The NYTimes reports:

The administration’s initiative, called the Homeowner Affordability and Stability Plan, is an effort to slow the decline in the housing market. As the economy drops deeper into a recession, home values are falling faster and faster, and more Americans are losing their houses to foreclosures or distressed sales.

The plan would allow four million to five million homeowners refinance mortgages guaranteed by the government-controlled housing giants Freddie Mac and Fannie Mae. The administration said allowing people to refinance at lower mortgage rates would reduce monthly payments and save families thousands of dollars every year.

[More . . .]

In his prepared remarks, Mr. Obama said the plan would “give millions of families resigned to financial ruin a chance to rebuild.” “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy,” the president said in the remarks. “And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

The plan would seek to entice lenders into lowering rates, and would offer homeowners a chance to shave thousands of dollars off their mortgages. The government would offer homeowners principal reductions of $1,000 a year for five years if they stayed current on their payments, and would give $500 to loan servicers if they modified loans before borrowers fell behind in their payments. Or, if a lender lowered interest rates so that buyers were spending 38 percent of their monthly income on mortgage payments, the government would provide matching funds to lower that payment to 31 percent of income. The White House said such a reduction could equal $400 in monthly savings on a $220,000 mortgage.

(Emphasis supplied.) It seems to me, at first blush, that again the Obama Administration has delivered an inadequate plan. This is not HOLC-y at all it seems to me. Consider my bolded sentence - "The plan would seek to entice lenders into lowering rates" - Entice? A HOLC plan would purchase the mortgage loan (those "toxic assets" banks hold) at current value and then provide the relief the homeowner would need.

"Entice?" This seems an inadequate plan for the situation to me. I'll await more information before writing further.

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    You inadvertently point out the problem: (5.00 / 1) (#2)
    by steviez314 on Wed Feb 18, 2009 at 10:57:25 AM EST
    A HOLC plan would purchase the mortgage loan at current value

    What is the mortgage loan's value?  What the banks are carrying it at?  No, that screws the taxpayer.  What the "market" says it's worth?  Well, that just makes every bank probably insolvent.  (Now don't get me started on why the market values are wrong too, and mark-to-market accounting is stupid and why most banks are not YET insolvent, at least on a cash-flow basis).

    So, a mortgage loan's "value" is probably somewhere between those 2 numbers, but beat's me what it is!  How to entice a bank to sell the loan at that price is probably more difficult than enticing them to lower the rate on the loan.

    THAT is exactly the problem (none / 0) (#12)
    by cotton candy on Wed Feb 18, 2009 at 11:15:15 AM EST
    This totally screws the homeowner as we are left buying up all of these toxic assets at whatever the "market rate" is.

    The part about refinancing these mortgages and getting them to reasonable interest rates instead of buying a bunch of potentially worthless assets seems more reasonable to me.


    The banks are already insolvent though (none / 0) (#26)
    by Militarytracy on Wed Feb 18, 2009 at 11:51:43 AM EST
    and it is mostly their own fault thanks to the shadow banking system most of them were enjoying playing in until the ponzi came home.  The banks are insolvent and need to be nationalized, this is the time for real HOLC that does not discriminate.

    The banks are not (yet) insolvent (none / 0) (#36)
    by steviez314 on Wed Feb 18, 2009 at 12:13:07 PM EST
    I have really looked hard at some banks' balance sheets, income statements and cash flows, and have talked with a few very well respected bank analysts and the conclusion is the banks are not yet insolvent.

    If unemployment hits 10%, yes they will be, but as of now, they are cash flow solvent.  It is only the foolishness of mark-to-market accounting that makes them seem to be balance sheet insolvent IN THE FUTURE.

    I appreciate that Krugman, Roubini and Taleb say they are or will be insolvent, but I really doubt that any of them have actually examined the specific financial statements of Citibank for example, let alone do a proper examination of the banks' assets and liabilities.


    But Cash Flow Solvency is Just One Leg... (5.00 / 1) (#56)
    by santarita on Wed Feb 18, 2009 at 12:31:07 PM EST
    of the solvency equation.  If the assets are less than the liabilities, their long term ability to meet cash flow needs is in question.  And assets minus liabilities insolvency is important for keeping the credit flowing.  Who wants to do a capital markets deal with a shaky bank?

    The mark to market vs mark to hold issue is just a way of saying that we will do regulatory accounting instead of GAAP.  That may be necessary as a temporary measure.  Don't you think that the mark to hold valuation technique will make it less likely that banks will want to do loan modifications that mark down the loan principal?


    Two points (none / 0) (#66)
    by steviez314 on Wed Feb 18, 2009 at 12:40:23 PM EST
    Balance sheet insolvency is also a function of matching the maturities/run-offs of assets and liabilities.  I don't have access to enough information to determine if the banks' liabilities match up well enough with the assets.  Certainly, the TARP preferred stock helped, as did the extended gov't guarantees on deposits.  Those were all just fancy ways to avoid a run on the banks.

    If banks did mark-to-model, which would account for the discounted cash flows produced by the mortgages, load mods might actually help, by improving the current status of payments and odds for repayment.


    We are only at the beginning (none / 0) (#80)
    by Militarytracy on Wed Feb 18, 2009 at 12:49:06 PM EST
    of the worst we are going to see.  I don't think that mark-to-model is worth a bucket of spit right now and this is just the beginning of the foreclosure problems we are going to deal with too.  Because the shadow banking system has not been revealed, and if it was it would freak everyone totally out, I don't understand how you hope to make assumptions that the banks aren't yet insolvent.

    I'm not going to argue with you (none / 0) (#53)
    by Militarytracy on Wed Feb 18, 2009 at 12:28:45 PM EST
    That would be silly because you have obviously made up your mind.  But if they are cash flow solvent why isn't credit flowing?

    Why aren;t you and I out there shopping? (none / 0) (#71)
    by steviez314 on Wed Feb 18, 2009 at 12:42:44 PM EST
    Becuase we're scared about the future, just like the banks.

    They have enough capital right now to support their existing loans, but hardly enough to make any new ones.


    I'm not out there shopping (none / 0) (#83)
    by Militarytracy on Wed Feb 18, 2009 at 12:51:20 PM EST
    because I've never been particularly materialistic.  I'd rather make stuff.  I did buy a Martha Stewart subscription though.  You can't believe what you can do with twine :)

    Do the banks have (none / 0) (#129)
    by BackFromOhio on Wed Feb 18, 2009 at 08:28:15 PM EST
    enough in asset values to meet required debt coverage ratios?  

    One good thing (5.00 / 0) (#4)
    by ruffian on Wed Feb 18, 2009 at 11:03:47 AM EST
    is that it does seek to do something to help people before they are already behind on their payments or, even worse, in foreclosure or bankruptcy. That is something I had not seen in previous ideas this time around. I don't know if the old HOLC had that kind of provision.

    Negotiated with himself first again? (5.00 / 5) (#9)
    by ruffian on Wed Feb 18, 2009 at 11:09:12 AM EST
    with the emphasis on 'enticing' banks rather than 'making' them, I'm afraid Obama may be starting out asking for too little again. Whatever will Susan Collins say?

    HASP (5.00 / 3) (#18)
    by squeaky on Wed Feb 18, 2009 at 11:25:08 AM EST
    Isn't a hasp something that holds a padlock and gets screwed onto the front door after foreclosure?

    Not a pretty image.

