Foreclosure Protection

[kent nickell]

A few interesting things here. First is that mortgages are non-recourse loans meaning that homeowners can and will and are walking away from their mortgages with no recourse for lenders to recoup this money. This definitely makes it in their best interest to try and restructure these loans into performing loans primarily by reducing principal more in line to realistic market value and keeping interest rates at reasonalbe levels.

Second is using a 'hold to maturity' price instead of current market value to value these mortgages. This is artificial propping up of these values. Is the hope that they will return to the crazy credit and ninja loans we were seeing? Try pricing them at more of a historical realistic value for the buyer which is 28% of pretax income to include PITI and utilities...

Third is banks holding these illiquid assests 'off balance sheet'. How are investors supposed to analyse what they are investing in when these entities are allowed to keep their most toxic assets off balance sheet??

I also just heard an economic pundit saying we should bulldoze houses to increase the price of the remaining houses... How desperate an attempt to artificially prop up home prices is that??

Deflation in home prices is going to happen one way or other. The most responsible way seems to be to back off the extreme excesses of the past by restructuring loans to adequately reflect real market value and affordable interest rates....


http://www.rgemonitor.com/

TARP In Flux: Second $350bn Tied To Foreclosure Prevention (REM)

Dec 19 Bloomberg: Treasury Secretary Henry Paulson urges Congress to release the second half of the $700 billion financial rescue fund after exhausting the first $350 billion including a $13.4 billion loan to GM and Chrysler. Barney Frank links release of remaining funds to rescue package to help stem foreclosures, incl. cutting interest payments and forgiving a portion of a mortgage's principal. Paulson resisted calls to support foreclosure relief.

Nov 12 Secretary Paulson: "Purchasing mortgage-backed securities is not the most effective way to use TARP funds." Prioirities going forward are: 1) more capital for banks; 2) support securitization of credit card receivables, auto loans and student loans; 3) reduce the risk of foreclosure.--> RMBS derivatives fall to new lows upon lack of support with the latest Markit AAA subprime RMBS index trading at 41 cents on the dollar.

Home Front: 3 Reasons for change of course: 1) capital injection is more immediate; 2) the remaining $350bn available for TARP (upon Congress approval) are not enough to make a difference; 3) Paulson is leaving soon.

Sep 30 Bloomberg: Industry groups want to temporarily suspend mark-to-market accounting in order not to take a writedown on assets sold --> The SEC and the Financial Accounting Standards Board (FASB) probably will resist calls to suspend the fair-value accounting rules that some members of Congress blame for exacerbating the global financial crisis; says companies should use their own judgment such as expected cash flow in valuing illiquid assets.

Bernanke has proposed 'hold-to-maturity' purchase price instead of current market value described as 'fire-sale' price. Daniel Gros shows that non-recourse feature of U.S. mortgages translates into put option for borrowers that gains value as house prices fall--> real value of RMBS might indeed be close to zero.

Tett: valuation and pricing issues prevented the first Super-SIV from working, the same might happen again. If bad asset purchase price is too low, writedowns might be too large to bear; if price is too high, taxpayer overpays and has limited upside eventually

Geithner (via MarketWatch): The 'shadow banking system' that needs to be re-intermediated is a $10 trillion market without adequate capital provisions (=$2.2tr commercial paper conduits incl ABCP + $2.5tr repo/reverse repo market + $4tr combined brokerage assets + $1.8tr hedge funds = $10.5tr in 2007) that boomed outside traditional banking. In comparison: the traditional banking system is also $10trillion.

