Wednesday, November 7, 2012

Odds Go Up for Mortgage Mods Post Election



This man is Ed DeMarco. He’s the acting head of the Federal Housing Finance Authority (FHFA). He’s going to lose his job in the next six weeks.




Democrats want to go back to the good old days when Fannie and Freddie were tools of both the Congress and the Administration. The Dems want the D.C. mortgage agencies to write off all underwater loans. The goal is to socialize the losses that borrowers are faced with.


DeMarco has been under attack by the liberal wing of the Democratic Party for the better part of a year.  Democrats have wanted debt relief for underwater homeowners. DeMarco’s job as the head of the FHFA is to “minimize taxpayer losses at Fannie and Freddie”.  As a result, he has a conflict with broad based principal reductions. “Very Important People”, like Paul Krugman, have been attacking De Marco for months.



The reason that DeMarco is still standing is that he has clout behind him in the form of the Senior Senator from Alabama, Republican, Richard Shelby. 




With the election over, Obama doesn’t have to play Washington politics any more. He can afford to piss off powerful guys like Senator Shelby. And that’s exactly what he is going to do.


Sometime between Christmas and New Year’s, Obama will fire DeMarco, and he will make an executive appointment to replace him. Whoever is the new boss at FHFA on January 1, will have clear orders on what to do. A hallmark of Obama’s second term will be wide scale mortgage debt relief.


The driving forces to kick DeMarco out (and get a pro-principal modification guy/gal in) has been these two Congresspersons:




This outcome is reminiscent of 2006, when another (very) liberal Democrat was calling the shots at Fannie and Freddie. Back then it was Barney Frank. We know how that worked out. It won’t end up any different with Waters and Cummings pulling the strings.


What will a principal mod plan look like? I think it will be targeted to the bottom end. Mortgages with a principal balance of less than $150,000 will get the greatest relief. Little, or no relief will be granted to those with mortgage debt over $500K. The individual mortgage restructurings will happen over the next two years. The timing will be driven around the next election. The payoff for the liberal democrats will be a shot at taking back the House in 2014.


Obama will announce who will be the next Treasury Secretary by the end of the month. Look for a confirmation of a coming debt relief plan from this appointment. If the appointee has a history of supporting debt relief, then DeMarco’s days are numbered. That’s too bad for America. He has done a good job.


The cost of a mortgage-mod-plan starts at $100Bn. It could go as high as $300Bn. That doesn’t matter at all. Bernanke will just print the money.




  1. Bruce, Great post as always – quick question.. how will this impact the US banks? Is this a huge positive for them, or a negative? I see they are running scared today having hooked their carts to the losing horse. Is payback around the corner?

  2. Small.Business.Guy.1 says:

    You know, *IF* they were smart politically – unlikely, I know – they would take everybody, everywhere with the following conditions and do the following:
    1(a) A mortgage less than $150k on owner occupied residential property (no exceptions; use current IRS definitions)
    1(b) A balance due less than $50k, but more than $15k
    1(c) Reduce the balance due by 60%
    1(d) If the banks don’t get it done within 90 days from application by homeowner, then the balance due is 100% eliminated and the last 40% is charged directly to the bank.
    2(a) A mortgage less than $150k on owner occupied residential property (no exceptions; use current IRS definitions)
    2(b) A balance due less than $15k, but more than $0k
    2(c) Reduce the balance due by 90%
    2(d) If the banks don’t get it done within 90 days from application by homeowner, then the balance due is 100% eliminated and the last 10% is charged directly to the bank.

    There’s your terms – keep them simple. Forget the ‘underwater’ component, or if people are current on their mortgage (that’s just political BS for ‘doing nothing’). Politically, that’s a real winner for Obama, because in the minds of most everyday folks, it rewards them for struggling to keep paying their mortgages, starts to stabilize the lower end of the real estate market, and honestly, it’s a plan with at least the potential to bring these consumers back into the marketplace. When you are spending most of your money on food and shelter, there’s no spending capability for anything else.

    I’m not a big Paul Krugman fan, but at least this idea makes far more sense than “QE to Infinity” variations we’ve been enduring, or the ‘Clean Energy’ rackets we’ve been paying for.

  3. I’m not underwater on my mortgage, don’t live beyond my means. Where’s my fucking money?

    • A-fuckin-men. I don’t even have a mortgage, nor do I collect umemployment, food stamps or anything.

