Comments for "Fed Paper on Reducing Foreclosures"

Nemo (member) wrote on Fri, 04/10/2009 - 6:07pm.

Conclusion: The Fed needs to start buying houses directly.

Basel Too (member) wrote on Fri, 04/10/2009 - 6:12pm.

i can imagine it must suck to continue making payments for a house $500K underwater, even if one has the means, when everyone else is bailing or getting bailed out.

Lucifer (member) wrote on Fri, 04/10/2009 - 6:14pm.

I have an idea...

Give foreclosed houses to anyone (without a house) who will sign a contract to pay property taxes for 2 years... maybe 5 years.

With income verification.. not that it means much anyway.

Ministry of Truth wrote on Fri, 04/10/2009 - 6:16pm.

What if the Fed just gave everyone a 0% loan on 50% of their mortgage value, then couldn't they blow house prices to the moon?

briwerk wrote on Fri, 04/10/2009 - 6:19pm.

10[18:14] crbot: 01NEW FDIC ARTICLE: April 10, 2009 - PR-53-2009 FDIC Creates a Deposit Insurance National Bank to Facilitate the Resolution of New Frontier Bank, Greeley, Colorado

Basel Too (member) wrote on Fri, 04/10/2009 - 6:20pm.

ahh.. another bank failure

Basel Too (member) wrote on Fri, 04/10/2009 - 6:21pm.

wow. no takers:

All insured depositors of New Frontier are encouraged to transfer their insured funds to other banks. They may do so by asking their new bank to electronically transfer their deposits from the DINB or by writing checks for the amount in their accounts.

yuan wrote on Fri, 04/10/2009 - 6:26pm.

New Frontier financials
After restating its financials, New Frontier Bank reported that it had lost $11.3 million as of Dec. 31, 2008. It had $273.7 million in unpaid loans, plus more than $43.3 million worth of foreclosed real estate sitting on its books. Bad loans, alone, increased 91 percent since the bank's Sept. 30, 2008 reports to the FDIC.

http://www.greeleytribune.com/article/20090404/NEWS/904049985/1002/NONE&...

adornosghost (member) wrote on Fri, 04/10/2009 - 6:30pm.

The odds of "Business As Usual" in 5 years is very slim, and this discussion will remind of us the Austrians in 1913 discussing who their next Hapsburg ruler will be.

CalculatedRisk (member) wrote on Fri, 04/10/2009 - 6:32pm.

Nemo, I'd say the conclusions are: 1) don't have bubbles, and 2) we are in trouble.

Of course you already knew that ...

best to all.

Calculated Risk

Porky wrote on Fri, 04/10/2009 - 6:34pm.

Wow! So people default when they cant pay?

How long before they figure out that bankers will sell anything to get
commission and care nothing for people, the bank or shareholders?

Basel Too (member) wrote on Fri, 04/10/2009 - 6:34pm.

i guess you can say that there was a run on New Frontier; deposits went from $1.5B to $150M in two weeks...

As of March 24, 2009, New Frontier had total assets of $2.0 billion and total deposits of about $1.5 billion. At the time of closing, there were approximately $150 million in insured deposits and $4 million in deposits that potentially exceeded the insurance limits.

lawyerlizinMI (member) wrote on Fri, 04/10/2009 - 6:35pm.

Ruthless default may not have been such a problem in the past, but my experience is that it will be in the future.

CalculatedRisk (member) wrote on Fri, 04/10/2009 - 6:35pm.

Shoot ... another failure ... and no one wanted it!

best to all.

Calculated Risk

reptillian (member) wrote on Fri, 04/10/2009 - 6:36pm.

I can't think of any reason to "own" a house. How did we get here?

Comrade Kristina (member) wrote on Fri, 04/10/2009 - 6:39pm.

Grrrrrr....I'm one of those cases that would absolutely be helped by a true loan mod or refi. When Mom died I inherited her mortgage, I had to finance into my name. I had been her caregiver for nineteen months, full time, 24/7. Because I had no rent history for almost two years, nor work history for almost a year, I got the shaft. I dealt with Mom's mortgage company, National City, they played the friendly we feel your pain role and proceeded to stick me in the worst mortgage on the planet. I was naive, never really had paid attention to mortgages because I never really wanted to own a house. I enjoyed renting and recognized how much work the joy of home ownership involved. I believed what they told me and also had a probate/closing attorney that managed to screw up probate with a sole heir and only a house to deal with, AND lost my mortgage not once but twice. They also sent checks to creditors to wrong account numbers and one payoff ended up in my own lawyers BofA account for over a month. Nobody could find the payment, meanwhile credit rating got walloped and I got charged interest and fees. Turns out they had put the money (7500 dollars) in my lawyers personal account by accident. It gets better. About a year and half later, after they had finally found the mistake and applied the funds to my account that was supposed to be closed, I get a letter. It's from a collection agency. BofA claimed I owed them 150 bucks worth of late fees and interest and had been tacking more late fees and interest on the entire time, even though the account was supposed to be closed and they never called me. A collection agency sent me a bill for almost five hundred bucks. I disputed it and a few months later BofA sends me a letter telling me I owe them the 150 bucks. I tell them it will be an extremely cold day in hell when they get that check. Never heard from them again.