In July, FASB has decided to "eliminate the concept of the Qualified Special Purpose Entity (QSPE)" in the revised financial-accounting standard, FAS 140, starting November 2009. This requires banks to consolidate off-balance sheet vehicles used to package assets into securities --> Up to $5 trillion of dollars worth of illiquid assets/derivatives are buried in banks' Variable Interest Entities (VIEs)

BIS Joint Forum: CDO of ABS (i.e. structured finance CDOs), CDO^2 are not likely to survive the turmoil ($765bn CDOs of ABS issued from 2005-2008q1, see SIFMA)

SIFMA: Global issuance of CDOs from 2004 - 3Q2008 totaled $1.53trillion. CDO issuance by underlying collateral in 2007:
-$254.8bn structured finance CDOs (collateral pool consisting of RMBS, CMBS, CMOs, ABS, CDOs, CDS, and other securitized/structured products)
-$148.3bn high-yield loansCDOs (rated below BBB-/Baaa3)
-$78bn investment-grade bonds CDOs

Dec 22, 2008

 

[sharon sanders]

Re: Foreclosure Protection

The ability to re-coup funds from borrowers who have defaulted on real estate loans depends on various state laws. In Florida, for instance, the lender can seek a deficiency judgment for any funds owed for legal proceedings, reasonable related costs, and losses on the real estate foreclosed. This forces most people into federal bankruptcy protection.

I think there is a much cheaper way to fix part of the housing crisis. A change of a few laws might do it. For instance, increase the thresholds on VA and FHA loans, and finally legislate laws for the calculation of credit scores. It is an arbitrary process where a collection for $30.00 ruins your credit as much as a collection for $3000.00. This is nuts. A complete review of the process is needed.

These scores dictate much of the consumer activity in the US. Sometimes the level of a person's income is completely ignored when calculating the risk of extending credit as reflected in the scores. In some cases lenders extend credit cards with huge borrowing capacity to borrowers who, on paper, have great credit scores, but very little income. Also nuts.

It is a mess.

If the VA and FHA thresholds were increased, and the credit scoring system was changed to incorporate the borrower's income and to prioritize, in a better manner, derogatory information, many borrowers could now qualify to re-finance.

Institute a.s.a.p., as said earlier on this site, federal works programs to stabilize the employment situation.

 

[kent nickell]

Re: Foreclosure Protection

Yes, I think it's very important to provide responsible social saftey nets... The following blogspot is somewhat hyperbolic but I think makes some interesing points...I think basically we have to accept that we need a lot of deflation in the economy for it to regain health and to be careful to not go crazy trying to keep that from happening which would certainly just worsen the problem and increase the chance of hyperinflation at a future date. I think we need to stimulate the economy and mitigate deflation as much as possible but that it should be done with realistic goals of trying to provide basic services (states and cities having trouble financing essential services, running low on umemployment benefits, care for elderly, etc) rather than any sort of attempt to return to the unrealistic and falsely inflated picture that we are coming out of....

http://www.marketoracle.co.uk/Article7912.html

Fiscal Insanity Virus, the Irrational Fear of Deflation
Politics / Deflation Dec 22, 2008 - 05:08 AM
By: Mike_Shedlock

Warning: A dangerous new virus, FIV, is rapidly spreading the globe. This part 1 of a very long post. The symptoms of the disease are complex. Part 1 addresses the symptoms of the disease and part 2 continues with more symptoms and a discussion about preventative measures and cures.
Scientists have dubbed the disease, FIV, the Fiscal Insanity Virus.

FIV is more contagious and far more dangerous than the common flu virus now making its rounds. The primary symptom of FIV is irrational, often delusional fear of deflation. The virus has an uncanny ability to seek victims in positions of authority. Those afflicted with the virus start taking (or promoting) fiscally reckless actions guaranteed to damage the host country.

FIV's most recent victim is Bank of Israel Governor Stanley Fischer. Evidence of affliction is irrefutable: Fischer Says Bank of Israel Will Do Everything We Can To Prevent Deflation .

?We're going to do everything we can,? Fischer said in a Dec. 18 interview in Tel Aviv. Prime Minister Ehud Olmert's failure to win parliamentary approval for the 2009 budget and a stimulus package means ?more of the burden is thrown on monetary policy. We'll try and take up some of the slack.?

?It's a very, very fast moving situation,? he said. ?And there are occasions when something happened yesterday, and you need to react immediately.?

