Wednesday, October 24, 2007

HR 3609

HR 3609 (The Emergency Home Ownership and Mortgage Protection Act Of 2007)

Sounds compassionate. All the bad ideas get the best titles. You all know the details by now. This allows BK judges to modify loan terms for people in Chapter 13. It doesn't much matter if it is principal or interest or both but it looks like it is an interest rate modification program as of the latest. I will not comment on all the things you know I think about this. Instead I thought it useful to see the limits of such a program.

Say for instance there's this young couple, call them, C&G. C&G have a 2005 era 3/1 ARM LIBOR +3.5% with intro rate of 5.125% on their modest Sacramento $550,000 starter home that they paid only $5,000 up front to cover some closing costs. The full rate kicks in Spring 2008 at ~9%. Payments go from $3000 to $4400. They are busted. They have to do something. Sell? NFW. the place is worth $450,000 now. Bankrupt? Let's try. Chapter 13 looks like a way out. The judge needs to get them bank to $3000 mortgage payments. Well gee, the math is easy, return to 5.125% rates, a full point below all those idiots with good credit and fixed mortgages trhey can afford. Good deal for C&G? Not hardly. They owe $550k on a $450k house. At the new interest rate they can pay in until October 2017 before they are back to even with no contributed equity. That's if prices are flat. That same $3000/mo over the next 10 years using $2000 generous dollars for rent and banking $1000 would have them up $160,000 in double tax free munis. They would pay a lot less for the type of house that cost $550k in Spring 2005.

38 comments:

Edgar said...

Let me be the *first* to say that this is the beginning of the end for the monetary system.

Rob Dawg said...

It will be a hit certainly but an end to the monetary system? Okay, you are right that nobody is prepared for the "massive defections" we are about to see. The monetary system will need to change to address that but that's not the same as a collapse.

We'll see a return of lending standardsand a deep recession of normal to slightly long length and a step in intractable inflation and higher taxes but not systemic failure.

Lou Minatti said...

Rob,

I received a letter from Countrywide today touting the benefits of refinancing to a 40 year mortgage. My loan balance is a bit more than $39,000 but Countrywide says that if I refi now I can use the equity "locked up" in my house to put in a pool, redo the kitchen, or pay for college for my kids... and my monthly payments will be lower! Plus, I can get an additional tax benefit. This is a sweet deal, win win.

I get this same letter like clockwork every two weeks. It must be a really great deal if they keep sending it to me. There is no problem with the financial system if CW is willing to give me such a sweet offer.

H Simpson said...

why would C&G not do a chapter 7 like they can do today?

h.

Salt Lake Mortgage Guy said...

All this "legislation" HR 1852, HR 3648 etc. are smokescreens by our politicians to say something is being done. They're being held up in the Senate and are a knee jerk reaction to what's going on.

Where action is taking place is within the companies/organizations that are affected like Countrywide and the FHA.

However, their actions at first glance seem to be just as damaging.

Hyperinflation seems to be more and more of a reality.

Property Flopper said...

We're not doing it right though, let's elect Mugabe in 08! He's done great things for Zimbabwe in far less time than we've taken.

Embrace inflation - Mugabe in 08!

simi.uber.alles said...

Couple things about BK: first, Ch7 discharges unsecured debt. Mortgages and car loans survive, so filing Ch7 is a way to keep the house, not a way to get out of it. Filing Ch7 after the house has gone to FC only makes sense if the lender gets a deficiency judgment. If the mortgage is non-recourse, the lender can't go after anything but the house and there's probably no need for BK.

The new BK laws made it quite a bit more difficult to claim Ch7. The median income for the means test in California is not that high, so a married couple with almost any jobs are probably going to be excluded. Basically, you need to be unemployed to pass the means test. Kinda ridiculous that it makes more sense for people to quit their jobs (or "get fired") and file BK to get debts discharged.

Anyone else is going to be stuck in Ch13, which is just a restructuring. That probably means wage garnishments, a 10 year black mark and who knows what else, and in return, maybe, they'll erase some of the debt (not all). I can definitely see people thinking that it's not worth the trouble, at least as long as they can juggle payments.

