The Mortgage Guy Blog

Congress would like the prudent to pay for the misdeeds of the irresponsible. Of course the cost will show up in your tax bill or the ever shrinking buying power of our dollar. Enough is enough.

Say now or pay later. Visit this website dedicated to stopping the mortgage/real estate bailout. Stop the Mortgage Bailout.

From the website…

This site is dedicated to stopping the government’s planned bailout of the housing market. A bailout requires responsible Americans to pay for the acts of greedy bankers, mortgage brokers, flippers, and over-extended homeowners. In other words, the government wants you to pay for the blunders of others who knew, or should have known, better.

Equally as important, a bailout would permanently price out of the housing market all those responsible Americans who have been patiently saving to buy a house that they can actually afford. The current housing correction is necessary to correct for the historic run up in housing prices over the past decade, which has pushed the price of housing beyond affordability. By bailing out the housing market, the government will prevent housing prices from returning to affordability and thereby ensure that young families will not be able to afford homeownership.

A government bailout of the housing market is both fiscally and morally irresponsible; it is an unfair subsidy being paid to the wealthy (bankers), the greedy (mortgage brokers, flippers, and yes some homeowners), and the incautious (some homeowners), with no benefit to those paying the bill (taypayers).

Why should responsible Americans be forced to pay for the mistakes of others?

They are stealing from us. Let them know we know. United we can stop them.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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In December of last year, I posted on Hillary Clinton’s views of the mortgage meltdown. So it was with great interest that I read Moe’s post on Barack Obama and the mortgage crisis. In fact, I liked it so much that I asked permission to cross post it here.

Moe runs the blog Loan Modification & Home Loan News, which is dedicated to assisting homeowners facing the mortgage crisis. If you are facing a mortgage or foreclosure problem, it would do you some good to check out his blog. He has already helped 19 homeowners save their homes. For that I tip my hat and also thank him for allowing me to cross post his article.

My take on the article is that Moe is right on. This article exposes Obama as being part of the same old problem in Washington. Which in a nutshell is money over people. So not only is Obama a hypocrite with respect to the mortgage crisis, he is one based on his campaign theme of “change”. What Moe’s post exposes isn’t change at all. Rather it’s the same old, same old. Obama is either ignorant of where his money is coming from or a hypocrite, you decide. Either way, these are not qualities that endear me to any Presidential candidate.

The last thing this country needs, in these very critical times, is more political cronyism. This is true even if the favoritism is wrapped in the word “change”.

By Moe on March 2nd, 2008

Let’s get something straight here America.

The President of the United States is to work for the common good of the people for which they represent and serve. Yes, represent and serve. They do not take the oval office to work for the “special interests” of corporate America and the money that fills their campaign buckets.

Or do they?

I have been watching Barrack Obama for quite sometime and what I have seen, has been nothing short of disappointing. Obama has been mostly silent in regards to his policy on the mortgage and housing crisis. He has done little to address the millions of Americans that are “suffering” as a result of these loans they were sold by irresponsible lenders.

I came across this interesting article in the Huffington Post by Earl Ofari Hutchinson. Here are some quotes that I thought I would share with my readers. Since they need to know what candidates truly have their backs. Meaning, which candidate is truly here for the people which they represent and the millions of homeowners that were swindled by the banks.

Democratic presidential contender Barack Obama says he’ll crack down on fraudulent sub-prime lenders. If he really means it he can start by firing his campaign finance chair, Penny Pritzker. Before taking over Obama’s campaign finances, she headed up the borderline shady and failed Superior Bank. It collapsed in 2002. The bank’s sordid story and its abominable role in fueling the sub-prime crisis are well known and documented. It engaged in deceptive and faulty lending, questionable accounting practices, and charged hidden fees. It did it with the sleepy-eyed see-no-evil oversight of federal. It made thousands of dubious loans to mostly poor, strapped homeowners. A disproportionate number of them were minority.

I am not really familiar with this Penny Pritzker. So, I thought I would do a Google search and this is what I found. This is from wikipedia.

