My Economic Plan-in a perfect world would be...

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Submitted by moneymaker on December 21, 2012 - 8:25am

Announce that everybody can access their 401K plan with no penalty for 1 year to refi,install solar,pay off credit cards,...Then at the same time signal that the fed would be raising rates in 1 year(if economic conditions permit of course).This way if there was a dip in the market people with money could pick up stocks cheap knowing that inflation is coming in the near future.
Anyone that has a 401k plan and a high interest rate that fails to refi under this plan has whatever is coming due to them.I would actually implement this free 401k plan for 2 years with the option to purchase stocks with the money as well as the above things, what the hell just give everybody unfettered access to their 401k's the second year.
If I were the fed I would signal a .25% raise per quarter after the first year.

Submitted by livinincali on December 21, 2012 - 8:55am.

I fail to see how this would help anything. The only way you would need money to refi is if you're underwater. Why wouldn't you just declare BK if you had a bunch of debts and keep your 401K money. The 401K money is shielded from bankruptcy.

Submitted by scaredyclassic on December 21, 2012 - 8:57am.

I need money to refi to get out of jumbo loan.

Submitted by no_such_reality on December 21, 2012 - 8:58am.

Just keep it simple.

Make the banks market to market on the delinquent loans.

Force them to foreclose or forgive the loan when it's 180 days past due.

Problem solved as we liquidate all the pretenders, including several big bank.

Submitted by SK in CV on December 21, 2012 - 9:19am.

no_such_reality wrote:
Just keep it simple.

Make the banks market to market on the delinquent loans.

Force them to foreclose or forgive the loan when it's 180 days past due.

Problem solved as we liquidate all the pretenders, including several big bank.

What does that mean? "Market to market"?

Submitted by moneymaker on December 21, 2012 - 9:44am.

no_such_reality wrote:
Just keep it simple.

Make the banks market to market on the delinquent loans.

Force them to foreclose or forgive the loan when it's 180 days past due.

Problem solved as we liquidate all the pretenders, including several big bank.

Believe it or not, even though banks are reporting profits I suspect they are not all that well off. Most all of them are rated BBB on their preferred stock offerings. That should tell you something.

Submitted by moneymaker on December 21, 2012 - 9:46am.

SK in CV wrote:
no_such_reality wrote:
Just keep it simple.

Make the banks market to market on the delinquent loans.

Force them to foreclose or forgive the loan when it's 180 days past due.

Problem solved as we liquidate all the pretenders, including several big bank.

What does that mean? "Market to market"?

I think it should have been "mark to market", my probelm with that is you are telling them what to do, with my plan people have choices. Ultimately people's lives are affected by their choices.

Submitted by SK in CV on December 21, 2012 - 9:52am.

moneymaker wrote:
SK in CV wrote:
no_such_reality wrote:
Just keep it simple.

Make the banks market to market on the delinquent loans.

Force them to foreclose or forgive the loan when it's 180 days past due.

Problem solved as we liquidate all the pretenders, including several big bank.

What does that mean? "Market to market"?

I think it should have been "mark to market", my probelm with that is you are telling them what to do, with my plan people have choices. Ultimately people's lives are affected by their choices.

"Mark to market" makes some sense. Thank you. It's something banks have been required to do for decades. Banks not foreclosing on homes is not a drag on the economy. Forcing them to be more efficient won't make the economy any better.

Submitted by moneymaker on December 21, 2012 - 9:56am.

Me personally I would love to do the solar thing. Leasing and/or going into debt just don't make sense to me right now.

Submitted by no_such_reality on December 21, 2012 - 10:09am.

Actually, banks currently aren't marking to market.

Unless that's changed, that was the dirty part of the bail-out. The banks got to pretend that their bad loans were good loans.

Efficiency in the foreclosure process, squeezing out the upside down delinquents will improve the economy, by driving the housing market to a real bottom.

Real bottom, real growth as the economy absorbs the housing then puts housing back into productive use and regains construction.

We do that at the expense of a bunch of artificial paper and people pretending that junk bond equivalent of a mortgage is AAA. And continuing to pretend that the squatter is a home owner.