The comments suggest that he isn't done yet cutting interest rates after already lowering the benchmark lending rate four times in the past 10 weeks. The reductions, including two unscheduled ones, pushed the cost of borrowing to a record low of 2.5 percent. The central bank is also buying $100 million in foreign currency a day to help weaken the shekel and make exports cheaper.

The ZIRP Symptom
Those severely inflicted with FIV show a marked propensity to compete in the race to ZIRP. For more on ZIRP, please see Global ZIRP And The "Impossible Contraction" .
That post was written on November 2. On December 16, ZIRP Arrives: Fed Targets Interest Rates 0 to 1/4 Percent . Bernanke "won" the mad dash to ZIRP.

Genetic Markers
Scientists in 33 countries studying the disease have uncovered similar patterns in the DNA of every victim. To date, every person afflicted with FIV has been found to have one of two distinct Marker Chromosomes now identified as the K-Marker (Keynesian-Marker), or the M-Marker (Monetarist-Marker). No one with the recently discovered A-Marker (Austrian-Marker) has yet to contract FIV.
Scientists conclude that those with the A-Marker may be biologically immune to FIV.

DNA Samplings At Universities
Random DNA samplings of university professors are not encouraging. Scientists have discovered that 99% of all economic professors have either the K-Marker or the M-Marker.
Economic professors, while not in a position to direct policy, are highly contagious. Those with FIV have encouraged those in positions of power to do reckless things. The victim is always in denial about the disease.

Prominent DNA Hair Samples
A hair sample taken from economist Paul Krugman , professor of Economics and International Affairs at Princeton University, and Op-Ed writer for the New York Times shows an unusual pattern of multiple repetitive K-Markers.
A hair sample taken from Nouriel Roubini , Professor of Economics at the Stern School of Business at NYU and Chairman of RGE Monitor shows the typical K-Marker pattern.

A hair sample taken from economist Greg Mankiw , professor of economics at Harvard University shows unmistakable signs of the M-Marker. Interestingly, some scientists have reported Mankiw's hair sample also shows a faint trace of the A-Marker. Those scientists believe traces of the A-Marker are responsible for the train of thought found in Passing the Buck .
More public projects would pass a cost-benefit test if we repealed the Davis-Bacon Act. This law requires contractors on these public projects to pay "prevailing wages," which are typically union wages well in excess of what would occur in a free market. If the government paid market-determined wages for infrastructure projects, we could have both more infrastructure and less government debt. Without doubt, that legacy would benefit future generations.

Bear in mind the A-Marker trace in Mankiw is highly questionable, while the M-Marker is irrefutable. Inquiring minds wishing to investigate Davis Bacon more thoroughly should read Thoughts on the Davis Bacon Act and why it's a "real porker".

Hair samples taken from Ron Paul , member of the US House of Representatives, have now been analyzed. Scientists report that Ron Paul has the only known double repetitive occurrence of the A-Marker. Scientists speculate that such individuals would be highly immune to FIV, even in the most highly diseased environments such as US Congress.

Hair samples from Ben Bernake , Chairman of the Board of Governors of the Federal Reserve, were much more difficult to obtain for obvious reasons. However, the efforts paid off. In 10,102 samples studied by scientists globally, Bernanke's DNA sports the only known instance of multiple, repetitive, alternating K-Marker M-Marker pairs.

Scientists now speculate those alternating markers are what inspired his infamous, if not delusional, helicopter drop speech in 2002, Deflation: Making Sure "It" Doesn't Happen Here . Clearly Bernanke has been afflicted with FIV for quite some time.

My rebuttal to Bernanke's speech was made on December 31, 2007: Things That "Can't" Happen .
.....
Ironically, it is the unvarnished arrogance by Bernanke in conjunction with greater fools who believe in his untested academic wizardry, that fostered the very extreme risk taking attitudes towards credit that makes deflation inevitable.
Things that can't happen, are about to.

