Obama to Ban All Foreclosures

nada, it's interesting. those put-backs mentioned in the barron's article? the trend was started by the GSEs, who started reviewing the underwriting on dodgy loans and demanding repayment for them from the financial institutions.

it's so tangled it could made your head spin.

besides, the banks don't even WANT to foreclose now.

http://www.calculatedriskblog.com/2010/02/living-rent-free-homeowners-become.html

10% down payment is absurd. A delinquent loan eats that up in no time and that's assuming no home price depreciation. In the 1990's and early part of the decade Jumbo 30 year mortgages were done with 25% down. 5/25 Jumbos 35% down. People's view of what good mortgage lending has been grossly distorted by what went on at the tail end of the bubble.

in case you haven't noticed, it's not just the jumbo market that's hurting.

AR: Thanks for the Barron's article. I agree that put backs are coming. I also think that nothing has been done yet because everyone -- the banks, the govt, is geared to just staying afloat. But when the waters start to calm and the lawyers get involved with the fraud that was committed, there will be no end to it. It was outrageous.

That said, I do hope we get back to righting the ship soon so the govt is not in the business of supporting unsustainable prices and I do agree RS, that first order of business is significantly higher down payments.

yes, we need adequate regulations. we need oversight of of mortgage underwriting standards. we also need an appraisal process that is independent. we need FHA to quit giving loans to any and all. and in a market such as this one, particularly, we need higher down payments. we need many things.

apt23. The gov't should take advantage of lawyers affinity to sue. I believe one
way to prevent a recurrence of banks packaging mortgages that were
structured to fail(which only enabled unqualified home owners to borrow at
cheap rates) would be to ban private placements. The banks would then be
more open to law suits from aggrieved buyers of bad debt. Many of the
worst performing securitizations / bonds were 144A/privates.

Ionada: Having it drop off a cliff puts it on taxpayers

I know this and reluctantly support some kind of buffer method because the alternative is draconian. But it does really piss me off that people who were fiscally responsible are denied access to homes because home prices are artificially supported and therefore unsustainable. As a fiscal conservative, I wouldn't buy now because there is too much risk. But the imprudent are still being rewarded for taking on risk -- insanely low down payments, tax incentives all of which pump up prices -- further alienating the conservative buyers who are needed to right this sinking ship. It seems to be a very very vicious circle.

RS. I think we will see more ambulance chasers than there are ambulances. But I also think that state AG's will one day get into the mix.

I don't think the imprudent are being rewarded much. Their equity is wiped out, they owe more than their houses are worth, and their choice is to either default and face the consequences or keep bleeding money. Best-case scenario is to find a lemming to take your slot, really.

Relax and plan on renting kick-ass places on the cheap from the imprudent for the next several years. You really can't fight it...

it's the bonuses that are like salt in a wound. and i know it's not the entire industry, nor everyone within the industry, but the big banks have us where they want us, and they not only know it they flaunt it.

"In addition, if you can't handle the possibility of some distress, you can't afford your house! EVERYONE loses a job or has a down year at SOME point in a 30 yr mortgage...you need to be able to meet your mortgage payment in good times AND BAD."

Never since the Great Depression have the unemployed had to weather 12, 16, even 18 months of unemployment.

I doubt that 90% of homeowners today could do it.

ION: I'm moving into my new kick ass rental on Monday. And, i was thinking more about the new wave of buyers that still get to put down very little at artificially low rates and get a tax deduction. And the big punitive measure on Freddie Mac's part? No more interest only loans -- after September!. In manhattan that generally means mom and dad will buy their newly working kid a new apt so they can get a tax deduction. Still it props up the market and prices me out.

Now rhino is making idiotic comments about health care, public education and American history . . .

Matt - you have two issues that you are melding which I think has you confused. I'll concede unemployment leading to homelessness is a problem. But listening to you, this is a only a problem if you are a homeowner losing your shelter. If you are a renter who loses it all, then tough noogies, eh?

My suggestion to you is go ahead and keep taking the high ground on unemployment and get off the "owning is superior to renting" crap. What you don't get is if a foreclosure wave hit, it would at least lower prices so that once these unemployed do get jobs, they actually be ahead of the game in the sense that lower rent (or mortgage) = more cash cushion and they will be relatively better off net of expenses on a going forward basis.

