Foreclosure Moratorium List Grows

Banks are extending a helping hand to distressed homeowners as the list of major banks that will temporarily refrain from foreclosure has grown today. That list now includes Morgan Stanley (MS), Citigroup (C), and JP Morgan Chase (JPM) as the banks wait for a more detailed plan from the Obama administration.

Over the last few days, many have spoken out that the housing market is at the root of our current economic difficulties and any plan to stabilize the economy should include some mechanism to stabilize the housing market from its free fall. Which seems logical with the amount of wealth average Americans have tied to the market, and the sector of the economy that revolves around real estate. This was an unexpected move, based on these institutions' CEOs' appearance before Congress earlier in the week.

Why then was the market nonresponsive to this attempt to stabilize the housing sector? As more than an hour after the announcement there was still no sign of response from the stock market, as Fox Business noted,

“Once again J. P. Morgan, Citi and now Morgan Stanley issuing these moratoriums. Does it help? Hasn’t helped the market yet. I’ve been watching since that kind of where we were. I would have expected a little bounce.”

The letter to the House Financial Services Chairman Barney Frank from JP Morgan's CEO stated that the banks are voluntarily issuing this moratorium for the next three weeks. This after, Rep. Frank urged banks to do just this earlier in the week.

The market seems unimpressed but perhaps this will give the housing market a sense of stability while the Obama administration formulates its plan. This could just be a preemptive move by the banks before they are compelled to do this by a possible government plan. This is yet another example of banks allowing the government to dictate their business practices, which we think will continue to be a theme of any news developments over the next few months and possibly years.

Comments

[cadoggy:]

I can guarantee you that 'the plan' will be more of the same: Loan modifications aimed at reducing interest rates just enough to squeeze every penny out of borrowers without pushing them over the edge into foreclosure.

The people who receive these modifications will default again within 6 months with a 50% probability.

Principal write-downs are the only way to encourage underwater borrowers to stick around and it makes sense financially too.

Consider a home that was purchased for $250k with 100% financing and it's now worth $150k. If you reduce the principal by $100k you bring the loan back to the reality of today's fair market value.

On the other hand, keeping the loan amount at $250k but reducing the interest rate from 9% to 5% will effectively achieve the same net profits for the bank if the borrowers holds the loan for 10 years (which is likely these days).

Plug 9% and 5% into any mortgage calculator and you'll see that the interest lost in 10 years is $100k.

Why are banks so insistent on never, never writing down principal???

Feb 13 04:42 PM

[scotty1560:]

cadoggy you are correct..
every other plan is lip service band-aids.

And streamline these foreclosures..
I know many homeowner's who put 20% down and watched 3 years
later become say 200k negative from 500k original value. Now they
not only lose the home and credit, they get the bank threatening and
squeezing for every dollar left. IMO if a bank gives a loan with collateral
(house) that should be it. This threat of judgment liens leading to
bankruptcy is insane and criminal. We are taking out 10 years of
purchasers with the madness.. let them walk and liquidate.
Some areas 500k homes are now 150k.. horrible.

Feb 13 05:33 PM

[Mr. Ed, Jr.:]

"Banks are extending a helping hand to distressed homeowners ..."

OK, I guess you could call it a "helping hand", but I wouldn't.

1. Banks in line for taxpayer money from Dems had better show compassion. Especially if they keep getting back in line, like Citi.
2. There isn't much downside to letting people keep their homes for a few more months. Banks have more homes in the REO dept. than they know what to do with. In fact, I expect banks to just put real estate offices in every branch soon.
3. Some of the loan modifications being proposed are brutal (to homeowners, not banks, of course) Getting suckers -- I mean homeowners-- to sign on the dotted line will not be possible if the owner has already been thrown out.
4. Since there is little downside, it is good PR (See opening sentence of article) to pretend to be good citizens. Banks need some good PR these days.

