Why You Should Hate the Treasury Bailout Proposal (1 Viewer)

[efil4stnias]

I am over-generalizing but a simple google search will get you plenty of no credit check lenders...

http://www.google.com/search?q=mort...s=org.mozilla:en-US:official&client=firefox-a


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<!-- google_ad_section_start --> "There are many reasons you may need a no credit check mortgage. Some of the most popular reasons you may need such a mortgage are having no verifiable income, or having a great income, but poor credit score or no credit history. If you have your own business, especially if it’s fairly new, you may have a very high income, but you may not have either the income history or documentation required by most mortgage lenders. The same is true if you did very well in investments at an early age or are a professional athlete early in your career. What are you supposed to do? Unless you have enough cash on hand to actually purchase a property outright, you’re going to need a mortgage. Unfortunately, many mortgage lenders won’t give you the time of day unless you can verify your income and credit history. If you don’t have either, you’ll be out of luck.
Fear not, there is hope if you want a mortgage but don’t want to get a credit check first. It won’t be as easy as running to your neighborhood bank or mortgage broker, but you’ll be able to get that mortgage and purchase your house. You will probably have to do more legwork to find a mortgage lender that is willing to loan money to you without performing a credit check."

http://ezinearticles.com/?Get-a-No-Credit-Check-Mortgage&id=592119

Also, I know when I bought my home there were several lenders that were trying to push me into more house than I could afford. My favorite line was....

"You might might be able to afford it now but you do expect to make more money over the life of the loan, don't you?"

I quickly got a fixed loan for a home in my price range and watched several friends get "no-interest"/ARM,'s or other loans for homes in the 350k range (DC/Maryland) that they can no longer afford.

ha on the lines...I heard that one too. And I heard " look you already are looking for your next home just after 3 years of owning your first. The average ownership is approx 6 years and then you "move up" to a bigger home. If we do a 5/1 ARM, you save on your note, afford a bigger home, then sell at a premium in 3-5 years and move into a bigger home. How bout it?"

 

[dapperdan]

Dan, here is John Mauldin's website:

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/default.aspx

Separately, though, I'd push back on your contention that no one without a job got loans in this bubble. You must be familiar with the term "Ninja Loan" (aka No Income, No Job, no Assets)? Ninja loans were 75% of WaMu's option-ARM portfolio at the end of '07.

http://seattletimes.nwsource.com/html/businesstechnology/2008192640_wamu21.html

Thanks for the website address. I looked earlier but couldn't find it.

You may be right re the Ninja loans. The truth is, while I did some business with WAMU, I've seen plenty of no income loans, no document loans, and no ratio loans, but I'd never come across a loan that allowed for the entire combination.

 

[RobG]

Bottom line is if you can't qualify for a 30 year fixed wth 3% down for FHA or 5% down convential you can't afford to buy the house.

 

[efil4stnias]

did Congress revise the wording in this bailout plan, or is Team Paulinacke right now asking for the original draft to be enacted?

 

[st.tammany]

Main st vs Wall st.

did Congress revise the wording in this bailout plan, or is Team Paulinacke right now asking for the original draft to be enacted?

Some members of congress are trying to revise the wording and adding on to it to fit their agenda's. It's become the political football du jour.

One point: This bailout has not been agreed to. It''s not a done deal. Wall street is one thing. Main street is quite another as we're seeing now. You have congressmen from Nebraska looking at this thing and thinking about facing voters back home who are probably a little ticked about all of this. You have our folks like Vitter and Landrieu thinking about the money that Louisiana needs for levee's etc and realizing that voting FOR the bailout essentially means Screw Louisiana!

Answer this question; How do you want Vitter and Landrieu to vote on this? Yes or no?

So yesterday, when we saw a 400pt drop in the dow it was because Wall St is nervous that this thing won't get done.

 

[gboudx]

Will the part about the Treasury Secretary becoming King be re-worded?

/mild sarcasm

 

[varanook]

Some members of congress are trying to revise the wording and adding on to it to fit their agenda's. It's become the political football du jour.

One point: This bailout has not been agreed to. It''s not a done deal. Wall street is one thing. Main street is quite another as we're seeing now. You have congressmen from Nebraska looking at this thing and thinking about facing voters back home who are probably a little ticked about all of this. You have our folks like Vitter and Landrieu thinking about the money that Louisiana needs for levee's etc and realizing that voting FOR the bailout essentially means Screw Louisiana!

Answer this question; How do you want Vitter and Landrieu to vote on this? Yes or no?

