The bill not just gives the government power to alter mortgages, it essentially requires it.
The bill calls on the government, as the owner of mortgages, mortgage-backed securities and other assets backed by real estate, “to implement a plan that seeks to maximize assistance to homeowners and use its authority to encourage the servicers of underlying mortgages, and considering net present value to the taxpayer, to take advantage of…available programs to minimize foreclosures.”
You read about it first here at Arizona Real Estate Notebook.
The focus of the “rescue” bill is shifting towards creating a huge program to modify loans.
I have often wondered why banks don’t modify more loans.
“There’s a great deal of skepticism about the ability of modifications to improve the performance of loans,” said Rod Dubitsky, head of asset-backed securities research at Credit Suisse. “Investors think these loans will all redefault in a year or a couple of years and the losses will be higher.” Historically, modifications haven’t done that well, Mr. Dubitsky added, “but the key question is what will happen if you do mods that are a different flavor than before.”
One fear is that if mortgage companies or the government, is too liberal in offering help, more borrowers who might otherwise stay current on their loans will fall behind to get a better deal. “What we don’t want to do is undertake some kind of program that changes the behavior of those many, many people who undertake extraordinary effort to pay their mortgage and make sure they can stay in their home,” said Karen Weaver, global head of securitization research at Deutsche Bank.
Maybe the banks know something we don’t.
Loan modifications may help some home owners, however, the banks should be doing the modifications, not the government where loan modifications will tend to become political gifts to politically powerful constituencies.
We are almost through with our correction in Arizona. Now, with this bill the market won’t get back to normal until 5 years or more from now when this program ends.
{ 33 comments… read them below or add one }
John Williams 09.29.08 at 11:08 am
I also have often wondered why banks don’t change the loan instead of taking on more and more houses in their inventory.
Only reason I can think of is where does it stop. I have a loan that is about 1 point over current rates. If they are changing everyone else’s terms then why not change mine as well.
It seem link they would benefit by coming up with some basic rules like if you loan rate is more than X times prime then you can recast the loan based on some criteria.
We don’t need any more bank owned inventory out there.
JW
Cbass 09.29.08 at 11:47 am
No bailout today folks. Dow down 500+ points as I write this.
Brian 09.29.08 at 6:25 pm
Anyone worried about inflation can stop worrying. If printing money creates inflation, burning money in market crashes just as surely creates deflation. The natural consequence of an extended deflation is a Depression. Check out the history books if you don’t believe this.
I am a life long Republican. But I am voting out the Republicans for what they have just done, and am voting an all Democrat ticket!
John Williams 09.29.08 at 7:12 pm
I am with you Brain.
I am also a life long Republican. I have never in my life voted for a Demi. Many of my friends that are also life long republicans are blaming this on Clinton. “He made up his mind that everyone should be able to own a home”. I don’t buy it.
The party of small government (the great Regan machine) turned it into “Yall come and get it ya hear”.
I was born in Texas so I can make fun of them.
Small government is one thing but just letting the capital market free associate is another.
If you can’t clean up Clinton’s mess as (what my friends call it) in 8 years you simple do not deserve office. Clinton was a bad president but he at least balanced the budget. Do I remember that correctly? How are we doing on that front. Our grand kids are getting handed a real treat.
The other argument is that Obama’s father was a Socialist, and the Demi’s are the evil taxers. As far as I know Oboma’s father was not around was he?
I tell you I think higher taxes are better than a depression. Which actually cost you more?
I sure wish I did not have the second home in the mountains right about now. LOL
I guess I will be able to sell it in about 10 years.
One good note. I am listening to CMBC, FOX etc this evening and they are preaching the end of the USA as we no it. It might be time to buy. The talking heads are always a signal of a bottom close at hand.
It took Japan 10yr to recover from zero percent interest rates. How long will it take us.
John thanks for letting your Real Estate Blog turn into a political sounding board.
JW
John Williams 09.29.08 at 7:15 pm
Oh John the new name for this mess.
777 Monday
that is of course unless we have a worse day.