Rhino - please keep taking him to task on this - I am not on these boards nearly as often as many others of you.

Aboutready - love the scooby doo reference! Didn't think I'd ever see another one of those since Wayne's World came out....

As fate would have it I ran across this link over at the automatic earth regarding homeless unemployed:

http://www.businessinsider.com/the-way-we-live-nowin-tents-in-the-woods-2010-2

Should it matter if these people were former renters or owners? I get the impression that some here on these boards would make that kind of distinction.....

Lecker, Matt wouldn't offer an argument for why "owners" should have free shelter but renters should not. I asked.

Basically no one is willing to take wealth from owners...Even though owners were given wealth during the bubble.

LICC, its idiotic that as a society we should provide decent health care and education to ALL our citizens? You're still stuck on the issue of rents = year 2000 and prices = 2x year 2000 and how that puts the relationship of owning to renting out of whack. Go home to your shithole nabe.

my difficulty lies in reconciling the reality mentioned in the first article with the possibilities outlined in the second. lecker, scooby is timeless. i certainly do not want the desctruction of our and/or the global economy. and it seems impossible to prevent without measures that seem inherently unfair. but the bonuses piss me off.

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2010&base_name=fannie_maes_loss_is_the_banker

Fannie Mae and its sister institution Freddie Mac buy mortgages from banks. That is what they do. This means that when Fannie and Freddie lose money, they paid banks too much money for the mortgages.

This point should be so simple that even an economist could understand it. This is why it is disturbing when news articles on Fannie's newly announced loss of $15 billion in the last quarter don't point out that this is money given to banks.

The key issue is whether Fannie and Freddie's losses are due to mortgages and mortgage-backed securities purchased prior to their takeover in September of 2008 or whether they are the result of mortgages purchases subsequent to that date. if the latter is the case then the Treasury Department is effectively using Fannie and Freddie to run a TARP program, purchasing mortgages from banks at above market prices. This amounts to a huge taxpayer subsidy to Jamie Dimon, Lloyd Blankfein and our other favorite bankers.

http://jessescrossroadscafe.blogspot.com/2010/02/pictures-of-market-crash-beware-ides-of.html

There are far too many otherwise responsible people who are not taking the situation with the high seriousness it deserves. Some would even like to see the US economy collapse, inflicting serious pain and deprivation because it may:

1.suit their investment positions and feed their egos because they think themselves above it all,
2. satisfy their ideological and emotional needs to see punishment administered, almost always to others, for the excesses of the credit bubble, especially if they are relatively weak, unwitting victims, and/or
3. the sheer nastiness and immaturity of a portion of the population which wallows in stereotypes, childish behaviour, and disappointment with their own lives. They tend to find and follow demagogues that feed their bitter hatreds.

http://www.econtalk.org/archives/2009/10/calomiris_on_th.html

my difficulty lies flushing the toilet. lecker, scooby is timeless. i certainly do not want to have to go to work or be a part of the global economy. and it seems impossible to prevent toilet overflows without measures that seem inherently unfair. but the bonuses piss me off because i am not eligible for one.

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2010&base_name=fannie_maes_loss_is_the_banker

Fannie Mae and its sister institution Freddie Mac buy mortgages from banks. That is what they do. This means that when Fannie and Freddie lose money, they paid banks too much money for the mortgages.

This point should be so simple that even an economist, not me, could understand it. This is why it is disturbing when news articles on Fannie's newly announced loss of $15 billion in the last quarter don't point out that this is money given to banks.

