So much for Obama’s new housing refinance plan

mike whitney writing in counterpunch via information clearing house...

The truth is the banks want to offload their garbage mortgages onto Uncle Sam to avoid hundreds of billions of dollars in losses. That’s what this refi-ruse is really all about.

The administration estimates that 3.5 million people with private label mortgages will be eligible to refinance into loans backed by the Federal Housing Administration (FHA) Many of these are high risk mortgages that will eventually go into foreclosure which is why the banks want to get them off their books. Regrettably, Obama is only too happy to help them achieve that goal.

[...]

To be eligible for Obama’s refi-program, borrowers will need a credit score (FICO) above 580,(which is extremely low), they’ll have to be employed, and they’ll have to be current on their mortgage payments. (for the last 6 months) In other words, lending standards are being eased so the banks can dump as many high-risk mortgages on the FHA as possible. Obama breezily refers to these abysmal lending standards as “cutting through the red tape.”

Applicants will also be able to refinance under the Obama’s program with loan balances up to (get this) 140 percent of the value of their home. So, even if you owe $560,000 on a home that is currently worth $400,000–and you don’t have a dime’s worth of equity in the house–have no fear–you can still get money from Uncle Sugar. This isn’t a good way to keep people in their homes. It just turns them into debt slaves.

well, we figured out some time back that obama is owned by the banks, lock, stock and barrel, so none of this should come as a big surprise...

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The fastest way to fix this mess is to see tens of millions of homeowners default on their mortgages ... and millions more file for bankruptcy

at last... some sense from someone in the mainstream financial press...

market watch...

You want to fix this economic crisis? You want to put people back to work? You want to light a fire under the economy?

There’s a way to do it. Fast. And relatively simple.

But you’re not going to like it. You’re not going to like it at all.

Default. A national Chapter 11 bankruptcy.

The fastest way to fix this mess is to see tens of millions of homeowners default on their mortgages and other debts, and millions more file for bankruptcy.

I told you that you wouldn’t like it.

I don’t like it much either. It sticks in the craw that people got to borrow all that money and won’t have to pay it back.

But you know what? The time to stop that was five or 10 years ago, when the money was being lent.

It’s gone.

And mass Chapter 11 is, by far, the least obnoxious solution to our problems.

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It’s the debt, stupid.

We’re hocked up to the eyeballs, and then some. We’re at the bottom of a lake of debt, lashed to an anchor. American households today owe $13.3 trillion. That has quadrupled in a generation. It has doubled just in the last 11 years. We owe more than any other nation, ever. And for all the yakking about how people are “repairing their balance sheets,” they’re not. From the peak, four years ago, they’ve cut their debts by a grand total of 4%.

[...]

Some will say the financial impact would be terrible. But the banks would just be facing up to reality. And a lot of these mortgages are already trading at distressed levels.

Some will say, “why should people get away with borrowing imprudently?” The response: Why should the banks get away with lending imprudently?

There’s no point telling people not to borrow money. They always will. I have yet to see a Wall Street executive turn down free money. I have yet to see a company in an IPO say, “Don’t give us so much money!” People like money. They will take as much as they are offered.

In a free economy, the people who are supposed to ration the loans are the lenders. Banks are supposed to lend carefully and responsibly. What else are they paid for? Accepting deposits? You could hire people on minimum wage to do that.

Some will say, “it’s immoral” for borrowers to default. Alas, most of these people are being inconsistent. They are usually the first ones to defend a company when it closes down a factory and ships the jobs to China, or pays the CEO $50 million for doing a bad job, on the grounds that “this ain’t morality, pal, this is business!”

But when Main Street wants to do the same thing, they start screaming “Morality! Morality!”

We don’t live in an economy based on morals and fairness.

[...]

The correct moral hazard is to punish the banks who lent imprudently by making them eat their own losses.

yes, yes and yes...

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How cutting the mortgage interest deduction might actually ACCELERATE foreclosures and walk-aways

as someone who is obsessed with keeping up with the daily outrages perpetrated on ordinary folks, i have obviously been aware that the catfood commission was recommending cutting out the mortgage interest deduction along with the unconscionable trimming of social security benefits and raising the retirement age (particularly when social security has absolutely NO connection to the budget deficit)... but, until my son brought it up in an email yesterday, i hadn't made the connection that cutting the mortgage interest deduction might actually accelerate the foreclosure crisis and speed up those sitting on the fence about walking away from underwater mortgages... i had emailed him about the pay freeze for federal workers (he and his wife are both government employees)... here's what he said...

I’m terrified about the bigger cuts that are proposed. Freezing the pay tables saves about 60 billion over the next 10 years. That is small potatoes to the 400 billion (doing away with Mortgage interest rate deduction) or the 3 trillion (middle class tax cuts possible expiring soon) Obama’s budget panel has proposed. If stuff like that occurs we will have no choice but to walk away from the mortgage on the house and who know what else.

personally, i think we're in the middle of the biggest heist in world history... the enormously rich get enormously richer and us poor bastards who actually have to WORK for a living continue to get screwed...

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2.4M forclosures predicted for 2010, up from 2.1M in 2009

feelin' that sweet, sweet "recovery" yet...? funny... neither am i...

BofA holds about 1 million mortgages that are at least 60 days delinquent. About 4 million homeowners nationwide are 90 days or more delinquent on their mortgages or in foreclosure proceedings, according to Moody's Economy.com, which analyzes data from credit reporting company Equifax Inc.

Trial modifications and other delays have kept many of those mortgages out of foreclosure, but by the end of this year, 2.4 million borrowers are expected to lose their homes, said Celia Chen, a housing economist at Economy.com.

That would be up from 2.1 million foreclosures and short sales last year and five times the annual numbers earlier in the decade.

It's unclear when those distressed properties would hit the market, but their large numbers are likely to push home prices back down this year, to a bottom in the fourth quarter, Chen said. And that would make things worse for the 25% of homeowners who already owe more on their mortgages than their houses are worth.

The biggest blows will be felt in California, Florida, Nevada and other states where home prices have dropped the most and the ranks of struggling homeowners have swelled.

As of December, 11.4% of California homeowners were 90 days or more late on their loans, according to First American CoreLogic, a Santa Ana real estate data firm. That compares with a delinquency rate of 8.4% nationwide.

so, if more homeowners, folks like my son and his wife, are forced even deeper underwater than they already are, dontcha think that's going to drive even more foreclosures... if you thought people were walkin' away now, just wait...

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