The Bishop and the Butterfly: Murder, Politics, and the End of the Jazz Age
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    Why Obama Won’t Help Foreclosure Victims

    By cmaukonen on Fri, 05/04/2012 - 9:33am |

    Probably the best analysis I have seen so far and what I suspected all along. From BAR.

    The problem begins at the top. Obama has consistently protected bankers’ rights to deal with homeowners as they please.

    Doing as they please means rigging the market. Wall Street doesn’t know how to make money anymore except through manipulating markets and inflating bubbles. Even though five or six million additional foreclosures are expected In the next couple of years, and millions of homeowners are technically in default, the banks have been carefully dribbling out houses for sale, attempting to artificially stabilize prices with the goal of pumping up another bubble. That’s a helluva trick, when the truth is that the banks are as deep in the red as the homeowners they refuse to help.

    And Geithner and Paulson are up to their necks in it, no doubt.

     

    Comments

    I think this take is basically correct.  Everything the Treasury and Fed has done has been about buying time for the banks.  That means letting foreclosed homes trickle onto the markets and providing the banks with sufficient liquidity so that they don't have to mark down toxic assets still on the books.  The administration has not pursued principal modifications, which would reset mortgages to fall in line with current home values because those modifications would have to be immediately written down by the banks and charged to their balance sheets.

    It would also help set something of a standard throughout the industry, resetting housing prices to current levels.  Banks and homeowners are holding onto inventory, hoping t get more for their properties down the line.  So long as the Fed is giving the banks free liquidity, it doesn't matter -- they can hang onto old loans, at elevated values, indefinitely.

    Unless, of course, a clear market event (principal writedown) occurs.  Once the underlying value of a loan is written down, the banks have to write down the carrying value of that loan even if they plan to hold it to maturity.


    by Michael Maiello on Fri, 05/04/2012 - 10:35am

           What would be the best and most viable path for President Obama and Congress to map out and implement that would truly benefit the victims of the foreclosure debacle and stop the madness?  


    by Aunt Sam on Fri, 05/04/2012 - 11:16am

    Reset all mortgage principal to current home price values, declare all delinuent mortgages current, and forgive all penalties associated with late payments throughout the system, without exception (if somebody is 2-3 months behind, simply extend the maturity of the new loan by another 2-3 months).


    by Michael Maiello on Fri, 05/04/2012 - 11:34am

    Destor, This is actually doable, with a couple (if not a few more tweaks) of qualifiers:

    1.  A new application for refinance with current data to ascertain if the applicant is able to make the new payment amount. (If they cannot afford new payments, then moving forward does not 'compute'.  However, 'forgive' any fees and interest if they sign agreement they will not be held liable for any deficiency balance of principal and will leave house in good condition and vacate in 60 days.)*  

    2.  Identifying the amount of principal loss by the lender for their financial asset adjustment, as well as former projected interest and fees.  Loss of projected earnings from loss of fees and interest not yet acquired does not have to be charged off.

    *In some instances, if cannot afford new terms, it is possible to offer them another property already foreclosed which is lesser amount of their current property appraisal and one they could afford.  This could be a win-win (or as much as possible).


    by Aunt Sam on Fri, 05/04/2012 - 1:29pm

    Just got back from a short walk. Up to Drexmore from Van Aken and then down Drexmore. Passed one empty house and then another. I think these were occupied at Christmas time. One still had the Christmas decoration on the front door. The first I think was a duplex as it had to front entrances.

    Then down Chadbourne and passed another empty house. Across South Woodland and passed another empty house.

    Turned up Southington then up Van Aken again and passed another empty house. The across Woodland back to my apartment.

    This is just inside Shaker Heights. And none of these homes had for sale or rent or any other signs on them but were quite obviously unoccupied.

    All of which is like a sweater that has begun to unravel. You really can no longer mend it since it has unraveled too much. But neither can you stop it from continuing to unravel.


    by cmaukonen on Fri, 05/04/2012 - 5:15pm