Trouble for the Dodd-Frank mortgage rescue plan

The L.A. Times reports this morning that the Dodd-Frank mortgage rescue plan is in trouble in Congress: "Mortgage industry intransigence, voter anger over possible government aid for speculators and economists' fear that thousands of homeowners might just walk away from troubled loans are contributing to a potential stalemate."

The Frank plan would ask lenders to write down troubled mortgages by roughly 15%, and then put federal guarantees behind the newer, cheaper mortgages.

The anti-bailout sentiment so widespread on housing bubble blogs appears to be a factor in the bill's troubles: "'There is no sympathy for anything that smacks of bailout,' said Allen Sinai, chief economist of Decision Economics Inc., who recently testified in favor of the Frank bill. 'The outrage has shown up very quickly, and means that at this point the government can only go so far.'

There is also the question of how well the Dodd-Frank plan would work, and the risk that it would stick the government with a large pile of bad debt. A congressional report on the plan concluded it would not stop the sharp drop in housing prices, and raised other serious issues. For example, if the government is essentially paying 85 cents on the dollar for mortgages through new guarantees, the mortgage industry has strong incentive to game the system by selling only those mortgages that are worth less than 85 cents on the dollar. Only the weakest, least valuable mortgages would get rewritten. Relatedly, borrowers would have new incentive to manipulate their personal finances to qualify for the program  -- if it means missing a few payments, some borrowers would deliberately miss mortgage payments to qualify for a cheaper mortgage, the congressional report predicted.

Your thoughts? Comments? Email story tips to peter.viles@latimes.com.

Comments

[repo4sale@yahoo.com]

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[Neil Howard]

I have a HECLO and my property is worth $400.00. This home equity lone was for $50,000, with Washington Mutual the leader in the sub-prime lending. They sent out thousand of letters reducing the lines of credit with out an apprisal or notice andreduced my line to $17,500. And would not send me the ccurrent appraisal and said it was based on the zip code. I have direct waterfront property, bordering a poor neighborhood. Why doesn't the Banking Commision go after WAMU who started this whole mess in the first place? My credit rating is pristine well over 800 and have never been late on any payments. Sen. Dodd, wake up and back those that maintain great credit a prevent banks such as WAMU from sticking it to good payers?

[MARK]

The reason that Chris Dodd and Barney Frank are pushing these bailouts is that nearly 80% of their career contributions have been from the Real Estate and Building/Banking industries. They want to make sure banks get bailed out, that the National Association of Realtors' members continue to get their commissions, and, probably, that their personal "investment properties" don't lose any more value.

With soaring food and energy prices, the responsible public is already paying for the mess brought on by those speculating in Real Estate these past 10 years. Essentially, the 2-4% of homedebtors who lied on loan docs and/or HELOC'ed themselves into keeping up with the Joneses have already been helped through the reckless actions of the Federal Reserve in cutting interest rates; the responsible are paying for this via debasement of the U.S. Currency (inflation) and low interest rates on savings.

Send an email to Dodd, Frank, and your U.S. Congressmen: NO TO BAILOUTS FOR GREEDY SPECULATORS!

[Justin McCarthy]

Thanks, Ann...That astute observation seems to turn the whole premis of risk associated with this plan on it's ear... As well as beg the question of whether the "congressional report on the plan" should be taken as seriously or have as much credence as this article assigns it.

[Richard]

Ann,

Let's make your story more realistic. Assume your homeowner still owes the lender $395K, and now the house appraised at $315K, who would pay the difference, $80K in your case, between them? Remember the lender would only cut the principal from $315K to $267.7K.
With the $80K debt, the homeowner would walk away anyway for their best financial interest.

Will this proposal work?

Richard

[Tony]

Renting is not a crime. Can somebody please pay my rent!

[Anthony]

Those stupid enough who bought at the top of the market should be appreciative in losing their "white elephant" to foreclosure! You won't be homeless, you'll just be a renter. And all that debt will be written off. Lower home prices in a few years to come...but anybody who buys now is just catching a falling knife. There are still way too many people obsessed into believing that Real Estate is the end-all, be-all "investment." Once public sentiment turns solidly against real estate, it will be a sane time to buy. We're no where near that yet...