    Ha ha ha ha ha ha ha (5.00 / 2) (#22)
    by Militarytracy on Wed Feb 18, 2009 at 11:36:00 AM EST
    This sounds like something that Joshua would say if he knew what a hasp was.  This past weekend his dad spent hours in his woodshop and I spent the weekend trying to figure out how to salvage some of my pots I threw in college.  They had lids with handles, it took hours and hours to figure out how to throw them and then I accidentally dropped something on them and broke two handles off.  I figured something out though using that mighty putty stuff.  Josh told me that his parents were artistic, and also that we had given him artism.

    Artism. (5.00 / 2) (#45)
    by oldpro on Wed Feb 18, 2009 at 12:21:31 PM EST
    Honest to gawd, Tracy, that is SO marvelous!

    If you could see the Rainman look (5.00 / 2) (#55)
    by Militarytracy on Wed Feb 18, 2009 at 12:30:14 PM EST
    on my husband's face when he's woodworking :)

    He Is Obviously (5.00 / 2) (#76)
    by squeaky on Wed Feb 18, 2009 at 12:46:03 PM EST
    On the pulse of what matters. I am not surprised considering where he is coming from.

    Artism is where it is at.


    Or maybe not, as to commercial (none / 0) (#91)
    by oculus on Wed Feb 18, 2009 at 01:06:56 PM EST
    artism.  Before curtain last night, the head of the opera company sd. next year the comopany cut back from five productions to four.  The big donors aren't fulfilling their pledges.

    Not About $$ (none / 0) (#96)
    by squeaky on Wed Feb 18, 2009 at 01:19:24 PM EST
    But about a creative way of seeing the world. For some that can never be taken away despite lack of funds.

    Contemporary arts funding is shriveling up. My guess is that 50% or more art galleries will close their doors and contemporary art sales will be a pittance of what they have been in the last few years. This is a good thing imo.

    When there is little or no money less the power brokers are more open to taking risks and are vastly less conservative. When the money is pouring in art dealers and the industry is risk averse because they want to maximize profits during an up cycle.

    Also a good purging allows the truly committed to surface from the masses of those in it for short term gain.


    Not about $$ but about (none / 0) (#97)
    by oculus on Wed Feb 18, 2009 at 01:23:42 PM EST
    a creative way of seeing the world.  Don't think I'll forward that just yet to my starving artistic daughter.  

    Why? (none / 0) (#99)
    by squeaky on Wed Feb 18, 2009 at 01:27:43 PM EST
    Is she about to give up on artism? Most artists have a day job. Many that have been able to avoid that in the last 5 years or more will be back to work.

    Nothing new.


    Let's just say she is "on the cusp." (none / 0) (#100)
    by oculus on Wed Feb 18, 2009 at 01:29:35 PM EST
    And, of course, she has a day job--and a nights and weekend job.

    Sounds Like No Time (none / 0) (#101)
    by squeaky on Wed Feb 18, 2009 at 01:43:44 PM EST
    FOr making art...  Anyway the subject of artism is entirely different imo. It is a state of mind that some have that has nothing to do with production or $$.  

    It is a state of mind, but, without (none / 0) (#106)
    by oculus on Wed Feb 18, 2009 at 02:03:28 PM EST
    some person or organization willing to pay for it, we'll never see the results of all that creativity.  

    Van Gogh kept creating (none / 0) (#109)
    by of1000Kings on Wed Feb 18, 2009 at 02:34:19 PM EST
    even though he only had enough money to eat paint and not real food...

    His brother Theo supported him. (none / 0) (#112)
    by oculus on Wed Feb 18, 2009 at 02:47:30 PM EST
    his brother did help him (5.00 / 1) (#118)
    by of1000Kings on Wed Feb 18, 2009 at 04:54:38 PM EST
    to a degree...

    but he still didn't live well at all...

    artists have to be supported by the community, if all the support is from commercialism then I'm not sure pure creativity can last...

    and all the good ideas come from pure creativity, even if in America we treat artists like dirt, below athletes and actors and bankers...


    I quite strongly agree with you. (none / 0) (#121)
    by oculus on Wed Feb 18, 2009 at 05:32:52 PM EST
    The more I think about it, the more I'd rather (none / 0) (#122)
    by oculus on Wed Feb 18, 2009 at 05:34:38 PM EST
    my tax $$ go to support the arts than to support people who never could afford the mortgage payments on the homes they bought. But, then, it turns out the grandmother of the CA octuplets is about to be foreclosed on.  

    Not True (none / 0) (#125)
    by squeaky on Wed Feb 18, 2009 at 06:13:27 PM EST
    The state of mind I am talking about is evident in all things someone who has artism does. It does not have to become a commodity nor does the person have to be exceptionally talented.

    It is just a way of seeing the world and acting accordingly.

    Nothing to do with $$, ambition, or talent.


    it something that needs to be started at a young (none / 0) (#126)
    by of1000Kings on Wed Feb 18, 2009 at 07:40:41 PM EST

    unfortunately it's not...

    most public schools in rural areas have almost zero focus on being creatively-minded...

    it's more important to throw a football well (don't get me wrong, I like football, just think America's priorities are all wrong)...

    public schools in rural areas don't expect the children to think for themselves, they'd rather brainwash them into being consumers and thinking that America does no wrong (just look at a public school history book, wow)...


    and we can't expect the parents to do much (none / 0) (#127)
    by of1000Kings on Wed Feb 18, 2009 at 07:41:19 PM EST
    b/c these parents in rural areas grew up in the same brainwashing school systems...

    Careful - (none / 0) (#130)
    by BackFromOhio on Wed Feb 18, 2009 at 08:33:07 PM EST
    Are you saying all people in rural America are brainwashed?  I thought we heard the last of this stuff during the primary.  

    I would never say all (none / 0) (#136)
    by of1000Kings on Thu Feb 19, 2009 at 01:10:29 PM EST
    just that it is predominant...

    and who isn't brainwashed...

    I can only speak for rural areas in Missouri, though, not other states, as these areas are my only experiences with rural areas...


    I suspect (5.00 / 0) (#19)
    by Steve M on Wed Feb 18, 2009 at 11:25:20 AM EST
    that a bona fide HOLC would require much, much more money at the front end than this plan, which only leaves the government on the hook for one-half of the amount of the mortgage relief as opposed to the full value of the mortgage.

    On the other hand, with HOLC you recoup more money at the end of the day by selling off the mortgage you've purchased.  Maybe the government even does better with HOLC in the long run.  But you still have to find the political will to come up with a large pot of money at the front end to make HOLC work, and maybe they just don't think this is feasible right now.

    How did FDR do it with (none / 0) (#27)
    by Militarytracy on Wed Feb 18, 2009 at 11:53:21 AM EST
    so much less?  Do you know the history on it?  I don't.

    In real dollars (none / 0) (#82)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:51:00 PM EST
    it really was not that much less.

    Hypothesis: bank nationalization (5.00 / 3) (#20)
    by andgarden on Wed Feb 18, 2009 at 11:27:12 AM EST
    is a prerequisite to real HOLC.

    Yes, I think you are right (5.00 / 1) (#30)
    by Militarytracy on Wed Feb 18, 2009 at 11:55:35 AM EST
    and I don't understand how the Obama administration for moment thinks that somehow we can avoid bank nationalization.  Or perhaps they are attempting to figure out a way to get there with as little panic as possible.  Because some people are going to panic.  It is going to be horrible when we have to do go there.  A lot of people will not understand what is really happening and they will be terrified.

