Bush Changes Mind on Housing Bill: To Become Law This Week
Joshua D.Pro Member
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votesPolitico is reporting the AP story:
What do you guys think?
New York Times had an editorial today on this topic:
http://www.nytimes.com/2008/07/23/opinion/23wed1.html?th&emc=th
I believe registration is required (though worth it), so here's a particularly pointed little dig on this topic:
I think its an ugly situation that these two entities have been structured so any rewards go to the shareholders and especially executives and risks get moved to the taxpayers. These entities should be nationalized immediately, the execs and all their lobbyests put on the street, and, like other companies that have gone down in flames, shareholders should get away with little or nothing.
I do think there is very large risk to doing nothing, though. If loans completely dry up, the real estate market will grind to a halt, and prices will plummet to levels that will make todays look great.
I think it makes me angry, the same kind of anger I get when I see some parents at Walmart that won't take their child outside and discipline them. Instead they take them to the candy rack and get them a Snickers bar for being bad.
Everyone that is in foreclosure at IndyMac is already going to get a free ride for a year or so, why not give everyone that doesn't know how to handle their finances a free ride too.
Fannie and Freddy are independent businesses and they're getting a free handout from the government too? Doesn't sit right with me unless Joe's Sandwich shop on the corner gets help too.
Sorry, you asked what I thought though... done venting now :oops:
-Michael
Trouble is that FM&FM had this implicit, now explicit, government guarantee. I don't know the history of why these were set up, other than they were intended to make more mortgage money available. Unfortunately, IMHO, there execs got carried away and expanded into business they should have never been in. Thanks to a very concerted lobbying effort, all attempts to impose restrictions on them were blocked. Their executives should go to jail, as far as I'm concerned. Just like Enron and others.
While I agree with the sentiment, I take the opposite tack. They should be completely privatized immediately, and the shareholders should be subject to the same risks that any other stock has. The housing system can work without any Federal guarentees -- implicit or explicit.
While I agree with the sentiment, I take the opposite tack. They should be completely privatized immediately, and the shareholders should be subject to the same risks that any other stock has. The housing system can work without any Federal guarentees -- implicit or explicit.
I would favor that over the current system of execs and shareholders getting the upside and the taxpayers getting the downside. Generally, I do favor business being allowed to run things without government backing. It does seem like the FM/FM system of packaging and reselling mortgages was working reasonably well. When that approach went into overdrive with CDOs and SIVs, the wheels came off. Then, FM/FM decided they needed to leverage their position of power to get in on the same gravy train, and now the whole thing has collapsed. The FM/FM execs to appear to have been correct, though. They were free to run amuck, and would be bailed out if their excesses when badly. You may be right, may be better to be entirely in private hands.
That being the case, why aren't people going nuts over the news of the bailout?! I thought this would rub a lot of people the wrong way.
Up until now, I've always though Bush was a bit of a dope, but have been pretty apolitical. But THIS really gets my attention.
I know it rubs me the wrong way, and when I first heard about it I was going nuts. But I don't let that last to long because it's something that's out of my control. If it's not in my control I try not to get too worked up about it because it will only get me down.
So now I"m on to the next phase which is trying to figure out how it's going to impact the RE market so I can focus my energies on changing the things that are in my control so I can help my community, those around me, and my business.
-Michael
Micheal,
You hit the nail on the head. How can we as investors use this opportunity to make money. I see that there is going to be funds given to communities to purchase REO's. How does this impact those of us that also purchase these same homes?
What will the communities do with these homes? Are they going to give them back to same people that should have never been in them to begin with? Only for those same people to default on local government loans/
There are a lot of unknowns here, but there has to a way to use this to our advantage.
Hi guys, I'm new around here.
I see the foreclosure legislation having two significant impacts on the market:
1) Reduce the number of foreclosures available in the long run
2) Significantly reduce cashflow to banks with "sub-prime" loans (as troubled lenders opt for the FHA option), and therefore forcing the banks to get sell their REOs to raise cash.
How do you guys think this legislation will impact the market?
I tried, unsuccessfully, to find the actual bill. Can anyone provide a link?
