The Coming Mortgage Class War

[darrels joy]

The Coming Mortgage Class War


My dad gets angry every time he hears about a potential mortgage bailout. Frankly, he should. He's maintained perfect credit his entire life. He's always lived within his means. The idea that someone more irresponsible than him would be provided with some sort of a lifetime specifically because they were irresponsible bothers him to the core. What my dad doesn't even realize is just how good a deal some of these folks will get.

Yesterday, the Federal Government announced that the Fannie Mae/Freddie Mac would soon begin to modify loans en mass of borrowers struggling to make their payments, but some folks think this plan doesn't go far enough.

“It’s definitely a step forward,” says Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration. “They do have several hundred thousand eligible loans, and Fannie and Freddie are likely to be better than the private industry has been in applying modifications across the board because they don’t have the shareholder issue to deal with.”

But there are limiting factors, Glaser says. “Fannie and Freddie’s share of high risk mortgages is very small compared to the market as a whole. And as you get into 2005 and 2006, sixty five percent the mortgages were done in securitizations outside Fannie and Freddie--and that’s where most of the trouble is.”

Indeed, James Lockhart--Fannie and Freddie’s regulator--said in a speech announcing the program that “private label securities represent less than 20% of the mortgages but 60% of the serious delinquencies.”

And that’s where the plan falls short, says Susan Wachter, a professor of real estate at the University of Pennsylvania's Wharton School of Business. The program does no apply to loans in most private label mortgage-backed securities. Instead, Lockhart is asking investors and servicers of such securities to do so voluntarily. “I ask the private label MBS [mortgage-backed securities] servicers and investors to rapidly adopt this program as the industry standard,” Lockhart said.

But simply asking them to do so is not enough, Wachter says. The private sector has
demonstrated that it is “unwilling or unable” to voluntary modify loans in significant numbers since the onset of the crisis, she says. “There’s hope here, but its moral suasion,” Wachter says. “And we don’t have a lot of time to see if moral suasion works.”

I believe this idea of mass loan modifications will soon produce one of the most corrosive class wars in the history of this country. Loan modification is the process by which a distressed borrower gets new loan terms not based on their merit but based on their ability to pay. Either or both, the loan amount and the interest rate are adjusted so that the new payment is now something the borrower can handle. Because loan modifications are available to those based on ability to pay not credit worthiness, this is a process that someone with perfect credit like my dad would not qualify for. That's because those with perfect credit are perfectly capable of paying the loan terms they AGREED TO WHEN THEY GOT THEIR LOAN.

Yesterday, I mentioned a loan modification I recently saw. This particular borrower got a interest rate of 4% for the next five years. That rate would go to 6% for the next two years after that, and then it would go to 6.75% for the rest of the loan. That's not a bad deal considering this borrower only got said deal by not being able to pay their current loan.

What do you think will happen when word gets out just how good a deal some of these modifications are? What will happen when borrowers with good credit find out those with bad credit are having not only their interest rates reduced but their loan amounts as well? What do you think will happen when the borrowers with perfect credit realize that it is their own credit worthiness that holds them back from getting the exact same deal?

We will have a class war the likes of which we've never seen. Those that acted responsibly won't merely be jealous and envious, but rather they will be outraged. This will pit neighbor against neighbor, friend against friend, and colleague against colleague. Those with good credit will demand action. They will demand justice and they will demand accountability. I have always believed that there is a silent majority in this mortgage mess. That majority are the folks that have paid their bills on time. For the most part, they want no one bailed out. They were responsible. Others weren't and they won't stand for those that were irresponsibly being rewarded.

The process of loan modifications is just entering the public consciousnesses. Once the public at large understands just what all of this means, there will be a revolt from those that don't "qualify" for loan modifications. Those that have been responsible have been overlooked by this entire process. Those that have acted irresponsibly have been catered to and turned into victims. In my opinion, turning them into victims has always been a source outrage as exhibited by my dad. This sentiment is out there however the MSM has buried it. Just look for a sob story about some family that lost their home. See if there are comments and read the comments. Almost always the bulk of the comments come from people that feel the situation was their own fault.

The dirty little secret of loan modifications is about to come out. Once it does, that secret will start a class war the likes of which we have not seen in a long time.

http://theeprovocateur.blogspot.com/...class-war.html

I was in a crowd recently talking with people that I didn't know and this subject came up. One man had been interviewed by a newspaper on this subject. He was upset about people that had "bought" houses that they couldn't afford, didn't make the payments and trashed the houses when they left. He said that 2 other men were interviewed at the same time. One blamed the banks. The other blamed the government. Both men wanted the government to do something!

The man I was talking to wanted the government to butt out.

In the newspaper article, This gentleman had only one statement quoted. The rest of the article featured the other's opinions.

