The Obama Administration created a plan to reduce foreclosures by modifying mortgage targets for up 4 million homeowners. The program was announced on February 18. The key provisions include subsidies to lenders, including bond investors to help lower a borrower's housing payments to 31% of their income. Bondholders do not like the idea that incentives would be given to loan servicers, the industry middlemen who decide which loans are to be reworked. Servicers can get $1000 for each modified loan and an additional $500 for every loan changed before borrowers fall more than two months behind, and $1000 annually for as many as three years of on-time payments.
So far six servicers have signed up including JP Morgan Chase & Co (NYSE: JPM) and Wells Fargo & Co (NYSE: WFC). Government payments to these companies may total $9.9 billion.
Secondly, and most obvious, is that mortgage holders would suffer loss of income through restructuring by changing the rate of interest, which would be lower, and even the length of the loan which would affect future income.
Thirdly, persons who invested in these mortgages would suffer loss of income. These might be pension plans, endowment funds, or large investors.
Fourth, there is the criticism that large banks such as JP Morgan Chase & Co own $450 billion in home equity loans and would have the power to refinance their own loans and receive government money for doing so.
So with all of these issues involved in such a complex web of transactions, four coalitions have been formed to do battle on these issues led by Amherst Securities Group of Austin Texas. With so much at stake you will hear much more about this topic in the days and weeks to come.
What are your thoughts on these issues?
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Reader Comments (Page 1 of 1)
4-23-2009 @ 3:06PM
clikdawg said...
" ... changing the original terms of a mortgage, which is a legal contract, is a breach of that contract with no recourse available."
Once you have agreed that this or any other Administration can void or alter a legal contract -- any legal contract -- upon the claim of national expediency, no contract in the world will be worth the paper it's printed on; all you need is the juice to bend the necessary ear.
Needless to say, this will NOT work in the long-term interests of Joe Little-Guy, even if he is being used as the Trojan horse for this gambit.
Do I have a soft spot for the people who wrote these contracts?
No. Not even a little.
But the current mess is a transitory thing -- overturning centuries of good, sound legal principle is forever.
Here is the issue in an artistic nutshell:
William Roper: So, now you give the Devil the benefit of law!
Sir Thomas More: Yes! What would you do? Cut a great road through the law to get after the Devil?
William Roper: Yes, I'd cut down every law in England to do that!
Sir Thomas More: Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down, and you're just the man to do it, do you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake!
-- "A Man for All Seasons"
How much are we as a nation prepared to destroy to avoid biting the necessary bullet?
4-23-2009 @ 3:58PM
Iridium said...
SO this is really just a government sponsored initiative to reward banks for making massive political donations.
Why doesn't Obama just say that anyone can get any house and never have to pay more than 30% of thier income to get it. That is what low income housing programs and welfare are designed to do. Why not just bring it to the national scale.
I want a 10,000sq ft house and I only want to pay $1200 a month. I should be allowed to since the government is restructuring mortgages. If you are going to throw away the actual value then you can just make up any value you want.
The banks do it all day long so why shouldn't regular people be able to as well.
Still the bank would be able to cut $50,000 off a $200,000 mortgage and still make money. They wouldn't make $200k off of it, only $150k but it is still enough profit in my book.
4-23-2009 @ 6:52PM
william lindblad said...
While this plan sounds outrageous, so were the rate of increases in real estate. Restructure of notes will simply bring value back into what is becoming a reality. I really don't think that they are talking about giving someone in a 10,000 s.f. mansion who works flipping burgers any breaks, besides I really doubt that you would find too many to fit that scenario. You will find many speculators that fit the s.f. bill, but they don't LIVE in these properties and therefore, don't qualify.