Here's one part of the bill called the Hope for Homeowner's program:
H.R.3221
Housing and Economic Recovery Act of 2008 (Engrossed Amendment as Agreed to by Senate)
--------------------------------------------------------------------------------
`SEC. 257. HOPE FOR HOMEOWNERS PROGRAM.
`(a) Establishment- There is established in the Federal Housing Administration a HOPE for Homeowners Program.
`(b) Purpose- The purpose of the HOPE for Homeowners Program is--
`(1) to create an FHA program, participation in which is voluntary on the part of homeowners and existing loan holders to insure refinanced loans for distressed borrowers to support long-term, sustainable homeownership;
`(2) to allow homeowners to avoid foreclosure by reducing the principle balance outstanding, and interest rate charged, on their mortgages;
`(3) to help stabilize and provide confidence in mortgage markets by bringing transparency to the value of assets based on mortgage assets;
`(4) to target mortgage assistance under this section to homeowners for their principal residence;
`(5) to enhance the administrative capacity of the FHA to carry out its expanded role under the HOPE for Homeowners Program;
`(6) to ensure the HOPE for Homeowners Program remains in effect only for as long as is necessary to provide stability to the housing market; and
`(7) to provide servicers of delinquent mortgages with additional methods and approaches to avoid foreclosure.
`(c) Establishment and Implementation of Program Requirements-
`(1) DUTIES OF THE BOARD- In order to carry out the purposes of the HOPE for Homeowners Program, the Board shall--
`(A) establish requirements and standards for the program; and
`(B) prescribe such regulations and provide such guidance as may be necessary or appropriate to implement such requirements and standards.
`(2) DUTIES OF THE SECRETARY- In carrying out any of the program requirements or standards established under paragraph (1), the Secretary may issue such interim guidance and mortgagee letters as the Secretary determines necessary or appropriate.
`(d) Insurance of Mortgages- The Secretary is authorized upon application of a mortgagee to make commitments to insure or to insure any eligible mortgage that has been refinanced in a manner meeting the requirements under subsection (e).
`(e) Requirements of Insured Mortgages- To be eligible for insurance under this section, a refinanced eligible mortgage shall comply with all of the following requirements:
`(1) LACK OF CAPACITY TO PAY EXISTING MORTGAGE-
`(A) BORROWER CERTIFICATION-
`(i) IN GENERAL- The mortgagor shall provide certification to the Secretary that the mortgagor has not intentionally defaulted on the mortgage or any other debt, and has not knowingly, or willfully and with actual knowledge, furnished material information known to be false for the purpose of obtaining any eligible mortgage.
`(ii) PENALTIES-
`(I) FALSE STATEMENT- Any certification filed pursuant to clause (i) shall contain an acknowledgment that any willful false statement made in such certification is punishable under section 1001, of title 18, United States Code, by fine or imprisonment of not more than 5 years, or both.
`(II) LIABILITY FOR REPAYMENT- The mortgagor shall agree in writing that the mortgagor shall be liable to repay to the Federal Housing Administration any direct financial benefit achieved from the reduction of indebtedness on the existing mortgage or mortgages on the residence refinanced under this section derived from misrepresentations made in the certifications and documentation required under this subparagraph, subject to the discretion of the Secretary.
`(B) CURRENT BORROWER DEBT-TO-INCOME RATIO- As of March 1, 2008, the mortgagor shall have had a ratio of mortgage debt to income, taking into consideration all existing mortgages of that mortgagor at such time, greater than 31 percent (or such higher amount as the Board determines appropriate).
`(2) DETERMINATION OF PRINCIPAL OBLIGATION AMOUNT- The principal obligation amount of the refinanced eligible mortgage to be insured shall--
`(A) be determined by the reasonable ability of the mortgagor to make his or her mortgage payments, as such ability is determined by the Secretary pursuant to section 203(b)(4) or by any other underwriting standards established by the Board; and
`(B) not exceed 90 percent of the appraised value of the property to which such mortgage relates.
`(3) REQUIRED WAIVER OF PREPAYMENT PENALTIES AND FEES- All penalties for prepayment or refinancing of the eligible mortgage, and all fees and penalties related to default or delinquency on the eligible mortgage, shall be waived or forgiven.
