A sliver of help for some homeowners. FDIC weighs reducing principal on $45B in mortgages

FDIC Chairman Sheila Bair indicated Thursday that she is exploring the idea of reducing the principal on as much as $45 billion in mortgages her agency has acquired from failed banks.

That would be the first significant government attempt to employ a measure that some economists and consumer advocates have long argued is the only really effective way to stop foreclosures.

Although the $45 billion in mortgages only amounts to less than half of one percent of mortgages nationwide, the move would be significant because the idea of reducing principal has been all but dismissed for the last nine months by the Obama administration.

Economists like Yale University's John Geanakoplos, however, have argued that cutting the principal on delinquent loans should have been the administration's practice all along. For the nearly quarter of American homeowners who owe more on their mortgage than the house is worth, it's by far the best way to keep them in their homes and reduce foreclosures, Geanakoplos said in an interview last month.

http://www.huffingtonpost.com/2009/12/04/at-last-one-government-ag_n_379484.html

Not a lot of people will be helped here but, perhaps, it could start a trend. :)

zero % permananent loan modications have occurred to date and only 11% temporary loan modifications...since the obama plan went into effect...banksters are not helping..no end in sight until something is done...but the banksters are getting record bonuses...go figure

And we have seen it has helped not at all. Who thought making the program 'voluntary' on the part of the robber barons was going to work? I hate it but I don't see anyone in the administration as being too concerned about the problems of the disappearing working and middle classes. Enough of a groundswell of anger and tanking poll numbers might get their attention but I'm not even sure that would do it.

Sure, many people got into bad martgages, bought homes that were over priced, or were just plain stupid and/or greedy. Fine. It happens. People need help and some should get it. Ok.


But what about those that did NOT buy more than they could afford? What about those that showed restraint and financial responsibility? Where is the help for them? When do those that do the right thing get something?

the very expensive pr program put out by the fraudsters initially to deflect attention from them...
and fyi..anyone who bought a house since 2002 bought a house they couldn't afford..because we are now back to those levels...glad you are doing so well..but my heart is breaking for the many who are now living in their cars or back with their families and lost even the 20% or more they put down on their homes

But that is not the point I am trying to make. Care to comment on MY point?

Lets not get into a pissing match, please. I agree with you. People getting help is NOT what I am angry about. Re-read my OP to see what I am getting at.

but here goes...the house next to you gets foreclosed...thats your comp...so even if you did everything right...paid on time...your house value becomes the foreclosed value...thats just the way it is...in some areas of my county, those values are down 50%...in other areas 25%...but since nothing has been done to stop the avalanche..values continue to drop...like i said, anyone who bought a house in california in most of this decade has lost their initial investment..and in most cases, those are not 0 down loans..the bogus stated income loans required 20% down...of the buyers cash...plus closing costs and of course bank fees included in that..thats gone for most..pfffft...

as the community began to suffer this hardship..many thought, oh that's them, and not me..since i pay my bills and have a good job and have done nothing wrong...BUT..as the lower tier began to fall, they couldn't support the upper tiers by patronizing their restaurants, or theatres, or premium cable or whatever..so now, the upper tiers are falling as well...and nothing, and i mean nothing is currently in place to stop it..

the lesson here is that we are a community..

But by that rationale, the house next to the foreclosure should ALSO get some of its principle paid, to compensate for the deflated value, right? Sure, my house is not worth what is was, but when I bought it, I only bought what I could reasonably afford, as did millions of others. Should they too be compensated?

where only a bankruptcy judge could have written down the mortgage..that in itself carries considerable problems for the borrower and a stigma..and not everyone needs to file bankruptcy

that would have stopped the dam from bursting...kent, im glad you are ok..truly...millions are not and its not their fault ...it is not..although they are counting on your particular attitude to keep it going..please see the link i posted re why indymac is not doing loan modifications..they are profiting from $ from the fdic for doing the foreclosure rather than helping the homeowner..the banks made them loans in one department and then bet against those same loans in a different dept..and made billions upon billions...

i dont even want to convince you...in time, you will see the ravages on the middle class by not helping a few..although that also is not my preference

over and over and over again, so that the irresponsible never learn from their mistakes because we keep paying for them.

Makes you wish that the granite-countertop-kitchen-remodel-foreclosure-bailout queen was a mythical creature like the welfare queen. Alas, they're all too real, and we've been buying their countertops for them.

is a mythical creature just like the welfare queen. First off, there have been no bailouts for those being foreclosed on which have helped avoid any foreclosures thus far.