      • I’m with Mike and MG. If you are going to let the people who made foolish mortgage decisions in the $150,000 range walk away with no consequences, how about all the other hard working Americans who did “whatever it takes” to make ends meet through hard times? Or, if they could not make ends meet, they modified their living arrangements and worked their way back to getting established financially again. Good Grief!! Somebody or some institution is holding the bag for those loans gone bad. And, those institutions are bottom line responsible for returning that money…or as much as possible to THEIR investors / depositors…often middle class, hard working Americans. Bad enough that we are earning NO interest on our savings. Don’t expect us to bail out the financially foolish. Doesn’t anybody take personal responsibility anymore?

        • “Doesn’t anybody take personal responsibility anymore?”

          GMA….yesterday’s election results couldn’t have provided a clearer answer to that question. Welcome to the future, where the response to your (very reasonable) query will be increasingly one of laughter and indifference.

          Seriously, you have to look into the tax code for financial relief. That opportunity is open to all.

          • Bring it on…if they want to play that game then I will most certainly run up my 100K in open credit and buy a home with it then declare bankruptcy after leaving my job to pass the means test…..

            I’m so tired of the endless bailouts to all the whiners in American..We are now a nation of whiners who don’t understand that you saver for a rainy day. You put a down payment of more than 20%… I personally will cost a bank 100K…The days of feeling sorry for credit criminal borrowers is over…cry me a river…you play with fire you might get burned. Savers and those whom followed the rules not biting off more than they can chew are the chumps…I’m one of them….I will be the worst credit criminal because I know how to game it, I look at 100’s of credit apps a day and it disgusts me that the prudent are fleeced while the debt junkies are rewarded, bring it on. I will fire back they exact way they are unprepared for….

          • it depends on exaclty how long ago you purchased your current home. FNMA (Fannie Mae) will acknowledge you purchase of the existing home, and in some states it must be over a year ago. Also, most Lenders will require a Comp Rent Schedule on the current home, as well as you would have to have 30% Equity in your current home in order to use if as a rental home with rental income. Maybe you can carry both payments. I work in the industry and it really is different state by state. Good Luck

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    • They look for approximately 39% debt ratio but I would like to susgget another alternative: Some companies offer financing to install furnaces. I believe Sears does that. I know that Home Depot and Lowes also issue credit. Just a thought. At any rate, the only way to know for sure is to apply. Also, call your local utility company- some are in the n a business of installation, while others have gotten away from that. And, talk to a reputable mortgage broker. Some communities offer loans for home repair, especially in depressed areas- I know that in certain parts of Philadelphia, for instance, you can get $ to upgrade a home but it depends on the neighborhood. I am not susggeting that you bought in a bad neighborhood, only that you will have to look around to see what alternatives are available to you, in your own community. Good luck.

  4. Small.Business.Guy.1 says:

    “I’m not underwater on my mortgage, don’t live beyond my means. Where’s my fucking money?”

    Sounds like me. Guess what, our side lost. When the real issue is all about economics, and you end up with candidates who get themselves all tied up on social issues, well that’s on us, and not the other party.

    And you know what we end up with – liberals making economic policy. Which means that things will work out badly.

  5. I am with MG& Mike: I pay my bills/mortgage on time.
    Where’s my reward?

  6. Your reward is the economy doesn’t go into the toilet and maybe some day will be strong enough again that you can earn a decent buck in this country.

    And now you’ll have something to bellyache about.

  7. Demarco's Pink Slip says:

    Bruce – great post about the implications, but are you sure Obama has the authority to fire Demarco? I thought that authority rested squarely with Congress, otherwise Demarco would have been long gone already….

  8. ? ? ?

    Didn’t you all get your money via the bank bailouts?

  9. Jim,MtnViewCA,USA says:

    They had some token Repubs on the Fannie/Freddie teams but the big money went to Dems. Off the top of my head I remember Franklin Raines, James (?) Johnson and (I think) Jamie Gorelick getting tens of millions.

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  10. The Republicans have to double down on every Dem proposal. If the Democrats proposal is $150,000, the Republicans must demand a relief minimum of $300,000 or else children, minorities, woman will be thrown into the streets. Fight fire with fire. The country in bankrupt. So who cares.

  11. The only way to keep this fair is to give everyone $50,000. The money will get paid directly to your mortgage company or credit card or student loan. Anyone who has less than $50,000 will get cash.

    Disgusting but that is how it goes down.

    • They could have paid off every mortgage in America in the last 4 years and money leftover. Talk about a recovery… But no, we just can’t seem to think objectively any more.

