‘Mortgage Deal from Hell’ Hurts Responsible Borrowers

Jeff Cox, CNBC, February 9, 2012

Homeowners who kept up on their payments would lose while those who fell behind would win under an apparent deal between big banks and state governments, banking analyst Dick Bove said.

The agreement, expected to be worth at least $26 billion, would compensate both victims of alleged foreclosure fraud and underwater homeowners whose debt exceeds the value of their properties.

While the agreement is being hailed in some circles as justice for those duped into buying overvalued homes, Bove, the vice president of equity research at Rochdale Securities, thinks the deal is misguided.

“Those people lucky or smart enough to stop making payments on their homes may get their loan balances reduced,” he said. “Other beneficiaries of the agreement may be homeowners who have seen the value of their houses drop below the size of their mortgages. They get a freebie that other homeowners who have paid their mortgages down will not get.”

{snip}

The deal is believed to include some $20 billion in mortgage refinancings and principal writedowns to discourage struggling homeowners from walking away from their obligations.

But Bove, who called the agreement “the mortgage deal from hell,” said doing so will help those who bought homes with little money down and who either fell behind on payments or stopped paying their mortgages altogether.

Those who brought down their principal with 20 percent down payments and who kept up on their obligations would not benefit, and ultimately could suffer if the mortgage modifications and principal writedowns drag down neighborhood property values.

{snip}

In the meantime, banks have had to take billions in writedowns to account for an anticipated settlement from the foreclosure cases. Investigators charge that banks used so-called robo-signers—employees who processed foreclosures rapidly, often under fraudulent circumstances—to clear the huge backlog of cases.

“It is important to note that the government is not alleging that the banks took homes away from homeowners who were making payments,” Bove said. “Nor is the government arguing that the banks profited from these foreclosures. The basis of offering the benefit to the 1.3 percent winners in this lottery is that the government is unhappy about the way the foreclosures took place.”

{snip}

“There is no sanctity of contracts in the United States,” Bove said. “Only fools meet their financial commitments. The non-payers are the truly enlightened.”

 

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  • The big push for subprime loans, 0% down mortgages, etc., were blacks and their “community”/”civil rights” leaders claiming discrimination (“redlining”) by banks because many blacks have crummy credit scores and thus many were denied mortgages. After showing up protesting in front of wealthy bank executives homes and pushing Congress, banks gave in and started giving NAMs (non-Asian minorities) who were not creditworthy loans they could not afford.

    After the housing bubble burst and the economy tanked, blacks protested that banks that gave them mortgages they could not afford were “predatory lenders.” 

    “You’re damned if you do, and damed if you don’t.” 

    And blacks wonder why nobody in their right mind wants to do business with them….

    • Anonymous

       Explain the mechanisms by which whites and Asians will take the losses.  These mortgages – all mortgages are values established on paper – promises of profit to investors/banks.  If it turns out that they have to give up some of the speculations they made while foisting fraudulently backed values onto people who were encouraged (not just by Dems, but GW Bush during his term), then too bad.  But there is no mechanism to cause some sort of value dispersion to other private citizens.  The damage is already being done because of the economic recession that their activities caused.  When people lose their jobs or income because of that and then lose their homes, THAT hurts you and me and everyone regardless of race.  It is the people who caused this problem, the NAACP, Dems, but more so GW Bush and Alan Greenspan who publicly encouraged people to take these mortgages.  If you don’t remember that, then you were not paying attention.  It was THEY who fomented the real estate bubble that burst in 2008. 

      I think that however banks and those parties who perpetrated the frauds can be prosecuted and made to pay for the huge amount of damage they did to the economy, people’s lives, and assets is GREAT, even if it comes from democrats and even if Eric Holder and Obama are the ones in the right this time.

      • I’ll reply to this one tomorrow (Sat.).

      • Anonymous

        This thing is so complex we could all write 1000 word opinions on it with different takes and none of us would be wrong.  Volumes will be written on this over the coming years.

        In a nutshell, it’s government intervention in free markets creating false signals.  It’s so widely accepted that practically every politician from both parties engages in it in one way or another.  Americans today argue on the degree and direction of government intervention rather than whether or not it should happen at all. 

        As far as this cynical election-year ploy, I’m surprised it took as long as it did.  I could see it coming as soon as the government pushed all that TARP money into the banks.  You didn’t think Uncle Sam would let them sit on that money forever did you?  He owns the banks now.

        Leftists like to say that fascism is corporate control of the economy, but in 1930s Germany and Italy Hitler and Mussolini called the shots, just like Herr Saddam Hussein Obama does today. 

