Tricks for the People, Treats for the Banks
Automatic Earth
There were really people out there who really thought there would be an announcement for a plan in Europe on Wednesday? OK. Look, Merkel and Sarkozy said the end of the month. They always meant to use all that time, and they now need it even more than they already knew. They'll keep it up till it's trick or treatin' time.
Our solid prediction: there'll be plenty of tricks for the people and plenty of treats for the banks.
A meeting of EU finance ministers was just cancelled. Tomorrow’s leader summit will go through. Anyone else wonder what the choice of costume will be?
All this is happening against the backdrop of French president Sarkozy telling UK PM Cameron he was "missing a great opportunity to shut up", of the same Sarkozy making derogatory remarks about German Chancellor Merkel's weight, and of both Sarkozy and Merkel schmirking about Italy and its PM, Berlusconi.
That last bit may be more significant than the others in the short term, since it looks like an attempt to focus market attention on Italy (and away from France). Greece is being thrown to the wolves as as we speak, and Italy looks to be set to be next in line (though likely after Ireland and Portugal).
Here’s a fantastic picture of what European unity means these days:
 As you may know, Stoneleigh and I are presently in Italy, and to the extent that we can understand the people here, the mood in general is really down and falling fast.
Berlusconi wants to raise the pension age to 67 years, but Umberto Bossi, leader of his coalition partner Northern League Party has said that "You cannot touch pensions to please the Germans". How about that as a way to describe the atmosphere?
The EU has given Berlusconi a deadline for later today to present a plan that proves Italy's dedication to lowering its public debt. And that's where the problem is here: private debt is not that high; only 7% of the housing market is under mortgage.
That's something Obama can only dream of. And so he announces yet another "help" plan. By now, though, we've grown very weary of those plans. And not just because none of his previous (un-)employment and housing plans have solved anything; we are also scrutinizing what exactly the plans aim at.
It's very hard to escape the notion that the further we move down the line of ever more bail-outs and other expensive "support the economy" plans, the more the little man gets squeezed. the only parties in this who actually end up being helped are bankers, ruling politicians and shareholders of banks. It's starting to seriously look, at least from the perspective of Main Street, like Occupy Wall Street and its offspring have simply come too late, and/or are doing far too little now that they're here.
Here's a cynical take on the latest US housing plan: Obama restarts the HARP plan not to help out homeowners, but to make sure that more than the measly few percent of them who signed up for HARP1 get sucked in, so a much larger number will see their mortgages change from non-recourse to recourse, which could mean an enormous potential windfall to lenders if and when home prices keep on falling and homeowners, who will be forced out of their homes even with the lower interest HARP2 provides, can no longer just walk away, but can and will be chased until the day they die for any and all other assets they may hold.
This is not a moral judgment on the existence of (non-)recourse loans; but since non-recourse loans are simply an American fact, the government should not be trying to force and/or cheat people out of them and into potentially -much- deeper debt.
There's another issue with the plan, as pointed out by Zach Carter at HuffPo:
New Obama Foreclosure Plan Helps Banks At Taxpayers' Expense
The newly expanded program would expunge legal liabilities associated with mortgages refinanced through the program for the original lenders of the mortgages. Each time a bank sent a loan to Fannie and Freddie, it certified that the loan met Fannie and Freddie's safe lending criteria. But many loans sent to the mortgage giants did not, in fact, meet those criteria. Currently, when borrowers default on those ineligible loans, the mortgage giants can "put back" the resulting losses onto the banks that pushed the loans.
Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out.
If borrowers go through HARP, but decide after several months that the modest monthly savings do not outweigh owing tens of thousands of dollars more than their home is worth, taxpayer-owned Fannie and Freddie will have to take the full loss. Even if the original loan was sent to Fannie and Freddie with false or fraudulent guarantees from the bank - promises that may directly be tied to the borrower's current financial problems - banks will be immune from liability. Fannie and Freddie plan to charge banks "a modest fee" to extinguish this liability, but the administration has yet to determine what that fee will be.
