Obama begging bank to get money to Main Street

[LegendKiller]

You're not thinking this through, bfdd. The vast majority of bunk loans were already securitized before the crap hit the fan, and banks who securitized those loans to investors are the servicers, with all kinds of stipulations as to the fees paid by investors for that service.

When any particular loan goes bad, the bank charges the investors for foreclosing and reselling at a loss. Investors eat the fees and the loss. The bank makes more money in the short run from foreclosure than they do from people who actually pay their mortgage, beat the cash out of what they'd necessarily have to pay to the investors otherwise.

It's easy to tell if the bank still holds the mortgage- they'll negotiate. If it's part of a securitized mortgage package they service, they're merciless.

Capische?

Servicing delinquent loans or loans going into foreclosure isn't a winning game. Overall, servicing fees for your "average" securitization will run 50bps/yr. That ain't much money.

As far as foreclosure fees, they are netted out of recoveries to the trust, not as a "fee plus" service. Servicers can't "make" money off of this, as cost structures are pretty well known.

Do keep in mind that Servicers are usually also the banks that held the mortgages originally and, often times, also hold the residual overcollateralization/equity tranche, not to mention they also have the I/O strip from gain on sale accounting. Many still hold those pieces, or mezzanine stuff they couldn't toss out into CDOs, or they hold sub/mezz on CDOs.

Nobody's making money on this stuff.

 

[da loser]

AS far as wiping out all debt, that's the most moronic idea ever.

worked for the banks, why not the public?

 

[Jhhnn]

You didn't actually deny anything that I offered, did you, LK?

 

[LegendKiller]

You didn't actually deny anything that I offered, did you, LK?

I disagree on the part about banks working loans. Servicers have an obligation to the securitizations to work out loans in a commercially similar basis as they would service their own portfolio, it is usually written in the Servicing Agreement for any securitization. Not servicing the portfolio in such a manner would hold them open to adverse selection, accusations of gross negligence, among other legal charges. As somebody who knows quite a bit about servicing securitizations, this would be *huge*, and would leave open significant avenues for recovery from the securitization investor's position.

Personally, I think the biggest problem with working out loans is the sheer fact that not a single servicer was prepared for the volume of the problem. This combines the problem of a smaller servicing fee with the need for more servicing people and finally the problem of potentially having to get noteholder approval for writedowns.

I haven't dealt with a RMBS structure so I am not 100% sure how it works, but that's about it.

As far as the fees, as I said, nobody is getting rich off of servicing fees. Most of the foreclosure fee is legal based, which is a pure cost passthrough. The remainder will be documentation and servicing, which COSTS money.

Finally, the last portion of foreclosure will be remarketing, taxes, and sales commissions. None of which will make a servicer money but are costs that must be passed on.

 

[Vic]

WASHINGTON - President Barack Obama challenged top bankers Monday to explore "every responsible way" to increase lending, saying they were obliged to help after being rescued by taxpayers.
http://www.google.com/hostednews/ap/article/ALeqM5g329PVTvx5Q8z9ftsZ9y4vh1Un8QD9CJBKOO0
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Banks get trillions of free taxpayer money...but not lending to citizens or small business as predicted. Obama just doesn't get it. Banks can't lend because businesses and people are tapped to the max. Then when you give investment bankers money they are going to speculate with Fed money instead of invest in tired old production at low rates.

There is only one way out and that's restructure all consumer and business debt. Read: possession is yours and start over.

What? And punish those of who borrowed responsibly to begin with in order to reward for those who borrowed irresponsibly? Fuck off. Personally, I'm hoping for permanent debt unforgiveness... i.e. if we let you off on your debts now, then you never get to borrow again for the rest of your life.

 

[Patranus]

What? And punish those of who borrowed responsibly to begin with in order to reward for those who borrowed irresponsibly? Fuck off. Personally, I'm hoping for permanent debt unforgiveness... i.e. if we let you off on your debts now, then you never get to borrow again for the rest of your life.

This is essentially done through bankruptcy/credit scores right now.