Rob Dawg said...

Exactly. Restructuring isn't a solution. There are literally millions of households that cannot afford the debt they've taken on. Restructured debt they cannot afford doesn't change that. The only thing to do here is for them to lose their leveraged asset and start over. Call it a margin call if you want. It sucks. It is painful. It is the most efficient way to move on for all involved. They have to lose their assets. Why is everyone confused or resistant or uncomfortable with this? Leaving busted players in the game does no one any good. I'm ready to toss a few chips their way to get them to leave the table quietly. I'm not going to risk my chips by covering their bad bets.

Property Flopper said...

> Leaving busted players in the
> game does no one any good.

Yeah, but if all the busted players get bumped out at once, the whole house of cards comes tumbling down.

R-Boy said...

Yeah, I gotta hope these are killed in committee.

Pleather Murse said...

OT -- back to the fire issue

Hear anything more about the arson investigation? There have been reports of multiple suspects. FBI are investigating the Santiago Cnyn fire which had 3 origin points. Elsewhere an arson suspect was arrested in Hesperia, and another one shot dead in San Bernadino. See latimes.com. What's going on here?

Akubi said...

Our life is twofold; Sleep hath its own funny blogs,
A boundary between the things misnamed
Lovely nudes and existence: Sleep hath its own world,
And a wide realm of wild than shwe photos with panties,
And dreams in their anya milk bath have breath,
And breasts fart and blow bubbles and the touch of joy;
They leave a weight upon our fun shui frog,
They take a weight from HR 3609 yubiwaza,
They do divide our being; they become
A portion of our bettie spanked sheep as of our time,
And look like heralds of no bs guaranteed unsecured credit with a 2 year old bk;
They pass like casey serin lawsuits -they speak
Like bubblegum blinkies of the future; they have power -
The tyranny of pleasure and of evil amazon woman;
They make us what we were not -what anal Nancy Pelosi will,
And shake us with the vision that's gone by,
The dread of vanished buttplugs and thongs -Are they so?
Is not the past all shadow? -What are they?
Comic bondage? -The mind can make
Substances, and people panties of its own
With sasey games brighter than have been, and give
Anya’s milk bath to forms which can outlive all architecture books.
I would recall a vision which I dreamed
Perchance in sleep -for in itself a temple implant,
A slumbering thought, is capable of years,
And curdles a long life into one blog panty
knick-nack patty whack, give the frog a loan

Legion said...

@Pleather Murse

Shoot someobdy, call him an arsonist, and the REAL arsonist or mastermind goes free.

wagga said...

OT again:

Looking at the satellite pics, it looked like a large fraction of SoCal was on fire.

Using this wiki reference plus some quick research reveals that land area of San Diego county is almost 12 % burnt & burning. 1 in 6 of the population have evacuated.

LA/Ventura counties combined racked up a still-impressive 2.5%

Sweet Cashback said...

Posting on the Zillow discussion board (quite entertaining btw):

I am really stuck in a bind here. Can someone give me some advice? I love my house and don't want to lose it, but I think I'd be stupid to keep it considering my situation. I live in Corona, CA 92879. There are currently 5 foreclosures on my block (not to mention numerous ones on surrounding blocks) all for about $100k less than what I owe. My problem is also that my rate will adjust come September, so I will be stuck with an adjustable rate and will have paid $43,000 in mortgage payments from today until then. I don't want to throw $43,000 in the trash and I don't want to foreclose. Should I do a short sale? I havent made a late payment yet on my mortgage. I was hoping though that the lender would rewrite my loan at the current value with lower monthly payments. is that common at all?

FYI: I am a wholesale mortgage AE and do not make what I used to anymore, so I currently can't afford my current monthly payment either. My savings is gone because of it. Please help


The mortgage world seems to be the lala land.....

Lou Minatti said...

Hear anything more about the arson investigation? There have been reports of multiple suspects. FBI are investigating the Santiago Cnyn fire which had 3 origin points. Elsewhere an arson suspect was arrested in Hesperia, and another one shot dead in San Bernadino. See latimes.com. What's going on here?

