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Monday, September 13, 2010


Freddie Mac: “Rumors” (A New and Improved HAMP Scam?)

Filed under: Bailouts Only Propped Up Zombies, Land Recourse — Tags: fannie and freddie, strategic default — Russ @ 3:23 am

With the HAMP scam reaching the most becalmed horse latitudes of incredibility, dubious rumors have it that Obama’s ready to try again with a new mortgage mod scam, this one centering on the GSEs. This rumor may be just hype, but the issue’s likely to keep coming up, if only because the kleptocrats will feel the need for a fake carrot to accompany whatever sticks they try to use to beat the strategic defaulters. So I figure a short post on the subject is worthwhile.

Whenever you see the system say anything about mortgages, the basic facts to immediately summon to mind are:

1. The system is committed to propping up housing prices and if possible reflating the bubble. This is to prop up the balance sheets of the bankrupt banks, and in their wildest dreams get securitization going again, blowing the same bubble all over again.

2. The system’s worst nightmare is bottom-up debt jubilation. The growing wave of strategic defaults is beginning to comprise a mini-jubilee. So in anything, if we assume they’re trying to stave off strategic defaults we’ll never be wrong.

The only things which could possibly help distressed borrowers are principal writedowns and bankruptcy court cramdowns. But these would constitute the system’s capitulation to reality-based deflation. Therefore, unless they decide to completely overthrow their existing policy, any alleged relief they offer will have to be a scam. The way we can measure this scam is simple: Does the proposal acknowledge lower asset prices of not? If not, it’s a scam meant to string underwater borrowers along, trying to dissuade them from strategically defaulting and to extract more payments out of their doomed position before the inevitable foreclosure.

Thus the HAMP offered temporary mods to those current on the mortgage, dangling the fictitious carrot of a permanent mod while the real goal was simply to get someone who might walk away to instead throw a few more full payments down the rathole.

So what are we hearing about this alleged new policy?

Ongoing rumors of a streamlined GSE induced refi wave began last week with notes from Morgan Stanley and Bank of America. Folks at these firms proposed that borrowers could benefit, resulting in increased consumer spending, if only the GSE’s initiated a streamlined and broad program to allow those of their mortgagees who are current on their mortgages to instantly refinance from their higher rate mortgages to current market rates.

The argument is, since the GSEs own the credit risk anyway, they should change the refinancing requirements and lower or eliminate appraisal requirements and LTV requirements for refinancing. Doing so would, it is suggested, lower the burden on borrower cash flows, as they would benefit by lowering their rates by about 150bp. The pitch was ‘it would be a costless plan with real benefits’. Nice theory, too bad it doesn’t work and isn’t possible.

So the principal remains the same. The borrower’s payment is refinanced, while the taxpayer covers the rest via last December’s GSE Bailout extension. The banksters win, they keep being bailed out and keep having their fraudulent balance sheets propped up. The underwater debtor keeps drowning, but at a slower pace. Over the long run more could perhaps be extracted from him this way than under the HAMP scam. The limp bubble gets some hot air pumped into it. The taxpayer is robbed all the way down the line.

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