. But this could take some time. Recent housing-related statistics suggest things will get worse before getting better.
...
What are the presidential candidates, all members of the Senate, proposing?
A. Democrat Hillary Rodham Clinton has proposed a five-year freeze on interest rates and a $30 billion economic aid plan to help states and local communities fight foreclosures. She would impose a foreclosure freeze on subprime owner-occupied homes. She favors increased regulation of mortgage originators.
Democrat Barack Obama has called for tighter regulation of mortgage lenders, banks and financial houses and proposes $30 billion in aid that would include $10 billion to help people avoid foreclosure.
Both Clinton and Obama support the Frank-Dodd legislation, as well as proposals to amend bankruptcy laws to aid those facing housing foreclosure. Republicans and the administration opposed changing the bankruptcy laws. The Senate also has voted against it.
Republican Sen. John McCain, after first saying he favored only a limited federal role, last week sketched out a plan designed to help 200,000 to 400,000 from losing their homes. Under the plan, the government would help these homeowners finance and get federally guaranteed fixed mortgages. Aides said the plan could cost the government from $3 billion to $10 billion. McCain did not specify who would be eligible for help. He was expected to lay out more details in a speech on Tuesday.
McCain has proposed raising the minimum down payment levels for home mortgages, even the 3 percent minimum now required by the FHA. This puts him at odds with the administration and congressional Democratic leaders, who want to lower the threshold.
http://www.foxnews.com/wires/2008Apr12/0,4670,HousingQampA,00.html
Just lovely!
Promoting IRRESPONSIBILITY at YOUR EXPENSE!
Yep. Here’s another example I expect to see at US Banks soon:
Interbank Market Fails to Respond to UK Interest Rate Cut
http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=4313
This means that the banks are extremely reluctant to pass on Thursdays rate cut to customers. Some of the tactics deployed by banks to confuse customers, is to raise interest rates before the interest rate decision and then cut by the same amount following the rate cut, thus no net change.
However the continuing credit crisis has eroded banks balance sheets to such an extent that some banks even went so far as raising interest rates on some mortgage products following the rate cut.
Doesn’t some of the blame rest on those who wrote loans to people who should not have them in the first place?
Exactly! But, instead the taxpayer's get to bail them out!
At this point it doesn’t matter who is responsible, at least not in the bigger picture. The problem is so big that perfectly innocent folks will get dragged under if something significant isn’t done.
Blame and consequences are fine and dandy, but they are not always the deciding factors in making the right policy decision.
Fannie and Freddie's regulator lowered their excess capital requirements from 30% to 20% which will allow them to buy more loans. And I'm pretty sure they won't refinance a bad loan until the original lender writes off the bad part. I've seen nothing saying that they'll be buying known bad loans as you originally claimed.
At this point it doesn’t matter who is responsible, at least not in the bigger picture. The problem is so big that perfectly innocent folks will get dragged under if something significant isn’t done.
Blame and consequences are fine and dandy, but they are not always the deciding factors in making the right policy decision.
It certainly DOES matter who is responsible!
I don’t want to PAY for someone elses stupidity!
You don’t understand history. The Depression would not have been so severe if the GOVERNMENT had NOT gotten involved. Our government is doing the same thing all over again. The market needs to correct itself and people who had poor judegment need to learn from it and NOT be bailed out.
“Fannie and Freddie’s regulator lowered their excess capital requirements from 30% to 20% which will allow them to buy more loans. And I’m pretty sure they won’t refinance a bad loan until the original lender writes off the bad part. I’ve seen nothing saying that they’ll be buying known bad loans as you originally claimed.”
The whole point is to have the government buy back the loans since NO ONE ELSE in the PRIVATE SECTOR WANTS THEM!
Recently ( was it after the Countrywide meltdown, The Thornburg default, the Bear Stearns collapse, the Fremont fiasco?, can’t remember?) Fannie and Freddie were told by the Government to expand their purchases of mortages well beyond the previous limits of about 500K into the jumbo categories. The obvious reason, to mitigate the mortage industrys exposure there due to the dastardlly evil borrowers who had tied their fair daughters to the railroad tracks and forced them to give them million dollar mortages.