So yesterday, when we saw a 400pt drop in the dow it was because Wall St is nervous that this thing won't get done.

I want them to vote no and have expressed it to them.

 

[efil4stnias]

Some members of congress are trying to revise the wording and adding on to it to fit their agenda's. It's become the political football du jour.

One point: This bailout has not been agreed to. It''s not a done deal. Wall street is one thing. Main street is quite another as we're seeing now. You have congressmen from Nebraska looking at this thing and thinking about facing voters back home who are probably a little ticked about all of this. You have our folks like Vitter and Landrieu thinking about the money that Louisiana needs for levee's etc and realizing that voting FOR the bailout essentially means Screw Louisiana!

Answer this question; How do you want Vitter and Landrieu to vote on this? Yes or no?

So yesterday, when we saw a 400pt drop in the dow it was because Wall St is nervous that this thing won't get done.

I would ask they vote no.

I also just read where Sen. Dodd saw the "giving of absolute control" as going against the Constitution http://biz.yahoo.com/ap/080923/financial_meltdown.html

( near the very end of article)

 

[Saintsorz]

I want them to vote no and have expressed it to them.

Same here.

 

[bearze34]

Here is a proposal that is much less expensive, and might ultimately prove to be more effective. I seriously suspect that Secretary Paulson's solution is going to be much more difficult to pass than he imagined last Thursday evening when he gathered in Nancy Pelosi's office.

http://bigpicture.typepad.com/comments/2008/09/fixing-housing.html#more

I call it the "30/20/10" solution to the credit crisis:

30: Takes up to 30% of any current delinquent mortgage and separates it from the “main” mortgage; it goes into a 2nd, interest free-balloon mortgage, and stays on the books of the present mortgage holder;

20: The plan’s goal should be saving at least 20% or so of the current delinquent and potential foreclosure properties; Of the 5 million homes that may be late in making payments, (the first step along the road to delinquency, default and foreclosure) the process should make 20%, or 1 million homes eligible;

10: The Balloon payment comes due in 10 years, and will be treated as a 2nd mortgage, with interest charges only accruing as of October 1, 2018; it can be refinanced or paid off in full.

The 30/20/10 option allows the lending entity (or its equivalent) to pull aside up to 30% of the mortgage as a separate interest-free balloon payment. The remaining mortgage is refinanced at a fixed rate for 30 years. The balloon payment will "restart" fresh in 10 years. Between now and then, there will be no interest costs or penalties for this separate loan.

Consider the advantages of this plan: It would prevent a significant number of foreclosures from further roiling the markets; it takes bad loans and avoids the write down so long as thy are performing; and it allows many people to stay in homes they can afford. Moral Hazard poses no problem in this plan.

Here are additional specifics: At least 70% of the existing mortgage becomes a new, refinanced, fixed rate, 30 year traditional mortgage. And, a loan payment for up to 30% of the original mortgage, not accruing interest, with repayment of principal and interest due beginning 10 years hence, makes the present house affordable. In other words, this would look like an ordinary mortgage plus a balloon payment, one that would not begin accruing interest until year 10.

Congressional action is required to exempt the balloon payment from causing a tax issue, as this is essentially an interest free loan might be a taxable event.

The securitization of mortgages creates its own additional difficulties in attempting to resolve defaults and delinquencies. Residential mortgages get bundled into RMBS, which were then sold and resold to various Wall Street purchasers. One of the current problems in resolving the situation is identifying who is the actual owner of the mortgage in question. This can be resolved with a clever little act changing notification provisions, requiring further Congressional approval.

Any entity that identifies a potentially problematic mortgage, i.e., delinquent and in risk of default, can start the process by evaluating the property value and the borrower's ability to repay the loan. If they believe a mortgage would be suitable for a 30/20/10 workout, they would then send notice to the current recipients of the mortgages interest and principal payment. This entity would have 30 days to reject the workout, and failing to do so in that time Is deemed to be an approval.

In our solution, it is the financing party – a private equity firm, a real estate fund, or even a US capital pool created for this purpose – that can make this request for a 30/20/10 solution. Notice is sent by to the current loan servicer, i.e., the firm processing the mortgage payments, and forwarding them to the mortgage owner. The servicer is in the best situation to send the 30 day notice, and if no written objection is received, from the whoever currently owns the mortgage – be it bank, mortgage pool, or other securitized owner – the refinancing process begins.

Instead of a foreclosed property, the former mortgage holder is left with an interest free, 10 year balloon on up to 30% of the mortgage. They also have a lien on the property, and no writedown on the delinquent mortgage for at least 10 years.

