Tag Archives: mortgage crisis

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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More Government Home Mortgage Refinancing Schemes Coming Soon

There are currently two bills in Congress that have been proposed to supposedly “fix” the current mortgage crisis. The very same mortgage crisis that was caused by big government intervention into the mortgage business sector in the first place by the wizards of Congress.  Millions of honest, hard-working people are struggling to stay in their homes today. They now owe way more than their house is worth, thanks largely to Congress mandating the ignorant “everyone has a right to own a home”  programs which forced lenders to hand out loans to high risk /unqualified borrowers in the first place.   Fannie Mae and Freddie Mac first started gobbling up sub-prime securities due to mandates they received from Congress in 2000, and the Clinton-era Housing and Urban Development Department, ( (HUD)  which attempted to make housing “more affordable to minorities and disadvantaged people by using their vast (soon to be taxpayer- funded) resources to purchase massive amounts of sub-prime mortgage securities. In 2000, Fannie and Freddie held less than 2.5% of the mortgage market, then it expanded to hold over 40% by 2004. Today? Fannie and Freddie now guarantee more than 70% of all home loans in America. As foreclosures hit record highs almost every month during the past two years,  Fannie and Freddie are now bleeding your tax dollars at an ever-increasing rate and the government wants to once again take action to stem the foreclosure crisis. (While also covering up the fact that their meddling in the mortgage business caused this crisis to begin with)

President Obama refused to deal with the Fannie and Freddie tax-payer funded black hole with his “supposed”  Dodd-Frank Wall-Street Reform and Consumer Protection Act last year. Now the Democrats and Barack Obama are bashing the Bank of America for charging $5 a month debit card fees, which were needed to stem the bleeding caused by the Dodd-Frank bill in the first place. This is exactly why people are fed up with big government control and intervention into every aspect of our free market system today. The Dodd-Frank bill is set up to allow the U.S. Government to close all small banks in the U.S. through their fake “stress tests” and then create a central government-run banking system.  Check the proof that backs up that statement from ABC News Business Blog:

“The Federal Deposit Insurance Corporation (FDIC) announced its 73rd bank closure this year, pacing well behind the gargantuan number of 157 total bank closures in 2010.” (emphasis mine)

When the Federal Government closes all the small independent banks in America, who in the hell do you think will control the entire banking system then? This is exactly why Newt Gingrich constantly repeats the statement that we need to repeal the Dodd-Frank bill on day one of the new GOP President’s administration in 2013.  Government control of our entire banking system is a clear and present danger to our free market system.

When we add the Federal Housing Authority to Fannie and Freddy’s percentage of all home loan mortgages we see direct government control of 90% of all U.S. mortgages! Now that the damage and wealth redistribution has been done by government intervention into the mortgage industry, we see that Fannie and Freddie are backing off of  Jumbo housing loans in an article from The Real Deal Online;

In its bid to reduce taxpayers’ $141 billion exposure to housing mortgage risk and spur private investment in the sector, Fannie Mae, Freddie Mac and the Federal Housing Administration stopped backing jumbo housing loans. According to the Wall Street Journal, that move could put the housing market, and specifically housing prices, in a further funk.

Government meddling has the housing and mortgage industry in a shambles, so now they want to make the banks pay the price, which we see here:

The three entities ( Fannie, Freddy and the FHA) backed about 90 percent of home mortgages in recent months, thanks to the expanded loan limits. But the limits were restricted this month, meaning more buyers will have to turn to private banks to secure mortgages. Those loans are harder, and more expensive, to obtain. Banks would need to issue 56 percent more jumbo mortgages to fill the gap.

So what are the wizards of Congress to do to fix the very mess they, themselves have created in the mortgage debacle in America? Why, let’s propose two more government mortgage refinancing bills in Congress shall we? Current  House resolution 363 is titled The Housing Opportunity and Equity Act. Current Senate bill 170 is titled the Helping Responsible Homeowners Act.  Two different bills with two very different agendas, from savingtoinvest.com:

Housing Opportunity and Mortgage Equity Act (H.R. 363)  • Allows for refinancing of loans owned or guaranteed by Fannie Mae and Freddie Mac.
• Both current and delinquent borrowers are eligible.
• Prohibits appraisal to establish current loan to value.
• Limits interest rate and fees borrower may be charged on new loan.
Helping Responsible Homeowners Act
(S. 170)
 • Allows for refinancing of loans owned or guaranteed by Fannie Mae and Freddie Mac.
• Borrower must be current on existing mortgage.
• Removes limit on current loan to value.
• Limits interest rate and fees (including loan level price adjustments and delivery fees) borrower may be charged on new loan.

