From the Philly Inquirer:
Pa., N.J. moving to aid subprime borrowers
Government help is on the way for some Pennsylvania and New Jersey homeowners facing unaffordable increases in monthly payments on adjustable-rate mortgages – sometimes called “exploding ARMs.”
The board of the New Jersey Housing and Mortgage Finance Agency plans to issue $30 million in taxable bonds and will vote next week on rules for the program, which aims to keep subprime borrowers in their houses.
In Pennsylvania, the Housing Finance Agency is planning a similar refinancing program funded initially with $25 million to $50 million in taxable bonds. It is also developing a “workout” program for loans in which the remaining principal is greater than the appraised value of the house.
“That’s going to be an instance when we have to bring in the lender and get them to bring their price down,” Brian Hudson, executive director of the Pennsylvania Housing Finance Agency, said yesterday.
Hudson is scheduled to be in Philadelphia today for an announcement by state lawmakers of funding for a reserve to cover expected losses in the workout program, which involves riskier loans than the straightforward refinancings of adjustable-rate mortgages into long-term, fixed-rate loans.
State officials across the country are grappling with responses to high rates of mortgage delinquency concentrated among borrowers with poor credit, many of whom got mortgages with a low fixed rate for the first two years, followed by an adjustable rate for the rest of the mortgage. Many borrowers assumed they could refinance.
The share of subprime mortgages in Pennsylvania with payments at least 60 days late was 12.6 percent in February, up from 10.5 percent the year before. In New Jersey, the delinquency rate jumped sharply to 12.5 percent in February from 7.2 percent the year before.
“This program is absolutely necessary,” Susan Bass Levin, commissioner of the New Jersey Department of Community Affairs, said yesterday.
Levin said final details of the New Jersey “Rescue” program were being worked out, but she said the idea was to get borrowers into a 40-year, fixed-rate loan.
She cautioned that “not all borrowers will qualify” and that the program would not lend more than the house is worth.
New Jersey residents making as much as $135,000 annually – depending on the county they live in – are eligible for the refinancing program. Bass said she anticipated offering interest rates of 6.75 percent and 7.50 percent, depending on bond-market pricing.
>Housing Recession Taking its Toll on Toll Brothers
watch http://www.paperdinero.com/BNN.aspx?id=177
CNBC segment recounts the truly ugly preliminary results from Toll Brothers for Q2 2007. Spotlights the $90 – $130 million in additional write-downs for Q2 pushing the current year total exceptionally far beyond Toll’s expectations as well as easily surpassing the full year 2006 total.
Originally aired on: 5/9/2007 on CNBC
Running Time: 2 minutes 12 seconds
stupid idea
Bass said she anticipated offering interest rates of 6.75 percent and 7.50 percent
How is this suppose to help them, if when they have got an ARM the rates for 30 year fixed were at 5.7% or lower???
There is absolutely no logic to the 40-year mortgage as a bailout tool — particularly at the rates Levin is discussing.
The monthly cost per $1K on a 40-year mortgage at 6.75% is $6.04. The monthly cost of $1K on a 30-year loan at 6.25% is $6.16, and I think that’s a rate that’s available in the market right now.
For argument’s sake we’ll say we’re talking about a $300K loan so the extra 10 years saves you a whopping $36 per month. I just can’t see how creating these loans does anything to substantially ease the burden on an overextended borrower.
What idiot investor will buy these bonds? Sorry, stupid me. If they can’t handle their teaser rate how do they handle 6.75-7.50? Stop prolonging the agony. This will just drag out the upcoming recession. Stop the bleeding now. I’m all for a free taxi ride back to their apt.
$30 million? We’re going to save 60 cape cods in jersey?!
woohoo! The government and it’s bright ideas!
Bass levin has always tried to protect housing values and restrict new housing.
NJ can’t balance their own budget and now they’re adding more debt?
The government should not be in the business of subsidizing mortgages/rates….let business do that.
The government should just stick its big nose out of it, and “suggest” to the banks that if they don’t want any extra new laws, the banks should look at refinancing options…not the state.
PLUS…When will people actually take responsibility for their own actions and/or stupidity?
Richie: I dont think $30 million is for repaying the loans. I think they will probably take care of outstanding payments for last few months + refinancing costs.
Just the “idea” of bailing these people out p*sses me off.
These strapped homeowners are equivalent to people who over-indulge in triple-decker cheeseburgers with fries then complain they’re fat. Overspend on their credit cards only to complain later “I can’t pay”. No one shoved food/mortgages down their throats.
Where is common sense these days?
I don’t like the precedent this sets, but in itself, this will do nothing.
This is just pandering to subprime borrowers, but as Richie points out, this is about enough money to refinance 60 cape cods.
$300,000,000 at $300,000 per loan = 100 bailouts
As others have already pointed out, a fully amortizing loan at 6.75% – 7.25% won’t help most distressed borrowers, who qualified based on teaser rates. In truth, there are probably only a handful of distressed borrowers who may really benefit with this…maybe a subprime borrower with a fully amortizing loan that’s adjusting north of 11 or 12%.
What idiot investor will buy these bonds?
Lots of investors. That’s because your tax dollars are going to back up these loans. If the borrower defaults, and many will, NJ (i.e. taxpayers) will serve as the backstop on these bonds.
