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By: Danny_Black Thu, 12 Apr 2012 14:23:27 +0000 Also can I suggest that people actually read his speech rather than the mickey mouse claims about what he is saying. Fundamentally principal reductions would only “make financial sense” to Frannie because for every dollar the GSEs forgive, they get up to 63 cents from the government. This is the key part of the speech.

By: MrRFox Thu, 12 Apr 2012 12:42:58 +0000 “but anyone who now claims principal reductions will save taxpayer any non-trivial amount of money is a balls-out liar.” (DB, above)

Welcome back, from the dark side, Danny. Now, if you can just get past that infatuation with the likes of GS ….

OBTW: Just to reiterate – Second mortgages have to be wiped-out before Firsts take any write-downs at all; anything else is a criminal breach of trust.

By: Danny_Black Thu, 12 Apr 2012 12:00:07 +0000 dedalus, if householder losses were treated like other leveraged speculators they would have been out of their houses years ago.

DeMarco had to respond because in the absence of his response people felt free to simply fabricate, where as now they have to resort to outright lying. We now know the famed “Frannie would save money if it did principal reductions” is only true for a minority of borrowers and only if the goverment makes up most of the difference. When Eissenger broke the [non-]story, one could at least pretend he hadn’t seen all the data – not that this stopped him making that bit up – but anyone who now claims principal reductions will save taxpayer any non-trivial amount of money is a balls-out liar.

By: Sechel Thu, 12 Apr 2012 09:39:52 +0000 Everything about Fed and government policy is disingenuous.
Q.E. does not increase bank lending, it just raises the price of risk assets(kudos to the MMT crowd for getting this) the goal of which is to assist banks on the asset side and give them some profits by front running treasury purchases and getting a free 25 basis points from the Fed in interest.

So what does this have to do with Fannie Mods? Everything. The last several years of mortgage lending going into 2008 was done with 80/20 loans (and I’m including the conforming market where Fannie & Freddie are). The banks own the 2nd liens. My having tax-payers take the hit on the first liens the bank 2nds are put in a better position. This is exactly what occurred in the
mortgage settlement with the banks, only Donovan and Obama won’t admit it.

Demarco is right, the benefit to the tax payer by modifying 1st lien Fannie Mae Loans is minimal. To benefit the loan would need to be in danger of default and savable by reducing the loan balance and payment with the lost money in reduction less than the cost of foreclosure. This is a collar trade if anything. And Demarco is right again, that a mod policy risks strategic defaults by those who would have paid.

So why is the Obama pushing this? First its good politics in an election year from the Democratic base, and second it helps the banks which are good donors.

It’s a shame politicians can’t say what they mean and mean what they say.

By: dedalus Thu, 12 Apr 2012 00:17:29 +0000 Stop torturing yourself. Strategic defaults don’t “scare” Rick Santelli; he merely thinks principal reductions are grossly unfair since it’s relief unavailable to other speculators like the kind he works among.

Why should house buyers’ losses be treated differently than other levered speculators?

And why draw solace from the fact “that we don’t have good data to know precisely how homeowners will react to a principal reduction program at Fannie and Freddie”?

Are you hoping, since the data doesn’t disprove it, that underwater homeowners will continue behaving irrationally when incented to default?

Incent default and you’ll get it, eventually. I’ll betcha.