    • Anonymous

      “NAMs disproportionately have bad credit scores whereas Asians &
      Caucasians usually have good credit scores — were being denied
      mortgages and thus could not participate in the housing boom.”

      This is simply NOT TRUE.  I know of many whites with good credit scores who were flipping homes during that time.  Every real estate agent I ever saw making commissions on flipping homes and the bankers I saw writing the loans were WHITE.

      My wife and I had good credit scores but were offered one of those no down, no income, variable rate mortgages.  We turned the offer down.  This was from our own community bank, that is now selling their foreclosed homes that whites owned, to the growing non-white population arriving here.

      • I wrote: “NAMs disproportionately have bad credit scores whereas Asians & 
        Caucasians usually have good credit scores — were being denied 
        mortgages and thus could not participate in the housing boom.”
        FKAW replied: “This is simply NOT TRUE….”

        You are correct, however you are taking what I wrote out of context by ignoring conventions of style. I’ll assume you are not intentionally misleading AmRen readers, but, for whatever reason, merely mistaken.

        I wrote the following sentence: 
        “The big push for subprime loans, 0% down mortgages, etc., were blacks and their “community”/”civil rights” leaders claiming discrimination (“redlining”) by banks because many blacks — NAMs disproportionately have bad credit scores whereas Asians & Caucasians usually have good credit scores — were being denied mortgages and thus could not participate in the housing boom.”

        You will note that there are two sets of hyphens (standing in for dashes), which offset some text (to wit, “NAMs disproportionately have bad credit scores whereas Asians & Caucasians usually have good credit scores”). In such cases the hyphens/dashes are acting as either a opening or closing parenthesis and the text between them is to be read as a parenthetical statement. So, with that in mind, re-read what I wrote with the parenthetical deleted and you’ll see it is true. 

        “The big push for subprime loans, 0% down mortgages, etc., were blacks and their “community”/”civil rights” leaders claiming discrimination (“redlining”) by banks because many blacks were being denied mortgages and thus could not participate in the housing boom.”

        You will see that the parenthetical statement is also true by itself: 
        “NAMs disproportionately have bad credit scores whereas Asians & Caucasians usually have good credit scores.”

        But when you break the sentence apart as you did, combining the parenthetical with the latter part of the sentence, it is false. 

        The question is: Why did you do that? 

        Your reputation rises and falls with every post you make.

    • Anonymous

      Quote:

      “The Washington Post reported that the company conducted a study
      in which it was found that far more black people have bad credit than white
      people, even when both have the same incomes. In
      fact, the study showed a higher percentage of African Americans with incomes of
      $65,000 to $75,000 had bad credit than white Americans with incomes of below
      $25,000.

      Such data demonstrated that when federal regulators demanded
      parity between racial groups in lending, the only way to achieve a quota would
      be to begin making intentionally bad lending decisions.”

      There are several links to the entire story.  Google some of the quote and it will come up.  Really shocking even to me.

  • Who else will lose?  Checking account holders, savings account holders, CD/money market customers.  New fees, new penalties for new “transgressions,” lower interest rates (though in this low interest rate climate, I don’t think that’s even possible).

  • Anonymous

    http://www.americanthinker.com/2008/09/barack_obama_and_the_strategy.html

    ACORN aggressively sought to expand loans to low income groups using the CRA as a whip. Economist Stan Leibowitz wrote in the New York Post:In the 1980s, groups such as the activists at ACORN began pushing charges of “redlining”-claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation.

    In fact, minority mortgage applications were rejected more frequently than other applications-but the overwhelming reason wasn’t racial discrimination, but simply that minorities tend to have weaker finances.

    ACORN showed its colors again in 1991, by taking over the House Banking Committee room for two days to protest efforts to scale back the CRA. Obama  represented ACORN in the Buycks-Roberson v. Citibank Fed. Sav. Bank, 1994 suit against redlining.  Most significant of all, ACORN was the driving force behind a 1995 regulatory revision pushed through by the Clinton Administration that greatly expanded the CRA and laid the groundwork for the Fannie Mae, Freddie Mac borne financial crisis we now confront. Barack Obama was the attorney representing ACORN in this effort. With this new authority, ACORN used its subsidiary, ACORN Housing, to promote subprime loans more aggressively.