I'm paying over 10 percent interest now and I have an ARM that can only go up, never down. I've paid every payment on time but I don't qualify for any of the government programs. The best offer I've had was my own mortgage servicer offering to "freeze" my rate for five years at 10.22%. Our FICOs are between 650-720. DH was laid off for five months and we burned through all of our savings so refinancing can't happen because I certainly can't come up with a down payment now. DH is back to work now so are DTI is NOW too high to qualify for loan mod. NICE. We are the people that could use a refi and have been responsible. We pay our bills and work hard. We are also still above water by about 30K. If they are serious about helping people and helping the economy, we are the type people they need to help out. We want to stay in our homes and we are working and paying our bills, barely. Treading water can only last so long though, we are now one paycheck away from disaster and we were the lucky ones that HAD that six month cushion put away in the bank.

kidbuck (member) wrote on Fri, 04/10/2009 - 6:43pm.

Couldn't this have been figured out and put in a new employees handbook ten years ago and saved us all a lot of trouble. Just what do they teach in Banking 101 anyhow?

lawyerlizinMI (member) wrote on Fri, 04/10/2009 - 6:45pm.

Kristina--since you are not underwater, for as long as the hub is employed, pay an extra hundred a month. If the rate stays the same, which it prolly will, at least the next time it renews, your payment will go down a bit. Keep on doing it. It's a grind, but at that interest rate, you will be paying interest on less.

Comrade Kristina (member) wrote on Fri, 04/10/2009 - 6:46pm.

LIz, can I just include it in my normal payment?

Magical Thinking (member) wrote on Fri, 04/10/2009 - 6:50pm.

Ruthless default
-I think we need a prettier name something nicer
National City
-*One finger salute with rasberries*
http://www.youtube.com/watch?v=7_nwbTeIN4Y

EHP -you better watch they may be dealing with their own GDP problems in The Great White North

Kung Fu Panda wrote on Fri, 04/10/2009 - 6:54pm.

I think a reasonable argument can be made that the run that took place here was beneficial for taxpayers; as it reduced the losses to be absorbed by the FDIC.

Comrade Kristina (member) wrote on Fri, 04/10/2009 - 6:56pm.

MT, nice thread music.

lawyerlizinMI (member) wrote on Fri, 04/10/2009 - 6:56pm.

Yep, usually there is a box you check that tells them how to apply it. Your loan will amortize slightly faster until the next reset. The length of time will stay at 30 years from the beginning. Non adjustible loans have the term shortened. Adjustible have the payment decreased. Assuming the rate doesn't go up for a while, you will see your payment go down a smidge every time it readjusts. If the interest rates go up, the payment will go up less than it would have. Since there is virtually nothing you can invest in that will get you 10%, this is pretty much a no brainer, except you aren't using that money to build up a cushion.

But you would have had at least 10 grand worth of closing costs tacked on to the amount owed, so you may have been done an inadvertant favor.

If the hub & you stay enployed for 2 years, you will have paid off $2400, plus another about equivalent amount in amortization. So you will owe 5k less than now. Not great, but not terrible. If you had tacked on 10 grand worth of closing costs--and it could easily be more--and amortized 5k (because of lower interest rate--amortizes faster) you would owe 5k more than you owe now. Of course if rates go up a lot you are screwed.

FHAs have fairly high closing costs, because of a lump sum PMI payment which would be somewhere in the 3-6k range. Plus more pmi for years, I think 10.

Kung Fu Panda wrote on Fri, 04/10/2009 - 7:00pm.

"He also expressed frustration with the federal Troubled Asset Relieve Program process, $53 million of which New Frontier Bank would have qualified for based on its size. He said the bank was denied. He said that would have been small potatoes compared to how much it will cost to close the bank. He called the process politically corrupt."

That is interesting...a TARP request denied. I wonder how many other denials there were.