Feb 14 01:36 AM

[rm:]

[Over the last few days, many have spoken out that the housing market is at the root of our current economic difficulties and any plan to stabilize the economy should include some mechanism to stabilize the housing market from its free fall.]

I disagree. Our economic difficulties are not the result of the housing market. The housing market diffculties are the result of our economy.

Propping up out tiki huts with toothpicks is not going to save us from rising unemployment, falling real wages, and a crisis of confidence in our institutions, our government and the assumptions we've lived by for the last 20 years.

The more time, money and energy we waste on the futile exercise of "putting a floor in for housing prices," the less we have to invest in useful activities that will actually produce a return.

Feb 14 08:14 AM

[Terry Finn:]

Why would the stock market respond positively to an irresponsible action by these same irresponsible banks to reward the 5% of the people people who are not keeping their financial commitments? If anything, the banks and these phony politicans should be applauding the 95% of the hardworking responsible folks who are working two or three jobs to keep their word and live up to their financial commitments. Do you so quickly forget that these are the same crooked banks who caused this whole collapse? Immediate close these five largest banks and the financial crises will end. They are just trying to spread the cancer.

Feb 14 09:16 AM

[wistle:]

100 days to clean up this mess.

Give every family $50,000 to be used to pay down debt. (this would cost the same as the current bailout. Those families owing less than $50,000 can pay off all debt. Those who do not own a home can put down a large down payment on a modestly priced home that will be within their means to pay off. Those people with homes and paid off debt can go buy a new car, boat or what ever.

The banks get all of the money they need to recapitalize. The consumer gets rid of massive debt. The mortgage industry has risk and counter-party risk reduced significantly. The flood of repossessed homes would be cleared. The options that sparked this mess could be stopped from trading in the future.

Currently none of this happens under the current plan. The banks just get more money to lend to people who cannot borrow.

Feb 14 09:22 AM

[ArnoldCountry:]

They cannot write down the principal balance because it is not the banks loan it is the securities that were issued of which that loan is in the pool. Pooling and Servicing Agreements prohibit that type of modification. It is way more complicated then the discussions let on.

I can't way to see this miracle solution coming from the Obama administration on solving this mortgage/real estate crisis.


On Feb 13 04:42 PM cadoggy wrote:

> I can guarantee you that 'the plan' will be more of the same: Loan
> modifications aimed at reducing interest rates just enough to squeeze
> every penny out of borrowers without pushing them over the edge into
> foreclosure.
>
> The people who receive these modifications will default again within
> 6 months with a 50% probability.
>
> Principal write-downs are the only way to encourage underwater borrowers
> to stick around and it makes sense financially too.
>
> Consider a home that was purchased for $250k with 100% financing
> and it's now worth $150k. If you reduce the principal by $100k you
> bring the loan back to the reality of today's fair market value.
>
>
> On the other hand, keeping the loan amount at $250k but reducing
> the interest rate from 9% to 5% will effectively achieve the same
> net profits for the bank if the borrowers holds the loan for 10 years
> (which is likely these days).
>
> Plug 9% and 5% into any mortgage calculator and you'll see that the
> interest lost in 10 years is $100k.
>
> Why are banks so insistent on never, never writing down principal???
>

Feb 14 09:25 AM

[FRANKLIN32:]

This is the place the money needed to be sent vs. all the pork in the latest Stimulus package set up for and by the Senate/Congress/and the New President! And I think it's funny that House Financial Services Chairman Barney Frank was one of the people who ignored warning of what was going to happen back in 2004 and part of the problem!

Feb 14 12:13 PM

[Griz:]

ENOUGH with the Cram-down propagation already!!! Why should we reward those who took on risk (yes, buying a house with a mortgage is utilizing leverage - aka risk). Oh poor me, I have been harmed by the great big financial crisis. I was treated unfairly so I deserve a bailout, boo hoo... F'ing unbelievable (I'm sure that everyone pushing for this is an underwater mortgage holder – ie seeking personal gain).