Look at HR 363 above. They want to help BOTH those who are current on mortgage payments and those who are delinquent. (what about proven ability to actually pay for the loan there?) They also want to prohibit appraisals on the homes being refinanced! Who, in their right mind would ever refinance a home loan without getting an appraisal to make sure it hasn’t been destroyed or burnt to the ground beforehand?   The Senate bill would seem to be a more responsible way  to help folks who are under water in their home loans today, but in today’s “compromising” Congress we can bet that the final bill will continue down the path towards the “everyone deserves a home whether they can actually pay for it or not” ignorant Liberal ideology. President Obama was scheduled to give another speech about what he plans to do about the mortgage crisis last week, but that didn’t happen to my knowledge.

 Pay attention as Congress tries to fast-track some form of Mortgage Refinancing plan once again in the coming weeks. Just remember the fact that, while the wizards of Congress are up in DC making wonderful speeches about their “newest fix” for the mortgage crisis plans, the fact remains that they are the ones who created the crisis in the first place.   2012 just can’t get here fast enough!

Mortgage Banking Giant Agrees to Pay Homeowner $30,000 as Part of Settlement Agreement

With pending counterclaims of fraud and predatory lending, Deutsche Bank agrees to pay defendant $30,000 and issue a letter to correct credit to settle a New Jersey foreclosure action

PHILADELPHIA, June 14, 2011 — Shaffer & Gaier, LLC announced today that its client has agreed to a $30,000 cash settlement with Deutsche Bank in an action filed by the banking giant to foreclosure on a New Jersey investment property worth approximately $65,000.00. As part of the terms of the settlement, the homeowner is entitled to retain the property and collect rental income for an expected period of 15-18 months, free of mortgage payment obligations, after which time he will walk away from the underwater property. The bank has also agreed to issue a letter to correct credit to the defendant, which will be distributed to the three credit bureaus to repair any credit blemishes caused by the suit.

Deutsche Bank, the plaintiff in this case, was acting as the trustee on behalf of Morgan Stanley ABS Capital Inc., Trust 2006-NC5, Mortgage-Pass Through Certificates, Series 2006-NC5, the mortgage pool that claimed to own the defendants loan. While the bank was able to produce an assignment dated and recorded prior to the filing of the foreclosure complaint, one of the most commonly raised foreclosure defenses, defense counsel was able to challenge the bank on several other issues of standing, but ultimately it was the counterclaims of fraud and predatory lending that drove the settlement.

Although predatory lending and fraud claims are common allegations in the foreclosure defense arena, foreclosing banks are usually successful at overcoming the charges with a “holder in due course” defense, hiding behind a securitization process that serves as smoke and mirrors for the true parties to a mortgage transaction. Michael Gaier, partner at the Philadelphia-based law firm of Shaffer & Gaier, LLC, with the help of his partner Michael Shaffer, and a team of mortgage experts, paralegals and associates, has dedicated the last two years of his life to crafting a legal argument that has survived summary judgment motions, overcome protective orders to depose high-level banking executives and gained nine dismissals or settlements in the last 10 weeks alone. “I’m especially pleased with the outcome of this case,” said Mr. Gaier. “This was not the most compelling story of our cases. It was an investment property that was purchased with a limited down payment and has been earning income for the last two years. The issue is that my client never should have been approved for this loan in the first place. The lenders grossly inflated his income on the application, and then hid that from him, and disclosed a rate and payment vastly different from what he ended up with at the closing table and pressured him to close with the threat of forfeiting a deposit. Bottom line is fraud is fraud. I anticipate there will be many more settlements going forward.”

 

Desperate Strokes for Union Folks: Collapse J.P.Morgan, Create Housing Chaos.

Desperate Strokes for Union Folks;  Unions turn to trying to use mortgage holders to fight for power and disruption, just like they used teachers, firemen and policemen in Madison, Wisconsin.

SEUI operative/anarchist and career rabble-rouser Stephen Lerner was exposed recently in theblaze.com article, in trying to force the collapse and disruption of everything from banks to wall street to government, by calling on home mortgage holders to wage a de-facto strike by refusing to pay their mortgages and staying in their homes during the current mortgage crisis. Make no mistake folks, this is an act of domestic terrorism in a desperate move  by Union operatives to hide the fact that the public sector Unions are bankrupting States across America. Mr. Lerner can be heard in the following audio clip trying to champion the recent Madison Union thuggery as some sort of success model. My question to him would be, just what did you accomplish in Madison, other than exposing Union thuggery and hypocrisy?