`(4) EXTINGUISHMENT OF SUBORDINATE LIENS-
`(A) REQUIRED AGREEMENT- All holders of outstanding mortgage liens on the property to which the eligible mortgage relates shall agree to accept the proceeds of the insured loan as payment in full of all indebtedness under the eligible mortgage, and all encumbrances related to such eligible mortgage shall be removed. The Secretary may take such actions, subject to standards established by the Board under subparagraph (B), as may be necessary and appropriate to facilitate coordination and agreement between the holders of the existing senior mortgage and any existing subordinate mortgages, taking into consideration the subordinate lien status of such subordinate mortgages.
`(B) SHARED APPRECIATION-
`(i) IN GENERAL- The Board shall establish standards and policies that will allow for the payment to the holder of any existing subordinate mortgage of a portion of any future appreciation in the property secured by such eligible mortgage that is owed to the Secretary pursuant to subsection (k).
`(ii) FACTORS- In establishing the standards and policies required under clause (i), the Board shall take into consideration--
`(I) the status of any subordinate mortgage;
`(II) the outstanding principal balance of and accrued interest on the existing senior mortgage and any outstanding subordinate mortgages;
`(III) the extent to which the current appraised value of the property securing a subordinate mortgage is less than the outstanding principal balance and accrued interest on any other liens that are senior to such subordinate mortgage; and
`(IV) such other factors as the Board determines to be appropriate.
`(C) VOLUNTARY PROGRAM- This paragraph may not be construed to require any holder of any existing mortgage to participate in the program under this section generally, or with respect to any particular loan.
`(5) TERM OF MORTGAGE- The refinanced eligible mortgage to be insured shall--
`(A) bear interest at a single rate that is fixed for the entire term of the mortgage; and
`(B) have a maturity of not less than 30 years from the date of the beginning of amortization of such refinanced eligible mortgage.
`(6) MAXIMUM LOAN AMOUNT- The principal obligation amount of the eligible mortgage to be insured shall not exceed 132 percent of the dollar amount limitation in effect for 2007 under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a property of the applicable size.
`(7) PROHIBITION ON SECOND LIENS- A mortgagor may not grant a new second lien on the mortgaged property during the first 5 years of the term of the mortgage insured under this section.
`(8) APPRAISALS- Any appraisal conducted in connection with a mortgage insured under this section shall--
`(A) be based on the current value of the property;
`(B) be conducted in accordance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq.);
`(C) be completed by an appraiser who meets the competency requirements of the Uniform Standards of Professional Appraisal Practice;
`(D) be wholly consistent with the appraisal standards, practices, and procedures under section 202(e) of this Act that apply to all loans insured under this Act; and
`(E) comply with the requirements of subsection (g) of this section (relating to appraisal independence).
`(9) DOCUMENTATION AND VERIFICATION OF INCOME- In complying with the FHA underwriting requirements under the HOPE for Homeowners Program under this section, the mortgagee under the mortgage shall document and verify the income of the mortgagor by procuring an Internal Revenue Service transcript of the income tax returns of the mortgagor for the 2 most recent years for which the filing deadline for such years has passed and by any other method, in accordance with procedures and standards that the Board or the Secretary shall establish.
`(10) MORTGAGE FRAUD- The mortgagor shall not have been convicted under any provision of Federal or State law for fraud, including mortgage fraud.
`(11) PRIMARY RESIDENCE- The mortgagor shall provide documentation satisfactory in the determination of the Secretary to prove that the residence covered by the mortgage to be insured under this section is occupied by the mortgagor as the primary residence of the mortgagor, and that such residence is the only residence in which the mortgagor has any present ownership interest.
`(f) Study of Auction or Bulk Refinance Program-
`(1) STUDY- The Board shall conduct a study of the need for and efficacy of an auction or bulk refinancing mechanism to facilitate refinancing of existing residential mortgages that are at risk for foreclosure into mortgages insured under this section. The study shall identify and examine various options for mechanisms under which lenders and servicers of such mortgages may make bids for forward commitments for such insurance in an expedited manner.
