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FDIC Devises Plan To Reward Deadbeats

From an approving Washington Post:

FDIC Details Plan To Alter Mortgages

Treasury Opposes Using Bailout Funds For Proposal to Ease Monthly Payments

By Binyamin Appelbaum
Friday, November 14, 2008; A01

Officials at the Federal Deposit Insurance Corp. yesterday detailed a plan to prevent 1.5 million foreclosures in the next year by offering financial incentives to companies that agree to sharply reduce monthly payments on mortgage loans.

The proposal, which has the support of leading congressional Democrats, would considerably expand the scope and force of the government’s efforts to stem foreclosures. Agency officials estimated the cost to the government at $24.4 billion.

FDIC Chairman Sheila C. Bair continues to face opposition within the Bush administration. Treasury Secretary Henry M. Paulson Jr. said Wednesday that he opposed funding the plan from the government’s $700 billion financial rescue fund, which has been used primarily to rescue banks and encourage lending. FDIC officials say they are still in talks with the Treasury, but proponents increasingly view the Bush administration as a roadblock with an expiration date…

Borrowers who have missed at least two monthly payments would be eligible for a reduction in their payment. The new payment would require that they spend no more than 31 percent of their monthly income, a relatively conservative standard. By comparison, lenders historically calculated that borrowers could afford to spend up to 28 percent of monthly income before taxes on housing.

In exchange, mortgage companies would receive a basic guarantee: If the borrower falls behind on the new monthly payments and the company ends up losing money on the loan, the federal government will cover half the loss in most cases.

The estimated cost of the plan is based on the assumption that only one in three borrowers who get a modification will be unable to make the lower payments. That would require a higher success rate than existing modification programs have achieved. About 45 percent of borrowers who received loan modifications from mortgage companies last fall already have slipped back into default, according to a Credit Suisse research note

Sen. Christopher J. Dodd (D-Conn.) also said that he planned to introduce legislation that would allow bankruptcy courts to modify mortgage loans, another step long sought by consumer advocates and strongly opposed by the banking industry.

“It is confounding to me why the Secretary of the Treasury and others refuse to understand that this is the heart of the problem,” Dodd said. “Until we solve the foreclosure problem, we will not have any hope of solving the larger problem.” …

The mortgage industry is concerned that any new modification plan would persuade some people to stop making mortgage payments in addition to helping people who already have stopped making payments. The industry argues that this would translate into higher interest rates because investors would demand compensation for the increased risk of loan defaults. That, in turn, would limit the number of people who can afford mortgage loans.

The industry has particularly opposed the idea of allowing bankruptcy courts to modify mortgage loans. The courts have the power to modify other kinds of debt to levels that are affordable for the borrower, including mortgage loans on second homes, but the industry won an exception years ago for mortgage loans on primary homes. Consumer advocates want Congress to change the law, viewing the court system as an efficient way of modifying loans at no cost to taxpayers. The industry continues to caution that the consequences would be considerable

President-elect Barack Obama expressed support for allowing bankruptcy courts modifications during the campaign. He has not commented on a plan of the kind proposed by the FDIC…

Under the terms of the proposed FDIC program, lenders would reduce monthly payments primarily by cutting the borrower’s interest rate to a minimum rate of 3 percent. If necessary, the company could also extend the repayment period on the loan beyond 30 years, reducing each monthly payment. Finally, in some cases, companies could defer repayment of some principal. The borrower still would be on the hook for the full value of the loan.

Officials said their experience at IndyMac showed that principal reductions were not necessary. So far, the FDIC has modified about 20,000 IndyMac loans. In 70 percent of the cases, the FDIC was able to create an affordable payment solely by reducing the interest rate. In 21 percent of the cases, the agency also extended the life of the loan. In 9 percent of the cases, it delayed repayment of some principal.

The plan includes a careful mix of carrots to encourage industry participation and sticks to encourage maximum modifications. Mortgage companies would be paid $1,000 to modify each loan, but participating companies must agree to modify as many loans as possible.

The loss sharing guarantee begins only after the borrower has made six payments on the modified loan. And the government would not cover losses on loans where the modification did not lower the monthly payment by at least 10 percent.

$1,000 per loan doesn’t sound like much of an incentive for the mortgage companies. But of course the real incentive is that the government will pick up half of the amount when the creditor finally defaults for good.

It sounds very much like this is where the bulk of the $700 billion dollar bailout is now going to go. To pay for mortgages of people who are going to probably end up defaulting anyway.

