Mar232012
Another ignorant and misguided appeal for principal reduction
Principal reduction is on everyone’s mind these days. The political left embraces this method of looting the public coffers to buy votes. In their world view, principal reduction is a populist handout to noble loan owners who are victims of circumstance. In my opinion, that’s bullshit.
Today’s featured article caught my attention because the headline speaks a basic truth: The housing crisis is crushing responsible homeowners. However, when I read the article, I was shocked to find the reporter cited all the wrong reasons and came to exactly the wrong conclusion. The reporter concludes falling prices hurts responsible homeowners, and therefore we should grant them principal reduction. In truth, the housing crisis is crushing responsible homeowners because the government and federal reserve are stealing their interest payments and tax dollars to bail out irresponsible banks and loan owners. The solution the reporter advocates crushes responsible homeowners even more be rewarding loan owners and getting everyone else to pay for it.
Before we begin, we need to make a clear distinction often lost when discussing principal reduction. Loan owners are not home owners. Yes, their names may be on title, but if they don’t have any equity, so they don’t own anything. The various proposals for principal reduction only apply to loan owners. No homeowner — someone with equity — is going to receive a penny of principal reduction. In fact, true homeowners — those on title with no loan encumbrance — couldn’t receive principal reduction because they don’t have a loan. Principal reduction is only going to benefit title holders with no equity. It is being paid for by renters (who by definition have no equity) and home owners who really do have equity.
Further, how did loan owners come to find themselves in need of principal reduction? If they borrowed responsibly, used fixed-rate financing, and they can afford the payments, then they don’t need principal reduction. Why would they? Nobody was reducing their principal when prices were going up, so why do we need to do it now that prices are lower? Is it because some are unemployed and need temporary assistance? Those people have already received loan modifications to get them past the economic slowdown. They don’t need principal reduction.
By and large, the people who feel they need principal reduction overborrowed, many through rampant HELOC abuse. Most people overborrowed to get property they could not afford because they saw real estate as an investment. After all, if they were only concerned about providing shelter, they would have recognized the savings from renting and chosen not to buy. The government has no business bailing out real estate speculators and investors. I find it shameful that real estate speculators are what now pass for responsible homeowners.
The Housing Crisis Is Crushing Responsible Homeowners
By Jordan Weissmann — Mar 22 2012, 10:28 AM ET
The GOP says that bailing out underwater homeowners rewards people who borrowed irresponsibly. But most of the homes entering foreclosure today were bought with prime mortgages.
Those two statements are not in conflict. I don’t agree with the GOP on much, but on this point, they are correct. Bailing out loan owners is rewarding those who borrowed irresponsibly. What this report fails to recognize is that prime borrowers using prime mortgages borrowed irresponsibly. The housing bust was never a subprime problem.
This much, everybody knows: Subprime mortgages were at the heart of the U.S. housing crisis.
Bullshit! Presenting a lie as irrefutable truth is really outrageous. It’s not the Borrowers; It’s the Loans. The same bad loans were given to prime borrowers that were given to subprime. Perhaps everybody doesn’t know that, but they should.
Blanks blithely lent money to reckless borrowers who didn’t stand a chance of ever paying down the debt on their new homes. They defaulted, and dragged down the economy with them. That was our original sin, the reason for the country’s fallen state today.
That much is true, but limiting this guilt to subprime borrowers is an outrageous lie. They are all guilty, prime and subprime alike. As Tanta from Calculated Risk noted back in 2007: We’re All Subprime Now.
As a result, when people bring up the idea of allowing Fannie Mae and Freddie Mac to write down the principal on homeowners’ mortgages — in other words, forgive some of their debt — as a way of boosting the economy, it tends to be met with incredulity from conservatives. Whatever happened to personal responsibility!? they ask. Here’s a piqued example from Senator Bob Corker, a Republican from Tennessee:
Reducing the principal on home loans for borrowers who put no money down amounts to a massive wealth transfer from places like Tennessee, where most homeowners have borrowed responsibly, to places like California and New York, where exotic mortgages were widely used to finance a speculative housing boom. It is absolutely egregious….
I’m always taken aback when I agree with the extreme right because I so rarely do, but Bob Corker is correct. Principal reduction at taxpayer expense is a massive transfer of wealth from the responsible to the irresponsible, and it is absolutely egregious.
Here’s what Corker and his GOP colleagues are missing though. Today, the foreclosure crisis isn’t just hurting borrowers who took out subprime mortgages. Those debtors have already been through the ringer. Now, it’s responsible borrowers who took out plain vanilla mortgages who are suffering.
No, what this reporter is missing is that prime borrowers were just as irresponsible as the subprime borrowers who were foreclosed on. Further, he fails to recognize these same prime borrowers have already defaulted and they are squatting in their homes making no payments for the last few years. And now he wants to forgive their sins, give them free money, and let them stay in their houses. Screw that.