The key issue is whether Fannie and Freddie's losses are due to mortgages and mortgage-backed securities purchased prior to their takeover in September of 2008 or whether they are the result of mortgages purchases subsequent to that date. if the latter is the case then the Treasury Department is effectively using Fannie and Freddie to run a TARP program, purchasing mortgages from banks at above market prices. This amounts to a huge taxpayer subsidy to Jamie Dimon, Lloyd Blankfein and our other favorite bankers and my husband who is a commercial lawyer.

http://jessescrossroadscafe.blogspot.com/2010/02/pictures-of-market-crash-beware-ides-of.html

There are far too many otherwise responsible people who are not taking the situation with the high seriousness it deserves, unlike me because I have a lot of time on my hands. Some (the famous they) would even like to see the US economy collapse, inflicting serious pain and deprivation because it may:

1.suit their investment positions and feed their egos because they think themselves above it all,
2. satisfy their ideological and emotional needs to see punishment administered, almost always to others, for the excesses of the credit bubble, especially if they are relatively weak, unwitting victims, (this is my favorite, I don't work so I want to see others taken down) and/or
3. the sheer nastiness and immaturity of a portion of the population (like me and hfscomm1 and columbiacounty) which (that?) wallows in stereotypes, childish behaviour (English spelling?), and disappointment with their own lives like if they don't work or contribute to society. They tend to find and follow demagogues that feed their bitter hatreds as i do every day by reading angry blogs and then by blogging angrily. Personally I, aboutready, love doing this.

AR: great post. it makes the thought of the current Fannie/Freddie loans with 3.5% down payment all the more depressing. it is also remarkable that when freddie announced that they are no longer going to issue IO loans, it was with the caveat that that policy wouldn't take effect until SEPTEMBER!!

The losses that Fannie & Freddie are incurring are the result of following policies championed by Barney Frank. They enabled Sub-prime. They bought tons of the paper and did not properly disclose it for a long time. Barney called it expanding home ownership. The reality was they were investing in Stated Doc liar loans with little or no down payment by the borrower and now the Tax payer is bearing the fruits.

Aboutready, thanks for some thought provoking links. I found this paragraph particularly poignant,

"The Fed is acting to mask quite a bit of this. One would hope that they would also not re-enact the policy error of their predecessors and raise rates prematurely out of fear of inflation. The debt incurred during the credit bubble cannot be paid and must be liquidated. So far we have largely seen transferrence of debt obligations from insiders to the public. Ironically those same insiders are lobbying to maintain this transfer, and then to take a hard line of any further mediation of the consequences to optimize their own greed, so as to have more for themselves."

Is Jesse saying we should just write off the debt to clean the books. Getting back to the subject of the original post, is that why Obama wants to ban foreclosures? Can someone more astute than I enlighten me on this one?

rhino, this country should improve its healthcare system, but there are good ways to do it and bad ways to do it. First, this idea that we have the worst healthcare in the world is a lie. Second, there are ways to make health care less costly and more available, with better quality, without government control or involvement and without raising taxes or blowing out the deficit. Obama and Pelosi want to increase government more than they want to improve health care.
As for public education, it can't be improved just by throwing more money at it. NYS has been doing that for years and nothing has improved. You can't improve public education without taking on the unions and making fundamental changes that the unions have blocked for years.
Your views are entirely too simplistic on these topics.

Have you called Warren Buffett yet to tell him you have a chart that shows he is wrong about housing?

Riversider, good point. The banks couldn't have issued all those loans if Fannie and Freddie didn't guarantee so much of them.

Newbie, see my first post on this page. The taxpayer owns the majority of the debt anyways, and we'd like to avoid the economic falloutfrom a panicked crash in RE.

I think Matt is a classic socialism-for-the-higher-classes conservative from the views he's represented, though I doubt he sees himself that way. Not intending to be inflammatory, just the way I see it.

AR, I actually think the probelm is more perverse than you describe. The sense of entitlement is with the little people at banks just as strongly. I'm sorry, but if your bank loses a crapload of money, everyone's bonuses need to be zeroed out. There is no sense of this from anyone employed at a bank. "If I didn't blow up, I deserve my bonus."

BTW, your naming of Dimon and Blankfein but no one else is stupid: they didn't blow up. Please try to put the names of those that did blow up at the top of your list, not the ones who were smart enough to manage risk.

newbie, he isn't trying to ban all foreclosures.

"The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program."

