There really is nothing new under the sun

A couple of days ago we blogged about the displeasure D.C. pols have exhibited towards what they perceive as an under-achieving HAMP (Home Affordable Mortgage Program) program.

Alas, and as predicted, statists will never recognize the failure of a government program and, as such, rather than scaling back or shutting down HAMP they are going to throw more money at it.

The Obama administration on Friday will announce broad new initiatives to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

Another element of the new program is meant to temporarily reduce the payments of borrowers who are unemployed and seeking a job. Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs.

The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.

Protests like the one that will go down in November of this year, to be precise.

If we sound like a broken record it's only because we're being cued by the actions of the Obama administration.

Re-read those paragraphs above from the NYT article and tell us they could not have just as easily appeared in print back in July '09, Nov. '09, or Jan. '10.

Tales from Bailout Nation Pt. XXII

How is it that you know any nascent recovery in the housing market may not be all that it’s cracked up to be? When the Feds threaten even more meddling and leaning-on than they already have, that’s how.

Looking to jumpstart its foreclosure prevention plan, the Obama administration announced new steps Monday to pressure loan servicers to help homeowners long term.

Responding to complaints that too many borrowers are stuck in trial adjustments, administration officials said they will now focus more heavily on getting borrowers into permanent modifications. Government swat teams will go to the institutions to see what the holdup is and banks will have to submit progress reports twice a day during December.

"Now it's up to the banks to do their part to covert borrowers to permanent modifications," said Michael Barr, an assistant Treasury secretary. "Servicers to date have not done a good enough job."

Because nothing says increased efficiency and effectiveness like government swat teams (swat teams!) and having to devote valuable resources to generate two “what I did on my coffee break” reports a day. It’s just insanity.

The article goes on to say that only a small percentage of troubled homeowners have received permanent modifications which is raising concerns about the effectiveness of the $75 billion Treasury effort. And the statist response to failed statist policies? More statism:

Top loan servicers will be required to report the status of each modification and their plan to reach a decision. Also, these servicers must say how they will communicate decisions to borrowers.

Those failing to meet their obligations could face so-far unspecified penalties and sanctions.

How they will communicate decisions to borrowers? How about, “No. You are a bad risk. You had no business owning this home in the first place. Please leave us and find a nice comfortable place in which to foreclose.”

But we know that will not be allowed to happen because as referred to above, this country seems to be skipping merrily down that road of governmental stong-arming in the housing sector that was largely responsible for getting us into the very mess we are now.

We welcome any encouraging news that will counter the double-dip recession behavior we see by the government all around us.

Cool picture, questionable post

Reading this article out of Reuters, one cannot escape the near-inevitable conclusion that we are heading towards a double-dip recession with a second housing collapse leading the way.

We wrote last week regarding the back-slapping going on over at the Treasury Department because they were ahead of schedule in getting 500,000 people signed up for a TARP-funded loan modification program.

The plan has been plagued by red-tape delays and, some would say, a reluctance for banks to do their part so much so that only 17 percent of eligible borrowers have had the their loans modified. And trust us, that’s actually good news.

Instead of propping-up the housing market, the numbers suggest that this loan modification program is merely delaying the inevitable.

From the market's peak in 2005 to the second quarter of 2009, U.S. home equity fell 37 percent, or by $4.7 trillion, according to the Federal Reserve. To put that into context, China's economic output totaled about $4.3 trillion in 2008.

There have been recent signs the housing market may be bottoming. But rising unemployment and "shadow inventory" -- homes that banks have yet to foreclose on -- raise the prospect of further price declines.

But here’s what really worries us:

Another problem is the number of borrowers who re-default on their modified loans. The U.S. Office of the Comptroller of the Currency says 56.2 percent of loans modified in the second quarter of 2008 re-defaulted after 12 months.

According to Amherst Securities, an even higher 70 percent of homeowners re-default within 12 months of a modification -- but it stresses its data does not include HAMP modifications.

