A Bush bailout, in baby steps

Another must-read tonight from the New York Times, under the headline, "Step by Step, Bush and Fed Move on Mortgage Rescue." The article tallies up all the steps the administration has taken to prop up the mortgage and housing markets, and argues convincingly, "However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer toward a government rescue of distressed homeowners and mortgage lenders."

The story reports it is possible Fannie Mae and Freddie Mac will soon be buying "liar loans" made last year: "The two companies are now trying to decide how to guarantee the bigger and potentially riskier mortgages. Both want to exclude 'no-documentation' loans, but Congress authorized them to buy up big mortgages going back to last July — when a high percentage of such loans were approved without verification of the borrower’s income. As a result, company executives are debating whether to buy up at least some 'no-doc' loans made last year."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Hat tip: PJ via e-mail.

Comments

[El Guapo]

What's a couple more trillion dollars on the taxpayers back?

[mbob]

The other NY Times piece by Bob Herbert was about the cost of the Iraq invasion: 3TR and counting.

Impeach Bush Now. Do it today! You'll be glad you did!

[Laker]

Why would anybody let alone the government (taxpayers) but $0.01 cent of liar loans??? They are 1000% bound for default. THIS IS INSANE!
If you want to transfer the bad loans from private investors to the tax payers, just send a check to BOA, WAMU, citi, and the others. With buying up the junk, you just waste time and effort, and a lot of paper...for toilet.
It is amazing that they even talk about this, and there is no justice system to stop this insanity from happening. Where is the accountability? This is our money here, WE THE TAX PAYERS DON'T WANT TO BUY THESE JUNK LIAR LOANS!
Why do you privatize the profits and socialize the losses?
Freddie and Fannie should not be touching this junk with a 10 mile pole. Whoever cooked that meal should eat it himself!

[JerryB]

mbob:

You are posting to the wrong blog. This is a housing blog. I think you were looking for "LiberalCommieTraitors.com".

Everyone Else:

I wouldn't worry too much about the GSEs buying undocumented loans. They're bleeding red ink with fully documented loans. There's no way they'll buy that toxic waste.

[NoWayinLA]

I've been saying all along that the bailout will happen by stealth. Check out this hidden gem:

"The Fed has been offering its own resources to soften the credit squeeze that began when investors started to panic about subprime loans. In addition to sharply cutting interest rates, the Fed has lent more than $160 billion to banks since mid-December through a new program, the Term Auction Facility.

Under the program, banks have been able to borrow money for up to a month or so, pledging collateral that includes mortgage-backed securities, even if the securities are not tradable in today’s markets."

Translation: the Fed has loaned the banks $160B, and accepted worthless collateral on it. Hmmm... anyone think the banks will jingle mail that one?

[jgw]

If all the underwater borrowers are going to have their loans written down, and then they sell their place for more money years down the road, do they get the pocket the difference?

If the answer to that question is yes, then this bailout is nothing more that a direct payment from the taxpaying renters of America to the mortgagors (not owners, mind you) of America.

I vote no. Who's with me?

[bulwark]

I'm a Republican and I want to impeach Bush. Whatever happened to the traditional Republican value of keeping your promises? If you can't pay your mortgage, give the keys back to the bank and move out. The bank will sell it at market price, taking whatever loss results. That's the American way. Bush is a Communist.

[Patrick Duffy, HousingChronicles.com]

While I've been openly predicting such a bailout for about a month now, it doesn't surprise me to see that it's being done in such 'baby steps' -- after all, this IS an election year, and incumbent parties have a really hard time getting re-elected when the economy's in trouble.

The ironic thing is that Presidential administrations are pretty limited on what they can actually do to control the economy (the Fed is supposed to be non-partisan, so Fed Chairs are nominated or re-signed in the middle of administrations), but voters still blame Presidents for bad times and reward them for good ones.

It's actually a clever plan: get people used to an incremental move -- such as allowing GSEs such as Freddie Mac and Fannie Mae to buy much higher mortgages -- and after that, once it's no longer a big issue, move ever so slowly onto other issues.

Whether or not it's the 'right' thing to do becomes somewhat irrelevant when the political need to do SOMETHING more than outvotes any naysayers. After all, newly homeless people probably wouldn't vote at all, would they?

[srla]

This policy is both irresponsible and illogical. The housing market is in a state of free fall. The market psychology long ago reversed, and we will not see buyers returning to the market until it has bottomed out. Who in their right mind would jump into a market with prices still at historic highs and falling fast?

Given this environment, what on Earth is the government doing taking on liar loans and trying to help people stay in overpriced homes they can't remotely afford? This clearly will not benefit the homeowners, who will just keep loosing money as the houses they bought at peak continue to fall in price. It could potentially cost the government tens or hundreds of billions.

