Mortgage Modifications: Short-Term Solution To Long-Term Problem?

Let me elucidate what is being said here.
Sheila Bair (FDIC): “We hope to keep tens of thousands of troubled borrowers [who would be much better off walking away] in their homes and avoid the negative consequences that foreclosures can have on the broader economy, [and in the process we hope to transfer those negative consequences to the hapless fools participating in this program, and away from the balance sheet of their betters, the banksters and the Wall Street fraudancial companies generally – after all, we know where are bread is buttered.”
Julian Mann: “Bair’s efforts may lower the value of mortgage-bond holdings by delaying foreclosures until home prices are lower, [and therefore in view of the potential balance sheet hit here, the SEC and FASB will need to relax the accounting reporting rules, thereby allowing our managers to continue to convince pension plans and foolish little investors to continue to give us more capital with which we can pay ourselves on average $661K per employee per year. If things look really bad, like if that average per employee payout is reduced to something south of $500K, the Fed in our opinion will need to directly monetize these assets, thereby transferring the wealth of the little people directly into the pockets of us, their betters, through the hidden tax of inflation.]”

Yeah, hopefully tipster’s scenario will come to pass. The problem with this plan is that the FDIC, in its role as receiver, is a fiduciary for the bondholders, unsecured creditors, uninsured depositors, etc. They cannot help out these defaulting borrowers for the public good at the expense of these other interests. If they really go forward with this (and IndyMac is just one of many to follow), the lawyers will be busy — which is good; don’t get me wrong . . .

I didn’t know about this board a year ago, but it sounds like, from fluj’s description, the SS Bears’ predictions last summer ended up being pretty dead on. Somewhat high for some parts of town and somewhat low for others, but pretty darn accurate given how confused things were back then. But I don’t think anyone in their right mind is predicting a 5% gain after inflation in the next few years.

“Spare us the prognositcations. Because here’s a recap.”
Anyone else notice that fluj seems extra feisty these days??
I mean, this thread is not about SF specifically, but indymac lending all over the US (not that *I* could legitimately ever call someone else out for being OT!).
But fluj is setting up a straw man. Most of the bears’ prognostications have been somewhat nuanced. As one of the more vocal bears, I think I’ve been pretty good on my predictions, especially on macro issues like US equities, interest rates, the dollar, and especially Chinese stocks (I have to give myself a pat on the back for that one, and I sincerely hope I saved some SS readers some money there).
For the record, I expect a 30% nominal decline – on average – for SF from the peak. Declines will vary by neighborhood and by broad desirability of property (better neighborhoods less decline on average, bad neighborhoods more/SFHs less decline, 1/1 condos more, etc). But if you randomly picked a large number of properties in 2006/07 (the peak) and you checked their prices in 2-1/2 years, the decline on average will be 30%.
BTW, I never made any prognostocations on SS until December 2007.
Patience, fluj, patience. Rome wasn’t destroyed in a day….

Oh yeah it was OT, Satchel. But predictin’s predictin’! It was you two who made the thread about seeing the future. I just ran with that is all. OK. I have you down for 30%. Diemos 50. Anybody else?
And Tipster,
No kidding neg-am minimum payments don’t generate money. There are plenty of different vehicles out there. Some of them reset after a fixed period to a toxic rate, etc. You know this.

Oh, no, Diemos don’t get me wrong. I know you are a man of your word. You haven’t wavered. I apologize for the all encompassing generalizations. Sometimes they are used for the sake of ease.

Well, if they are going to do this for those seriously in arrears but not for those up to date on their payments, why would anybody keep making those payments?
I’m beginning to feel awfully foolish for paying my own mortgage on time (even though I still have hundreds of thousands of dollars in equity).

I too stand by my prediction early this year when I said that subprime loans would not be a big problem for SF like they would be in the burbs, and that option arms were SF’s problem and that would only start at the very end of this year: it was largely next year’s problem.
And fluj, even if I was wrong, I explained my reasoning and people were free to disagree. It’s a prediction, and like any prediction, a lot of external events can influence it, or it’s timing.
That’s all anyone can expect.
—-
some quotes:
Subprime was not really part of the SF market, so its direct impact will be small. The impact of subprime is indirect: empty nesters in the burbs can’t sell their homes and move to SF (because all the subprime sales have dropped the value of their homes), so it reduces demand a little.
But Alt-A is a much bigger problem, and we’ll start to see its impact late this year and early next year, particularly from option arms.
So SF’s problems, which have been very mild in terms of numbers of foreclosures will really only start to hit at the end of this year.

“SS Bears this summer: We may in fact be at bottom”
I haven’t heard many bears capitulate and say this. I think most of the RE bears feel we are in the early stages, not the later stages. On the other hand I’ve heard a fair amount of non-bears say things like “if this is the worst that it is, then the upturn will be awesome!”
I’ve been on record many times saying I won’t go on record! but my very nuanced very rough estimate (worth $0) would be about 25-30% REAL (not nominal) drop in house values from peak in the city itself and the downturn dragging out until around Dec 2011, unless people continue to default en masse prior to their resets-then possibly a smidge shorter (like Dec 2010). so I have us down for about 3.3 more years of downturn. 2.3 years more if we’re “lucky”.
I feel free to alter the % drop at any time because I have already said it is a piss-poor estimate that I basically made up without much data.
The duration on the other hand I feel more confident about… 3.3 years downturn, THEN the slow grind back upwards (0-2% per year above inflation… no more of this 20% increase per year anomaly that we saw in the 2000’s).
diemos is the nouriel roubini-esque prophet of doom. if what s/he predicts comes to pass (50% drop) then we will have entered one bear of a recession (not impossible). I personally don’t see the 50% drop occurring, because I think if we arpproach this then our govt will debase our currency (think massive inflation, although I think they’ll try to avoid pure hyperinflation), and currency debasement will not be pretty… our house prices will go up, but we will pay $15/gallon in gas. that’s why I speak more in terms of “real” value loss, because it helps to hedge whatever foolishness that our govt will conceive.
but in the end, who can really predict this stuff when a lot of what matters will depend on the PSYCHOLOGY of a very few people? (Hank Paulson, Ben Bernanke, Bush, next President, Pelosi/Reid/Dodd, and the Pres of Banks of England/EU/China/Japan.)

So three years for San Francisco to turn around, starting now. 2011. That means it will be five years for San Diego, right?
Why? The same gross factors are at work. This is where bears do not wish to take mitigating regional forces into consideration.

Wasn’t there a post on SS a while ago that showed that SF had relatively few Alt-A loans? It seems unlikely to me that option ARMs are really going to be a problem for SF. Wouldn’t the option ARMs and the no doc loans kind of go hand in hand? I’m sure it happens but it’s hard to imagine someone who can afford even a median priced SF home with a fully documented loan being stupid enough to pay less than the interest.
Unless of course they put no money down.