Tag: Hope Now

The “Hope Now” effect – some preliminary mortgage data

I received a note this morning suggesting that while the actual effect the “teaser freezer” program may have on the foreclosure problem is still up in the air, at least now there’s some data coming out to work with. The numbers are preliminary, and highlights are as follows:

  • There are 80 million homes, and approximately 49.6 million mortgages. The average mortgage size is roughly $202,000.
  • Roughly 63% of mortgages are fixed “prime” loans, and 14.5% are adjustable rate “prime” loans. “Below prime,” 6.3% are fixed rate, 6.8% are adjustable rate, and around 9.3% are FHA/VA loans.
  • Of the roughly 6.5 million “below prime” loans, over half have some kind of teaser rate. Of that amount, roughly 1.8 million are adjustable rate loans with resets beginning in 2008 and 2009. 2/3’s of that amount may qualify for help – the remainder, or around 600k, will have to fend for themselves.
  • Help is equally divided between rate freezes and streamlined refinancing assistance, and data suggests that around half of the refis may qualify for some FHA or VA loan.
  • Of mortgagees, roughly 2.6 million are delinquent today – how many of them have missed only one payment in the last year and/or are adjustable rate borrowers with resets within the Hope Now “window” is unclear. And there are just under one million borrowers in some level of foreclosure as we speak.

ADDITIONAL NOTE: I’ve never made hay about the subprime borrowers, seeing them simply as the high yield tranche that always rears its head when money is easy to come by. As the data above suggests, they are only a small part of the overall mortgage picture, and credit risk was already built in. It’s the 7.2 million prime ARMs, many beginning their resets the first of next year, that people should be worried about.

UPDATE: More “facts” – compliments of the White House. I’d rather see facts coming from the GAO than the Office of the Press Secretary.

Hope Now, Pay Later

Some analysts were complaining that the Treasury Department/Hope Now Consortium plan to fix some mortgages at “teaser rates” – as a way to stall the foreclosure wave – was nothing more than delaying the pain. This may be true, and the fact that mortgage backed securities investors seemed to be missing during all the planning (and press releases) meant something eerie was afoot. Judgment day has now come, and numerous borrowers are going to get government sanctioned rate freezes that fly in the face of several hundred years of contract law. With the Treasury Department noting this is “not a government subsidy” and that potential lawsuits will be “manageable,” I can’t help but think individual investors are about to get clubbed from behind.

the-negotiating-table

It’s pretty clear the quality of the loans diminishes if they are subject to rate co-opting (which is exactly what is happening here). Investors should hope that Standard & Poors does the right thing and follows through with their threat to downgrade such paper. It will serve two valuable purposes: state and local government funds will be precluded from investing, and everyone else can demand significant discounts to carry what can turn to junk whenever the political winds blow.

UPDATE: Nouriel Roubini has attempted to portray the positive aspects of the blanket bailout in what Paul Kedrosky called a “lucid” analysis. I’m inclined to categorize the take as a condescending, wholesale endorsement of socializing losses.

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The “Hope Now” Mortgage Plan: Where Are The Investors?

One need look no further than the so-called member list of the Hope Now Consortium to realize an important constituency in all this is missing:

[singlepic id=387 w=500 h=141 float=center]

Of the 33 entities on the list, only three are classified as “investors.” In addition, you could easily exclude all of those – the American Securitization Forum is a trade association, not an investor (and is already included as such), and Fannie Mae and Freddie Mac are quasi-governmental agencies that, while they hold and/or “guarantee” a lot of mortgage loans, also derive a significant amount (if not the majority) of their income from packaging and selling debt to others. The majority of members are lenders or “mortgage market participants” – in other words, the folks whose faulty underwriting standards produced the mess in the first place. Then there’s the sprinkling of not-for-profits…I take it so the initiative has the appearance of “do-good-ness.”

Where the heck are the investors?

UPDATE: As Asia-Pacific credit risk grows as a result of the mortgage debacle…

Treasury Secretary Henry Paulson said yesterday he’s confident the government and banks will agree on a plan to fix some subprime mortgage rates before they reset higher and trigger a wave of defaults. A lack of information has created doubts about the proposal, analysts say.

When the people that actually own the mortgage debt aren’t invited to what is potentially the biggest forgive-and-forget party in the history of modern finance, I’d say that’s worthy of a few doubts.

UPDATE 2: Yves Smith notices the same problem.