Credit only works when the creditor holds 100% collateral on the loan, and that collateral is non-speculative. That is, the axiom holds true that credit is for those who don’t need credit.
And the problems with a credit system are also evident in the above statement. Creditors who hold less than 100% collateral. Creditors who hold speculative collateral. And debtors who use credit to buy what they cannot afford.
Our society as a whole, individuals, companies and the government, has willfully violated these simple rules and created an imaginary credit castle in the sky. And while this allowed all of us to spend wildly beyond our means, the outcome was inevitable.
So where do we go from here?
There must be a grand retraction, don’t call it a recession or a depression, in credit. Credit must be returned, at the individual, corporate and governmental level, to its basic principles.
Many existing debts will have to be erased, because they are leveraged creations many times the value of the collateral on which they were given. Creditors will be severely punished for giving credit where credit was not due. At the international level, for example, the US may renounce much of its national debt.
But debtors will also be chastised. They will no longer have credit available to them, so they must pay for future debts in real goods or cash. From the lowest to the international level, a return to a cash economy. Credit cards will be replaced with debit cards.
If you do not have the cash, you cannot buy. And this is not as radical a notion as you might imagine. Not too long ago, it was the norm, and not only was credit the exception, but it was tightly bound by the rules of credit.
At the national level, confidence can only be restored with the passage of a real balanced budget amendment to the constitution, with a prohibition against off-budget appropriations or assumptions of debt. If the government does not bring in the revenue with taxes, it cannot spend the money.
Ergo, the size of the government will have to be radically reduced, and payments to individuals except for goods and services, curtailed. Treasuries and bonds can only be issued if they are redeemable for a desired commodity.
Consistent with this, their will also be massive deflation, as currencies contract to reflect only commodities, products and essential services, not the incredibly leveraged credit system based on them. Ironically, governments will have to print vast numbers of new bills, as cash must be represented in cash, not on computer. If a person has $20,000 in the bank, the bank will have on hand $20,000 in bills for their account, if not at a particular branch.
A severe drop in prices and wages. Wages may be reduced by half or more, concomitant with prices. Wealth will be associated with liquidity.
Fannie and Freddie aren't the government and they aren't buying back bad loans made by others no matter how much you use the caps lock key.
The junior mortgage holders have a choice - they can either pay off the first and protect their interest, or they can let the first lien holder foreclose their interest. At that point, they end up with an unsecured loan, which will probably be discharged in bankruptcy.
The credit card lenders may well turn out to be better off than the home equity lenders.
The government didn't tell them to do anything. The government is allowing them to raise conforming loan limits in certain high cost areas through the end of the year.
“Fannie and Freddie aren’t the government”. They are GSE’s (Gubmint SUPPORTED Enterprises) created by FDR and the New Deal. Our government is Absolutely the bagholder of last resort for these two “Corporations”.
They are government sponsored enterprises and receive substantial subsidies from the government. Paramount is that GSE obligations are collateral for ensuring the safety of the federal government's won funds when deposited in private institutions... This subsidy is worth billions[page X]
They are government sponsored, not supported. The few perks they are still allowed aren’t even used.
see the CBO report in #30. As GSEs they actually receive substantial federal benefits in underwriting their credit worthiness.
ping
Reporters don't even try any more. Greenpoint shut down at the beginning of the year
Nope, it was also the banks, investment banks, monoline insurers, ratings agencies and central banks who played a big role, too.
It’s well known that Fannie and Freddie do enjoy lower borrowing costs because of perceptions, but they still aren’t the government.
It’s not as simple as that — by letting the market run its course innocent folks will pay for the stupidity of others by way of decreased property values, loss of jobs, inflation, lack of access to credit, and a dozen other ways.
we would not need all these fixes if the government had not messed with the lien strippon on homestead property in bankrupcy.
It was a provision under bankrupcy where an unsecured portion of the loan was stripped off the house and classified as unsecured and the mortgage was reduced to the secure portion.
It was originally for those situations where predatory lenders leant more than the collateral was worth. (ie inflating the value of a house to justify lending too much on a house)
The entire bankruptcy reform has been a complete failure. We now have politicians giving new dole programs to solve a problem, under the law, which they created.