So, it’s safe to say that government bail-out or no, well over half of distressed borrowers re-default within 12 months of a loan modification. That isn’t necessarily what we would call a “green shoot”.

There is a cultural aspect to this as well. We can rail all we want against the government, the greedy banks and unscrupulous real estate agents but it appears that we as individual citizens have totally lost our bearings in exercising any sort of personal/family fiscal discipline.

Mark Seifert, head of nonprofit agency Empowering and Strengthening Ohio's People said his group's re-default rate is around 30 percent because counselors help homeowners cut their budgets to keep their homes. This may involve not eating out and cutting all non-essential items.

Non-essential items like that new car you bought through that other un-godly government prop-up program and that totally sweet $4500 rebate you got for your perfectly functioning “clunker”.

And not to pick on any one person but check out this guy:

For homeowners like Jeff Latta, there was no help at all.

Latta, a 53 year-old retiree, pays $1,600 in monthly home payments that eat up 93 percent of his pension and he struggles to make child support payments.

To help pay his mortgage, Latta has slashed his bills by hunting for food in the wooded hills around his town of Albany in southern Ohio, and growing his own vegetables. He has resorted to selling pumpkins and firewood to make cash.

In March, Latta heard about Obama's Home Affordable Modification Program, or HAMP, that allows mortgage payments to be reduced to 31 percent of a homeowner's income.
The plan was launched as a central plank of Washington's efforts to stem foreclosures.

Latta applied for a loan modification but was rejected. His bank said his income from selling pumpkins and firewood -- a net of $906 in 2008 -- was too high.

"Frankly, I'm disappointed," Latta said. "I thought I would qualify as I am at high risk of default."

Foreclosure prevention advocate Bryce Burton at Ohio Housing Finance Agency said Latta's bank miscalculated his income. "Jeff is a shining example of someone doing everything they should be to keep their house," Burton said.

Does anyone else see a problem here? We hate to rain on Mr. Latta’s golden years but did he seriously think that he was going to get by on $1700/month free and clear when he was considering retirement… at 53?

And a shining example of someone doing everything they should? Well, doing everything he should except perhaps finding a job which the article never bothers to consider.

But we’re such kill-joys for suggesting the same for a person who decided to put it on auto-pilot a full quarter century prior to his life expectancy expiration date. As far as the obligatory sob story, Rueters could’ve done a tad better.

We hate to be pessimists, it’s not in our nature but the numbers and anecdotal evidence doesn’t look good. Combine that with the fact that our gold-plated road-paving government is aiding and abetting this reckless behavior leads us to believe we are not getting out of this mess anytime soon.

It's like deja vu all over again (UPDATED)

"You have to ask the question: Have we figured out what got us here in the first place and are we going to make sure we don't replicate that failed system?"

That from Scott Garrett (R-N.J.) on the high amount of delinquent and foreclosed mortgages on Fannie Mae’s books currently.

In the wake of the mortgage meltdown, the Federal Housing Administration has emerged as a pillar of the still wobbly housing market -- providing vital insurance that enables borrowers to qualify for loans with as little as 3.5% down.

This year alone the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007.

Some lawmakers, however, worry that the FHA may be doing its job too well -- enabling too many people with shaky finances to get loans, and in effect setting up a potential repeat of the housing bubble fueled in part by no-questions-asked subprime loans.

We don’t know what would lead people to that conclusion especially when the current number of FHA loans that are delinquent or in foreclosure climbed to nearly 8% at the end of June from about 5.5% in early 2006 and Fannie is permitting people to plunk down as little as 3.5% down, no questions asked.

According to some, the wet blanket party just needs to pipe down.

One proposed solution to the agency's troubles, backed by Garrett and others, is to raise the minimum down payment on FHA loans to 5%. Backers believe that will encourage borrowers to stay in their homes and not let them fall into foreclosure.

But new FHA Commissioner David H. Stevens said such a move could threaten the nascent housing recovery. A person looking to buy a $300,000 house, for instance, would have to raise an additional $4,500 for the down payment.