I don't know the exact resolution Jesse favors (I haven't been reading the blog regularly recently, although it is a good one), but he's saying that the banks must, to the extent that their assets no longer exist or have been diminished, delever. they can do this through writedowns, extending/altering the terms of the loan hoping that values will increase if only due to inflation, or by having the government buy the loan at a price which is greater than actual value. we've been doing a lot of the last option in the US. if the gov't ceased to purchase, then the banks would have to deal with the issue in another way, which would likely be option number 2 for as long as the banking and accounting rules would allow, or they could get away with. i suspect he would favor mark-to-market and write offs.

http://www.bloomberg.com/apps/news?pid=20601087&sid=arF9ymnFl4xg&pos=1

“High-value houses and those in certain localities where overbuilding was particularly egregious” will take longer to recover, he wrote.

‘Deeply Invested’

“He’s very deeply invested in this,” said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. “Across his industrial companies, he’s massively poised to gain” from a housing recovery, Russo said.

and NYC is known for it's low-value housing stock.

Blaming the banks for not modifying first liens doesn't make a great deal of sense when the banks aren't the ones holding the debt. The servicers must act in a fiduciary capacity to the true lenders. When Congress and the White house blame the banks on this, they are intentionally lying to hide the fact that they are once again attempting to screw the public who owns the deb in their pension plans, IRA's etc.

http://www.ritholtz.com/blog/2010/02/banking-system-remains-in-perilous-health/

First, Matt isn't answering the Owner vs. Renter question because the answer is simple: Owners receive all of the government support because they are a voting group to be reckoned with. Renters on the other hand are not a voting block and probably never will be as they don't have a tangible asset to motivate them. Additionally homebuilder and broker lobbies have made certain that the gov't grossly subsidizes their businesses. Place on top of that the myth that homeownership is an absolute necessity, none of this is going to change anytime soon.

Second (while it is politically nearly impossible) on foreclosures, Fannie Mae and bailouts, the government needs to simply let the free market be. While I understand all of the talk about unemployment and potential homelessness, the gov't is taking steps the ensure that we eventually create a crisis that will make the recent financial storm look like a picnic.

The facts are that the world would NOT have ended if our financial system ground to a halt - it simply would have had to change. That change might have taken 3-4 years, but it would have been a healthly change that would have taken us off the path of incredibly exccessive deficits and subsidies that EVENTUALLY are going to have to be paid for one way or another. It also would have put a halt to the tremendous wealth transfer from public coffers to the hands of VERY VERY few worldwide. As much as one might want to believe that the gov't is going out of its way to help those poor people that are near foreclosure - they aren't. (Those poor folks are screwed in the medium- to long-run anyway.) The government's actions are being manipulated and pushed by interest groups (primarily the financial sector) to keep this world of fantastic payouts and record bonuses alive and well. This has to come to an end - and it will temporarily hurt.

You can't have prices explode upwards several hundred percent and then except no real reform or pain on the downside. Yet by avoiding such necessary structural change we are heading further towards a world where profits are driven by inflationary policies that greatly reward a connected few (and I am NOT talking about homeowners - who will be screwed under inflation and higher interst rates) and mercilessly devistate the general public. To act as if all of this government spending, the Fed holding rates at negative levels and wealth transfer to a devious economic elite ISN'T without drastic political and economic consequences is pure hope.

Unfortunately, our government is blind to the medium-term reality that we are presently creating with our irresponsible actions.

Delaying foreclosures would be just another brick added the pile.

Riversider, thanks for posting the Calomiris podcast link above. I had to find some time to listen to the whole hour and a half interview but it was very informative and well worth the listen.

I suspect Matt, rather than having a coherent explanation for this distinction, is just more like most of the conservatives I know. Unless something happens to someone close to him, he can't empathize with their situation and finds their claims invalid. It is conservative personal exceptionalism (for those interested, Digby has documented this extensively).

It is like conservatives who are all for free markets, except for the trade restrictions they need to protect their industry against "unfair competition". Or the conservatives who are against government funding of everything except cancer research, because their wife has cancer. Or the conservatives who are all for tough on crime policies until their son is arrested for dealing drugs, and then they become suspicious of police actions.

Matt happens to know someone who was an owner losing their home due to extended unemployment, so he can empathize with them. He probably doesn't know any renters about to become homeless, so he doesn't care about them. Predictably, Matt espouses radical free market theories but manages to find exceptions every time he knows someone personally who would be negatively affected by his ideology.