JW
MPS 09.30.08 at 5:33 am
For a housing rebound we have to get off of foreign oil asap. I think Obama gets that. His working class tax cut is welcome here. My only problem with his tax plan is that he does not raise the tax enough on the richest folks. (The one’s who got rich creating this mess.) We’ll need to increase taxes and it can’t be on the working class. The only serious problem I see with making the super rich pay some taxes is that we might burst the bubble on those diamond studded animals, pickeled and enclosed in glass tanks.
Who where the guys calling me a “dooms dayer” on this site? You still out there?
dan 09.30.08 at 5:51 am
Oh, how I love a good panic. The non-sequiters flying. We have Repubs jumping ship because the bailout failed. We have Repubs jumping ship because a bail out was proposed. We need higher taxes (on everyone but me). We need lower taxes on people that don’t pay taxes. We need to get off foreign oil (and buy $30,000 Toyota Priuses) to save the housing market? We need the rich banks to fail and kill all those white collar jobs? Bush suxs, Obama says nothing, but is brilliant? Truly strange times in America, but it shall pass!!
John Williams 09.30.08 at 6:03 am
LOL
Dan Dan Dan….Join the discussion but don’t moan about our moaning…LOL
You are right it will pass. I would prefer sooner rather than later.
LOL
MPS 09.30.08 at 7:45 am
Dan, this is not just a panic. This is reality. So your opinion is that it’s just a little hiccup in the markets? Dan is a cool cat. I’m impressed. Wish I could be so cool. When is it going to pass and how? Because I can’t get the money that I need to open the business that I’ve worked on for the last year. That’s a fact. The economy is tanking. Goverments and businessmen around the world are panicing. So I’d like to know what you know. Need to know if I should give up my dream for now and move out of Phoenix to hopefully find a job or just wait for the clouds to pass. Please tell me Mr. Cool.
azrob 09.30.08 at 8:00 am
We are no where near the end of this correction. the inventory of bank owned homes grew by 1000 last month. And with 7000 or so new notices of trustee sales filed each month, and only 5500 sales, no way on earth the supply/demand ratio is going to get any better any time soon. Any economists in the house? too much supply, all heavily motivated to sell, and to little demand = what???
krogers 09.30.08 at 8:25 am
Here’s a question for those that might have some insight. How is this Bailout Bill going to affect interest rates? I know that rates dropped to about 5.5% when it was announced that the government bought out fannie and freddie so I can only imagine they’d dip down to that level or lower with the announcement of a stabilizing bill. Any thoughts?
For azrob, I’d say that the notice of trustees are going to be decreasing. Last month was the highest because it was the predicted to be so, due to the arms resetting from peak in 06, but I haven’t heard that the Alt-A’s are having as bad of an effect as the subprimes did, especially if some kind of measure gets passed in the near future to modify them anyways.
I caught a little bit of, I believe it was Karl Rove slamming Pelosi yesterday for being outspoken about the Bill not meeting standards and that it should be solid before they get it passed. I’m not a fan of Pelosi, but come on, how about we put some legislation out that is solid instead of just slamming something through as a band-aid patch and hoping it works out in the end. Something needs to be done, but can we at least try and do it right the first time?
MPS 09.30.08 at 9:28 am
Re: Krogers, One more ramble:
Pelosi and Rove I ignore as best I can. Partisans can point fingers all they want but I suspect that the truth is that the thing didn’t pass because not enough of them were convinced it would work. I suspect the problem is that noboyd really knows how much of this bad stuff exists, will come in the future and how much any of it is worth. We’re going to have the downward spiral effect going on now. As more workers loose their jobs more foreclosures will come. Now they won’t neccesarily be subrime or Alt A. At some point it just makes sense to stop paying one’s mortgage when he’s cash strapped, he has negative equity and he can rent the same house down the street for half the cost. What I’ve kept saying is that there is an underlying problem for this happening. Its not just due to deregulation of mortgage lending and securities. The economy has been hollowed out over the last 20 plus years. This is just the straw (or log) that broke the bulls back. The two biggest problems are the huge inequality in the distribution of weatlh and the exporting of wealth in exchange for oil. The causes are the hyper exageration of the trickle down economic theory via bad tax policy and the failure of our goverments, federal and local to innact an energy policy. Third is corruption of our government by special interests leading to deregulation of corporate america. But McCain says a couple weeks ago that our economy is fundamentaly sound and all we have to do is cut spending. We can just magicly make beuracracy efficient, mute individuals self interests and erase greed within the government. We should always strive for efficiency and thrift but how much can you really squeeze out? 18 billion in ear marks amounts to about 60 bucks per working person. And not all of that is even “wasted” money. How much longer can people like Dan deny this problem? What else must happen?