There are other details that need to be worked out -- the priority in case of sales, what happens if there is an eventual default, how to avoid fraud, etc.

The end result of the 30/20/10 workout would be the following: Homeowners who can afford to make payments on the refinance home get to continue living in them. Neighborhoods are spared the negative impacts that Foreclosure has on property values and the blight of abandoned houses. Lenders get to avoid writing down up to 30% of suitable but problematic mortgages. The balloon payment stays on the books as a liability, but it is not written down until, if and when it defaults 10 years later.

The upside of this proposal is that it serves a variety of interests with a minimum of congressional market interference. Those homeowners that can afford to stay in their house with a little bit of help avoid foreclosure. Banks and mortgage holders get to avoid writing down delinquencies that could be avoided. Neighborhoods are spared the negative impacts that Foreclosure is known to have. Loan servicers can expand their business to process saying the 30/20/10 workout papers. I would expect a variety of private equity funds will leap into the void and begin looking for mortgages to rewrite as 30/20/10s.

Congressional action required would be to 1) Eliminate the tax issue for the interest-free portion of these loan; 2) Create a Legal standing and guidelines for this notification and waiver policy. The goal here is to insure that the complexities of determining who actually owns a a mortgage dozen not interfere in its work out; 3) Create any required exemption for banks and lending entities to avoid taking a write-down during the period of the 10 year in balloon forbearance.

Weaknesses and criticism: I would expect several objections to be raised to this proposal. From those representing homeowners who face potential foreclosure, the complaint will be that this plan fails to save more than 20-30% of those who might lose their homes. For the various funds and investors that own the underlying mortgages, there will be a complaint that notification provisions are insufficient. Lastly, given the enormous size of the Federal free lunch proferred by the Treasury Secretary, the banking industry will be reluctant to embrace any such workout that might be perceived as interfering with their ability to feast at the public trough to the tune of a trillion dollars.

This is nothing new. It is a rehash of an FHA plan that lets people who can't really afford houses to get in them with a so-called "silent second". You would still have to get the bond holders to agree to put off their money for 10 years with no assurance that they will benefit. Also, why should the people who bought these homes and refinanced them over and over, collecting and spending hundreds of thousands of dollars in some cases and then spending it, be bailed out and able to live in a house that they cannot afford due to their own greed and negligence?

 

[bearze34]

ha on the lines...I heard that one too. And I heard " look you already are looking for your next home just after 3 years of owning your first. The average ownership is approx 6 years and then you "move up" to a bigger home. If we do a 5/1 ARM, you save on your note, afford a bigger home, then sell at a premium in 3-5 years and move into a bigger home. How bout it?"

They couldn't afford it in the first place. They made the decision not the lender. Everything about every loan is in writing. If one signs papers they do not read and accepts the word of a salesman over common sense then they deserve what they get. You used common sense and are not in trouble. But, if you can afford a 30 year rate on your house, it wouldn't have mattered what loan you got because you could just refinance out of an ARM and into a 30 yr. fixed when you wanted to.

 

[varanook]

This is nothing new. It is a rehash of an FHA plan that lets people who can't really afford houses to get in them with a so-called "silent second". You would still have to get the bond holders to agree to put off their money for 10 years with no assurance that they will benefit. Also, why should the people who bought these homes and refinanced them over and over, collecting and spending hundreds of thousands of dollars in some cases and then spending it, be bailed out and able to live in a house that they cannot afford due to their own greed and negligence?

They shouldn't nor should the irresponsible lenders who financed them.

 

[bearze34]

Dan, here is John Mauldin's website:

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/default.aspx

Separately, though, I'd push back on your contention that no one without a job got loans in this bubble. You must be familiar with the term "Ninja Loan" (aka No Income, No Job, no Assets)? Ninja loans were 75% of WaMu's option-ARM portfolio at the end of '07.

http://seattletimes.nwsource.com/html/businesstechnology/2008192640_wamu21.html

There were loans that advertised that no job was required, as long as you had 60% equity in your house. Many people took advantage of this, especially investors who were flipping houses and moving up fast.

 

[bearze34]

They shouldn't nor should the irresponsible lenders who financed them.

I agree 100%. We need to now just let the market correct itself and purge all those that have homes they cannot pay for. It is a sad but true state of affairs.

 

[varanook]

I agree 100%. We need to now just let the market correct itself and purge all those that have homes they cannot pay for. It is a sad but true state of affairs.

Please tell that to your reps.