Nov 3rd 2008 04:30 am Pay No Attention to that Man Behind the Curtain!
Joe Nocera, a financial columnist for the New York Times, two weeks ago busted JP Morgan Chase by revealing that the bank intended to use the $25 billion given to it by the U.S. government not for lending to customers but rather for acquisitions and other stuff. Nocera listened-in to a Chase conference call reported here:
</a http://www.nytimes.com/2008/10/25/business/25nocera.html>
Tough news for Chase, eh? Generally speaking the big banks that accepted $125 billion over the last 10 days don’t intend to lend ANY of it — or didn’t until Nocera’s column hit. His may have been the most valuable — and expensive — piece of financial journalism in history. And as a result Chase is now coming up with a plan to rework 80,000 primarily alt-a mortgages by lowering interest rates, possibly converting some mortgages to fixed rates, or even forgiving some principal. Yeah, right. It’s all described here:
</a http://www.nytimes.com/2008/10/25/business/25nocera.html>
Now we come to the good part. The loans Chase is adjusting are coming primarily from two recent and troubled acquisitions — WAMU (that’s where my mortgage lives) and EMC Mortgage, which was part of Bear Stearns (and is where my mother-in-law’s mortgage lives). To get the spectre of Nocera off its curmudgeonly shoulders, Chase had to announce the workout program this week even though the details aren’t supposed to be ready for another 2-4 weeks. This puts the bank in a very difficult position that it is handling through the simple expedient of….. more lying.
The idea of this program, like the IndyMac and CountryWide programs that preceded it, is to change the terms of troubled loans in order to help homeowners stay in those homes — the idea being in part that foreclosures are more expensive and should be avoided if possible. So these are troubled loans — loans where homeowners have had to have been, at least for awhile, in default. But with only half a program announced, how can we expect mortgage holders to respond? They’ll stop paying, if course, which is exactly what Chase DOESN’T want them to do.
Listen, to be considered for this program, we’re led to expect, homeowners need to be in default. Yet as part of the announcement the bank has strongly suggested homeowners not continue to be in default because that might make them ineligible.
Huh?
You have to have gotten behind on your payments to qualify, but if you get any further behind on those payments, you might then become suddenly UNqualified. It’s as though there is a sweet spot of just enough — but not too much — financial default.
This is hooey and an insult to all involved. If you want to be included it is clear that the best move is to stop paying your mortgage or you’ll never get a chance to participate. And saying that homeowners who haven’t paid their mortgages for 2-3 months are now supposed to somehow find the money just as the economy get WORSE, not better, well that’s crazy and the bank has to know it.
The truth is they intended not to announce anything yet except Nocera interceded (bless him) so now Chase will spread some horse manure on the story in hopes of minimizing the damage. All of which leaves me with the question of where this falls under the Truth in Lending statute?
Posted by cringely / Mortgage Horror Stories
Damien on 22 Dec 2008 at 2:02 am #
This is a bit like the crazy requirements we have here in Australia for being able to use your retirement account (”superannuation”) for mortgage repayments. To get the money (remember, it’s your own money) you have to present the government with a letter from the bank stating that you’re in default on your loan, and that the bank’s next step will be to evict you.
This is just wonderful. Any responsible adult who can manage their finances knows when they are in trouble. But that’s not acceptable to the Australian government: you have to stop making the mortgage payments, and get just one step away from being evicted. THEN the government will let you access a portion of your retirement savings so you can defer the eviction for a short time.
It’s the same principle: you are encouraged to get into default, but no too much (just the right amount). So who enjoys “playing chicken” with the idea of being evicted from their family home?
Wizard Prang on 24 Dec 2008 at 2:03 pm #
“the bank intended to use the $25 billion given to it by the U.S. government not for lending to customers but rather for acquisitions and other stuff”
And this is a surprise HOW???
In related news, PNC ate National City at about the same time as they got their bailout money. I’m sure that it is all just a coincidence.
Apparently market forces only apply to people - if you are a large corporation, Marxism rules!
I blogged on this back in September (http://tinyurl.com/6uehhc)
As for Damien’s comment, the Gov’t is trying to separate those who are in dire need from those who just want to tap their retirement early. Certainly it’s ridiculous - but do you you have a better “means test”?
Mark on 30 Dec 2008 at 2:24 pm #
If the government handed the money to the banks with no strings attached (which was the Paulson Plan) then it would be ludicrous to expect the banks to use it for any particular purpose. Of course they’re going to use it for whatever they see fit, and apparently they think their interests are better served by using the money for acquisitions than for refinancing defaulted loans. They must not think that the defaulting loans pose a serious financial risk to them. It doesn’t seem to matter whether or not they’re correct in that assessment, because they’re “too big to fail”, and if they’re wrong, the government will just bail them out again. Perhaps that’s their plan.
The “window of default” is absurd, and the banks know it. They don’t intend to renegotiate any of those loans. They simply want to make the appearance of renegotiating the loans while the home occupants continue to default on them and be evicted. Eventually the banks must plan to end up owning a whole lot of unoccupied real estate.
It would be easy to feel sorry for the mortgage borrowers here, but let’s not forget that they’re living in houses they never paid for. The banks paid for the houses. The occupants only made a promise to pay them back. Many people are living under the mistaken belief that the houses belong to the borrowers . This is not the case.
The whole situation is absurd from the start. The government is taking money from the people and giving it to banks so that the banks will lend it back to the people at interest. Under any sane definition of the word, that would be considered theft. Apparently this is not so in a society in which one can own a house without ever paying for it, and banks are entitled to your tax dollars without ever having to do anything aside from convince a majority of Congress that the sky is falling.
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