 

[Vic]

This is essentially done through bankruptcy/credit scores right now.

Quiet, child, your elders are speaking.

 

[Vic]

I disagree on the part about banks working loans. Servicers have an obligation to the securitizations to work out loans in a commercially similar basis as they would service their own portfolio, it is usually written in the Servicing Agreement for any securitization. Not servicing the portfolio in such a manner would hold them open to adverse selection, accusations of gross negligence, among other legal charges. As somebody who knows quite a bit about servicing securitizations, this would be *huge*, and would leave open significant avenues for recovery from the securitization investor's position.

Personally, I think the biggest problem with working out loans is the sheer fact that not a single servicer was prepared for the volume of the problem. This combines the problem of a smaller servicing fee with the need for more servicing people and finally the problem of potentially having to get noteholder approval for writedowns.

I haven't dealt with a RMBS structure so I am not 100% sure how it works, but that's about it.

As far as the fees, as I said, nobody is getting rich off of servicing fees. Most of the foreclosure fee is legal based, which is a pure cost passthrough. The remainder will be documentation and servicing, which COSTS money.

Finally, the last portion of foreclosure will be remarketing, taxes, and sales commissions. None of which will make a servicer money but are costs that must be passed on.

Servicers are bleeding money like crazy. Most of them went from having virtually no loss mit 2 years ago to now loss mit is the biggest dept in the company. And, under HAMP, have all the requirements and liabilities of a loan origination organization with only a tiny fraction of the revenue.

To guys like Jhhnn, my argument is simple. You borrowed the money to buy the house. You signed the tree's worth of documents. You bought the house. You're not a renter. If you got upside-down on your car loan, would you argue that the bank should forgive that too? Even better, when (not if) your home goes back up in value, will you be paying back your lender that portion of the debt forgiveness you're insisting on now? Of course not.

 

[Vic]

IMO, the people who want mortgage debt forgiveness to today's market values belong to 2 categories: crooks and idiots. The former knew when they bought their homes (or, more likely, took out that 10th cash-out refi to pay off their ridiculous credit card debt) that the housing bubble would burst eventually, and now want to take advantage of the bust by getting a mortgage re-write at the bottom of the market. The latter thought home values would go up forever. Either way, their fault is greed. My favorite part is when these crooks and idiots blame the evil faceless banks, as though it's not our 401k's that pay the price for their irresponsibility.

 

[Genx87]

This is essentially done through bankruptcy/credit scores right now.

Only for 6 years I believe.

 

[Genx87]

Nor is GenX87's remark wrt cubicles relevant, either. Cubicles are cheap and easy to relocate, by design, and what we're seeing is an outsourcing of any kind of work where the worker doesn't have to actually touch a physical product, a thing, to work with it. Call tech support to get an idea of where customer service is headed, for example, realize that a great deal of engineering, medicine, accounting, whatever, can be done from remote locations. It already is, just in a more localized fashion.

It can and has been tried. Problem is the results cost many companies more in customers than the services saved the company in cost. Dell has taken a pretty good hit in percieved value with avg consumers since offshoring their tech support. And their marketshare proves that. Unsurprisingly the bread and butter business clients still have stateside native english speaking tech support.

There is still a language and cultural barrier that needs to be fixed before offshoring everything works. Some places I know who tried to offshore projects had it bite them in the ass when they couldnt get Mumbai on the phone or needed a translator to understand what they were saying. The end result was delayed projects and cost overruns.

 

[IceBergSLiM]

There is a valid point here. Right now as a small business to get a loan you have to pretty much prove you do not need the loan in the first place. Read: its not possible.

 

[Special K]

Sounds peachy, LK, but average people have average intelligence, average education, average skills, and need average jobs. Manufacturing furnished that and drove the expansion of the middle class in Post-WW2 America. You propose to replace it with what, exactly, that will maintain the middle class? All those average people?

Which is not to say that I agree with Zebo's pov, at all, but "financial products", hightech innovation and elitist attitudes won't fill the gap, either. Hell, they'll just offshore production to China, anyway... And we just proved that selling houses to each other at ever increasing prices won't work, either...