Feud Between the K's and the M's
The K's and the M's are now in open debate as to how best to improve destroy the economy.
The K's, championed by professor Krugman want to squander dollars on massive government spending, believing it is possible to spend one's way to fiscal prosperity. The M's, championed by Mankiw think that cheapening the dollar via massive printing, in and of itself is sufficient to heal the economy.

Witness The Debate
On December 16, 2008 in The Next Round of Ammunition Mankiw writes:
Even if the Fed cannot reduce nominal interest rates, it can reduce real interest rates by committing to a modest amount of inflation. I am more comfortable having the Fed commit itself to modest inflation than having the federal government commit itself to a trillion dollars of new spending. The more we can rely on monetary rather than fiscal policy to return the economy to full employment and sustainable growth, the better off future generations of taxpayers will be.

Of all the things that Roosevelt did to get the economy out of the Depression, jettisoning the gold standard was the most successful. Today, monetary policy is fettered not by gold but by fear of inflation. Perhaps it is time is get over that fear, at least for a while.

Update: A reader points out to me that Paul Krugman seems miffed that I failed to cite his contribution to the large literature on expectations management by the central bank. Sorry, Paul. I actually do like Paul's paper on the topic quite a lot, and I cite it in my intermediate macro text when I discuss the liquidity trap (see footnote 5 on page 325 of the 6th edition).
It is funny. For academics, it is an occupational hazard to feel that your work is insufficiently cited. I had always assumed that the feeling would go away after winning a Nobel prize. I guess I was wrong.

Color in the above excerpt was added by me. The update (noted by the bold red label), was Mankiw's response to Paul Krugman who on December 17, 2008 wrote A whiff of inflationary grapeshot :
Greg Mankiw suggests that the Fed respond to the crisis by committing to substantial inflation over the next decade. Great idea, wish I'd thought of it. Oh, wait ?

Actually, Greg has arrived at the same conclusion I did more than a decade ago, when I tried to model the problems then facing Japan, and now facing us. As I pointed out back then, the essence of a liquidity trap is that the real interest rate is too high, even when the nominal rate is zero. So the theoretically ?correct? answer, if you can swing it, is to create expected inflation, pushing the real rate down.

FIV Works In Mysterious Ways
As the K's and the M's battle it out, neither Krugman nor Mankiw has the faintest clue that both of them are wrong. Constant bickering between the two of them is a possible sign of extreme viral contagion.

Both Krugman and Mankiw would be advised to read and understand a few books on my reading list. However, both are too busy, each stuck with their own academic theories, even though they have been disproved multiple times in real world applications.

The chart at the left shows the "success" of Roosevelt's policy as measured by the official unemployment rate.
In the 8 years shown from 1933-1940, the lowest unemployment rate was 14.3% in 1937, hardly a glowing testimonial to the "success" of Roosevelt's policies.

Employment only increased as a result of the war effort and thereafter by the massive destruction of productive capacity worldwide during the war.

Note that destruction of productive capacity is not a good thing, although it may have seemed like it from the point of view of the US whose productive capacity was not destroyed.
Mankiw's statement proves without a doubt, that he, like Bernanke and Krugman, does not understand either the cause or the cure of the Great Depression.

Those With FIV Struggle With Definitions
Another symptom of the disease is those afflicted struggle with the definitions of inflation and deflation. A poll of those with the A-Marker show a clear understanding of the definitions as well as the cause of each. =

Inflation: A net expansion of money supply and credit
Deflation: A net contraction of money supply and credit
In both cases credit needs to be marked to market.

Humpty Dumpty On Inflation
Using a proper definition deflation of deflation, we are clearly in it.
Those confused about the definition or anyone needing to see a rock solid evidence that we are in deflation need to read

Humpty Dumpty On Inflation .
"Things That Can't Happen" Did Happen
In CPI Drops Most On Record, What's Ahead? I presented a deflation timeline. The US has been in deflation since March of 2008, if not before.

