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The Follow Video Link Is A Must See Regarding 'The government is promoting bad behavior'

February 19th, 2009 4:44 PM by Robin Bain



"Reward people who carry the water instead of those who drink the water"

Update Monday February 23, 2009

The White House and Rick Santelli's revolution, with CNBC's Rick Santelli.


Posted in:General
Posted by Robin Bain on February 19th, 2009 4:44 PM

“How many of you people want to pay your neigbor’s mortgage? --------------------------- Homeowners anxious for details Many hope Obama program brings relief By Jenifer B. McKim, Globe Staff | February 20, 2009 AnnLouise White of Dedham immediately e-mailed her mortgage broker after she heard about President Obama's ambitious $275 billion plan to help as many as 9 million struggling homeowners. White bought her house in 2007 for $415,000 and found she couldn't refinance because her home had dropped in value. Although she can still pay her loan, the office manager hoped the new plan would help her take advantage of historically low interest rates. "You pay your mortgage on time, and you can't take advantage of something, it is a little frustrating," White said about her efforts to refinance. "It would be nice to benefit, too." Her mortgage broker, Amy Tierce, told her and five other clients looking for relief from the Obama plan: Wait two weeks for details. Obama's three-part plan unveiled this week has sparked hope - but also many questions - for millions of homeowners nationwide who are trying to save their homes or gain access to attractive lower interest rates. The Obama administration plans to issue guidelines March 4 when the program starts. Included in the plan is a change in lending rules to help as many as 5 million homeowners refinance, $75 billion to help up to 4 million homeowners most at risk of foreclosure, and a pledge of $200 billion to mortgage giants Fannie Mae and Freddie Mac to help keep mortgage rates low. While the plan is the most aggressive yet to attack the housing crisis, many people on the front lines remain skeptical. They've witnessed a series of highly touted plans that have done little to stop the downward plunge in housing prices and the wave of foreclosures that has left neighborhoods with vacant and boarded-up buildings. More than 950 foreclosures were recorded in Massachusetts in January alone - a 22 percent increase from the same month in 2008, according to data released yesterday by Warren Group, a real estate data firm. "We had held out hope several times, and it hadn't worked out," said Bill Minkle, executive director of the Jamaica Plain-based Ecumenical Social Action Committee, which helps lowincome homeowners. "I've not seen anything that has looked this good on the face of it, but the devil is in the details." The refinancing plan aims to help people like White if their first loans are owned or securitized by mortgage giants Fannie Mae and Freddie Mac. Their first mortgages must also fall between 80 and 105 percent of the value of their home. About 25 percent of Boston-area homeowners, regardless of who backs their mortgage, would meet this debt-to-value criteria, according to real estate tracker Tierce, president of Fairway New England Mortgage in Needham, worries the plan won't help borrowers like White who bought homes using two mortgages. The dueling loan owners often can't agree to new mortgage terms so borrowers can't be helped. About 30 percent of Massachusetts home buyers between 2004 and 2007 bought properties with two mortgages to avoid paying a down payment or private mortgage insurance, according to the Federal Reserve Bank of Boston. Many homeowners take out two loans to afford Massachusetts' high cost of housing. The program requires that the owner of a second lien agree to the deal, but many lenders already have balked at similar requests. "I don't know if anybody in the Obama team thought about that, because it is a very large percent of the type of loans that were written in the last three years," Tierce said. For the most troubled borrowers - most at risk of losing their homes - Obama has set aside $75 billion to give incentives to mortgage servicers to negotiate more affordable loans, and money to borrowers to keep current on those loans. To encourage such loan modifications, the Treasury Department will issue guidelines for lenders and require those accepting federal bank bailout funds to implement those guidelines. Terry Moore, a managing director for the consulting firm Accenture, said the incentives will be helpful in spurring more loan modifications. But he said many servicers are under equipped and understaffed and face a myriad of challenges to helping troubled borrowers. Some housing experts worry the plan just came too late to make a big difference. Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies, said if homeowners lose their jobs, they likely can't hold onto their homes even with lower interest rates. "The storm cloud hanging over the plan is the economy," he said.
Posted by engineerwhocares on February 20th, 2009 1:42 PM