No sustainable economic growth is possible to be built of the house of cards we have today.

Submitted by SK in CV on December 21, 2012 - 10:47am.

no_such_reality wrote:
Actually, banks currently aren't marking to market.

Unless that's changed, that was the dirty part of the bail-out. The banks got to pretend that their bad loans were good loans.

Efficiency in the foreclosure process, squeezing out the upside down delinquents will improve the economy, by driving the housing market to a real bottom.

Real bottom, real growth as the economy absorbs the housing then puts housing back into productive use and regains construction.

We do that at the expense of a bunch of artificial paper and people pretending that junk bond equivalent of a mortgage is AAA. And continuing to pretend that the squatter is a home owner.

No sustainable economic growth is possible to be built of the house of cards we have today.

Nope. Banks have been required to reclassify debt as soon as it's delinquent. Including taking reasonable impairment charges. That hasn't changed for decades. Keep in mind that the vast majority of mortgages are not owned by banks.

You'll have to explain in detail how driving the housing market to a real bottom (whatever that means) will help things. It's one of those things that has been repeated by idealogues for so long that some take it as absolute fact, despite no evidence nor logic that make it so.

Builders are building. For the first time in 4 (maybe 5?), new home construction is adding to GDP growth.

That whole "house of cards" is another buzz phrase that idealogues like to throw around. The economy is made up of dozens of different segments. Some of them have been built on bubbles in the past, and are sure to be again in the future. Housing was one of them. We went through a steep correction. The aftershock of that correction is still with is. But housing is no longer a "house of cards". Price to rent ratios and inflation adjusted values are back to within historical norms.

Assigning neither credit nor blame for how we got here, the resolution of the mortgage crisis has worked itself out, almost to perfection. The softest landing that could have occurred. It's not over, and a lot could still go wrong. But housing prices are now back to a very delicate normal.

Submitted by livinincali on December 21, 2012 - 2:13pm.

SK in CV wrote:

Nope. Banks have been required to reclassify debt as soon as it's delinquent. Including taking reasonable impairment charges. That hasn't changed for decades. Keep in mind that the vast majority of mortgages are not owned by banks.

This was true until the FASB changes in April of 2009. Now there's a lot more leeway into how you want to treat asset prices. In essence it's easier to classify something as temporary now.

http://www.fasb.org/sbd040209.shtml

Quote:

The Board decided to replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert

It does not have the intent to sell the security; and

It is more likely than not it will not have to sell the security before recovery of its costs basis.

Submitted by desmond on December 21, 2012 - 3:11pm.

"Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined"

http://www.bloomberg.com/news/2012-12-19...

Submitted by enron_by_the_sea on December 21, 2012 - 4:13pm.

Some times people confuse "servicer" and the "bank"

Citibank might be servicing your mortgage which could be held by Fannie Mae. In that hypothetical case, if you default on the loan, the loss largely goes to Fannie Mae. If you are not aware of it, you may think that Citibank is somehow not marking to the market ...

It can even be more complicated. Fannie Mae might have packaged your loan into an MBS that the bond fund in your 401K might be holding. In that case, your bond fund needs to "mark to market" - not Citibank.

Submitted by CA renter on December 21, 2012 - 8:04pm.

How much of the $1.25 trillion in MBS on the Federal Reserve balance sheet is marked to market?

http://www.newyorkfed.org/markets/mbs_fa...

edit: According to the most recent information I could find, it is just below a trillion at the moment, though recent trend changes are up.

http://research.stlouisfed.org/fred2/ser...

http://timeline.stlouisfed.org/index.cfm...

Submitted by SK in CV on December 21, 2012 - 8:46pm.