Europe is set to recapitalize its zombie banks, while the US is freeing its version of them from legal liabilities. And all this happens under the insane notion that there is no end to the public coffers. That it's quite alright, and morally justifiable, to cuts people's jobs and pensions and their wealth in all its forms, just so the banking system and the political system it forms a conjoined twin with, can live another day.
Yes, it's obvious that Italy is a country that suffers from deepseated corruption. But looking at what the White House, the FHFA and HUD are coming up with this week, it's impossible not to wonder how much of an exception Italy really is.
The people's money, if you ask us, should be used to help the people, not to prop up systems that are ruptured, as in bankrupt and corrupt. But not only is that precisely what is happening, it gets worse fast.
The best we now can hope for is the German parliament's refusal to drag this on any further. Because the rest of us out there can't seem to be able to help ourselves.
Regulator throws lifeline to underwater homeowners by Margaret Chadbourn - Reuters
Homeowners who owe more than their properties are worth got new help on Monday with the government's expansion of a refinancing program in a step that could help up to 1 million borrowers.
The regulator of mortgage finance giants Fannie Mae and Freddie Mac eased the terms of a program that helps so-called underwater borrowers who have made payments on time but have been unable to refinance. "These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again," President Barack Obama told a crowd in Las Vegas, a city hard hit by the foreclosure crisis.
The overhaul, which would only help a fraction of the country's 11 million underwater borrowers, is the latest government effort to breathe life into the crippled U.S. housing market. Officials have been frustrated that numerous attempts to bolster the sector and help borrowers have had little success.
The Federal Housing Finance Agency said it was scrapping a cap that prohibited borrowers whose mortgages exceeded 125 percent of their property's value from refinancing loans backed by Fannie Mae and Freddie Mac under the government's Home Affordable Refinance Program (HARP). It also took steps to coax homeowners into shorter-term loans and encourage more banks to participate in the program. The Obama administration sees lowering mortgage payments as a way to free up cash for other spending that could help support the economy's tepid recovery.
The FHFA said it wanted to focus on loans made between 2004-08, when borrowers typically locked into rates above 5 percent. Currently, 30-year fixed mortgage rates are hovering just over 4 percent. "Such modifications are no panacea, but they would move us in the right direction for housing-related stimulus for the economy," said Janaki Rao, vice president for mortgage research at Morgan Stanley in New York.
The White House expects homeowners refinancing under the program to save as much as $2,500 per household each year. Investors in mortgage-backed securities, who had anticipated a revamping of the program, were surprised at the scope of the changes, and prices for housing debt issued by Fannie Mae and Freddie Mac dropped sharply.
Administration Push
With political gridlock blocking legislation addressing the housing crisis, the administration had urged the FHFA to widen HARP to more borrowers. The regulator had moved cautiously, wary of piling too much risk on Fannie Mae and Freddie Mac. "This is an appropriate balancing of risk that's being borne by Fannie and Freddie, and hence the American taxpayer," FHFA's acting director, Edward DeMarco, said in a conference call with reporters. "This will make HARP more available."
In September 2008, the U.S. government seized Fannie Mae and Freddie Mac, the two largest sources of U.S. mortgage financing, as losses on loans they backed spiraled. The two firms have so far received $141 billion in taxpayer bailouts. After meeting with DeMarco earlier this month, one lawmaker said the expanded program could help as many as 600,000 to 1 million borrowers.
DeMarco and Obama administration officials said there was no way to forecast exactly how many borrowers could benefit, although the FHFA said it could double the number helped by the end of 2013. Previously, the program was due to expire in June.
There were some signs the announcement was having an impact. Las Vegas-based mortgage originator Ben Petkewich said he had five clients who might qualify for the relaxed terms - four paying 6 percent a year and another paying more than 8 percent. "I got two phone calls this morning and have pulled three files," said Petkewich who runs The Mortgage Outlet. "I'm a one-person shop. That's a significant amount of business for me to look into." The state of Nevada has the highest foreclosure rate in the United States.