$30,000,000 divided by $300,000 is 100. If the average loan amount here is $300,000 then they will be helping 100 people. I wouldn’t even call that a bandaid on a gunshot to the head.
No bailout without significant restrictions on new lending. Period.
Why spend so much money trying to bandaid the symptoms and do nothing to remedy the real problem?
jb
does anyone know what rating Moody’s and S&P give the state?
James Bednar Says:
Why spend so much money trying to bandaid the symptoms and do nothing to remedy the real problem?
Agree. They should spend the $30 mil on setting up a department that prevents this from happening in the future. The heart of the problem is that the industry is infested with used car salesmen on a high commissions frenzy.
#2tbw: If you are interested, you can rent out the penthouse condo in River Edge for a mere $6000 a month.
Isn’t Susan Bass Levin the same person who wrote that assinine article against smart growth?
No bailout without significant restrictions on new lending. Period.
I agree 100%. Do you think the Schumer legislation would do the trick?
Why spend so much money trying to bandaid the symptoms and do nothing to remedy the real problem?
Because it’s politically easy to do and scores brownie points among a democratic constituency that believes the government’s role is redistribute wealth. At the same time, since you are actually bailing out lenders, Wall Street can get on board too.
“State officials across the country are grappling with responses to high rates of mortgage delinquency concentrated among borrowers with poor credit…”
public officials responding to a private market problem of idiots lending to people with bad credit? WTF?
bbb: 6k a month?? wow, now that is what I call GREED!
#21 tbw: Well it does offer panoramic views of NYC,and it is in prestigious River Edge.
thatbigwindow: I thought you might like to know that the new addition at Cherry Hill has been named the Newbridge Center, by the BOE/Administration.
That is an odd name for it don’t you think. Why should it be called any thing if it is just an addition to the existing school, interesting.
Meanwhile action on the defeated budget has to be completed by May 24. I will keep you posted if interested.
bbb: “Newbridge Center” seems like a way to make an average school seem more upscale. I am suprised they didn’t take it a step further by naming it “Newbridge Academy” or even using a nicer town name like the “The Franklin Lakes Center”
ooh, thought of another good one:
“The Newbridge Center at Cherry Hill”
Classy!
#24 tbw: Average school system Don’t you know it is one fo the best in Bergen County? What heresey you speak. Are you against the town, are you anti River Edge? How dare you question.
I believe IMHO, that the reasont hey named it that, is becasue of the special ed school which will be hosued within it. The plan as I understand it is that they will charge tuition to students from out of district.
My only question wit that is well what happend if that student form out of district moves into the town, bye bye tuition. Also what happens if the Newbridge Center gets a really good reputation, and other families move into town to utilize it, again bye-bye tuition.
The lehigh valley is going to get crushed with foreclosures, our are saw increases of 80-100% from 2001-2006. Watch as prices go back to pre 2002 levels fast as hell in 2008. Dumb ass commuters are losing their homes left and right. I love it, I am going to buy so many foreclosures for 1/2 of what people paid, why? Because I got CASH on hand, been waiting for years for this!
“If the borrower defaults, and many will, NJ (i.e. taxpayers) will serve as the backstop on these bonds.”
Renting,
Thanks. I read it so fast, I missed this part.
#5 BC Bob,
Yes, they are only prolonging the agony and the inevitable. However, as these quick fixes to people’s mortgage problems don’t deliver as promised, I fear it will only open the wave for more state intervention. Just one failed program after another at our expense, this is NJ of course.
Hello all…longtime lurker here, but this moved me to post:
———————
“It is also developing a “workout” program for loans in which the remaining principal is greater than the appraised value of the house.
“That’s going to be an instance when we have to bring in the lender and get them to bring their price down,” Brian Hudson, executive director of the Pennsylvania Housing Finance Agency, said yesterday.
———————
Is anyone else unnerved by this statement? Frankly, I get nervous when the government forces private companies to alter their prices, because they said so (read: because it is good politically).
Orion Said: Where is common sense these days?
To anser your question please read on:
Subject: Common Sense
Obituary of the late Mr Common Sense
Today we mourn the passing of a beloved old friend, Common Sense, who has been with us for many years. No one knows for sure how old he was, since his birth records were long ago lost in bureaucratic red tape. He will be remembered as having cultivated such valuable lessons as:
Knowing when to come in out of the rain;
Why the early bird gets the worm;
Life isn’t always fair;
and Maybe it was my fault.
Common Sense lived by simple, sound financial policies (don’t spend more than you can earn) and reliable strategies (adults, not children, are in charge).
His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6 -year- old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition.
Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly children. It declined even further when schools were required to get parental consent to administer Tylenol, sun lotion or a band-aid to a student; but could not inform parents when a student became pregnant and wanted to have an abortion.
Common Sense lost the will to live as the Ten Commandments became contraband; churches became businesses; and criminals received better treatment than their victims.
Common Sense took a beating when you couldn’t defend yourself from a burglar in your own home and the burglar could sue you for assault.
Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement. Common Sense was preceded in death by his parents, Truth and Trust; his wife, Discretion; his daughter, Responsibility; and his son, Reason.
He is survived by his 3 stepbrothers; I Know My Rights, Someone Else Is To Blame, and I’m A Victim.
Not many attended his funeral because so few realized he was gone. If you still remember him, pass this on. If not, join the majority and do nothing.