Bernanke urges banks to forgive portions of mortgages

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<p><em>March 4 (Bloomberg) -- Federal Reserve Chairman </em><a t_delay="50" t_above="true" t_static="true" t_bgcolor="#ddedd9" t_fontcolor="#000000" t_width="110" t_fontface="Verdana,sans-serif" href="http://search.bloomberg.com/search?q=Ben+S.%0ABernanke&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1"><em>Ben S. Bernanke</em></a><em>, battling the worst housing recession in a quarter century, urged lenders to forgive portions of mortgages for more borrowers whose home values have declined. </em></p>

<p><em>``Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' Bernanke said in a speech in Orlando, Florida today. ``<strong>Principal reductions that restore some equity</strong> for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.'' </em></p>

<p>Yes, if and when lenders do these principal reductions, a little equity will be created. But, there better be a guarantee that home prices will not go down at all from that point forward (Maybe they could bring in Ambac or MBIA to guarantee this stuff). What happens when home values decline further? More principal reductions? Lenders are all sitting on such a fat capital reserve to play this? What investor in his right mind would even consider investing, replenishing any lender's capital base at this point? Brilliant! Genius!</p>
 
<p>You don't like your mortgage payment? Everybody does not like their mortgage payment? Ok, we have a solution. Everybody gets to take 10% off their pricipal amount owed. No, make that 20%. NO, 40%. Oh, heck, make it 95%!!! You pay what you want!</p>
 
Haha..Mr. awgee, with your compassionate approach to our nation's financial problems, the Fed should consider you as one of their voting presidents. No, make that the chairman. Better yet, run for the President with that, and be the President of the U.S.. Please do not forget your buddies at the IHB once you are elected. Oh, and all the back door kick backs, too.
 
<p>Link to Bernake's speech: <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20080304a.htm">http://www.federalreserve.gov/newsevents/speech/bernanke20080304a.htm</a></p>

<p>From a political point of view, seems good. Enough of the "Oh gosh, please bail us out by buying the bad loans - the taxpayers should take the losses" bank lobby BS. Better to take the "Yeah, there are losses - you should acknowledge them and take the losses banks" approach. At least all the PR won't be focused on govt bailouts now - it'll be focused on the greedy banks who won't write stuff down like Bernake told them to. Maybe that will tone down the campaign rhetoric/promises a little.</p>

<p>The stats from the speech are interesting (pasted below):</p>

<p>"The worst payment problems have been among subprime adjustable-rate mortgages (subprime ARMs); more than one-fifth of the 3.6 million loans outstanding were seriously delinquent at the end of 2007.<a title="footnote 1" href="http://www.federalreserve.gov/newsevents/speech/bernanke20080304a.htm#fn1"><sup>1</sup></a><a name="f1"></a> Delinquency rates have also risen for other types of mortgages, reaching 8 percent for subprime fixed-rate loans and 6 percent on adjustable-rate loans securitized in alt-A pools. Lenders were on pace to have initiated roughly 1-1/2 million foreclosure proceedings last year, up from an average of fewer than 1 million foreclosure starts in the preceding two years.<a title="footnote 2" href="http://www.federalreserve.gov/newsevents/speech/bernanke20080304a.htm#fn2"><sup>2</sup></a><a name="f2"></a> More than one-half of the foreclosure starts in 2007 were on subprime mortgages."</p>

<p>I guess Bernake's the anti-helicopter today...</p>
 
If I wasn't a bubble participant and had patiently waited for prices to settle down before buying, I would be so enormoulsy pissed off about even the notion of people getting principal forgiven or being allowed to have less than market rates... It's too bad there is no lobby for the financially prudent renting population. Special interest will jack this up for the still priced out renters. Homeowners have the homebuilders, NAR, etc. on their side, contributing big bucks and influencing government response. Renters have zero voice...
 
<p>It does smack of unfairness but (if it happens) ultimately will just affirm lower prices in the rest of the market, allowing prudent renters to buy.</p>

<p>The biggest unfair aspect would have been missing living in one's own home instead of renting for the last few years. I can deal with that.</p>

<p>SCHB</p>
 
Reading the speech, the write off group is fairly small - basically, if the homeowner is underwater, and the write off would be smaller than the amount lost in a foreclosure proceeding, then the write off should occur. It's more about minimizing bank losses than giving homeowners a break, as usual.
 