"All that's going to do is retard recovery," he said.

Raise an additional $4,500 for the down? That’s criminal.

Though were certain that while the term “retard” is useful here it was not used in its proper context.

We suppose the best thing that could be said about this program is that it appears to be only slightly less dreadful than say, Cash for Clunkers only in that we are not burning down existing homes to create a demand for new ones. The government is creating demand instead by pumping tax dollars into a scheme whereby homeowners and potential homeowners have very little skin in the game and thus little incentive to stay up with their mortgage payments.

The political class and perhaps much of America does not yet appear ready to face the prospects of a long slow recovery from the housing collapse that will wring-out the excesses and bad actors opting instead for serious flirtation with another housing crash.

What is it that we keep hearing about a double-dip recession?


(UPDATE #1): And the hits just keep coming…

The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because it has $54 billion more in losses than it can withstand, a former Fannie Mae executive said.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.

The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.

Backing risky loans? At 5 percent down and no questions asked? We think you’re racist for thinking you just can't throw around tax payer money like free candy.

Peering through the clouds

Considering the times we live in, we’ve got to take these silver linings when and where we can.

In a victory for Wall Street, Senate lawmakers voted down controversial legislation Thursday that would have allowed bankruptcy judges to rewrite the terms of mortgages for beleaguered borrowers.
The legislation failed by a 45 to 51 vote in the Senate, falling far short of the 60 votes needed for passage, leaving the bill unlikely to be revived.

You all remember “cram down” dontcha? We chronicled its’ introduction to the House back in January in Good Fellas fashion, here.
But far beyond being a mere victory for Wall Street and taking into account the margin by which it was defeated considering the partisan make-up of the Senate, we prefer to think of this as a victory for common sense.

Allowing judges free rein to rewrite lending terms without any real checks or recourse didn’t seem like such a hot idea. Despite whatever Dick Durbin says about the powerful banking lobby, we're relieved that at least this portion of the free enterprise system, the contract between two entities which is bound by law, has been preserved... for now.

Not content to leave bad enough alone

We’ve noted that of all the bailouts, both enacted and proposed, the current proposed housing bailout is the one that has caused the most visceral response among the citizenry. Why is that? It’s pretty simple, actually, because it is the one that, literally, hits closest to home. We’re somewhat insulated by geographic and socio-economic distance from the auto and financial bailouts but the mortgage bailout involves what is probably our most significant economic investment and which also sets next door to a “troubled” mortgage that happens to have a luxury SUV and 22’ Chris-Craft parked in the driveway.

Last week, the housing package that was expected to pass through the House, hit a snag over the role of bankruptcy judges and their ability to reduce principal and interest rates on mortgages…. just like that.

What the Democrats are bickering over, of course, is the scope and breadth of who will benefit from this magic wand-waving by the bankruptcy judges. Liberals are pushing for expanding the scope of legislation to include those who are merely “struggling” and not necessarily filing for bankruptcy. Moderates argue doing this will impose to great a burden on the banks as they will be forced to raise interest rates and fees on new loans to make up the difference…. and wouldn’t that have and outstanding effect on the housing market?

And this is why the concept of these bankruptcy judges remains such a horrible idea: one is promoting and acting on the concept of rewarding bad behavior. We can’t dress it up in any more flowery language than, simply put, it’s un-American. That’s not how we operate here – at least that’s not how we used to operate.

Additionally, and which is something we predicted here, one is once again manipulating the market for their desired result and someone will have to make up for the “restructuring” the banks and lending institutions will have lost out on as a result of these bankruptcy judges and it’s not going to be Congress.

P.S. All this in a market that is showing some encouraging signs. Existing home sales in California were up 100% from this time last year. How is it possible? How can it be that absent Congressional action, the housing market, which was the first segment of the economy to turn south, looks to be the first segment of the economy to finding the bottom and start heading north again? In peddling a climate of fear, however, it’s best to just ignore that bit of news and press on with your agenda.