CA renter wrote:
How much of the $1.25 trillion in MBS on the Federal Reserve balance sheet is marked to market?

http://www.newyorkfed.org/markets/mbs_fa...

edit: According to the most recent information I could find, it is just below a trillion at the moment, though recent trend changes are up.

http://research.stlouisfed.org/fred2/ser...

http://timeline.stlouisfed.org/index.cfm?p=data&rd_id=39

It is, in theory, marked to market, at least to the extent market is below net aggregate cost. There were proposals at one time for Treasury to buy sub-prime debt at face value. I don't recall if any of those proposals were enacted. (Treasury acts as a matter of law. The Fed has the luxury of acting solely based on policy.) The fed has been buying debt at current market values.

Submitted by CA renter on December 21, 2012 - 8:54pm.

While I admire your superior knowledge about accounting and finance, I'm not sure about your claim that the Fed is buying at "real" market values.

Besides, when foreclosures are banned and/or artificially held from the market (keeping supply low), and when interest rates are "artificially" pegged to the floor (propping up the price of assets purchased with credit), can we really be sure of the market values of these securities?

Submitted by SK in CV on December 21, 2012 - 11:14pm.

CA renter wrote:
While I admire your superior knowledge about accounting and finance, I'm not sure about your claim that the Fed is buying at "real" market values.

Besides, when foreclosures are banned and/or artificially held from the market (keeping supply low), and when interest rates are "artificially" pegged to the floor (propping up the price of assets purchased with credit), can we really be sure of the market values of these securities?

Sure we can. Market value is a price at which an asset is exchanged between willing buyer and willing seller, with neither side under any compulsion to act. There was a time when the MBS market was frozen, there were literally no buyers. That is not true today. They are actively traded, so they do have a market value. The Fed may be keeping interest rates artificially low. But within that paradigm, assets have a very real value.

And foreclosures are not banned, nor are they artificially being held from the market.

Submitted by CA renter on December 22, 2012 - 4:17am.

SK in CV wrote:
CA renter wrote:
While I admire your superior knowledge about accounting and finance, I'm not sure about your claim that the Fed is buying at "real" market values.

Besides, when foreclosures are banned and/or artificially held from the market (keeping supply low), and when interest rates are "artificially" pegged to the floor (propping up the price of assets purchased with credit), can we really be sure of the market values of these securities?

Sure we can. Market value is a price at which an asset is exchanged between willing buyer and willing seller, with neither side under any compulsion to act. There was a time when the MBS market was frozen, there were literally no buyers. That is not true today. They are actively traded, so they do have a market value. The Fed may be keeping interest rates artificially low. But within that paradigm, assets have a very real value.

And foreclosures are not banned, nor are they artificially being held from the market.

Regarding the mortgage securities held by the Fed. According to this (see footnote #4), they are being held at current face value -- the remaining principal balance. They are not being "marked to market" if one assumes that not all of these are current or will be paid off.

http://www.federalreserve.gov/releases/h...

--------

Regarding foreclosure bans or moratoriums:

"State lawmakers approved new mortgage protections for California homeowners Monday. The package of bills prevents banks from foreclosing on a mortgage holder who’s applied for a modification."

http://www.scpr.org/news/2012/07/02/3306...

...

Here's how they are liquidating the REOs that they manage foreclosed on. If they never go on the open market (and rumor has it they are selling for well below market value in many cases), then we are not getting accurate pricing data. This is just one program. Banks and other lenders (the Fed?) have been selling to bulk buyers for pennies on the dollar for quite awhile.

http://www.calculatedriskblog.com/2012/0...

........

How foreclosures are not happening as they would have in any other RE market:

"In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’' — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011.

In February 2012, government authorities and five of the nation’s biggest banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.

Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected."

http://topics.nytimes.com/top/reference/...

.........

I've mentioned before that we've been dealing with the BK of a business who owes us money, and have heard multiple cases in BK hearings where people have not been paying *anything* on their mortgages for 4-5 years, and have still not been foreclosed on. We also personally know a couple of people who have not paid in years, and they are not being foreclosed on. Call it whatever you want, but IMHO, there is so much manipulation in the market that we have no idea what the "real" (non-manipulated) inventory levels are, nor what the "real" values of these assets are.