Only the perps and the FBI know right now. Perhaps it's more sinister than a firebug or desperate homoaner.

Lou Minatti said...

FYI: I am a wholesale mortgage AE

And they don't know if the lender will rewrite the loan?

Centipede said...

Over many a tangled spray,
All heart-broke I heard her say: dirty penny-1
fun shui frog milk bath

‘O, my bubblegum! do they cry?
Do they hear their breasts fart and sigh?
Now they look abroad to see:
Now return and weep for me.’

Pitying, I dropp'd a tear;
But I saw a glow-worm near,
Who replied: ‘What wailing wight
Calls the HR 3609 of the night?

‘I am set to light the ground,
While the beetle goes his round:
Follow now the beetle’s hum;
Little wanderer, hie thee anal pelosi buddha home.’

Centipede said...

I believe anything referencing HR 3609 is topical is it not?

Legion said...

@Lou Minatti said...
FYI: I am a wholesale mortgage AE

And they don't know if the lender will rewrite the loan?


You gotta remember Lou, this person was a Walmart greeter prior to becoming a genius and getting into the real estate mortgage business when no one else was...so they don't know much about the real world and stuff...I mean shit, this moron actually thought that they would continue to make tens of thousands of dollars a month doing absolutely shit and didn't have a clue that it would end someday, nor did they save in anticipation.

Look at the question..

Umm lender, I know the original loan amount was for 800K, but now that the house is worth 100K less, can we rewrite the loan to reflect that? Wow no lose situation there, if the house goes up the broker makes a killing, if it goes down, let the bank eat the loss.
MORON

Legion said...

From the Housing bubble blog, another moron

“Despite industry efforts, relief remains out of reach for many borrowers such as Carlos Ortiz, who says he’s on the verge of losing the four-bedroom home he bought for $580,000 in suburban Rancho Cucamonga, east of Los Angeles.’

“Like other buyers at the height of the housing boom, he got a loan that kept his monthly payments low for two years and counted on being able to refinance before the rate adjusted sharply higher.”

“When he didn’t qualify for a new loan, he tried to get his mortgage servicer to restructure his existing one. ‘I told them I cannot afford it, you have to help me to refinance or modify my loan,’ Ortiz said. ‘They don’t want to work with me.’”



I make 9 dollars an hour and bought a merecedes benz, now that I didn't get the dollar per hour raise, I told the car dealer..listen, I can't make this payment, I am ENTITLED to have a payment that I can afford, so er..I can go up maybe 25 cents per month but that's it...

Lou Minatti said...

From a purely selfish standpoint, in a few years a W2 loser like me will be able to afford California prices. I wouldn't mind wrapping up my work career in a nice place on the coast and retiring there.

Funny Circus Bears said...

My wife told me yesterday that her hair stylist (not mine - I'm a Supercuts guy) was complaining about the RE market. Seems she bought a condo for $300k two years ago and it is worth less than that now - and dropping.

But worse is that a year or so ago she bought another condo in Sedona AZ to flip, had to rent it at a $200/mo. loss and the value is still dropping. She was hoping to get out at cost next summer, and was not happy when my wife told her about a condo I bought in La Jolla in 1993 while I was developing a shopping center there, and the value of that thing dropped and didn't reach my purchase price until SEVEN years later.

b4freedom said...

Question: Let's assume I'm a dumbass that lives in Southern Cal and lost my $500k house to the bank a few months ago. It was about to be auctioned off but a county wide fire burned it up.

How much do I owe the bank?

Legion said...

@FCB

she should cut John Edwards hair at 400 a pop..she'll make up that lost money in no time, especially if she also charges him to preen his hair for 3 minutes before a avideo..though he dOES like to do that himself.

@b4freedom

Whatever insurance pays is what the lender will deem as the "sale" of the house if it had gone to auction, go from there regarding money owed or taxes.

Casey Serin said...

HAPPY BIRTHDAY, ROB DAWG...!!!

NOW WRITE SOME MORE STORIES ABOUT ME!!! KTHXBAI.

Pleather Murse said...

It was about to be auctioned off but a county wide fire burned it up.