The men were American Indian, Black & Hispanic.

[phuloi]

Crazy! Freddie and Fannie have been like lap-dogs cuddling up to Barney Fwank and the dems and bought right into their revolutionary idea in giving home loans to folks that two years earlier couldn`t qualify for a 21% interest Capital One credit card! What the hell were they thinking!? And now we spend $700B to bail out a bunch of unqualified buyers.Wow.
America has always been a land of opportunity for anyone that was willing to work and get themselves ahead. All it took was a dream and hard work and now culls are being rewarded for failure. Bad juju. I almost don`t give a shit any more, but my heart aches for the future that my little girl is destined to encounter if it doesn`t get turned around-and quick.

[SuperScout]

If the $700B would be going to re-finance bad debt that would be one thing, and with proper strings, might be semi-OK, while in fact the $$ is going to much less worthy pockets. I think the whole "the sky is falling" panic is contrived, and the product of some very clever minds who saw a gravy train that needed to be diverted into their own personal round house. Once other playaers in the national (and now even international) community saw how they could be enriched, they started the wailing and whining, two requisite conditions to jump-start the flow of cash. It reminds me of that young calf, who when hungry, head-butts his momma's udder to start the milk flowing.

And here's what I'd do for the auto industry: let 'em sink. Then some smart entrepreneurs will make a bargain-basement buy of the assets, acquire some new technology that the old owners wouldn't allow to see the light of day, and start producing fuel-efficient autos, sans any labor union involvement. Along with very stupid government over-regulation, the labor unions have been the major thorn in the side of American auto manufacturing for decades.

[phuloi]

I concur. The MSM have been instamental in pushing this financial snowball along and getting it close to the edge of the drop-off. I find it very interesting that, if you listen to the pundits, we`re about to see the Great Depression- a Sequel released soon in your neighborhood, and 100k are still showing up at NASCAR events and football games every weekend spending like drunken sailors(sorry Bill). Walmart showed good profits last 1/4 and they expect huge holiday numbers. Folks are spending, they just want a little bang for their buck. They`re buying KIAS made in Georgia instead of Fords from Detroit, and I agree-let the BIG3 go down and reorganize. They`re way too top-heavy with fat cats greasing each others`and the UAWs and congressmens hands.
BTW, the KIAS,etc., being assembled all over the southeast are coming ot of non-union shops where the employees are being paid great wages with all the bennies. The unions have outlived their usefulness, and now the dems are about to ensure that the secret ballot in union votes will be history. Watch for strong-arm Chicago tactics,coming soon to a union shop near you!

[Packo]

Hit the nail on the head. Just read my response to Boat's ".....Going South". Lots of auto's being built down here and don't hear the workers begging for the UAW to come in. All that will change when the new bosses pay back the unions. The secret ballot will be gone. It is obvious that the big unions have outlived their usefullness. And nobody can call me anti-union as I was a member of the UMWA, U Steelworkers of A, (twice), and a Teamster. Another mess on the horizon.

Pack

[phuloi]

Charles Krauthammer


Auto Bailout


WASHINGTON -- Finally, the outlines of a coherent debate on the federal bailout. This comes as welcome relief from a campaign season that gave us the House Republicans' know-nothing rejectionism, John McCain's mindless railing against "greed and corruption" and Barack Obama's detached enunciation of vacuous bailout "principles" that allowed him to be all things to all people.

Now clarity is emerging. The fault line is the auto industry bailout. The Democrats are pushing hard for it. The White House is resisting.

Underlying the policy differences is a philosophical divide. The Bush administration sees the $700 billion rescue as an emergency measure to save the financial sector on the grounds that finance is a utility. No government would let the electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.

Treasury Secretary Henry Paulson is willing to stretch the meaning of "bank" by extending protection to such entities as American Express. But fundamentally, he sees government as saving institutions that deal in money, not other stuff.

Democrats have a larger canvas, with government intervening in other sectors of the economy to prevent the cascade effect of mass unemployment leading to more mortgage defaults and business failures (as consumer spending plummets), in turn dragging down more businesses and financial institutions, producing more unemployment, etc. -- the death spiral of the 1930s.

Bush is trying to move the LIBOR or the TED spread, which measure credit flows. The Democrats' index is the unemployment rate.

With almost 5 million workers supported by the auto industry, Democrats are pressing for a federal rescue. But the problems are obvious.

First, the arbitrariness. Where do you stop? Once you've gone beyond the financial sector, every struggling industry will make a claim on the federal treasury. What are the grounds for saying yes or no?

The criteria will inevitably be arbitrary and political. The money will flow preferentially to industries with lines to Capitol Hill and the White House. To the companies heavily concentrated in the districts of committee chairmen. To clout. Is this not precisely the kind of lobby-driven policymaking that Obama ran against?