NYRENbie, I posted the Calomiris piece a few months ago. I continue regard it as one of the more thoughtful explanations out there. Also just found this old article..

HOW IT ALL BEGAN....

http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html?sec=&spon=&pagewanted=1

WASHINGTON, Sept. 29— In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

Inonada, my understanding is that when a bank lends money to a home buyer, 10% or so is made up of the bank's deposits and 90% or so is made of newly conjured debt due to the fractional reserve system. This is why increasing the amount of debt in our financial system increases the overall money supply, and why decreasing amounts of debt decrease the money supply and cause deflationary pressure.

This video is long but very informative - "Money as Debt":
http://video.google.com/videoplay?docid=-2550156453790090544#

ChasingWamus, I just watch the video. Wow! So now what do we do? Erase all debt or just ignore it? I get who is in charge and why they are too big to fail. But if we can't get healthcare passed, how will we ever change our banking system? Great quote throughout. Thanks for the insight...I wish I knew what to do with it.

I figured out why aboutready (toilet whore) doesn't like Sotomayor:

Aboutready doesn't like Sotomayor because Sotomayor came from a modest background, then worked hard at a top school and made something out of herself with her career. Aboutready is self-proclaimed from a trailer trash background. Managed to get to Yale. And then ... NOTHING. Sad. Pitiful. Really. Truly.

Thanks NYREN - after rewatching most of it I realize my prior statement was wrong. When a bank lends money it creates it out of nothing, backed by the borrower's promise to repay it. Regulations require it must be no more than 9/10ths of the amount they have on deposit. The catch is that when the buyer gets the money and gives it to the seller and the seller deposits it, that money that was created out of nothing is used as the backing for the creation of another 9/10ths of new money, and so on. So each dollar deposited ends up creating almost 10 dollars in new debt as it flows though the banking system.

Yep, banks create credit, which in today's world is the same as money.

and...this is no doubt a conspiracy of some kind.

Less than a half day after I accuse Hugh_G of being columbiacounty, columbiacounty returns under his main name.

They create it and then get to collect interest on it. What a business!

Just f'ning unbelieveable. Did anyone take Econ past home ec?

i'm sure that rs can find an appropriate you tube to explain this.

I'm back too!!!!! Yo w67thstreet!

Will Hugh_G leave or will both of you operate together for some time?

I never doubted you left jimcahones. Flmao. At least I can see you. Flmao.

w67th, don't be so sure this is really columbia county. not saying that it isn't, but i think it may not be.

nope...its me. too much damn snow.

Atoiletwhore, it's actually just Hugh_G. He and columbiacounty are the same. Notice how when columbiacounty got banned, Hugh_G showed up? And in less than half a day after I accused them of being the same. ... well here's columbia!

columbiacounty
1 minute ago
ignore this person
report abuse

nope...its me. too much damn snow.

That explains it, the ban is not in effect during snow.

great, then send me an e-mail.

What's your address?

w67th, the other day someone wrote that the banks weren't in the business of proper underwriting BECAUSE THEY HADN'T BEEN DOING IT.

so, you quit doing your job and somehow it's no longer your job?

Like you don't know, silly. toilet@aboutready.com

i can't read this little grey stuff.....

By the way, is Obama's ban similar to the streeteasy ban of me and columbiacounty?

CC.... We missed you!!! I hope you're really back.

yes indeed. welcome back cc.

Hey CC!

I don't know about "newly conjured up debt". When you work today but don't get paid for 2 weeks, that's "newly conjured up debt" too. When you deposit in a bank, the money will be lent out. Thus, you are responsible for conjuring up new debt.

I guess the alternative is money in a matress, but that's not so safe, is it? Maybe there should be a no-lending bank that lends none of your money out to anyone. Of course, they'd need to charge you 3% annually for the trouble. You know, processing your stupid $18.57 checks, dealing with your $40 ATM withdrawals, etc.

Sometimes I think it'd be better to have crap explicitly charged (e.g., TV, banking), and then you'd have to opt-in to get the benefit of the "cheaper" option (e.g., ads, having your money lent out).