Magical Thinking (member) wrote on Fri, 04/10/2009 - 7:01pm.

Grrrrrr....
-Understandable
pay an extra hundred a month
-That could be spent , saved , retirement-to the bank instead it goes

Comrade Kristina (member) wrote on Fri, 04/10/2009 - 7:04pm.

No shit MT, but, for a whole lot of reasons, I want to keep MY house. I love this house, it was my parents house and my father died in this house. My Mother hand painted the walls...I want to keep it, it is all I have left of them.

NorkaWest (member) wrote on Fri, 04/10/2009 - 7:08pm.

I want to keep MY house. I love this house

Doesn't sound like a house; it sounds like a home.

Houses are for trading/flipping/speculating; homes are where people live.

NorkaWest

Magical Thinking (member) wrote on Fri, 04/10/2009 - 7:10pm.

It's not that it's the IF part-Lawyer had several , you need more guarantee than they are offering. That's the point your home, your castle , your fortress..so forth

robert wrote on Fri, 04/10/2009 - 7:17pm.

[But the data indicate that ruthless defaults are not the biggest part of the foreclosure problem.]

...YET.

As prices fall further and even more homeowners find their DTI completely out of whack years later, this is going to become a huge problem.

And either the industry, as a whole, is going to grow up and take its lumps on its own terms, OR they're going to be getting a lot more properties back than they are now.

Anonymous? wrote on Fri, 04/10/2009 - 7:22pm.

CK - if you are 30K to the good, sell and get your own house, with a more affordable interest rate. JMO, but sentimental value counts for s#it, to put it mildly. In no way do I wish to sound cruel. BTW, glad to hear your spouse found a good job.

robert wrote on Fri, 04/10/2009 - 7:24pm.

[Kristina--since you are not underwater, for as long as the hub is employed, pay an extra hundred a month. If the rate stays the same, which it prolly will, at least the next time it renews, your payment will go down a bit. Keep on doing it. It's a grind, but at that interest rate, you will be paying interest on less. ]

This is crazy person advice.

You're telling a couple that has next-to-no reserves to plunk any extra money they have into the mortgage company's coffers so they can save a bit of interest later on.

You clearly have no experience in survival economics.

I can only hope that the original poster doesn't buy into this nonsense just because you throw up a lot of posts in this forum.

Anonymousse wrote on Fri, 04/10/2009 - 7:26pm.

Kristina,

What state?

julieng wrote on Fri, 04/10/2009 - 7:34pm.

it needs to be a agency loan to refi

wally wrote on Fri, 04/10/2009 - 7:50pm.

I'll say again - as I have for at least a couple of years - that you have to look at the system of appraising houses as complicit in the bubble. Appraisals based on comps say nothing about the value of an asset and worse, they ride up with the bubble, justifying each new absurd loan with the 'eveidence' of value just down the block.
Mortgage originators need to tie to something like construction cost or square foot cost and regard that everything above that is a consumer expense for luxury or vanity and they need to write mortgages accordingly.
If you are going to peg decrease in underlying value as possibly the prime cause of mortgage default, you have to do something about it.

Magical Thinking (member) wrote on Fri, 04/10/2009 - 7:54pm.

Appraisals
various government incentive to increase value to increase revenue

Sekar wrote on Fri, 04/10/2009 - 8:59pm.

Great paper. Too bad its dated April 8, 2009 and not from 2003 or 2004 even.
We are in trouble but the mainstream media is out in full force and forcing a recovery upon the masses.

Comrade Kaboom wrote on Fri, 04/10/2009 - 10:06pm.

Kristina,

Remember, you aren't tied to your mortgage forever. Just focus on your credit score and you'll be able to refi into something much lower in 12 months. Yeah, 12 months of paying 10%+ sucks, but it's really not all that much more than paying 6%, just for one year.

logblot wrote on Fri, 04/10/2009 - 10:13pm.

robert, just a minor point but when you pay off your loan early you are not putting money into a mortgage company's coffers. In fact, you are denying them profits on interest. You're paying back money you borrowed, not handing them new money they don't own. In fact, generally the money you pay off wasn't yours OR the mortgage company's to begin with. They borrowed it too. A bank's business model is to borrow massive money at a low interest rate and lend it out at a slightly higher one (plus a buffer to account for defaults). I'm not trying to argue with what you said, just make a point about what is really happening here.

Any time a loan is paid off early, the bank needs to lend it out again or they're *losing* money on their own interest payments and overhead for holding it. Again, it's not their money either.

