February 12, 2008
JustQuotes: Consider The Why, Not Just The What ("Project Lifeline")
“At-risk borrowers with all types of mortgages, not just high-cost subprime loans, could be eligible for help under a new plan involving six big home lenders.
The plan, called Project Lifeline, will be announced Tuesday by the Treasury Department and the Department of Housing and Urban Development, said a person familiar with the plan who confirmed earlier news reports about the plan but spoke on condition of anonymity because it had not yet been made public.
Against a backdrop of surging defaults and administration officials' prodding of the mortgage industry, the plan will allow seriously overdue homeowners [90+ days overdue] to suspend foreclosures for 30 days while lenders try to work out more affordable loan terms.
On a pilot basis, the plan will involve six of the largest mortgage lenders, in hopes that more lenders will sign on. The participants are Bank of America Corp., Citigroup Inc., Countrywide Financial Corp., JPMorgan Chase & Co., Washington Mutual Inc. and Wells Fargo & Co.” (Feds to Unveil New Mortgage-Help Plan)
First Published: February 12, 2008 7:15 AM
Comments from "Plugged In" Readers
Should be called "Project we don't want your damn house either. Please keep paying your mortgage. At least something, so we can pretend it's still a performing loan, just don't dump your house on us."
Posted by: diemos at February 12, 2008 7:32 AM
You know, it occurs to me that a lot of times around here anyway, the holder of the first note isn't even really at risk. It's the smaller bank or whomever in possession of the second, or even individuals with third notes who run greater risk. Even in a foreclosure situation there is often enough money to recover the first.
And that's with penalties and whatever fees the first tacks on, with profit in mind. Marking up attorney's fees and what have you. I mean, how often is it that something actually goes to the courthouse steps in SF and is sold for less than 80% of the initial purchase? I'd think very infrequently. Let's face it, if the property is worthwhile it's going to get bid back up right at the foreclosure sale.
I just dealt with a near foreclosure myself. Only the second and third were at risk. The first, logically, was intransigent. It was gonna get its money come hell or highwater. Its money and then some ...
Posted by: fluj at February 12, 2008 9:00 AM
"The first, logically, was intransigent. It was gonna get its money come hell or highwater. Its money and then some ..."
All this means is that the first lien holder is not ready to face their losses yet. That's why the REO inventory is exponentially exploding. If it was really worth more than the 80% some arms length purchaser would have bought it at auction. When the banks finally capitulate and price their REOs to clear out the inventory then we'll see what they are really worth.
Posted by: diemos at February 12, 2008 9:05 AM
Yeah well that isn't what I said and it isn't what happened. It didn't go to auction, and rest assured someone would have bid it up if it had.
Posted by: fluj at February 12, 2008 9:09 AM
"Let's face it, if the property is worthwhile it's going to get bid back up right at the foreclosure sale"
We are still in the denial phase I take it. diemos not better way to describe the situation than your first posting.
Posted by: anon at February 12, 2008 9:12 AM
I love it. Out come the b'errors with their uninformed opines. Did I not explain the situation well enough? Please don't act like ya know if you don't.
But shame on me for trying to share a thought on here.
[Editor's Note: Enough with the sniping (from both sides) and back to the topic at hand...]
Posted by: fluj at February 12, 2008 9:14 AM
I think fluj is probably right that on most places facing foreclosure in SF (or anywhere) the first lienholder is pretty likely to get just about everything back. However, the same bank often holds the second (or third) notes, or they hold junior liens on other bad properties and are not going to antagonize those who can turn the tables in other matters. So there are limits to their intransigence. Also, fluj posits that "if the property is worthwhile it's going to get bid back up right at the foreclosure sale." However, that assumes that the likely resale value is at least that of the first note -- and you have to add in carrying and selling costs on top of everything else.
Posted by: Trip at February 12, 2008 9:42 AM
Wait a minute..."third" notes? There is such a thing? I understand a 1st and 2nd (80/20), but what is a third note used for?
Posted by: Dude at February 12, 2008 9:50 AM
Thank you Trip. The same bank can have the second as well, true. But it's also very likely that it was sold to another institution and then on again if the loan has been in existence for more than a few years or so. As far as not antagonizing the other lien holders, I don't know about that. In my own experience the second gave the first a wide berth. Because as you say, they do deal with one another frequently. In this instance the second was happy to get ANY money back. The last thing they wanted to do was to ask the first to bend backward.
And let's work with %80 here. I'm not going to deny that some properties aren't worth 80% of what they were financed at. The Foerster home would be one example of that. But on the other hand, and remember I used the word "worthwhile," we really aren't at %80 bathwater temperatures yet. So I still say the first is likely to get its monies back, and often with penalties and the like.
Posted by: fluj at February 12, 2008 9:50 AM
There are third position hard money lenders. Or at least, there were ... The borrower intended to flip the property and needed 50K for a kitchen remodel. But went belly up. That would be one example.
Posted by: fluj at February 12, 2008 9:54 AM
Thanks for keeping that Foerster house in the spotlight! I love that POS (414 Foerster for those of you who haven't followed it).
