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Mortgage Relief Coming?

Pick any media outlet this morning and they are running a story about the possibility of freezing interest rates on ARMs to avoid the spike in payments when they reset in the coming months. CNN reports:

WASHINGTON (AP) — Treasury Secretary Henry Paulson said Monday he is confident there will soon be an agreement to help thousands of homeowners avoid mortgage defaults by temporarily freezing their interest rates.

Paulson told a national housing conference that this effort involved a “pragmatic response” to current realities as the economy goes through the worst housing slump in more than two decades. The number of homeowners struggling to meet higher payments because their initial introductory rates are resetting is currently soaring.

Remember that this is not a done deal but just one of the things that is being done. A very small number of mortgage holders have been able to Pick any media outlet this morning and they are running a story about the possibility of freezing interest rates on ARMs to avoid the spike in payments when they reset in the coming months. CNN reports:

WASHINGTON (AP) — Treasury Secretary Henry Paulson said Monday he is confident there will soon be an agreement to help thousands of homeowners avoid mortgage defaults by temporarily freezing their interest rates.

Paulson told a national housing conference that this effort involved a “pragmatic response” to current realities as the economy goes through the worst housing slump in more than two decades. The number of homeowners struggling to meet higher payments because their initial introductory rates are resetting is currently soaring.

Remember that this is not a done deal but just one of the things that is being done. A very small number of mortgage holders have been able to negotciate changes in terms; something that was unheard of only a few months ago. Banks have been looking at case-by-case loans as the new terms may beneficial to both sides instead of foreclosure.changes in terms; something that was unheard of only a few months ago. Banks have been looking at case-by-case loans as the new terms may beneficial to both sides instead of foreclosure.

10 Comments on “Mortgage Relief Coming?

  1. Let this mark the start of the Republican Presidential campaign. Do you really think Bush is in it for the little guy who is struggling to make his mortgage payments?

    Election year is just like Christmas: it begins earlier each season.

    By the way, I heard a report that the FDIC estimates that 1,540,000 ARMs are scheduled to reset by December 31, 2008. Another estimate that I heard was 100,000 per month for the next five years. With the current outlook, it appears that the adjustment will be up, and the honeymoon period is over–unless there is some crazy governmental action.

    On the one hand we want to “save the little guy who is behind in his payments,” but on the other hand we have local governments in Florida being told that their “safe” investments are not going to produce as expected:

    From Bloomberg. “A newly formed advisory panel composed of Florida school and local government officials with money frozen in a state-run investment pool has said it will not accept a return of less than 100 percent of their investment.”

    “‘The very fact that you’re out here talking to us about taking less than 100 percent is in my mind unacceptable,’ said MaryEllen Elia, superintendent of Hillsborough County Public Schools. ‘You need to figure out how to make the taxpayers in Florida whole. It isn’t going to be fixed by asking us to take less than what we put in there.’”

    http://www.iht.com/articles/2007/12/02/bloomberg/bxflorida.php

  2. Paulson’s plan is nothing but window dressing. The devil is in the details – like who owns these ARMs? Well, actually, most of these loans have been packaged up into MBS that have been sliced & diced and have ended up spreading toxicity even into unexpeced areas like the Florida school fund JP refers to. So how do you get all of these owners of the debt to agree to take a big haircut on returns? I suspect this kind of negotiation would take a very long time.

    From the borrowers side it’s not a great deal either – they essentially make the borrower a perpetual renter that never really “owns” the property (as in owns the property with no mortgage). Some of them will realize that perhaps they’re better off sending the keys to the lender and starting over in a few years.

    BTW: the issue of who “owns” these mortages can be very tricky. There have been a few foreclosure cases recently where the judge has allowed the borrowers to remain in their homes even though the borrowers are way behind on payments. The precedent was a recent Ohio case in which the judge threw out the foreclosure proceedings because he could not determine that the bank trying to foreclose actually owned the loan given the state of the paperwork… If this catches on, what effect do you think that will have on lending? (I suspect we haven’t got any idea yet what “credit tightening” really means)

  3. Let the lawsuits begin.

    “So let me get this right, I purchased these MBS from you with a 8% yield and now you are telling me to go get stuffed?” – Investor

    How does this seems like a good idea? Who eats it?

    There has to be allot of backroom maneuvering here with guarantees of the fed “injecting more liquidity” (starting up the presses).

  4. The modifications are predicated on the loans being current. The problem is that servicers do not have the resources to contact those who are still current but are about to get slammed with resets.

    Also, alot of the toxic wast was packaged to investors outside of the USA. What do you think their reaction will be to Hank telling them that they are not going to receive their 7-10% indefinitely.

    This bail out is a joke. It will quietly implode like MLEC and the SIV bailout. The Bush government will mismanage this crisis like all the others.

  5. There has to be allot of backroom maneuvering here with guarantees of the fed “injecting more liquidity” (starting up the presses).

    Speaking of the Fed and bailouts, there’s a great article here by Hussman about the Irrelevance of the Fed in this crisis. A lot of people seem to think that the Fed is riding to the rescue by lower rates… apparently it’s not gonna be that easy.

  6. Also, isn’t there something about people only qualifying for these bailouts (errr… I mean mortgage relief) if they’re behind on their mortgage payments. If that’s the case won’t there be a lot of people who will decide to skip a few payments so as to qualify?

    …that old law of unintended consequences again…

  7. This is wrong on so many levels. There’s really no way to determine who is worthy of the special considerations and those who simply lied on their mortgage applications. Then there’s the investors who bought too many properties and will see this as a way to buy time until they can unload them. Statistics show that the number of borrowers who default before ever making a payment has grown substantially, indicating the flipping-gone-bad scenario. And that was something I read in the New Yorker a year ago or more.

    While I want to see people helped I fear that this is another way for the dishonest to prosper, something that becomes increasingly common in our culture.

  8. I got burned by lying CEOs of tech companies during the late 90s stock bubble. Where’s my bailout?

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