We TOLD you this was coming, early last August.
A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.
The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.
To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.
“We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted.
Yah. So in order to prevent the 'wrong impression,' you can damn well count on seeing a few well-placed stories of evictions, homelessness, yada yada yada, in the next few months. (See below for the first of many upcoming examples.)
BofA, who owns Countryside, just figured out that they could lose their proverbial butt unless the Federal taxpayer bails them out.
If lawmakers and the Bush administration agreed to this step, it could be on a scale similar to the government’s $200 billion bailout of the savings and loan industry in the 1990s. The arguments against a bailout are powerful. It would mostly benefit banks and Wall Street firms that earned huge fees by packaging trillions of dollars in risky mortgages, often without documenting the incomes of borrowers and often turning a blind eye to clear fraud by borrowers or mortgage brokers
No kidding. Really??
Right or wrong, the arguments for rescuing homeowners are likely to be blurred with arguments for rescuing home prices. At that point, industry executives are likely to argue that what is good for Bank of America is good for the rest of America.
Much, much more at the link above.
Now for the "sad ending" stories which will become a drumbeat.
Countrywide Financial, the nation's largest mortgage lender, suspended the home equity lines of 122,000 customers last month after reviewing their property values and outstanding loan balances. The company, like others, has an internal automated appraisal system that tracks values.
If you think it's just a co-incidence that Countrywide Financial (owned by Bank of America) is named in this article, you're not old enough to read the blogs.
USAA Federal Savings Bank froze or reduced credit lines for 15,000 of its customers, including Corazzi, and will not reconsider its decisions until "real estate values improve substantially," the company said in a statement.Bank of America is starting to do the same and is contacting some borrowers, said Terry Francisco, a bank spokesman
Get out your hanky, folks:
Maggie DelGallo did not realize that when she took out a home equity line a few years ago on her home in Loudoun County. Her lender recently froze the line.
DelGallo said she does not think she is in dire straits. "It's more like a huge disappointment," she said. "I have this line of credit attached to my home that's useless."
But Ms. Corazzi is the "clincher"
Corazzi initially used her line to consolidate debt. She and her husband took out the credit line in October because they thought her job was in jeopardy. It was. In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job. Given the slowdown in the industry, Corazzi has collected only one paycheck since then.
Her husband, Ron, sells large-format copiers and printers to builders, and his salary alone cannot support them and their four children, ages 4 to 8. By the time their lender called, the couple had $45,000 remaining unused on the credit line.
Ron Corazzi is now looking for a second job, and his wife is hoping to pick up work as a substitute teacher. Meanwhile, they are trying to open a new home equity line elsewhere, but chances are slim given the change in Nancy Corazzi's job status and the drop in their home's value. Five months ago, the Ellicott City house was appraised at $560,000; the lender says it is now worth $469,100.
Hard cases, bad laws, and more taxpayer money. Just like New Orleans, but MUCH bigger.
And when those US bonds are floated to pay for all this--do you REALLY think the price of oil and steel will go down as measured in USD?
More pointed: do you REALLY think that bank Presidents' salaries, options, and bonuses will drop by (say) 50%? 75%? Think that the Chairman of Bank of America will sell his house, cars, and Guccis to repent?
HT: Calculated Risk (Both stories)
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