Housing Bill Adds Second Lien Amendment

[quote author="awgee" date=1217038151]Let's think for a second. It is proven to be less costly for lenders to initiate some type of workout than go through foreclosure, so why do the lenders insist of letting the properties go to foreclosure when they know it will cost them more a workout?</blockquote>


The answer is time.



Depending on whether you think this will make the situation better or worse, it is "Time heals all wounds." or "Time wounds all heels."
 
"But I feel the majority of people in trouble now are on fairly similar footing (in terms of income to total debt) with the would be buyers, and can produce documentation to show it."



The main difference being that the would-be buyers who sat out during the bubble have a pot full of money!
 
[quote author="jimbo" date=1217039291]Dude, it because the loan is now 90% backed by the government... with a standard short sale that wasn't the case.</blockquote>


You are saying the government is going to come in and take over the second?



Let me set up a situation for you. This is fairly typical in the VoC.



Bank X has a first at $600K.

Bank Y has a second for $200K.



Property is worth $620K.



The cramdown requires the price to get to $589.



Somebody at Bank Y is going to get fired for accepting the dump off. It's a total write off and the customer gets to keep the house? I don't think so.



Plus, now you have to qualify for a $589K loan that costs you about $5500 or so a month. That puts your annual income to qualify at $212K or so. Think a lot of people make that kind of money and are living in that sort of home? Remember, they are doing underwriting again.



Welcome to Bustoville. Everybody loses because you can't get this joker qualifed for anything over $250K.
 
[quote author="freedomCM" date=1217035324]i read in the NYT this morning that there is a phase-out for the first time buyers credit starting at $75k/$150k and finishing to zero around $95k/etc



Mostly, I think this bailout won't help much in CA, NV, FL, AZ. the dollar levels are too low, and these markets still have more than 15% to depreciate.



It may help stabalize the vast rest of the country, where the median price is that amazing $180k.</blockquote>


Thanks much for the report, freedomCM. I was excited about the "credit" (interest-free loan) until I saw the bit about the income limitation, but I couldn't figure out whether my income was too high or not. This "lawyer math" language from <a href="http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221eah.txt.pdf">HR 3221 EAH</a> makes no sense to me:



<blockquote>`(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME-



`(A) IN GENERAL- The amount allowable as a credit under subsection (a) (determined without regard to this paragraph) for the taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so allowable as--



`(i) the excess (if any) of--



`(I) the taxpayer's modified adjusted gross income for such taxable year, over



`(II) $70,000 ($140,000 in the case of a joint return), bears to



`(ii) $20,000.</blockquote>


I found <a href="http://www.nytimes.com/2008/07/25/business/25money.html?em&ex=1217131200&en=f46d681f8a613f90&ei=5087">the NY Times article freedomCM mentioned</a>, for anyone who wants to take a look.
 
You are most welcome.





$7500 is a drop in the bucket when the house price is $750k (a 1% downpayment), but in lower wage areas, where a $75k income is quite good, and houses are priced at $150k (a 5% downpayment), I suspect that it may make more of a difference that the "bailout".





And Vas-I thought that the banks have to write-down to 85% of present assessed value, so for your VOC example, wouldn't bankX have to sell for $527k to fannie?
 
I totally agree with no vas.



This will help maybe 10 people/banks, but make it look like

some politico was doing something.



Maybe the F & F support will some some consequences. Maybe.



But I think it is a big fat 700 page nothing burger.



I think 2nd mtgees are resigned to their fate. There isn't gonna

be appreciation for years and years. Why should they pay to staff

up enough to even think about this so-called appreciation?



What I want to ask (again) is who is going to finance the REOs?



I have had a few clients who were sorta interested in REOs, once

they got 1995 cheap in Miami-Dade, but they found they couldn't

qualify because they had a few credit dings. I am all for good

underwriting, but it seems to me that for REOs we should just

have some average underwriting. Better than fog-a-mirror, but

not requiring a 725 score either. Otherwise those babies are just

going to depreciate and deteriorate for years.
 
[quote author="freedomCM" date=1217048007]



And Vas-I thought that the banks have to write-down to 85% of present assessed value, so for your VOC example, wouldn't bankX have to sell for $527k to fannie?</blockquote>


Bluto: Over? Did you say "over"? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!

Otter (Tim Matheson): [whispering] Germans?

Boon (Peter Riegert): Forget it, he's rolling.



