Some actual language from the stimulus bill

[TheBreeze]

Interesting little blurb from some blog (it seems like all I ever read nowadays is blogs because that’s where the best information is):

‘Now comes the fun part — how do Fannie and Freddie figure out exactly which geographic areas are “high-cost” and will qualify for new loan limits? What does it mean that the new law applies to “mortgages originated during the period beginning on July 1, 2007, and ending at the end of December 31, 2008” — it’s retroactive? So a loan made last fall of more than $417,000 in an area now designated by Fannie or Freddie as a high-cost area could be purchased by one of those companies and retroactively awarded a lower interest rate? I don’t quite get that.’

http://www.mercextra.com/blogs/realestate/2008/02/07/conforming_loan_limit_increase/

Does the ‘originated’ language mean that the expanded limits won’t apply to refis? Or is a refi considered to be an ‘originated mortgage’? I suppose it would almost have to apply to refis other wise it wouldn’t make sense to make the bill retroactive.

Anyhoo, hopefully either everyone will just walk away from their mortgage and not refi or Fannie/Freddie will quickly run out of capital and not be able to buy/guarantee all the crappy mortgages in the name of the American taxpayer.

[TheBreeze]

This appears to be a link to the relevant section of the bill:

http://thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~c110tibyGb::

There’s an interesting term in that link: “maximum original principal obligation of a mortgage”. Does anyone have a definition for this term? It would be interesting to know whether Fannie can buy/guarantee refis or whether fannie/freddie can only buy/guarantee a mortgage that resulted in a sale from one party to another. It’s probably just wishful thinking on my part, but it would be nice if Fannie/Freddie could not purchase a refi mortgage.

[TheBreeze]

This appears to be a link to the relevant section of the bill:

http://thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~c110tibyGb::

There’s an interesting term in that link: “maximum original principal obligation of a mortgage”. Does anyone have a definition for this term? It would be interesting to know whether Fannie can buy/guarantee refis or whether fannie/freddie can only buy/guarantee a mortgage that resulted in a sale from one party to another. It’s probably just wishful thinking on my part, but it would be nice if Fannie/Freddie could not purchase a refi mortgage.

[TheBreeze]

This appears to be a link to the relevant section of the bill:

http://thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~c110tibyGb::

There’s an interesting term in that link: “maximum original principal obligation of a mortgage”. Does anyone have a definition for this term? It would be interesting to know whether Fannie can buy/guarantee refis or whether fannie/freddie can only buy/guarantee a mortgage that resulted in a sale from one party to another. It’s probably just wishful thinking on my part, but it would be nice if Fannie/Freddie could not purchase a refi mortgage.

[TheBreeze]

This appears to be a link to the relevant section of the bill:

http://thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~c110tibyGb::

There’s an interesting term in that link: “maximum original principal obligation of a mortgage”. Does anyone have a definition for this term? It would be interesting to know whether Fannie can buy/guarantee refis or whether fannie/freddie can only buy/guarantee a mortgage that resulted in a sale from one party to another. It’s probably just wishful thinking on my part, but it would be nice if Fannie/Freddie could not purchase a refi mortgage.

[TheBreeze]

This appears to be a link to the relevant section of the bill:

http://thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~c110tibyGb::

There’s an interesting term in that link: “maximum original principal obligation of a mortgage”. Does anyone have a definition for this term? It would be interesting to know whether Fannie can buy/guarantee refis or whether fannie/freddie can only buy/guarantee a mortgage that resulted in a sale from one party to another. It’s probably just wishful thinking on my part, but it would be nice if Fannie/Freddie could not purchase a refi mortgage.

[TheBreeze]

OK, I did a little more research on this. It looks like Freddie has a no cash-out refinance program up to 95% LTV. Fannie appears to have a cash-out refinance up to 90% LTV.

So it doesn’t look like Fannie or Freddie will be able to buy/guarantee all of these worthless mortgages at bubble prices. It appears they will be able to buy/guarantee all mortgages originated after July 2007. However, for the 2002-June 2007 vintage of crappy mortgage, Fannie/Freddie would only be able to buy/guarantee those under the new limits if the borrower does a refi. The refis appear to have LTV limits so it doesn’t look like the banks will be able to put all those 2002-June 2007 $417,000+ mortages that are now on homes that are way under the original mortgage amount to the taxpayer. Instead, the banks will have to hope the borrower refis. At least that’s how I’m interpreting this bill.