<p>"It does smack of unfairness but (if it happens) ultimately will just affirm lower prices in the rest of the market, allowing prudent renters to buy"</p>

<p>How's that socal? By keeping the owners in the home, it keeps the house out of inventory, which I would think serve to artificially inflate prices... Prices are being driven down by foreclosures and distressed sales.</p>
 
Would this proposal even effect so cal? I would think that even a 10% reduction would have a marginal effect on the affordability of a home. Sounds more like a mid-west sub prime home buyer that paid $200K for their home.
 
If you read the fine print of the program, OC won't qualify because they only forgive a small percentage. The program is meant for area like cleveland and detroit. the places that is hurt the most. For OC the bank would have to cough up anywhere between 100k -400k. that just won't happen here. yay..... hahahahaaaa
 
I believe that these impractical solutions proposed by the Fed Reserve Chairman are AT BEST trial balloons to get a pulse on the market sentiment for forgiveness. What Ben is suggesting is now officilally in the arena of Desperation and do what it takes to save the homeowners. A principled approach that addresses overall market stability is nowhere to be seen. Such an approach would be in the better interest of all participants - ALBEIT in the LONG run.
 
<p>There would definitely be an effect from reducing supply. My question is:</p>

<p>Would the new loan amount get recorded, essentially setting new comps? If this were to happen en masse, it would be a very strong effect on the market.</p>

<p>Could enough product be removed from the market that a bottom would form? I dunno. I suspect not.</p>

<p>SCHB</p>
 
<p><a href="http://www.ft.com/cms/s/0/f98fef38-e954-11dc-8365-0000779fd2ac.html"><strong>Over 1m homeowners get mortgage ‘workouts’</strong></a> </p>

<p>From <em>Financial Times:</em></p>

<p>"Mortgage companies have changed or restructured loans for more than 1m US homeowners since last July, according to new data provided by Hope Now, an alliance of lenders set up with the backing of the Bush administration last year to tackle the housing meltdown.</p>

<p>The release of the figures from Hope Now was eagerly awaited in Washington, where policymakers and observers have been trying to assess the effectiveness of the programme amid scepticism that it is enough to halt the wave of foreclosures.</p>

<p>The White House and the Treasury department have been championing Hope Now as a key pillar of their private-sector response to the housing crisis, in contrast to the more aggressive government intervention that is being called for with increasing frequency by many Democrats in Congress.</p>

<p>In a speech on Monday, Hank Paulson, US Treasury secretary, said that the numbers showed that “Hope Now’s progress is accelerating”, with so-called “work-outs” growing by 11 per cent from December to January.</p>

<p>Of the 1m US homeowners who benefited from some relief on their mortgages since July, about 25 per cent experienced “loan modifications” – which involves a fundamental altering of the original contract in terms of the interest rate or forgiveness of part of the principal. </p>

<p>More than 75 per cent, however, benefited from less dramatic changes to their mortgage loans, in some cases involving folding some missed payments back into the principal. Hope Now does not offer more information on the amount by which mortgage loans are being restructured, potentially opening itself up to criticism that the size of some of the work-outs claimed could be too small to make a difference..."</p>
 
Bernanke is on crack, and i think he is being pressured by politics because it is an election year. If it was not an election year do you think they would have all these attempts to try to fix this mess? The failure of this is idea is say you buy a home and you neighbor buys the same home both for 400k with 5% down. You make the payments and are never late but you neighbor is in trouble has mortgage lates goes into notice of default and ultimately has the bank wipe away 100k in principal per Bernanke to to save it from foreclosure. So now it encourages me to perhaps become late on my mortgage to so i can have 100k taken of the principal of my loan also. I would be OK to have poor credit for a while for 100k. Thank you Bernanke you are Santa!
 