March 17, 2008 Now Presenting: Deflation!
Current accounting rules allow banks to pretend. And certainly the Fed is going out of its way to bend the rules to allow new forms of pretending. Expect to see still more accounting rules that allow broker dealers to pretend.

However, all the pretending and misdirection about the sinking dollar and the price of gold cannot stop the fact that deflation is about contraction of money supply and credit. The former is not growing and the value of the latter is collapsing no matter how many pretend otherwise.

It's time to face the facts: Deflation is right here right now.

April 22, 2008 Deflation In A Fiat Regime?
The mad scramble by some corporations to raise capital, the scramble by others to play "hide and seek" with level 3 assets, and the scramble by virtually everyone to play swap-o-rama with the Fed supposedly just to prove the process works tells the real story. The real story is deflation.

August 10, 2008 The Future Is Frugality
We are in deflation now, but few see it because they do not understand what deflation is: a net contraction of money supply and credit.

The only question now is how long deflation lasts, not whether it gets here.
October 10, 2008 Roubini Discusses the Double D's, Deflation and Depression
So far, none of the liquidity measures taken by the Central Bankers have worked. The reason is simple: You Cannot Patch a Busted Dam With Water no matter how hard you try.

November 11, 2008 Industrial Bond Yields Strongly Support Deflation Thesis
The data are crystal clear. We are not in a period of inflation, we are not in a period of stagflation, we are not in a period of disinflation. If you exclude all the options proven to be impossible, the remaining option no matter how unlikely it may seem at first glance, must be the correct answer. That answer is deflation. We are in it, and have been for some time.

Peak Credit
Those who focused on Peak Credit and its counterpart Peak Earnings saw this coming. Those blindly looking at prices or money supply alone are still trying to figure out how and why treasury yields are where they are, the stock market has collapsed, commodities have plunged, and banks are scared to death to lend.

The Cause Of Deflation
The cause of deflation is the unsound credit boom that preceded it. The cause of the unsound boom is fractional reserve lending and micro-mismanagement of interest rates by the Fed.

It is axiomatic in nature that the cure cannot be the same as the disease. It was reckless spending that got us into this mess, so reckless spending cannot possibly get us out of this mess. Yet, those afflicted with FIV keep attempting to do just that.

Part two continues later today...
By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

 

[mixin]

Re: Foreclosure Protection

1. Restructuring loans to realistic market value: That would be interesting to see. Indiana is among the top states that rely heavily on property taxes to fund its services. I think our tax assessors live in a different reality than the rest of the world; they can take a 2000 sq ft house in the part of town with the lowest sale prices and claim its assessment value is $130,000. Of course, it's up to the homeowner to show proof of lesser value.

The beautiful little town of Middlebury, with the new multi-million dollar high school, (complete with an olympic-sized swimming pool) currently has 2 houses with accepted offers. In all my years in real estate, I can't remember a time when houses in Middlebury weren't selling. I think our assessors will have an interesting time trying to determine true value for this year.

2. Foreclosures: Here, we've had some success with the banks stalling the foreclosure proceedings if the seller puts the house up for sale. Short sales are common on distressed properties and a seller can write into the sales agreement that the bank accepts the price and waives asking for a default judgement. If there is no short sale, then the last step before foreclosure is a deed in lieu of foreclosure. If the property is valued at the amount of the loan, the seller will sign the property back to the bank. If the value isn't there, I don't know if the difference can be negotiated or not.

My county has been averaging 100 foreclosed properties offered at the sheriff's sale each month for this past year. I notice the January listing is up to 140 listings with some cancelations. http://elkhartcountysheriff.com/sale.html

3. The really scary part: Since it takes about 1 year for the foreclosure process, we haven't begun to see the end of all this. The RV industry didn't really begin its cutbacks/shutdowns until late summer. IMO, Elkhart County will be the poster child for what happens when the bottom drops out of the economy.

 

[sharon sanders]

Re: Foreclosure Protection

I think restructuring loans to reflect the current price of real estate is very problematic. The existing structure is as Mixin described above.

The real answer is get increase the employment rate and let supply and demand find an equilibrium in the market place.

