WSJ: U.S., Banks Near A Plan to Freeze Subprime Rates

T

tealeaf_IHB

New member
<p>I would normally post this under "headlines," but this one is big.</p>

<p><a href="http://online.wsj.com/article/SB119638615868608863.html?mod=djemalert">http://www.emailthis.clickability.com/et/emailThis?clickMap=viewThis&etMailToID=926717820</a></p>

<p>Talk about delaying the inevitable.</p>
 
"Exactly which borrowers will qualify for the freeze and how long the freeze would last are yet to be determined. Under one scenario, the freeze could run as long as seven years. The parties are developing standard criteria that would determine eligibility. The criteria should be finalized by the end of year."



Seven years ? Wow... talk about a windfall. The borrowers went from imminent doom to, if this is correct, seven years of 1.25% APR payments.



What a freakin joke.
 
<p>It won't do thing. "In a typical case, the rate would rise to around 9.5% to 11% from 7% or 8%. "</p>

<p>Loans at 7% or 8% aren't causing the defaults. A loan jumping from 7% to 10% doesn't more than double your payment. The problem comes from a teaser rate in the 3 or 4% range jumping to 8% now or an option minimum payment expiring.</p>

<p>If I was a banking a someone was making their ARM payment at 7or 8% and was current, I'd refi them for free into a fixed at a slightly lower rate (current market) in a blink.</p>

<p> </p>

<p> </p>
 
The FDIC chairperson had talked before to Diana Olick that they would propose a freeze plan that targeted teaser rates at 7-9%.





"The vast majority of borrowers who took the conservative route will still be paying a lower interest rate than the targeted borrowers receiving this modification." Meaning, she's admitting some conservative borrowers will be screwed.





"The FDIC currently estimates that 1.2 million borrowers who are facing resets in the next five quarters may be eligible for this proposal." How many of these are still in their homes and not behind on payments? If they're not current, they supposedly wouldn't qualify.





There's a bunch of other ambiguous language in there that would take too long to dissect. Stuff like "if it is determined they can make the reset payment" - now I'm not in finance but that sounds to be next to impossible.





http://www.cnbc.com/id/21994649?__source=RSS*blog*&par=RSS
 
My sense is that the language and terms will get so complicated that it will not be effective. The banks will try and weasel their way out of it and may even get held up in the courts.
 
<p>"If I was a banking a someone was making their ARM payment at 7or 8% and was current, I'd refi them for free into a fixed at a slightly lower rate (current market) in a blink."</p>

<p>Remember, these are mostly nothing down loans. It's next to impossible to refinance because the appraisals are going to come in at 125% LTV. </p>
 
FYI, in case you don't subscribe to the print edition of the WSJ, this is the biggest story in this morning's paper. it was also the only subject on Bloomberg and CNBC this morning between 7:30 and 8:30am.
 
"the Bush administration's plan is likely to allow teaser rates to be extended for <strong>five to seven years</strong>."
 
If I understand the plan it is to triage the loans into a) those who can pay even when their rates go up, b) those who can't afford their mortgage even if the rates stay steady, and c) those who could keep their home if the maturity date was extended or the mortgage rate remained at the teaser rates. Only the third group would qualify. What percent of this group are not already under water? Do the lenders really expect them to continue paying for the depreciating asset? How are the bag-holders of the bonds going to be compensated for their lost expected payments? How does this pass contract law rulings? It's all very strange and I fail to understand why this plan is driving up the price of WaMu, CFC, etc..
 
<p>"How are the bag-holders of the bonds going to be compensated for their lost expected payments? "</p>

<p>Buyers of these bonds are traditionally municipalities and fixed income investors, etc., who are going to have much lower yields than anticipated (as opposed to NO yields, I guess). So the cities that bought these pigs aren't going to be investing near as much into schools and infrastructure, and the fixed income folks are going to looking much closer at their SS checks. Talk about screwing the disadvantaged!</p>
 
<p>When we get the full details on this, I think we need a main blog post analyzing the ramifications of shoving off losses for a few years. </p>

<p>I even have the soundtrack to go along with it: <a target="_blank" href="http://www.youtube.com/watch?v=YWPE_VkssEw">The Vapors</a></p>
 
<p>There are no facts in this article. The previous posters have made excellent points of what the probabilities are, but with the dearth of facts it is hard to say how many could be bailed out. I think it will be very few.</p>

<p>People who are in foreclosure apparently don't qualify, and people who are not yet in foreclosure, but shortly will be have their heads firmly planted, like the proverbial ostrich, in the sand.</p>

<p>I have dealt with people in these circumstances many, many times, and emotionally speaking, they can't face reality. So unless somebody drags their heads out of the sand, they will mostly do nothing until they fall behind, and then they will be too late.</p>

<p>Also, if they are underwater, and have no money in the game, they won't qualify for the bail out, and many are beginning to realize that they may as well walk. Being able to make payments for a few more years won't get them any equity, or enough equity, anyway to mean anything.</p>

<p>And I want to know, if part of this is that the lost payments are tacked on to the end of the loan. I have had clients in the past who agreed to that, and the lenders charged interest on the tacked on payments which would have been immense, had the plan gone on for 25 or 30 years. But it never works out, so the lenders never got their pot of gold at the end of the rainbow.</p>

<p> </p>

<p>This plan is a sort of mini bankruptcy. Years ago, I worked for a firm that did a lot of foreclosures and a certain percentage would file bankruptcy and try to catch up. I asked the paralegal in charge how many of them had managed to catch up over the many years she had done this and she said, none. Many did catch up, but none from bankruptcy. There was one lady who was making her extra payments for quite a while and the paralegals were rather cheering for her, but she never made it. This was money thrown down a black hole.</p>

<p>She should have walked.</p>

<p>The lenders:</p>

<p> Have their heads in the sand just like the borrowers. And/or</p>

<p> Are stalling. One more paycheck, and then another and another for the big bosses and the troops. Or they think the govt will bail them out. Meaning financial ruin for the value of the dollar.</p>
 
For the local folks, Air Talk is talking about this right now at 89.3, KPCC. If someone calls, let us know. Also, I think you can catch the podcast later in the day. Chris Thornberg is the first guest.
 
it is said that people can't take responsiblity for their actions anymore... it's always someone elses fault... i almost feel like a dummy actually making my payments...
 
Solving the problem? I doubt it. More like delaying the inevitable. People are still going to be paying for a home they can't afford. It still won't sell. They'll only end up foreclosing just a few years later.
 
i guess we can all speculate on how this will affect the masses. it might be too late for some, and it might not help some others, but for some, it could help. so my thinking is it could only HELP some of those that could use it, and it could only hurt the cause of lowering home prices a little more. it might just be a delay like some of you are posting, but a delay sucks!
 
i don't see who this plan serves. there's a huge moral hazard. if you're a bond investor, you're getting screwed. if you're a responsible homeowner that can make the higher payments, you get screwed. if i had a spouse that was working part-time in order for us to be able to afford the upcoming higher pymts, i would immediately tell her to quit so we could now qualify for the rate freeze.
 
You must log in or register to reply here.
Back
Top