11,666,666 Home Owners Could be Rescued from Foreclosure

By Anthony M. Freed

Now that we have reached Friday, and the World does not seem to be coming to an immediate and certain end, as the advocates of the Paulson-Bush Bailout Shenanigan would have had us believe, let’s take some time to look at what they are really trying to sell as a “Bailout” or “Rescue.” 

Congress should be reassured by today’s relatively placid markets and Wall Street having resisted the temptation to start a “run” on Wall Street with a major Friday sell-off. It could be argued that the markets were relieved that no plan was agreed upon today, but don’t get your hopes up.

Congress may have a reputation for molasses like agility, but don’t underestimate their ability to do something really stupid, really fast.

 

So, it looks like we have at least until sometime next week, which should be more than enough time for Congress and their army of aides and advisors to pour through Paulson’s 2 ½ Page Bailout Scam, and make some necessary adjustment.

 

Preferably, they will abandon all of it in favor of the multitude of alternatives to Paulson’s Scheme (too many to list), like the Republican‘s new Socialized Investment Bank Insurance Fund (I thought Socialize Insurance was bad?  Oh, it’s only bad for getting regular people access to basic healthcare).

 

In the mean time, lets take an ultra simple look at the math of this Foreclosure Problem, if that is what is really driving this “crisis”.   Nationwide Foreclosure Filings are expected to rise dramatically caused by Pending Option ARM Resets and Recasts and Mounting Alt A Default Risks.  On this we all seem to agree.

 

If we stop the foreclosures, we solve the crisis for which Paulson maintains we need $700BB for. Let’s do some math, but with really easy numbers that we just make up, like Congress and the Press like to use, and see what we get.

 

Let’s say the average mortgage “at risk” of foreclosure has an owner in negative equity:

Average Home Value: $200,000

Average Loan Amount: $220,000

Average Loan to Value: 110%

Average Negative Equity: $20,000

Let’s say We need to get all of those loans to a safe 80% Loan to Value ratio to be absolutely certain we avoid a foreclosure:

Amount Needed for 80% LTV: $60,000

Now, let’s see how many people could be helped with Paulson’s $700,000,000,000:

$700,000,000,000 (divided by) $60,000 = 11,666,666 Homeowners who could be rescued from foreclosure.

Wow, that is more homeowners than are going to actually be at risk over the next three years. Way more. And the likelihood it will take an average of $60,000 to bailout every homeowner facing foreclosure is slim to none.

[Some early comments have suggested that my math is too simple.  Well, that was the whole point.  You don't think $60K is enough to rescue a home owner (not flipper or investor with multiple properties) from foreclosure?  You think $200K is too little to buy a home?  The biggest lenders in the country use $200K at 80% LTV for conforming baseline averages on everything from rates to fees.  The point of this simple exercise is to say any idiot - even those of you who support this unprecidented crime - can see that the amount of money they want is absolutely out of bounds.  They simply want the money for things other than stopping foreclosures, or they would go ahead and use the money to stop foreclosures.  They want the money for all those "other" toxic instruments Paulson will not accurately define - bad investments the banks made themselves.  So, plug what ever numbers you want in there - if you think it will take $600K to bailout a home owner, that would still be 1.2MM  people we can help out instead of giving the money to Goldman Sachs.  I would rather spend our tax money helping ourselves than give it to Wall Street privateers while those 1.2MM people lose their homes anyway.  If you want hard core numbers, here is a list of about one hundred of the Nation's Leading Economists who oppose the plan.  Don't be so simple minded.  Don't be fooled.  Don't be robbed.]

Most modifications can be accomplished by choosing a Fixed Rate Mortgage product with an interest rate the borrower can afford, with little or no need to “buy down” the principle.  Only in the case of negative amortization loans or areas with drastically declining markets will we need to throw some money in to the fix.  But Paulson makes it seem like no one can pay anything at all, and that the Government needs to buy them all up wholesale – but not at wholesale prices.  This is completely false; it is disinformation.

“Henry M. Paulson Jr., the Treasury secretary, has put top priority on bailing out financial institutions by buying up soured mortgages and mortgage-backed securities, so banks and other lenders can clean up their balance sheets and get back to normal lending.”

Yet Housing Experts Say Bailout Proposal May Do Little for Homeowners.  It does not add up.

Why do they need all that money? Why do they need it today? Do they really want it and need it because the Banks want out of their Commercial Mortgage Portfolios, which are full of losing bets on risky ventures made at the height of market over-valuation?

Please – Don’t be Fooled by These Criminals! Act Now!

They made bad investment and want you and I to pay for it. It is criminal, and it needs to be stopped. From Twist at HousingDoom.com:

Troubled residential and commercial mortgage assets are posting their biggest rallies in months on expectations the U.S. Treasury’s plan to relieve financial institutions of beaten-down assets will help find the elusive floor for nearly $8 trillion in assets.

“The government has stepped up to its role as ‘capital provider of last resort’,” JPMorgan Chase & Co. strategist Christopher Flanagan said in a client note. “Asset price erosion due to inadequate capital availability, in the face of extraordinary fundamental value in many instances, is now largely off the table.”

The top “AAA” slice of the ABX 07-1 index rocketed higher by nearly 8 points on Monday, [graph is 07-02] doubling the move from Friday and erasing at least three months of losses. Lower-rated subprime bond indexes bumping close to zero in recent months jumped by 1/2 point to more than 2 points.

As the government weighs how to bail out the financial sector, the plan’s engineers face a dilemma.

The higher the prices the government pays for troubled mortgage securities held by banks, the more the rescue will bolster those banks and sustain the lending that is vital to the broader economy. But higher prices would also mean a worse deal for taxpayers.

In other words, the more effective the plan, the more expensive it will ultimately be.

Under both the Bush administration’s proposal and many of the variations finding favor among Democrats, the government would buy up to $700 billion in shaky assets now on the books of financial companies. As the government does so, it will be forced to grapple with the same question that has vexed the brightest minds on Wall Street for more than a year: What are the darn things worth?

 

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