The house right next door just went up for sale at $820K, and it's really not any better than 414 Foerster (the address is 591 Joost for the other). They were trying to sell the 591 Joost property last year for (I think) $900K. Purchased with 100% financing - you know the drill....
Just up the street from that, too, is 835 Foerster, for sale at $980K after total remodel, 100% financing, stopped paying taxes, etc., etc.
Should be a nice raise to the bottom over there on that Sunnyside street.
Posted by: Satchel at February 12, 2008 10:04 AM
Step 1: Banks with large inventories of foreclosed homes announce a "plan" to "save" housing, hoping the OTHER banks will actually implement the plan so that the other banks' foreclosures don't impact the prices of all the foreclosed homes owned by the banks that announced the plan in the first place.
Step 2: The announcing banks implement the plan on some minimal number of homes, mostly to goad the other banks into compliance.
Step 3: The other banks don't bite, and continue foreclosing like mad before the value of their nonperforming loans drops even further..
Step 4: The banks that announced the plan stop implementing it too.
Step 5: Banks with large inventories of foreclosed homes announce a different "plan" to "save" housing, hoping the OTHER banks will actually implement the plan so that the other banks' foreclosures don't impact the prices of the foreclosed homes owned by the banks that announced the plan in the first place.
Every bank understands what is happening every time such a "plan" is announced. The only people who apparently don't are:
1. Congress, who doesn't act because there is always a newly announced "plan" that "needs time to work"; and
2. The press.
What a great system!
Posted by: Tipster at February 12, 2008 12:48 PM
Just walk away people. Let them try to foreclose on you and live rent free for a while. Chances are you never really paid any principle nor did you put any money down. You've been paying to rent a mortgage betting that the market would keep going up. The best deal is to just walk away.
This is a desperate move by the banks to recapitalize themselves.
Posted by: scurvy at February 12, 2008 1:53 PM
Tipster, what about step 6? Wouldn't surprise me if, eventually, we get to the point where the Feds/FDIC restart the Resolution Trust Corporation and peddle stucco at 50 cents on the bubble dollar (i.e. market value). We're probably only a few bank failures away from that today.
Posted by: Dude at February 12, 2008 2:01 PM
Calculate Risk today had a good comment about the true purpose of this "720-Hour Foreclosure Moratorium". The gist of it was that basically the banks were hoping that all the hoopla about this will get the borrowers to pick up the phone when the banks call. Apparently, the walk-aways and general non-responsiveness by borrowers is going up exponentially.
@Dude, no question there will be an RTC 2. No doubt about it. And it will have the same result - housing values will continue to spiral down and then stabilize. For 5 years in the early- to mid-90s, but likely 10 or 15 years this time, given the sheer size of the bubble.
Posted by: Satchel at February 12, 2008 2:18 PM
Nope. NO RTC is not going to happen.
The risk got spread too far and wide, and the people who are taking it in the shorts right now are foreigners who had the foolish belief that the rating companies were interested in doing anything but protecting their own business arrangements with Wall Street.
Buying back the loans would help foreigners more than it would help Americans, so that isn't going to happen. At least congress isn't going to spend taxpayer dollars on it
RTC happened because S&L investors were mostly Americans, and (stupid, but) innocent ones at that. It was more efficient, given the magnitude of the loss, for the Government to step in and try to mitigate it. And it was mostly retirees, who would have needed more government assistance anyways if their savings disappeared, so all we did was to use the money we would have given them one way or the other to smooth it all over.
Here, what would help Americans the most (e.g. a law mandating cram down refinancings for the current value of the home -- it's all the banks are going to get anyways if they repossess, tho most homes won't be repossessed so that would be a huge loss for the foreign investors that would grossly outweigh the benefits to Americans, not that we care) would cause foreign investors to run for the exits and face it, we'll need their money in the future, so in the end, there isn't anything to be done.
It's a runaway freight train, and the best you can do is to slow it down so that people can try to get out of its way. You aren't going to stop it. I think congress understands this quite clearly.
Everyone running for Prez but Hillary seems to understand it too. Hillary may understand it too, but the Clintons are great at pandering for votes (see todays WSJ, pg A17 for more on that), so this is probably just her current angle on the problem.
Posted by: Tipster at February 12, 2008 2:50 PM
On a related note, anyone hear about the guy in Akron on NPR during the evening drive home last night. He was a part of 300 mortgages. Mostly straw buyers. Scam was to buy home for 20K and do cosmetic rehab, then sell for 80K to "buyers" that were willing to kill their credit for some cash back at closing. $20 million in potential loses from a guy in Akron. Kinda scary...Where the buck stops, no one knows. My hunch is the banks are not going to get many of these 300 buyers on the phone. Even with a no pain workout.
Posted by: peanut gallery at February 12, 2008 3:00 PM
And the highlight of the press conference (via CR):
Question for Paulson: Is the worst over?
Paulson: The worst is just beginning.
Posted by: EBGuy at February 12, 2008 4:04 PM