Agency officials estimated the cost to the government at $24.4 billion

Does anyone believe this number?

Moreover, won’t this approach reward bad behavior and encourage more of the same?

If we want to completely collapse the housing market, this sounds like exactly the way to go.

Which of course would suit ACORN, who lest we forget, were formed to find ways to destroy the American system any way they can.

And they are finally getting their way.

Meanwhile, we’re off to buy our dream house on Maui.

It is so comforting to know that we will never have to pay more than 31% of our income in mortgage payments and that we will never be foreclosed.

This article was posted by Steve Gilbert on Friday, November 14th, 2008. Comments are currently closed.

22 Responses to “FDIC Devises Plan To Reward Deadbeats”

  1. Helena

    This is insane. And if we don’t all go out and buy a house we can’t afford, or stop making payments on the one we have, we’re all the biggest suckers in the world.

  2. 1sttofight

    Looks like that woman in Fla was right, Obama IS going to pay her mortage for her. Now he needs to get to work paying for her gasoline.

    We need to lawyer up on this and if the fed gov gets even one mortage payment lowered, then ALL the mortages in the USA should be lowered, including mine and yours.

  3. GuppyNblue

    Everywhere we see people taking handouts from the government we see poor fiscal responsibility. If I know someone will cover me when I take risk or just don’t want to work to better my situation, my thinking changes from I have to be responsible to I don’t necessarily have to. That difference can change many people from contributing members of society to moochers. When government starts to take away our individual responsibility we see a natural corresponding growth of irresponsible individuals. And now welfare isn’t enough and the state wants to do the same with business. They’ll get the same result and destroy our economy but IMO that is their intention.

  4. proreason

    “Which of course would suit ACORN, who lest we forget, were formed to find ways to destroy the American system any way they can.

    And they are finally getting their way. ”

    Agreed.

    United States of America – closed for business. Nov 4, 2008

    Socialist Republic of America – open for rule. Nov 5, 2008

  5. sheehanjihad

    where do I sign up? I just got laid off due to the economy, and have zero job prospects. I need my mortgage paid.

  6. proreason

    sheehanjihad: “I just got laid off due to the economy, and have zero job prospects”

    It’s surprising your local community organizer hasn’t contacted YOU.

    But seriously, if you have been laid off, heartfelt sympathies.

    Thank’s to Barney Fife’s little mortgage game gone slightly awry, I’m looking at a 50% cut in lifestyle, since I’m assuming market returns will be about what they were in the Depression and 1972-1980 for the next decade. I’m not getting any credits for paying every bill for 30+ years and for “redistributing” about a million of my hard-earned money already.

    But of course the wife and I think it’s well worth it, because now the country is “fair”.

  7. Professor_Repulso

    Guaranteed Retirement Accounts – I was not aware of this scheme – and it sounds plenty scary:
    “Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts — including 401(k) and IRAs — and convert them to accounts managed by the Social Security Administration.
    “The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.”

    Dems Target Private Retirement Accounts
    Carolina Journal Online

    SJ, I am profoundly sorry to hear of your present employment status.

  8. proreason

    “Professor_Repulso

    November 14th, 2008 at 12:59 pm
    Guaranteed Retirement Accounts – I was not aware of this scheme – and it sounds plenty scary:”

    Nothing to be concerned about Professor. They intend to guarantee a 3% fixed return. Island hopping awaits your retirement.

    The “sweetener” that Teresa has proposed is to confiscate the money at August 2008 valuation. Lots of people will jump at that.

    But hey, now that the economy will be managed by Barney Fife’s buddy Obamy (who has never held a job, managed an employee, run a business or made a signifiant decision in his life), 3% on August valuations may be the best deal around.

  9. Professor_Repulso

    proreason, you sound like a practical minded and hard-nosed type of fellow — I like that. Survival in this new type of political and economic environment will depend on exactly those type of attitudes.

  10. sheehanjihad

    I just called Obamy, and his people said that since I held the same job for over ten years, I dont qualify for any bailouts. . Hell, I dont have a clue how to even sign up for unemployment. I’ve never had to do it. I better call Obamy’s people back and tell them I have been on welfare since birth, and I now have a home I cant afford because my food stamps will have to be actually used for food. Crap! This is scary! Talk about timing….there are only 5 people out of thirty left at my place of employment too….damn. I have to figure a way out of this, and pronto. I dont qualify for any programs of any kind, seriously, because I am guilty of paying everything on time and not spending money I dont have on things I dont need. This is surreal. Thank you all though, for your concern. I KNEW I should have registered as a democrat!