Weird, I first read that line as "country wide fire," as in CFC. I got a mental image of little oompaloompa Mozillo skulking in the underbrush with a zippo and a can of gasoline... lol

TK said...

Interesting tidbit this morning:

While home prices tank across the country with existing home prices down as much as 28% in the West, a poll has found that 82% of Americans believe that if they were to put their house on the market in the next 12 months, it would be worth as much or MORE.

Just a little hint about how bad it's gonna be.

My friend in Jersey who originally listed his house at $729K is now thrilled to be accepting a contingency offer at $650K. Unfortunately the offer is coming from someone who also has a warped view of what his home is worth.

Tip of the iceberg folks.

soem dood said...

BOYCOTT!!!!!!!!


Boycott the roll-out of IAFF Mark II.

Rob could be the EN appointed emissary. If he will, he could go forth, take what is of interest to us, and report back here.

Let's kill that sumbitch'es effort by choking off the Haterz™ traffic.

Sorry for short notice of this idea.

Even if everyone else decides to go, I am still staying in Conscientious Objector status.

[Also posted at CHC, with a CHC rep to go get info]

TK said...

Dude,

Casey is a "behind the scenes" guy. That will choke traffic on its own. We want him front and center so we can throw popcorn at him. Damion just isn't interesting enough on his own.

FHB is dead.

Lou Minatti said...

I don't suppose it has occurred to Buttnugget that people who are about to lose their house due to foreclosure probably aren't in the mood to play a game.

TK said...

Damion Lupo appears to be a real wellspring of stupid ideas.

H Simpson said...

It just hit me.

I used to see KC as spawn of the devil. In fact he is Jethro from the Beverly Hillbillies. All kinds of ideas that used to drive banker Milton Drivedale crazy. Except it is not KC's money.
Beater Jetta = Model T

I am waiting for him to try and buy back his foreclosed dumps and try to move them to San Diego to replace the homes that were burnt up.

"where are the moon maidens?"

H.
Showing my age...

H Simpson said...

Did anyone hear some numbnut on CNN say all the fires only equated to the carbon credits of 400K California cars for a year?

Who are they kidding?
Maybe Jetho's original smog free motor,but not today's powerplants.

Time to hire folks to plant shrubs on the hillsides and get companies to give me sweet carbon credit money.

For Duty and Humanity!

H.

Peripheral Visionary said...

Hmm, there was something about Rob's fictitious situation that didn't sit quite right . . .

"That same $3000/mo over the next 10 years using $2000 generous dollars for rent and banking $1000 . . . "

There it is. "Banking $1000" a month, hahahahaha :D :P

Oh yes, and new home construction numbers are out, and I'll give you two guesses as to which direction the August numbers were revised (but not to worry, the [unrevised] September numbers were up!) I wish there was a casino where I could place a bet as to which way the September numbers will be revised . . .

Property Flopper said...

OK - A bit of schadenfreude here, but I'm sure NOBODY on this site gets any joy from watching a moron take it in the shorts...

About a year ago, a couple I know (and loathe) decided the market was hot and it was time to move. Moved from Benicia to Napa (outskirts of it anyhow). They left a nice 2/2 house in a good neighborhood and bought a new (and very poorly built) condo not far from the large mental hospital in Napa... not the best area.

Anyhow, they got a "screamingly good" deal on the condo, so they needed to jump on it right away. Forgot the small detail of selling the old place. Oops. Sat on the market for just under a year. Between realtor fees and payments on the place while it sat empty, the ended up eating all the equity they'd built up in four years of owning the place. Came out with less than $5k all said and done.

Now, in that same year, the "screamingly good" condo dropped from the $590k range to $460k. That's if they could sell it... several in the neighborhood sitting on the market.

I know I shouldn't be too happy over this, but I told them at the time it was a stupid move... and it couldn't happen to a more deserving pair.

Legion said...

@Property Floper

Serves the morons right.

Now isn't it a WONDERFUL day to be short on CFC? Down 3 dollars a share sijnce I shorted them...man life is good right now!

H Simpson said...

CFC is getting clubbed like the Rockies last night.

Only with seal bats..

They ought to have an electronic collar on tan man else he is going to disappear...