    We already went there with (5.00 / 1) (#51)
    by oldpro on Wed Feb 18, 2009 at 12:27:53 PM EST
    Freddie and Fannie...and AIG.

    Besides...to avert any panic, all we have to do is put Bill Clinton on TV and have him explain it to the country.

    Game. Set. Match.

    But it's not gonna happen...


    I was living in Gillette WY when (none / 0) (#63)
    by Militarytracy on Wed Feb 18, 2009 at 12:37:46 PM EST
    the FDIC had to take over Stockmans Bank.  It was such a mess.  I'll never forget it.  First of all, some businesses were afraid to take checks from Stockmans. I was standing in front of this poor woman when her check was refused and she heard for the first time that her bank was "closed".  Holy Cow, I'm scarred for life from witnessing that nervous breakdown of another fellow human being.  Within 24 hours things were better, merchants realized that you could take a check from Stockmans as long as you aren't taking a $100,000.00 check from Stockmans.  It was ugly though.

    Maybe we'll have to go to (5.00 / 2) (#93)
    by oldpro on Wed Feb 18, 2009 at 01:10:34 PM EST
    the mattresses after all...one way or another...

    All the signs point to (5.00 / 2) (#61)
    by gyrfalcon on Wed Feb 18, 2009 at 12:34:09 PM EST
    the idea that we are going there.  I think your second thought is the right one.  They have to wait until they get their ducks in a row, have the results of the "stress tests" on the Big 8 banks in hand as justification and be ready to shoot fast.

    I think Greenspan's remarks on the likely necessity of nationalization yesterday are telling, and I wouldn't be at all surprised if he was encouraged to say that by Geithner et al.  Lindsey Graham is surely acting on his own, but he's talking about it, as well.

    My sense is that the ground is being prepared here.


    Henry Clay was spot on so many years ago... (none / 0) (#110)
    by of1000Kings on Wed Feb 18, 2009 at 02:37:15 PM EST
    we've just had to take the scenic route to his ideology, instead of just accepting it when it was espoused...

    Greenspan says banks may need to be nationalized-- (none / 0) (#85)
    by jawbone on Wed Feb 18, 2009 at 12:55:20 PM EST
    From FT article (free registration req'd):

    Greenspan backs bank nationalisation
    By Krishna Guha and Edward Luce in Washington

    Published: February 18 2009 00:06 | Last updated: February 18 2009 00:06

    The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman, has told the Financial Times.

    In an interview, Mr Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism, said nationalisation could be the least bad option left for policymakers.

    Providing cover for Geithner/WH/Repubs?


    Thank god he's helping prepare (none / 0) (#92)
    by Militarytracy on Wed Feb 18, 2009 at 01:09:53 PM EST
    the flippin bubbles bubbles toils and troubles high priest of laisser-faire capitalism indeed.

    Based on Greenspan's track record, (none / 0) (#94)
    by steviez314 on Wed Feb 18, 2009 at 01:13:50 PM EST
    him saying the banks need to be nationalized is one of the strongest arguments against it.

    Except for the broken clock theory....


    You're really against this nationalizing banks (none / 0) (#98)
    by Militarytracy on Wed Feb 18, 2009 at 01:23:51 PM EST
    thing huh?

    Only if/when it's necessary (none / 0) (#102)
    by steviez314 on Wed Feb 18, 2009 at 01:53:40 PM EST
    I don't think it's necessary yet.  It might be in the future.

    What I am is skeptical.  All I can think of is how easily the "nationalization" word is bandied about these days (even Lindsey Graham!), similar to "Iraq has WMDs, we have to invade."

    I just really don't see it needed yet; I want to see those thorough stress tests done.


    And I'm part of the fearful :) (none / 0) (#103)
    by Militarytracy on Wed Feb 18, 2009 at 01:57:45 PM EST
    I Kinda Like (5.00 / 1) (#124)
    by squeaky on Wed Feb 18, 2009 at 06:10:39 PM EST
    The idea of bankers becoming civil servants.

    Think about it.... (none / 0) (#104)
    by Inspector Gadget on Wed Feb 18, 2009 at 01:57:50 PM EST
    they want to OWN our Financial Health, but they want nothing to do with our physical well-being.

    That truly bothers me.


    Fair enough (none / 0) (#105)
    by Militarytracy on Wed Feb 18, 2009 at 02:01:03 PM EST
    That is food for thought

    Quite possible (none / 0) (#37)
    by ruffian on Wed Feb 18, 2009 at 12:13:08 PM EST
    Until preserving the precarious health of the banks is taken out of the equation, not much meaningful help can go to the homeowners.

    I guess this is one of those policy issues (5.00 / 1) (#31)
    by masslib on Wed Feb 18, 2009 at 12:02:49 PM EST
    where there was substantial differences between Obama and Clinton, but probably not a big enough difference to override Obama's media status as a mechanism for pushing an progressive agenda, I guess.

    Situation has changed (5.00 / 0) (#64)
    by gyrfalcon on Wed Feb 18, 2009 at 12:38:02 PM EST
    since HRC was advocating for HOLC.  I don't know enough about it to analyze it coherently, but she might well have a different take on it now.  I think with anything to do with our economic and/or financial system mess, it's not useful to compare what's being done now with what was being proposed a year -- or even a few months -- ago.

    I still think it's the right policy. (none / 0) (#67)
    by masslib on Wed Feb 18, 2009 at 12:40:38 PM EST
    I see no evidence the situation has changed in anyway that makes the HOLC less necessary now than then.

    It would be interesting to know (none / 0) (#77)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:46:23 PM EST
    what the changes in the situation you hypothesize are.

    Yes, please, what are the changes which make HOLC (none / 0) (#87)
    by jawbone on Wed Feb 18, 2009 at 12:58:29 PM EST
    undoable or would cause Hillary to change her mind? Thnx much for reply.

    Told you guys (none / 0) (#113)
    by gyrfalcon on Wed Feb 18, 2009 at 02:54:33 PM EST
    I don't have enough info or knowledge to analyze it, so you'll have to do that for yourselves.

    But the housing crisis is vastly worse, the big banks are in terrible trouble, and the financial system is still semi-frozen.

    All I'm saying is that a proposal that fit the circumstances a year ago isn't necessarily one that would work in the very changed circumstances we have now, and the person who pushed for it then (ie HRC) wouldn't necessarily be promoting it now if she were in a position to do so, which of course she isn't.

    I'd love to read somebody who knows this stuff do the analysis.

    Is anybody still pushing HOLC as the solution to our housing woes other than people who remember Hillary was for it a year ago?


    Another timid attempt... (5.00 / 1) (#35)
    by santarita on Wed Feb 18, 2009 at 12:12:45 PM EST
    What is with the $1,000 bonus for servicers?  Is this some form of bribery?  I may be mistaken but aren't many servicers already receiving fees for modifications and aren't many servicers owned by major banks?  

    The plan amounts to buying down principal and/or interest rates.  I guess this is ok.  There is still too much of a voluntary nature involved here.  I think bankruptcy cram down will get more bang for the buck immediately.  

    I sure don't know (5.00 / 0) (#70)
    by gyrfalcon on Wed Feb 18, 2009 at 12:42:03 PM EST
    but I like the fact that the Obama people seem to be going at all of these problems from a number of different directions at once and not putting all their (and our!) eggs in one basket.  Chip away at it from several different sides, see what happens, then rebalance as necessary.