On February 20, 2008, Flashpoints Radioproduced an investigative report segment into how Penny Pritzker’s possible role in the current predatory lending(aka. sub-prime) crisis. According to investigative reporter Tim Anderson, Superior Bank, FSB of Hinsdale, Illinois, was owned by the Pritzker family until closed by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. Superior Bank was among the original lending institutions who used their investors money to purchase “subprime” mortgages for securitization. Pritzker banking resources working with Ernst & Young and Merrill Lynch developed the original mortgage securitation package, putting mortgages into a bond and then selling the bond. Like many banks nationwide, the decision to participate and underwrite subprime business ultimately proved fatal for their mortgage division.

Here is the podcast that I feel everyone should listen to from Flashpoints Radio.

Wednesday, February 20, 2008 Listen D’load Podcast - Today on Flashpoints: Today on Flashpoints, An investigative report into Penny Pritzker, the 2008 campaign finance chairman for Barack Obama, who was a key mover and shaker in creating the sub-prime meltdown;

It doesn’t end there and keep in mind, this is all as easy as doing a 30 second Google search. This is a November 8, 2002 article is from Inside These Times:

After federal regulators closed the $2.3 billion Superior Bank in July 2001, investigations revealed that the suburban Chicago thrift was tainted with the hallmarks of a mini-Enron scandal. New legal developments are adding additional twists, including racketeering charges. And yet the bank’s owners, members if one of America’s wealthiest families, ultimately could end up profiting from the bank’s collapse, while many of Superior’s borrowers and depositors suffer financial losses.

The Superior story has a familiar ring. Using a variety of shell companies and complex financial gimmicks, Superior’s managers and owners exaggerated the profits and financial soundness of the bank. While the company actually lost money throughout most of the ’90s, publicly it appeared to be growing remarkably fast and making unusually large profits. Under that cover, the floundering enterprise paid its owners huge dividends and provided them favorable loans and other financial deals deemed illegal by federal investigators.

Wanting to avoid a lawsuit, the secretive Pritzkers quickly agreed to what the FDIC hailed in December as the biggest settlement they had ever negotiated. The Pritzkers would pay $100 million immediately, then $360 million over 15 years. But there were lots of little provisions in the agreement that benefit the Pritzkers. First, as former bank consultant and longtime thrift watchdog Tim Anderson notes, the $100 million doesn’t even quite pay back all of the unpaid loans made to the owners. The Pritzkers also pay no interest on the $360 million, and since it is paid over many years, the real cost to the Pritzkers may be only around $250 million. As of September 2002, according to FDIC figures, the insurance fund was still out $440 million after this settlement.

But it gets even sweeter for the Pritzkers. The FDIC also agreed to pay the Pritzkers 25 percent of any claim won in a lawsuit against Ernst & Young. Since the FDIC is now suing for $548 million, the Pritzker share could be $137 million. On top of that, the agreement stated that the Pritzkers get half of any civil penalties from such a lawsuit (after certain agency expenses). The FDIC is asking for triple damages, or $1.64 billion; the Pritzker share could be over $800 million.

Even taking into account the “record” settlement they made with the FDIC, the Pritzkers could make more than $700 million in additional profit for running a financial institution into the ground. They had already profited handsomely, sharing in the more than $200 million in dividends to the owners in the ’90s. They accomplished all this with an investment of about $21 million for each partner—though the Pritzkers had also already benefited from $645 million in tax credits.

Meanwhile, roughly 1,000 depositors who had deposits above $100,000 in a Superior account—money above the FDIC-insured limit—lost about $65 million. Most of them were middle-class individuals, attracted by Superior’s high interest rates.

Here is the failed Superior Bank information from the FDIC

So, what does all this tell the American people? The suffering American homeowner that is struggling in one of the very same loans that Penny Pritzker used to pedal at her “Superior Swindle of a Bank”?

How can Barack Obama say you have a splinter in your eye when there is a log in his?

Personally to me, it shows that Mr. Obama is all about the Benjamin’s (AKA Money) and speeches with his big white toothed grin and hollow words that seem to have Americans under his spell and hanging on to his every word as his pockets are lined by the very sharks that feed off of suffering Americans.