Probably the banks that took bad consumer decisions and leveraged them 10 to 20 times into even risker loans. All this talk about a bailout is irrelevant - the banks already got their bailouts. There can be no consumer bailout because the consumers are on the hook for the institutional bailout.
There's no one left to do any bailing out, except maybe the Chinese dollar investors.
And who wrote the regulations enabling, if not encouraging, such unsound lending practices?
Nor or they responsible for the crashing home prices.
I agree with the poster. The average consumer who is paying their bills and DO have pristine credit are SOL because of OTHERS. So how is that their fault?
Is it MY fault that they don't have “pristine credit”?
WHY should I absorb their stupidity?
BTW, we have excellent credit.
I'll tell you a secret,
WE LIVE WITHIN OUR MEANS.
We pay for our cars in CASH,
We paid off our mortgage by making double payments.
Is there some reason why
OTHERS CAN'T LIVE WITHIN THEIR MEANS?
The answer is NO!
BTW, we also have savings and ENJOY life, with what we have left over. Anyone can do it!
That's already happening as it should. The market is adjusting on it's own to proper value. Job loss doesn't equate lower house values or a market correction - apples/oranges. Lack of access to credit is because there folks are OVER EXTENDED and DEFAULTING so yes, credit should tighten up due to people LIVING BEYOND THEIR MEANS and now being cornered. All these excuses don't justify others absorbing their living beyond their means.
Job loss doesn’t equate lower house values or a market correction - apples/oranges.
I don’t see this as a moral issue, i.e. “PEOPLE LIVING BEYOND THEIR MEANS SHOULD GET WHAT THEY DESERVE!” I see it as a matter of being pragmatic. There’s no question we’re in for a bumpy ride. The only question is whether we should soften the ride or allow wrenching — and quite frankly, brutal — results following a correction?
both are complicit.
You have the banks who pressured the assessor values to higher and higher or lose work. The consumers who inflated their income.
It was a viscious circle. Instead of using the forclosure and bankrupcy courts to resolve this civily between teh two contracting parties, the congress critters with the help of k street lobbyists shut the bankrupcy solution. We now have consumers who are finding it easy to just walk away via a ch 7 since a work out is closed to them.
You are delusional. There is at least 100-1 leverage in credit, to restore that to 1-1 would be to utterly destroy the world economy.
Exactly - while irresponsible consumers ran up the debt, it was some really poor credit granting decisions by the lenders themselves that racked up such a problem.
Maybe just saying “no” a few more times might have helped.
No one really understands FNM. You could write a thesis and still could not undstand them or their books.
This is exactly the point as folks point the finger at others is that WE are collectively guilty.
Proud that your house trippled in value in the last 7 years ? Mine did, and it is not that incomes have increased anything like 3 times in this area. It is simply Greenspan's expansion of credit. Folks can borrow what they cannot afford, but if they want to buy a house around here, they have to borrow, regardless. Yes they can move to WV instead and spend 4 hrs per day commuting. Some do. But time is money and the cost is paid for.
Jobs - Well, how much of the US economy has become dependent upon expansion of credit? The entire housing and real estate sector, including the overpriced boutique kitchen and bath design/refurbishment shop down the road, which for a mere 20 or 30% off the top will provide a "perfect" kitchen for you. How much time do you spend and how much money do you spend doing or paying for services that could not be sold on the open market to willing customers. All of that is because leaches have managed to attach themselves to our credit system and suck blood out of it.
There must be a grand retraction, don’t call it a recession or a depression, in credit. Credit must be returned, at the individual, corporate and governmental level, to its basic principles.
There must be a grand restructuring of our economic order, what are folks going do and what are they going to get paid to do it. A health care system gone awry where most of the employees are "administrators" and not doctors or nurses. A government where the small number of educated and professional experts are drowned in a sea of bureacrats processing unneeded forms collecting information that the government neither wants, needs or should be entrusted by a free people to possess. A legal system where an abusive law suit filer is limited to one suit per month, except on special application (how about no more for the rest of his life except on special application). A legal system where judges are no longer wise because we pay them $80,000 in places where an attorney in private practice can make 5 times that, and which is reduced to an endless spiral of bureaucratic process, out the other end of which, if it comes at all, rediculous judgments that are meaningless.
This is what the sons and daughters of the greatest generation have made of what was a great country.
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