  • Anonymous

    I know that everyone will mention the NAACP lawsuits, ACORN, and other race based pressures that resulted in minorities, especially blacks to get mortgages.  But their default rate was not that high until after 9/11 and the GW Bush promoted “American Dream” push for home ownership.  It was a phony fix for the economic harm the attacks of 9/11 produced via market panic.  The banks, real estate agents, and the same types that were flipping homes, dishonestly playing real estate as speculators created the bubble that burst and revealed the frauds and greed that then caused a huge market plunge and recession that we haven’t recovered from yet.

    If we’re going to discuss this issue, we ought to do it with an honest perspective on what caused it.  The damage to our economy and housing market has been a cascade from that criminal wrongdoing.  People who ultimately lost their jobs because of this can blame the banks.  So if you want to blame people for being irresponsible borrowers, okay, just remember that EVERYONE was telling to go ahead, it was alright.  Your home value was only going up, and would double in ten years, remember that?  A friend of mine, a conservative and a state trooper was showing me a book about how the value of your home would double in ten years right in the hottest days of the mortgage bubble in 2006.  I knew then it was a lie and would not happen, and that the current real estate market could not be sustained.

    I think that everyone who has gone underwater as a result of the activity of primarily the banks, because none of the others could have done what they did without their complicity – deserves a principle reduction whether they are behind or NOT. 

    What we’re talking about is paper values.   These mortgages are promissory notes with balances that were created during this time of unprecedented, criminal wrongdoing in business and now that the banks have had their bailouts, they want to hold onto that paper – collect the full value of that fraudulently created paper.  This is what is wrong about the entire situation and what needs fixing.  Just because many non-whites are affected doesn’t mean that many more whites are, because they are – I’m one.

    We were fine and bought responsibly, refusing the no down, declared income, loans.  I am retired, living largely on our investments.  But because our investments were hit bad by the market crash, we are in trouble with our mortgage.  I am doing everything I can to learn about the problem and have learned a great deal about its causes and the bank’s part in it all around.  I can tell you that there are about a dozen bank, BofA one of them, that are completely restructuring loans for many people through a traveling convention series put on by a former union activist named Bruce Marks.  He set up a non-profit and is getting banks to restructure loans for people whenever there is still any income available.  I don’t care if he also helps non-whties.  If he helps me either directly or indirectly through influencing/pressuring my bank to find a solution for us, I support it. 

    Those who say that the same sort of people who caused the bubble are the same sorts that ought to straighten it out through more flipping and millions of foreclosures, which by the way, creates more social tension and might well end up with more minorities coming into all white neighborhoods like mine – haven’t thought it out.  The typical knee-jerk comments might feel good, but they won’t make the situation better, but worse, and someday, those comfortable in this moment will find the reality of what they wished, harsher than they imagined.

    • You remember my long mortgage rants from several months ago, right?  Remember, the match on the gasoline which set the whole thing off was Bush’s call for no down payment mortgages.  That was based on the Gingrich-Kemp “opportunity society” lame brain race mentality.

    • Anonymous

      My understanding of the problem is that it goes back to the new deal era.  However, I do note the contributions made during the presidencies of Ronald Reagan (Secondary Mortgage Market Enhancement Act, Tax Reform Act of 1986), George Bush Sr (Financial Institutions Reform, Recovery & Enforcement Act of 1989), and Bill Clinton (pushing his appointed regulators to push the issue of minority lending hard, and even taking some of them to court in fairly high profile cases).

      The housing bubble is not as new of a problem as you make it out to be. During the 1990’s I was home shopping for a starter home. I spied a place I liked a lot, but hadn’t saved up enough of a down payment to buy it yet. At that time it was listed at $89,000. Two years later that home was $110,000. Ten years later that home was listed for $185,000. It eventually sold in 2004 for $203,000. It has since dropped in value to a listed $165,000, but has sat empty for a more than a year on the market.

      Some of this inflation is due to the extreme declining value of the United States dollar, but that is consequence of when you spend more money than you take in. Every administration in my lifetime has been guilty of that. If it was just the effect of the dropping dollar the home would be worth about $140,000.  The $63,000 above the real money $140,000 USD value was mostly speculation, and maybe $3,000 for better landscaping. The particular home was flipped several times by different speculators. While I don’t know if this particular home ever sold with a sub-prime mortgage; I do know the practice was fairly common even in the 90’s.

      I have since become quite glad that I never bought that house. The neighborhood around it has really gone downhill due to HUD, and sub-prime lending aiding the general migration of blacks from the city to the northern suburbs of St Louis, Missouri.