Great graph on how lowering standards increases mortgages and defaults(sorry you can't have one without the other).

http://1.bp.blogspot.com/_5JJarCb6DPo/S4sh__m8AYI/AAAAAAAAA1M/DWNXeYXi1qg/s1600-h/FANNIECREDIT07:09.png

NEWS FLASH.... Obama bans all independent thinking; he will think for everyone and make all decisions.

It never gets better. This proposal makes sense and the lobbyists and Congress won't support

The latest effort to scale back some tax deductions on mortgage interest, one of the nation's most-enduring tax breaks, is finding little support in Congress.

President Barack Obama's latest budget proposal, released in February, includes a provision that would shrink deductions for mortgage interest, real-estate taxes, charitable contributions and other items for married couples with annual incomes of more than $250,000, or individual filers earning more than $200,000. Under the proposal, such taxpayers would save 28 cents of tax liability for every $1 of mortgage interest or other eligible expenses, down from 35 cents now.

But the proposal has gained no traction in Congress so far. Members from both parties are concerned about how it would affect both the housing market and charitable contributions, says Matthew Beck, a spokesman for the Democratic majority on the House Ways and Means Committee.

The administration believes the proposal would reduce the deficit and "distribute the cost of government more fairly among taxpayers of various income levels," says a Treasury spokeswoman.

But lobbyists for the real-estate industry say scaling back the deduction would hurt demand for housing at a time when the market remains fragile. "It seems very counterintuitive to impose this kind of pain on an industry that's already suffering more than any industry in America," says Jerry Howard, chief executive of the National Association of Home Builders.

Lucien Salvant, spokesman for the National Association of Realtors, says the proposal "amounts to a tax increase on an important group of homeowners and would rob buyers of the incentive to move up in the housing market."

The Treasury rejects those arguments. "This proposal is unlikely to have any real effect on the housing market since tax benefits are only one small part in determining the overall demand for high-end housing," the Treasury spokeswoman says.

Congress has rejected numerous attempts over the years to scale back or eliminate this deduction, which has been available since the federal income tax was created in 1913. The deduction is often defended as a means of boosting homeownership.

Yet critics of the deduction say that, in practice, the deduction does little or nothing to expand homeownership.

Eric Toder, a fellow at the Urban-Brookings Tax Policy Center, a left-leaning Washington think tank, says that low- to moderate-income people—those who might have to stretch to afford a home—typically don't itemize deductions on their tax forms and so get no benefit from this tax break.

The main effect of the deduction, Mr. Toder says, is to lower the cost of borrowing for wealthier people, most of whom would own property in any case. The deduction also may have helped inflate the housing bubble by subsidizing mortgage borrowing, encouraging people to take on more debt than they otherwise would have.

In a 2007 report, the Urban-Brookings Tax Policy Center argued that the deduction drives up land and housing costs. It recommended replacing the deduction with a tax credit and subsidized savings program for first-time home buyers.

Under current law, taxpayers are allowed to take deductions from home-purchase mortgage loans with original balances of as much as $1 million, plus another $100,000 of home-equity borrowings. This debt can include loans used to buy second homes or even boats that have sleeping quarters, bathrooms and kitchens, says Gregory Rosica, a partner at the accounting firm Ernst & Young in Tampa.

The congressional Joint Committee on Taxation recently estimated that the mortgage-interest deduction this year will reduce tax revenue by about $104 billion. About 75% of those benefits go to people with incomes of more than $100,000 a year, a report from the tax committee found.

Mr. Rosica of Ernst & Young calculates that, for a typical taxpayer with total income of $500,000 and itemized deductions of $50,000, the scaled-back deductions would mean $5,000 of added tax liability. For a taxpayer with $1 million of income and $136,000 of itemized deductions, the added tax liability would be about $13,000, he says.

"Obama Administration Extends Underwater Mortgage Lifeline For One Year"

"The program allows borrowers who owe more than their homes are worth to refinance at lower interest rates. It's been little used and is deemed only moderately successful at best.