This is a good point. Not everyone in society is capable of being someone that designs/develops cutting edge technologies.

 

[Patranus]

This is a good point. Not everyone in society is capable of being someone that designs/develops cutting edge technologies.

To go along with that, these low level jobs should also pay low level salaries. Sadly, government has taken this out of the equation which is a major factor for jobs fleeing the country.

The same thing happened during the great depression. There were people who had jobs and wanted to continue to work those jobs but once minimum wage laws were passed it was more cost effective to automate those jobs or simply eliminate them.

 

[StageLeft]

There can't be mortgage forgiveness and in fact there is no purpose for it. There is already an out and recourse if you cannot pay the mortgage and it's bankruptcy. If it makes financial sense to do it, by all means go ahead. It isn't even amoral. You never said you'd pay the mortgage come hell or high water. You said you'd pay it with the understanding of all parties that if you don't you will be punished and the punishment is in the form of court or liens or bad credit or whatever, plenty of mechanisms that already existed to encourage you pay it.

Lenders and lendees both screwed up. It's impossible to break down the percentage of who screwed up what amount, though.

 

[Munky]

This is a good point. Not everyone in society is capable of being someone that designs/develops cutting edge technologies.

Even if everyone was capable of performing high level jobs, how would that work out in real life? You'd have an overabundance of people with PhD, law degree and MBA - kind of like we have already - and not enough jobs to go around between them. I don't believe a society can sustain itself for long when practically everyone is a high level white-collar worker.

And besides, what's to stop the off-shoring of these high level jobs? The only jobs you can't off-shore are the ones that require domestic services - doctors, janitors, policemen... not really the high level design/production jobs.

 

[irwincur]

There is a valid point here. Right now as a small business to get a loan you have to pretty much prove you do not need the loan in the first place. Read: its not possible.

Huh, I just got one. Applied, waited a few days, 100K for my business. Not all that hard. Crappy businesses that are failing are not getting loans. Businesses with the ability to repay are.

 

[StageLeft]

Huh, I just got one. Applied, waited a few days, 100K for my business. Not all that hard. Crappy businesses that are failing are not getting loans. Businesses with the ability to repay are.

GJ but it is harder than it used to be. Qualifying crappy vs good is never what a bank does; it's always a sliding scale of risk, so now it's only the very low risk ones that will get a loan.

 

[Fern]

Huh, I just got one. Applied, waited a few days, 100K for my business. Not all that hard. Crappy businesses that are failing are not getting loans. Businesses with the ability to repay are.

It's not just "crappy businesses" that are having problems; they fail even in good economic times.

Sales are down pretty much across the board (all over the US for most all businesses). Moreover, even if you still have decent sales, many customers are slower to pay because of their own problems. So your sales/profit numbers can be OK, but you've got cash flow problems because A/R collections are slower. And so it goes on down the line to those who you owe money to.

While that presents a real and understandible need for working capital loans to a fundamnetally sound business, it makes banks reluctant to lend because of prompt loan (re)payment concerns.

So sound, established businesses can have porblems getting loans. Then think about how hard it is for new businesses or existing businesses' expansion plans - and that's where the new jobs we need would come from.

Fern

 

[werepossum]

That did happened under the Troubled Asset Relief Program. What is being discussed is NEW lending and freeing up the credit markets.

Except that while the original intent of TARP was that the government buy up the troubled assets and thereby make the banks solvent, under Obama it changed to buying stock in the companies themselves. In fact, according to Wells Fargo's top dog the government is actually stopping them from foreclosing and liquidating the "toxic assets" they acquired with Wachovia, which supposedly is why Wells Fargo is now worth less with Wachovia than it was worth without it. You can debate over which TARP approach is better and whether it is better for society to keep those people in their homes even though they aren't paying for them, but the core problem of the toxic assets still remains. Under the original TARP concept the federal government would buy up the assets themselves (home loans in default and I think also related failed derivatives IIRC) and liquidate them for whatever they are worth in today's depressed market, spreading the hit among taxpayers. Under the revised TARP concept the federal government bought shares of the failing companies, but one way or another the toxic assets have to be addressed - unless we just wait and see if the housing prices recover and people start paying their mortgages again.