Isn’t Obama supposed to protect the people against these corporations or is he to align himself with them to win an election? Hell, it seems like it doesn’t matter where that money came from to fund his campaign. As long as it serves his purpose and this purpose seems to be rearing its ugly head in the form of campaign contributions from the very same people that he criticises.

You are contradicting yourself Obama. Why don’t you read exactly what this means and I’ll help you by posting the wikipedia version of the term “contradiction.”

In logic, a contradiction consists of a logical incompatibility between two or more propositions. It occurs when the propositions, taken together, yield two conclusions which form the logical inversions of each other. Illustrating a general tendency in applied logic, Aristotle’s law of noncontradiction states that “One cannot say of something that it is and that it is not in the same respect and at the same time.”

More from Inside These Times:

Ernst & Young provided inaccurate audits, resisted regulators, and did not test or properly disclose crucial financial assumptions. The OTS didn’t investigate or follow up on problems adequately, ignored warning signs for years, and unduly relied on the expertise of managers, the auditor’s report, and the promise of the wealthy owners to put their money behind the bank’s strategy, which they ultimately refused to do. While the FDIC lawsuit against Ernst & Young correctly highlights the accounting firm’s sorry record of accounting malpractice, it ignores the dubious history of the Pritzkers and Dworman in cases ranging from tax evasion to bank mismanagement, instead praising the Pritzkers for their charity.

What looked like a good deal for the FDIC in resolving Superior’s failure is now looking like yet another opportunity for the wealthy Pritzkers to further profit from their misdeeds. Certainly, the record suggests that Ernst & Young bears responsibility, but so do the Pritzkers and Dworman. The question is not just who will extract money from whose pocket in the aftermath of the bank failure, but also whether the rich are simply above the law. The RICO lawsuit against bank managers, owners and auditors raises the issue of criminal conspiracy and at least attempts to recover damages for the uninsured depositors. But beyond that, argues thrift watchdog Anderson, “I think there ought to be a criminal investigation.”

More wise words from Earl Ofari Hutchinson from the Huffington Post:

Obama boosters will try to muddy the water by fingering Pritzker’s brother, Jay Robert Pritzker, who heads up a campaign committee for Hillary Clinton. That’s irrelevant. Jay Robert did not head up Superior Bank when it ran roughshod over homeowners in Illinois and nationally. He does not head up Clinton’s campaign finance committee. The campaign committee he started is one of dozens of Clinton campaign committees that operate in many states.

Obama’s message is one of hope and especially change. He can prove it by changing his finance chair, and doing it now. And then telling the public what he will do to stop bank’s like the one his financial point person headed from bleeding needy and desperate home buyers dry.

The predictable happened when many of those lost their homes. When the bank collapsed Pritzker and bank officials skipped away with their profits and reputations intact. Aside from the financial and personal misery sub prime lenders caused the thousands of distressed homeowners, sub-prime lending has been a major cause of the housing crisis in many areas, and has dealt a sledgehammer blow to the economy. Obama has said nothing about Pritzker, Superior Bank, or their dubious practices.

Instead, there was a touching, even teary eyed photo op, moment during one of Obama’s Texas campaign swings. There was Obama talking to a group of San Antonio residents and lambasting the CEO of a sub-prime lender for greedily snatching at a $100 million buy out package while thousands of home borrowers that his company snookered into loans at below market rates faced foreclosure or the threat of foreclosure.

So let me get this straight Obama. You can berate a CEO like Angelo Mozilo (I assume that is who you are speaking of) for taking profits as a result of snookering the American people. But when it comes to accepting money for your campaign, it is quite all right to take money from a woman who snookered American Homeowners and was made rich off the backs of people for which she made toxic loans to.

Excuse me Barack Obama, Penny Pritzker is guilty of the very same thing for which you had a lambasting fest in San Antonio. Now, lets see if main stream media is also under Obama’s goofy grinned spell and if they will pick up this very important information that the American people “need” to know.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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Every time I sit down to write a post, more significant news on the economy is breaking. Events are unfolding rather rapidly and it’s been difficult to focus on any one event, as they are all related. So in this post, I will post links to stories that have significant meaning to the mortgage industry and the economy. One thing is for sure, if the public isn’t being lied to, it is definitely being deceived.

