Senate (again) reaches mortgage rescue deal

In talks led by  Democrat Chris Dodd of Connecticut (pictured), Senate leaders have reached another tentative agreement on a voluntary mortgage rescue fund that would not immediately use taxpayer money, The Wall Street Journal reports this afternoon. Reuters reported a similar deal last week.

The Wall Street Journal: "The top two members of the U.S. Senate Banking Committee said Monday they have reached an agreement on a housing aid package that includes a regulatory overhaul for Fannie Mae and Freddie Mac."

More: "The legislation combines the regulatory reforms for government-sponsored enterprises Fannie Mae and Freddie Mac with a proposal to use the Federal Housing Administration to offer up to $300 billion in federal guarantees to help refinance struggling borrowers into new mortgage loans.  One compromise proposal discussed last week would use the money from an affordable housing fund created from Fannie Mae's and Freddie Mac's earnings to help pay for the FHA guarantee program."

Analysis: Having Fannie and Freddie bear the cost of a new insurance program, and the risk of re-defaults on re-written loans, if that is the ultimate Senate plan, will probably satisfy some of the no-bailout crowd in Congress. But it loads those companies up with more risk, and marginally increases the chances that taxpayers will ultimately pay for Fannie and Freddie's various mistakes and generosity. Relatedly, it's not clear how Fannie Mae and Freddie Mac would use their earnings to pay for anything these days -- they reported a combined $2.65 billion in losses earlier this month.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: AP

Comments

[E]

Arroyogrande said...

"I'm not quite sure what "stated income" *is* good for as I always thought that you can just go through a little more trouble and go "full doc" like the rest of us...dig up the prior year tax returns, etc. I realize that many people "enhance" their tax returns with business write-offs to save on paying taxes, and then claim that their tax returns don't show the "true picture" of what they earn., and that's why they need to go "stated income". If that's so, then aren't you lying to the IRS, or lying to the Bank, so that you can pay less taxes AND qualify for a bigger mortgage? Kind of like keeping two sets of books, one for the tax man, and one for the loan officer? I've always wondered about that."

No doubt. I hope the IRS is gearing up for hitting these "stated income" borrowers with some nice audits.

[left of lefty]

hi arroyogrande,

the stated income loan was created for people whose income stream is very sporadic. they don't have the typical 'steady paycheck' like most people. their income tend to come in waves.

here in southern california, a common example would be an actor. i did some consulting for an actors union a few years back. many actors make 10, 15, 20k a year for many years, and suddenly have one year where they make 500k, and then go back to making 10, 15, 20k a year again. that's just how their world works. it's difficult to qualify for a normal loan with tax statements like that. there are many other professions, such as book authors and musicians, whose annual income goes up and down. but if you average out over many years, make pretty good money.

most other exotic loan types, such as option arms and interest-only loans, were also created for these people. unfortunately, these loans were hijacked by mortgage brokers the last few years and pushed onto people they're not meant for. so the problem is with the mortgage brokers, and not the loan products themselves.

[Laker]

left of lefty and arroyogrande,
Stated income as suggested could be a good thing. For the example of the actor that makes 20k a year for couple of year and then makes $500K. He should get a stated income loan PROVIDED it is fixed rate and with 20% down. Since he just made 500K, he should be able to put the 20% down...)
All other ARM, IO, Option ARM should NEVER be stated income since you add way to much risk.
I think stated income loan for traditional 30 year fixed WITH at least 20% down are good thing for the consumers, banks, and the economy.

[E]

Left of Lefty...

Actors that make 10k 15k 20k 500k 25k 20k 15k shouldn't be buying houses based on that one goldmine year IMO.

One did in my old hood. That "big fat greek wedding" chick. They cancelled her T.V. show and the house was sold partially renovated.

If an actor wants a house they should pay cash for it. That way when those 25k years roll around they can still eat instead of being some waifish emo acK-tor.