    This whole housing/economic/financial mess is like a big blob of silly putty or something.  You poke it on one side and something unexpected blobs out somewhere else.  There are a lot of levers that aren't fully understood here, and a huge risk of nasty unintended consequences.

    Seems to me they need to be a little cautious and very, very nimble.


    "Timid" is increasingly ... (5.00 / 1) (#59)
    by Robot Porter on Wed Feb 18, 2009 at 12:31:47 PM EST
    the word that seems to fit the Obama administration's actions regarding the economy.

    They seem unduly afraid of the political push-back against progressive policies, but not afraid enough of the dangers inherent the current economic situation.

    This is "centrist" in the worst sense of the word.  A fence-sitter, mugwumpish perspective that could mean ruin during this particular crisis.

    Far be it from me (5.00 / 0) (#73)
    by gyrfalcon on Wed Feb 18, 2009 at 12:44:50 PM EST
    to defend them unduly, but I think there's more than political timidity going on here.  As I said in another comment, they really do have to step carefully on these economic/financial issues because nobody really knows what the consequences are going to be of anything they do and where they might step on some undetected mine and blow things up even worse.  Remember that it seemed like a good idea at the time to let Lehman fail.

    Careful, Yes but (5.00 / 1) (#89)
    by santarita on Wed Feb 18, 2009 at 01:00:34 PM EST
    one can be too careful.  The government may be trying too hard to accommodate the desires of the financial industry or trying to maintain a financial industry that can't be maintained as currently structured.

    I look at the HASP proposal as incrementally better than the voluntary HOPE legislation.  Probably would have had more bang for the buck had this been proposed last year.


    Agreed (none / 0) (#116)
    by gyrfalcon on Wed Feb 18, 2009 at 02:59:03 PM EST
    I don't know enough to say one way or the other, though as an ordinary citizen scared witless by what's been going on, my instinctive prejudice is for very aggressive action.  But it ain't my field.

    I am deeply impressed, however, by the unintended consequences of deciding to let Lehman go under, which eveybody concerned thought was an excellent idea at the time in order to drive home the lesson of "moral hazard."


    Perhaps, if you think economics ... (none / 0) (#79)
    by Robot Porter on Wed Feb 18, 2009 at 12:48:09 PM EST
    is as confusing as the people who got us in this mess think.

    I do not.


    Oh, well, then... (none / 0) (#114)
    by gyrfalcon on Wed Feb 18, 2009 at 02:55:57 PM EST
    I thought I read that it included (none / 0) (#1)
    by andgarden on Wed Feb 18, 2009 at 10:51:47 AM EST

    It will require congressional approval (none / 0) (#3)
    by jbindc on Wed Feb 18, 2009 at 10:58:14 AM EST
    While some of the measures can be implemented by the Treasury Department, others parts of the plan will require congressional approval. For example, a key part of the administration's new package is legislation changing the bankruptcy law to allow judges to modify the mortgages of distressed homeowners, including by reducing the principal of the loan to the property's current market value. "My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value -- as long as borrowers pay their debts under a court-ordered plan," Obama said.

    The provision has already passed a House committee, but faces fierce opposition from the financial services industry and Republicans. About 150 consumer bankruptcy lawyers descended on Capitol Hill last week to lobby for the measure.

    "These attorneys see every day the real-world impact of the failure over the last 18 months of meaningful solutions from Washington," said Maureen Thompson, of National Association of Consumer Bankruptcy Attorneys.



    Hmm (none / 0) (#5)
    by andgarden on Wed Feb 18, 2009 at 11:04:00 AM EST
    Time to "call your Congressman" I guess.

    absolutely! (none / 0) (#11)
    by jedimom on Wed Feb 18, 2009 at 11:14:11 AM EST
    right on, if they vote against it, they will i hope look like this clip from History of the World Part One

    Well, good, but then why did he have the Senate (none / 0) (#34)
    by masslib on Wed Feb 18, 2009 at 12:09:25 PM EST
    pull it from the must-pass stimulus?  Hmmm.

    Isn't this cramdown? (none / 0) (#7)
    by ruffian on Wed Feb 18, 2009 at 11:05:05 AM EST
    "My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value -- as long as borrowers pay their debts under a court-ordered plan," Obama said.

    Of course as others have said determining 'fair market value' is the problem.


    mo mod (none / 0) (#15)
    by jedimom on Wed Feb 18, 2009 at 11:19:46 AM EST
    the mo mod software they have ready and an appraisal is definitely needed...it is part of the plan I believe

    I assume (none / 0) (#46)
    by AF on Wed Feb 18, 2009 at 12:22:16 PM EST
    That in bankruptcy the mortgage would be reduced based on the fair market value of the house.  That is much easier to figure out than the value of the mortgage itself.

    Why should (none / 0) (#131)
    by BackFromOhio on Wed Feb 18, 2009 at 08:43:07 PM EST
    individuals have to wait until they hire a lawyer & file a bankruptcy petition?  Is this really an efficient way to provide foreclosure relief?  And am I missing something, or does Obama's proposal (HASP) require a lot of convoluted calculations of months paying this and that?
    Also, I am curious as to why people think that the current mess the banks are in dictates against nationalizatin?  If the banks are a mess, and we cannot figure out what's going on, wouldn't it be better to had the banks nationalized, federal employees without a reason to obfuscate to go through the books and realize value for we taxpayers who are footing the bill?

    WH FACT SHEET (none / 0) (#6)
    by jedimom on Wed Feb 18, 2009 at 11:04:21 AM EST
    suggest, require, guidelines (none / 0) (#8)
    by jedimom on Wed Feb 18, 2009 at 11:08:41 AM EST
    from first read it will be mandatory for TARP recipients going forward and key here, anyone who wants the incentives in it has to comply and once congress passes the partial cramdown they will do it that is the big stick, but this part sounds like it will be official policy for all of them soon:
    Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC's pioneering work. The Guidelines will be used for the Administration's new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans' Affairs and the Department of Agriculture.

    and here it sounds like they are trying to do an end run around rhe HOLC wihtout calling it HOLC dopey critters:

    Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs' retained mortgage portfolios allowed under the agreements - by $50 billion to $900 billion - along with corresponding increases in the allowable debt outstanding.

    Do I have this right (none / 0) (#132)
    by BackFromOhio on Wed Feb 18, 2009 at 08:48:12 PM EST
    taxpayer money will have to back up mortgage loan guarantees -- & who gets the property if there's a foreclosure?  

    Hopefully enticement is in the form (none / 0) (#10)
    by magster on Wed Feb 18, 2009 at 11:10:58 AM EST
    of an "offer he can't refuse".

    cnbc (none / 0) (#13)
    by jedimom on Wed Feb 18, 2009 at 11:16:40 AM EST
    diana olick saying treasury 'recognizes' lenders will choose to lower interest rates under subsidy and NOT lower principal, yes we know that is why we need cramdowns since they wont just do HOLC....

    ALSO saying March 4th start date

    Here's something I don't understand: (none / 0) (#14)
    by Anne on Wed Feb 18, 2009 at 11:16:55 AM EST
    If Joe and Jane Homeowner are current on their mortgage payments, why should they get a break on their interest rate just because their home has dropped in value and they are upside-down on their loan?  If they're making the payments, how are they in trouble?  Loan-to-value fluctuations happen with homes all the time - but as long as you can afford the payments, why should you get special help?