Anytime you see those at the top blaming some "shiftless, lazy, no good, irresponsible...(fill in the blank)" with no power in the system you are being sold a bill of goods. The longer those at the top to whom the bulk of the nation's wealth has transferred can keep convincing you "they" are your problem, the longer they keep all the money and the less chance the working and middle classes (now, that's rapidly becoming a mythical creature) will start voting for those who would restore fairness to the tax system and labor. If you are one of those to whom our wealth transferred this will work well for you. If you are not in the top 1% you will remain smug in your blame of those with less power than you until the pain works its way up to your level.

Those who do the wrong things outnumber those who do the right thing.

Now you know why democracy sucks.

And I am not that cynical, I think democracy is a good thing and does not suck. But I would like to see they day where those that work within the system and show responsibility get a return as well.

It was not creatively financed and it was not a 'liars' loan.' I was an RN for 25 years at the time. My husband had operated his own business since 1982. We built and were in escrow for 7 months. We provided proof of our income every month. Both of us had FICO scores over 800. In 2006, the housing market tanked and my husbands' business went in the toilet with it. In 2007, my husband was diagnosed with cancer. Before he started treatment I lost my job. Our COBRA payments were $1200 per month. We scraped it up long enough to get him through the surgery which the physician believed had an almost 100% chance of curing him. We hope so because we eventually had to drop it. Now, we have (barely) managed to hold on to our house by not falling 90 days behind but we don't know if we will be able to for much longer. We need to get a bankruptcy filed but a lot of months we are scraping just to get gas in the car and eat. We spend a lot of time talking about how we could survive on the streets if it comes to that.

Congratulations on doing everything right. What help would you like?

It sucks and you have my sympathy, but you seem to have mistaken what my point was. I AGREE that help needs to be available, especially for those like you that seem to have played within the rules and still got screwed, as well as those that truely got taken advantage of. I said so in my OP. But that was not the point I was trying to make.

This is the definition of Moral Hazard.

It's also an incentive for me to stop paying my mortgage and receive a reduction in principal.

I would rather they allow judges to alter mortgage contracts in bankruptcy filings, and remove the insidious Credit Card/Bankruptcy regulations they past in 2005 (hello Chuck Schumer!)

Let the banks eat it, they made the bad loans. Not the tax payers.

the blue sheet in my county which lists notice of defaults and foreclosures used to be just that..a sheet or two..now its a book almost...i knew a year ago what was coming...and dont even think we've hit bottom...the 2nd wave is here and it includes the backbone of my community...as long as anyone thinks it cant happen to them, it will continue to get worse..

i

We have the 2nd highest rate of foreclosures in the nation and we are #1 in negative equity.

Whining about when you "get something" suggests you don't fully understand the chain of events and where it all leads.

You already did "get something". You got spared the misery of losing your job and having your home go into foreclosure while you were doing "the right thing".

But I guess you just don't see the bigger point I was trying to make.

I did answer it.

You got spared the misery. Be grateful. Try not to be so myopic.

Your "angry" reaction to this is like someone being angry that the lifeguard is giving mouth-to-mouth to a drowning person while you're safe on the shore.

"Why does he get all the attention? I didn't swim out too far!"

And this is not just about "me". Its about being angry that someone is getting mouth to mouth from the lifeguard because they didn't know how to swim but jumped in the deep end anyway.

You got spared the misery. Be grateful. SPARED the misery? Thats disingenuous, as many were responsible enough to purchase what could be afforded in nearly every circumstance. Spared the misery? Thats like being grateful I wasn't in the massive pile up on the interstate because I don't own a car.

We will just have to disagree, I guess

worse than Bush ya know!

:evilgrin:

yup!

The original idea was to have the government stipulate that the banks reduce the amount of principal in the loans they issued or hold. Key point: Government reduces bank assets without compensation, or does something else to achieve the same end; at the conclusion, the banks are left with reduced assets and are out billions of dollars but the government benefits, if only because the people that just saved $50k aren't likely to oppose those in power.

I know that I generally object when somebody in government tells me to give up some asset without compensation. What makes it worse is when that same somebody is simultaneously telling me to reform my business practices in order to increase the value of the assets that I hold. "Reduce the worth of your assets--but remember, you have to increase the worth of your assets by X%." Uh-huh.

This looks the same but isn't. This is the FDIC considering reducing the amount of the principal in the loans that the FDIC holds. If the FDIC wants to do it, fine--it's the FDIC's assets.

There's is an intersection between the two cases. The FDIC is funded by payments from banks. The FDIC has net assets, but if you look at what's sequestered for likely bank failures it's in the hole, and that triggers additional mandatory funding by the banks. By reducing the loan portfolios the FDIC will reduce their assets, which will have to be made up by the banks. So while the FDIC is looking at its assets (sensu stricto) the implications will be about the same--Banks, fork over assets--and don't forget that you have to (a) make more loans and (b) increase your asset holdings.

Still, it is, officially, the FDIC reducing FDIC-held assets, which means it wouldn't be a precedent.

