A PLAN FOR LENDERS
I was more or less right. The skinny, in detail, also suggests that this plan is more about keeping the lenders whole and servicers from being sued, than offering any real relief.
A COUNTER PROPOSAL
The Dems should come up with a counter-proposal, just as quickly as possible.
It might include some legal relief for borrowers - that will incent the lenders to take their medicine and to let real loan modification go through. If it has the opposite effect, of incenting lenders to hurry-up and foreclose, then the legislation needs to anticipate that, possibly providing the borrower the right to first-refusal on resale, at a post-bankruptcy, FHA re-financed rate or something ... (I know, that sounds mean to the lender. But until we have the data, it seems fairly clear that a lot of loans had outrageous terms and were completely unsuitable).
Among things for a counter-proposal:
Lenders need to be nudged to cut their cord, take their lumps, so the markets can clear ...- Beefed-Up Guidelines
Higher FICO score for eligibility under the "voluntary" guidelines - Cancellation of punitive terms
"Prepayment penalties" on sub-prime loans, 2000-2007, - against the public policy of the United States of America. (Recourse provided for those who already paid these onerous penalties this year, if any.) End the amortization of fees due, in certain cases. - Principle of risk-sharing, not risk-assuming
No FHA "refinance relief" to make inattentive lenders whole - only risk-sharing proposals (not risk-assuming) that help the private markets break "deadlocks" and start to act in their collective interest. Temporarily lower the capital restrictions on the banks and the GSE's. - Collective and Individual Legal Recourse for Borrowers
Possibly money for legal defense, rather than "loan counselors", if a loan was received from certain brokers known to have been quasi fraudulent or fraudulent. Recourse to recoup of fees paid for loans clearly in the "fleeced" category. - Increase 'recovery costs', in some cases
For certain circumstances, the right to pay equivalent rent, rather than lose place to live during a hasty foreclosure. Other ways to make sure that lenders have maximum incentive to adhere to the 'voluntary' guidelines... - Liquidity in the secondary market
The GSE's (Freddie and Fanny) allowed to buy a limited additional amount of conforming loans in the secondary market, at discounted prices (probably auction prices only, so no chance for manipulation). No FHA refinancing at full price to the lenders who should have known better, right? The Government should continue to pressure the private sector to get its "super fund" act together by the end of the year, to handle "jumbo" junk (i.e. non conforming junk). Same rules for an RTC-like structure, if the GSEs don't do it, yes? - A "Comprehensive Responsibility Act"
An investigation timeline (possibly a special investigations unit?), to identify just who provided loans and on what terms (can you hear the documents being shredded, already?). Changing the rules/laws is fine; but, historically, it's hard to end abusive practices until you really start to put people in jail. - An Examination of "Reset Rates"
Floating rates are tied to some variable, often the Prime Rate. That practice might need to end (same for credit cards). It's not clear why lenders ought not be constrained to offer re-sets based only on market-based rates, like traded Fed Funds or traded Treasury bonds plus some spread.
The first ARMs, as best I recall, were about giving people a call option on actual interest rates. Now, the call is being set by the lenders based on 'policy rates', rather than followed from the market/economy ... that just seems like a recipe to write abusive terms, even if they are "capped".
We still haven't been given the numbers, which must be known by now, of how many borrowers fall into each category or are likely to. Under Bush-Paulson, there are only two categories for relief, one easy and one difficult, and a third, non-relief category, for those headed to foreclosure anyway, either because of the history of predatory lending has cause debt to mount or because of being otherwise over-extended.
1. Fleeced, but SalvageableA whopping 55% of borrowers may be able to refinance their
2. Able, But Sold an Unmanageable Set of Loan TermsAn unknown amount of the remaining can make payments at their "introductory rate" but not refinance. A "freeze" - a forbearance - is not a solution that seems to fix the problems of unsavory loan terms, but just a way to spread foreclosures out for the lender. The lenders probably ought to take their medicine, without a foreclosure, most likely.
3. Screwed, One Way or the OtherFor the rest, the Bush-Paulson plan contemplates lenders going ahead and asserting their rights to foreclose, despite all the flowery language of loan counselors. You cannot squeeze blood from a stone, if someone has debt levels as high as reported.
Many of these people probably should go through personal bankruptcy. Nonetheless, various proposals to allow people to pay "rent equivalent" to stay in their homes may make sense, in order not to create a flood of real-estate on the foreclosure market, among other things.
