I may be poorer in my wallet, but psychologically I feel I have more.38-year-old Palestinian Ayman abu Hussein • Discussing how, despite the fact that he and his wife are both working and he has a second job, most of his family’s combined income — 60 percent — goes to paying back mortgages, loans and other kinds of debt, something which was rare in the West Bank until recently. Before, you needed three cosigners — or to be rich — to be able to get a mortgage. Now, upward mobility with the help of consumer debt is becoming more common. The region’s difficult political situation makes loans like this somewhat volatile, along with unique cultural factors — specifically, it’s difficult for lenders to repossess property in the region due to community pressure — but banks in the region are nonetheless moving forward. Fascinating.
» But is all this enough? While some will say the settlement doesn’t go far enough in addressing the concerns homeowners have dealt with in the years since the housing bubble burst, officials suggest it could provide $40 billion in mortgage relief by reducing loan principals, which would make the dollars go further. Problem is, it’s estimated that homeowners collectively owe $700 billion more on their homes than they’re actually worth. So while the dollar number sounds high, it may only be a drop in the bucket comparatively.
» Those who refinance will feel the pinch, too: To help pay for the $33 billion cost of the extended-by-two-months payroll tax cut, the federal government will increase the cost for homeowners to get their homes insured by Fannie Mae and Freddie Mac, who currently back nine out of ten home mortgages in the U.S. The fee, currently around 0.3 percentage points, would jump by 0.1 percentage points, which translates to roughly $17 per month for most homeowners. However, this fee would not affect current homeowners unless they refinance starting next year. Is this the best way to handle the extension?
These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books.Securities and Exchange Commission enforcement division director Robert Khuzami • Discussing the civil fraud charges that the SEC filed against six former top execs at Fannie Mae and Freddie Mac, charges that came about due to alleged misrepresentation of investors’ exposure to the subprime mortgage crisis. Lawyers for the six officials claim that the executives acted in the best interests of investors despite the allegations otherwise.
squashed asks: I can offer a bit more on the refinace question. First, the caveat: any sort of financial analysis is going to be highly subjective based on an individual's situation. Make your own decisions, etc.. WIth that said, there isn't much of a disadvantage to lowering the interest rate--though people may get hurt if there are fees connected with the refinance that increase the principle balance. Second, the banks have sold the loans to investors. The investors don't get a choice to prevent a refinance.
» SFB says: Ah, thank you. I admit offering people refinancing info is not my strong suit. :) Thanks for the tips! Hope these help, guys! — Ernie @ SFB
aclutteredmind asks: I've been wondering about Obama's refinance plan. Is there any downside to a homeowner refinancing from a 6.5-7.5% interest rate to 4.38 or whatever the rate currently is? Why would the mortgage companies go for it, if they're set to lose so much over the course of the 30 years? Is there some way they can take it off their taxes or something? I guess I'm just missing the catch.
» SFB says: Admit that this question is slightly above our pay grade (which is why we’ve been slow to respond … sorry), but fortunately it appears that Daniel Indiviglio of The Atlantic has worked out the pros and cons at length here. His take? “If this works as hoped, then those consumers will have more money in their pockets each month. Borrowers who see their mortgage interest rates drop from 5% or 6% to near 4% will often have a few hundred dollars more per month to spend or save.” He also notes that changes between the 2009 plan and this one could help out more homeowners over a longer period. However, one key point Indiviglio mentions which might explain a lot: “This program only applies to loans owned or guaranteed by F&F.“ As the government technically owns Fannie Mae and Freddie Mac, they have more leverage with them. Anyway, we’ll point you over that-a-way. — Ernie @ SFB
» To explain why this is important: Mortgage rates tend to go down when people aren’t buying homes, as an incentive to get them to buy. When the economy was doing well back around 2000, this rate was around 8 percent. Now, the rate is so low that the last time it was this low, 30-year fixed loans weren’t even widely available and the numbers were based on 20 or 25-year fixed loans. This particular statistic has been below 5 percent for the entire year, minus around two weeks.
The current environment of heightened regulatory scrutiny has the potential to subject the corporation to inquiries or investigations that could significantly adversely affect its reputation.A statement from Bank of America • Noting in a filing with the Securities and Exchange Commission that the company could be subject to huge penalties over their abusive mortgage practices. They’re not alone; Wells Fargo and Citigroup ware in the same boat, and it’s all thanks to the shady way that the trio dealt with their foreclosures. The reports from the companies suggest that all three will take a financial hit for said shadiness. Bank of America says that the state and federal inquiries “could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs.” In other words, they’re screwed for screwing over homeowners. Oops. source (via • follow)
» Why such a big charge? Apparently, someone at Bank of America (or Countrywide) was really bad at doing paperwork, or was trying to push through half-baked mortgages. Because both were named as factors in creating the huge charges which resulted from investors making claims against them. Most of the fees are headed to Fannie Mae and Freddie Mac, by the way. Had this charge (and a separate $2 billion goodwill charge related to the Countrywide merger) not been there, Bank of America would’ve been profitable in the fourth quarter.
» Oh yeah, they need more help. We can’t imagine how much fun it is to work at Fannie Mae right now. The company, after all the loans they’ve already gotten from the government, needs another $2.5 billion from the U.S. Treasury. And their buddy Freddie Mac had an even bigger loss last quarter, with $4.1 billion falling in their depressing money pit.