Peddling Fear 101

Whether you’re a newspaper trying to sell copies or a Presidential administration trying to sell porkulus, there are a few simple guidelines to be observed and one in particular that we saw played out over the course of 24 hours this past week.

Bad news like the report that came out that median home prices for the county had fallen below $300,000 for the first time in seven years should be placed right next to an article on Obama’s proposed bailout of individual homeowners and should also be festooned with splashy multi-color graphics like the one below and which was seen on the front page of Thursday’s San Diego U-T.



However, news that the housing affordability index is approaching the 50% mark for the first time in years in 15 years and that existing home sales in Southern California have increased 52% from last year should be shuttled off to below-the-fold of the Business section as is what happened on Friday.

The news on housing affordability and increase in home sales is encouraging and is demonstrable of what should be happening in an inflated housing market that is trying to find the bottom without any outside intervention. The increase in home sales is a positive sign that perhaps the housing market is close to finding that bottom and is evidence that the free market is wringing the poison and bad actors our of the system… all of which should be left alone so the whole process can run its course.

Unfortunately, no one wants to hear that when leveraging the “worst economy since the Great Depression.”

Good read here from the WSJ on the President’s fear mongering and his convenient looseness with data.

Mr. Obama's analogies to the Great Depression are not only historically inaccurate, they're also dangerous. Repeated warnings from the White House about a coming economic apocalypse aren't likely to raise consumer and investor expectations for the future. In fact, they have contributed to the continuing decline in consumer confidence that is restraining a spending pickup. Beyond that, fearmongering can trigger a political stampede to embrace a "recovery" package that delivers a lot less than it promises. A more cool-headed assessment of the economy's woes might produce better policies.

"Reid.... You Miserable Bastard, You!"

Because the man, himself, confessed to the town’s main industry transitioning from mining to prostitution at the time of his birth, we’ve always tried to cut him some slack for his behavior and actions rationalizing it as being reared in less than optimal circumstances.

Well, for the first time in recent memory Harry Reid actually made a modicum of sense or at least, we’re hoping, had his heart in the right place when he asked both candidates to stay away from the Capitol while Congressional leaders are trying to hammer-out this bailout bill. In Reid’s words, having both of them there would “risk injecting presidential politics into this process or distract important talks about the future of our nation’s economy”.

Well… you know, there is something to be said for having both potential leaders of this country there with their sleeves rolled up to try to fix this thing but, yeah… we totally see Harry’s point… putting the good of the nation ahead of partisan politics. Cool.

But then he goes and blows all that short-lived goodwill by injecting politics into this process… Reid, the source says, thinks McCain's maneuver is a gimmick born from bad poll numbers and the fact that "debate prep must not be going very well."

Poor ol' Harry Reid. So close but yet (again) so very far away.

Another Round....? Probably not such a hot idea.

Linked article from Reason.com is pretty straight forward common sense for most Americans. But a flagging economy in an election year is not exactly the formula for sober thought.

Rising gas prices combined with an evaporation of equity in our homes has resulted in a massive loss of personal wealth for Americans and Americans being who we are, aren’t dealing well with the resulting decline in our standard of living.

When the economy contracts, the government may use sound monetary and fiscal policy to help revive growth. But when wealth goes up in smoke, the government can't necessarily bring it back. If it tries, the effect is likely to resemble what happens when you give a recovering alcoholic a drink: deceptively pleasant at first, but ultimately calamitous.

Again, this is an election year so the following advice is not exactly what we want to hear…

When you have a loss of wealth, the best way to cope is to accept it and adapt to a lower standard of living, sooner rather than later. Sending out rebates, eliminating gas taxes, bailing out homeowners and accelerating monetary growth, among the proposed remedies, do exactly the opposite. They spare us the obligation of dealing with reality by making us feel richer so we can keep on as we were before.