    I can appreciate that break for those who are behind on their payments, or one step from going into foreclosure, but I don't see why those who are current should get the break.

    Am I missing something?

    deed in lieu of foreclosures (5.00 / 1) (#17)
    by jedimom on Wed Feb 18, 2009 at 11:23:27 AM EST
    in non recourse states like AZ and CA, homeowners can walk away and do a deed in lieu of foreclosure ie jingle mail

    say sue homeowner in her house for 15 yrs, but foreclosures around her from flippers, as a result, her value drops to the value of the foreclosure sales, say from 220k to 160k, now she owes 200k after paying on time for 15yrs but her house is worth less than that

    eventually 50% of homeowners in sue's position walk away form the house and go rent for less than half the price of their monthly pymt

    that is another home in foreclosure and the last homeowner still on the block will have THEIR homevalue drop thus recreating the cycle of deflation

    this is why they are trying to do mo mods

    part of the mo mod is language in the mort that it is now a recourse loan and if you walk away you still owe the debt, this way people stop walking away


    An ounce of prevention (5.00 / 2) (#40)
    by ruffian on Wed Feb 18, 2009 at 12:17:37 PM EST
    By the time people are in foreclosure, or so far behind on payments that they are near foreclosure, it takes significantly more resources to get them out of the mess. Investing a little to put them on more solid footing before they get there saves a lot of money.

    Also, in this market, there is significant incentive for people to walk away from the mortgage. They put very little, if any, money down, and it makes a lot more sense for them to walk away than to continue to be underwater in a mortgage they can barely afford.


    I'll add that these are not (5.00 / 1) (#44)
    by ruffian on Wed Feb 18, 2009 at 12:20:25 PM EST
    the times of normal loan-to-value fluctuations in places like California and Florida and Las Vegas.  The values are not going to go up for many, many years.

    This is what is missing (none / 0) (#21)
    by Militarytracy on Wed Feb 18, 2009 at 11:31:40 AM EST
    You have to give everyone the break or else Joe and Jane Homeowner lose incentive to continue to pay their mortgage.  It won't really matter if it damages their "credit rating" because they are only joining the masses of damaged credit rated.  When I lived in the West and the oil and gas boom died and everyone was going bust and had to start over again, damaged credit came to mean very little because everyone had that.  Some people even ended up buying a much better property when their credit was still undamaged, and moving into that at the new lower prices then defaulting on their old property. It didn't matter once again that their credit took a ding in real world consequences terms.  Anytime a property is foreclosed on though the system loses much much more than if the loan and incentive was saved on new agreed terms.

    I guess I am having a hard time (none / 0) (#41)
    by Anne on Wed Feb 18, 2009 at 12:18:17 PM EST
    imagining that those who are current on their mortgages and whose neighborhoods are not being adversely affected by foreclosures would need an incentive not to walk away.

    For that matter, if someone is in an area where there are a lot of empty and foreclosed homes, how does lowering the rate on a mortgage they can already afford change anything?  If my neighborhood is going to hell, what difference does it make if I have a low-interest mortgage - why do I want to stay there, and why wouldn't I walk away if no one's going to be buying my home if I try to sell it?

    And what happens if the value continues to drop?  Do I keep getting more bites at the apple?

    I get why it makes sense to help people who are behind on their payments, or who are already in foreclosure.  And I can understand how people who are current on their mortgages might be behind on everything else, and having more cash would keep the lights and the phone on.

    I'm probably overthinking it (one of the not-so-good Virgo traits, lol); I guess I should just be grateful I don't need the help, huh?


    If things weren't going to get any worse (5.00 / 1) (#50)
    by Militarytracy on Wed Feb 18, 2009 at 12:26:43 PM EST
    If this was just a recession and not on the verge of depression everything you say makes complete sense.  We already know though that things are going to get worse.  If we went HOLC it would do much to stabilize the property values and give everyone incentive.  Without HOLC and nothing stabilizing property value, and more and more unemployment every day which will lead to more people having trouble paying their mortgages and filing bankruptcy......... There are proactive things we can do.  HOLC at this time is one of them.  Nationalizing the banks at this time is another.  We can do them now or we can wait for the damage that forces us to do them, and I'd rather do them now.

    I'd be in quite a state of fury if (5.00 / 1) (#65)
    by Inspector Gadget on Wed Feb 18, 2009 at 12:39:59 PM EST
    I was sitting in one of the only occupied homes in a neighborhood and the value of the home was diminished significantly because of the foreclosures around me. I would absolutely feel the need to be adjusted appropriately for the losses that were dumped on me.

    In Phoenix, the foreclosed on homes were/are underwater by half. Homes people paid $300,000 for can easily be now valued at under $130,000 depending on the current condition of the neighborhood. The surge there was huge with investors buying brand new homes, putting in zero upgrades and by the time the house was built, the builders would have raised the prices on that floor plan by some tens of thousands, so the investor would immediately sell. Those that weren't sold right away were rentals that were not cared for, and ran the neighborhoods down.

    Builders were doing multiple things: 1. they were raising the prices on the homes every single week by $1,000 and more, 2. they were giving a $5,000-10,000 "incentive" if you used THEIR lending agent, 3. they were claiming you had to be buying a primary residence to get the house (but, that was the one they were doing NOTHING to verify).

    I'd love to see the banks, and the builders forced to design a fair restitution plan for the people who have already lost their homes, and those who are still caught in the web. They broke the system. Although, builders are not being bailed out and many have been forced out of business.


    I think there should and will be (none / 0) (#49)
    by ruffian on Wed Feb 18, 2009 at 12:25:40 PM EST
    discriminators based on debt to income ratio, etc. I agree that if someone is in perfectly fine shape there is no need to help them. I think it is meant to catch the people that have not quite fallen off the edge yet.

    and yes, I think the deity I'm not one of them too!


    Well said (none / 0) (#54)
    by gyrfalcon on Wed Feb 18, 2009 at 12:29:44 PM EST
    But I don't think there's any way to rescue everybody.  How many of the millions of people who are in danger of foreclosure are in those devastated neighborhoods, I wonder?

    Also, it seems to me that if the housing situation gets stabilized, and the economy begins to perk up, those homes in those foreclosed neighborhoods are eventually going to start to be bought up.  There will be some fabulous bargains, and people will eventually start to resettle the areas.

    If somebody still hanging on in one of those places is willing and able to continue to hang on, it'll come right-- eventually.  Lowering the mortgage rate acts, I would think, as an incentive to hang on rather than just throw in the towel and give up.

    Not nice living in one of those hard-hit neighborhoods, but the government can't make everything nice again immediately for everybody.  Best they can do, seems to me, is make it possible for more people to hang on.


    But, they've made it right for the banks (5.00 / 1) (#68)
    by Inspector Gadget on Wed Feb 18, 2009 at 12:41:31 PM EST
    who caused it.

    Who's made what right? (5.00 / 1) (#111)
    by gyrfalcon on Wed Feb 18, 2009 at 02:46:40 PM EST
    If you mean the U.S. government has made everything hunky-dory for the banks, you're living in lotusland.

    So the number of bank executives who (none / 0) (#128)
    by Inspector Gadget on Wed Feb 18, 2009 at 07:51:10 PM EST
    lost their jobs is equal to the number of people who lost their homes and had their credit rating destroyed? The banks were quickly awarded billions of dollars, the homeowners have yet to see the help and many have already been foreclosed on. The rules that will govern what the people can expect are weeks away from being disclosed.

