Draft Proposal on Financial Rescue Regulation

The House votes on Monday and the Senate apparently will vote on Wednesday.  Here is the “Draft Proposal on Financial Rescue Legislation”

From Office of Speaker Nancy Pelosi — Sept. 28, 2008

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets — including cutting in half the Administration’s initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers’ funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street

Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets

Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes


Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable — protecting American taxpayers and Main Street — and these elements will be included in the legislation

Protection for taxpayers, ensuring THEY share IN ANY profits

Cuts the payment of $700 billion in half and conditions future payments on Congressional review

Gives taxpayers an ownership stake and profit-making opportunities with participating companies

Puts taxpayers first in line to recover assets if participating company fails

Guarantees taxpayers are repaid in full — if other protections have not actually produced a profit

Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

No multi-million dollar golden parachutes

Limits CEO compensation that encourages unnecessary risk-taking

Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate

Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

A strong oversight board appointed by bipartisan leaders of Congress

A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse

An independent Inspector General to monitor the Treasury Secretary’s decisions
Transparency — requiring posting of transactions online — to help jumpstart private sector demand

Meaningful judicial review of the Treasury Secretary’s actions

Help to prevent home foreclosures crippling the American economy

The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year

Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures

Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks.

Brad DeLong has a better idea: nationalization and “it’s the best way to deal with the moral hazard problem.”

Paul Krugman agrees with Brad DeLong but ponders whether nationalization has broad political support.

Nouriel Roubini says the bailout is a “Disgrace and Rip-Off.”

This way of recapitalizing financial institutions is a total rip-off that will mostly benefit – at a huge expense for the US taxpayer – the common and preferred shareholders and even unsecured creditors of the banks. Even the late addition of some warrants that the government will get in exchange of this massive injection of public money is only a cosmetic fig leaf of dubious value as the form and size of such warrants is totally vague and fuzzy.

Seems like the only people who are happy with the draft proposal are the politicians. Seems like both presidential candidates are supporting it.

“This is something that all of us will swallow hard and go forward with,” Republican John McCain said in an interview with the ABC television network. “The option of doing nothing is simply not an acceptable option.”

Democrat Barack Obama said he was likely to back the package. “My inclination is to support it,” he told CBS television’s “Face the Nation.”

Update: Here is the 108 page PDF of the bill, now called the ‘‘Emergency Economic Stabilization Act of 2008’’.

162 thoughts on “Draft Proposal on Financial Rescue Regulation

  1. I doubt any of us can know with 100% certainty what the best solution is. A major source of my apprehension about this bailout is on one side I have Bernanke, Bush, Paulson, Cramer, Kudlow, etc. Guys who have been completely wrong about just about everything to do with the economy for at least the last year and a half. On the other side we have Mish, Nouriel, Krugman, Schiff, etc. Guys who have been correct in what is going on. Why should I trust the guys who have been completely wrong? After a year and a half of epic fail they are now correct?

  2. There is so much upside and downside potential for this. We’ll see where it heads…

    I like the concept of additional liquidity for the banks, and the potential for upside in the securities.

    The issue is going to be how we fund so many other programs, reduce taxes, fight terrorism, etc. etc. etc. while we pay off $700 billion.

    However, with all the forecasting of potential losses, the Resolution Trust – created in a similar environment to solve the Savings and Loan issues – was far less costly than expected. By half.

  3. Shane right on – good video from deniger at ticker forum if you have not seen. I have been calling and calling to try to get this thing stopped. This video is a good read on the situation and would recommend anyone interested in the future to listen to it.

  4. Shane, I have some of the same concerns, but the problem is the people in the first group have yelled fire in the movie theater. The markets are emotional, and will react to that. So you need some “solution” even if it isn’t the right solution.

  5. I think Krugman says he supports it, but will hold his nose, and he seems a bit more certain that the political will to nationalize the banks just isn’t there.

    We do not have the political capital at present to nationalize the healthcare of children.

    We may get there (to both), but only with an enormous shift in attitudes.

    Even the harshest critic would have to say that it is an improvement on what was presented as the “must sign, no changes, on my desk tomorrow” piece of crap that they originally presented.

    Am I delighted? Greatly relieved? Back to business as usual?


    But I will not call my US reps screaming bloody murder like I did last Monday.

    Thanks for keeping this in the RCG spotlight.

