Fed Chairman Ben Bernanke is urging lenders to “forgive portions of mortgage debt held by homeowners at risk of defaulting,” says Bloomberg.
Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,” Bernanke said in a speech to bankers in Orlando, Florida, today. “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.”
Bernanke’s call goes beyond the stance of the Bush administration and previous Fed comments. By comparison, the central bank’s Feb. 27 report to Congress called for lenders to “pursue prudent loan workouts” through means such as modifying mortgage terms and deferring payments.
The Fed chief highlighted the threat posed by home values falling below mortgage balances, something Treasury Secretary Henry Paulson played down yesterday. Bernanke said the “recent surge” in delinquencies has been “closely linked” to the slide of home equity.
Is Ben trying to put “You Walk Away.com” out of business?
Bernanke Urges Banks to Forgive Portion of Mortgages (Update3) [Bloomberg]
(Matt Stroshane/Bloomberg News)
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———-REALITY CHECK?
###***”Hello, Mr. Mortgage Backed Securities Institutional Purchaser? We’d like your investors *** to okay a rework of terms on this obscenely large pool of mortgages!”
###”Hmm…isn’t that bad for us?”
***”Even worse if these deadbeats default. Why do you think your investors approved a ***representative with power of attorney to act on behalf of the fund?”
###”Power to unilaterally screw the investors? I don’t think we gave you that.”
***”Yes, but you could opt to do so now. We’re even looking into trying to mandate that *** through the courts. You know, to Save Home Ownership (and raging, Ponzi-level ***appreciatiation) for us and, um, those who will have to clean up after our senile ***carcasses as we deteriorate there in our price fixed white elephants. Cause no ***WAY will they be able to afford homes at these crazy-ass valuations!”
###”That pool of investments (thousands of mortgages) is owned by many more ###thousands of investors. Good luck with the red tape. By the way, do you have all the ###paperwork in order? I hear that judges really don’t like to see us financial guys turn up ###without proof of ownership, and somehow all that paperwork just got kinda ###muddled up with all the buying and selling…”
———-Okay, but lets posit that it’s somehow do-able (just as recovering
———-all the molecules from a chlorine-free glass of water poured into a swimming
———-pool,to the last one and no extras, is doable.) Here’s the next call:
***”Hi, Ms. REIT fund manager? We’d love to sell you this shiny new portfolio of top ***quality mortgage loans!”
###”Hmm? Are the buyers all prime? Did each and every one put down 20 or 25%?”
***”weeeell…we’re definitely getting stricter on prequalifying. For example, any borrower ***claiming to have a job, has to prove that they do!”
###”Peachy. You know, I heard that your ’04, ’05, ’06 and even some ’07 shiny new ###mortgage loan issues just aren’t keeping that new-car smell. Something about ###reworking terms after the fact?”
***”We’re working hard to keep your business, Ms. REIT fund manager! A default is ***something you don’t want, so even if it takes 40 years, we’ll keep those borrowers in *** their upside-down mortgages. (Okay, ***sometimeswithapartialforgivenessofprinicipal ***ifweabsolutely have to.)”
###”I’d like to keep my job. I’ll pass. [click]“
———-Next call:
***”Good Morning, Fannie,Freddie or Private Mortgage Funder? This is Acme Lending. We ***want to originate a bunch of new mortgage loans, and you haven’t been returning our ***calls.”
###”Oops, sorry about that. The thing is, we don’t have any money to give you for ###those loans you want to sell and then unload.”
***”How can that be? The government is bending over backwards to eliminate all possible ***prudent limits to your lending, thereby saving the economy – you have a free hand!”
###”The thing is, China and other countries really don’t want our paper since they heard ###about the little mortgage cramdown epidemic we’re going through. I’m not sure ###what the problem is, maybe they don’t want to lose money. We’ve already put a ###bunch of pension plans out of business, and those left aren’t really answering my calls. ###Same with various mutual fund and 401K plan managers…really, I’m rather expecting ###myself to get laid off any day now, so to be perfectly honest, I really just don’t care ##about your problems. Sorry. Goodbye.”
———-Just one more:
***Happy New Year 2012, Mrs. Real Estate Agent. Can I buy a house this year? I have 10 ***years at my $100K/year job now, also I have perfect credit and $50K cash!”
###The cheapest house that meets your specific requirements for size and location is ###$60K – and that one is a little small if I recall correctly – only 5 bedrooms and 3 baths, ###though it is VERY well kept…and, uh, hmm…on a cul-de-sac next to the Mayor’s ###House, it says here – sweet! But it just hasn’t depreciated enough from the ’04 ###$750K price. You know, I really, REALLY think we’ll finally hit that bottom THIS ###year…try to save $5K more. Maybe the lenders will be able to loosen up a little more ###by next year, too. Get a raise, and you might qualify for a 10K loan with 55 down. ###Good luck!”
THE MORAL: Any Borrower Bailout of Any Consequence (Or Even a big Deferment) Will Have Clear Implications for the Future, putting institutional survivors — both domestic and foreign — of the current meltdown on notice. Oh, and it will ***Kill Lending***. THE END.
This happens ALL THE TIME with car loans! When you owe more on your auto loan than you can get for trade-in, it’s called being “upside-down.” With houses, we’re just talking bigger numbers and (they call it being “under-water?”).
If the bank would write off all of my student loan debt, I’d be happy to relieve them of one of those foreclosed properties they can’t unload.