The answer to that question, is absolutely nothing, other than proving yourselves to be nasty hypocrites with no respect for true Democracy in America.  Collective Bargaining  and bullying of states coffers to buy Democratic votes and enrich yourselves is a thing of the past in Wisconsin, and soon to be in the rest of the states that want to balance their budgets and restore fiscal sanity.  Listen to the following tape of Mr. Lerner’s plans that reveals the true modus operandi, or method of operation, of  Union operatives today, as it is quite telling and oh-so-informative:

Take note that Mr. Lerner is also on record as to making several visits to the Whitehouse recently. Isn’t that interesting ?

The Union’s outrageous salary, extravagant pension and medical plans have been exposed across the nation today, and now the Unions have to try to effect some sort of damage control, so they are trying to recruit home mortgage holders to do their dirty work here. For those of you reading this that are thinking of falling for this ploy, I have to ask you how many mortgage restructuring plans and other help for mortgage holders to stay in their homes are already available today? Plenty. For those of you who were unqualified to own a home in the first place, yet got loans knowing damn well you couldn’t afford them in the first place due to any one of the numerous Fannie and Freddie everyone deserves a house whether they can afford it or not schemes, I say tough ! Get out and get an apartment, or increase your income so you can afford to pay the mortgage payments, period. This is America, where when you want something,  you get out and work for it, not ask the government to give it to you at the expense of the taxpayers. Clear enough?

Update 3/28/11 Rep. Jason Cheffetz has written a letter to the DOJ Chief Holder demanding an investigation here. While the average informed, concerned citizen figures Holder will refuse to take a serious look into Lerner’s attempt at Economic Terrorism through innocent mortgage holders, there is an interesting CC ( for carbon copy) at the bottom of this letter.

cc:  The Honorable Darrell Issa, Chairman
cc:  The Honorable Elijah E. Cummings, Ranking Minority Member
Maybe the House Oversight Committee will investigate this and further expose the agenda here. Also, many people are reporting that Lerner is an Ex-SEIU executive, yet when Glenn Beck called  Lerner’s number at the SEIU, it was still intact and said he was on some sort of temporary leave. This could be a ploy to try to distance himself from the SEIU because of their reputation of bullying and thuggery. They need to make him appear to be nothing more than a concerned citizen while he tries to convince innocent mortgage holders to crash banks and wall street, and further destroy a fragile housing market.  This plan looks like it has been in the works for awhile over at SEIU, and for those who doubt their continued  involvement see this. They have been trying to paint banks as predators for several years, all because of their own agenda that pushed financial institutions to make loans to unqualified people.  Creat a mortgage crisis, then be there to help people to fix it. (supposedly)
The bottom line here is that SEIU and other Unions are desperately trying to use innocent mortgage holders to go on a de-facto strike and not pay their mortgages to wreak havoc on the banking industry and Wall Street. Remember the saying, “Never let a good crisis go to waste ?”  This is how Lerner and company hope to take advantage of the current fragile housing  and mortgage industry that has virtually been on the brink of total collapse ever since Activist-laden groups like Acorn and Fannie & Freddie have been telling us that everyone deserves a house, whether they can actually afford it or not. This Lerner terrorism attempt is just a continuation of the long-standing plan to bankrupt America, and collapsing the mortgage and banking industry is just one part of that plan.
Update Via The Blaze: When I wrote that Lerner saying he was no longer with SEIU was a ploy to distance his plot from them, turns out it was right on the money.

Wade Rathke’s Startling Admission: ‘Economic Terrorism’ Engineer Stephen Lerner Is Still on SEIU Payroll

Lerner has not been “fired” by SEIU as they report. He was placed on paid leave last fall to think through his contribution to the union, but was certainly present at the recent international executive board meeting.

Administration Says Its Saving Homes, Oversight Report Says Otherwise

The Congressional Oversight Panel published a report on October 9th assessing the effectiveness of “foreclosure mitigation efforts” for the previous six months.  Many in the media are focusing on how the administration’s foreclosure efforts are failing.  Just reading the executive summary, I was just as troubled by who these efforts are failing.  The first paragraph grabs the attention with, “The combination of federal efforts to combat the financial crisis coupled with mortgage assistance programs makes the taxpayer the ultimate guarantor of a large portion of home mortgages“.  Congratulations, even though you and I knew better than to get into real-estate investing during an obvious bubble.. the government forced us into it and we’re about to take a bath.