Paulson 09.30.08 at 12:23 pm
http://www.youtube.com/watch?v=_MGT_cSi7Rs
Peter Fork 09.30.08 at 2:50 pm
Paulson: your video says that Democrats are responsible for the Fannie Mae/Freddie Mac fiasco.
They may have been irresponsible (or naive, or stupid), but it is silly at this point to say the GOP couldn’t do anything, because they had control of the Congress, the Senate AND the White House from 2000 to 2006.
Let’s accuse Ralph Nader while we’re at it!
dan 09.30.08 at 3:56 pm
Peter Fork, you are correct, Repubs did have a majority in Congress, but to say they had “control” of congress is much like the control Dems have in Congress now–when are the troops coming home Nancy Pelosi???
MPS: Could you make a post that doesn’t reference foreign oil production and income inequality. I fail to understand how you could improve upon a 2002 Impala that I paid $5,000 for, and gets 24 MPG. Are you saying I would be able to make my house payment easier if I purchased a $25,000 Prius today? In regards to income inequality, I am again confused on how taxing the rich will help me make my mortgage payment. Why not just be honest, and tell us what you want: You want to take wealthy people’s money and use it to make your mortgage payment!!
Cbass 09.30.08 at 5:51 pm
Generally speaking:
Bush is pro criminal immigrants
Democrats are pro criminal immigrants
Republicans are anti criminal immigrants
(Shame on Bush and McFly)
Bush is for the Bailout
Democrats are for the Bailout
Republicans are against the Bailout
(Shame on Bush and McFly twice)
You want this election McFly you better change your platform and state “I hear the American people and have reconsidered, I am opposed to the Bailout in any form and actually want to represent the people’s wishes.”
Or something to that effect. What are you? Democrat, Republican, Independent or some combination of the three a Demopublident perhaps? Your numbers will skyrocket sir, you would make my decision easier (choose myself, more of the same, or socialism). Also if you want to take this thing in a landslide historic type vote go ahead and make a similar statement about criminal immigrants and the use of torture on our enemy while your at it.
Right now I am going to write my name in as I think I could do a better job on all the issues facing our once great nation than you two clowns!
Peter Fork 10.01.08 at 5:28 am
Cbass: if you own property in Arizona, you should want these immigrants coming, legal or not.
If you’re saying incompetence in Washington is killing the US, I agree with you.
Cbass 10.01.08 at 7:39 am
I don’t own property as I was trying to be fiscally conservative and save a down payment etc. so my family could have the American dream the RIGHT WAY.
As for the illegals they cost more than they are worth IMO. I have worked at a well known hospital in the valley and I challenge you to go to any ER or elementary school and tell me they are worth it. In addition if they are legalized they will then start drawing social security, be elligable for wefare and drain even more of our social services.
So yeah unfortunately I should have been more irresponsible with my finances and taken on a mortgage I could not afford like the rest of America. Every one is talking about paying off portions of peoples mortgage, modifying loan terms, what about me? What do I get? FTW. How about paying off my student loans, my car loan, setting up a college fund for my kid, etc. Why should my family and I be held responsible for doing the right thing in the first place? I could care less if housing goes into the toilet. Then the people like myself who have screaming there is a problem for years no and continued to do the right thing will be rewarded and housing will become affordable to the average American again, not the people who were irresponsible. The people who did not purchase a home and refi every drop of equity out based on unreal expectations of ROI should be fine and have nothing to worry about.