      • I have a variable maoggrte. As a matter of fact I just moved it to another lender (paying the penalty) for a better variable rate ( 0.6 + prime to -.3 below prime) after only 1 year with our current lender (of a 5 year term). So yes I went from 2.85% to 1.95% on a 305K maoggrte. For me it was worth it. My payments are exactly what they were when we started at the first lender a year ago + ago when my rate was at 4.10% (just before the decline in the interest rate). I was able to knock 7 YEARS off my ammorization in 10 months (based on the annual maoggrte statement) just by leaving my payment at the higher amount while the interest rate took a dive. A fixed rate would not have allowed me to do that despite using the accelerated optoins available with fixed rates.When the interest rates increase my maoggrte will be less as I have been making payments. The increase of the variable rate will establish my new payment on my current maoggrte amount. So my breaking point today is different than what my breaking point will be July 1st when my mortage is $5K less than what it is now (and so on as the BoC rate changes). But point is that if interest rates literally doubled (ie; 2.25% to 5% for example) today then I might be worried but if they gradually increase then I will be fine. And I always have the option of removing the accerated option as well.

  12. Bailouts don’t work. They leave worse off than before you started. If it was a purely moral question, the answer is, “two wrongs don’t make a right”.
    All the commenters seem focused on getting their share. Meanwhile, the country that has be a beaming light to the rest of the world, has turned into a gimme fest. Bust the banks, and take our lumps for sleeping at the switch. Or lead this country to squalor and squabbling, like so many other third world countries. The choice is ours.
    Thank you, Bruce.

    • your utterly wrong….this isn’t about gimme…as I ask for nothing…but reward greed and stupidity is utterly wrong and my kid isn’t paying for the chump that doesn’t know how to add, review bubble history or understand DTI and PTI….I’m sick of borrowers whining….foreclosures have been around for the last 200 years….move forward, renting is not the end of the world, and let prices be determined by the market not the govt. America is a land of whiners and crybabies….grow up, learn to save, stop running up debt and lying about your damned income….the hell with being nice….your directly affecting my kids future by rewarding stupid…I’m sorry that is harsh but it’s reality, if you sign a document for 500K without consulting an attorney your stupid…..

  13. Rigorous and Christopher have it right. Instead of giving the Gold-man Hank Paulson any loot,
    the much cheaper route woulda been to give everyone 50,000. qoute Rigorous;”The money will get paid directly to your mortgage company or credit card or student loan. Anyone who has less than $50,000 will get (that part) in cash.”
    In this manner, the banks would have received bailout on each piece of sh*t paper they issued- but since it came in for that particular deal- they wouldn’t have been albe to game it as much! TALF, TARP- you’d have to be a TARD not to know these were gifites to the boyz…..

  14. How can you assume that everyone with an upside mortgage made a bad decision? I bought my house in 2005 after I got married for around $245K. Which I could afford then and still afford now. Is it really my fault that the market went down and now my place is worth $145???? Darn right I should get relief for that. I have 3 kids now, and have out grown it. So if I want to move I have to come up with $60-$70K are you kidding me? Just saying “I didnt make bad decisions, wheres my money” is ridiculous cause some of us that did and still do stuff right got screwed also. YES I SHOULD GET RELIEF ON MY MORTGAGE.

    • Nick, what if it went up that amount? You’d probably be thinking u were a pretty shrewd investor and you’d keep those gains. Were u a victim of extraordinary circumstances driven by a recession-for-the-ages? Yes. Is the solution to have taxpayers make people whole – or close to it – on their investments? I cant get my head around it (even though banks got that treatment). The bailouts will never stop. The healing wont take place.

    • Are you kidding me? says:

      Nick….and you spawned 3 offspring?….and will raise them with that kind self-entitlement?!
      You should have grown up yourself before you started reproducing. NO, I’m not joking.

      It’s called LIFE. And, markets are not static, people. They inflate and deflate…..always have/will.

      No one else is responsible for your choices, only you are. YOU DECIDED to have 3 kids, causing your home space to become squeezed and you want other people to pay your way to something bigger?

      GROW UP!

  15. Didn’t Iceland do something like this? Isn’t their economy doing GREAT now? Why not bail out the homeowners? Plenty of room at the trough so long as Ben prints more.

    Why should the banks have all the bailout, prop-up fun?

    • I agree, they got their bailout,my mortgage balance is chump change compared to what they got. I like the idea of $50k for everyone, screw the banksters.