      That being said; the sub-prime trap hit quite a few whites that were tempted by no money down, and a complete willingness to lend you 5-6-8-10-12 times your annual income to buy a home. Plenty of whites had regular home loans as well, and simply fell on hard times due to 9/11 (for a lot of the finance industry), the second crash of the market, falling dollar, housing bubble bursting, severe recession, and other woes such as outsourcing/contractors/off shoring.
      In a somewhat twisted way I think of this as a form of the government subsidizing people for the government not doing its job of regulating and reigning in the investment banking, and home loan industry during this period.

      I’m not saying all of that justifies it; the better reasoning is that we do have a compelling national interest in not creating a ton of walkaways, homeless families, and family bankruptcies. The only part of it that makes me queasy is that the money isn’t coming from the investment companies that profited so handily from manipulating the housing bubble, and derivatives market.

      If you accept that reasoning, the only question left is: Do we the trust the current government not to turn this into another racial spoils handout that is nearly exclusively given to blacks, and latino immigrants/illegals in practice?

       

  • Anonymous

    Who’s
    Really to Blame for the US Mortgage Meltdown?

    Weaver

    Posted
    under Economics & Political Correctness

    Drew Zahn at WND writes an interesting piece, “Guess again who’s
    to blame for U.S. mortgage meltdown” (I suspect many will find the entire
    article worth reading – the following are two short excerpts):

    In a nutshell, Liebowitz contends that the federal government
    over the last 20 years pushed the mortgage industry so hard to get minority
    homeownership up, that it undermined the country’s financial foundation to
    achieve its goal.

    “In an attempt to increase homeownership, particularly by
    minorities and the less affluent, an attack on underwriting standards was
    undertaken by virtually every branch of the government since the early 1990s,”
    Liebowitz writes. “The decline in mortgage underwriting standards was
    universally praised as ‘innovation’ in mortgage lending by regulators, academic
    specialists, (government-sponsored enterprises) and housing activists.”

    “The federal government in the meantime has increased pressure
    on lenders to seek out minorities, as well as low-income groups and borrowers
    with poor credit histories,” Glenn said. “Fannie Mae recently reached an
    agreement with the U.S. Department of Housing and Urban Development to commit
    half its business to low- and moderate-income borrowers. That means half the
    mortgages bought by Fannie Mae would be from those income brackets.”In that
    same year, Freddie Mac warned of the logical pitfalls of pursuing loans on the
    basis of skin color and not credit history.

    The Washington Post reported that the company conducted a study
    in which it was found that far more black people have bad credit than white
    people, even when both have the same incomes. In
    fact, the study showed a higher percentage of African Americans with incomes of
    $65,000 to $75,000 had bad credit than white Americans with incomes of below
    $25,000.

    Such data demonstrated that when federal regulators demanded
    parity between racial groups in lending, the only way to achieve a quota would
    be to begin making intentionally bad lending decisions.

    The study, however, came under brutal attack in the U.S.
    Congress and was ridiculed with charges of racism.

    So, basically political correctness and federal attempts to
    redistribute wealth from “nonethnics” to “ethnics” led to this disaster.

    With a federal government like ours, how can anyone not want
    smaller government?

     

  • Anonymous

    I suspect CaryI is Talkasoid.  Just saying.

  • Caucasians is a term that is still widely understood to mean, roughly, whites. I am using it for its common meaning, not as a term of art. 

    As far as it rhyming w/Asian: you could say that about “Orientals & Occidentals” too. I guess “yellows & whites” doesn’t rhyme. Feel free to use that combination if you wish. But for me, I think many Asians would be offended reading about “whites & yellows”, so I’ll stick w/”Asians & Caucasians” and perhaps “Occidentals & Orientals.” 

    Cary1: please explain how “”Asian and Caucasian” is used in San Francisco and San Jose human rights circles as a way to strip us of our diversity and our nationality.”  
    I am truly interested in this. I’ve never heard of it. 

    As far as blacks, in comments I will usually refer to them as such, since it is shorter than African-American and few like Negros. I do NOT call them “coloreds” (except in the abbreviation NAACP), because: (1) some Latinos and Asians refer to themselves and blacks as “people of color” (POC), and (2) I don’t think blacks currently like being called “colored people” or “coloreds.” (BTW I read an article somewhere that some blacks are switching back to preferring “black” to “African-American.”)

    I’m not here to insult people, whether they be whites, blacks, yellows or whatever. You won’t see me make needless insults or jokes about the other races. Such things merely distract from the important work AmRen needs to do and will turn off inquiring whites and non-white potential political allies. 

    There’s an old saying that “in politics, you can’t have too many friends or too few enemies.” I hope the leadership and moderators, as well as the comment contributors, of AmRen keep that in mind.