    This problem is so, so much bigger than people who bought above their means.


    I agree with all you say here (none / 0) (#134)
    by gyrfalcon on Wed Feb 18, 2009 at 11:45:42 PM EST
    but you really need to understand that the banks haven't been "made right."  They and their employees, investors, shareholders have all taken huge hits, and it's not clear that some of these institutions are going to survive.

    And then there's the litany of financial institutions that were allowed to fail or had to be swallowed up by others.  See Lehman Brothers and Bear Stearns.  Bear Stearns shares were trading at something like $160 less than a year ago, and shareholders, including all the employees, got $2 per when it was absorbed by JP Morgan or whoever it was and essentially ceased to exist.  That ain't what I'd call being "made right."

    Because not all the banks' executives have been fired doesn't mean they and their institutions and everybody touched by those institutions haven't suffered a huge blow.

    BTW, I saw an interesting op-ed in the Times that said the TARP $$ for some reason all went not to the banks themselves but to the holding companies, who were hoarding it as a cushion against further disaster rather than doling it out to the banks themselves, which is why it hasn't come back out in lending as it was supposed to.


    Also (none / 0) (#135)
    by CST on Thu Feb 19, 2009 at 09:55:18 AM EST
    Banks employ a lot of people who are not executives.

    And a ton of those people are out of work.

    Before you start talking about the banks being "fixed", you gotta remember that banks are much larger than just the executives.


    Maybe this will help (none / 0) (#74)
    by jbindc on Wed Feb 18, 2009 at 12:45:00 PM EST
    Under current lending standards, only those who owe less than 80 percent of their home's value can easily refinance. The problem is that millions of Americans who might have originally put 20 percent of the home's value into a down payment have now seen their home values plunge, making it nearly impossible to take advantage of today's historically low interest rates.

    Obama wants to allow 4 million to 5 million families who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

    The plan could save homeowners hundreds of dollars a month. Obama's staff presented an example of a family with $200,000 outstanding on a 6.5-percent mortgage. If they refinanced at 5.16 percent, they could save almost $200 each month.


    AS you said - maybe that $200 / month could go to something else - paying down other debts or spending (that darn "stimulus" thing again)


    Oh My God (none / 0) (#16)
    by Militarytracy on Wed Feb 18, 2009 at 11:23:07 AM EST
    You are going to "entice" the insolvent we ain't got no money lenders into what again?  And with all of this deflation following the burst of the bubble we are all going to keep on keeping on paying thousands and thousands of dollars beyond what our homes are really worth?  Not most people I know, and as I watch them all bail I wonder if my own inspiration to continue to pay for my own overpriced dwelling will hold out?  The banks are insolvent right now.  It isn't as if we are going to drive them into insolvency here.  They are insolvent, people are either upside down in their property or they are going to be in six months.  Will there ever be a better time for a real solution than now?

    phoenix (none / 0) (#23)
    by jedimom on Wed Feb 18, 2009 at 11:38:23 AM EST
    here our phoenix audience yahooing? and booing the banks and flippers and mcmcansion peeps that dragged us all into this mess

    we are underwater in phoenix blub blub burble

    I Wish Obama Would... (5.00 / 2) (#32)
    by santarita on Wed Feb 18, 2009 at 12:05:42 PM EST
    forget the Madison Avenue sales job and just give us the plan.  I don't care about cheering and jeering,  This is a sober time and to treat roll outs of drastic measures for drastic times minimizes the seriousness of the problem.  I understand that he is trying to maintain and capitalize the fact that he is very popular.  But at some point he needs to just forget the pyrotechnics.

    oops (none / 0) (#24)
    by jedimom on Wed Feb 18, 2009 at 11:38:41 AM EST

    simple math but........ (none / 0) (#25)
    by Jlvngstn on Wed Feb 18, 2009 at 11:42:47 AM EST
    75bn for 9mm homeowners comes out to about 8300 per.  I thought I first heard 275 bn which seems to be more realistic at 30k per.  

    I assume they took the average monthly mortgage payment in the US in 2008 which is $684, which when multiplied by 12 comes out to 12 and one tenth months worth of payments or roughly 8300 dollars.

    Consistent with its name, this is merely a stability program that is a wait and see approach as to what happens a year from now.  

    275 bn in my estimation would put money on the street, 75 bn allows the note holders insurance for 75 bn with no incentive to lend in my opinion.
    Wtih 275 bn they could make this more like an HOLC with is stumulative as opposed to stabilizing.  

    2005-6 monthly average (none / 0) (#29)
    by Jlvngstn on Wed Feb 18, 2009 at 11:54:24 AM EST
    sorry for the error

    fitting (none / 0) (#95)
    by Jlvngstn on Wed Feb 18, 2009 at 01:15:57 PM EST
    Fed Minutes: Fed Cuts 2009 Economic Forecast, Sees No Sign of Housing Market Stabilizing (Story Developing)

    Not a vote of confidence for the mortgage stabilization program.  Backing into the numbers for one years worth of payments demonstrates a lack of imagination.  Each crutch they send out should have a stimulative arm to it which will help bridge the shortcomings of the bills.  

    I would like to see bigger, bolder more courageous programs......


    I like this plan at first blush (none / 0) (#28)
    by Maryb2004 on Wed Feb 18, 2009 at 11:53:46 AM EST
    because it allows him to do a lot of things without the need for legislation and the one piece of legislation (the Bankruptcy bill) is already in the works.  It doesn't need creative legislatino which is just a euphamism for confusing legislation.  In fact I'm thrilled to see his support for the bankruptcy changes.

    HOLC would require creative legislation and there is no consensus yet on what legislation is necessary to fix the basic problem - as you say A HOLC plan would purchase the mortgage loan (those "toxic assets" banks hold) at current value and then provide the relief the homeowner would need but
    80% of the mortgages are securitized and it is not possible to purchase them at less than their original face value without going back and getting consent from all the bondholders.  And purchasing them at their face value is a windfall to the "bad guys" who hold the securities backed by those mortgages.  I did see a creative legislative solution to this problem a month or so ago and I wish I could remember where.  But so far there is no consensus on the legislative fix for that problem.  

    So, since is seems to me that his fix, utilizing the Fannie and Freddie guaranties, is a pretty good step while someone tries to figure out the securitization problem.

    Two points (5.00 / 0) (#33)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:08:52 PM EST
    1, any indication that this is just a holding pattern action, or is it not be touted as the solution?

    2, the blind faith that bankruptcy cramdowns are the answer is absurd in my mind.

    9 million bankruptcy filings? Does anyone have any idea how bankruptcy judges work?

    The fixation in the blogs on the cramdown provisions strikes me as naive and ill informed in the extreme.


    The bankruptcy changes (5.00 / 1) (#43)
    by Maryb2004 on Wed Feb 18, 2009 at 12:18:30 PM EST
    can't be the whole solution - but it is one way to get solution on a securitized mortgage.  That's why I'm thrilled to see it in here - because the securitized mortgages are a big problem.

    I know how the bankruptcy court works and you're right that it isn't the ultimate fix.  But it needs to be there to be one of the tools that can be used.

    I have no idea of this is the whole fix or just a holding pattern but I assume that they will try this and if it doesn't work they will try something else.  And in the meantime I assume the group of people who spend their time trying to come up with a legislative fix for the securitization problem will ... continue to try to find a workable legislative fix for the securitization problem in case someone ever decides to do something about it.  


