On Sun, 27 Jul 2008 01:22:01 GMT, "BillM"
wrote:

OK, just saw on the news that congress has
passed a bill to help out the mortgage "crisis".
Numbers were "300 billion dollars to help
400,000 families avoid foreclosure".
My long division is a little rusty, but I come
up with $750,000 per family. WTF?????

================
Just calling something a homeowner rescue does not make it one.

The entire bill was 694 pages long, and contained huge amounts of
authorizations, enabling clauses, etc. that were never mentioned
in the press, and it is doubtful if anyone understands the entire
bill, or has even read it. To see what was in this abortion
click on
http://www.americanbanker.com/media/...SenateBill.pdf
Google on "Coconut Road" or "Farm Bill" to see how huge bills
that no one reads [or was alloed to read] has been abused.

Be reminded that there are at least three "official" groups that
need rescuing, in addition to the management of Freddie and
Fannie, there a
(1) The GSE [government sponsored enterprise] stockholders
(2) The GSE bondholders and derivative counter parties
(3) The people that bought those big houses with option ARMS that
are in the process of resetting.
There is a fourth "shadow" group, the banks and other mortgage
lenders [e.g. GMAC/Diatech/ResCap] that have enormous mortgage
exposure without any government guarantees. While separate, this
group is critical in that their financial structure is both a
"house of cards" and has been allowed, even encouraged, to become
so enmeshed with the overall economy that these are too big to
fail in the aggregate, and so interconnected that independence is
simply a book keeping dodge, and its all aggregate. For example,
a GMAC default would bring down both GMC and Cerrebus, and
Cerrebus is the owner of Chrysler. The automotive industry is
highly dependent on consumer credit, and major default would cut
off almost all consumer credit, bringing the entire US automotive
industry, domestic and foreign owned to a standstill.

Also be reminded that the wise guys in finance, after unloading
their GSE shares on the pension funds, mutual funds, and
individual investors, have been shorting Freddie and Fannie,
driving the stocks down to single digits.

Your arithmetic appears to be correct in that the house/senate
compromise, which would go into effect when a temporary increase
in the conforming loan limit expires at year end, would put the
loan limits at $625,500 or 115% of the median house cost,
whichever was lower.

Traditionally, it has been considered "safe" for a couple to
service a mortgage equal to about 2-1/2 times their annual
combined incomes. In round numbers the median family income in
the United States is 50,000 per year, thus a 625,000 $ mortgage
is equal to 12.5 times annual median income. Ignoring the
insurance and property tax escrow payments, this is a sure
receipt for disaster, and is simply digging the hole deeper for
all of us. Additionally it was assumed that the borrowers had
put some money down, indicating they could manage money, because
they had accumulated the down payment [traditionally 20%].

Working the other way, a median family income of 50,000$ per year
indicates that the safe mortgage load with escrow payments would
be a maximum of 2.5 X 50,000 or 125,000$. The median asking
price for, or existing mortgages on, houses in almost all
metro/urban markets is far above this.

The scam will work like this.

(1) Treasury and the Fed will inject enough hot air, and the SEC
will impose short sale restrictions to stabilize the GSE stock
prices, and to a degree cause a "dead cat bounce" at least until
after the elections. FWIW there never was any type of government
guarantee on the stock prices.

(2) Government has made it official that the CDOs are fully
backed by the taxpayer. The much larger problem IMNSHO is the
huge derivative exposure, which is unknown at this time.

(3) If a homeowner is upside down with a option ARM that is about
to reset, the GSE will issue a new guaranteed mortgage, with the
condition that the loan holder accept a "short sale" or write
down to current real estate values, and issue a fixed rate
mortgage. The interest rate and other conditions are still
unclear, and it may well be that we are simply providing more
rope to people that should have never bought a house [or such an
expensive house] and who in many cases have lost their jobs
because of the economic downturn. If the owner sells [much]
later at a profit, they are supposed to split the profit with the
government, but it is unknown if this will be adjusted for
inflation. The lenders get guaranteed mortgages, and transform
bad debt into assets. Most of the money involved was conjured
up by fractional banking, so even with the paper loss, in real
terms, the lenders still make out like a bandit, and can deduct
the "bad debts" and "write downs" from later taxable income. As
even these adjusted values will far exceed the 125,000$ median
safe mortgage, little has been accomplished for the homeowner
except to buy them a little time.

FWIW -- an analysis of many of the Sub-primes, alt-As, and Option
ARMs indicate that the majority of borrowers in trouble [c.70%]
were not naïve, first time, minority home buyers, but people who
assumed that they would be able to refinance with fixed rate
mortgages before the ARMs reset, or who were planning on
relocating. The popping of the bubble and credit crunch
prevented this.

The management of the GSEs also require "rescue" because any time
a business failure of this magnitude occurs, it is SOP for the
FBI/IRS/SEC to immediately begin preliminary forensic
investigations into possible criminal activity. There appears to
have been very significant accounting irregularities at both
entities, with huge management bonuses being paid for illusionary
accomplishment. Even more of a problem is the massive political
contributions the GSEs and the management have made to all
members of congress that have supported them, and the
considerable organizational animus against any opponent of the
status quo. Even a cursory investigation would uncover/document
the many money ties between members of congress and the GSEs.

It is highly unlikely that 300 billion $ will be enough for the
current "rescue," and considerably more taxpayer money will be
required to cover these debts/costs. No foundational changes
have been made such as prohibiting any institutional or
individual political contributions or campaign activity,
derivative activity/speculation has not been prohibited, and
jumbo mortgages, far beyond 2-1/2 times median family income, are
still allowed. In short this is another bubble waiting to be
inflated and popped.


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).