I am going to start with the apparent insolvency of the United States banking system. Since November of 2007, assets used to meet the required reserve levels by banks has plummeted 150%. Yes you read that correctly, they lost 50% more than what they originally had.

Check out the chart and article at Financial Sense University. Here is a snippet.

Clearly the situation has deteriorated at a rapid pace and is much more serious than the credit scare last August. US banks have no reserves; they are for all intents and purposes, broke. In fact they are beyond broke and as I suggested last year banks are now sub-prime. 150% of the reserves at depository institutions are borrowed. That can only mean one thing, the banks have “lost” 1.5 times their original non borrowed reserves. Not only have they lost what they had, they went on and lost half as much again. If you or I did that, we would be bankrupted and probably arrested for attempting to defraud the lender.

The last sentence of the above quote gives you a sense of the “special” treatment the banks are receiving from regulators.

Moving on…

Bank of America is in secret talks with Congress for the purpose of obtaining a three quarter trillion dollar bailout, courtesy of the U.S. taxpayer. Here is the original article from the New York Times but I believe you will find Mish’s dissection the article much more informative. Here is a link to Mish’s Global Economic Trend Analysis and another snippet.

From the NYT…

If the government pays too much for the mortgages or the market declines even more than it has already, Washington — read, taxpayers — could be stuck with hundreds of billions of dollars in defaulted loans.

Mish’s Comment: Taxpayers could be stuck or would be stuck? I think the latter. No one entity or agency can value these things, certainly not Moody’s Fitch, and the S&P. For recent evidence, please see Evidence of “Walking Away” In WaMu Mortgage Pool.

The only proper way of establishing the worth of these securities is by the free market, not guesstimates by bureaucrats who cannot find their asses with both hands at one time, nor by banks willing to sell the government a bill of goods at taxpayer expense.

Mish’s piece is a very good read, stop over there if you get a chance.

CommodityOnline has an interesting article about the Fed, why you shouldn’t expect interest rates to trend lower and why the banking system is beyond repair. Here is a small excerpt from ‘US Fed is playing a risky, secretive game’

The solution requires more price inflation, asset inflation, wage inflation, and spillover, all of which contribute to rising long-term interest rates. Already, we see the rub in higher mortgage fixed rates, higher jumbo mortgage rates, higher corporate bond yield spreads, higher junk bond yield spreads, higher fixed rate swaps.

To support my statement that the public is at the very least, being deceived, let’s take a look at Standard and Poors’ (S&P) recent ratings actions with regard bond insurer MBIA. Bloomberg sums it up nicely. Emphasis is mine.

Treasuries fell for a second day as Standard & Poor’s said it’s unlikely to reduce the credit rating of bond insurer MBIA Inc. soon, reducing demand for the relative safety of U.S. government debt.

The bond insurers are insuring the credit worthiness of portfolios exposed to defaulting mortgages. If they get downgraded, as they should, it puts even more pressure on bank reserves, further weakening bank financials. It appears S&P mindlessly rubber stamped MBIA’s AAA rating.

Mish, once again, makes a strong case for S&P’s lack of objectivity. He contrasts S&P’s actions on Pfizer and MBIA. Below are some numbers on both companies. Guess which company is MBIA that retained a AAA rating.

Compare Financials

• Profit margin -61.76% vs. +17.07%
• Return on Equity -35.54% vs. +12.13%
• Revenue $3.12 Billion vs. $48.61 Billion
• Earnings Per Share -$15.22 vs. +$1.20
• Total Cash $5.73 Billion vs. $20.30 Billion
• Total Debt $17.44 Billion vs. $8.69 Billion

The “bad” numbers belong to MBIA, which maintained it’s AAA rating. The “good” numbers belong to Pfizer. S&P saw fit to downgrade Pfizer by one notch. To prove how absurd the S&P rating is, given a choice, which company would you rather lend money to? It’s not rocket science. They make it rocket science to hide their ineptitude, incompetence and lack of objectivity.