`(2) CONTENT-
`(A) ANALYSIS- The study required under paragraph (1) shall analyze--
`(i) the feasibility of establishing a mechanism that would facilitate the more rapid refinancing of borrowers at risk of foreclosure into performing mortgages insured under this section;
`(ii) whether such a mechanism would provide an effective and efficient mechanism to reduce foreclosures on qualified existing mortgages;
`(iii) whether the use of an auction or bulk refinance program is necessary to stabilize the housing market and reduce the impact of turmoil in that market on the economy of the United States;
`(iv) whether there are other mechanisms or authority that would be useful to reduce foreclosure; and
`(v) and any other factors that the Board considers relevant.
`(B) DETERMINATIONS- To the extent that the Board finds that a facility of the type described in subparagraph (A) is feasible and useful, the study shall--
`(i) determine and identify any additional authority or resources needed to establish and operate such a mechanism;
`(ii) determine whether there is a need for additional authority with respect to the loan underwriting criteria established in this section or with respect to eligibility of participating borrowers, lenders, or holders of liens;
`(iii) determine whether such underwriting criteria should be established on the basis of individual loans, in the aggregate, or otherwise to facilitate the goal of refinancing borrowers at risk of foreclosure into viable loans insured under this section.
`(3) REPORT- Not later than the expiration of the 60-day period beginning on the date of the enactment of this section, the Board shall submit a report regarding the results of the study conducted under this subsection to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate. The report shall include a detailed description of the analysis required under paragraph (2)(A) and of the determinations made pursuant to paragraph (2)(B), and shall include any other findings and recommendations of the Board pursuant to the study, including identifying various options for mechanisms described in paragraph (1).
`(g) Appraisal Independence-
`(1) PROHIBITIONS ON INTERESTED PARTIES IN A REAL ESTATE TRANSACTION- No mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, nor any other person with an interest in a real estate transaction involving an appraisal in connection with a mortgage insured under this section shall improperly influence, or attempt to improperly influence, through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, nonpayment for services rendered, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with the mortgage.
`(2) CIVIL MONETARY PENALTIES- The Secretary may impose a civil money penalty for any knowing and material violation of paragraph (1) under the same terms and conditions as are authorized in section 536(a) of this Act.
`(h) Standards To Protect Against Adverse Selection-
`(1) IN GENERAL- The Board shall, by rule or order, establish standards and policies to require the underwriter of the insured loan to provide such representations and warranties as the Board considers necessary or appropriate to enforce compliance with all underwriting and appraisal standards of the HOPE for Homeowners Program.
`(2) EXCLUSION FOR VIOLATIONS- The Board shall prohibit the Secretary from paying insurance benefits to a mortgagee who violates the representations and warranties, as established under paragraph (1), or in any case in which a mortgagor fails to make the first payment on a refinanced eligible mortgage.
`(3) OTHER AUTHORITY- The Board may establish such other standards or policies as necessary to protect against adverse selection, including requiring loans identified by the Secretary as higher risk loans to demonstrate payment performance for a reasonable period of time prior to being insured under the program.
`(i) Premiums- For each refinanced eligible mortgage insured under this section, the Secretary shall establish and collect--
`(1) at the time of insurance, a single premium payment in an amount equal to 3 percent of the amount of the original insured principal obligation of the refinanced eligible mortgage, which shall be paid from the proceeds of the mortgage being insured under this section, through the reduction of the amount of indebtedness that existed on the eligible mortgage prior to refinancing; and
`(2) in addition to the premium required under paragraph (1), an annual premium in an amount equal to 1.5 percent of the amount of the remaining insured principal balance of the mortgage.
`(j) Origination Fees and Interest Rate- The Board shall establish--
`(1) a reasonable limitation on origination fees for refinanced eligible mortgages insured under this section; and
`(2) procedures to ensure that interest rates on such mortgages shall be commensurate with market rate interest rates on such types of loans.
`(k) Equity and Appreciation-
`(1) FIVE-YEAR PHASE-IN FOR EQUITY AS A RESULT OF SALE OR REFINANCING- For each eligible mortgage insured under this section, the Secretary and the mortgagor of such mortgage shall, upon any sale or disposition of the property to which such mortgage relates, or upon the subsequent refinancing of such mortgage, be entitled to the following with respect to any equity created as a direct result of such sale or refinancing:
`(A) If such sale or refinancing occurs during the period that begins on the date that such mortgage is insured and ends 1 year after such date of insurance, the Secretary shall be entitled to 100 percent of such equity.
