Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

HOPE For the US Housing Subprime Mortgage Credit Crunch Victims

Housing-Market / US Housing Dec 05, 2007 - 08:34 PM GMT

By: Adrian_Ash

Housing-Market

"...What a difference lies between .org and .com on a website address..."

HOPE NOW is a British-based charity, founded in 1985 to spread the good news of Jesus Christ, working primarily in the former Soviet state of Ukraine .


Its recent good deeds include buying new boots for inmates at Stari Babbani Prison to wear when they're breaking granite.

At least those prisoners might hope for parole. But from Oct. '07, Hope Now is also the name of "an alliance between counselors, servicers, investors, and other mortgage market participants" founded to prolong the United States' current housing-led slump forever and ever, Amen.

Hope Now exists "to spread the word that hope is but a phone call away," according to US Treasury secretary Henry Paulson. And to date, the good deeds of Hank's evangelical mission amount to the dopiest government project since British taxpayers spent $800 million on "cost controls" for the 2012 Olympics in London – initially forecast to cost $4.1 billion; now set to cost $18.7bn at the very least.

The Hope Now Alliance is urging US mortgage lenders to contact borrowers 120 days before their adjustable-rate loans reset. "Reach them early, before their mortgage problem becomes overwhelming," says Hank Paulson, pretending that a couple of letters and a toll-free phone call are all it will take to forgive the sins of lazy and greedy lenders – as well as greedy and stupid home-buyers – between 2002 and 2007.

Next comes Paulson's "teaser freeze", extending the initial interest rate for another two, three or maybe even seven years if Hillary Clinton gets her way...prolonging the Bush administration's idiotic, tax-funded meddling well into her second term (God help you, America !).

And to help cover the interest due on all the mortgage-backed bonds sold against these ARMs – interest that will evaporate if the home-buyers' rates don't reset – Hope Now wants Congress to give tax-exempt status to municipal bonds underwriting subprime refinancings, rather than just first-time buyers and purchases in distressed areas.

A neat and tidy Washington scheme, in short – the perfect partner for savage rate-cuts from the Federal Reserve – and just what "Bail 'em out" Bush promised from the Rose Garden in August:

  • The Federal Housing Administration will guarantee loans for delinquent US borrowers – up to half-a-million on Paulson's math – through its new FHA Secure program;
  • "Homeowners who finally find relief [by either foreclosing or reducing their mortgage] shouldn't get put back in financial straits because of the tax code," says Paulson, repeating another of Bush's key pledges of August . Congressional approval is still pending;
  • The Treasury and Housing & Urban Development department (HUD) will identify home-buyers at risk of defaulting between now and 2009 (or even 2014 it seems), creating "more favorable" loans by working with private lenders and insurers to reduce rates in the market.

Bibbidy-bobbidy-boo! You shall stay in your home, Cinderella. Never mind that the Dollars in your pay-check will turn to dust at midnight .

Forget too that "a bailout is nothing less than a wealth transfer to those who made ill-advised credit decisions from creditworthy, fiscally responsible taxpayers," as Steve Berger – an investment manager in Boston – noted for Mises.org way back in the spring, "postponing hard choices into the future and props up faulty credit."

And also forget that "foreclosure holidays are equally flawed," as Berger went on, since "such laws in one fell swoop eviscerate contractual agreements and contravene the impairment of contracts clause of our Constitution."

This is about hope. Hope now.

But the trouble with hope – as with all faith in the future, including "credit" itself ( from the Latin: belief, trust) – is that it keeps needing a fresh lick of paint on the lintels if it's going to keep finding new buyers.

Tomorrow can only improve on today if yesterday's problems get fixed-up first. And yesterday's troubles – in this case, the mountain of idiot loans made to home buyers who just couldn't afford to buy – sit a long way from Hope Now's tax-funded solutions.

"It's a big misconception to think that [mortgage] resets are responsible for the delinquencies," according to Andy Laperriere, managing director of ISI Group in Washington . "What's driving the delinquencies is that people can't afford the initial payments," he told Caroline Baum at Bloomberg on Tuesday.

That's why one-in-four subprime loans made in 2006 but not due to reset until '08 is already delinquent. The best Eric Rosengren, president of the Boston Fed, could say about his data this week is that 55% of borrowers with subprime ARMs – around 1.2 million home-owners – have yet to miss a payment this year.

Locking higher-risk buyers into new, longer-term teasers will also bring wider social costs, too. "The effect of propping up sub-prime borrowers, so they can stay living in homes they couldn't afford when they bought them," as David Nason notes for The Australian newspaper, "is to keep property prices artificially high."

But that's assuming success – and "what little data there is," says the Lex column in the Financial Times , "suggests 35% or more of such modified loans default within two years anyway."

So why bother? Well, "this is the most serious housing downturn since the Great Depression," as Mark Zandi of Economy.com told the Office of Thrift Supervision's National Housing Forum on Monday. And residential investment accounted for 5% of gross domestic product between 1996 and last year, adds the Mortgage Bankers Association. Which is why the Hope Now Alliance is also busy explaining to the lenders themselves that foreclosing on non-paying debtors can prove costly, and thus self-defeating.

But rather than leaving the lenders' self interest to address the two million resets looming between now and 2009 (or beyond...!) Hank Paulson thinks they need a little charitable help, too.

"While increased industry funding is very important, we also need to do our part to support non-profit mortgage counseling organizations," Paulson told the same conference that Zandi addressed on Monday. "For this public outreach campaign to be successful there must be enough trained mortgage counselors to answer the phone when homeowners call.

"[So] the Administration requested funding for NeighborWorks America and other non-profit mortgage counseling operations in its budget. But the appropriations bill has yet to be finalized; Congress needs to get it done quickly."

Why the rush? Because hiring extra staff to review, advise and decide on changes to outstanding mortgages won't come cheap. Not now the profits made by lending money to home-buyers with no hope of repayment have dried up entirely. Not now that 196 major lenders have gone kaput on ML-Implode 's count since Merit Financial blew up in May 2006. Not until asset-price deflation in US housing slips into wage-price deflation for home-loan call center staff.

A clutch of tax-funded call centers in the meantime might just help support the lenders. And without solvent lenders, joined at the hip to the solvency of their debtors...who are also to be supported by tax-payers' dollars, freshly printed municipal bonds and more savage cuts to Federal Reserve interest rates...how can US home-buyers keep buying?

Perhaps that's why the Federal Home Loan banks stepped up their loans to Countrywide, the nation's biggest mortgage lender, to the point where – by Sept. 30th – it had borrowed one-third of all outstanding advances from the FHL's Atlanta division according to SEC filings.

At $51.1 billion, the Atlanta FHL's loan to Countrywide is almost as great as Northern Rock's debt to the Bank of England here in London . But Northern Rock is a global laughing-stock, the first British bank to suffer a run in 130 years. It also stands on the verge of nationalization by a desperate and panicking government – and that could never happen in the free-market United States , right?

Still, let's not harp on about the costs, absurdities or risks of governments meddling in real-estate bubbles when they burst. This is about hope. Hope now.

Let's worry about tomorrow some other time.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

nicole jeanlouis
25 Dec 07, 09:34
mortgage fraud

A broker from xxx xxx home morgage add fake pay stub fake bank stement to take my $19000 now she told me to move out as deal after one year I cant afford the payment she send me to forclosure I need justice


Post Comment

Only logged in users are allowed to post comments. Register/ Log in