First we have the mainstream omission of the state of U.S. banking. Now you see outright deception with regard to the ratings agencies. These are the same agencies that rubber stamped subprime mortgage backed securities AAA. Which of course allowed for the pandemic spread of the toxic paper.

The investment bankers, with their accomplices the ratings agencies, are perhaps directly responsible for the economic woe felt around the globe. To think that we are supposed to believe in and trust these ratings companies is ridiculous. Only one question comes to my mind, why aren’t people going to jail?

Banking woes aren’t unique to the United States. Jim’s post on The Great Depression of 2006, shed some light into the banking crisis overseas. In his piece titled, The New Deutsch Mark, he points out two overseas banking flash points.

It looks like the German banking system is starting to unravel. Here is a link from Der Spiegel to the article. A hat tip to Patrick.net

The German government has had to bail out state-owned banks with taxpayers’ money after their managements recklessly gambled away billions on sub-prime investments. But if a state-owned bank were to go under, the consequences could be disastrous for the whole economy.

In England, Northern Rock just got nationalized by the government.

Nationalization of banks… Hmmm.

I’ll end this list/post of “should read” articles with strongest and perhaps the most disturbing post from The Common Sense Forecaster. CSF digs into Dr. Nouriel Roubini’s article, The 12 Step Program to a Financial Crisis. Emphasis is mine.

Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past January? It is true that most macro indicators are heading south and suggesting a deep and severe recession that has already started. But the flow of bad macro news in mid-January did not justify, by itself, such a radical inter-meeting emergency Fed action followed by another cut at the formal FOMC meeting.

To understand the Fed actions one has to realize that there is now a rising probability of a “catastrophic” financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.

That is the reason the Fed had thrown all caution to the wind – after a year in which it was behind the curve and underplaying the economic and financial risks – and has taken a very aggressive approach to risk management; this is a much more aggressive approach than the Greenspan one in spite of the initial views that the Bernanke Fed would be more cautious than Greenspan in reacting to economic and financial vulnerabilities.

To understand the risks that the financial system is facing today I present the “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.

Roubini’s article is a must read if one would like to assess a “worst case” scenario. With each passing day, Roubini’s scenario becomes more probable. It’s a long but very informative article. The one mistake I made was reading this article at 11:30 in the evening. I ended up falling asleep around 3 o’clock in the morning. Here is a link to Roubini’s “About Us” page of his highly regarded website.

There is a lot of “kool aid” being served up in the media. Try not to get a belly full of it and keep your eyes on what is really happening. Then get your financial affairs in order, while you still have the time.

Tags: Current Events, Finance & Economy by The Mortgage Guy
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If it makes for good press, you can bet your last dollar that politicians will jump on the band wagon. This is so even if what makes good press, is a disaster in disguise. Saving people’s homes from foreclosure is good press.

Having said this, does it come as a surprise that Hillary Clinton is joining the chorus for a socialistic mortgage bailout? If it does, it shouldn’t. The following is a 4 minute video of Clinton’s speech to Wall Street, brought to you by Marketwatch.

Hillary Clinton’s Financial Ineptitude Documented

Some of her statements are correct. For example, Wall Street’s role in the mortgage meltdown and that it will impact the broader economy. However, she goes downhill fast after that.

Here is where she is dead wrong with her most dangerous statements listed first.

• Her threat to introduce legislation to disallow mortgage backed securities investors from suing. This will undoubtedly destroy mortgage securitization which is the backbone of the industry. Who will buy mortgage securities knowing that the government can change financial contracts on a whim and without the investors having any legal recourse? Is this even Constitutional?
• The ninety day moratorium on foreclosures is nearly as dangerous. Perverting the foreclosure process will also prevent investors from buying mortgage paper. Further, by the their own admission, the bailout will only affect a very limited number homeowners. Yet she suggests a moratorium on ALL foreclosures.
• What is to stop other homeowners from suing for better rates on their mortgages? It is discriminatory to freeze or lower some payments and not the payments of all homeowners. Who decides who gets what and under what circumstances?
• She claims rate resets are responsible for the meltdown, yet it’s been pointed out that at least half of those in default today, are doing so on their initial low teaser rates. It’s also been pointed out that falling values play a significant role in the increase in defaults. When homeowners realize that they are massively upside down in value, they often choose to default on their loans.
• Her assertion that mortgage brokers have a significant role in the mortgage meltdown is also a flawed position as I point out in this previous post.

