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The Emperor Has No Clothes and American Working and Middle Class are Saddling all the Bills…

13 Jul

In a world where the common man is facing ‘austerity measures’ across the planet; the big corporations are devastating the environment and the banks are wreaking havoc on the populace with no end in sight… Even after Bailouts and Bonuses…

There is a voice of reason. There are plenty in fact, if we will but listen and share what we find.

This is one of those.

Cynthia Kouril strikes again.
All we can say is, go Cynthia, go!

We highly recommend making her postings part of your regular reading.

Assistant Treasury Secretary Cannot Figure Out How to Modify Mortgages

By: Cynthia Kouril Monday July 5, 2010 9:36 am

On June 24, 2010, the House Oversight Committee held a hearing on one of my favorite subjects, mortgage modifications. In written testimony, Assistant Treasury Secretary Herbert Allison whinged about how hard it was for the industry to transition from being debt collectors to debt modifiers.

Further, in a game of move the goal posts, he has redefined success of the program from providing permanent modifications to, get this, allowing people to enter the trial modification period. Duh, why bother with a trial period and making several months of additional payments if you’re NOT going to get a permanent modification? Yet, he has the gall to actually put this drivel into the hearing record:

At the time we launched HAMP in March 2009, President Obama said that the program would “enable as many as 3 to 4 million homeowners to modify the terms of their mortgages.” Since the way we get to the 3 to 4 million homeowners by the end of 2012 has generated some confusion, let me offer the following points:

•                The count applies to the modifications in both the TARP-funded first lien program and the companion GSE programs.

•                The President’s statement about “enabling” modifications is the reason that we have continued to report offers of trial modifications – the offer is when a homeowner is able to get a modification, and 1.4 million offers have been extended in the first twelve months.

•                A very similar picture of progress arises from the number of actual trial modifications begun, over 1.1 million in twelve months. Actual trial modifications are the point at which homeowners begin a lower mortgage payment — an average reduction of around $500 per month.

•                In a program scheduled to last nearly four years (March 2009 until the end of 2012), either the 1.1 million or 1.4 million in the first year places the program well on schedule to the goal announced by President Obama.

•                The Administration has never said that the program would implement 3 to 4 million permanent modifications, which take place only after the homeowner has been offered a trial modification, has performed for at least three months in a trial modification, and has met the full documentation requirements for the permanent modification. One important reason for having permanent modifications in the first place was a recognition that not all trial modifications would become permanent, such as when a borrower does not make the three payments needed to receive a permanent modification.  [emphasis added]

Does he think we are actually that stupid? Really, this is insulting to our intelligence.

Look, an elegantly simple way to put a floor under housing prices, keep people in their homes, give them a payment they can afford and allow the investors in mortgage backed securities to earn a likely better return than they would from foreclosure has been around since January 20,2009.

EXAMPLE:

John Smith Family owns a house with a current mortgage of $700,000. It is their primary residence (they live in it).

Smith household income reported on 2007 Federal tax return was $125,000 gross before any deductions (ie NOT their taxable income).

Current US 30 year Treasury notes have an interest rate of 3.125%.

Principle no 1: 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage.

Smith gets a new mortgage under this program with a 30 year term at 3.625% (3.125+0.5) for a nominal value of approx $600,000 (arrived at through DCF analysis based on what Smith can afford to pay). The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.

Ten years from now Smith sells the house for $700,000

He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.

He has paid about $27,000 in principal. He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt.

His gross profit on the sale of his house is $127,000. He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.

Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale. Banks can resell it or if they wish sell it to FNMA in the regular course of business. Smith has lived with a new lower payment and still got the tax deduction for interest. He has made a profit on the sale of the home!

Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage. The Bankruptcy/foreclosure process is completely avoided.

Really, it’s not as hard as he is making it out to be and the industry excuses truly ring hollow.

[Earlier posts in this series and related links at FDL's Foreclosure Fraud Resources]

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As we have said and keep saying, at some point people are going to wake up to the fact that this entire housing market ‘bubble’ was a farce for the sole purpose of making a ‘few’ of the people rich and the rest of the people broke.

As the saying goes, in politics, war and money, when it comes to human affairs, there are no accidents.

 

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