"It was originally projected to help 4 million to 5 million homeowners with loans owned or guaranteed by Fannie Mae and Freddie Mac. So far, it has helped around 220,000, according to the Treasury Department," Alan Zibel of the Associated Press writes."

http://www.businessinsider.com/obama-administration-extends-underwater-mortgage-lifeline-for-one-year-2010-3

NYCMatt, in looking over this thread you seem to be making a consistent point, all be it from a rather naive and shallow perspective. What I have not seen is you answer a very simply question. To summarize what your point seems to be, we should not foreclose on any of these innocent families under the guise of "where will they go?" You seem to be suggesting that most homeowners in dire straights who cannot afford to pay their mortgage were in actuality responsible borrowers who were extremely unlucky in light of the recession and job looses, save for which they could afford their homes.

Now, HOW DO YOU RECONCILE your position with renters in the same position? Let's assume for arguments sake that you are 100% correct (a massive and flawed assumption) and all of these homeowners are people who lost jobs, were responsible, etc. Why should the taxpayers pay to keep all of them in their homes for free but NOT pay to keep every unemployed renter in their rental for free. Check that, you want the bank to pay by not allowing foreclosures. Are you suggesting that all landlords not be allowed to collect rent from anyone who can demonstrate an inability to pay? Or, are you suggesting that if you were not lucky enough to get into a home before the music stopped you do not deserve the same support? Why are homeowners treated as sacred cows when renters are presumably just as deserving of your support? And, if your answer is to screw the landlords, what do you suggest we do when those landlords default on their loans, perhaps not allow the banks to foreclosures on them either? You think about issues in such a shallow and simplistic way, without any consideration for the unintended consequences as to make your points practically infantile. Oh, and by the way, while some people are in the position you suggest, MANY gambled and bought houses they never should have been in in the first place. I am not suggesting these are easy issues or that there are easy answers (certainly not answers without pain), however, your view is part of the problem %u2013 keep on looking for that boogy man, makes deeper thought unnecessary.

"gambled and bought houses they never should have been in in the first place" and in New Mexico, they get to stay in them thanks to the legislature:

"The New Mexico legislature voted to allow homeowners in houses that sell for less than the median price to remain in their home as renters for at least one year following foreclosure."

http://www.businessinsider.com/the-new-mexico-legislature-just-did-more-for-underwater-homeowners-than-dc-bureaucrats-have-in-three-years-2010-3

Obama bans all independent thinking; he will now make all decisions for everyone.

nada, was that comment about only naming blankfein and dimon directed at me? because i don't recall doing so. although fuld and cayne (and others) aren't recipients of the bonus money this year, i certainly include them among the very many who are and were culpable.

julialg, you're boring.

Julia, did you catch this?
http://www.bloomberg.com/apps/news?pid=20601110&sid=aVnSfMYkTHxY

March 4 (Bloomberg) -- Citigroup Inc., 27 percent owned by the U.S. government, gave some new customers a book by President Barack Obama as part of a Black History Month program, a promotion criticized by a member of the congressional panel overseeing bailouts as showing the bank was “politicized.”

"Program Will Pay Homeowners to Sell at a Loss"

"In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way"

"Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed. "

"Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept." Brokers rejoice.

"Lenders will be compelled" - oh, there go the banks...

http://www.nytimes.com/2010/03/08/business/08short.html

http://www.calculatedriskblog.com/2010/03/short-sales-and-2nd-liens.html

Short sales under HAFA are much better than foreclosures for many borrowers because HAFA requires lenders to agree not to pursue a deficiency judgment (one of the key stumbling blocks for eliminating 2nds). And this is also better for the 2nd lien holders too since they get something (note: the program also includes a deed-in-lieu of foreclosure option with similar payments and requirements).

Of course short sale fraud is also a huge concern. Streitfeld quotes economist Tom Lawler:
Short sales are %u201Ctailor-made for fraud,%u201D said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.
And from James Hagerty at the WSJ: Home-Saving Loans Afoot
Rep. Frank said banks' reluctance to write down second mortgages is blocking efforts to reduce the first-lien mortgage balances of many borrowers who owe far more on their loans than the current values of their homes. ...