<a href="http://www.whysanity.net/monos/ahouse.html">http://www.whysanity.net/monos/ahouse.html</a>



<img src="http://static.seekingalpha.com/uploads/2007/10/24/animal_house_2.png" alt="" />
 
[quote author="skek" date=1217046973]Newport Beach Congressman John Campbell voted for the housing bill. In his latest email, he explains why he was conflicted and why he voted the way he did. A snippet:



<blockquote><strong>A Difficult Vote</strong>: Sometimes they're easy. A bill comes to the floor and you just instinctively know how you will vote. Either it's something you've always supported or always opposed or the bill is just clear-cut.



Such was not the case this week with the Housing Bill (H.R. 3221). This bill has been cooking all year and there were lots of moving pieces. In the end, it was over 700 pages long and was a grab bag of housing, regulatory and tax provisions. Some of these provisions I supported. Others I opposed viscerally. I wasn't sure what I was going to do.</blockquote>


The rest <a href="http://www.campbell.house.gov/Homepage/LaptopArchive.htm">here</a>.



<strong>EDIT</strong>: Direct link not working, so click on "A Difficult Vote" in the archives.

Direct link is: http://www.campbell.house.gov/UploadedFiles/2008-07-25-08DifficultVote.htm</blockquote>


The Daily Pilot asked both him and Dana what they thought about the bill and John's response was so reasonable.
 
[quote author="freedomCM" date=1217048007]You are most welcome.





$7500 is a drop in the bucket when the house price is $750k (a 1% downpayment), but in lower wage areas, where a $75k income is quite good, and houses are priced at $150k (a 5% downpayment), I suspect that it may make more of a difference that the "bailout".





And Vas-I thought that the banks have to write-down to 85% of present assessed value, so for your VOC example, wouldn't bankX have to sell for $527k to fannie?</blockquote>


The NY Times article quoted 90%. I think the final revisions brought it up there from the original 85%.
 
[quote author="stepping_up" date=1217063826]



The Daily Pilot asked both him and Dana what they thought about the bill and John's response was so reasonable.</blockquote>




Did the surfing nazi vote for it too?





what a douche
 
This is political theater. The banks *can't* accept the deal. Suppose you have an underwater homeowner (otherwise why would the bank need to foreclose?) The bank takes a writedown of 10% of the loan. Well, that's more than any banks' capital ratio, so any bank that accepts a lot of these is wiped out. Probably less wiped out than if they foreclosed for a 25% loss but broke is broke. Basically if things are bad enough for more than an occasional use of this provision the bank is doomed.
 
[quote author="freedomCM" date=1217076070][quote author="stepping_up" date=1217063826]



The Daily Pilot asked both him and Dana what they thought about the bill and John's response was so reasonable.</blockquote>




Did the surfing nazi vote for it too?





what a douche</blockquote>


No, he didn't. I've called his office several times to ask them to remove me from their call list, but still I get these awful voicemails from him.
 
[quote author="FairEconomist" date=1217122793]This is political theater. The banks *can't* accept the deal. Suppose you have an underwater homeowner (otherwise why would the bank need to foreclose?) The bank takes a writedown of 10% of the loan. Well, that's more than any banks' capital ratio, so any bank that accepts a lot of these is wiped out. Probably less wiped out than if they foreclosed for a 25% loss but broke is broke. Basically if things are bad enough for more than an occasional use of this provision the bank is doomed.</blockquote>


This is what people don't get. The loss is incurred, and there is nothing the lender can do to change that fact. Better to take it later than now. It is already a done deal, but it isn't on their balance sheet yet. In fact, all the unpaid interest has been recorded on their cash flow as <strong>INCOME.</strong> But, if they take the workout, they have to recalculate their "income" and <strong>realize</strong> all losses immediately. If it was only a few defaults, maybe not a big deal, but it is not a few. When banks take losses, they have to increase reserves. Let me say that again, when banks take losses, they have to increase reserves. You say, yeah, so? Well, where are they going to get the capital to increase reserves? Ya think there are a whole lot of investors just itching to invest in bank paper right now? And by amounts that are leveraged to the amount of income they recorded?




The phantom income was counted as reserves. Is this starting to sink in?


They will have to de-leverage.




When you are leveraged at 60:1 and you have to de-leverage, you don't just need $1 for every $1 of loss. You need $60. In essence, workouts produce a run on the bank.




Plus, banks are bureaucracies. There are very few people in the bank if anybody who is willing to make any type of decision that is out of the ordinary. The bank manager will not get in trouble for following protocol, but he will get in trouble for screwing up.




And the most important reason workouts are not part of the normal lender protocol; if you tell John Smith he does not have to pay all his principal, every other borrower from you will stop making their payments and demand the same treatment as John Smith. That may sound silly or extreme at first, but think about it for a few days. What are you going to do with your underwater house that you can afford the payments on when your next door neighbor tells you that your lender forgave some of his principal? You are just going to go quietly making your payments? And the lenders know this. They start forgiving principal and they are toast. If they start showing realized losses, they are immediately insolvent.