Ten Reasons to Oppose the Obama Housing Bailout The President, just one day after he signed the trillion dollar stimulus bill, started pushing Americans to support his new borrow and spend policy. This time it is at least $275 billion to bail out people with mortgage troubles. Among so many other reasons to tell your U.S. Representative and Senators in Washington to oppose this scheme, the Top 10 are: 1. The Bailout Encourages Bad Behavior Whether it is from this legislation directly or not, Obama’s plan will shift incentives for market actors by setting a precedent for future housing bailouts that the federal government can never, ever take back. Government is protecting irresponsible home buyers from risk of foreclosure with this plan—especially with the $200 billion for Fannie Mae and Freddie Mac—that will encourage future risky behavior with the prospect of government help. Moral hazard is a term used in economics, business, and political science to describe such a situation, where one party is insulated from risk and that insulation changes their behavior so they behave as if they were not at risk. Moral hazard comes up when someone does not have to face the full consequences of their own actions—which results in irresponsible behavior like purchasing a home one cannot afford with the hope of a government rescue. 2. It Rewards the Wrong People As Rick Santelli said on the floor of the Chicago Board Options Exchange, the plan does not “Reward people that could carry the water instead of drink the water.” This plan will force the people who were responsible and worked hard to buy what they could afford to pay for those who did not. Rewarding irresponsibility by forcing people who pay their taxes and their mortgages to bail out the others is not good policy. Home owners who have paid off their mortgage and renters are exceptionally upset about this new bailout. FreedomWorks’ Chairman Dick Armey comments, “Punishing the responsible majority to reward the irresponsible bankers and those who borrowed more than they could afford is wrong.” House Financial Services Capital Markets Subcommittee ranking member Scott Garrett (R-NJ) comments, “Additionally, it provides no incentives or rewards to those homeowners who have been diligently making their mortgage payments, or to those who recognized their financial constraints and chose to rent a home rather than buy one.” 3. It Will Further Nationalize our Housing Market The plan will certainly succeed at one thing: growing government. Obama’s plan will give government even more control over our housing sector—which is hard to imagine, considering how much Fannie Mae and Freddie Mac alone did to transfer our housing market to government control. This is the wrong direction, considering government control of housing trough the income tax, the Federal Reserve, the CRA, and, HUD set up the housing crisis in the first place. 4. It is a Futile Effort to Re-inflate the Housing Bubble, which Failed Miserably in Japan Those who fail to learn from history are doomed to repeat it, and this policy is another step down the path taken by Japan, which lead to their “lost decade”—which is now going on two lost decades. If we keep going in this direction, the US, too, will have lose decades of economic growth. Japanese housing prices rose by 51 percent and commercial real estate by 80 percent between 1985 and 1991. Similarly, US commercial and housing prices rose 90 percent from 2000 to 2006. Both countries then saw sharp downturns. In response, over 8 years Japan, passed 10 stimulus packages totaling $1.4 trillion. So far the US has passed one $1 trillion stimulus, and now President Obama is proposing billions more. Twenty years later, and 10 stimulus packages later, Japans Nikkei stock index is down about 80%—from 38,975 in 1989 to around 7,400 today. A similar drop in the Dow would put it at 2,800, down from 14,000. 5. The Bailout Keeps People in Homes They Cannot Afford The plan forces banks to refinance mortgages for borrowers who cannot afford to pay even if the bank would have refused refinancing otherwise. This could create an even larger credit crunch that the federal government will undoubtedly attempt to remedy with even more spending than the $75 billion that it promises for this plan further down the road. More spending is the last thing we need and will lead to inflation and higher taxes on our children. 6. The Bailout Steals Billions from Hard Working Americans The money will primarily go to places like Nevada, and California who the bubble was the biggest—where people made the biggest gains, and are now seeing the biggest losses. Taxpaying home owners and renters in other parts of the country including Texas and North Carolina will be paying for Nevada and California homes. The plan will result in a transfer of wealth orchestrated by government from states that did not experience the housing bubble as intensely as others. The end result: taxpayers who can afford their mortgages will pay for those who cannot. No matter what the politicians say, in order for government to try to stem foreclosures, it has to make taxpayers pay. 7. Policy Like this Caused the Crisis Over at least the last 17 years, government acted to inflate the value and amount of housing in the United States. This policy is an attempt to re-inflate the bubble that caused the housing crisis in the first place. If housing prices are still too high, they should be allowed to continue to fall. Having the government interfere in an effort to prop prices up can not work, and will just push the problem off until another day. Without the nearly endless interventions in the market that drove prices higher and created the housing bubble, we would never have experienced this crisis. Government caused the crisis and it should get out of the way to let the market fix it. 8. We Cannot Afford it It would put the taxpayer on the hook for over $275 billion on top of all of the money the government already spent. We are looking at a $2 trillion deficit now and a record breaking debt. If the government continues to spend like it has been, even our grand children will not be able to pay it back. President Bush pushed the government deep into a $1.2 trillion deficit last year, the third time he set a record for biggest deficit ever, and President Obama’s stimulus bill followed his lead, piling on more debt. Now he is piling it even higher. The deficit in 2008 amounted to about 8 percent of GDP. The entire debt is about 70 percent of GDP. Even for those who do still believe in Keynesianism, it is important to remember his theory did not start with the government already over a trillion dollars in the hole, he was generally operating from balanced budgets. 9. It Distorts the Market Economy Bailing out borrowers and refinancing loans will further distort credit markets. It will make economic calculation and forecasting more difficult for everyone else in the economy. Without accurate information on what might happen in a market, consumers and businesses have more trouble deciding what is profitable or what to purchase. The more government is involved in distorting a market, the bigger the mistakes will be—witness the massive and widespread overinvestment in housing and banking government intervention pushed causing this crisis. Similarly, the credit markets are as frozen as they are in part because of government intervention creating uncertainty. Under Secretary Paulson, the Treasury selectively gave bailout money to some banks, while refusing to fund others (see Goldman Sachs v. Lehman Brothers). Whether or not one financial institution would receive bailout money or not created uncertainty in the market that changed behavior for many bankers and has caused them, in some cases, to hold more cash than they would have otherwise which could be preventing profitable loans. 10. The Plan Creates Uncertainty in the Marketplace How is any business person supposed to make plans in an economy like this with the government announcing new spending or making up new rules every few days? Should a home buyer purchase today or wait for another tax credit? There may be no better measure of this than the amount of time erstwhile-investment programs like Jim Cramer’s Mad Money now spend talking about government policy instead of the fundamentals of companies in the private sector. And they’re right to do so, because who will win or lose in our market-ish economy is more and more decided by government dicta rather than competition. There have been so many changes in plans and bailouts that we can hardly even count them. As the Nobel Prize winning economist F.A. Hayek wrote, “The more the state plans, the more difficult planning becomes for the individual.”
Posted by Rick Santelli's revolution on February 21st, 2009 2:08 PM