    Oh, by the way…I have been trying to call the 800 number they have now since budget cuts removed the unemployment offices from my county….I am at attempt number 267 and get the same “high volume, call back at another time” message. Guess I aint the only one in a world of sh*t.

  11. proreason

    “sheehanjihad

    November 14th, 2008 at 1:17 pm
    I just called Obamy”

    There is anger building in this country, and it’s escalating pretty rapidly. Bizarro-world isn’t working out for some of us.

    Obamy, Barney Fife and their buddies are counting on doormats in the current and “recently-realigned” ranks of redistribution fodder.

    I wonder how high the number on the unemployment scale has to hit before that assumption becomes non-operative.

  12. Professor_Repulso

    Ten soldiers wisely led will beat a hundred without a head. – Euripides

  13. Colonel1961

    ‘…who has never held a job, managed an employee, run a business or made a signifiant decision in his life…’

    But he looks good in a suit and he offers hope and change. Stop being a hater.

  14. Steve

    “Nothing to be concerned about Professor. They intend to guarantee a 3% fixed return.”

    What they really want to do is suck every nickel they can out of the stock market and every other source of capital we have in the country.

    They hate capitalism, and with no capital there’s no capitalism.

    That is the real dirty secret here.

  15. proreason

    “Colonel1961

    But he looks good in a suit and he offers hope and change. Stop being a hater.”

    Good advice Colonel. Sometimes I let the operations my handicapped wife needs but I won’t be able to pay for get me down.

    I should focus on the healing that is going on right now in the country, the economy and the job market. It’s good to know how the country is so much more fair now that evil capitalists like myself have seen $8 trillion dollars go up in smoke so that poor people can live in houses they don’t work for.

  16. 1sttofight

    Ten soldiers wisely led will beat a hundred without a head. – Euripides

    Ten Rednecks can take out the whole US Gov.

  17. JohnMG

    1sttofight; ……”Ten Rednecks can take out the whole US Gov……”

    Great minds think alike. Maybe we shouldn’t show our hand, eh?

  18. BillK

    The most important thing to note here is if you have a mortgage, you should just miss two payments and then your interest rate will be cut.

    Refinancing for free – ka-ching!

  19. Professor_Repulso

    Not much has been said lately about nationalized health care. I have my own ideas as to how to make healthcare affordable again and improve the economy. It was brought to my attention some while ago that many people will go overseas to such exotic locales as Thailand and India for surgical procedures at a fraction of what it would cost them in the U.S.. One of my more erudite friends commented: ‘In some foreign lands the emphasis is more on the medicine rather than the money’. All right, here goes. We need a retired but functional nuclear aircraft carrier. Anchor it somewhere off either coast or the Gulf of Mexico. Three nautical miles puts you in international waters. Staff the thing completely with doctors and specialists from the many foreign lands who are trained or training in this country. The company would pay for medical school for anyone willing to put in, say, five years after graduation. Issue cheap health insurance policies for anyone willing to receive the same type of care you would receive in a conventional hospital. Non-critical patients could easily be brought in by boat, emergency cases could be flown in – you already have an airstrip. The distance from the shore keeps out the deadbeats. The location in international waters keeps out the lawyers (who would be refused treatment if they needed it. They would be keel-hauled if they showed up to make trouble). Unlimited self-contained power, 5,000 plus capacity, a ready supply of seafood and plenty of fresh air. Why not? Get me some start up capital.

  20. Liberals Make Great Speedbumps

    Professor,

    You’d better anchor your carrier another 9 miles offshore, 12 nautical miles is the internationally recognized boundary. Very interesting idea actually although you will be pilloried for “disenfranchising” the poor and needy.

  21. loneconservative

    This is ridiculous. I pay 38% of my monthly salary for RENT because I decided it wasn’t prudent to have a $300,000 condo mortgage (that only gets you a one bedroom). I guess I should have jumped on the band wagon and bought over my head, missed the payments, and I would be paying less than I am now and owning something. I guess it does pay to be a loser.

  22. Liberals Make Great Speedbumps

    “I guess it does pay to be a loser.”

    LC,

    Absolutely, as long as liberals are in power. (Or “compassionate conservatives” in some cases)




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