However, Congress' actions are deplorable...they should not even be thinking about reducing mortgage balances for those who signed documents stating they would pay "X" dollars for their overpriced houses. Where is my $150,000 for being responsible. I agree with the previous posters, send an email to your Congressperson expressing your displeasure with their proposals and the likely damage it will cause the U.S. economy.

Let the free market bring house prices down to affordable levels!

[js]

Hey folks, here is some vital info that many of you may not be aware of, but that congress needs to quickly learn about, or we may see Bubble Part 2 before long. That is, even if only a small part of the market is comprised of investors, it turns a buyers' market into a sellers' market. Once the balance is tipped in favor of sellers, the overbidding starts, and panic and greed take over. The problem that led to our current 'crisis' was one of AFFORDABILITY. We need to insure that prices are in historic balance with incomes, and are not now propped up due to to a bailout, or the re-entry of investors!! In the more desireable areas, there is quite a bit of pent up demand, as buyers wait for the bottom. There is still a huge number of investors out there, as well. Unless we insure that investors cannot pump up prices by competing with real home-owners, we are at risk of another bubble. Our current tax code is in large part responsible for keeping investors in the market. Here are other vital issues that aren't being discussed, but need to be brought into the awareness of legislatures: 1. It is very easy to check the 'owner-occupied' box, therefore, how will they target a bailout to 'owner-occupants' only? They have NO idea how prevelant this practice was and probably still is. Also, this means that the 'NEW FHA' will be handing out mortgages to investors, with this lax oversight. 2. The 'NEW FHA' is making loans in bubble markets TODAY that require only 3% down, and up to 55% Debt to Income!! (Homes that will soon be upside down, and that we taxpayers will soon be paying for) 3. The 'NEW FHA' does not require termite reports - let alone section 1 'clearance' therefore, we taxpayers will be on the hook for homes that may have extensive damage. There is NO sanity with this FHA "Reform"!! If we don't insist on sane underwriting guidelines for FHA loans (20% down, 28% Debt to Income, termite inspections, etc) - then we will only have ourselves to blame! Apparently, they need our input to let them know that we can't be hoodwinked into believing that they are doing this bailout to 'help out the poor homeowner'! It is clearly bad political calculus on their part! Tell your congresspeople AND Mr. Bush that we WON'T stand for it!!

[steve matulis]

Everyone, make sure you send an email, postal mail, or call your congressman and compain about this BS.

Visit this website and below is a suggestion about what you can put into the mail contents.
http://www.congress.org/congressorg/
issues/alert/?alertid=11216396&type=ML

----

I realize that many of your constituents have serious issues because of the state of our economy and seemingly endless waves of foreclosures. However, I truly believe you ought to seize this as your opportunity to do what's RIGHT, not just what keeps you in office. Do what's RIGHT for America --- Let the markets correct without continual meddling by Congress, The Fed, and the White House.

Remember that many of your constituents own their own homes and will gladly vote you out of office if you bail out speculators, flippers, and other risky folks. In my neighborhood, many people chose to rent because an end to the housing bubble was all too apparent. These people kept saving and spending wisely, knowing that prices would correct and their prudent behavior would be rewarded. If you support the bailouts, you will be rewarding people who've spent recklessly like drunken sailors for years --- at the expense of those who acted responsibly and conservatively.

I will be calling into your office and stopping in as often as possible to make myself clear If you don't do your part toward letting our markets correct on their own, without bailouts -- IMMEDIATELY, not after the next election, I will do my part and vote to replace you. I am distributing flyers around my neighborhood, including all the big apartment buildings. Several thousand residents in my area will be watching. Please do the right thing - it is in your best interest and in America's as well.

-------

[mcserc]

6% comission to sale your house? That's some crazy $$$ we are spending!

[Justin McCarthy]

Anthony...You must be one of those "bitter voters" that Obama referred to...LOL.