    A federal law is a much better solution (5.00 / 1) (#60)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:32:03 PM EST
    I agree (none / 0) (#69)
    by Maryb2004 on Wed Feb 18, 2009 at 12:42:02 PM EST
    But I read your comment threads and see so much misinformation going about among your readers about HOW a HOLC could be done in this day and age that most of the time I don't even bother to read these posts anymore.

    Well (none / 0) (#81)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:49:48 PM EST
    I have read your theory on the "complexity" of the situation and simply do not agree with you.

    The government only needs to deal with mortgages on this - not the securitization of mortgages.

    You make THIS issue more complex than it really is.


    Here's Why I Think Cramdown... (5.00 / 1) (#47)
    by santarita on Wed Feb 18, 2009 at 12:23:08 PM EST
    adds something to the mix.  If lenders (and by extension servicers) know that bankruptcy cramdown is a possibility, then they will be more than likely to work out a loan modification outside of bankruptcy.  Having worked as counsel to a bank on problem loan workouts, debtor's counsel always tells you what they will do to you if they file bk.  The bank then takes into account whether or not the costs (in terms of outside attorneys fees and staff time) is worth trying to fight the matter in bankruptcy or if the proposed loan modification has the possibility of returning the loan to performing status after taking a partial charge off.  So it is not necessary to actually file bankruptcy but to be able to threaten it and show what you can do.  

    As to the burden on bankruptcy courts, Congress could make it a relatively simple process which will be much less of an evidence taking hearing and more of a formulaic process.  It will be a burden on bankruptcy trustees.  

    Cramdowns also let the servicer off the hook for loan modifications and minimizes the threat of litigation by MBS securities holders because now there is a force majeure kind of defense.


    But these are (5.00 / 0) (#133)
    by BackFromOhio on Wed Feb 18, 2009 at 08:56:21 PM EST
    individual bankruptcies under consideration. How many millions of people are going to know enough about bankruptcy and their rights under Obama's newly proposed whatever to use the supposed leverage?  I think too few.  I think Obama's proposal is interesting, but far too complex to work for the intended beneficiaries.

    Exactly (none / 0) (#48)
    by Maryb2004 on Wed Feb 18, 2009 at 12:24:51 PM EST
    Cramdowns also let the servicer off the hook for loan modifications and minimizes the threat of litigation by MBS securities holders because now there is a force majeure kind of defense

    Nice, concise way of putting it.


    I simply do not accept that (none / 0) (#58)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:31:40 PM EST
    as a "simple" solution. I do not think it will work at all.

    Cramdown is also ... (none / 0) (#62)
    by Robot Porter on Wed Feb 18, 2009 at 12:37:29 PM EST
    an inherently regressive rather than progressive solution, because it extends the individual's financial problems, albeit in a controlled manner.

    Not necessarily... (none / 0) (#90)
    by santarita on Wed Feb 18, 2009 at 01:03:40 PM EST
    ideally a cramdown allows a person to reorganize their finances so that they can repay their remaining debts in an orderly fashion.  Of course, people don't have to seek cramdown.  They can walk away from their debts (and their assets).  

    Look (none / 0) (#75)
    by Maryb2004 on Wed Feb 18, 2009 at 12:45:15 PM EST
    there IS no simple solution for the securitized mortgages unless you want the govt to buy them all at face value.  And you publishing post after post claiming that the govt can simply go in and buy up those mortgages at FAIR value doesn't make it so.

    Bankruptcy is one tool that can be used.  In the end a legislative fix would be better.  I agree with you on that.  


    I disagree (none / 0) (#78)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:48:02 PM EST
    Create HOLC and let it work.

    You seem to believe this is the first time we have gone through this.

    The situation is not appreciably different than the situation of the first HOLC.

    The government does not have to buy securities. It has to buy mortgages.

    I do not agree with you at all on this.


    Then we don't agree (none / 0) (#107)
    by Maryb2004 on Wed Feb 18, 2009 at 02:04:35 PM EST
    But mostly what I object to is what you avoid discussing in trying to sell this plan to your readers.  A material omission if you will.  

    The government does not have to buy securities. It has to buy mortgages

    I agree with you on that.   I have NEVER said they had to buy securities.

    Don't put words in my mouth.

    I said, and I continue to say, that being ABLE to buy the vast majority of mortgages in this country at less than face value is a problem because those mortgages are securitized - they are not owned by banks. Pools of these mortgages are held by trustees for the benefit of bondholders under trust indenture terms that do not allow the sale of the collateral at less than face value in most cases.  This was NOT true in the 1930's.  This is significantly different than the situation of the first HOLC.

    One of the more interesting parts of Obama's plan is his use of Freddie and Fannie who guaranty MBS - that apparently must give more flexibility on the mortgages held in those pools due to the full faith and credit of the federal govt being behind the bonds whether the collateral is there or not.


    Let's assume that it is true (none / 0) (#108)
    by Big Tent Democrat on Wed Feb 18, 2009 at 02:25:48 PM EST
    that the securitization of the mortgages actually is how you describe.

    I assume there is a public market for these securities. There is a market price today correct?

    Is that not the fair market value?


    Not sure what you are asking (none / 0) (#115)
    by Maryb2004 on Wed Feb 18, 2009 at 02:56:43 PM EST
    The fair market value of the bonds is different than the collateral value.  

    The underlying agreements pursuant to which the bonds are issued set the terms on which the trustee can deal with the collateral and there are provisions against impairing the collateral.  There is a trust indenture or similar document under which the bonds are issued and pursuant to which the collateral is held. The trustee then enters into a pre-approved Servicing Agreement with a third party (usually a bank) who does the day to day servicing of the mortgages but who is limited, contractually, as to what it can do with respect to the mortgages. That agreement generally can't be amended without the consent of the bondholders since it was part of the package of documents under which the bonds were sold to the bondholdes.

    And what makes it a nightmare these days is that there are multiple classes of bondholders (the infamous tranches) who have different rights in the collateral pool and so have different interests when it comes to giving consent. Not to mention ... the paperwork nightmare of just trying to get their consents.


    The Trust Indenture (none / 0) (#117)
    by Big Tent Democrat on Wed Feb 18, 2009 at 03:58:45 PM EST
    is hardly unamendable as you know.

    The Trust serves the bondholders.

    sort of my point about purchasing and determining the value of the securities.


    I'm still not sure (none / 0) (#119)
    by Maryb2004 on Wed Feb 18, 2009 at 04:56:56 PM EST
    if you mean the govt should go out and purchase the bonds?  I don't think that determining market value of the securities solves the problem of being able to modify the underlying collateral.  But it would give the govt. the right to consent to modifications as a bondholder.

    (and btw I think I do keep saying that the consent of the bondholders is necessary - but perhaps I didn't specifically say "to amend the terms of the documents including the trust indenture and the servicing agreement".)  

    Yes, the govt could, theoretically, buy up the bonds and then, as the bondholder, give its consent to mortgage modification.  But ... there are many, many bondholders so the govt would have to buy up lots of securities and not ALL of the bonds are held by troubled banks.  That was, in fact, one of the first thoughts last fall, until everyone thought about it and realized it would be difficult and expensive.

    If you can't buy them all to control the vote of the bondholders, you have to just go out and solicit the vote (which is cumbersome and expensive but not completely impossible).  Here's where the tranche problem comes in.  (I'm really going to generalize here).  