Cbass 10.01.08 at 7:57 am
Oh one more thing, the illegals are now taught Spanish at school as not to impose any hardship on them. That is a slippery slope my friend. What happens when the Italian, Indian, Chinese, or Japanese student wants to be taught in their native tounge? They will go to the Supreme Court and we will be teaching every student in their native tounge. Yeah that sound financially reasonable for the American taxpayer. Mark my words it is on the way. We are so PC nowadays. We don’t want to hurt anyones feelings or make them responsible for their own actions. If you come hear to America learn English.
I would not show up at your house and sit on the couch watching NFL on Sunday without your permission. And when you were shocked to see a stranger in your living room sitting on your couch I certainly would not ask you to get me a beer why you were up.
david wilson 10.02.08 at 3:46 am
After the multi-trillion dollar giveaway happens, lenders will do mass foreclosures. Because they can’t have too many on the books at one time, this “free” money will allow them to blast away. Add in Option ARM’S, and 2009 and 2010 will see more foreclosures then 2008. Correction almost done? Don’t think so.
MPS 10.02.08 at 4:52 pm
David you are right. There’s no bottom in sight and many many more foreclosures to come. The 700 billion is not enough now. It’s too little, too late. There is something like 40 to 50 trillion in private debt out there. Without another bubble to sustain this we’ll see at least 10 trillion in wealth evaporate over the next year. Look for unemployent to break 10%. For now, home prices will continue to free fall.
MPS 10.03.08 at 2:31 am
Dan, just noticed your post addressed to me. Yes, you’re right, sort of, if you want to spin it that way. I want the government to tax the rich more and me less so that the working class including myself can afford to pay our bills. That’s not exactly taking money from the rich and giving it to rest is it? Both are still paying taxes, its just more fair this way and better for everyone. You see, if you investigate taxes you’ll find that the working class now pays a higher percentage of their income on taxes than the rich and ultra rich. And this is bad for the rich because if the majority, the working class can’t afford to make our mortgage payments, or put our kids in college, or get medical care the whole ship sinks. Well, right now the whole ship is sinking. The Corporations have been doing very well, CEO’s were making millions and millions, trust me, they can afford to pay more taxes. The working class on the other hand is not doing so well. Sure, we may have been able to purchase a cheap wide screen tv, a lap top and an mp3 player but paying for the things we need, medical care, education, food, energy and home ownership has gotten very tough. You see private debt has spiked to maintain our quality of life and keep the economy going. Now we’re maxed out and going broke. The government, under influence of PACs and lobbyists approved the corporations to sponsor our credit problem because they got rich while it happened. It’s like they got together and said “Since we shipped their jobs overseas for our profit and we’re not paying very well at home for our profit they don’t have money to spend on the stuff we sell. So let’s just give them credit and let the government deal with the mess it will create when it comes home to roost.” I’ll say again, the ship is sinking. The 700 billion isn’t enough even if it does pass. So everyone suffers. The rich guys are going to loose their asses too but their asses are so big now that they’ll still be rich. Yet we still have brain washed guys like Dan saying..give them yet even more tax breaks and they’ll repay us with good jobs thus igniting the economy. The good jobs never came and they’re not coming. Trickle down economics went way too far and it’s been obvious for years. How can anyone be sticking to the same old philosophy when it’s so obvious it didn’t work? Nobody is saying lets stop them from making a profit. Nobody is saying nobody should get wealthy. It’s just time to level the playing field because it’s bad for everyone this way.
Now on energy, I’m not saying you should trade in your car right now. What I’m saying is that the American economy is sort of being held hostage by our dependency on foreign oil. It’s making it harder and harder for business, especially small business to eek out profits. A big push towards sustainable energy would create new jobs. Sort of like the technology boom did before it went to far and than popped. That would create the immediate boost to our economy. Second, and later down the road when the dependency of foreign oil lifted and renewable sources of energy evolved and got more affordable we would start to benefit from lower energy costs.