If financial institutions, in essence, modify a mortgage to a lesser and more affordable amount to reflect a lower home price, then the difference between the original amount of the loan and the new amount is a forgiveness of debt.

This amount is taxable as income.

Most people want to own their home. It is a sense of pride and stability. The answer is to get the job market revived so people can re-finance and buy. This will increase demand and stop the further decline in prices.

 

[kent nickell]

Re: Foreclosure Protection

Thanks much... It does seem like the problem could have several years to go as the next wave may be overstretched prime loans... http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112_page2.shtml http://www.wwj.com/A-Second-Mortgage-Disaster-On-The-Horizon-/3494300

It seems that local governments are in somewhat the same problem as lenders (although probably mostly more as innocent bystanders). The foreclosed properties certainly don't have anyone paying property taxes so again getting people into these houses in a way they could contribute to the tax base would be more useful than an empty house.

I would like to see more transparency on the whole foreclosure issue.. I think more private investors would be willing to get involved if the process was more open. I know of some people doing short sales who still want to stay in the house and will rent it for a time to decrease expenses...

I've known people who try to buy foreclosed properties from banks but are stalled for months possibly because the banks hope the TARP program will buy these assets at inflated prices...

I think affordability is key for young new buyers as well as many prime and subprime buyers who got in over their head...

Home prices reached a speculative asset bubble that is now deflating and has difficulty finding a new equilibrium for many reasons...

 

[mixin]

Re: Foreclosure Protection

Taxes get paid one way or the other.

Here we have a yearly tax sale where houses are sold for the back taxes owed but I'm not sure how delinquent the taxes need to be. Most of the banks escrow taxes so they usually have some reserve funds; of course, we pay a year behind.

Here, the sewer portion of an unpaid water bill becomes a lien on the property. This summer, I made the mistake of not paying a tenant's sewer bill, thinking I'd clear up the lien when the property sold. I got notification that if the lien wasn't cleared, the property would go into the tax sale. So I promptly paid the $65 bill. So at least for liens, the timeframe is about 11 months.

Non-owner occupied properties are taxed at much higher rates than owner occupied properties; so I'm guessing the properties are taxed at the higher rate from the time the bank takes possession. I suspect the city makes out pretty good tax-wise on the foreclosures.

 

[Amish Country]

Re: Foreclosure Protection

HUD (US Department of Housing and Urban Development) offers a guide to avoid foreclosure in the US:

http://www.hud.gov/foreclosure/index.cfm

There is contact information for housing counselors, tips on avoiding forclosure, information on finacing opptions and rental information.

*********
Avoiding Foreclosure: When a Lender Won't Work with You

Information by State
Esta página en español
Print version




You've done all your homework, talked to a housing counselor and tried to talk to your lender. But, the lender won't work with you. What do you do now?

For an FHA-insured loan
Your lender has to follow FHA servicing guidelines and regulations for FHA-insured loans. If your lender is not cooperative, contact FHA's National Servicing Center at toll free (888) 297-8685 or via email.

For a VA-insured loan
First, visit the VA Foreclosure Alternatives page. If you need assistance or have additional questions, talk to a Loan Service Representative.

For conventional loans
If you have a conventional loan, first talk to a HUD approved Housing Counselor (or call (800) 569-4287). They may be able to help you with your lender. You can also contact Hope Now (1-888-995-HOPE) to ask for assistance in working with your lender.

*********

 

[Amish Country]

Re: Foreclosure Protection

One way to avoid foreclosure is not to buy more houses than is affordable. Enough has been written and said about getting a fixed rate mortgage, understanding exactly what the terms are in mortgage contracts and avoiding more "creative loan concepts".

