When people who hate banks and love homeowners are full of wild rage about this here mortgage settlement, and when people who love banks and hate homeowners are full of equal and opposite rage, that is pretty good evidence that the mortgage settlement is sort of meh and compromise-y and not that interesting, so let’s not talk about it. Oh, fine, let’s. You could go read all sorts of explanations and FAQs and diagrams and “top n things to know” (n = 3, 5) but I will give you a list of only one most important thing to know about it, which is that it will not reduce my mortgage so it’s all just noise. When will politicians start sticking up for me?
There is one sort of interesting thing that is probably most cogently explained here: Continue reading »
It’s always good fun to get upset about something of the form “X bet against Y,” and the financial markets offer a whole range of opportunities to do so. Everything is a bet against something, and if that something is sympathetic and/or you, you can go get enjoyably pissed at whoever is doing the betting. Today ProPublica reports on a nasty-sounding Freddie Mac bet against America and freedom and the 30-year fixed-rate mortgage with no prepayment penalty:
Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.
Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.
Now, a “bet that pays off if homeowners stay trapped in expensive mortgages with interest rates well above current rates” is called a … what’s the word? … oh, right. A “mortgage.” A feature of our life here on earth is that banks make money when people stay in their fixed-rate mortgages when rates go down, and lose money when people refinance those mortgages.*
Okay but in fairness those aren’t Freddie’s “bets,” not exactly. Their bets against not only the housing market but also specifically a couple named the Silversteins, who “live in an unfinished development of cul-de-sacs and yellow stucco houses about 20 miles north of Philadelphia, in a house decorated with Bonnie’s orchids and their Rose Bowl parade pin collection,” look like this: Continue reading »
If you like mortgages you should read this Fed white paper for Congress on the housing market though I sort of get the sense that Ben Bernanke’s heart isn’t in it. As he says, “Our goal is not to provide a detailed blueprint, but rather to outline issues and tradeoffs that policymakers might consider,” which is quite white-papery of him; the lack of enthusiasm for finding an actionable plan probably comes from the facts that (1) these issues are quite hard and (2) no one will do anything about it anyway because it’s Congress.
So the white paper does in fact mostly lay out tradeoffs that you can ponder quietly, like the one where nobody is lending (bad!) because nobody is confident that they can meet GSE underwriting standards (hmm, we want banks to not sell crap loans to Fannie and Freddie, right?). Or the suggestion, which has been kicked around for a while, to convert foreclosed homes into rentals, which on the one hand:
[Real estate owned] holders will likely get better pricing on these sales if the program is designed to be attractive to a wide variety of investors. Selling to third-party investors via competitive auction processes may also improve the loss recoveries.
But on the other hand: Continue reading »
Like many people, I like to believe that I prefer the government policies that I prefer because they’re a Good Thing for the world, not because they advance my self-interest. But as a relatively new homeowner, I break down a little on mortgages. Sure the mortgage interest deduction is a crazy and inefficient boondoggle, but it’s my crazy and inefficient boondoggle, and I don’t really want my apartment to lose (more) value if the deduction goes away.
Similarly, I’m pretty psyched about the plan that’s been kicking around, and that made it in vague form into the president’s jobs proposal, to allow people to refinance mortgages even if their houses are underwater or their income wouldn’t support the new payments. When I took out my mortgage I had a bit over one turn of leverage, as it were, which had my mortgage bankers congratulating me and asking if maybe I wanted to take a little more money just in case. Whereas now I make TXU look like a strong credit. Because um blogging pays less than banking you see. So I like the idea of being able to reduce my mortgage payment without actually having to try to convince a banker that it’s a good idea for me to keep this much debt. Even though I’m not entirely convinced that it’s good for the world.
Others are also skeptical. Continue reading »
The Federal Housing Finance Agency’s lawsuits against every bank paint a pretty dastardly picture of the seventeen big banks – three of which are now BofA – committing all sorts of frauds in securitizing mortgages and selling them to Fannie Mae and Freddie Mac. This in turn caused Fannie and Freddie to have a series of accidents that left them wards of the state under FHFA conservatorship. FHFA’s lawyers are thorough, quoting among other people the Financial Crisis Inquiry Commission, SEC investigations and suits, and even Matt Taibbi. One thing they don’t do, however, is give any hint of how much money they’re looking for.
Others have jumped in to do the math for them. A popular approach, taken by FT Alphaville and Nomura, guesstimates that the damages will be around 20% of the original principal amount. The reason for this is that it seems to be the amount claimed by FHFA in its suit filed against UBS in July – there, FHFA sought $900 million on $4.5bn notional of mortgages. As the total claims against all the banks are around $200 billion, that gets $40bn of potential damages.
Keefe Bruyette & Woods has a higher estimate of $60 billion. They note that the potential liability is for “rescission”: if the FHFA proves that the banks lied materially in their prospectuses, then the banks are on the hook to buy back the mortgages at par, and thus are at risk even for losses due to the general housing market downturn and unrelated to shoddy underwriting.
Goldman has a note out today that uses two methods – the 20% UBS precedent, and the precedent of the proposed $8.5 billion settlement that Bank of America negotiated with its non-FHFA private label mortgage investors:
Continue reading »
Yesterday Bloomberg reported that BofA is getting out of its correspondent mortgage business. That business, if you need a little refresher, works as follows:
1. Bank of a Horrible Small Town originates a mortgage
2. BoaHST sells mortgage to BofA, repping that there’s nothing wrong with it
3. BofA sells mortgage to securitization/GSE, also repping that there’s nothing wrong with it
4. There’s something wrong with it!
5. Investors/GSE sue BofA on the reps
6. BofA tries to sue BoaHST but it’s gone out of business/gone to jail/been replaced by tumbleweed
7. BofA is sad/broke
So you could see why that would be unattractive.
Continue reading »
The last month or so has not been the best of times for Phil Falcone. Harbinger Capital’s flagship is down, Goldman Sachs, Blackstone and some others have pulled their money, investors have been giving him shit for borrowing $113 million from one of his funds (where redemptions had been frozen) in order to pay personal taxes, he had to put up his art as collateral to borrow even more cash (for what, it’s unclear), he’s being investigated by the SEC and Wilbur, the family’s dancing pig, has been such a god damn bitch. He told the Times none of this is any way a big deal (“The last thing I’m thinking about in the morning is whether I have a cash-flow problem,” he said) and now, he’s be forced to defend his liquidity again. This time, with regard to the mortgage he took out on his house over the summer, after buying it for $49 million in cash. Continue reading »