`(B) If such sale or refinancing occurs during the period that begins 1 year after such date of insurance and ends 2 years after such date of insurance, the Secretary shall be entitled to 90 percent of such equity and the mortgagor shall be entitled to 10 percent of such equity.
`(C) If such sale or refinancing occurs during the period that begins 2 years after such date of insurance and ends 3 years after such date of insurance, the Secretary shall be entitled to 80 percent of such equity and the mortgagor shall be entitled to 20 percent of such equity.
`(D) If such sale or refinancing occurs during the period that begins 3 years after such date of insurance and ends 4 years after such date of insurance, the Secretary shall be entitled to 70 percent of such equity and the mortgagor shall be entitled to 30 percent of such equity.
`(E) If such sale or refinancing occurs during the period that begins 4 years after such date of insurance and ends 5 years after such date of insurance, the Secretary shall be entitled to 60 percent of such equity and the mortgagor shall be entitled to 40 percent of such equity.
`(F) If such sale or refinancing occurs during any period that begins 5 years after such date of insurance, the Secretary shall be entitled to 50 percent of such equity and the mortgagor shall be entitled to 50 percent of such equity.
`(2) APPRECIATION IN VALUE- For each eligible mortgage insured under this section, the Secretary and the mortgagor of such mortgage shall, upon any sale or disposition of the property to which such mortgage relates, each be entitled to 50 percent of any appreciation in value of the appraised value of such property that has occurred since the date that such mortgage was insured under this section.
`(l) Establishment of HOPE Fund-
`(1) IN GENERAL- There is established in the Federal Housing Administration a revolving fund to be known as the Home Ownership Preservation Entity Fund, which shall be used by the Board for carrying out the mortgage insurance obligations under this section.
`(2) MANAGEMENT OF FUND- The HOPE Fund shall be administered and managed by the Secretary, who shall establish reasonable and prudent criteria for the management and operation of any amounts in the HOPE Fund.
`(m) Limitation on Aggregate Insurance Authority- The aggregate original principal obligation of all mortgages insured under this section may not exceed $300,000,000,000.
`(n) Reports by the Board- The Board shall submit monthly reports to the Congress identifying the progress of the HOPE for Homeowners Program, which shall contain the following information for each month:
`(1) The number of new mortgages insured under this section, including the location of the properties subject to such mortgages by census tract.
`(2) The aggregate principal obligation of new mortgages insured under this section.
`(3) The average amount by which the principle balance outstanding on mortgages insured this section was reduced.
`(4) The amount of premiums collected for insurance of mortgages under this section.
`(5) The claim and loss rates for mortgages insured under this section.
`(6) Any other information that the Board considers appropriate.
`(o) Required Outreach Efforts- The Secretary shall carry out outreach efforts to ensure that homeowners, lenders, and the general public are aware of the opportunities for assistance available under this section.
`(p) Enhancement of FHA Capacity- Under the direction of the Board, the Secretary shall take such actions as may be necessary to--
`(1) contract for the establishment of underwriting criteria, automated underwriting systems, pricing standards, and other factors relating to eligibility for mortgages insured under this section;
`(2) contract for independent quality reviews of underwriting, including appraisal reviews and fraud detection, of mortgages insured under this section or pools of such mortgages; and
`(3) increase personnel of the Department as necessary to process or monitor the processing of mortgages insured under this section.
`(q) GNMA Commitment Authority-
`(1) GUARANTEES- The Secretary shall take such actions as may be necessary to ensure that securities based on and backed by a trust or pool composed of mortgages insured under this section are available to be guaranteed by the Government National Mortgage Association as to the timely payment of principal and interest.
`(2) GUARANTEE AUTHORITY- To carry out the purposes of section 306 of the National Housing Act (12 U.S.C.
While I agree with the sentiment, I take the opposite tack. They should be completely privatized immediately, and the shareholders should be subject to the same risks that any other stock has. The housing system can work without any Federal guarentees -- implicit or explicit.