That way everyone's property values can keep tanking. And you be sure and keep blaming the working stiffs instead of the people at the top who orchestrated this house of cards. Reagan's welfare queen crap was a gross exaggeration of the impact of welfare fraud and these "people who bought more house than they could afford" are, as well. But you keep buying that line that it's them or the illegal immigrants or the working poor who are on food stamps or whatever other, essentially, powerless group they are targeting today who is responsible for your problems. Those who have reaped the benefits of the transfer of $5 trillion dollars of the nation's wealth appreciate it. They won't do anything to show their appreciation but, nevertheless, they appreciate you.

unless they pay down mine. Sorry. I have no problem with allowing a moratorium on payments while someone is unemployed, for lowering interest rates, for any other restructuring of the loan that will help someone stay in their house. But I'll be damned if my tax money outright buys someone else's house for them while I'm still making my full mortgage payment.

it stays on their books as an asset..they look better..why penalize the homeowner for something they have control over..i dont think the government should do it either..i think the government should force the banks to work with the homeowners..

that's between the homeowner and the bank. What I oppose is bailing out my neighbor with my tax money (while paying the full amount on my own loan), and then when housing values eventually improve, he has much more equity in his house than I do--because we all helped pay down his principal. Sorry, that's bullshit. That's like winning a lottery.

the government demanding...glad you are so set that what happens in your community has little effect on you

I don't care about my community?

overwhelmed by the generosity of spirit that you are ok with it if the banks decide to help us out.

are going on, but they're been slow in coming), to taxpayer-reduced principal? Does anyone in this country really deserve to have their house essentially paid for, in part, by the government and fellow citizens? Who would qualify? Are you better than me? Am I better than you? What about the renters in this country who are saving for downpayments and can't afford a house right now--is this fair to them, to take their federal tax money and award it to someone who will hold something of value (that THEY don't even have)when all is said and done?

applied for loan modification have actually had the loans modified. As for the renters saving for a downpayment (a group I once belonged to) I predict they'll be picking up houses for a song very soon. Why, some of the ones in my area have lost 50% of their value in the past 2 years. We're lucky. Ours has only lost 35% so far. Is it fair to take our federal tax money to help anyone? Why should we feed the hungry? Why should we work to provide health care to our elderly? Why does my tax burden go up so the rich can skate? It's an argument without end. Everyone opposes something their tax dollars goes for. I don't know why I'm even arguing. I gave up over a year ago. We did everything right. Our life went down the tubes with the economy. We lost. Game over. We just wonder where we will sleep when the weather is cold here and if we can manage to keep a car running for that small amount of shelter if we lose the house. We tried our best and it didn't work. Bad luck should never go unpunished in this country.

more available and expediting the process, thus helping as many folks as possible. We taxpayers already paid for this, or are going to, to the tune of 75 billion. If the banks want to reduce principal on their own, and eat the loss, I am all for that. But if this FDIC plan ends up involving the Treasury, and thus more tax money, then I oppose it--work on the already-paid-for modification program (and they're already trying to improve it, because it IS not working well enough).

supporting single handedly what you got for the $75B. While you're at it, you might ask what you got for that tax cut they gave to the upper income levels and why all that wealth hasn't been trickling down on all of us. Oppose or support whatever you want. It's too late for us, anyway.

It's very iffy that even the small amount of help this article talks about will even happen. And all those other things you support like moratoriums and lowering interest rate, etc...aren't going to happen, either. Congratulations on making your full mortgage payments. I'm very happy for those who haven't suffered catastrophe after we transferred most of the wealth of the country to the upper 1%. It warms my heart to think of them while my husband and I wonder if we can survive on the streets at our age and in our state of health.

edited to add: If I had a nickel for everything my tax dollars got used for that I did not support, we wouldn't be worried about losing our house or scraping up the filing fee for our bankruptcy right now.

since they obviously were irresponsible...i knew then, i just needed to wait...some are coming around as they realize they cant escape the fallout...

and excellent judgement and character, secure in the belief they are far superior to those who fell on hard times. Those of us who played by all the same rules, worked our asses off through all the years trickle down has been driving our wages down and our health care costs up, worked harder just to stay in the same place every year, and then fell off the cliff with the recession are left crying in the wilderness and wondering where all those years of hopes, dreams, hard work went.