On a positive note, the executive summary does say that it is likely that the benefits will eventually outweigh the costs to the taxpayer.  The initiative that is expected to bring about these benefits is Making Homes Affordable (MHA) which is made up of two programs – the Home Affordable Refinance Program (HARP) and Home Affordable Modification Program (HAMP).  HARP focuses on homeowners that are in-good-standing on their home loans but the mortgages are valued higher than the actual value of the home.  HAMP focuses on those that can no-longer afford their mortgages and keeping them out of foreclosure.

HARP reconfigures the loans into stable, affordable loans and has performed almost 96,000 mortgage reconfigurations or refinances.  It is difficult to prove a negative, just as with the “jobs saved or created” angle the administration takes on the stimulus plan.  Here we have another.  Did we actually prevent any foreclosures or just guarantee a more-favorable loan for people that bought too much house?  The report does not even try to compute how many homes loans were saved or prevented from being bad.  Probably because it can’t be done.

HAMP subsidizes the mortgage payments of soon-to-be-foreclosed debtors with taxpayer dollars.  This mortgage modification program reconfigured 1,711 mortgages and put another 362,348 other borrowers into a 3-month trial program.  The U.S. Treasury expects that it will spend almost $43 billion of the $50 billion TARP funds for mortgage modification.  This amount would support about two-and-a-half million loan modifications.  Unfortunately, current estimates are for closer to 12 million foreclosures will occur which means that, “the remaining losses will be massive”.

The report stresses three main reason why these favored programs of the Obama administration may not succeed.  Size, Scope and permanence.

First, the scope of the program will limit it from helping the most-at-risk mortgages.  The eligibility requirements will not allow adjustable rate mortgages or interest-only loans to be subsidized by taxpayer money.  HAMP is also not designed to help with non-payment of mortgages due to unemployment – the main reason for many home-losses in these economic times.  The whole program is built around fixing subprime mortgages, and even the report states that it’s so “six-month-ago”.  Nothing in this bill deals with the actual mortgage crisis that Americans are dealing with.

After scope, the report explains how the size of the program is also insufficient.  Foreclosure starts are coming twice as fast as HAMP modifications and many homeowners that would qualify for the program are losing their houses while waiting for the program to catch up.  This is similar to the cash-for-clunkers issue of too many promises for too little capability.  The car dealers could decide to stop accepting deals under that program to avoid cash-flow disasters.  These homeowner’s only choice is to lose their homes.  Even once the program catches up, it will only be able to service 50% of the Treasuries own estimate for home foreclosures.

Lastly, the Congressional Oversight Panel’s report addresses permanence.  Will these modifications actually result in the prevention of a home loss?  Only a small portion of the modifications done under HAMP have resulted in permanent stable mortgages.  The panel suggests that after massive infusions of taxpayer capital, these loans default anyway.  The report states that real results of these programs will be, “that foreclosure is delayed, not avoided”.

There is some discussion of negative-equity.  If the housing market continues depressing or deflating, more people may consider walking away from their mortgages as there would be no inherent value in the home.  These wealth-lost scenarios could increase foreclosures well-beyond even the pessimistic estimates of the U.S. Treasury.  If this is added into what the report calls “payment reset shock”, due to high loan-to-value adjustable loans, it’s obvious the government has no-chance at making any real dent in the real-estate crisis.

What the report doesn’t consider is the massive de-leveraging that is occurring in the American economy.  In the Conservative Daily News article entitled, “Going Galt Without Realizing“, it is apparent that between the government’s willingness to create money for these mortgage-subsidization programs and American’s lack of willingness to continue borrowing to consume, our fractional reserve systems could add another last straw.  Bank reserves will dwindle as fewer and fewer Americans borrow for homes and autos either because they can’t (due to recent foreclosure or a barely-affordable mortgage) or because this crisis has caused a change-in-behavior towards reduced indebtedness.

Whether we look back at cash-for-clunkers or at this initiative, it becomes obvious that the administration is unable to judge the size, scope, permanence or effectiveness of the programs it supports.

Rebuilding a House of Cards

Many of us have done it.  We’ve gathered a few decks of cards, built it up as high as we could, then watched it fall to the ground.  Of course, we would then re-build just a little higher only to have it also collapse due to its unsupportable architecture.  The only difference being that the second, larger card house, made for a much larger mess when it collapsed.

In 2009, the government is rebuilding the poorly-supported house-of-cards that caused the current recession, and of course, building it bigger.