Posted by US Born on February 24th, 2009 12:54 PM

Mortgage Banker comments The Executive Summary (pages 1-4) showed 3 examples of homeowners who couldn't refinance into FNMA/FHLMC conforming loans based on the parameters of loan size and LTV. As a mtg. banker of 28 years (my age 54), it is scary when they are using statistics to show who would benefit and showing examples that the statistics must be based on, and they are totally wrong. In both example 1 and 2 the homeowner qualifies easily for the 90% LTV and 84% LTV refinance (rate/term or no cash-out) under FNMA and FHLMC guidelines. It makes me believe that our leaders are clueless about what really needs to be done to help when they use examples like this. No other loan parameter, or credit policy parameters were cited in the examples so it is assumed that they are clueless. To help homeowners the primary mortgage market needs to be looked at more. Last year FNMA/FHLMC's combined approach not to reduce LTVs on their loans in declining markets was probably the biggest policy decision made to support the mortgage market. However, nothing was made of this decision and its huge supportive role. However, here are some specific suggestions to help homeowners: 1. On rate and term refis the agencies are punishing homeowners who have 2nd mortgages used to purchase the home. Formerly they would not consider refinancing this a cashout but last year they changed. Also, about 2 years ago they stopped allowing the seasoning of HELOCs to be included in rate/term refinances. Today, these 2 situations force the homeowner to be classified as a cashs-out customer meaning lower LTVs and much higher fees. 2. PMI companies have a huge impact on who can get a loan and they have had no capital support under the new plans. The "leaders" must be clueless as they are a huge tool for homeowners. Also, PMI companies charge a higher premium, eg 25 bps for rate and term refinances. Somehow reducing this .25 cost should be eliminated. 3. FNMA/FHLMC basically have captive business but spend huge amounts of money on entertainment--this should be stopped as it is worthless. 4. The credit score/LTV point add-ons that FNMA/FHLMC are hurting a majority of homeowners--increasing loan costs at the disguise of credit quality and risk reward. Mortgage rate decreases are minimized for people with credit scores below 720 and this needs to be addressed. I have managed for 19 years and currently work as a plain seasoned loan officers who can see what will help in the primary markets. Who is Obama listening to and getting his facts from--presidents, executive management--well they have never been in the primary mortgage market and I know they don't know the answers because they don’t know the true cost and issues in the primary market for the individual transaction.
Posted by Mortgage Banker on February 24th, 2009 9:47 PM


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