It will be interesting to see if the banks allow borrowers to refi for much less than the mortgage amount just to get the loan off their books. For example, say Crooked Borrower (CB) took out a mortgage in 2005 for $600K. Let’s say the house securing that mortgage is now only worth $500K. Will the bank allow the borrower to refi at $475K (95% of $500K) just to get the loan off their books? It doesn’t seem like they would if the house is really worth $500K. Better to take a short sale at $500K and then sell that to Fannie/Freddie. Of course, with all the crooked appraisers out there, it may be better to do a refi at an inflated value.

With the July 2007 cutoff date, this bill doesn’t look as horrible as I thought it would be. I don’t like it (and I’m sure I’m missing a ton of things in my amateur analysis), but it sure looks like it could have been worse. So what am I missing?

[TheBreeze]

OK, I did a little more research on this. It looks like Freddie has a no cash-out refinance program up to 95% LTV. Fannie appears to have a cash-out refinance up to 90% LTV.

So it doesn’t look like Fannie or Freddie will be able to buy/guarantee all of these worthless mortgages at bubble prices. It appears they will be able to buy/guarantee all mortgages originated after July 2007. However, for the 2002-June 2007 vintage of crappy mortgage, Fannie/Freddie would only be able to buy/guarantee those under the new limits if the borrower does a refi. The refis appear to have LTV limits so it doesn’t look like the banks will be able to put all those 2002-June 2007 $417,000+ mortages that are now on homes that are way under the original mortgage amount to the taxpayer. Instead, the banks will have to hope the borrower refis. At least that’s how I’m interpreting this bill.

It will be interesting to see if the banks allow borrowers to refi for much less than the mortgage amount just to get the loan off their books. For example, say Crooked Borrower (CB) took out a mortgage in 2005 for $600K. Let’s say the house securing that mortgage is now only worth $500K. Will the bank allow the borrower to refi at $475K (95% of $500K) just to get the loan off their books? It doesn’t seem like they would if the house is really worth $500K. Better to take a short sale at $500K and then sell that to Fannie/Freddie. Of course, with all the crooked appraisers out there, it may be better to do a refi at an inflated value.

With the July 2007 cutoff date, this bill doesn’t look as horrible as I thought it would be. I don’t like it (and I’m sure I’m missing a ton of things in my amateur analysis), but it sure looks like it could have been worse. So what am I missing?

[TheBreeze]

OK, I did a little more research on this. It looks like Freddie has a no cash-out refinance program up to 95% LTV. Fannie appears to have a cash-out refinance up to 90% LTV.

So it doesn’t look like Fannie or Freddie will be able to buy/guarantee all of these worthless mortgages at bubble prices. It appears they will be able to buy/guarantee all mortgages originated after July 2007. However, for the 2002-June 2007 vintage of crappy mortgage, Fannie/Freddie would only be able to buy/guarantee those under the new limits if the borrower does a refi. The refis appear to have LTV limits so it doesn’t look like the banks will be able to put all those 2002-June 2007 $417,000+ mortages that are now on homes that are way under the original mortgage amount to the taxpayer. Instead, the banks will have to hope the borrower refis. At least that’s how I’m interpreting this bill.

It will be interesting to see if the banks allow borrowers to refi for much less than the mortgage amount just to get the loan off their books. For example, say Crooked Borrower (CB) took out a mortgage in 2005 for $600K. Let’s say the house securing that mortgage is now only worth $500K. Will the bank allow the borrower to refi at $475K (95% of $500K) just to get the loan off their books? It doesn’t seem like they would if the house is really worth $500K. Better to take a short sale at $500K and then sell that to Fannie/Freddie. Of course, with all the crooked appraisers out there, it may be better to do a refi at an inflated value.

With the July 2007 cutoff date, this bill doesn’t look as horrible as I thought it would be. I don’t like it (and I’m sure I’m missing a ton of things in my amateur analysis), but it sure looks like it could have been worse. So what am I missing?

[TheBreeze]

OK, I did a little more research on this. It looks like Freddie has a no cash-out refinance program up to 95% LTV. Fannie appears to have a cash-out refinance up to 90% LTV.