That said, it all depends on Kristina's savings and job stability. If you don't have savings, you do need to build a buffer. If you have savings and future security, it's very efficient *long-term* to pay off early if your interest is high.

patientrenter wrote on Fri, 04/10/2009 - 10:44pm.

This is fascinating. Robert and others want to find reasons not to repay loans. If this becomes a normal part of our culture, we are in trouble.

jolly mint wrote on Sat, 04/11/2009 - 1:16am.

ya the fed makes a lot a great papers i am gonna start collecting them.

askin wrote on Sat, 04/11/2009 - 2:41am.

For two years on i've been asking the same question....

Why, if the goverment is backing stopping loans to banks with taxpayer dollars, are'nt ALL mortgage rates ONE rate.

CK's experience is a ripe one for this problem. She pays taxes into the system that makes her pay 400-500bps above best rates. Why would'nt one opt out of that?!

fresno dan wrote on Sat, 04/11/2009 - 2:48am.

One aspect of this that doesn't even get considered is behavioral economics. Just as emotion drives bubbles (and busts), there is also a lot of research about retribution in financial decision making. Monkeys when seeing other monkeys getting rewarded unfairly will seek retribution even when so acting "costs" them more than the value of the item in question. This isn't irrational - if social rules aren't enforced, there is a downward spiral to the worst possible behavior.

I am sure many investors feel the way many posters to this blog feel - I own bank stocks through my 401k (ok - 201k
bit even though finance makes up a good portion of the stocks in my portfolio, I still want banks to go bankrupt. Of course, it begs the question: Is that irrational? Short term it may appear so - but in the long run companies have to be run for the long run. Illusiontory profits do not benefit shareholders. Those who scam the system have to be punished.

Speechless wrote on Sat, 04/11/2009 - 4:55am.

I can understand Robert argument and Kristina's concern. We found ourselves in a similar situation in 2007. We own one house and had a share in another house which we bought in 2005 with two other friends as a short term investment. It came at a good price, as the market was already softening. We rented it out, but by mid 2007 the market was really weak, renters moved elsewhere and other renter prospects were few.

Our mortgage was an Alt A, interest only that was already hovering at 7% and threatening to rise. Refinancing before the 3 year penalty phase would have meant a major loss ( I think the penalty was an additional 5% of the original mortgage) -- this was one of those disgusting Countrywide Mortgages--

Looking at the options, nothing looked good. We didn't want to default, assuming that that would ruin our credit score, but there were times when we came very close to the "ruthless default" scenario. -- But we had the feeling that the ruthless default would create so many bad vibes that would reverberate through the rest of our lives (not to mention potential kharma problems on into the future), we decided that we would absorb the negative and make it into something positive. Our family moved in and took over payments for the place. The work of bringing an old farm house back to a decent functioning family home, and to make good use of the land (we've got a big vegetable garden, goats and chickens and soon a pig) has been monumental. Fortunately, we've got two teen age kids who are willing to work hard with us, so it's a whole family effort.

We finally to the end of the penalty phase in November, and after much struggle got approved for a 5. 3 % mortgage. -- We have no idea if the value of the place will be equal to the purchase price in a few years time, and we are as scared as everybody that we might hit the financial wall and disaster will result. But we're giving it our best effort. It's certainly been interesting knowing that we've given our kids and grandkids a real example of how the Great Recession hit their family personally and how we all pulled together to try to overcome it.

Robert wrote on Sat, 04/11/2009 - 5:19am.

[robert, just a minor point but when you pay off your loan early you are not putting money into a mortgage company's coffers. In fact, you are denying them profits on interest. ]

Okay. Let me be more precise. If you're "on the edge," you don't pre-pay anything. Even if it would make a difference over the next 25 years.

[Robert and others want to find reasons not to repay loans.]

Uh, no. PREPAY is what I advised against, not REPAY.

And here's why:

If Kristina pays an extra THOUSAND dollars on her mortgage at 10%, she's saving less than $9/month if her rate stays current, $10 and change if the rate jumps to 12%.

In a vacuum, this makes sense. Based on her stated situation, it doesn't.

The rules are different when you're in a financial meltdown. I work with lots of people who followed the conventional financial planning wisdom while their finances were deteriorating and it made things worse, not better.

Comrade Kristina (member) wrote on Sat, 04/11/2009 - 5:25am.

Thanks for the input guys and gals. I'm still going to try and negotiate with my lender to do a loan mod and we are going to try and rebuild our savings so perhaps we can manage to do a refinance later in the year. Hoping the rates stay low...

simon wrote on Sat, 04/11/2009 - 5:37am.

