3 responses so far ↓

• 1 Mark H (Not Hebert) // Feb 9, 2012 at 9:47 am

  This mortgage settlement is all part of a bigger deal struck between the current administration and the big lending industry.

  The second part of this deal is the recently proposed refinance relief plan posed by the Obama Administration. The proposal is yet a another slide of hand allowing the Administration to seem like they they are helping out the middle class during an election year, while really bailing out the banks.

  Under the plan, homeowners with sub-600 credit scores, and who are current upside down on their mortgages, can refinance their loans from say 7.5% down to 4.5%, with the loan now being assured by FHA.

  While this sounds like puppies and rainbows for the middle class during an election year and a rough real estate market, what is actually being done is that exposure from risky mortgage loans will be transferred from the bank’s books, to the taxpayer’s books.

  In exchange for 3% less in annual interest payment income, the banks will have the ability to transfer the risk for losses associated with those loans to the government if the loan defaults. The problem is that currently the FHA has $1B in reserves to cover $1T in exposure.

  So when homeowners get that extra $300/mo to spend, I hope they realize that they should immediately write an invoice for that amount to their children, care of the current administration’s attempt to buy votes this fall while bailing out the banks they are soliciting for campaign cash.

• 2 E // Feb 9, 2012 at 9:59 am

  Sounds like Mark and I have been reading the same stuff.
  …and once the settlement fades into the rear view mirror, the likelihood of those responsible for the fraud and malfeasance actually being prosecuted fades into the rear view mirror as well.
  All the while the banks and mortgage fraudsters will act as if this is an ass chapping, and the complicit AG’s will act as if they acted in the best interest of the taxpayers and victims.

• 3 Mark H (Not Hebert) // Feb 9, 2012 at 10:37 am

  The entire current real estate situation is not particularly complicated to understand, but none of the solutions are easy.

  There was a massive real estate bubble that was generated as a result of government manipulation, lender malfeasance, lender and homeowner greed.

  This bubble created massive amounts of wealth that was not derived from production or risk capital. The wealth was derived from an appraiser showing up, waving his or her pen, and stating that the property was magically worth 30% more than it was the year before.

  Banks and homeowners cashed in on that magical wealth, and spent it. Like all paper wealth, it just as quickly vanished as the market collapsed.

  If that $200K home was refinanced at $350K, and thee equity was spent, now that the value has dropped back down to $275K, someone has to eat the $75K loss. The homeowner and bank are now stuck with a $330K outstanding mortgage on a property that’s only now worth $275K.

  Now that leaves us where we are today. The money was spent, squandered, or pilfered, and someone is going to have to eat the loss. Now there are only three options:

  1) the banks and bond-holders eat the losses
  2) the homeowners eat the losses,
  3) or the taxpayers eat the losses.

  There is no magic answer to this problem because the money was cashed out an spent. Each one of these scenarios has their own complications and negative outcomes. The only thing that has been done to date, is that this decision has been pushed off by the government and has resulted in the market remaining weak.

  It looks like the current government strategy is to act like they are bailing out the homeowners, while also quietly bailing out the banks. The young taxpayers down the road will end up paying for the excesses of this generation.

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