    Let's say you have a pool of $100 million of mortgages securing $90 million in bonds.  If all bondholders were equal they might agree to a restructuring and risk taking the hit on the collateral and their ultimate payout on the bonds because they'd figure that everyone would lose, but maybe not that much.  And if they do nothing they are going to lose something anyway.

    But let's say these bonds were sold in three tranches.  The first tranche is fully collateralized  - they get paid first.  So the value of the collateral would really have to go down in order for them to lose.  

    But the second and third tranches are less collateralized, they get paid off second and third.  They get higher interest rates because of the increased risk that the payoff won't be there but they also have the bigger reason NOT to want to intentionally lower the value of the collateral pool.  Becuse they, especially the third tranche, could walk away with nothing.  So those bondholders may choose to NOT approve a restructuring and just wait it out and see if anything is left over for them rather than consenting to something that automatically means nothing is going to be there for them in the end.  (That is a VERY simplified explanation).

    Buying up all the bonds might be slightly cheaper than paying off all the mortgages at 100% because presumably some of those third tranche holders would sell at a pretty big discount.  But everyone seems to agree that figuring out how to buy just enough control of each bond issue for each mortgage pool in the country would be incredibly difficult.  And doing it in a way that you weren't rewarding bad actors would make it even more difficult.

    Better to pass legislation that works around the bondholders. That's where your HOLC legislation comes in.  But that means it's ... more complicated.  You have existing private contractual rights being impacted by federal legislation.  

    I hope it makes more sense to you why I keep saying it's complicated.  Not impossible (I assume) but complicated.  Whenever you are going to pass legislation that takes something away from private parties, it gets complicated.


    Well (none / 0) (#120)
    by Big Tent Democrat on Wed Feb 18, 2009 at 05:13:21 PM EST
    I do not see it as that complex, whereas you do - the legislation I mean.

    I really do not. I think the legal stuff is pretty cookie cutter frankly.

    Of course, if you and.or I were to do the documents to get it done, it would cost money, but not much in the scheme of things.

    Consider the XM Sirius situation right now - where Malone gave 535 million to stave of an attempted takeover through bond purchases. What about the Trust Indentures there?

    Honestly, I do not see it as complicated lawyering at all.


    I'm not privy to the terms of the Sirius deal (none / 0) (#123)
    by Maryb2004 on Wed Feb 18, 2009 at 05:42:24 PM EST
    but as I understood it from the newspaper the investor took an equity stake and board seats and the first equity injection will go to pay off bonds that were due this week.  To me that just sounds like a typical injection of equity used to pay off debt that's due.  Last minute? Yes.  Big Equity?  Yes.  But not an atypical structure.

    I'm not sure how that corresponds to exchanging collateral securing an MBS but I'll just pass on that discussion.

    As I said, I assume legislation is possible.  I just think it is more complicated than your general commenters understand.  They are still thinking in 1930's terms. Go to the bank ... buy the mortgage.  There's a difference between complicated lawyering and complicated layman understanding.

    I don't have time to look right now, but months ago I read a very good summary of some of the complicated issues surrounding whether the government could or should buy the bonds. Some discussion about having to change the REMIC related tax laws, as I recall.  If I remember where it was I'll post a link.


    Hmmm (none / 0) (#57)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:31:08 PM EST
    "As to the burden on bankruptcy courts, Congress could make it a relatively simple process which will be much less of an evidence taking hearing and more of a formulaic process.  It will be a burden on bankruptcy trustees."

    Sounds like "creative legislation" to me.  

    Will the Congress also be creating a special "cramdown court" for the purpose? Name a thousand judges for it?

    And as for this point - "Cramdowns also let the servicer off the hook for loan modifications and minimizes the threat of litigation by MBS securities holders because now there is a force majeure kind of defense."

    Easier than that is a law authorizing the federal government to form a HOLC buying these toxic assets with the requisite protections you think necessary.

    In short, HOLC is the answer.


    Cram-Downs are already a part of (none / 0) (#84)
    by santarita on Wed Feb 18, 2009 at 12:54:27 PM EST
    Chaoter 11s, which is where my experience is.  And the formulaic approach wouldn't create new courts.  It would be much like filling out a sheet and checking certain boxes.  You qualify or not.  The whole residential cramdown legislation could be sunsetted in say 5 to 10 years.  

    HOLC would require much more in the way of creative legislation and is a much more drastic measure than cramdown.

    One of the benefits of cramdown is that it is a known concept and wouldn't require creative legislation.

    I don't think cramdown is the only answer or even the best answer.  I do think it could  be a helpful part of any comprehensive solution.  My purspose in the first response was simply to outline why many people think cramdown could be a good thing.


    Of course (none / 0) (#86)
    by Big Tent Democrat on Wed Feb 18, 2009 at 12:57:06 PM EST
    My point is different.

    Cramdowns are a tool in bankruptcy but the idea that the bankruptcy process is the answer to the housing crisis is what I am calling naive and absurd.


    Hmm, true. I'm actually for the cramdown (none / 0) (#38)
    by masslib on Wed Feb 18, 2009 at 12:13:35 PM EST
    provision (which could have, would have, and should have been attached to the must-pass stimulus) because it should have been incorporated into bankruptcy law several years ago.  If you go into bankruptcy you can get a cramdown on your vacation home, just not your primary residence.  That makes no sense.  But I certainly do not see it as the immediate solution here.

    Exactly..why not try to mitigate some problems (none / 0) (#39)
    by steviez314 on Wed Feb 18, 2009 at 12:15:23 PM EST
    BEFORE they get to bankruptcy/foreclosure/cramdown status?

    And 9 million bankruptcy filings (none / 0) (#42)
    by Militarytracy on Wed Feb 18, 2009 at 12:18:25 PM EST
    are just the beginning of THOSE woes.  I too find the fixation with cramdown outside of a giant HOLC cramdown extremely naive about the deflation we are ALL going to have crammed down our consumer taxpayer throats.

    cramdown is stick (5.00 / 1) (#52)
    by jedimom on Wed Feb 18, 2009 at 12:27:53 PM EST
    yes biut the cramdown is the stick to get the banks to write down the principal before it gets to bankruptcy

    they arent doing it voluntarily and since they wasted tarp i and stimulus i, they arent going to get the cash they need to do HOLC so they are trying the cramdown as stick and incentives as carrot

    it may have worked great, 2 yrs ago, with unemployment rising foreclosures are going up aside form the bubble burst in the sunbelt, THAT will need a HOLC I fear

    as an aside, Mccain and graham mentioned bank naitonalization as an option this week so there is a shift taking place, bofa and citi will get taken in receivership first and with them and fannie freddie we should be able to do HOLC

    we should have done housing first, I knew this would get frakked up and underfunded


    Wonder how soon this plan (none / 0) (#72)
    by Anne on Wed Feb 18, 2009 at 12:44:07 PM EST
    will be reality and actually helping people?  

    Reading the summary, my head is in danger of exploding from the realization that this is going to create another massive bureaucracy, and with incentive payments to servicers and homeowners, I can see the opportunity for gouging the government - you know, our old friends waste, fraud and abuse.

    If it's done right and done well, it will be a great help.

    I sure hope, for the sake of all those who are reaching the desperation point, that that's not a big "if."

    True enough (none / 0) (#88)
    by Inspector Gadget on Wed Feb 18, 2009 at 12:58:39 PM EST
    and, you can be sure the fraudsters had their plan fixed and ready before the stimulus details were released.