The White House has been criticized for over-selling earlier efforts to help housing. When HARP was unveiled in March 2009, it predicted it would help 5 million borrowers, but so far fewer than 895,000 have refinanced through the program. Housing Secretary Shaun Donovan said the overhaul was "only one piece of a broader strategy to help the housing market." He said the next step would be to find a way to rent, sell or dispose of foreclosed homes that are weighing on already depressed prices.
With housing impeding a broader economic recovery, some Federal Reserve officials have said the central bank should consider buying mortgage debt to drive down borrowing costs.
Changing Incentives
To encourage banks to participate in the revamped program, FHFA moved to protect lenders from having to buy back loans if underwriting problems are later found. "Of all the barriers, this may be the most significant," said Gene Sperling, director of the White House National Economic Council. In addition, banks will only have to verify that borrowers have made their last six mortgage payments and, in most cases, they will not need to conduct an appraisal.
FHFA said Fannie Mae and Freddie Mac will also eliminate certain fees for borrowers who refinance into shorter-duration loans, in a bid to spur homeowners to pay down the amount they owe more quickly. Morgan Stanley's Rao said while the changes were helpful, they were unlikely to lead to a "wave" of refinancing.
Many economists have argued bolder steps are needed given the weight housing is placing on the recovery. Former U.S. Treasury Secretary Lawrence Summers, in a Reuters column, said what is needed are writedowns on loan principal and mass sales of foreclosed homes to investors for rentals.
"With constructive approaches by independent regulators, far better policies could be in place six months from now," he wrote. "There is nothing else on the feasible political horizon that can make as a large a difference in driving American economic recovery."
New Obama Foreclosure Plan Helps Banks At Taxpayers' Expense
by Zach Carter - Huffington Post
The Obama administration is introducing a new program on Monday designed to lower monthly mortgage payments for more troubled homeowners.
But a key new condition in the plan would shift the financial liability for refinanced loans from Wall Street banks to the American taxpayer. And by focusing on lower payments, the program does not confront what housing experts view as the core problem in the foreclosure crisis - borrower debt that exceeds the value of one's home.
Faced with the weak response to the Home Affordable Refinance Program, the Obama administration is planning to open up the program to all borrowers who owe more on their mortgage than their homes' worth, commonly dubbed being underwater, and have not missed a mortgage payment. HARP had been limited to borrowers who owed up to 25 percent more than their home is worth. More than 22 percent of all home mortgages - or 10.9 million homes - are currently underwater, according to CoreLogic data. Fewer than 900,000 borrowers have elected to go through HARP to date.
The revised program also eliminates several fees associated with refinancing that can make the decision to refinance uneconomical for borrowers. But the potential benefit of the eliminated fees could be relatively small: If a few thousand dollars worth of fees made refinancing a bad deal for underwater borrowers, the ultimate benefits that refinancing can pose would remain limited.
On a conference call with reporters, White House National Economic Council Director Gene Sperling referred to the HARP expansion as "a win-win policy" that will result in "less defaults" and "fewer foreclosures." But one of the program's new terms will benefit private-sector Wall Street banks, potentially at the expense of taxpayers.
The newly expanded program would expunge legal liabilities associated with mortgages refinanced through the program for the original lenders of the mortgages. Each time a bank sent a loan to Fannie and Freddie, it certified that the loan met Fannie and Freddie's safe lending criteria. But many loans sent to the mortgage giants did not, in fact, meet those criteria. Currently, when borrowers default on those ineligible loans, the mortgage giants can "put back" the resulting losses onto the banks that pushed the loans.
Under the modified plan, "put back" liability at banks will be erased for any underwater mortgage that is refinanced through HARP, eliminating Fannie and Freddie's ability to sack lenders with losses in the event that the mortgage does not pan out.