  6. Jillayne:

    I’m reading S&L Hell, and in the first few pages there is a quote from Paul Volcker.

    “Governor, I want to tell you one of the first lessons of bank regulation. No matter how bad things look from the outside, when you get inside it always looks worse.”

    Will this bill force (or allow) the regulators to pull back the smelly TARP, and get to analyze the books, the loans, the MBSs, the CDO, and all the stuff that we are told is the root cause of the crisis?

  7. Caution- Bridge Out Ahead!

    Since this bill does little to address the reasons we got into this mess- a lack of transparency, accounting games, a lack of law enforcement, etc,. it can do little to help us get out. It’s a small band-aid on what some are now estimating ( Marc Faber ) to be a $5 trillion wound. We might as well scrap the whole project and get on with the inevitable. All we’ve seen so far is the most expensive example of political posturing this country has ever endured.

  8. The devil is in the details. Sorry this is so long, delete it if you wish, but it’s interesting how the application seems to differ from the reporting: From Ticker Forum

    “Various readers wrote us, and it was confirmed by a detailed report on the call at DealBreaker, that the Treasury Department held a conference call this evening for analysts on the bailout bill. A memo was evidently sent to SIFMA members; others may have been contacted by other means. But the report I got from one person who was on the call was the the questions came from financial services industry members. In other words, this was most assuredly not intended to be a call open to the public at large. If anyone from the media or other member of the great unwashed was listening in, it was by accident.

    This is simply scandalous. To have a group of interested parties get a privileged briefing by government officials on a matter of keen public interest flies in the face of what a democracy is supposed to be about. The proper method would either be a published FAQ on the Treasury website or a briefing with the media included. But why should I be surprised? Favoritism has been a staple of the Bush Administration.

    There is a live blogging recap at DealBreaker. Someone who was on the call is going over his notes and other recaps on the Web and sending me his version, which I hope will add some color. Check back for that update.

    Update: Here are the notes promised. Calculated Risk had put up the conference call number. so some of this is the listener’s notes, some are hoisted from CR. They are admittedly skeletal at points, but track and enhance the live blogging report at DealBreaker. You can download a torrent for the call here, which I intend to do post haste and will amend the post accordingly. I’ve included the long form notes below, but some items jump out:

    1. The tranching is a mere formality, and the Treasury boys as much as said so. They could take the $700 billion max as soon as the bill has passed,

    2. However, they do not plan any action immediately, will wait a couple of weeks. They want to focus their efforts on stronger companies but also made noise about protecting the financial system. This, by the way, is the Japanese convoy system all over.

    3. There seemed to be a lot of tap dancing about what price they will pay for assets and no straight answer about their policy on warrants. They did say that if the amount sold was greater than $100 million, they would take warrants. FYI, the current draft allows them to pay up to the price at which the assets were initially booked (yikes) . I wonder if this is obfuscation, if they have an idea of what the plan to do but will not admit it in any public forum.

    4. As the person who listened to the call stressed, DealBreaker wasn’t clear on the bifurcated process. If you come to the Treasury and you are in trouble, you get reamed. Bear/AIG style treatment, execs probably fired. But if you participate on a voluntary basis, the intent is to make it very user friendly. That is consistent with Paulson’s position during the negotiations.

    5. The exec comp provisions sound like a joke, They DO NOT affect existing contracts, they affect only contracts entered into during the two years of the authority of this program and then affect only golden parachutes. More detail on that point, but I don’t need more detail to get the drift of the gist.

    Further below are the notes, admittedly somewhat cryptic at points, but hopefully helpful. But if you have time, listen to the download. Be warned I may revise and add to the post once I have done so.

    Update 12:30 AM: Have queued up recording of conference call but not yet listened to it. But reader and sometime contributor Lune provides a useful take. Hoisted from comments:

    1) If even the Treasury is saying tranching is a formality, then it really is nothing. Not sure why Dems fought so hard for a fig leaf.

    2) Waiting a couple of weeks because no one has any idea when or where the next bomb will blow up. In other words, all their doomsday scenarios about Black Monday were B.S. They screamed the check had to be written by Monday, but now they’re saying they actually have a few weeks before they need to cash it. Plus, this will allow them to “seek guidance” from GS, JPM, and other selfless public servants about where the money should be funneled.