The video is proof that Hillary Clinton, like George Bush, Henry Paulson, Barney Frank and Chuck Schumer, et al, are severely ill equipped to correct the mortgage and real estate meltdown. This becomes more evident each and every time these people open their mouths.

They are simply politicizing the issue without providing real solutions. Remember, their number one goal in life isn’t to help American homeowners, but to get elected and maintain or increase their power.

The freeze will only make the problem worse. Don’t drink the kool aid and prepare for some very rough times ahead. Times made even rougher with do nothing, feel good and very damaging initiatives.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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The mortgage payment/interest rate freeze plan is contrary to the well being of competent homeowners, the rules of nature and our gene pool.

In nature, the strong and intelligent survive and the weak and stupid get pruned from the gene pool. Thus perpetuating a stronger species over time.

In modern America, the strong and intelligent get pushed aside (often times on their very own dime) and the weak are given artificial life support. The strong wither and the weak thrive, perpetuating a much weaker and problem prone species. Evidently, it’s compassionate to destroy the future of the species.

The Common Sense Forecaster did some homework on the proposed freeze plan. Who it helps, who it doesn’t and what are the likely affects of the plan. It’s plain to see that the mortgage payment freeze plan is nothing more than a public relations stunt that will cost billions, delay the inevitable and destroy the mortgage industry.

From CNNMoney:

. . . .U.S. Treasury Secretary Henry Paulson began to address efforts to stave off a foreclosure epidemic by lenders, those who service loans, and investors who hold mortgage debt.

Despite much speculation that Paulson is close to helping coordinate a rescue plan that would broadly freeze levels on adjustable mortgages before they reset to higher rates, Paulson gave few details on how such a plan would work.

He did however say who the plan would help, and it would probably leave out a large number of homeowners stretched by their mortgage payments.

Paulson divided subprime borrowers into four groups. The plan would be most geared toward those who can afford the mortgage now but won’t be able to after the adjustment.

The other three groups are largely left out: Borrowers who can afford an adjustment; those who are already behind on their payments; and those who can refinance into a fixed-rate loan.

According to the Mortgage Bankers Association, 5.12% of outstanding loans were in default in the second quarter, a rate about 17% higher than a year ago.

The plan would also seemingly exclude borrowers who hold option-ARMs that aren’t subprime. These are loans that start with extremely low “teaser” rates before rising dramatically a few years into the loan.

It has also been reported that homes that were bought as investments - as opposed to for the purpose of living in - would be excluded.

More than 50% of the increase in delinquent mortgages are actually investor-related, said Wachovia senior economist Mark Vitner. “It’s hard to conceive how many people are actually going to meet this criteria. There’s nothing at all in there that addresses investors,” said Vitner, who added he doesn’t support an investor bailout.

So by Paulsen’s own admission, the plan will only help a small portion of the homeowners afflicted by the mortgage and real estate meltdown.

Clearly it won’t solve the problem and it’s obvious to me that it will only make it worse by leaving the mortgage backed securities investors holding the bag, so to speak. By putting the screws to the mortgage investor, they are killing the life blood of the mortgage industry.

Paul Krugman of the New York Times writes…

Credit — lending between market players — is to the financial markets what motor oil is to car engines. The ability to raise cash on short notice, which is what people mean when they talk about “liquidity,” is an essential lubricant for the markets, and for the economy as a whole.

But liquidity has been drying up. Some credit markets have effectively closed up shop. Interest rates in other markets — like the London market, in which banks lend to each other — have risen even as interest rates on U.S. government debt, which is still considered safe, have plunged.

“What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”

So why is Paulsen and company pushing forth remedies that clearly miss the mark and cause further damage to our already broken mortgage securities market? Especially when the real problem is so severe that if left untreated, we are facing very dire financial times.

More from Krugman… As before, the emphasis is mine.

The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.

Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.