Second is the sheer inefficiency. Saving Detroit means saving it from bankruptcy. As we have seen with the airlines, bankruptcy can allow operations to continue while helping shed fatally unsupportable obligations. For Detroit, this means release from ruinous wage deals with their astronomical benefits (the hourly cost of a Big Three worker: $73; of an American worker for Toyota: $48), massive pension obligations, and unworkable work rules such as "job banks," a euphemism for paying vast numbers of employees not to work.

The point of the Democratic bailout is to protect the unions by preventing this kind of restructuring. Which will guarantee the continued failure of these companies, but now they will burn tens of billions of taxpayer dollars. It's the ultimate in lemon socialism.

Democrats are suggesting, however, an even more ambitious reason to nationalize. Once the government owns Detroit, it can remake it. The euphemism here is "retool" Detroit to make cars for the coming green economy.

Liberals have always wanted the auto companies to produce the kind of cars they insist everyone should drive: small, light, green and cute. Now they will have the power to do it.

In World War II, government had the auto companies turning out tanks. Now they would be made to turn out hybrids. The difference is that, in the middle of a world war, tanks have a buyer. Will hybrids? One of the reasons Detroit is in such difficulty is that consumers have been resisting the smaller, less powerful, less safe cars forced on the industry by fuel-efficiency mandates. Now Detroit would be forced to make even more of them.

If you think we have economic troubles today, consider the effects of nationalizing an industry of this size, but now run by bureaucrats issuing production quotas to fit five-year plans to meet politically mandated fuel-efficiency standards -- to lift us to the sunny uplands of the coming green utopia.

Republican minimalism -- saving the credit-issuing utilities -- certainly risks not doing enough. But the Democratic drift toward massive industrial policy threatens to grow into the guaranteed inefficiencies of command-economy maximalism.

In this crisis, we agree to suspend the invisible hand of Adam Smith -- but not in order to be crushed by the heavy hand of government.

[Packo]

Thanks for the article....explains a lot. 73 bucks an hour.....with all my years of experience, with all my schooling, with all the money I had to spend to keep my license up, I never made anymore than 30. So, no wonder the guys in Tennessee, Alabama, Ga., and SC. arent' complaining about their 48 bucks an hour. Well, let the UAW in and they will make a lot more....except the companies will pull out and build in Japan and Korea. But, for a little while, they'll make more before going on unemployment. Good deal!

Pack

[phuloi]

Add that to the business taxes about to go even higher and you might see those shops you speak of moving to my ancestrial homeland. Ireland has a 12% business tax and are attracting firms from all over the planet. Go figure?

[Packo]

Keep hearing "TAX BIG BUSINESS, TAX BIG BUSINESS", well, in Class Warfare nobody seems to think that one of the reasons businesses leave a certain area are taxes. I don't blame anyone for leaving one area for another if they can get a tax break. Wonder why tons of companies leave the US for other's? Tax incentives. What Class Warfare people don't understand is that by giving business tax incentives, the state and feds will make more from the employee's. Hell, to get the Mercedes Plant in Alabama, one SC was fighting for, the Alabama National Guard cleared the land for the plant. People in this area of Alabama have jobs they would have never had before and a much higher standard of living. Ireland is another perfect example. England took over their auto industry years ago calling it British Leyland. Don't see any dealerships in this country....or theirs. The only thing that kept Jaguar going was when Ford bought them. Still unreliable, and very expensive. An Indian company, Ta Ta, owns them now. What a slap in the British face....their 3rd world colony now owns prestigious Jag/Land Rover. Labor and taxes were a huge cost factor in England. Not anymore. If the US said, NO MORE BIG BUSINESS TAXES IF YOU BUILD HERE......International Corps would be building here in a minute....but then the complaints would start.....Big Business getting a break! We must stop this! Then, zippity doo da.....business closes, leave the country, and the employee's sit there shaking their heads. It's not rocket science....but it will never happen. We have to have someone to blame for our own stupidity. As an after thought....I am no fan of the Oil Companies, but also understand their problems. Right before the election the major media went crazy over Exxon's 3rd quarter profits. "Obsene, rip off, etc." Of course the 32 million they paid in taxes for that quarter were found on page 100. 32 times 4....128 million not counting the taxes from the employee's, SS taxes, state taxes....etc. Also out of their profits were their matching and more contributions to 401 K's, health insurance, and so on. I would also like to go on record right here and thank President Bush for getting our gasoline prices down to a level that people can afford to drive again. Thank you President Bush. I'm sure those that blamed you and VP Cheney for getting them up for their Oil Company Buddies will thank you soon. Just wanted to be the first!

Pack