This housing decline is nowhere near over. Bail out won’t stop it. Cut taxes on the middle class and create new jobs. Government won’t have room to do that without getting more taxes from the rich. But don’t cry, they’ll still be rich.
dan 10.03.08 at 9:29 am
MPS-
The middle and lower class are getting screwed on taxes at a local level–don’t blame George Bush. Everytime you approve a school referendum, property tax increase, or sales tax increase you are sticking it to yourself. I heard a little known fact that State and Local Government spend 2-trillion dollars per year!!!!!!
Funny, the same small business you want to increase taxes on, you have compassion for in regards to their energy costs. Again, if you get the money from small business its ok, but if the Arabs take it, you have a problem. Small business doesn’t distinguish between the two. Either way, we cut employees, benefits, and wages.
The one housing related question I do have. Will the bailout drive prices up, or will it accelerate prices lower. i’m not an accountant, but I assume, the bailout will allow banks to eliminate a bunch of liabilities on their books. So then they are sitting on a bunch of assets (the homes) that they can either sell at rock bottom price or just hang onto until the market improves? Comments?
Peter Fork 10.03.08 at 2:09 pm
dan: where did MPS say he wants to increase taxes on small businesses?
dan 10.03.08 at 3:48 pm
Most of those “rich” people MPS mentions are small business owners. MPS does not consider them working class despite their risked capital and long working hours.
6 MPS // Sep 30, 2008 at 5:33 am
For a housing rebound we have to get off of foreign oil asap. I think Obama gets that. His working class tax cut is welcome here. My only problem with his tax plan is that he does not raise the tax enough on the richest folks. (The one’s who got rich creating this mess.) We’ll need to increase taxes and it can’t be on the working class. The only serious problem I see with making the super rich pay some taxes is that we might burst the bubble on those diamond studded animals, pickeled and enclosed in glass tanks.
Who where the guys calling me a “dooms dayer” on this site? You still out there?
MPS 10.06.08 at 12:21 am
Dan,
First, most small business owners will be getting a tax cut under Obama’s plan. That’s a fact. It’s probably only around 5% of small business owners that make more than 250k. Second, it’s not like earnigns are capped at 250. You would just start to have your taxes raised a bit on the amount over 250. Realty is that small business owners deduct anything and everything they buy that “could” be used for their business. So that 250k mark will be even higher for them. Third, if you can’t be happy making 250k a year I’m not sure any amount of money is going to make you happy. Why do we embrace greed so tightly in this country? We glamorize greed. It’s bad. It doesn’t make people happy and it causes others pain. Life, liberty and pursuit of happiness says nothing about the right to have unlimited amounts of riches and power. Fourth, Look at the history of our tax brackets. It hasn’t always been like this. Our economy still grew didn’t it?
I don’t get all of these brainwashed people who’ve never even made 100k in a year worrying about what they would be taxed if they ever started making two and a half times that. The story is old. Please give me one good reason why the people who benefit the most from America can’t chip in a bit more for the greater good. In the end, their own well being depends on it.
MPS 10.06.08 at 12:41 am
I think the bail out won’t have much direct effect on home prices. It may prevent total chaos and another depression but that’s about it. It’s not enough to “rebound” the economy. Just enough to stop the immediate disaster. House prices will continue to fall as we go deeper into this recession. One positive effect on the housing market will be people not feeling safe in the stock market. More investors may start moving money into real estate as the prices start to make sense. (Cash flow positive with 20% or less down). But be careful…look for deflation in rent and everything else.
John Williams 10.06.08 at 6:20 am
wow — you are rich if you make more than $250K / year…. That is funny. While I agree that if you make that kind of money you worry less but you are not rich. If you make that kind of money you are no more able to afford all the fancy lawyers and CPAs to dodge your fair share than a person making $50K.