So it doesn’t look like Fannie or Freddie will be able to buy/guarantee all of these worthless mortgages at bubble prices. It appears they will be able to buy/guarantee all mortgages originated after July 2007. However, for the 2002-June 2007 vintage of crappy mortgage, Fannie/Freddie would only be able to buy/guarantee those under the new limits if the borrower does a refi. The refis appear to have LTV limits so it doesn’t look like the banks will be able to put all those 2002-June 2007 $417,000+ mortages that are now on homes that are way under the original mortgage amount to the taxpayer. Instead, the banks will have to hope the borrower refis. At least that’s how I’m interpreting this bill.

It will be interesting to see if the banks allow borrowers to refi for much less than the mortgage amount just to get the loan off their books. For example, say Crooked Borrower (CB) took out a mortgage in 2005 for $600K. Let’s say the house securing that mortgage is now only worth $500K. Will the bank allow the borrower to refi at $475K (95% of $500K) just to get the loan off their books? It doesn’t seem like they would if the house is really worth $500K. Better to take a short sale at $500K and then sell that to Fannie/Freddie. Of course, with all the crooked appraisers out there, it may be better to do a refi at an inflated value.

With the July 2007 cutoff date, this bill doesn’t look as horrible as I thought it would be. I don’t like it (and I’m sure I’m missing a ton of things in my amateur analysis), but it sure looks like it could have been worse. So what am I missing?

[TheBreeze]

OK, I did a little more research on this. It looks like Freddie has a no cash-out refinance program up to 95% LTV. Fannie appears to have a cash-out refinance up to 90% LTV.

So it doesn’t look like Fannie or Freddie will be able to buy/guarantee all of these worthless mortgages at bubble prices. It appears they will be able to buy/guarantee all mortgages originated after July 2007. However, for the 2002-June 2007 vintage of crappy mortgage, Fannie/Freddie would only be able to buy/guarantee those under the new limits if the borrower does a refi. The refis appear to have LTV limits so it doesn’t look like the banks will be able to put all those 2002-June 2007 $417,000+ mortages that are now on homes that are way under the original mortgage amount to the taxpayer. Instead, the banks will have to hope the borrower refis. At least that’s how I’m interpreting this bill.

It will be interesting to see if the banks allow borrowers to refi for much less than the mortgage amount just to get the loan off their books. For example, say Crooked Borrower (CB) took out a mortgage in 2005 for $600K. Let’s say the house securing that mortgage is now only worth $500K. Will the bank allow the borrower to refi at $475K (95% of $500K) just to get the loan off their books? It doesn’t seem like they would if the house is really worth $500K. Better to take a short sale at $500K and then sell that to Fannie/Freddie. Of course, with all the crooked appraisers out there, it may be better to do a refi at an inflated value.

With the July 2007 cutoff date, this bill doesn’t look as horrible as I thought it would be. I don’t like it (and I’m sure I’m missing a ton of things in my amateur analysis), but it sure looks like it could have been worse. So what am I missing?

[DWCAP]

Breeze,

I am no expert in this. I really have no experience in this, so I can just tell you my opinion. The point of this bill isnt to refi bad morgages from the bubble and put the added risk on the american taxpayer. The point of this is three fold.

1) This is about the apperarence of doing something, this is an election year, and the pols need to be infront of the talking heads telling everyone that they got this one as much as possible.

2) Spurring demand. The idea is that there are alot of people who want to buy, but think price drops are still out there (they are correct) and dont want to catch falling meat cleavers. This is the cattle prod to get them off the fence and buy now, “before they miss the future appreciation.” Remember, CA is expected to see a “mini-boom” according to the NAR as soon as this passes.

3) It is convient that this time line starts at the bursting of the bubble. The worst loans were written in late 2006 early 2007, so dont count. The rest of the truly horrible morgages dont qualify on the basis of income, LTV, etc. This will lower the default rate on the morgages actually purchased by the GSE’s, giving them ammo to make these prices longer term. You didnt think they would actally let the conforming limits fall back to 417000 again did you?

The NAR couldnt get this past congress, unless it is a stimulus to an ailing economy in an election year. However once it is inplace, it is alot easier to “keep the status quo” or “not do anything to hurt the US economy”. And if they get to help the ailing banks and wall streeters by takeing morgages they shouldnt be, that is just improving liquidity right? no harm done…..