Yesterday, researchers from the Federal Reserve Bank of New York published the graph below. It shows that, midway through the Great Recession, the majority of homeowners in foreclosure had taken out prime mortgages. In fact, about two thirds of foreclosure starts since 2010 have involved borrowers who took out 30-year fixed-rate amortizing mortgages. In other words, they took out what was supposed to be the safest, most responsible loan they could.
The recession, increasing unemployment, and falling prices hit everyone. However, much of the reason for the change in mix is that lenders simply ran out of subprime borrowers to foreclose on. Many of these borrowers gave up quickly as they have few resources to survive a financial setback. Once the subprime borrowers were wiped out, all that remained were prime borrowers to foreclose on.
Before 2010, only 40 percent of homes entering foreclosure were attached to 30-year fixed-rate mortgages. The borrowers who are falling behind today also have higher credit scores and had been making payments on their houses longer than those who defaulted early in the crisis.
The Fed’s explanation: The recession happened. In 2006, people defaulted because they bought too much house. In 2012, they’re defaulting because the entire housing market tanked, the home which they made a 20 percent down payment is underwater, and they’ve lost their job. The Fed says:
“The shift in the composition of new foreclosures from borrowers with nonprime mortgages to those with prime mortgages reflects the fact that falling house prices and rising unemployment tend to impact all borrowers in a local housing market, not just nonprime borrowers. As a result, traditionally safe borrowers began falling behind on their payments as they felt the severe effects of the housing bust and high unemployment.”
To this I reply: so what? When the Titanic sunk, it drowned rich and poor alike. The entire discussion of who was hurt and why is irrelevant. Principal forgiveness is the worst policy option and foreclosure Is a superior form of principal reduction. None of the arguments raised justifies stealing money from me to give it to a loan owner.
To review: When we talk about helping homeowners,
No, we’re talking about helping irresponsible loan owners…
we’re talking about helping a lot of people who made reasonable decisions,
No, we’re talking about bailing out speculators who overborrowed or do not need principal reduction…
who did exactly what economists and politicians had been urging them to do for decades,
Yes, they were clueless sheeple, but that entitles them to nothing…
and have now been victimized by circumstances. Is that so “egregious”?
Yes, it is egregious. The reporter is proposing state-sanctioned theft, the direct transfer of wealth from one group to another with no justification. How can anyone be in favor of that?
Perhaps prime borrowers deserve a break? Who deserves the aid more than they do?
Radar Logic: 2011 Home Bargains May Continue This Year
Last year was a good year for home bargain-hunters, according to the latest data from Radar Logic. The firm’s January report revealed a 5.42 percent decline in prices from January 2011 to January 2012 and a simultaneous 7.7 percent increase in transactions.
Radar Logic surveys 25 metropolitan statistical areas on a monthly basis.
However, despite the year-over-year increase, home sales decreased 23.5 percent in the month ending January 19. The decline was greater among traditional sales, which fell 25.9 percent, than distressed sales, which declined 15 percent.
The discrepancy between traditional and distressed sales enhanced the overall price decline, according to the Radar Logic report, which stated, “the relative increase in distressed sales weighed on the RPX Composite, exacerbating its decline.”
The 5.42 percent price decline over the year brought Radar Logic’s composite to its lowest rate since July 2002.
However, the rate of decline did slow toward the end of 2011, but Radar Logic nonetheless suggests the market has not yet reached bottom.
“Frankly, I don’t think we’ve reached the bottom in housing prices,” said Quinn Eddins, director of research at Radar Logic.
Supply continues to outpace demand “particularly if you consider homes in the foreclosure process and those under water,” according to Eddins.
“At very least the excess supply will delay the recovery in housing prices, and could well push prices lower,” Eddins said.
Radar Logic predicts prices will remain flat this year and next before increasing “at an accelerating pace” in 2014 and 2015.
BofA calls housing bottom this year: No Conflict of Interest Here
By Mike at North Orange County Housing News
Bank of America owns thousands of mortgage where the loan owner is not paying their mortgage and squatting. They also own thousands of homes where the owner stop paying the mortgage and foreclosed on the house, so it has a giant inventory of REOs
More
Check-out how the move is being headlined by the pro WallSt sell-side press.
Hilarious!
MarketWatch: March 23, 2012 12:11 PM EDT
”B. of A. offers olive branch”
Oops, post was pertaining to BoA’s lease option for delinquent borrowers, not their bottom call 😉
BofA is calling the bottom to generate demand for all the REOs they are acquiring due to their big foreclosure push.
Bwahahaaha. BofA calling the bottom to the housing market is akin to a sleazy saleman at Bob’s used car lot proclaiming there has never been a better time to buy that 2005 Suburban.
