I will reserve comment until I read the details of the plans when they are released Wednesday. But in the WSJ, we read:

“Economists and government officials say the country’s economic woes can’t be fixed until the downward spiral of foreclosures and falling home prices come to an end. Devising a plan that helps without rewarding banks for making bad loans or costing too much has proven hard for both the Bush and Obama Treasury Department.

One contender would reduce Americans’ home-mortgage payments, people familiar with the discussions said, possibly through a cut in the interest rate, the costs of which would be shared by the government and mortgage servicers. As part of a new national standard for modifying loans, government officials would make such a plan available to people who are still current with their payments but in danger of defaulting.”

Loan mods seem to be the key idea:

• Fannie and Freddie loan-modification holds monthly housing payments to 38% of pretax income. Possible change? New formula takes this down to 31%;

• Help underwater homeowners — who owe more than their houses are now worth — to refinance;

• Allow judges to modify mortgages during bankruptcy proceedings;

• Voluntary temporary halt on foreclosure;

• Possible Bank of America, J.P. Morgan Chase and Citigroup temporary moratoriums for owner-occupied residences.

• Mortgages securitized to investors won’t be included in the moratorium;

• Citigroup foreclosure moratorium eliminates some restrictions;

• J.P. Morgan’s new moratorium would last through March 6 and only includes loans owned by the bank — about 25% of the $1.5 trillion in mortgages J.P. Morgan services.

• Bank of America’s moratorium lasts through March 6 and includes mortgages owned by the bank and its Countrywide mortgage unit.

Of course, none of this addresses the key issues: Too many people live in homes they cannot afford, purchased with loans they cannot service. Oh, and home prices are STILL too high by historical metrics. . .


Treasury Looks to Aid ‘Underwater’ Mortgages
WSJ, FEBRUARY 14, 2009, 12:24 A.M.


Category: Bailouts, Credit, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Aiding ‘Underwater’ Mortgages”

  1. Dow says:

    100 year mortgages?

  2. TPC says:

    This plan will not stop prices from reaching affordable levels. Prices must revert. Why don’t they get this?


  3. xnycpdx says:

    dang. looks like i need to buy a house really quick and stop paying so i can get gubmint moola.

    i asked a realtor friend why he thought prices recently ticked UP in our area: sellers were 1) using that (DOA) 15K tax credit to pad their asking prices and 2) expecting the gov to step in on foreclosures and prop up prices.

    as a country, we’ve institutionalized abdegnation of personal responsibilty for the ruling elite; as a ‘democracy,’ the groundlings see no reason not to spread that on down the food chain. just put it on the tab.

  4. jash says:

    Look, the bottom line is to stop the rapid depletion of the housing market…
    I think all the solutions stink…Hell, we shouldn’t be here in the first place
    but Barry has a book for that illness! =)

    And yes, some will luck out…It’s America: Land of the Free and Home
    of the Unintended Consequences…

    If we all want to proceed back to pragmatic capitalism, we have to suck it
    up and do what it will take to slow the accelerated deterioration of the
    housing market…

    I’m sick of it already!
    And how much can the government really help anyone if the job market doesn’t
    improved! Let me tell ya, a bailout this year won’t hold a cup of water if
    the job market doesn’t make a huge come back…

    these folks can make modifications, refinancing, and all the other financial engineered
    bargaining agreements all they want but if the job market doesn’t come back, we’re gonna have one hell of a ground hog day!

    Let’s keep are eyes on the prize…job creation!

  5. QOTD:
    “Overall household indebtedness is up from $7 trillion to almost $10 trillion since 2000. On this sum, we estimate, the American consumer has an annual interest bill of more than $500 billion; a sum, by the way, that vastly exceeds his current income growth.” —Kurt Richebacher
    the Beauty of Fiat..

    supports the above point re: Job Creation–*Real Economic Activity

    though, if we’re under the Impression that the Obama Admin. has that in it’s plans, maybe we’d be better off if we started Thinking–you know, For a Change~

  6. Patrick Neid says:

    Another cockeyed Plan with no chance of success. They still don’t understand bubble aftermaths.
    If you want housing to bottom and prices stabilize—don’t impede foreclosures. In fact you could argue the opposite–make them easier and speed them up. The sooner people are out of their unaffordable homes the sooner banks et al will arrive at fair value. The previous owners will go back to being renters with lower monthly costs.

