Now that we helped the banks and given them tax dollars to use for buying other banks and making themselves bigger.
Now that we have helped AIG stabilize the mess that CEO Hank Greenberg created.
Now that we have helped the investment banks stay alive.
Now that we have helped all those huge companies that should have known better, Congress is getting around to helping the lowly home buyer. Again.
Once of the most problematic consequences of all this financial mess is that millions of people paid too much for a home, many of whom cannot or will not pay the mortgage they agreed to.
There seem to be numbers on the scope of the problem but there is still little agreement on how to help. Lots of people are talking about helping homeowners but what do they actually mean?
Who do we help? How do you pick the victims from the chaff that should have known better or worse, that did know better?
Once we identify who to help, how do we help them? What kind of help do they get and how would we implement it?
Unfortunately, the process that allowed these troubled loans to get made in the first place makes it hard to fix. The housing bubble was Humpty Dumpty and putting those pieces together again is a bitch.
You, nice home buyer, buy a house and get a mortgage from a lender to pay for it. The lender, without any input from you, then goes and resells that loan to someone else. The lender you talked to may still service the loan, ie you send them the checks, but they no longer own it.
Worse, 1/5 of the mortgages were sold to Wall Street who then split the mortgage up into $1,000 bonds and split those bonds up into traunches which were sold to investors around the world. If your mortgage was securitized like that, who the heck is your lender? Who do you call to negotiate?
Oh yeah, don't forget that all of these mortgages are legal contracts. How is the government going to wave a wand and renegotiate the terms of millions of contracts? How do you spell "see you in the Supreme Court"?
So far Congress has passed two bills to help homeowners in addition to the $700B bailout bill. They have also passed a lot of hot air talking about helping homeowners. Has it helped?
Apparently not much. The FDIC took over IndyMac bank earlier this year and have been trying to rework 60,000+ mortgages. 10% of IndyMac's loans are delinquent but IndyMac only owns 1/3 of the mortgages they service so if you call them for help, you have a 1 in 3 chance of getting any. After several months, the FDIC says they have reworked less than 5,000 mortgages.
FDIC Plan Tests Limits of Leniency
Wall Street Journal
NOVEMBER 1, 2008
In total, IndyMac services about 653,000 mortgage loans on behalf of itself and other investors. About 65,100 are "seriously delinquent," generally meaning at least 60 days late. Of those, the FDIC says roughly 47,000 might meet its criteria for a new loan.
The FDIC has already completed loan modifications for 3,500 borrowers. Several thousand more have accepted the FDIC's offer, though their modifications are still being processed. On average, those who have renegotiated have seen monthly house payments cut by more than $380, or about 23%, the FDIC says.
But those are good numbers when you compare them to the latest Congressional bill. What percentage is 42 divided by 400,000?
Hope for Homeowners was expected to help as many as 400,000 people, but in its first two weeks it helped just 42 homeowners, according to agency records. The U.S. Department of Housing and Urban Development estimated earlier this month the plan could help 19,600 people by the end of 2009. An agency spokesman said it was too early to judge the program because it takes time for loans to be processed.
As others have pointed out, these numbers are insignificant when compared with millions of foreclosures. What I havent seen anyone ask is whether this is a problem that actually needs a "fix" or that can be fixed. What if the right answer is just waiting a few years for prices to stabilize at a new level that matches supply and demand? Painful yes but maybe the answer is also that simple. Maybe it is time to stop talking about poor old Humpty and put our energy into a new egg. Given how effective Congress has been at intervening in markets, Im starting to wonder.
U.S. Steps Up Help for Homeowners
Wall Street Journal
NOVEMBER 12, 2008
The potential reach of the program is constrained by the large number of mortgages, especially subprime, which have been bundled into packages of securities and sold to investors around the world. The practical and contractual complexities surrounding these securities renders the mortgages hard to change.
The House Financial Services Committee is holding a hearing Wednesday, and the Senate Banking Committee is holding a hearing Thursday to examine why the government's efforts so far have not slowed delinquencies.
House Financial Services Committee Chairman Barney Frank (D., Mass.) said he wants to rewrite rules that servicers say make it hard for them to modify loans. Rep. Mel Watt (D., N.C.) said Democrats planned to push for a 90-day moratorium on foreclosures. President-elect Barack Obama has suggested that any bank receiving money from the government as part of the rescue package should temporarily halt foreclosures.
Congress passed a housing-rescue package in July and its central plank, a program known as Hope for Homeowners, went into effect Oct. 1. It allows banks to move borrowers into government-insured loans if lenders agree to write down a portion of the principal. The program was supposed to improve upon an earlier effort, called Hope Now.
Several weeks ago, Ms. Bair began privately floating a proposal that would use roughly $40 billion from Treasury's $700 billion program to help roughly three million homeowners move into more affordable loans. The White House has been cool to the idea. Bush administration officials have said the FDIC's proposal could offer perverse incentives that might push more people into foreclosure, such as encouraging people whose mortgages were underwater to stop making monthly payments in order to qualify for aid.
Of the $11.3 trillion in mortgage loans outstanding, $2.03 trillion were packaged into mortgage-backed securities sold to investors by Wall Street, according to Inside Mortgage Finance. Another $4.5 trillion are owned or guaranteed by Fannie Mae or Freddie Mac.