We truly live in interesting times. On a side note, I have noticed there is virtually NO INVENTORY in the 400K to 600K range in some of the areas that I follow. Is this another result of FHA low down buyers jumping in knowing they can’t lose by buying with little skin in the game…this is like 2004 all over again! People who should be buying are getting outbid by these idiots who have no business being home owners with their lofty 3.5% down…frustrating!
Foreclosure is the superior option under NORMAL circumstances…..BUT, the banksters foreclose and get paid their losses ANYWAY, and another american is tossed out while the banksters hold back properties to artificially create demand.
So, in this case, you’re assumption that foreclosure is “better” is complete and utter horsesh1t. The game is rigged, and it’s set to victimize the american public on EVERY end. I have a house that is underwater and I don’t really give a [email protected] if it gets principal reduction or not, but I’ll tell you what, if it doesn’t I’ll not, pay another dime on it for as long as they let me……which should be a good damn long time.
You (the sheeple who voted all this sh1t into place, defacrat and repugnanctcan, and to be clear for the slow minded, yes, I’m calling both parties pieces of sh1t), you will see principal reductions and you will pay. It will either go to the neighbors in order to “keep” them in that home you paid less than 1/2 THEY did, or it will go to the banksters after the house is vacated and hopefully left almost uninhabitable. I’m sure the banksters are hurrying to pay those HOA fees…..not. They can’t even sell in my “nice neighborhood” in Lake Forest because too many missed HOA payments.
Yes, let the foreclosures come by the millions, I want to see every single greedy homeowner cry when their values drop to 1995 levels. That would indeed make me very happy as people would actually be able to afford to live where they work and not just serve in the “castle” for the rich and then slink home to sleep in the Inland Empire or barrio’s of Santa Ana and Anaheim.
Foreclosure is the superior option under NORMAL circumstances…..BUT, the banksters foreclose and get paid their losses ANYWAY, and another american is tossed out while the banksters hold back properties to artificially create demand. <-The banks are not creating demand. They're limiting supply in an effort to centralize the price.
The most insane part of the banking accounting rules allow the banks to accrue interest on their income sheet for non performing assets until they foreclose on the property. This reason along with trying to protect their equity is the top priority and are the reasons why the banks are not foreclosing. They are simply kicking the can down the road hoping for inflation to save their asses. And accruing phantom profits from non performing assets marked at prices way beyond their true value.
The media ignores this for the most part, as it's much easier to report the deferral in foreclosures is a result of pending litigation with the states (which is now mainly resolved), and being overwhelmed with the sheer number of defaults.<—This is pure bullshit! The litigation being resolved will only tweak the dial up a bit, especially in places like Orange County where we have a large number of large mortgages.
Here's one of the very few stories in the MSM that points this scam out.
http://www.forbes.com/sites/robertlenzner/2011/01/12/us-banks-reporting-phantom-income-on-1-4-trillion-delinquent-mortgages/
If I had to single out any policy which prolonged the downturn in housing, it is this one. If lenders had to mark their loans to market and report their delinquencies, they would have foreclosed on these people and recycled those homes years ago.
You only have to look at Japan to see the end result of failing to take the necessary write downs.
A Orange County teacher living large in SD County. Egregious squatting.
http://www.youtube.com/watch?feature=player_embedded&v=sRDSko5Pc14
Four years of squatting in a nice, detached, single-family home. Too bad renters can’t get in on that scam.
As to the analogy of the Titanic sinking rich and poor alike: it is an apt comparison, EXCEPT the first class passengers were gotten off in far larger proportions than the poor immigrants in steerage, and this was intentional even though the ship was about to sink and kill a lot of people. This is extremely well documented; those in steerage were in fact locked in to give the first class passengers time to depart. Nevertheless, in this mortgage collapse, the sole purpose of policy is to transfer wealth from the poor to the rich, by “saving” the banks at public expense and to save that same class of bankers who were “first off” on the Titanic. The bubble was NOT the fault of the ordinary person; they had the right to rely on the idea that the Federal Reserve would “regulate” and that the Congress wouldn’t accept huge sums of money to look the other way while yet one more out of control property bubble was spun up through largely rampant failure of even minimal oversight.
Any details on BoA turning squatters into renters with debt forgiveness? Will it just be a method move the liability of the taxpayer by a loan modification/refinancing lease to own and get a few rent payments from the squatters? How will BoA remain solvent while recognizing a loss in asset?
To save the guilty, the innocent are made to pay. The innocent are those the borrow and pay back, and the renters. The guiltily are the RE industry including HELOC abuser, serial refinancers, speculators, dishonest bankers, brokers, appraisers who inflated the market while taking a cut from each transaction. On Ponzi scheme to another and WS takes a cut off the top on every transaction. We live in a socialist system where WS losses are covered, while privatizing their profits.
I am going to look into this program further. I don’t know how they are going to treat the value of the asset. It wouldn’t surprise me if it turns out they treat the rent as if it were a loan payment and keep the loan alive.
More zombie banking? It wouldn’t surprise me.