Talk about between a rock and a hard place. The only thing they can do is put off the inevitable and hope for the best.
 
[quote author="stepping_up" date=1217128799][quote author="freedomCM" date=1217076070][quote author="stepping_up" date=1217063826]



The Daily Pilot asked both him and Dana what they thought about the bill and John's response was so reasonable.</blockquote>




Did the surfing nazi vote for it too?





what a douche</blockquote>


No, he didn't. I've called his office several times to ask them to remove me from their call list, but still I get these awful voicemails from him.</blockquote>




Hah, this is why I never give my real name or numbers/emails. except skek@skek.com, of course
 
[quote author="freedomCM" date=1217146630][quote author="stepping_up" date=1217128799][quote author="freedomCM" date=1217076070][quote author="stepping_up" date=1217063826]



The Daily Pilot asked both him and Dana what they thought about the bill and John's response was so reasonable.</blockquote>




Did the surfing nazi vote for it too?





what a douche</blockquote>


No, he didn't. I've called his office several times to ask them to remove me from their call list, but still I get these awful voicemails from him.</blockquote>




Hah, this is why I never give my real name or numbers/emails. except skek@skek.com, of course</blockquote>


I never gave him my name. His office just calls every number in the district with a computer that automatically rattles off his prerecorded garbage messages. I swear, when I pick up the phone and I hear, "hi, this is congressman dana rohrbacher" it's like nails on a chalk board.
 
Peter Schiff's take on the rescue:








<a href="http://www.financialsense.com/fsu/editorials/schiff/2008/0725.html">Rescue</a>






And then there is Andy Sutton:




<a href="http://www.financialsense.com/fsu/editorials/sutton/2008/0725.html">I am from the government and I am here to help you.</a>
 
[quote author="awgee" date=1217130017][quote author="FairEconomist" date=1217122793]This is political theater. The banks *can't* accept the deal. Suppose you have an underwater homeowner (otherwise why would the bank need to foreclose?) The bank takes a writedown of 10% of the loan. Well, that's more than any banks' capital ratio, so any bank that accepts a lot of these is wiped out. Probably less wiped out than if they foreclosed for a 25% loss but broke is broke. Basically if things are bad enough for more than an occasional use of this provision the bank is doomed.</blockquote>


This is what people don't get. The loss is incurred, and there is nothing the lender can do to change that fact. Better to take it later than now. It is already a done deal, but it isn't on their balance sheet yet. In fact, all the unpaid interest has been recorded on their cash flow as <strong>INCOME.</strong> But, if they take the workout, they have to recalculate their "income" and <strong>realize</strong> all losses immediately. If it was only a few defaults, maybe not a big deal, but it is not a few. When banks take losses, they have to increase reserves. Let me say that again, when banks take losses, they have to increase reserves. You say, yeah, so? Well, where are they going to get the capital to increase reserves? Ya think there are a whole lot of investors just itching to invest in bank paper right now? And by amounts that are leveraged to the amount of income they recorded?




The phantom income was counted as reserves. Is this starting to sink in?


They will have to de-leverage.




When you are leveraged at 60:1 and you have to de-leverage, you don't just need $1 for every $1 of loss. You need $60. In essence, workouts produce a run on the bank.




Plus, banks are bureaucracies. There are very few people in the bank if anybody who is willing to make any type of decision that is out of the ordinary. The bank manager will not get in trouble for following protocol, but he will get in trouble for screwing up.




And the most important reason workouts are not part of the normal lender protocol; if you tell John Smith he does not have to pay all his principal, every other borrower from you will stop making their payments and demand the same treatment as John Smith. That may sound silly or extreme at first, but think about it for a few days. What are you going to do with your underwater house that you can afford the payments on when your next door neighbor tells you that your lender forgave some of his principal? You are just going to go quietly making your payments? And the lenders know this. They start forgiving principal and they are toast. If they start showing realized losses, they are immediately insolvent.


Talk about between a rock and a hard place. The only thing they can do is put off the inevitable and hope for the best.</blockquote>


So we're just talking about either a write down today or kicking the can down the road? I would think the Govt has a few more tricks in their pocket to push the bank down this road.



Anyways, I hope you guys are right on this one... would like to see the free market play itself out with a quick adjustment back to reality so we can get this behind us.
 
Oh yeah? What tricks? It's not like they can't start a war or something. They can't seem to finish the two they have! [/frustrated][/snarkiness]
 
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