[DWCAP]

Breeze,

I am no expert in this. I really have no experience in this, so I can just tell you my opinion. The point of this bill isnt to refi bad morgages from the bubble and put the added risk on the american taxpayer. The point of this is three fold.

1) This is about the apperarence of doing something, this is an election year, and the pols need to be infront of the talking heads telling everyone that they got this one as much as possible.

2) Spurring demand. The idea is that there are alot of people who want to buy, but think price drops are still out there (they are correct) and dont want to catch falling meat cleavers. This is the cattle prod to get them off the fence and buy now, “before they miss the future appreciation.” Remember, CA is expected to see a “mini-boom” according to the NAR as soon as this passes.

3) It is convient that this time line starts at the bursting of the bubble. The worst loans were written in late 2006 early 2007, so dont count. The rest of the truly horrible morgages dont qualify on the basis of income, LTV, etc. This will lower the default rate on the morgages actually purchased by the GSE’s, giving them ammo to make these prices longer term. You didnt think they would actally let the conforming limits fall back to 417000 again did you?

The NAR couldnt get this past congress, unless it is a stimulus to an ailing economy in an election year. However once it is inplace, it is alot easier to “keep the status quo” or “not do anything to hurt the US economy”. And if they get to help the ailing banks and wall streeters by takeing morgages they shouldnt be, that is just improving liquidity right? no harm done…..

[DWCAP]

Breeze,

I am no expert in this. I really have no experience in this, so I can just tell you my opinion. The point of this bill isnt to refi bad morgages from the bubble and put the added risk on the american taxpayer. The point of this is three fold.

1) This is about the apperarence of doing something, this is an election year, and the pols need to be infront of the talking heads telling everyone that they got this one as much as possible.

2) Spurring demand. The idea is that there are alot of people who want to buy, but think price drops are still out there (they are correct) and dont want to catch falling meat cleavers. This is the cattle prod to get them off the fence and buy now, “before they miss the future appreciation.” Remember, CA is expected to see a “mini-boom” according to the NAR as soon as this passes.

3) It is convient that this time line starts at the bursting of the bubble. The worst loans were written in late 2006 early 2007, so dont count. The rest of the truly horrible morgages dont qualify on the basis of income, LTV, etc. This will lower the default rate on the morgages actually purchased by the GSE’s, giving them ammo to make these prices longer term. You didnt think they would actally let the conforming limits fall back to 417000 again did you?

The NAR couldnt get this past congress, unless it is a stimulus to an ailing economy in an election year. However once it is inplace, it is alot easier to “keep the status quo” or “not do anything to hurt the US economy”. And if they get to help the ailing banks and wall streeters by takeing morgages they shouldnt be, that is just improving liquidity right? no harm done…..

[DWCAP]

Breeze,

I am no expert in this. I really have no experience in this, so I can just tell you my opinion. The point of this bill isnt to refi bad morgages from the bubble and put the added risk on the american taxpayer. The point of this is three fold.

1) This is about the apperarence of doing something, this is an election year, and the pols need to be infront of the talking heads telling everyone that they got this one as much as possible.

2) Spurring demand. The idea is that there are alot of people who want to buy, but think price drops are still out there (they are correct) and dont want to catch falling meat cleavers. This is the cattle prod to get them off the fence and buy now, “before they miss the future appreciation.” Remember, CA is expected to see a “mini-boom” according to the NAR as soon as this passes.

3) It is convient that this time line starts at the bursting of the bubble. The worst loans were written in late 2006 early 2007, so dont count. The rest of the truly horrible morgages dont qualify on the basis of income, LTV, etc. This will lower the default rate on the morgages actually purchased by the GSE’s, giving them ammo to make these prices longer term. You didnt think they would actally let the conforming limits fall back to 417000 again did you?

The NAR couldnt get this past congress, unless it is a stimulus to an ailing economy in an election year. However once it is inplace, it is alot easier to “keep the status quo” or “not do anything to hurt the US economy”. And if they get to help the ailing banks and wall streeters by takeing morgages they shouldnt be, that is just improving liquidity right? no harm done…..

[Author]

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