The sole beneficiary? The reckless fat cat bankers and fund managers who floated these loans in the first place, looking for a quick buck without paying any heed to the potential downside. Upward redistribution of wealth has been accelerating fast enough over the past decade. We seriously need to put an end to these veiled Welfare programs for the rich, and allow fools to suffer the repercussions of their poor financial decisions, especially the rich fools!

[Lost in Pearlblossom]

What would be the consequences of a "bailout?"

How much public money is being discussed?

What would be the result if there is not a bailout?

[Figgins]

Since I am a responsible borrower, had my income documented, not in default, will I get a tax credit equal to my share of the money the Feds are going to flush away in this ridiculous scheme?

[Fourth Generation]

Again as much as some (i.e., lenders, speculators and the stupid) like the idea of a taxpayer sponsored "mortgage amnesty (bail out)", read an opinion in today's Washington Post by Robert Samuelson here;
http://www.washingtonpost.com/wp-dyn/content/
article/2008/03/04/AR2008030402330.html?hpid=
opinionsbox1
It finish the piece by saying : "The understandable impulse to minimize foreclosures should not be a pretext to prop up the housing market by rescuing too many strapped homeowners. Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation. Helping today's homeowners makes little sense if it penalizes tomorrow's homeowners. An unstoppable free-fall of prices seems unlikely. Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices. "

[LA-Architect]

The Bush Administration make the Nixon Administration look like Boy Scouts! Put them all behind bars. They have destroyed every aspect of this country. THe banking industry is just the latest casualty. They should not simply be allowed to leave office and build a library. That just seems so wrong. Someone needs to be accountable for this mess.
I truly believe that this bubble was "allowed" to happen to take the public's attention away from this 3 trillion dollar war in Iraq. It worked like clockwork, until the credit crunch!

[Inland Empire]

I vote no. The banks lined up these "no income stated" loans to rake in more bucks. Let em go under.

[GlennH]

I'm a Democrat and I think the Democratic party has sold America out to the terrorists just so they can take power.

[Michael Snyder]

Yo Duffy!
You need to get over yourself a bit. Folks on this blog have been predicting a federal bail-out for the lenders, bankers & investors who engineered this Ponzi scheme for over a year now. Actually I'd bet a straw poll would show a consensus for a bailout of some type even if it has to be signed into law right after Scooter Libby's pardon.

For those of you expecting Freddie & Fannie to realize they're up to their noses in red ink and can't afford the portfolio they already have: Please share some of what you're smoking. I want to be in a "happy place" too. There is a fundamental flaw in applying logical behaviors to insane persons. If a definition of insanity is, doing the same thing over & over hoping for a different result; I rest my case. As if to prove my point there's a group in NY NY that's decided it's a good idea to bundle securities backed by car loans in the same fashion as mortgages and market them as AAA rated paper. (would someone please pass the aspirin?)

There will be no relief in the real estate market until all of the homogenized debit associated with "subprime" is off of the books. Since financial institutions have only written down $160 billion of the estimated $600 billion in losses "associated with subprime", we've a ways to go. The only "good news" are the howls coming from City Halls across the nation as the municipal bond market collapses around their ears. Bloomberg.com had this as a byline this morning: "The criminal investigation of U.S. municipal bond firms is spreading as current or former bankers at Bear Stearns Cos., UBS AG, JP Morgan Chase & Co. and Deutsche Bank AG disclosed they are targets of the probe." http://www.bloomberg.com/apps/news
It's amazing how our government can blithely overlook the actions of folks like Mozillo, Nardini and O'Niell as millions of Americans lose their retirements; yet when it hits their pocket it's taken less than thirty days to launch a criminal investigation. Looks like Scooter may have to wait in line for his pardon.

[msprompt]

Reduce the principle? Are they insane?

why don't the banks just lower the interest rates and/or extend the borrowing period for those living in the home about to be foreclosed upon? that way people on the financial edge get a break on the monthy nut and can stay in the home; bankers will eventually get their vig; the economy likely doesn't suffer a total collapse and the houseing market can experience some further degree of correction. Also, when/if it comes time to sell the home, the sellers will have to take their financial lumps then.

[mbob]

Hey Jerry, maybe lefty can get you a steal of a deal on those leftover John Birch Society billboards! Reagonomics and Thatcherism have triumphed! And Ann Coulter's hair dye is surprisingly affordable! Mission Accomplished! America in tatters! Economy ruined! Bloated parasite military contractors run amok with impunity! Failing banks rescued in the nick o' time!
Oh great and glorious greed, your time has flowered and ripened into a perfect horror to welcome us all.

[kat]

Bush isn't bailing out homeowners. He's bailing out his cronies.