Thanks for the sharing.

Yancey Ward wrote on Sat, 04/11/2009 - 9:04am.

I am scared when Nemo's sarcasm seems the road of reality.

Scared shitless.

St Paddy wrote on Sat, 04/11/2009 - 9:06am.

Most homeowners (while still in a full state of denial) believe that they have equity in their homes. Sadly , most do not. The best way to learn what your equity amount is, is to list the home and see what the market says. Kristina, people make poor financial decisions every day because they mix emotions with finance, it sounds like that's how you ended up in this situation. Your parents legacy lives in your heart, not in some bricks and mortar. The likelyhood of your home falling much further in value over the next few years is far more possible than it holding or going up in value. What position will you be in, when 3 years down the road you realize that you have negative $30k equity and your job prospects become dimmer and dimmer. It will be sure default. On the other hand you sell now for your $30k in equity and save it for the next few years, rent a house for less than the cost of ownership and when this disaster does finally make it's L shaped recovery you take your saved $30k plus whatever you may have saved and buy a house that will cost you less than renting with a very low mortgage amount with maybe GOD FORBID!! a "15 YEAR FULLY AMORTIZING FIXED RATE MORTGAGE" Good Luck !

William wrote on Sat, 04/11/2009 - 9:10am.

The author needs to learn about how banks and their servicers work. Under most securitizations, the lower tranches of the security are the ones responsible for bearing the costs of foreclosure. Banks, and thier servicers, usually own the upper tranches of the securities, the lower tranches having been sold off to hedge funds (Bet they won't be doing that again, huh? -- so who's going to buy the riskiest traches of securities now? another question for another time) It's a clear conflict of interest, but then that's what this situation is all about, isn't it? One big conflict of interest, where the institutions that were legally supposed to protect the investors interests didn't -- and the authorities won't prosecute them for it. Because the authorities are confilcted....

julia wrote on Sat, 04/11/2009 - 10:24am.

"We found ourselves in a similar situation in 2007. We own one house and had a share in another house which we bought in 2005 with two other friends as a short term investment."

i know this is just semantics for many people, but still it would be great (and i think an indicator that the mentality is improving) to use the word "OWN" a house only when no mortgage is due and to leave the word "INVESTMENT" aside when meaning FLIPPING.

when you have a mortgage on a house, you are renting from the bank. if you don't agree, stop paying a couple of times and see what happens! you get evicted almost as fast as a renter would.

Lord wrote on Sat, 04/11/2009 - 10:33am.

DTI may not be a near term predictor of default, but it can be a strong predictor of a bubble which will eventually lead to many defaults. What is not that significant for an individual loan can be extremely significant for the industry as a whole (or would be if actual DTIs were known and not stated DTIs).

rabbit wrote on Sat, 04/11/2009 - 11:34am.

Home Prices will cont to fall just ask Meredith Whitney. Look folks the faster we return to historic norm the less pain, otherwise why buy a house when you can rent for a fraction of the cost. WHY SHOULD YOU WORK JUST TO BE A DEBT SLAVE? It makes no sense to even think about getting up each day to pay the frick'n bank. WALK AWAY WORKS for EVERYBODY!

America has made a wrong turn. All those people who gave their lives in every war we fought have been horrifically disrespected. I don't think our Senators or Congressional members even understand this.

rabbit wrote on Sat, 04/11/2009 - 11:35am.

Home Prices will cont to fall just ask Meredith Whitney. Look folks the faster we return to historic norm the less pain, otherwise why buy a house when you can rent for a fraction of the cost. WHY SHOULD YOU WORK JUST TO BE A DEBT SLAVE? It makes no sense to even think about getting up each day to pay the frick'n bank. WALK AWAY WORKS for EVERYBODY!

America has made a wrong turn. All those people who gave their lives in every war we fought have been horrifically disrespected. I don't think our Senators or Congressional members even understand this.

rabbit wrote on Sat, 04/11/2009 - 11:35am.

Home Prices will cont to fall just ask Meredith Whitney. Look folks the faster we return to historic norm the less pain, otherwise why buy a house when you can rent for a fraction of the cost. WHY SHOULD YOU WORK JUST TO BE A DEBT SLAVE? It makes no sense to even think about getting up each day to pay the frick'n bank. WALK AWAY WORKS for EVERYBODY!

America has made a wrong turn. All those people who gave their lives in every war we fought have been horrifically disrespected. I don't think our Senators or Congressional members even understand this.

Comments for "Fed Paper on Reducing Foreclosures"

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