In a breathtaking example of not knowing when to stop digging when one finds oneself in a hole, former Secretary of the Treasury and of late--Obama economy czar Larry Summers--has an editorial in today's WaPost in which he attempts to lay out how to "solve" the housing crisis. Some of it makes some sense (Summers can do that now and then), but his initial prescription is lunacy: "First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and too rigorous. The characteristics of the average successful applicant in 2004 would make that applicant among the most risky today. The pattern should be the opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations."
Yes, that's right. Larry Summers believes what we need to do is have the government underwrite EXACTLY the kind of risky behavior that put us here in the first place.
These guys have got to go....
Monday, October 24, 2011
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3 comments:
Getting a re-fi from your current bank IS ludicrously hard now - BofA required piece after additional piece of documentation to re-fi our pool loan (with no first mortgage), a loan to value of less than 25%, two working adults with 800+ credit scores and 15 years of banking history with them.
Why? Because going from a 30 at 6.5 (with about 26 years left) to a 10 at 4 cost them tens of thousands of dollars.
Banks who hold actual loans have no incentive to re-work the loans. Banks who service loans that were sold as CDOs just want to keep servicing them. CDOs and banks who have loans underwater would not like to have to mark-to-market (or take and actual write down) of any loan that is still getting payments.
It's ugly. But with 28% of U.S. homes underwater, banks don't want to compromise current revenue and reveal how truly screwed they are.
I'm not sure what your point is here. It doesn't sound like you're looking for "gubment" help, but it doesn't sound like you're not looking either.
Help me understand the business decision that would underpin BoA willingly walking away from tens of thousands of dollars, especially if the mortgagee is making his/her payments?
I remain unconvinced being underwater is the problem it is made out to be. Continue to derive shelter value fromt he dwelling, make your payments and wait until the investment ripens. No other investment is so ridiculously pampered.
My point - obscured here - is that the gubment shouldn't be helping.
There are powerful market incentives for banks that actually hold the note to make loan qualification rigorous for both re-fi and new loans. Things like documented income, loan to value ratios, other assets. This is as it should be.
The "can't go lower" argument he makes is laughable. Ask the man who owned Lucent stock after it went down 90% from $80 to $8 - certainly it wouldn't go down another 90% from $8 to $0.80. But it did. And so might the housing market - a double dip could bounce prices lower and soften demand. So banks should be prudent with their money.
What I don't get is that loans that were securitized as CDOs, well, those mortgage-backed securities are already dead money. The people who bought them (pension funds, I-banks) lost money. So, they bought a stock that went from $75,000 a share to zero. The "banks" like BofA are just servicing them, but they aren't carrying the loan.
Who needs to be made whole here? Seems the risk was spread in the market, and has been absorbed. Mortgages were securitized, investors bought them, they lost value.
The problem was that some of the same people selling the mortgage backed securities were also betting on them to fail with the sale of credit-default swaps. Hedge funds like Magnetar were creating crap securities and shorting them. But, we've already paid for that throught TARP.
So is the gubment trying to help homeowners, or pay of big investment banks?
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