Tag Archives: bail-outs

Obama's 'Underwater' Homeowner Rescue Already Sinking

President Obama is travelling several Western states to talk up a re-vamp of his failed “Home Affordable Refinance Program” (HARP) in another big-government attempt to rescue homeowners who owe more on their houses than the real estate is worth.

Beginning in Nevada, the “We Can’t Wait” campaign is intended to show-up Congress while side-stepping them completely. Congress had passed HARP in an effort to help homeowners with troubled mortgages. The program promised to help about 5 million Americans, but in truth just  822,000 have been assisted – not even 10% of those upside-down on their home loans.

The new rules in “HARP Phase II” will loosen the rules on who can take advantage of the government program and reduce the fees the borrower must pay.

 Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
 Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
 Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
 Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
 Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

In the original program, only those that owed up to 125% more than the property was worth could be accepted into the program. Now, there will be no limit to the amount the borrower may owe in relation to the value of the property.

If Jim, as an example, owed $250,000 on his house and the home was only worth $175,000, he previously would have  been denied a re-finance under the HARP program. Now, as long as Jim’s loan is backed by Fannie Mae/Freddie Mac, he can be approved. This will put the taxpayers on the hook for a quarter million dollars with only 175k in collateral. Who runs a business this way?

The program is also expected to only provide minimal relief. Due to the 20 year maximum term for the refinanced mortgage, monthly payments may only be 20-30 dollars less per month according to an example provided by the Federal Housing Finance Agency (FHFA).

If the borrower chose a 20-year loan term at a rate of 4.25 percent (mortgage rates tend to be less for shorter term mortgages), the monthly payment would be $1238 ($26 less than the borrower currently pays) and the borrower’s loan balance would reach $160,000 in five-and-one-half years

The real purpose of the new program may be even more deserving of investigation. This program doesn’t appear to modify existing loans. Instead, it replaces one loan for another. It’s  a traditional re-finance with one major difference – Fannie and Freddie are letting the banks off the hook for any illegitimate loans they originated as long as they re-fi through this program. David Dayen at FDL puts it succinctly:

So, earlier, I said “what’s not to like.” Here’s what’s not to like. The “reps and warranties” part of this. When you refinance a loan, you’re essentially creating a new mortgage, unlike a loan modification, where you modify the old mortgage. Under the plan, the FHFA will eliminate their ability to force repurchases on these old loans, and they would lower their ability to force repurchases on the new loans created. There will be a “modest fee” associated with relieving these reps and warranties, according to Donovan, which won’t be set until November 15. They will be lower than the current risk-based fees that Fannie and Freddie charge.

What does this mean? A “reps and warranties” case is a case where the loan was originated improperly. When Fannie and Freddie get sold a bad loan like this, they have the right to force it back on the originator. New lenders are reluctant to refinance such loans, because they become liable for the put-back.

What this means is that FHFA will essentially settle on all the loans that get refinanced for a “modest fee,” which we can safely assume will be next to nothing. And we know that a substantial amount of loans, perhaps a majority, were illegally originated during the bubble years. You’re letting the lenders who originated the loans off the hook for that, in exchange for allowing more refis.

FHFA estimates that this program may double the current number of re-finances by the end of 2013. An additional $447 Billion to help perhaps another 882,000 home owners over the next two years?  That’s more than half-a-million dollars per re-finance. Remember, they aren’t giving them half-a-million bucks, that’s just what Obama’s program costs to service 882,000 loans by the FHFA estimate.

“We Can’t Wait” may be yet another attempt to do anything quickly, no matter how ill-conceived it may be. Of some concern is where did the money to fund this come from if Congress didn’t approve it?

At a cost of $447 Billion this is a bank rescue and a move to prop up inflated real-estate prices all under the disguise of helping home owners. This ought to push the Occupy Wall Street crowd right over the edge .. but it won’t – because it came from Democrats.

