The Presidents Slam Dunk Pt. 2
Part one of my post laid out what I and others think will be the “Housing Market” save that will be announced by the President on Thursday, September 8, 2011. I’ll lay out some of the unintended consequences ( I hate that phrase.)
First is timing. For obvious reasons, we can’t expect to refi millions of loans over night. The plan will phase in over a year or so. Those details need to be worked out QUICK or this is a cluster you-know-what of epic proportions. When we discuss an undertaking of this sort, what comes to MY mind is who wins and who looses. Sorry, my old brain just is wired that way. In commerce, someone sells and someone buys.
Thanks to Bruce Kransting, he has some of the downside, I have added to the list. But make no mistake, the public will embrace this program with open arms.
THE TBTF(Too Big to Fail) Banks They will be forced to EAT the refi costs. I may be a little high but, $3000 per loan sounds about right. Let’s hope it’s lower. We need to follow the money on this portion of the deal. We need to make sure a portion or all of the cram down isn’t funneled thru the Backdoor to the TBTF’s.
What happens to 2nd’s and HELOC’s ?? Two things, they go away or are rolled into the new loan, at a Steep Discount.I suspect they go away.
No Short Sales to mess with on the refi’s. At least not in the near future.
On the PLUS side for the TBTF’s; all the lawsuits & put backs regarding Mortgage Backed Securities sold to investors, the “who owns the loan”, chain of title issues will go away on these loans. Remember, with a refi, you would have to sign a new note. Thus, giving F/F and the TBTF’s a chance to clean up titles. The cost of the refi is well under the Legal Exposure the TBTF’s have regarding chain of title issues.
The BIG LOOSERS As usual the Savers and folks on Fixed Incomes get PUNISHED. I’ll get to that below. This time, the Pension Funds, Insurance Co’s. get creamed. Also, the RETI’s (Real Estate Investment Trust). MBS investors take a BIG hit.
The How;
Getting technical here. The refi accelerates the prepayment of loan, which takes that mortgage out of the MBS pool. Resulting in a Loss of interest rate cash flow. Hey, who cares about Investors or Savers anyway ???There are many more pieces of unintended consequences I could go into. But, I won’t.
So what will this work ? The underlying economic structural problems are not addressed. Unemployment, valuation of property, chain of title issues just to name one or two.
The mortgage debt is still on the books. Only the interest rate on the debt has been lowered.
The Fed. gets to shrink their balance sheet. ( Amount of “old” MBS held by fed is retired)There will be interest rate risk with the “New” loans but, that’s borne by the taxpayer, no big deal.
To me, we are just reshuffling the deck. To the underwater homeowner what’s not to like? For the general public, hey the President is trying to “do something”. Opposition to the plan would be spun as obstructionist or your standing in the way of the recovery.
What this plan really reveals is a Biblical Proportion Can Kick to push structural economic problems out past the 2012 Elections. If anyone can sell it the President can.
Comments