    3. The tap dancing is because they don’t want it to get out that they’ll be giving a sweetheart deal. The public won’t be following each individual transaction to see exactly what price is being paid. So ridiculously overpriced asset sales can be hidden in the details, and by the time some reporter (or blogger 🙂 combs through and analyzes the transactions, the deed will have been done. But if Paulson makes a statement that assets will be bought at par before the bailout’s even begun, that will be reported and might kill the deal.

    4. In other words, we need to sweeten the pot to encourage banks to come “voluntarily”. Pardon my ignorance, but why the hell should we be begging banks to borrow from us? I thought a bailout should be the absolute last option for a bank. I.e., it should be so unpalatable, so unprofitable for a bank and its executives that they exhaust every private means of survival before coming for their public “reaming”. I wonder if foreclosed homeowners would rate their foreclosure process as “user friendly”.

    5. Of course the exec comp provisions are a joke. Who do you think is going to be hiring all those banking cmte staffers and newly retired congresspeople next year during the inevitable post-election turnover? Do you really think they’re going to vote to limit their salaries? Remember that for lots of people on the Hill (including elected reps), govt work is merely time you spend accumulating credentials in preparation for your real life’s work in the vastly richer private world.

    Taxpayer losses: “golly, let’s just pray to Jesus and hope he’ll make sure that in a few years our country won’t be bankrupt.”

    Oversight: “let’s appoint a committee which will file toothless reports that no one will ever read”.

    I’m glad to see that while much time was spent in Exec comp. and tranching kabuki theater, the real points of protection of taxpayer losses and implementation of new regulation seem to be afterthoughts.

    The notes on the call per our helpful anonymous reader (and former investment banker, it turns out):

    “Draft bill is very positive for both markets and our companies”

    Much explanation of Executive Comp

    Residential and commercial mortgages. But very importantly, it can be any asset.

    Excited about ability to guarantee assets in exchange for a guarantee fee.

    Sought as much authority and as much flexibility as possible.

    Eligibility: as broad participation by institutions as possible. The
    more participation, the more effective it will be. Want banks of all
    sizes or any financial institution that has a meaningful presence in
    the US to be interested and enthusiastic.

    Purpose is to help private sector clean up their balance sheets.

    Highest priority: make sure it works, will attract companies to
    participate. Warrants and exec comp. were very highly negotiated.

    still listening …
    some1 | 09.28.08 – 9:14 pm | #


    Direct purchases from failing institution e.g. Bear Stearns, AIG, F&F: will do the same thing, take maybe 79.9% equity.

    Market mechanism: Congress wanted taxpayer benefit in upside. Sell
    warrants for assets over $100M , but the amount of warrants is still
    TBD. WE want healthy institutions to participate so it should not be
    some1 | 09.28.08 – 9:17 pm | #

    Exec comp.

    Most difficult part of negotiation.

    Direct deal: fire the management, like AIG etc.

    Market mechanism: if sell over $300M into fund, some exec comp limits
    come with it. For 2 years, the firm could not enter into NEW contracts
    including golden parachute, for involuntary departure. And lose some

    We feel really good that we have encouraged healthy institutions to participate, not just bailouts of sick institutions.
    some1 | 09.28.08 – 9:22 pm | #

    Clawback of taxpayer losses:
    1. it’s a long way out, “a lot can happen in that time”
    2. it’s targeted at all financial institutions, not just participants! (that means it will never happen)
    3. would need more congressional and presidential action to implement this.
    some1 | 09.28.08 – 9:24 pm | #

    Oversight (Bob Hoyt)

    1. Financial Stability Oversight Board
    2. General Accountability Office and Comptroller General managing purchase auctions
    3. Special Inspector General
    4. Congressional Oversight Panel
    5. Reporting provisions
    some1 | 09.28.08 – 9:27 pm | #

    Tranching of $700B (I didn’t know that was a limit)

    Entire 700B is appropriated entirely by the act, no further appropriation necessary.

    Tranching: first $250B
    Then Secretary determines that more is needed and tells Congress, another $100B
    Then Secretary determines that more is needed and Congress has 15 days to refuse, the remaining $350B

    No time limits. Can request all the tranches at once, no need for delays.
    some1 | 09.28.08 – 9:29 pm | #

    More about tranching:

    To block the last $350B, Congress has to say no. Then the President can
    veto that. To override that veto, Congress needs 2/3 majority.

    ALL of that must happen within 15 days, otherwise the money goes out.