Either or IMO. The current situation is that profits are privatized , but losses are socialized (as Wheatle indicated). Fully one or the other would be much more equitable.
Bush is making (another) big mistake. The line of thinking that got us into this mess is that the government can act as a backstop for every financial failure.
What's worse is that many all too many people now believe that the real estate bust was the result of an unbridled free market run amok when in fact it was the result of the inherent moral hazard of simultaneously encouraging the "ownership society" through a Federal Reserve policy of artificially low interest rates and government bailouts, quasi-government corporations backing loans, and other tinkering to prop up an otherwise slumping market.
These measures serve not only to subsidize failure- thereby encouraging it; but to make the crisis worse, and the period of recovery a whole lot longer.
The reason the housing market failed is really quite simple- there was never any real demand for housing. It was the government through monetary policy and other inducements that created demand- but that's not sustainable because people with middle-income jobs could not reach into their pockets and continue to make payments for houses that had sold at multimillionaire prices. The government encouraged this malinvestment on a massive scale and eventually the economic fundamentals simply caught up with us.
The idea that the government can now reach into our pockets (at the expense of healthy markets) to find the needed cash to transfer the wealth to the malinvested housing market is dangerous.
Over time the end result is that not only will the unhealthy housing market continue to suffer, but formerly healthy ones also fall into trouble, which is exactly what happened from 1930 - 1933.
There will always be opportunities- but I suspect we're nowhere near the bottom of this hole-- and the government unfortunately continues to dig.
Gee, it is good to see that my tax dollars are bailing out irresponsible behavior AND funding Democratic operatives...
http://online.wsj.com/article/SB121745181676698197.html?mod=RealEstateMain_1
...that is not the type of change I believe in.
Somebody asked why the American public isn't going nuts about the bailout. I think they are going nuts but it's on the internet on forums like this and in Opinion pages in newspapers. We don't march in the streets anymore, we log on to the internet. Plus, by posting on forums you don't have a face that might be called heartless or uncaring to those who are losing their homes. Can you imagine how a person would be raked through the coals by the media if they marched in front of Congress with a sign that reads, "Let the Market be Free! Don't Bail Homeowners! Be a Responsible Citizen and Pay your Bills." The internet has become an annonymous place to vent but that appears to have no impact on our elected officials.
"Let the market be free" I hope this is posting correctly. Anyway Americans need to be responsible for their financial decisions, good or bad.
Hello everyone. I am new here, and a little nervous. Just starting to learn more about investing and so on. Let us, as a team of networking colleagues, set the example for responsibility and honesty. Working as a team, together everyone achieves more!
We have a unique insider's perspective to the extent of the banks' stupidity and many homeowners' ignorance. I was just looking at an REO listing that went down in price to $325k. I looked at the last sale and it was $730k in 2007 and it foreclosed less than 1 year later. The highest sale in that neigbhorhood at the peak was $530k. Hummm...something fishy, stupid, criminal, fraudulent, etc. happened in that transaction. Even though many typical Americans are outraged by the bailout, they don't really know the half of it.
(FYI--The above example was 100% financing and the second loan was with Countrywide. Did you read that the CEO of Countrywide (I guess he's the almost former CEO) is on his way to Africa with his family on the company jet? This is his last vacation before he gets his golden parachute. I wish I could go to Africa on the company jet!)
Bohemiana,
One Senator's (D- Md) opinion: http://somd.com/news/headlines/2008/8016.shtml
I agree completely- keep the change. I think if people knew the extent to which (mostly) Democrats were up to their eyeballs in this, Pelosi and the gang would be out like 1994...
http://www.portfolio.com/news-markets/national-news/portfolio/2008/07/16/Countrywide-Deals-Exposed
The problem this election cycle is the Republicans are mostly RINOs- including McCain, and there's no conservative intellectual core anymore. No Newt, no big ideas...so it's "Crazies to the left of me, whimps to the right". We're screwed.
The money isn't going to homeowners- it's going to people like Mozillo (Countrywide CEO). It's all dressed up as letting people keep their homes, but in reality this is (another) big corporate bailout.