<p>Could just be propaganda ... </p>

<p>... keep paying the monthly nut underwater people ... keep paying ... </p>

<p>... even if nothing happens the talk is good ... Hope Now ... keep paying ... keep paying ...</p>

<p>... it's like the stimulus plan, but all it costs is talking .... don't walk ... don't contract the money supply ... just keep paying ...</p>
 
<p>Here's Cramer's take on it:</p>

<p><strong>Mortgages Last Hope: Private Sector Saviors</strong>


<strong>By <a href="http://apps.thestreet.com/cms/email/rmyEmailStory.do?storyId=10406299&authorId=269&storyUrl=/p/rmoney/jimcramerblog/10406299.html">Jim Cramer</a>


RealMoney.com Columnist


3/5/2008 12:42 PM EST</strong>


URL: <a href="http://www.thestreet.com/p/rmoney/jimcramerblog/10406299.html">http://www.thestreet.com/p/rmoney/jimcramerblog/10406299.html</a>





Of all the proposals I have heard out there to try to fix the mortgage mess, the most vile one, the one that really hits the good guys, the hardworking people who are doing everything they can to pay and be current, is the reduction of principal solution. This heinous solution discourages all of those who have been good citizens. It doesn't fix anything because no bank will do it and it is confiscatory to the investors to boot. </p>

<p> </p>

<p>Yet, it's the Fed's position. That's right, it is Bernanke's position. Here you have a guy who quite eloquently put in a paper written in 1992 how he would buy anything with Fed money to stop a deflationary spiral, including mortgages,. SMART! That's not my issue -- two years buy AAA paper solution -- it's really his. Here's a guy that should know better, a Republican nonetheless, than to rip off the earnings. But he wants to make it so no bank would ever make a mortgage loan again, the obvious consequences of his lunacy. Here's a guy that then gets a free pass from all of the media even though he should promptly be fired and hopefully will, if the Democrats win. </p>

<p> </p>

<p>He is the problem right now. He has been ever since he didn't cut rates through the two-year to reliquefy the balance sheets of the banks last August. He didn't open the discount window and slice the rates to rebuild the capital. </p>

<p> </p>

<p>He is simply a disaster. </p>

<p> </p>

<p>There are so many simple solutions that I have proposed in these cyberpages, first when there was a legitimate chance to cut rates and not have to so the stupid $600 per person giveaway/travesty, he didn't listen. Then when there was a chance to get the FHA involved to guarantee 30 year mortgages to keep people in their homes (I would take it to 50 years if I had the authority) while refinancing them at lower rates so no resets, he failed to act. </p>

<p> </p>

<p>Now I am just giving up in this hopelessly over-his-head academic and <a href="http://www.thestreet.com/p/rmoney/jimcramerblog/10406218.html">urging</a> a <strong>Blackstone</strong> (BX) or a PIMCO or a TCW or a Calpers to take matters in their own hands and go bid a <strong>UBS</strong> (UBS) or a <strong>Citigroup</strong> (C) or a <strong>Merrill</strong> (MER) for AAA and ALT-A paper at a haircut. Right now. Just bid 'em. They will sell. They want to stay in business. </p>

<p> </p>

<p>I have given up entirely on Treasury and on the Federal Reserve. Treasury is just amazingly laissez faire, all voluntary, apropos our clueless president, another guy who doesn't understand the situation at all. Bernanke, with his confiscatory principal suggestion reveals himself as some sort of crazy left-wing lunatic. What the heck is he thinking? </p>

<p> </p>

<p>Time for the private sector to step in and relieve us of this heartache. Only the private sector sees the carnage and can profit from it. The federal government is too busy saying that it is a long drawn out process where nothing can be done. </p>

<p> </p>

<p>Morons. </p>
 
<p><strong><em>Now I am just giving up in this hopelessly over-his-head academic and </em></strong><a href="http://www.thestreet.com/p/rmoney/jimcramerblog/10406218.html"><strong><em>urging</em></strong></a><strong><em> a Blackstone (BX) or a PIMCO or a TCW or a Calpers to take matters in their own hands and <u>go bid</u> a UBS (UBS) or a Citigroup (C) or a Merrill (MER) for AAA and ALT-A paper at a haircut. Right now. Just bid 'em. They will sell. They want to stay in business.</em></strong></p>

<p>I know a lot about a lot, but I'm the resident moron on this. What is "go bid", and what does it mean in this context?</p>
 
No_Vaseline



I think he is refering to these guys coming in and buying the RMBS and ABS securities that these companies have on their books and then service and hold them in their portfolios.
 
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