So all you folks in CA who have been renting hoping to save enough to buy a home, or who are paying their mortages faithfully even if it's a struggle, or who are taking personal responsibility by paying for a home that's upside down, are going to have to sit back and see a bunch of stupid, bottom dwelling squatters, deadbeats and SFBs be rewarded with homes they niether earned nor deserve.

And they say crime doesn't pay. Well this is nothing but sanctioned thievery.

I think I would start blasting if it were me.

[Kenneth Janowski]

When you folks elected a boob who got a C- in economics from Yale, you should have expected this. Looking for the cause? Look in the mirror.

[ray]

If you're so irate about it, write your representative.

http://patrick.net/housing/contrib/nobailout.html

[arroyogrande]

RE: Plans like Ben Bernanke's, where debt is foregiven and loan balances are reduced for "strapped homeowners":

Wouldn't such a plan encourage borrowers who can and are currently paying, but are underwater, to default as well, hoping to get a loan reduction? In other words, in hoping to save money by reducing foreclosures, couldn't the plan have the (unintended) effect of increasing defaults, and thereby costing the banks and investors even more money?

"What would be the consequences of a "bailout?""

In theory, less foreclosures, inventories of unsold houses increasing less, people that couldn't normally afford their houses getting to stay in the houses, less downward pressure on house prices...but it wouldn't stop the downward spiral of prices (due to tightening lending standards and lack of affordability)

"How much public money is being discussed?"

Somewhere in the range of $20B-$500B...yes it's a big range.

"What would be the result if there is not a bailout?"

More record foreclosures, probably through 2011. Reduced consumer spending. Job loss as the economy slows down.

However, with a bailout, you *still* have reduced consumer spending and job loss, and it could be for much longer as the "bailouts" prolong the housing decline.

The only way to "save the economy" and "prevent job loss" is to trick Americans into spending more than they make, and to trick banks and investors into lending them the money to do so. That's what the recent economy and job gains have been based on. Saving people from foreclosure won't change that. In the absence of wage increases, you have to be willing to trick people, so that they keep spending more than they make (through credit cars, liberal auto loans, home refinances, etc.), and keep doing it year after year. Does that sound like it's sustainable?

- arroyogrande

[MyLessThanPrimeBeef]

Baby steps for the administration, but giant leaps backwards for all patiently waiting man- and womankind.

Maybe the Martians or the pyramid builders of the Moon will take advantage of the weak dollar and buy up all th foreclosed houses not even the rich people of Dubai would touch...maybe they really want to, but are just too busy with their own world's biggest stadium, world's tallest building (over 2,000 ft) and the Palm Island projects.

I know the Russians are not coming becuase they're saving up for their Crystal Island in Moscow. So take note, all you globe-trotting vultures and investor guys!

[TakeFive]

But if the government purchases these loans, then the borrowers will technically be paying themselves.

And knowing that they're now paying themselves, the borrowers will gladly resume making the payments withheld from the banks.

Relax folks, it's all gonna' be rainbows and unicorns.

[mike]

i am all for a bailout. the predators put me in a loan i could not afford and tricked me. i want the house i worked hard for to be saved and as a taxpayer it is the governments job to help me. I HAVE BEEN PAYING PROPERTY TAXES. THIS IS MY BAILOUT FOR MY MISFORTUNE. i was tricked into this loan!!!!!!!!!!!!!!!!!!!!!!

[DSL]

SRLA, prices are not at historic highs, or perhaps you aren't reading Peter's blog each Monday that comes out detailing inventory increase and price decreases YOY. I think the last one showed a 15% decrease from the "historic high". Obviously the decrease won't end there.

[tim]

Good question Figgins.

To play the optimist, I will say that this will help by keeping home prices from going in the toilet, which means you will keep your equity in the long run. But no, you will not see a check in the mail. This also may help the retail sector as the bailout folks will still consume.

But yeah, the problem is we will now collectively own all these houses, many of which are bound for foreclosure anyway as they were sold to those who could not afford them the second they signed the loans.

If they really want to help, they need to look into bolstering the economy of these areas, bringing jobs back in and people will follow as there will be affordable housing again as well. Bolster the educational systems too and fix some of the fundamental problems as well, like traffic. Folks don't exactly want to pay top dollar to live in congested, depressed areas with poor schools. Raise desirability and the home prices will correct themselves and the monies invested will have a longer term effect. Or just bleed cash into a faulty system, a truly cunning plan.

[JohnnyB]

UTTER CRAP

The scam comes full circle and further weighs down the middle class.

Hasn't there been several hundred billion bucks of ill gotten funds to be re-appropriated? OK, how about a few million? A few thousand? Have "we" even recovered five bucks from the banking/lending/wall street scammers?

Article said; “The House speaker, Nancy Pelosi, will hold a closed meeting on Wednesday with some of the leading advocates for more extensive rescue measures.”

