December 3, 2009
It's The Principal Of The Underwater Mortgage Matter
"We’re looking now at whether we should provide some further loss sharing for principal write downs," [FDIC Chairman Sheila] Bair said. "Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress."
First Published: December 3, 2009 1:45 PM
Comments from "Plugged In" Readers
Wow. "Now"? Jeeez. And then that other "now"? Ugh. C'mon. And seriously, a third "now"?
I somewhat, vaguely, distantly recall a news article about a few (hundred thousand, or million, it's kinda hazy) people perhaps losing their jobs over a year or so ago. I think. And while it's a couple hours post-lunch, so I am, of course, full of whippits and cheap liquor, I'm still able to correlate that maybe a fair percentage of good mortgages were going bad on account of this whole "people losing their jobs" thing in an era previous to "now". There may even have been some other people pointing this out, too. I'd cite them because I'd love to tear into the FDIC, but I'm tired and it's nap time.
Posted by: FAA at December 3, 2009 2:28 PM
From the Bloomberg piece:
Under the average loss-sharing agreement, the FDIC pays as much as 80 percent of losses on a residential mortgage up to a set threshold, with the acquiring bank absorbing 20 percent. Any losses exceeding the threshold are reimbursed at 95 percent of the losses booked by the acquirer.I mean, what is a regular taxpayer supposed to think about this? No wonder there are so many people joining the tea baggers.
"For the acquiring banks, it’s great because now they get more protection for the assets that they’re picking up and they have more flexibility in dealing with the problems," John Douglas, who leads the bank regulatory practice at Davis Polk & Wardwell LLP in New York and is a former FDIC attorney
The banksters always win.
But the thing that the article didn't touch on that interested me was, is the underwater borrower going to get a 1099 at the end of the year for the amount the loan principle was reduced by? After all, that's just simple unearned income, the same as the amount a short sale produces that is less than the amount of the underwater purchase money loan.
If the borrower gets a 1099 at the end of the year then at least the FDIC reduces some amount of the moral hazard problem.
Posted by: Brahma (incensed renter) at December 3, 2009 2:34 PM
Dear Chairwoman Bair:
"Good" mortgages never go "bad." Please stop saying very, very, very stupid things.
Posted by: Debtpocalypse at December 3, 2009 3:02 PM
Its good to know that renters are now actually owners too...along with the owners.
And SF wants to raise taxes..........I wonder where they'll target first?
Posted by: Jimmy at December 3, 2009 3:15 PM
1. This is complete bullshit.
2. I told you this would happen.
People are up in arms about socialized health care...at this rate we may be the first nation to have a socialized housing market.
I'm starting to think that maybe LMRiM was right after all...maybe a complete collapse IS the only way to wring stupidity from a system too crooked to straighten.
Posted by: Legacy Dude at December 3, 2009 3:21 PM
To be clear, the FDIC isn't a taxpayer funded entity in the same way as certain other Bailouts for Banksters that we've seen. The FDIC is funded by banksters who pay premiums on deposits. As such, I don't know what the outrage is about.
The FDIC does have a credit line that it can draw upon, but it always pays back the amount it owes via increased future premiums. So in this case, it's Bailouts for Banksters by Other Banksters, which seems more palatable to me than many other Bailouts for Banksters. At least this way, the industry has an incentive to police its bad actors.
Furthermore, anything that requires banksters to stop lying about assets on their books sounds pretty good right now. I wonder how many of them will agree to markdowns, given that it may trigger capital requirements.
Posted by: corntrollio at December 3, 2009 4:21 PM
And who will fund the FDIC bailout if/when it becomes necessary? Citibank?
I'm still upset at the concept of debt foregiveness without apparent consequence, although I know that's sooo 2008 at this point.
Somebody let me know when rates hit 3%...would be great to have a mortgage to default on at this point.
Posted by: Legacy Dude at December 3, 2009 4:35 PM
the FDIC isn't a taxpayer funded entity in the same way as certain other Bailouts for Banksters that we've seen. The FDIC is funded by banksters who pay premiums on deposits. As such, I don't know what the outrage is about.
Granted; the FDIC is funded by the premiums it charges banks. But that doesn't mean it has enough funds to cover the losses it's incurring this year and last (from the same site, in September, a Jonathan Weil op piece):
The FDIC’s problem is that it didn’t collect enough revenue over the years to cover today’s losses. The blame lies partly with Congress. Until the law was changed in 2006, the FDIC was barred from charging premiums to banks that it classified as well-capitalized and well-managed. Consequently, the vast majority of banks weren’t paying anything for deposit insurance.
I think the outrage is about the strong possibility, even the inevitability, that the FDIC will run out of money and have to tap a line of credit with the Fed or even have to be bailed out by taxpayers directly. Again, from the Jonathan Weil column:
Of course, we now know it means nothing when the FDIC or any other regulator labels a bank "well-capitalized." Most banks that failed during this crisis were considered well-capitalized just before their failure. After the law changed, the FDIC still didn’t charge enough premiums.
And of course, if Ms. Bair is now running around encouraging mortgages to be renegotiated when the FDIC will have to "pay as much as 80 percent of losses", it probably won't take too much time to exhaust the money currently in the insurance fund.
Posted by: Brahma (incensed renter) at December 3, 2009 5:17 PM
... Is the underwater borrower going to get a 1099 at the end of the year for the amount the loan principle was reduced by?
Don't 1099 Me, Bro (aka The Mortgage Debt Forgiveness Act) expires at the end of 2012.
Posted by: EBGuy at December 3, 2009 6:18 PM
heads I win tails you lose.
And here I am renting, waiting for prices to fully shake out.
Whattanidiot I am.
Posted by: Troy at December 3, 2009 7:31 PM
Saving is clearly for losers
Posted by: Zig at December 3, 2009 8:01 PM
Read the article again. She's been trying to do this for a long time. She tried to get tarp funds to pay for it, and congress laughed at her. She has no money to implement this plan. Who is she going to get it from? The zombie banks paying into the FDIC? They're all broker than broke!
So now her plan is to get the banks who take over the failed banks to pay for the writedowns. Um, no thanks Shelia. We'll pass, just like the banks who are rushing to hand back the tarp funds - we'd rather you stay out of our businesses until they fail, thankyouverymuch.
Posted by: tipster at December 3, 2009 10:43 PM
Reading this reminds me, Casey Serin is still out of jail...
Posted by: Paul E. Ester at December 4, 2009 6:02 AM
good mortgages are going bad because the government is helping out. anyone smart will stop paying their mortgage and wait for the bank to modify the house. i would.
Posted by: thisiscrazy at December 8, 2009 9:15 AM
good mortgages are going bad because the government is helping out. anyone smart will stop paying their mortgage and wait for the bank to modify their loan. i would.
Posted by: thisiscrazy at December 8, 2009 9:15 AM