You're right about the definition of market value, but this "market value" has nothing at all to do with the "real value" of these assets when the markets are being manipulated like they are. IMHO, we are nowhere near a recovery -- not in housing, and not in the general economy -- and the more we try to mask over the weaknesses with cheap money and artificially suppressed supply, the worse off we'll be in the long run.

Submitted by SK in CV on December 22, 2012 - 8:29am.

CA renter wrote:
SK in CV wrote:
CA renter wrote:
While I admire your superior knowledge about accounting and finance, I'm not sure about your claim that the Fed is buying at "real" market values.

Besides, when foreclosures are banned and/or artificially held from the market (keeping supply low), and when interest rates are "artificially" pegged to the floor (propping up the price of assets purchased with credit), can we really be sure of the market values of these securities?

Sure we can. Market value is a price at which an asset is exchanged between willing buyer and willing seller, with neither side under any compulsion to act. There was a time when the MBS market was frozen, there were literally no buyers. That is not true today. They are actively traded, so they do have a market value. The Fed may be keeping interest rates artificially low. But within that paradigm, assets have a very real value.

And foreclosures are not banned, nor are they artificially being held from the market.

Regarding the mortgage securities held by the Fed. According to this (see footnote #4), they are being held at current face value -- the remaining principal balance. They are not being "marked to market" if one assumes that not all of these are current or will be paid off.

http://www.federalreserve.gov/releases/h...

--------

Regarding foreclosure bans or moratoriums:

"State lawmakers approved new mortgage protections for California homeowners Monday. The package of bills prevents banks from foreclosing on a mortgage holder who’s applied for a modification."

http://www.scpr.org/news/2012/07/02/3306...

...

Here's how they are liquidating the REOs that they manage foreclosed on. If they never go on the open market (and rumor has it they are selling for well below market value in many cases), then we are not getting accurate pricing data. This is just one program. Banks and other lenders (the Fed?) have been selling to bulk buyers for pennies on the dollar for quite awhile.

http://www.calculatedriskblog.com/2012/0...

........

How foreclosures are not happening as they would have in any other RE market:

"In late 2010, evidenced emerged that the foreclosure process may have been deeply tainted by sloppy recordkeeping, cut corners and possible fraud, epitomized by high-profile cases of “robo-signing’' — cases in which foreclosures took place based on forged or unreviewed documents. More than 40 states attorneys general began investigations into foreclosure abuse, and worries about the legal fallout from the scandal led to a sharp slowdown in the rate of foreclosure filings and of repossessions in 2011.

In February 2012, government authorities and five of the nation’s biggest banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners.

Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out; earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected."

http://topics.nytimes.com/top/reference/...

.........

I've mentioned before that we've been dealing with the BK of a business who owes us money, and have heard multiple cases in BK hearings where people have not been paying *anything* on their mortgages for 4-5 years, and have still not been foreclosed on. We also personally know a couple of people who have not paid in years, and they are not being foreclosed on. Call it whatever you want, but IMHO, there is so much manipulation in the market that we have no idea what the "real" (non-manipulated) inventory levels are, nor what the "real" values of these assets are.

You're right about the definition of market value, but this "market value" has nothing at all to do with the "real value" of these assets when the markets are being manipulated like they are. IMHO, we are nowhere near a recovery -- not in housing, and not in the general economy -- and the more we try to mask over the weaknesses with cheap money and artificially suppressed supply, the worse off we'll be in the long run.

I'm not sure how any of this is relevant to what I said.

Agency guaranteed securities are held at face value. Since the risk is on the part of the agency, not the Fed, carrying them at face is appropriate. Non-agency mortgages are held at current value.

Foreclosures are not being banned, scant evidence of regulatory limitations notwithstanding. There are agreements in place to insure that lenders act in good faith.

The robo-signing fiasco wasn't artificial. It was very real. The only serious limitations on lenders foreclosing efficiently is the incompetency of the lenders themselves. You can validly argue that they've done a crappy job. But they have every legal right to do what they want with their property.

The market exists. The prices being paid are real prices. You can compare current prices to historical, to rents, to interest rates, and come up with all kinds variances from the norms, but there is no alternate reality that provides us with guidelines for "true values". There will always be economic and other factors which effect pricing. Interest rates. Tax policy. Employment. Weather. All of these things "manipulate" the market. But the market tells us what properties are worth.