But of course she will. She’s such a strong supporter of the middle class. She’s the “speaker”… and who’s she “speaking” for? …well, that would be “the leading advocates”.

Guarantee bull shat loans guaranteed to default with my guaranteed tax dollars... F’n CROOKS.

[Stan French]

Does anyone know where I can find a listing of median sales prices (by zip code) either month by month or quarter by quarter, going back several years (like 2002)? Someone told me the LA Times published this info, but I can't find it.

[Robert in Palm Springs]

Republicans and Democrats have all gone insane. First, by letting this happen in the first place and second by doing all this dubious "rescue" of the banks and borrowers who were stupid, irresponsible or criminal. What about everybody else who plays by the rules? You know the answer, we get screwed as usual.

If they lower the principal on loans already written, then I want the government to give me a 20% down payment to buy a new house. That will revitalize the housing market and prop up the inflated prices they want.

I am totally disgusted with this country. Time to pack up and get out before it goes completely to hell, unless the government wants to buy a house for me. Why not just give everyone a house? What the heck!

[CD]

Hey, RobertinPalmSpring,
How is the RE there ? I have been watching for a while and saw some cutsin prices but not big ones. What is your take on it?

[Steve]

Nirvana, my A is totally leveraged to the max and I need this bail out for the 5 houses I own. Again you are repsonsible financially you get screwed, if are not responsible like me, you win. I love it, Gov at work, where else besides America.

[left of lefty]

patrick duffy summed it up pretty well. politicians can't resist a bailout, especially in an election year.

the next question is, what happens to the housing market when the bailout eventually comes, most likely before the election in november?

currently home prices are depressed because there is not enough credit. pricing is not an issue if credit is available (just look at the last few years). a bailout will open up the credit pipeline and that will in turn provide floatation to housing prices.

another viewpoint: keep in mind that the majority of the population (i.e. not the people who read this blog) are not financially savvy. they generally do not know how much house they can afford. they buy homes the same way they buy cars and big-screen tvs -- by asking 'what's my monthly payment?' as a consequence they are prone to be led into unfavorable loans. even those who supposedly 'know what they're doing' are urged into bad mortgages by their friends/family/spouses or their own desires for instant gratification. credit is hard to resist when it is freely available. that's why so many people, including the affluent, are in credit card debt. housing is not so much a study in economics (income, debt, affordability), but a study in societal norms and human psychology (greed, desire, mob behavior).

right or wrong, many people will think like this: if i buy now, and if prices go up, i win. if prices go down, i'll get bailed out. if i wait, i'll just keep on renting forever.

[Rob]

Uhh..has anyone seen Peters Blog? I cant seem to find it...

[Cal]

OC Register is saying HUD published the new loan limits with LA being 729k (no suprise).

Now we get to see the real effect this will have on the market, I think it will benefit refis more than resales. Soon we will know for sure.

[Robert in Palm Springs]

Dear CD,

This is Robert in PS. Sorry I am slow to get back to you.

RE is Palm Springs is weak and getting weaker. Do not hurry. The only part of the market doing somewhat OK is the condo market thanks to the Canadians who are down here in mass buying them because of our weak $.

Since we first started shopping in November 2005, prices have dropped at least 20-30%. For example, a house we saw in Feb. 06 for $619,000 is now $430,000 and is still vacant (it is a nice remodel; not new construction).

New home construction is at a standstill. Major projects such as Murano and Escena have completely stopped despite having installed a lot of infrastructure. Auctions are just starting for many new, unsold townhomes and condos and we expect this to accelerate. There are about 8750 homes for sale and 9000 foreclosures, according to the Desert Sun, our local paper. As the RE agents like to say "lots to choose from!"

Palm Springs will suffer because it is a second home market. Jobs are few and low paying. Retailers are closing throughout the valley, including restaurants so there is no end in sight. A year or so ago, an average house would fetch about $300+/square foot. Now it is closer to $200.

Let me know if you need any more info. I look at open houses every weekend.

[JerryB]

mbob:

Brevity is the soul of wit. Please try again - fewer words this time.

[lakeshow]

Why are responsible people the ones who are punished? This is wrong!

NO BAILOUT FOR IRRESPONSIBLE BORROWERS!

Those who lied on their mortgage application should be put in jail. They caused this mess. Why should they go unpunished???

[CD]

Thank you Robert in Palm Springs, if there was ever an over blown market , it was Palm Springs.They were in denial for a very long time , I think they get the picture now. Real Estate there, is a social scene.No one believed it, they thought the market was crashing every where but the Coachella Valley.The desert Sun was out of touch for a long time .I had the feeling every person in the Valley was a broker/owner, it made it very hard to get a real picture. Thanks for taking the time Robert I appreciate it. Keep on giving us real news .