[Big T]

no disrespect but "pushed onto people they're not meant for" are you kidding --it takes two and there were many standing in line waiting to lie their arshes off and now those same people are lying again.

[longcat]

I don't get one part of this whole bailout:

"Under both proposals, a borrower facing foreclosure could refinance into a government-guaranteed mortgage under certain conditions, including that the home is the owner's primary residence and that the holder of the existing mortgage accepts 85% of the home's current appraised value as payment in full."

So someone who bought a home with 0 down last year will now get an instant 15% equity in the house and has a new mortgage for 85% of the new lower value? How is that fair? Why not give them a new hummer in the driveway too in case they didn't get around to cashing out a HELOC to buy a plasma screen and new car before all this happened. It makes me livid!

[Rich]

I guessed right on the invective part, didn't I? :)

If I made some kind of stereotyped statement that California is a rich state because you have a few suburbs like Beverly Hills, you would correct me instantly. For those of you stuck on the idea that Connecticut is a wealthy state because a few hedge fund managers live in a few towns in Fairfield County, I'll return the favor. The median income of the state, while the highest in the nation, is still only $62,000, not enough to buy the average house in your metro area. The median house price in the state is $238,000, about $8000 above the current national median, which is an order of magnitude below California pricing.

Buyers in my region are still falling victim to things like ARMS resets, just at a lower income level, and first-time buyers are still having difficulties getting loans that they didn't have last year. I personally lost $24,000 in equity on the condo I sold earlier this year to get into my new house, but do you want to guess the first list price and the final price? try from $159k down to $134k. Does that sound like bubble pricing to you? Most of you would have started bidding at twice that price in your own market.

As for taxes, most towns in my state have computerized 3-year revaluations to capture changes and are looking at disastrous losses of property tax revenue for the coming 3 years. Something like 5 of 7 towns adjacent to mine had their budgets rejected at town meetings because they included tax increases to make up the shortfall. The foot soldiers of free market capitalism who fall first in the trenches are your schoolchildren and their playing fields...

Congressman make the assumption that people who call their office or write or email are the active constituents, the people who they need to respond to. They are hearing from people with mortgage troubles, and feel they need to respond. I didn't venture an opinion on the merits of the bill, but there are a staggering number of potential defaults out there--2 to 3 MILLION--that will add up to a lot of families with social and economic problems later on. Pure free-market theory sounds good in the privacy of your den but less good when the homeless begin to sleep in front of your gate...

[David]

This is insane. Basically, the government is moving in where the irresponsible banks left off. They are going to prop up the irrationally high housing prices in Southern California and will take the fall when the homeowners default on their loan obligations. It's stupid.

The government is not considering how much damage the artificially-high housing prices have reeked on the economy. With the housing prices this high, responsible, hardworking Americans simply cannot afford a house. Minorities and other taxpayers cannot afford homes in their neighborhoods. This is economic injustice and is harshest on the poorest communities.

Once these loans default, which they will eventually do, the housing prices will reset to reasonable prices based on the economics, and the economy will recover. However, the longer the government stalls this by proposed actions, the longer it will take the economy to move forward.

[heather]

write to your senators....

http://www.senate.gov/general/contact_information/
senators_cfm.cfm?State=CA

and representatives...

http://www.house.gov/house/MemberWWW_by_
State.shtml#ca

i for one can't stand the thought of bailing out those people who got in over their heads, who didn't bother to read the fine print (when it came down to making the single most expensive purchase of their lives), or who were just idiotic and greedy enough to think the real estate market was just going to keep climbing. They used their homes like piggy banks and now expect us to bail them out. Let the chips fall where they may....it will make housing more affordable in the long run.

[Cal]

I thoroughly went through the FHA portion of the bill as passed by the Senate Banking committee yesterday. In its current form I think the bill wouldn't be a bailout at all and with the GSE regulator provisions I think it would actually helps a lot.