If borrowers go through HARP, but decide after several months that the modest monthly savings do not outweigh owing tens of thousands of dollars more than their home is worth, taxpayer-owned Fannie and Freddie will have to take the full loss. Even if the original loan was sent to Fannie and Freddie with false or fraudulent guarantees from the bank - promises that may directly be tied to the borrower's current financial problems - banks will be immune from liability. Fannie and Freddie plan to charge banks "a modest fee" to extinguish this liability, but the administration has yet to determine what that fee will be.
While the revised program seeks to lower mortgage payments for underwater homeowners, the program does nothing to address the core problem - owing more than the home is worth. Though borrowers may save hundreds of dollars a month in lower payments by refinancing, they routinely owe tens of thousands of dollars more than their homes are worth, even after receiving aid. "In most cases people would probably be better off walking," said economist Dean Baker, co-director of the Center for Economic Policy and Research.
During a conference call with reporters, Department of Housing and Urban Development Secretary Shaun Donovan acknowledged that negative equity is a problem, and said the administration hopes to address the issue on other fronts. Donovan cited settlement negotiations with big banks over widespread allegations of foreclosure fraud and initiatives under the Home Affordable Modification Program, a separate Obama foreclosure-relief plan administered by banks, as key initiatives.
New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have both objected to the foreclosure fraud settlement talks on the grounds that they give away too much to banks without investigating the scope of fraud problems in the system. The Home Affordable Modification Program has been a hotbed for the kind of borrower abuses that the administration is pressuring lenders to settle over.
Got A Hundred Bucks? Buy A Home (Or Virtually Anything Else) Using 2,000x Non Recourse Leverage
by Tyler Durden - ZeroHedge
Today's adjustment to the government's HARP program to get anything with a pulse as close to the discount window as possible was not the only proposal to revive the moribund US housing market.
According to a new proposal by HUD, beginning this month and continuing for a year, anyone with a just $100 will be allowed to buy a HUD-owned REO home. In essence: the new buyer is merely taking over the mortgage payments in a repeat of what happened in 1970s New York along the Central Park West corridor. Granted for now it is stricly limited to only... 28 states!
But it gets better: "HUD’s $100 down payment incentive program can also be applied to an FHA 203k loan, which can be used to fund repairs and renovations on the home. The 203k program allows buyers to finance both the mortgage and additional money for rehabilitation needs with a single government-insured loan."
Said otherwise, a $100 downpayment gives one unlimited degrees of freedom how to spend non-recourse, massively levered capital, and courtesy of money's fungibility, to even fund, shhh, the occasional iPhone.
"Matt Martin, CEO of Matt Martin Real Estate Management (MMREM), says this is one of the most exciting features of the new incentive program and should drive a lot of exposure to FHA’s 203k offering."
Why of course it is: it will only take enterprising Americans a few weeks to realize that the latest HUD program is basically an EFSF in sheep's clothing, which provides US consumers with a Benjamin in their pocket, the ability to lever up by a factor of about two thousand (or more) and use the proceeds for pretty much anything (but make sure to call it "home repairs").
And when the HUD is stuck with hundreds of billions of non-performing, delinquent loans, what then? Why the same that will happen to the EFSF: another wholesale taxpayer funded bailout... of those who were tricky enough to figure out this latest subsidy of the global retailer base.
From DSNews:
HUD has approved a program aimed at putting foreclosed homes back into the hands of owner-occupant buyers.
In select states, from now into October of next year, buyers need a down payment of only $100 to purchase a HUD-owned REO home.
The buyer must be an owner-occupant, utilizing financing insured by the Federal Housing Administration (FHA). Standard FHA underwriting guidelines apply, and the sale must be for the full amount of the current list price.
The $100 down payment incentive program has been approved for two of HUD’s four national regions – the regions managed by the Denver Homeownership Center and the Atlanta Homeownership Center. HUD homes in the states listed, as well as the Caribbean are currently eligible for the program.
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