Those still hanging on to their slice of the American dream are congratulating themselves, smug in the belief that the rest of us are responsible for our own downfall.

i've worked my ass off...created a nice retirement situation..my friends out having a good time..i was working...for decades...difficult to take...something good will come from all of this since these are lessons none of us would have chosen..ever...the key is recognizing the interconnectness of us all..we are a community..those who think differently just haven't been forced to learn it yet..ultimately, i think its forced evolution of consciousness..but then, i live in california

If I had known we would wind up so desperately hopeless in our last years, I would not have worked as hard as I did. As an RN, I spent years working myself to exhaustion trying to take care of people who needed someone to take care of them. And I worked with some of the saddest and sickest. Four years in pediatric oncology, 11 years in adult oncology, and 10 years in hospice. As the for profits took over the industry, the work increased every year and still I kept pushing. In my late 30's I was diagnosed with fibromyalgia and it took all my energy to keep working. Every day was the same: work til I dropped, drag myself home after 12, 14, 15 hours out there trying to make a difference and stay above water, collapse in the bed, get 4 or 5 hours sleep, get up, do it again. Every day out there trying to solve the problems of people I did not know but who needed a nurse. For 15 years after I got sick I continued to do this. Time lost with my family (really, it's just me and my husband), time lost I could have taken better care of myself. An idiot, I continued to believe the lie that if I just worked hard and did a good job, things would be okay and we would make it.

My husband, same thing. Went to work at 10 to help feed a poor family into which he was born. Worked 3 jobs by the time he was 18. Served his country in Viet Nam. Started his own business in 1982 after making several employers wealthy. He's 62 now, has had cancer once, has cardiovascular disease. I'm 54, clinically depressed and beat down by years of fibromyalgia. We still operate his business but there's not much work. I go to work with him now and do the sanding, masking, and some of the staining just to take some of the burden off him as I know he is worn out and it hurts me to see this man who has worked so hard and never really had anything, a man who was always the first to step up and help someone in trouble, this man who means everthing to me, so tired and worn down and worried now. Both of us feeling guilty we couldn't have done better by the other. Me, wishing I could have kept going a little longer. Him, believing he could have just been a little better provider if he'd tried harder. Both of us wishing we could just think of anything we could do to help the other feel better about our hopes for the future.

This is not the first time either of us has faced hardship. I was dirt poor and lived on $200 a month to get through nursing school I lost everything to a flood in 1998 and he lost most everything to divorce that same year. He had been through the early years of a marriage with small children and working 2 and 3 jobs to feed them. I moved here to start over in 1998 and we met. Since we married, we have worked our asses off, happy to have the ability to start over and keep going, just knowing we would work hard, stick together and we would get there. But that's not what happened.

Words can not express how painful it is to read the words of those, smug in the knowledge that their hard work is why they are still making it, rale about "their tax dollars going for people who...(fill in the blank with whichever way we didn't measure up)." Well, I was a taxpayer for many years and wish I was still a taxpayer and I don't think I would be bitching about those who are falling behind in a system which has been rigged against the working class for 30 years. But then I didn't bitch about it when I was paying taxes.

many good things do come out of this ...and here are just a couple of things ive learned..

1. all of this is an illusion, credit scores, the american homeowners dream, insurance...all of the things they sell us at every commercial..the only thing that is real is what comes from your heart

and that includes creative expression as well as relationships

2. give of that heart creatively

3. fearlessly...because what more could you possible fear..your own death?..i've thought many times i couldn't face any of this..what i thought would kill me or have me kill myself is turning me into a fortress...just because it has forced me to recognize the illusion of it ..the wrapped and packaged present with a rubberband attached unless you put the shackles on

4. and this is the thing i remind myself everyday..they can take away our money, they can kill our children in stupid wars, they can torture and maim...what they cannot do to us...is stop the evolution of human consciousness...they cannot...impossible...that is what keeps me going

best to you

Thank you for that. We are now, essentially, among the invisible people in the world now and kind words mean more than I can tell you.

Hugs and all the best to you, also.

:hi:

Profits before people is the only moral position any American should take. And those whiners out there should just go get 2 or 3 more jobs and shut up. There are no jobs? These deadbeats always have some excuse.

so for them its better to foreclose than help the homeowner..now there are your tax dollars at work..wake up folks

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x7154483

This is, at least, the 3rd story I have seen in the past week about their draconian practices. One judge was finally so fed up with their absolute refusal to modify loan terms for a couple who was struggling, he awarded the house to the couple and told the bank to take a hike. Of course, the PR crowd here was outraged.

and that would be like Jesus stealing!!!!

Okay, admitting the article states details of how this would work are not known, the article is quoted as saying:

<snip> The Federal Deposit Insurance Corporation no longer owns the mortgages directly; but when it sold them to solvent banks, it agreed to shoulder some of the future losses. Bair's move would effectively make sure that homeowners directly benefit from that guarantee, not just the lenders. <snip>


http://www.huffingtonpost.com/2009/12/04/at-last-one-government-ag_n_379484.html

So, as I see it, the FDIC is already on the hook for some money here and the discussion is about how to configure that burden. Any financial experts here who can see what this is saying?