In the long run, we will adapt to the new realities, the economic impact will moderate, and the pain will fade. Till then, our least destructive option is to do something no politician would dare suggest: Suck it up.

Belly-up to the bar, boys!

The Dog Ate my Fixed Rate and now I'm Stuck with this lousy Adjustable One.

The latest cottage industry in the real estate world is web sites targeting distressed homeowners facing foreclosure. In story here involving Countrywide Financial Chairman Angelo Mozilo who provides a cautionary tale regarding that pesky little “Reply to All” button, it would appear that the form letter writing guidance given to homeowners petitioning their lenders entails 3 consistent themes: 1) claiming ignorance/confusion in interpreting the fine print, 2) injury in a physically demanding job implying loss of income and 3) potentiality of suicide.

As the homeowner states, he didn't go to college so web sites like this are a valuable tool in helping achieve that subtle balance between contrived desperation and buck-passing.

Mumia Lost his House, too?

The merry men of reason.tv were on hand in D.C. last week taking in a protest by something called the Ad Hoc National Network to Prevent Evictions and Foreclosures outside a meeting of the Mortgage Bankers Association. Does adding Ad Hoc to your title give you wiggle room for being really disorganized? After watching the video it would appear so.

There’s no way of knowing for sure if it went down like this but we imagine these people are fairly sane, rational folks who are a little miffed that the government is bailing out the greedy, corporate banks…. instead of just handing over all that jack to them directly. No biggie. Pretty standard thinking this day in age, unfortunately, but nothing too radical.

So there they are having their little rally, minding their own business when….. these people start showing up. The kooks, the Commies, the no-blood-for-oil types, the free Mumia types, the whole miserable lot of them that never met a protest they didn’t wind up crashing.

(the embed is not cooperating. Please click here for video. Sorry) (Hey, maybe it is - give it a crack)


We love the minimal number of questions they are asked. Reason.tv has been doing enough of these too know that if you just let these knuckle-heads ramble on for anything more than 15-20 seconds, the wackyness will start foaming over the top.

But the ones they do ask often have devastating results. Our fave: Little Miss Riding Red: “…. And life expectancy (in communist Russia)….. was longer than before the Revolution”. Reason.tv: “Except if you opposed Stalin” Little Miss Riding Red: (morphs into Miss South Carolina)



Anyway, looks like everyone had a good time, no one got hurt and you all will still be bailing out the banks AND these people. We’ve half a mind to go to one of these things to distribute our name and email address so we can be contacted when they’re all ready to pay us back, thank you very much.

Update #1: If you're scoring at home the song in the video is the Byrds doing "Pretty Boy Floyd" off of their seminal country-rock album "Sweetheart of the Rodeo"

Suckas!

If your parents were anything like ours, they reared you to be responsible people. That responsibility included picking up your toys, cleaning up any messes you may have made, admitting to and owning up to your mistakes and perhaps most importantly, being accountable to yourself and others for your actions.

Your parents are a bunch of saps.

Looks like Congress and a reluctant White House fearful of losing more seats to the Democrats if they are accused of “not doing anything” are getting closer on a housing mortgage bail-out deal.

You can read more of the gory details here, but the long and short of it and why the whole notion of bail-out frosts us is that money is coming out of the pockets of responsible home-owners to keep irresponsible people in their homes.

Now lest you think we are being too harsh, let's try a more clinically detached angle: the free-market was working just fine in flushing out those people that had no business being in the housing market in the first place. This subsidization of bad behavior both practically (by artificially lowering the “cost” of ownership) and psychologically (in way over your head? no worries – mulligan!) only promotes more bad behavior because the bad actors are being rewarded instead of being kicked to the curb as would happen naturally if the free market were allowed to do its thing.

It really does become a self-fulfilling prophecy: If we want to keep irresponsible people in the housing market AND encourage more irresponsible people to enter the market, then by damn, we certainly have the means.... your means to do so.

So…. are we off the cold, heartless bastard hook?