"Anybody that bought a house at the top of the market" = any family that bought a house in CA in the last 3.5 years...Gee, Anthony, should families be treated like pariahs for not being able to read the market, but needing a home?

Also, a family that tries to rent an apartment with a foreclosure or multiple mortgage late pays will be lucky to get an apartment in a slum.

Have a heart, mon...

[Justin McCarthy]

Disclosure: I have a low 30 year fixed with plenty of equity, stable job....Not looking for a free ride.

The fallacy here seems to be that many think that everybody that's in trouble is a former speculator looking for a hand-out.

There also seems to be a lot of emotion getting in the way of logic. I'm guessing that a lot of these "let housing values fall to 'realistic' level advocates are renters with an agenda. Just a guess. WE ARE ALL IN THIS TOGETHER, FOLKS. If the foreclosure trend continues, there will be massive effects on the greater economy..This will NOT happen in a vacuum.

Ann: What about 2nd mortgages in this bill? Seems to me that many in the last several years have used piggyback loans instead of PMI. Perhaps the WSJ was correct a while back in recommending that any "loan modification" bill address 2nds.

Seems that S2636 would have been a better alternative for banks: Chapter 13 would have allowed courts to view the finances of individuals and see what they were capable of paying back based on past income. Would have given people that truly wanted, and could to some degree, keep their homes (primaries) a fighting chance. When people walk away completely, it must be a far less advantageous situation for banks. Eventually, banks need to "get real" with some of the loans they funded. I think they'll come 'round eventually.

[Bob Morrison]

First, of all Anyone of you true Americans that have gotten that helping hand from Mommy or from who ever should not be opening you’re Big Ass Mouths.
(You can bet your sweet ass that I would miss a couple payments if it meant them re-writing my loan.) Let me see if I get this right, one you will let your credit be ruined and number two, I will be glad to help you pack and move if you loan is denied! Wake-Up
Same old dumped downed American to much Fox News (“if it means missing a few payments, some borrowers would deliberately miss mortgage payments to qualify for a cheaper mortgage.) Looks like I need to get together a few more movers or storage units lined-up for another good old American, (Once those incentives include guarantees of better rates, who in their right mind would struggle to pay on time?) Can this person even read a Newspaper? Rate’s are Up-Up and away better rates get real give you lender a call or maybe “Hope-Now” you know the little guy’s program with the funny walk that said over and over how Home-Ownership is at it’s all time high, come on you the guy watching the store. Time to Crash-N-Burn American God help us all.

[LeftLA]

Justin: You're 100% wrong about being unable to get an apartment. Plenty of landlords, including the big management companies, will rent to tenants with foreclosures, lates or a BK. They probably will require a bigger deposit or an extra month upfront. But it is easy to get a nice place in a good neighborhood, as long as you're honest about your situation and your income will support the rent.

I get so tired of hearing that "you'll never rent again!!!" BS. It's just not true.

[The Donald]

Seriously--Our idiot elected officials, and the UNELECTED officials like the FED will learn a painful lesson on "slippery slopes" if they pass this bailout measure.

Destroying contract law as we know it and rewarding bad decisions, means that all the people or a great majority of those currently making their payments on time will do whatever it takes to get those rate cuts/rate freezes too. They will miss payments and default so they can get saved too, and the whole thing goes up in smoke.

The lesson?? It is simply time to pay the piper. The more you meddle, the more unintended consequences you will have. Housing prices are completely disconnected from fundamentals in most cities and need to CRASH HARD....

Also, remember......the ONLY REASON these politicians are going so overboard to try to "help people stay in their homes" is because the alternative is that the banks have to take on more inventory and make more writedowns, because they know how OVER VALUED these stupid debt-traps really are!!

How nice of them!! They would rather stick US with the bill......

[tuma]

The market correction has barely begun. It should be allowed to run it full course...only and only then can people be able to afford homes they can actually afford...and only then can our recovery be sustainable...
STOP the bailout now
www.angryrenter.com