Many second liens have little value because of the plunge in home prices, Rep. Frank wrote, adding: "Yet because accounting rules allow holders of these seconds to carry the loans at artificially high values, many refuse to acknowledge the losses and write down the loans."
As Hagerty notes, the banks are reluctant to write down the 2nd liens because they might still have value even after foreclosure. That is because 2nd liens are recourse, and the lenders could pursue the borrower for a deficiency judgment (or sell the loans to a collector). Frequently the most cost effective course of action for 2nd lien holders is to wait and do nothing. And that is frustrating for the 1st lien holder (commonly Fannie or Freddie).

Is $1,000 enough to get 2nd lien holders to sign off and give up the right to a deficiency judgment? I expect that the lenders will pick and choose ... but this should help.

Interesting, I wonder why nobody picked up on this ....

http://www.appraisalinstitute.org/newsadvocacy/downloads/ltrs_tstmny/2010/AI-ASA-ASFMRA-NAIFA_ShortSales.pdf

Dear Secretary Geithner:
We are writing to express our deepest concern with regard to the Home Affordable Foreclosure Alternatives (HAFA) program, specifically, ongoing encouragements to conduct “short sales” without minimum safeguards to protect against conflicts of interests, waste and abuse. We understand the Administration is seeking ways to enhance short sales as a foreclosure alternative. However, we strongly believe continuing to allow “broker price opinions” (BPOs) in the property valuation component will not adequately protect the public interest (consumer, borrowers, etc.) or the interests of the various parties to the loan (lenders, loan servicers, etc.) and is likely to exacerbate mortgage fraud. To restore investor confidence around the world and dig out from the current financial crisis, we must end the culture of corruption that has permeated all levels of real estate finance. We urge the Department to reestablish independence in the valuation process to protect the safety and soundness of financial institutions, improve transparency, and safeguard the public trust.
As a preface to our concerns, we note that loan modification fraud (including short sales), has been highlighted as a new form of mortgage fraud by law enforcement officials in recent weeks. According to an independent fraud investigation firm, bank-owned fraud attributed directly to schemes involving shorts sales and REO inventories has increased by nearly 50 percent over the past year and 100 percent over the past two years.1 The Financial Crimes Enforcement Network and other major law enforcement officials have also issued advisories and notices highlighting fraud scenarios involving loan modification, which oftentimes include short sales2. Further, we also note a related trend called “property flopping,” which is similar to property flipping, but in reverse3. In this arrangement, the property is artificially deflated below its actual market value (using a BPO) and sold as a REO property to a related party of the real estate agent, who quickly sells the property at its market value for a profit.
Generally speaking, real estate agents and brokers are not independent or properly trained valuation specialists. They have an inherent bias towards quick results and action which produces a fee for themselves irrespective of whether the lender/services/investor/property owner/borrower gets a fair return on the short sale.
We believe that such conflicts can and should be mitigated by implementing basic requirements reestablishing independence and competency in the valuation process. Specifically, any arrangements to encourage short sales must require competent appraisals prepared in accordance with the Uniform Standards of Professional Appraisal Practice. Such a requirement is a minimum safeguard to enhance the fiduciary responsibility of lenders, eliminate conflicts of interests, and ensure independence and objectivity in the short sale process.
We have expressed our previous concern with the acceptability of BPOs with the Administration’s loan modification programs. Under the Home Affordable Modification Program guidelines released last year, BPOs were allowed to assist in establishing net present value calculations and valuing large numbers of properties held in portfolio. The BPO allowance was carried over in the HAFA program guidelines issued in November 20094. Our concerns for this acceptance remain, but are deepened by the aforementioned reports of escalation in mortgage fraud involving short sales.

"Obama To Take Big New Step On The Foreclosure Crisis, As He Orders Lenders To Cut Jobless Homeowners A Break"

"The Obama administration plans to overhaul how it's tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed"

http://www.businessinsider.com/obama-to-take-big-new-step-on-the-foreclosure-crisis-as-he-orders-lenders-to-cut-payments-from-the-jobless-2010-3

So why bother to work at all? Wait a few years, heath care will be free for all, housing will be free, Google will provide free internet, it will be paradise! Ensconced in my free McMansion, in perfect health, surfing for porn. Sign me up.