By over-extending loans to those that could not afford them at housing prices that were unrealistic, the government put the entire economy at-risk.  In order to even come close to servicing the risky loans the government regulators forced upon bank, they had to re-package them into complicated mortgage-backed securities.

These risky loans actually only achieved one thing – creating a bubble in the housing market.  The prices of houses became artificially inflated due to unsupportable demand.  When all those loans defaulted, the financial institutions that held the notes also collapsed.  Then, a correction started to occur.  A naturally-occurring oscillation in the market, but the government could not let that happen.  Bring on… bubble part 2: going for broke.

In a post on Hot Air we see that in August, we watched as sales of existing homes drop by 2.7%.  Experts were expecting an increase.  Due to the fact that 30% of all home sales this year were by first-time home buyers, the National Association of Realtors has begun a campaign designed to influence congress to put more taxpayer subsidies into the housing market.  They correctly believe that once the $8,000-$15,000 tax credit disappears, so will the buyers.  But by stopping it, they are only delaying and magnifying the inevitable – the true correction of the market.  Those subsidies basically inflate the market by the value of the subsidy.  When the subsidy goes, those houses suddenly correct to their actual value – the government creates another wave of people who will be upside-down in their mortgages.

We can already see what happens when the government issues its short-term subsidy/stimulus programs.  Cash for clunkers artificially increased durable goods manufacturing in July.  August tells an entirely different story.  The manufacturing sector is no correcting longer and deeper than it might have if the government had just stayed out.  The 2.4% reduction in durable goods orders is right after the 4.8% increase due to the governments car program.

The FDIC is already holding dangerously small reserves and is considering borrowing from taxpayers to survive the bank bailouts that are already occurring.  The new round of defaults that are incoming will force that action.  More liquidity will be needed in the economy, more money will get “created”, and inflation will result.

In short, we have more vulnerable home owners with upside-down mortgages, a declining manufacturing sector, rising unemployment, an FDIC teetering on the brink, and the knowledge that at some point the subsidies must end or hyper-inflation will take hold.

If we put all of this together, it’s easy to see that we are rebuilding the same house of cards that got us here.  This time we’ve decided to build it higher, in the middle of a storm, with flimsy cards.  Prepare to pick-up the mess.

Adjustible loan disaster looming for California

Members of Congress, the President, and anyone else with an opinion is still blaming the recession on greedy corporations.  This article isn’t about rehashing the debate, but… what about the greedy government elitists?  What about us?

The government needs us to borrow more to feed the partial-reserve economy system we have.  To get us to borrow more, they need us buying cars and houses, and not the cheap ones.  ACORN was out rioting against banks and threatening bankers to force them to give loans to people that could not afford them… ever.  Barney Franks fought against controls in Fannie Mae and Freddie Mac that would have prevented many of the bad loans that greedy wall street corporations then had no choice but to repackage, resell and pray.  God never answered.

The government has done everything it could to keep home values at ridiculous prices and had failed.  Bubble: Part Two, has been setup by the Obama administration and Franks.  Once all the liquidity they are creating has its effect, inflation will follow.  Next will be interest rates that will make the 80’s look like a picnic.

Inflation is hard enough, but what about all those homeowners  that have adjustable loans, on property that is now mortgaged at 125% of actual house value, and they’ve been making minimum payments.  Once the interest rates skyrocket and those ARMs reset… their payments could increase by up to 75% – they will have to simply walk away and leave the bank holding the bag.

According to the most-recent “Negative Equity Data Report” from First American Core Logic, California had 43,000 home owners recently slide into negative equity positions (the house is worth less than the mortgage).  Overall, California has 723,000 properties in a “severe negative equity position” (a.k.a. in real trouble).  Nearly one-third of all mortgages in California are under-water.

18% of interest-only loans are currently 60-days and Californian banks will be stretched to cover loses of that magnitude.  There are those that argue that the ARM catastrophe isn’t that bad and that it will only affect high-end states like California and Florida.  Unfortunately, when those golden and sunshine state banks fail in record numbers…wait for it…  the FDIC is already running out of money [link].

The FDIC will be awarded larger and larger lines of credit to cover the bank failures.  That credit comes from the treasury which gets its money from – the Fed.  Of course the Fed gets money from thin air – aka “printing it”.  Interest rates will go ever higher and now middle-value loans start getting affected.

The recession is not over, and it wasn’t caused by some CEO’s greed.  It was caused by the greed of the average citizen doing what their government wanted them to do – borrow more than they could afford to pay back.  That way, we could look just like them.