Maybe there’s an answer for this, but it seems like if you’re underwater it would be hard to do a refi.

That’s basically where the government comes in with the implicit guarantee.

Doesn’t Pimco have a bazillion dollars’ worth of Fannie/Freddie bonds?

we refinanced today at an enviable rate–3.75%. We are an excellent credit risk( >740). But… in conversation with our Credit union mortgage officer, he noted that in one government plan eligibility requires that no payments have been missed. Nearly all of the clients who have met with him had missed a payment, and were therefore not eligible. Bad program. He agreed.

raise home prices between 5-10 percent

Huh? Housing prices are still way too high. We should be trying to lower them with cramdowns not trying to re-inflate the housing bubble with more cheap financing – that’s how we got into this shit pile in the first place.

I think that’s a big BINGO. Mr. PIMCO may be pushing what’s best for his fund rather than what’s best for America.

Somehow I still think forcing the TBTF banks to take the loses on the bad loans and forcing cramdowns on all underwater mortgages would be a lot better way to handle this than forcing the US taxpayers to cover all this fraud and corruption and allow the crooks to walk.

This plan only applies to the loans that Fannie and Freddie have already guaranteed. If Fannie and Freddie continue to go after big banks that foisted off on them these rancid loans, then the banks will eat the losses that Fannie and Freddie eat. On the other hand, maybe the losses won’t be as great if more homeowners can keep paying at the lower rates.

I have been arguing for cramdown since December 2007, when the idea was first proposed by a bunch of bankruptcy lawyers I know. Not gonna happen. The banksters have killed it every time it raised its lovely head out of the legislative muck.

No cram down + no jobs program = no recovery = no Barry.

let the market clear. let prices go down. let people default. the longer you don’t let prices clear, the longer the recovery will take. and you may not like it, but that’s the truth. the sooner you face the truth, the faster we can recover. you let your ideology overwhelm your logic and that, friends, is bad for the nation.Even Barney Frank realizes we need to let prices clear. And with Chris Dodd, he is responsible for the housing boom and bust.

Why didn’t we do that with the banks?

Why didn’t we do that with AIG? With GM?

Well those are bankers……and on the other hand we have us,ordinary Americans…..see in their scheme ordinary Americans means nothing.We are here to enrich the rich,that’s our function in this society.

Do you really think Govt cares about us ?……. not in anyway my friend.

PIMCO actually owns a lower percentage of mortgage backed securities than any of its competitors. If MBS rates go down investors would probably turn to other kinds of bonds where PIMCO does the bulk of its business. So while Bill Gross might lose $3-4 billion from the refi he could more than make up for it in the broader bond market.

If they currently can’t find the paper work for homes in foreclosures, will the paperwork be complete in a refinance? Will a valid previous loan document be delivered stamped PAID IN FULL?

According to CoreLogic’s and Moody’s latest numbers 24 % of mortgage holders have negative equity. Lowering their interest rate will not help them. Over 4 million homeowners have homes that are now worth less than half of what they paid for the home. It is a very sad fact that none of these people can be helped with improved terms. With a 0% mortgage and 40 years to pay it they still can’t afford the home they bought. The numbers don’t work. 24 million homes are owned free and clear, about 12 million have conventional 20% down 30 years notes and about 37 million rent. How much should all these people be expected to pay to keep others in homes they can’t afford? As a note the majority of homes underwater and being foreclosed on are in 4 states (Nevada, Arizona, California, and Florida). We need to help those who are going to lose their homes to find affordable and safe housing. We do not need to jeopardize the financial security of those who did not make a poor decision to help those who did.

What happens to the value of homes that are not underwater when millions default on their loans? Won’t that drive the housing market down further?

Millions have already defaulted on their loans. Case-Shiller Housing Index numbers show that housing from 1950 to 2000 basically rose at a sustainable and justifiable rate. Without checking I think it was about 2.7% a year on average. Some areas due to local amenities (location, job availability, etc) increased more, some less. The areas which are at most risk of “loss of value” due to increased foreclosures are primarily the areas that experienced the most out of control house price increases. The biggest on going effect will most likely not be any long term erosion of home values but the increased difficulty of Securitized Debt Instruments carrying the foreclosed properties at full value. (i.e. not having to Mark to Market)

I like the idea of no tax deduction for vacation homes and a reduced tax deduction for interest on over priced homes. Time to stop encouraging risky behavior by people that can not afford it.

Cramdowns were the answer, but Congress murdered the cramdown legislation.

If we use half measures to deal with the housing crisis, aren’t we just going to see the same number of forclosures… just spread out over a longer time period?

And if we do that, aren’t we just helping the banks, not the homeowners?

So according to Bai’s NYT interview with Podesta, the Obama people thought recovery would happen on its own and they would get to reap the credit without doing anything.

On top of the fact that this is the first recession that was not induced by the Fed, and the massive inequality that existed even when the economy was “good” – Obama wanted to do the bare minimum acceptable of a President and no more.

We needed a great leader to get America through this crisis. We got the only guy who could have been able to resurrect the GOP. I hope he’s proud of that achievement.