  16. Slippery slope, it’s a slippery slope.

    Nick, if you have to move, you might live in a non-recourse state, that’d be a good thing, you could walk away from your debt.

    Syndicating the losses to taxpayers makes no sense. Nobody learns the right lesson in that case. Make the creditors take the pain.

    Sadly, those same creditors will continue to surf the yield curve and hoover up free money at taxpayer expense. So even if there’s no debt forgiveness and they take some pain, they’ll still get a stealth bailout.

    Pretending “captialism failed” isn’t honest. Capitalism hasn’t been allowed to work. Creditors sold the put, creditors need to take the pain.

    And Greenspan et al should be ashamed they did what they did to either ignore, deny, or inflate the housing bubble. Too many people are hurt now. I say, “Make the creditors take the pain.” How quaint!

    Peace to all.

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  17. WSJ, 8/1/12:

    Can Mr. Obama fire Mr. DeMarco?

    Without the Senate confirming a new nominee, there are probably two options.

    First, he could ask Mr. DeMarco to take another job in the government and then name a new acting director. But he can’t pick just anyone. The law establishing the FHFA says that the acting director must be chosen from three of the deputy director positions at FHFA. (The relevant part of the statute is on page 10).

    Others have argued in favor of Mr. Obama nominating someone for the job and then installing that person via a recess appointment. The White House did that for Richard Cordray, who heads the Consumer Finance Protection Bureau.

    But it’s not clear whether White House lawyers would sign off on such a move. The CFPB was different because the agency was new, and it needed to have a director in order to carry out its legal responsibilities. Mr. Obama also filled three board vacancies on the National Labor Relations Board earlier this year. Without those appointees, the board would have lost its quorum and much of its decision-making ability. So far, it seems that White House lawyers have only green-lighted any recess appointments under narrow circumstances when the government agency otherwise wouldn’t be able to fully operate.

  18. “Don’t expect us to bail out the financially foolish.”

    Don’t matter. My homies and peeps need fatter EBT cards. Pay up honky bitches!

  19. seems irresponsible

  20. backwardsevolution says:

    I cannot believe some of these comments. Gimme $50,000.00, gimme, gimme, gimme. And you all had children, children who will be taught these ideas? There really is no hope, none.

    “But, but, but, my house price has gone down.” Yes, they’re known to do that. As someone else said, and I’ve said before, you wouldn’t be crying if they had gone up, would you? This was a Ponzi, and many prudent people who didn’t buy knew this. If prices had continued to climb, how many of you would have felt sorry for the guy who held off? Would you have wanted to offer him $50,000.00 or $100,000.00 to make up for his loss (if he didn’t buy)? Not on your life you wouldn’t.

    Houses should be bought by adults with a very good down payment, a down payment that takes a few years to save up, not 0% down/cashbacks/no docs. When you have to work, sacrifice and SAVE, there’s a really good chance you would think twice before entering into a Ponzi and losing all of your hard-earned money.

    No more government MANIPULATION. If you can’t afford your homes, hand back the keys, declare bankruptcy and move on.

    $50,000.00 for everyone would only cause inflation. Think it through.

  21. backwardsevolution says:

    And the banks should never have been bailed out in the first place. That was the biggest travesty of all. They should have been nationalized, their assets should have been sold off, they should have been split up, management should have been fired, and no one should have received any bonuses. Depositors should have been protected.

    Securitization of mortgages needs to end. Make the banks who make these loans HOLD THEM on their own books, but isn’t it just like them to want to get rid of the hot potato, letting unsuspecting investors take the fall for their imprudent lending. If they HAD to hold the loans on their books, they would not have been making loans to anyone who could fog a mirror.

    Wall Street and Corporate America (not Obama) are running the show. The creditors and the debtors are hopelessly entwined, and both sides are screaming for the government to help them.

    And with each new scheme, the country dies a little more.

    • Amen, this is what should have happened if the gov’t. wasn’t owned by Wall Street.

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  23. Our mortgages are at 1.35% and 1.5% rlivectspeey.When we bought our home 2 1/2 yrs ago, it was 4.5% so I guess I’ll consider making a change once rates match what I started with.Banks can lock in and switch mortgages from variable to fix rate in 24hrs that’s what I’ve been told and a phone call is all that’s needed.Also, our timeline is 2 1/2 yrs for being done with the mortgages. So should rates go crazy, I’d be locking in for maybe a 2 yr or under term which tend to be a higher rate as a 5 yr term. I’ll have to consider that too.

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