When my spouse and I were starting out (more years ago than I care to admit here) we purchased a VA (US Veterans Agency) foreclosure home. We used the old rule of thumb that the rent or mortgage should be no more than 1/4 of our total income. Another old rule of thumb is that the total cost of the property/home should be no more than 2.5 times our family?s total expected annual income. I do not know if this rule will work for everyone but they have worked well for us. There were some advantages of purchasing a VA foreclosed home; 1) at that time we only had to put 2% down on the property, 2) we were able to get a loan at a low 30 year fixed interest rate and 3) the government put in a new gas furnace, new low flow toilets, new low flow shower heads and removed asbestos from the home.

Granted we looked thru a lot of... shall we say less than desirable homes before we found the one we decided to put a bid in on? Yes, we were lucky to win the bid on the home we wanted. The home did require work. It was an old Victorian and I learned a lot about the care and repair of plaster and hard wood floors among other things.

When we did this we had to work directly thru the VA. Now it looks like the homes from the various government auctions have been consolidated onto a single site:

http://www.homesales.gov/homesales/mainAction.do

The procedures and terms may have changed since we purchased our home.

 

[mixin]

Re: Foreclosure Protection

Trying to determine affordability can be tricky sometimes. Circumstances change. People generally believe their jobs will remain, they'll get raises, they'll stay well.

A lot of people were caught off guard here with the sudden high cost of heating, gas, groceries, taxes and then the job market started failing. What had been affordable housing suddenly became not so affordable. And weren't we told things would get better in 2009?

 

[kent nickell]

Re: Foreclosure Protection

Some interesting comments from a financial blog showing how difficult a hole this is to crawl out of... With the ninja loans etc it's doesn't seem like a great leap to 'truly' fraudulent loans and the lack of transparancy isn't helping..


http://www.nakedcapitalism.com/2008/12/redefault-rate-on-mortgage-mods-55.html

""There's a sad reality here that many don't want to face. You can refi people out of high rate ARMs into 4.5% 30 yr FRMs and cram down principal by 20-30%, and you're STILL going to see high redefault rates. Particularly for mortgages made during 2005-7. Lots of these folks simply can't afford ANY sort of reasonable payment. Their repayment ability was based on 1. introductory payments with a below market teaser rate and non-fully amortized principal 2. dramatically rising home prices to eliminate the rolled forward principal and 3. the ability to refi into a new mortgage with another non fully amortized teaser rate payment when the first mortgage was at the end of the introductory gimmick period. This may not be true in all cases, but it's true in many of them.""
-------------------

""The truth is this: millions of underwater, over their head mortgagees are also deeply in credit card debt. Banks know that the real number for effective modification is 40% off principle and a very low (3%) 40 year rate. Do the math! Add in food, clothing, taxes, car insurance and gas to get to work and compare to the average income of those still working.

Banks simply can't take the write-down.""
--------------------

""Catherine Austin Fitts (solari.com) has asserted that the reason for the roundabout bailout is that there is a large amount of money tied into truly fraudulent mortgages, i.e. no real borrower or no real property. Of course, when stuff like that comes out, someone does a perp-walk.

Having once been in insurance underwriting and seeing what snr marketing and mgmt would do "for the numbers" I imagine that scenarion 10x in mortgages. I pray to the great god Internet to cough up some incriminating emails from crooked CFOs and mgrs in this process and let's get this cleaned out.""
-----------------

""f over half of all loan modifications are doomed to fail, and if the real estate market is continuing to deteriorate, why does it make any sense for the holder of the mortgage to defer or delay taking title to the property? It would be more sensible to encourage the defaulting borrower to move on, take possession of the property and sell it for whatever it's currently worth, deriving some small comfort from the fact that by moving quickly you will minimize your loss.

I can understand why the government would want to discourage this approach. And I can imagine that a fair number of mortgage owners can't afford to take the hit currently.

Unfortunately, it's what Guido the loan shark would do. And, whatever his CRA deficiencies, Guido could teach us all about managing risk exposures.""

ps: the Black Swan author favors the loan shark over the economist... If you flip a coin ten times and it comes up heads each time and then ask an economist what the chances are for heads the next time he'll confidently reply 50-50. If you ask the loan shark his first response would be that the coin is rigged.