    At dramatically lower prices current renters will come up with 15-20% down payments. If not the houses will go to seed and be ultimately torn down, again getting housing in balance. Whatever course the “water” takes running down hill, leave it alone. Plans only impede and slow down the process.

    But no worries. You will have your plans. We’ll talk when we are at plan z….

  7. “…Domestically, the period from 2001 to 2008 could be described as “Boomers Gone Wild”. Boomers in their 40’s and 50’s now dominate society, as they have assumed the positions of power in government and business. Based on what they have accomplished so far, I truly fear for what comes next. After 9/11, President Bush urged Americans to spend to defeat terrorism, while Alan Greenspan lowered interest rates to historically low levels. This was like waving a red cape in front of a bull. The materialistic, self actualizing, individualistic Boomers went on the grandest borrowing and spending spree in the history of the world. Their mission: Save the world from terrorism by buying a 6,000 sq ft McMansion, the largest HDTV, the biggest Hummer, and most expensive Rolex. Boomers running Wall Street were happy to oblige with loans and complex derivatives to finance the Mardi Gras like celebration of capitalism.

    The aftermath of the eight years of partying is, not surprisingly to some, the greatest hangover in the history of the world. There are 19 million vacant homes, 10% of all homes in the U.S. are in foreclosure, 20 million homeowners are underwater with their mortgage, $30 trillion of consumer wealth has be obliterated, the savings rate dropped below zero, consumer debt levels are at historic levels, and the banking system is insolvent. The Boomer economists, like Paul Krugman, are sure they have the answers (they don’t) and the current bank bailout tab has already reached $9.7 trillion. You have to hand it to Americans, we truly believe bigger is better. If this is the easy part of the twenty year crisis, I’m not looking forward to the hard part.

    Winter of Our Discontent…”

    the sooner Gens X&Y catch more of a Clue, get a Better Grip, and start Riding Herd, the faster we’ll corrall these problems and begin anew..

  8. Steve Barry says:


    You said it all…I see the bottom in 2015, unless artificially delayed somehow.

    We continue on the trajectory I extrapolated from Shiller


  9. constantnormal says:

    Prices will continue to decline as supply continues to exceed demand. This is unstoppable.

    What can be done is to disconnect being under water from foreclosure, by allowing refinancing at longer terms and lower rates. If this is not done, then the rising tide of under water mortgages will force foreclose on many more people who were prudent in their mortgages, but never anticipated a depression removing or reducing their income for extended periods of time while at the same time dropping their home values so that they had nowhere to go when incomes fell below mortgage payments. And this will only accentuate a vicious cycle that ends up driving declining home prices into a wide overshot, as well as doing the same to unemployment and the economy as a whole, turning a deep recession into a historic depression.

    This has been blindingly obvious for over a year now, and still the banks insist that the only way out is for the taxpayer to buy their distressed mortgages at their expected profit levels, the bad with the good, with the banksters collecting all their profits up front. And nobody in Congress or either administration has the sense to say NO.

    But neither can the nation afford to take that path, so we continue to dither in indecision, spiraling down the drain, with the market applying its solutions, complete with overshoots and maximum pain.

  10. constantnormal says:

    @ Patrick — 5:45 am

    “The previous owners will go back to being renters with lower monthly costs.”

    And where do you see this vast ocean of rental housing? The banks are not in the rental business (although they certainly should be), they are leaving foreclosed neighborhoods empty, decaying and destroying what value there was in the properties. Commercial construction is flat on its back, due to lack of a viable credit market, so don’t expect a wave of news condos and apartments to provide the needed housing. Just dumping homeowners out on the street with no house and no jobs is only a formula for creating Hoovervilles.

    A better solution is to let the foreclosed stay in their homes, renting them from the new owners at rates that would correspond to something like 100-yr mortgages at ridiculously low rates. No reason that the lenders should not share in the punishment. The homeowners cannot move until they either pay off the mortgage debt, or find a buyer who will. Those who over-bought and are unable to pay will find themselves chained to their homes for life, with a never-ending stream of payments.