CR has a suggestive anecdote via one of his regular correspondents. The house in question is called a “Comp Killer,” i.e. it pretty well wipes out the higher comparables in its neighborhood by being sold out of foreclosure at a big discount, which means that some homebodies on the margin of the old set of comps are now likely underwater:

[The story is] about how one REO in a higher mid-priced area of San Diego (North Pacific Beach) has frozen the market. The list prices in this area were all over $500 per sq ft, and this REO sold for under $400 per sq ft.

It was not our poor decisions that got us into this mess. WE didn’t crash the economy- we are victims of it. Cramdowns would make the banks take the hit- which is why it’s unlikely to happen.

I could afford my house when I bought it, and my FICO score was 818. I don’t have a subprime loan. But my house is now underwater by $150,000- I can’t sell, I can’t refinance. My income has dropped by 50%. I got a second job, I took in boarders to help with the mortgage. But you want to blame me, and people like me, because somehow you got lucky- maybe you still have a job that pays a decent salary and comes with benefits. Some of us weren’t so lucky, and being demonized by the MSM and people like you just adds another layer of insult.

Historically PIMCO and Gross have are involved with muni bonds and things like home ownership.

I would call PIMCO White Hat Capitalist

This gets to the sickening, BP-like refusal to admit a loss no matter how patent its existence and no matter who has to be made to suffer for it that really puts the banksters as a group in the deep sulfur.

As a blogger recently put it:

Unemployment marched upward, delinquencies soared, and banks stalled foreclosures. The longer banks delay foreclosures and sales, the longer they can avoid acknowledging losses. Phony accounting and zero cost funding from taxpayers created an illusion of recovery.

Stalling helps banks while they pressure Congress to bail out failed mortgages with taxpayer dollars. Instead of working out mortgages with homeowners, they can wait for a government program to buyout or subsidize their failing loans. The markets aren’t recovering, because banks own colossal chunks of mystery-meat assets.

That’s no professional leftwing blogger: that’s Janet Tavakoli, author of books on the structure of financial derivatives.

I’ll have to revise my general disdain for all high finance types, given Mr. Gross’ proposals. They sure beat the hell out of anything I’ve seen so far from anyone.

The other thing is, if the USGovernment moves on a program like he’s proposing, maybe the rest of the banks and credit unions will find the, ahem, wherewithal to do something similar.

I’ve been out of work since February and am not behind on my payments. I also have some other assets, although not as much as my house. My credit union told me that to refinance I’d either have to be employed or be unemployed for two years before they would do anything, which is just bankster caution, I recokon. Funny how they got very cautious right around 2008.

I had a comment that seems to have disappeared. It was essentially what Jane said. Bill Gross is talking his book. He’s not talking cramdowns which would mean that bondholders would have to take haircuts. Rather he is putting forward a plan, a government intervention really, that would protect bondholders and at most shave a few points off their profits.

When Bill Gross starts talking big time cramdowns, that is the time to start listening to what he has to say.

Bill Gross has been The Star of the bond funds for years. If he thinks it’s a good idea people should at least listen.

The thing I don’t get is that the government is already in there subsidizing, as David points out, various other homes through the mortgage interest deduction.

The government subsidizes the loss when the bank writes off a bad mortgage. (They take it off taxes.)

It sounds like a lot would improve if the government allowed a greater writeoff of mortgage interest, or a greater tax benefit when a bank re-adjusts the principal value.

Ideally, there should be none of this government subsidizing the homeowner. But it takes time to shift from one policy to another. In the meantime, they should adopt a policy that gets us out of the current mess.

Two answers:
1) we should have. I don’t know why.
2) if the proper policy response is let markets clear, not following that path once doesn’t mean we shouldn’t follow it again. That’s silly.

do you have any idea what you are talking about.? I don’t.

I am sorry for your situation. When did you buy your home? Southern CA homes were horribly overpriced for years. There were hundreds of articles discussing how over priced Southern CA homes were since 2002. There was also very recent history of how bad CA home values can crash. Anybody who bought in the early 1980′s and tried to sell before 1990 had a very rough time. Two of our dear friends are currently trying to sell in Minneapolis. They bought in 2007, though I tried to convince them to wait a while. They weren’t interested in what I had to say. I’m 51 year old building contractor who specialized in older homes and for 10 years I was the contract Project Manager for a large National Bank’s annual Habitat for Humanity project. I also at one time was a computer consultant who wrote very complex spreadsheets to analyze large data groups. Our friends had very good credit, good jobs, and may very likely lose $100k on a $500k home.

I agree with many of the other people who have stated that ‘Cramdown” was the solution to this crisis. It is the Mortgage Banks that should have born the brunt and financial pain of the market they encouraged (created). There wasn’t and still isn’t any political will to lay fault with the banks.

If you are $150,000 underwater you should seriously consider walking away. The short term damage to your credit score will pale to the damage that carrying a negative equity loan will do to your life over the long term. There are many people who did nothing wrong who are going to suffer for this fraud. I wish you all the best with your situation.

Here are two other good things about cramdown. It clears the decks for the homeowner. The idea was that it would only be available in Chapter 13, so the homeowner would cut all payments on past due debt to manageable levels.

Also, the strong likelihood is that the lender would do better that it would do in a foreclosure, because it would capture more of the value of the house, considering the costs of foreclosure and the bottom feeders who typically bid at foreclosure. It would also get part of the Chapter 13 payments paid in by the homeowner.