Paulsen, the politicians like Barney Frank and Chuck Schumer, the mainstream media and even some mortgage industry executives are pushing socialistic initiatives that won’t help the majority affected by the mortgage crisis.

If they are not helping the majority of homeowners or the mortgage industry, which is a vital component to the health of the American economy, why are they doing it?

The only thing politicians and government regulators are committed to is keeping their jobs. Plain and simple. Look at the current state of American politics for verification. To some extent, the same holds true for industry CEO’s.

So instead of studying the problem and putting forth potential solutions that will really fix the issues, they take the easy way out. Easy because it is good press.

It’s great public relations fodder to be able to say “awww, the government is going help people who should have never been able to buy a house in the first place, keep their house”. This at the expense of the American public and the American economic system. Good public relations helps one to keep their jobs, incompetent or not.

Shame on them. They are worse than the mortgage brokers that they so fondly vilify.

Tags: Current Events, Finance & Economy, Mortgages by The Mortgage Guy
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The political, business and media elite will have you believe that the current historic mortgage default rate is due to adjustable rate mortgage payment/interest rate resets.

Consequently all three entities are pushing for socialistic remedies. These so called remedies will only worsen the problem by obliterating what is left of the mortgage industry.

Iamfacingforeclosure dot com posts a very interesting article that points out current mortgage defaults are not solely due to ARM resets. Not yet anyway… The emphasis is mine.

The national foreclosure rate has climbed steadily throughout 2007. While most reports attribute the bulk of the foreclosures to ARM resets, the reality is that more than half of the borrowers who are defaulting are still in their first year of the loan.

The abysmal failure of Credit Ratings Agencies and risk management departments of financial institutions to properly assess the risk aspects of subprime loans, have allowed for loan underwriting so lax that borrowers are defaulting on the low teaser rate payments. You can just imagine what will happen next year when mortgage payments rise by an average thirty three percent.

Bank of America Securities estimates that rates will reset on $362 billion worth of adjustable rate subprime mortgages in 2008. At the same time, resets will also occur on $152 billion worth of other loans with adjustable rates, such as Alt-A loans and jumbo loans (loans over $417,000).

The article is a good read and I encourage you to check it out.

As with many, if not all important issues facing the country and it’s middle class today, the mainstream media and our politicians cannot be looked to as reliant information sources. Every tid bit of information disseminated by these self serving entitities is slanted with some type of agenda.

Their tactics include lies, half truths and outright omission. Perhaps that is why the general public is totally oblivious to the economic crisis unfolding before our very eyes.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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When the going gets tough, to hell with integrity, change the rules. We can file this under “the government in it’s attempt to fix a problem only perpetuates it”. Apparently the government and lenders are working out a plan to freeze mortgage payment resets. Here are some details on the mortgage payment freeze plan from Marketwatch.

The report said the gist of the plan was to extend the low introductory rates on home loans made to borrowers who will have trouble meeting higher reset rates. Under one scenario, the extension of lower rates could run as long as seven years, the report said.

This a marvelous way to fix the real mortgage meltdown issue, which is securitization. /sarcasm The government will restore efficiency and integrity to the mortgage securities market by telling current investors we are changing the rules on the investments they bought. We are changing them in a manner that will negatively impact their holdings. By the way, do you want to buy some more mortgage securities?

The second issue I have with this initiative is that the government shouldn’t be bailing out people who have very little invested in their homes. I’ve stated it before, there is a class of homeowner out there that is nothing more than a glorified renter.

If it turns out resources for this plan are finite and only some homeowners can get the prescribed payment relief, homeowners who put money into their purchase or have the most equity, should be first in line. Financial prudence should be rewarded over financial irresponsibility.

Graph courtesy of Credit Suisse
Furthermore, studies have shown that the mortgage payment reset phenomenon as it stands now, will last for the rest of this decade. By extending these resets for another four to seven years, without addressing the real issue of securitization, will only delay the inevitable and at a greater expense than currently faced with.

Without securitization, there is no mortgage industry. This bailout is contrary to saving the mortgage securitizaton process.

Tags: Current Events, Finance & Economy, Mortgages by The Mortgage Guy
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