 

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GM and GE Get In Bed With China

Guess what corporations are getting into bed with the Chinese? General Motors (GM) and General Electric (GE)! Yes, you read that correctly. GM, recipient of $50 billion of taxpayer money, and GE, whose CEO is Jeffery Immelt, good friend of President Barack Obama. GE and GM agreed on a pilot installation of electric vehicle (EV) charging stations in Shanghai, the latest step in GM’s plan to develop infrastructure in China to support sales of its Chevy Volt. GE agreed to buy the extended range EVs for use at its corporate headquarters in Shanghai.

General Motors

GM received a subsidy of $50 billion in 2009 because it was “too big to fail.” In 2010, GM “claimed” that it paid back the government bailout loan in full, with interest, years ahead of schedule. While that statement is true, what GM CEO Ed Whitacre was referencing was the $6.9 billion money received amount, not the $43 billion stock equity position taxpayers were forced to take with the bail-out. But that is the subject of another post.

Under pressure from the Chinese government GM has agreed to provide access to its proprietary electric vehicle technology to its Chinese partner, Shanghai Automotive Industrial Corp. (SAIC). Beijing has pledged that it will do whatever it takes to help the Chinese car industry take the lead in EVs. GM contends the move will help it maintain a lead in the rapid electrification of the industry. A serious concern is that GM may lose control of intellectual property (IP). Protection of IP rights has become a critical concern, with Chinese businesses routinely ignoring trademarks and copyrights on everything from pop music and movies to pharmaceuticals and automotive design.

GM is partnering with China in a 50-50 joint venture with China’s state-run auto industry. And GE will join GM in a related partnership in China. Why, you ask, is GM doing this? As it turns out, GM will receive a $19,300 subsidy per EV from the Chinese government. To get it GM must share its EV technology with the Chinese, as well as produce the EVs in China. The GM China Advanced Technical Center, in Shanghai, is adjacent to GM’s headquarters, and is in a 50-50 partnership with Chinese state-run SAIC to develop and implement the electric technology, probably in the Shanghai GM Chevy Sail, introduced late last year. GM, we also learn, is “selling” Volts to GE for use in China.

GM vice president Stephen J. Girsky told the New York Times, “This is not a political decision today. It’s a business decision.”

General Electric

GE will install a number of charging stations at a government-assigned international EV demonstration zone in Shanghai’s Jiading District and at the GM Headquarters office in the city. GE will build and install
EV charging stations which could be in higher demand if drivers buy EVs. The company estimates the expanding market could bring it up to $500 million in revenue over the next three years. The charging station installations replicate the infrastructure build-up efforts in the U.S. it developed from grants from the Department of Energy. Also, GE Energy announced in August, 2011, a partnership with Hertz Corp. for advancing EVs and charging stations in China.

Ford?

Ford’s CEO, Alan Mulally said that Ford Motor Co. may make electric cars with its partner in China as the auto industry moves toward producing more fuel-efficient vehicles. “As we move to more electrification, you’re going to see more hybrids, plug-in hybrids and all-electric cars,” said Mulally.

The Japanese?

Both Nissan and Toyota have no plans to manufacture existing models (Nissan Leaf and Toyota Prius) in China. Nissan, in China, is jointly developing an electric car with its Chinese partner, Dongfeng Motor. But it has decided not to build its new electric Nissan Leaf in China. Toyota said that it will build and sell in China the current generation of the Prius gasoline-electric hybrid, even though the Prius is not eligible for most Chinese government subsidies because it is not a plug-in vehicle. But Toyota has said that it has no plans to build or sell the plug-in version of the new Prius in China. It would be eligible for Chinese subsidies – but only if Toyota transferred core technologies.

So… the next round of whining you will hear from Democrats and the Obama administration will be about how U.S. EV manufacturers in this country can’t compete because of China’s massive subsidies to their EV industries. And the environmentalists and government subsidy company investors will cry for more U.S. government “investment,” or their Solyndra-like companies will fail and their green jobs will be gone and/or not be permanent.

Are GM and GE putting short term profits ahead of patriotism? When (not if) the Chinese take advantage of our technology and use it to build better war machines, we taxpayers will have to again bail out GM, as well as GE.

But that’s just my opinion.