I don’t know what the numbers are but I have read them in the past and it is something like the upper .5 (thats 1/2) percent that make something like 30% of the money and pay very little tax as a percent of earning. Yea they pay huge $,s but not as a percent of earnings like anyone earning 30K to say 800K a year.
That is where the, not more but, fair share should come from.
This will never happen as they are the same people that created this mess with their made up wall street products that they sold to each other to line their pockets.
MPS 10.07.08 at 3:44 pm
John, if you don’t worry about money than you are rich. What do you need/want that you couldn’t afford on 250K a year? I can’t think of anything for myself. I’d be a millionaire rather quickly on that type of income.
John Williams 10.08.08 at 6:42 am
MPs I never said I make $250K. I just started a new business and will have to dip into savings to make the bills this year. I just don’t think that is rich. I’ve been there and it isn’t rich.
It does not give you enough money to dodge your fair share. That is my point.
Yea it puts you in the top 5% of wage earners. I bet that if you look at the top 1% (millions in income per year) they pay a much lower percent of their income to Uncle Sam than the guy that makes $250K.
That is the inequity that frustrates me.
MPS 10.08.08 at 9:32 am
John,
You are right. The doctor making 250k a year is not the one purchasing the latest tax shelter from Earnst and Young. On that note, Obama wants to raise the deduction cap for student loans which could help that doctor. Also, the person making the 250k a year isn’t going to see a huge tax increase. People act as if it’s a cap on earnings. It’s not. We have the same fustration, our current tax system overall is now regressive instead of progressive. Perhaps that 250 mark could be higher. I’m not going to argue over the exact number because we agree on the principle and that is the most important part. Even Warren Buffet says it’s a problem. He’s been quoted saying that he pays a smaller percentage of his income than his office managers. Long story short, the Bush tax cuts were counter productive. One candidate wants make them perm and expand them even further and the other wants to change course. One candidate is prioritizing and emphasising the importance of alternative energy development and one is clinging to “drill baby drill”. One candidate is of the “all deregulation is good” philosophy and one is against that idea. Basicly one wants to double down on trickle down and one is aware that it has gone too far and thus has failed miserably. Obama is not against the forces of free market nor is he against the idea that the economy needs the wealthy to succeed. As is with most things in life, it’s a balance of ideas that is the best answer. One candidate appears to understand that and one candidate is still blindly pushing on a scale that has already tipped and spilled. So this time I’m voting for the Democrat. And if it’s all a lie at least I fell for a new lie instead of the same old line of BS “cut spending and lower taxes and clean up Washington”.
John Williams 10.08.08 at 10:11 am
I must tell you that I have never voted for a Dem. I will this time. I watched the debate last night and I must tell you that McCain is a:
War Monger
Addlepated
Zero Regulation Minded
unintelligent fool ….. An I have had enough.
Any republican that says the Demi’s did it is just a lazy liar. The dog eat my homework argument does not work with me at all.
McCain means more years of the ultra rich lining their pocket at our expense.
As a small business man (right now just me andmy wife) I spend $16K a year for my medical policy and a few test. This is out of control and frankly at this point I am for socialize medicine.
Insurance it just like Wall Street. They have be allowed to just line their pockets. It has to stop.
If I paid more taxes and less on insurance maybe it would be a wash and be good for US of A.
MPS 10.08.08 at 10:26 am
Both Dems and Repubs allowed this housing mess. Dems wanted poor people and minorities to own homes, Repubs wanted to keep their greedy CEO and Wall Street friends rich and happy while they masked our hollowed out economy. Whatever “Maverick” was in him he lost it the second he got nominated. Yeah, I don’t think he’s very intelligent. He certainly hasn’t run a very intelligent campaign. He said nothing that I wanted to hear in the debate last night. I agree, our healthcare system is a mess. I’m willing to give anything else a try. Last time I went to the doctor to get a simple prescription I was forced to take tests I didn’t need or want, promised by the doctor that insurance would cover them over and over and then billed over $1,100 for the full amount when my insurance company said “it was a pre-existing condition”. I just refused to pay it and now it’s on my credit report.