New mortgage trap increases taxpayer risk, if it works!

(9 am. – promoted by ek hornbeck)

Feeling distressed about mortgage payments?  The government would like to help.  Just press the little red button.

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Obama’s original mortgage modification plan (HAMP) was a complete failure.  HAMP tried to decrease interest rates and extend the period of the loan without altering the mortgage values that were seriously underwater.  It aimed at barely a fraction of distressed mortgages, and even many of those have since defaulted.

March 25 (Bloomberg) — President Barack Obama’s main foreclosure-prevention program is a failed effort that may be doing more harm than good by spreading the housing crisis over several years, lawmakers and a U.S. watchdog said today.

“It has failed and it has failed miserably,” said Representative Jackie Speier, a California Democrat, said at a House Oversight and Government Reform committee hearing on the Home Affordable Modification Program. “Unfortunately we are incapable of saying that it was a failure, it was an experiment, it didn’t work, let’s try something else.”

Failure is not an option, because the banks will go bust.  Therefore, Obama, Geithner, and the banksters have devised a cunning modification to HAMP to lure distressed homeowners into a financial trap, shift all risk to the taxpayers, and let the banks off easy with government guarantees.

The lure is allowing principal modifications on distressed mortgages.

Another major element of the program, according to several people who described it, will be to encourage lenders to write down the value of loans for borrowers in modification programs. Until now, the government’s modification efforts have focused on lowering interest rates.

In principle, writing down loan values is potentially not a bad idea.    Homeowners stay in their houses, and investors lose less than they would if they foreclosed.  If the housing market were at its bottom, then it might be a good plan.  The housing markets is nowhere near its bottom.

Ed Harrison explains why this is critical:

I was reading Dean Baker’s commentary on why the Obama mortgage plan brings no relief in the Guardian when it dawned on me that the ‘new’ plan is an enhancement of the old plan. And this is significant because the old plan turned non-recourse loans into recourse ones. These recourse loans give banks the ability to seize assets of the debtor other than the home against which the mortgage is secured. This is further evidence that the new mortgage plan is designed to help recapitalize banks and not to help underwater debtors.

Whereas you may be able to walk away from your current underwater loan, you may not be able to walk away after getting a new loan with principal reduction without them going after your other assets:

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Putting all your assets on the line is not all the tricksy banksters have up their filthy sleeves.  No, precious.

In exchange for writing down principal (presumably to today’s market value from which it will drop, drop, drop in the future), the banks get to exchange their worthless assets in exchange for FHA-backed AAA securities.

Here’s Mike Whitney’s assessment:

So, it looks like Obama’s modification program has touched-off a gold rush in toxic paper. Subprime securitizations which had been worth next to nothing, are presently the hottest item on Wall Street. Main Street’s loss will, once again, mean windfall profits for Wall Street’s hedge fund managers and brokerage kingpins. It’s a subprime bonanza! A recent interview I had with a Wall Street veteran (anonymous) had this to say on the topic:

“It sounds like the investors in securitizations will be swapping underwater real estate for government-insured paper… I think the scam here is just to provide some cover so the hedge funds and other high net worth individuals can trade their low grade paper for Triple AAA mortgages insured by the FHA at the taxpayer expense.”

The administration’s program was concocted by the Treasury and heavily influenced by Wall Street’s favorite son, Timothy Geithner. Just last week, Geithner expressed interest in reviving the moribund securitization model which has been in disrepair since two Bear Stearns hedge funds defaulted in July 2007, setting off the Great Financial Crisis. The Treasury Secretary discovered a way that his investor friends and bankers can recoup their losses by simply reducing the face-value of their toxic loans. This is the main objective of the revamped HAMP program; the rest is merely diversionary gibberish intended to confuse the public.

Isn’t Tim Geithner adorable?  I want to grab his little cheeks…

This is yet another “cash for trash” styled program.  As the NYT correctly noted:

This much was clear, however: the plan, if successful, could put taxpayers at increased risk. If many additional borrowers move into F.H.A. loans, a renewed downturn in the housing market could send that government agency into the red.

As if we taxpayers have not been shat upon enough.  

Here’s some really good, free advice from the kind souls at TAE:

If you’re eligible for a spot on the “new losers” program, I would advise you to get out as fast as you can. Don’t give up your right to walk away, which you will if you sign on. Or at least, if you’re really fond of your home, ask whoever’s going through the process with you what would happen if prices came down another 10%, or 20%, what that would effectively mean for the papers you’re about to sign. If they say something in the vein of : “Trust me, that will never happen”, run. Just. simply. Run. The government has no solution to the issue of overvalued housing, and they know it. They’re trying to postpone the inevitable by locking you into payments you won’t be able to afford, on a home that will keep on losing value.

TAE are being super-conservative about those further “hypothetical” housing declines of 10% & 20%, as they have long been predicting housing declines at least back to historical norms, meaning prices have to drop another 50%.

If you have any further doubts about the intentions of Barack Obama, Tim Geithner, and their masters, then to hell with it: Go ahead and sign on the dotted line.

7 comments

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  1. welcome to the shark tank.

    • dkmich on April 3, 2010 at 4:02 am

    I am not surprised.  When I first heard about this in the original program, I was pretty disgusted.  Naturally when new and improved came along, I didn’t trust it at all.  This administration has proven the only interests they intend to protect are their own. Appreciate the overview.  

  2. ….  heck of a job, Timmeh !

  3. only real way to stop banks/condo assoc/et al from foreclosing is formal bankruptcy, regardless of property/mortgage valuation ratios

    (Federal filing) they will look at overall assets, to squeeze all blood assets out of the victim, but it is a one time thing (though there may be several physical inventory inspections).  you will only get raped once.

    what this does is enable a “non-stop” bankruptcy option – you are on the hook forever and they will run inventories on your assets forever.  Sorta like a fish aquarium – swimming in circles in your pretty home prison for life…Isn’t this just an upgraded version of debtors’ prison?  They will have also every piece of data about you from birth, with generations of your family’s DNA under the “new and improved” USA health system.  Once passports include DNA signatures you won’t be able to escape – at least on this planet…

    What REALLY pisses me off though is this new program is billed as the “first payment that covers missed payments.”  THAT IS GOING TO SUCKER PEOPLE INTO IT.

    To even be considered for the previous HAMP programs, YOU HAD TO SHOW INCOME IN LAST 30 DAYS TO SUPPORT MORTGAGE.  It didn’t matter if you owned the entire country of Switzerland, what is your documented cash inflow for the last month?

    Duh?  don’t we have the chicken and egg reversed here?  If the income was there, banker shylocks, the mortgage would not be behind.  This is why HAMP failed.  There was no way to make it work if you were already unemployed/under-employed/going to be underemployed.  Forget living under a roof and prepare to stop breathing all together if you are self-employed, because you now need to buy your own air…

    Reading the news these days requires suspension of all common rationality…

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