  11. Greg0658 says:

    jash Says – “Let’s keep are eyes on the prize…job creation!”
    me – “while working towards global labor scale balance … and all that entails”

    as I threw my feet outta bed this morn .. I was sayin something like “man it seems a guy just has to begin thinkin its jungle law now .. book laws have lost their basic usefulness” … something like that

    jungle law means you don’t rob a store .. unless its a mob of people .. who don’t know you .. and security in down and out already … and thats an extreme logical example

    Patrick – I hear you .. I remind you that we all have 1 life to live, and this 1 thinks he was manipulated
    and Mark ya hit it outta the park

  12. Greg0658 says:

    constantnormal Says – “banks are not in the rental business (although they certainly should be)”
    I like that – but its monopolistic and anti small person capitalism
    and “chained to their homes for life” I think there may be alot of people in that condition and NOT underwater (at least for some long time .. unless a EDAR is ok with ya)

  13. GB says:

    Just think if instead of a bubble housing prices came down or stayed the same after 9/11 and the dotcom crash. We wouldn’t have overbuilding of houses increasing the supply of now foreclosed homes and we’d be able to make our payments. Thank you wall street, greenspan and government officials of doing everything in your power to work on building one of the greates bubbles in history. I wonder if you can still get building permits or if you have to still donate to a campaign.

  14. Latesummer2009 says:

    Nothing short of letting foreclosures run it’s course, will solve the housing problem. We must let it play out, as painful as it may be. Obviously not a popular idea. Yesterday, it was announced that NODs are running higher now in Prime Mortgages, than they are in Subprime.

    Property declines on the Westside of Los Angeles, are like watching a trainwreck in slow motion. The water is up to 2004 buyers now, and rising faster each day.


  15. cbosco76 says:


    Foreclosures would finish off the housing collapse, but it would probably also topple the banking system. This would have to be paired with nationalization of the banks. Not a horrible idea, but it’s a big pill to swallow.

  16. trackerman says:

    @cbosco76 says “Foreclosures would finish off the housing collapse, but it would probably also topple the banking system. This would have to be paired with nationalization of the banks. ”

    Not such a big pill. It seems to me that the one thing the government might do well is banking. They sure couldn’t do any worse than private bankers. The logical next step would be to eliminate the FED and thus remove all the middle men on the way to printing greenbacks again instead of interest bearing federal reserve notes. NOW THAT IS A PLAN!

  17. DeDude says:

    What we need is wage-driven inflation. That way we can hold prices to reduce further losses – yet increase affordability. But try to get a doubling of the minimum wage through a Senate with 41 GOP’s senators that want this administration to fail so they can regain some of the lost ground.

  18. Patrick Neid says:

    “A better solution is to let the foreclosed stay in their homes, renting them from the new owners at rates that would correspond to something like 100-yr mortgages at ridiculously low rates. ”

    You provided one of the possible answers. What I trust is a solution will find itself. I never buy the hobgoblin threat—people out on the street etc. If banks are not provided a solution they will come up with one. Who knows they may even end up giving the houses away! Whatever. I’m willing to bet that right now there are folks willing to set up, manage and maintain entire bank portfolios of foreclosed houses as rental stock if they were allowed to. All they need is the folks out of the houses/or the equivalent and the banks approval–approval that is not forthcoming because of rumors of plans and bailouts or current law..

    Having said that, I repeat, no worries there will be plans. We’ll rally at plan z.

  19. trackerman,

    then you may care for:

    “Madame Speaker, I rise to introduce legislation to restore financial stability to America’s economy by abolishing the Federal Reserve. Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve’s inflationary policies. This represents a real, if hidden, tax imposed on the American people.

    From the Great Depression, to the stagflation of the seventies, to the current economic crisis caused by the housing bubble, every economic downturn suffered by this country over the past century can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial “boom” followed by a recession or depression when the Fed-created bubble bursts.

    With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America’s exports or the low rate of savings should be enthusiastic supporters of this legislation.

    Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of special interests and their own appetite for big government.

    Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy….”