 

[Jhhnn]

To guys like Jhhnn, my argument is simple. You borrowed the money to buy the house. You signed the tree's worth of documents. You bought the house. You're not a renter. If you got upside-down on your car loan, would you argue that the bank should forgive that too? Even better, when (not if) your home goes back up in value, will you be paying back your lender that portion of the debt forgiveness you're insisting on now? Of course not.

I'm not arguing that at all, Vic. What I am saying is that sometimes renegotiation at some level or another serves the investors better than foreclosure. That's particularly true in "mail in the keys" states like California. Just one example-

http://www.nytimes.com/2009/12/13/business/economy/13rates.html?_r=1&th&emc=th

None of this has anything to do with me, personally, either. We own our home free and clear, have for several years. Nor does it matter what the theoretical value might be, because my wife, 10 years younger than myself, has made it obvious that she'll never move again, period, end of discussion. Nor is it likely we'll ever seek to borrow against the principal.

As for LK's references to pass thru costs, anybody who thinks that big banks, big law firms, and big real estate can't or don't find ways to scratch each others' backs at the expense of investors probably isn't thinking like a banker, a lawyer, or a real estate mogul... there are many ways to accomplish that, too numerous to mention.

I also think that the modifications to TARP were wise- if the govt just buys banks' crap, they'll just create more. Execs will bonus themselves into the financial stratosphere, ride the bank, the investors, and the taxpayers straight into the dirt. So long, suckers...

Preferred stock purchasing give the banks the liquidity they theoretically need to weather the storm, and the govt some actual say in the way they do business. And banks are dying to get the govt out so they can return to their old ways, business, looting, as usual. That's why the kind of financial reforms LK has suggested many times are really, really needed before that happens.

 

[LegendKiller]

I'm not arguing that at all, Vic. What I am saying is that sometimes renegotiation at some level or another serves the investors better than foreclosure. That's particularly true in "mail in the keys" states like California. Just one example-

http://www.nytimes.com/2009/12/13/business/economy/13rates.html?_r=1&th&emc=th

None of this has anything to do with me, personally, either. We own our home free and clear, have for several years. Nor does it matter what the theoretical value might be, because my wife, 10 years younger than myself, has made it obvious that she'll never move again, period, end of discussion. Nor is it likely we'll ever seek to borrow against the principal.

As for LK's references to pass thru costs, anybody who thinks that big banks, big law firms, and big real estate can't or don't find ways to scratch each others' backs at the expense of investors probably isn't thinking like a banker, a lawyer, or a real estate mogul... there are many ways to accomplish that, too numerous to mention.

I also think that the modifications to TARP were wise- if the govt just buys banks' crap, they'll just create more. Execs will bonus themselves into the financial stratosphere, ride the bank, the investors, and the taxpayers straight into the dirt. So long, suckers...

Preferred stock purchasing give the banks the liquidity they theoretically need to weather the storm, and the govt some actual say in the way they do business. And banks are dying to get the govt out so they can return to their old ways, business, looting, as usual. That's why the kind of financial reforms LK has suggested many times are really, really needed before that happens.

Jhnnn, I think you're forgetting something.

I have more than 6 years of securitization experience. Both as an issuer (getting funding) and as a banker (funding deals). During that period I've been involved in some highly structured deals (~1k page documents). I've also seen some blown-up deals, both as an issuer, investor, and banker.

I have Sec'n workout experience, so I have an inkling of what's going on in the mortgage market. The *only* group making money right now are the attorneys. The banks are very limited in what they can do outside of noteholder purview. Sure, they can try to pull some crap, but if an investor sniffed it out it'd result in massive lawsuits.

The risk of liability is far greater than the profits, as putative damages can far exceed compensatory.