If we have to go there, I think a much better socialist program would be to give a stimulus check directly to the people via a 1-year federal tax holiday (at about the same cost as the $3T spent so fat). Could you imagine the stimulative effect in giving every WORKING American a 25% pay-raise? The people (read Mr. Market) would do a much better job allocating capital than the wasteful federal government. Unfortunately, there would be nothing left for thousands of Washington bureaucrats to do... so fire them all!

Feb 14 12:28 PM

[User 88850:]

Why on earth would giving $50k to every family to pay down debt that they irresponsibly took on themselves make things any better? Why should we (because government is "we") be paying any money to any individual or bank who was dumb enough to make a poor decision? Life has consequences and capitalism doesn't work without allowing the excess to be purged by pain, be it bankruptcy, foreclosure, lack of spending capital. Government/We don't owe you anything. Man up and pay your own damn bills.

On Feb 14 09:22 AM wistle wrote:

> 100 days to clean up this mess.
>
> Give every family $50,000 to be used to pay down debt. (this would
> cost the same as the current bailout. Those families owing less than
> $50,000 can pay off all debt. Those who do not own a home can put
> down a large down payment on a modestly priced home that will be
> within their means to pay off. Those people with homes and paid off
> debt can go buy a new car, boat or what ever.
>
> The banks get all of the money they need to recapitalize. The consumer
> gets rid of massive debt. The mortgage industry has risk and counter-party
> risk reduced significantly. The flood of repossessed homes would
> be cleared. The options that sparked this mess could be stopped from
> trading in the future.
>
> Currently none of this happens under the current plan. The banks
> just get more money to lend to people who cannot borrow.

Feb 14 12:51 PM

[wistle:]

Because the government took that money from every family. Remember the government only spends YOUR money. If families were not giving 50% of their money to the government in taxes, they would not have to borrow.


On Feb 14 12:51 PM User 88850 wrote:

> Why on earth would giving $50k to every family to pay down debt that
> they irresponsibly took on themselves make things any better? Why
> should we (because government is "we") be paying any money to any
> individual or bank who was dumb enough to make a poor decision?
> Life has consequences and capitalism doesn't work without allowing
> the excess to be purged by pain, be it bankruptcy, foreclosure, lack
> of spending capital. Government/We don't owe you anything. Man
> up and pay your own damn bills.
>
> On Feb 14 09:22 AM wistle wrote:

Feb 14 01:15 PM

[nova:]

> Why are banks so insistent on never, never writing down principal???<

Somebody must take a financial hit/loss on these mortgages. No investors or banks intend to do it.

Finally, forclosures have very little to do with housing prices. People just cannot afford their houses. These houses were bought hoping that housing prices would continue go up and mortgages would pay for itselves. It did not work this way.

As soon as housing prices will fall into a homebuyers affordability range, people will star buying again. It is that simple. Anything else will just ruin American economy.

As for money government gives to banks, it helps banks temporary to stay out of insolvance. But these failed banks have no money to lend. It is that simple.

Feb 14 08:08 PM

[nova:]

wistle wrote:
> Give every family $50,000 to be used to pay down debt.<

Where will this money come from? From US$ printing presses?

Feb 14 08:17 PM

[Seen All It...:]

So if the banks are serious about amending the mortgages and helping people in foreclosure why does the sole position of Loan Modification Clerk only require a high school diploma and has not been filled since it was posted in Oct 2008? While the jobs for Bankruptcy Analyst, Default Settlement Specialist, Collectors, Asset Recovery Specialist, Foreclosure Specialist, Field Agent (REO), Foreclosure Analyst, Default Settlement Specialist, Default Reporting Specialist and Loss Mitigation Specialist make two times what they are offering for the Loan Modification Clerk's job? Not seeing a lot of resources dedicated to this objective.

Feb 17 02:07 AM