With all due respect, your opinion on whether we are near or not near a recovery in housing is not the least bit influential. We have very objective measurements available to determine those kinds of things. We don't need opinions. You can speculate as to whether the recovery will continue. On a blog like this, it's probably irresponsible not to speculate. But the recovery is happening.

Submitted by CA renter on December 23, 2012 - 12:54am.

But will the recovery continue if interest rates ever "normalize" or if inventory is released onto the market (by investors who are in RE only because that's the best place at the moment to get some kind of yield, long-time owners who've been waiting for a better time to sell, foreclosures that we finally get after YEARS of deadbeats not making payments, etc.)?

Submitted by scaredyclassic on December 23, 2012 - 6:24am.

Probably.

Submitted by moneymaker on December 23, 2012 - 10:58am.

We just got a letter from recon trust about a release on the deed from a house we bought 3 3/4 years ago. Seems to me they should have sent that like 3 1/2 years ago. Weird, maybe that's part of the robo signing thing.

Submitted by UCGal on December 24, 2012 - 8:15am.

We hear,often that people do not take personal responsibility for their retirement...
I read a while back that the average 50 year old only had $50k saved for retirement.
Now you're proposing a scheme that would let irresponsible people gut their inadequateretirement savings.

Even if your idea were approved you need to account for taxes. Since 401k money is pretax you need to take out extra to pay taxes on it... and depending on what bracket you're in, it could kick you into a higher tax bracket. It will be taxed at your highest rate.

It just seems like a fiscally irresponsible idea. Just my opinion.

Submitted by SK in CV on December 24, 2012 - 8:34am.

UCGal wrote:
We hear,often that people do not take personal responsibility for their retirement...
I read a while back that the average 50 year old only had $50k saved for retirement.
Now you're proposing a scheme that would let irresponsible people gut their inadequateretirement savings.

Even if your idea were approved you need to account for taxes. Since 401k money is pretax you need to take out extra to pay taxes on it... and depending on what bracket you're in, it could kick you into a higher tax bracket. It will be taxed at your highest rate.

It just seems like a fiscally irresponsible idea. Just my opinion.

I agree, and beyond that, other than the vague credit for investing in solar, it does nothing meaningful to help the economy. Paying off debt is not stimulative, whether its home mortgage debt, credit card debt, or student loan debt. At least mildly to the contrary, it would potentially cause a pretty drastic fall in the stock market. The macro-economic benefits escape me.

Submitted by moneymaker on December 25, 2012 - 1:33pm.

SK in CV wrote:
UCGal wrote:
We hear,often that people do not take personal responsibility for their retirement...
I read a while back that the average 50 year old only had $50k saved for retirement.
Now you're proposing a scheme that would let irresponsible people gut their inadequateretirement savings.

Even if your idea were approved you need to account for taxes. Since 401k money is pretax you need to take out extra to pay taxes on it... and depending on what bracket you're in, it could kick you into a higher tax bracket. It will be taxed at your highest rate.
P.S. To UCGAl we use a graduated tax system now so there is no more bracketing, besides I would rather pay taxes now than the insane taxes we will be paying in 20 years.

It just seems like a fiscally irresponsible idea. Just my opinion.

I agree, and beyond that, other than the vague credit for investing in solar, it does nothing meaningful to help the economy. Paying off debt is not stimulative, whether its home mortgage debt, credit card debt, or student loan debt. At least mildly to the contrary, it would potentially cause a pretty drastic fall in the stock market. The macro-economic benefits escape me.

The macro economic benefit would be that I would be producing electricity. More production is what we need to boost our economy. Anything that is economically smart is a good thing to do. I hope if I put in the solar I would still be benefiting from it when I retire in 20 years, so I could think of it as a retirement investment. By the time I retire I think the government will be in such bad shape that they will be means testing whether one deserves to get social security. With my mortgage paid off and my electricty subsidized by my solar I hope to qualify.

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