    Can’t the President wait and veto it with one minute left in the 15 days?

    RTC had to go back to Congress. Kudos for making this program much EASIER!
    some1 | 09.28.08 – 9:32 pm | #

    Price: not a fire-sale price, not an outrageous price, a “fair” price. Firms might get a price higher than their current mark.

    (Congress will be voting on this, with this aspect totally undetermined.)
    some1 | 09.28.08 – 9:35 pm | #

    Not trying to maximize return to the taxpayer, but to provide liquidity to the system as a whole.
    some1 | 09.28.08 – 9:39 pm | #

    They will prefer to help healthy banks become even healthier, as
    opposed to rescuing a failing bank, because the healthy bank is more
    likely to relend into the system.

    They expect that the exec. comp. limits won’t constrain the healthy banks, since they are so light.
    artichoke | 09.28.08 – 9:43 pm | #

    xIt will take several weeks, before any assets can be bought, to hire asset managers and get systems up and running.

    (They’re going to let the weak banks fail, then help the rest.)
    artichoke | 09.28.08 – 9:45 pm | #

    No provision to mandate re-lending.

    Stuff that is still to be determined, will be issued as “guidelines” therefore exempt from discussion and comment period.

    About 800 people on the call.
    some1 (oops;) | 09.28.08 – 9:47 pm | #

    Read more here: http://www.nakedcapitalism.com/2008/09/m….

  9. One thing that seems to be completely missing is dealing with short sales on assets that are taken over. Perhaps it would come under the debt reduction provisions of preventing foreclosures, but that’s not clear.

    This is one area where government might actually do a better job than banks, but that’s only because banks are so bad at it that it would be hard to do any worse. Also, I suspect if it was the government taking over 30 days to respond to a short sale offer, that would somehow become newsworthy.

  10. Also, I really don’t understand the insurance provisions. Seemingly rather than be an alternative, it’s in addition to the bailout funds (although the bailout amount is reduced by the premiums of the insurance???). And they don’t talk of guaranteeing the current value of the assets but 100% of the principle and interest. This is not only on it’s face absurd, but it also seemingly gets around the very weak provisions that prevent the selling of these assets to the government at a profit (those provisions don’t apply to assets obtained through merger, obtained from F&F after their conservatorship, or assets obtained from bankrupt entities).

    This is obviously a complex piece of legislation that purposefully leaves some holes to be filled by regulation, so I’m not confident of my interpretation. But it does cause me to wonder whether what’s occurred in the negotiations has hurt or helped.

  11. Roger why do you think its an improvement? That was my initial reaction but after sleeping on it and thinking about it some more I’m not sure what has actually changed. Maybe a little more oversight, but this is basically the same thing with a few cosmetic changes.

  12. Shane:

    I thought your comments regarding the economists whose predictions were vindicated was spot on!

    I am no genius.

    Even when I carefully read laws passed by legislatures, it is not always clear to me that the words on the page are predictive of regulatory decisons, future market reactions, and just outcomes.

    And I am quite aware that the stated synopsis of achievements in a bill do not necessarily reflect what it actually says.

    While acknowledging the danger of letting “experts” guide my opinion on important matters, sometimes I must.

    In this case, I will follow Paul Krugman.

    He agrees it is not ideal, but probably the best we can do given the political realities, and better than doing nothing.

  13. Lax wrote: “Perhaps not, but Congress certainly has the power to refuse to buy the assets of firms that do not go back and renegotiate the employment contracts of their CEOs. Essentially, Treasury will have a gun to the head of both CEOs and the companies that employ them.”

    Which will just make it harder to deal with the stronger entities, increasing the cost to government.

    I read somewhere that the initial sellers targeted by the government will likely be the stronger companies, not the ones in trouble. I”m not sure what the rational behind that is. But clearly it’s better for the government to deal with a wider group of companies than a smaller group.

  14. This is a WOW moment.

    Glad I am largely out of the stock market.

    I loved this quote from Jerry Large’s column today, attributed to David Korten.

    “It is an illusion that if you are making money you are creating wealth,” he said.

    “Real wealth is created by investing in the human capital of productive people, the social capital of caring relationships and the natural capital of healthy ecosystems.”

  15. So, the House Republicans oppose what is widely seen to be a giveaway to Wall Street, but the Democrats supported it.

    Has anybody checked to see if the Earth’s magnetic field has also reversed?

    Or is this just a political play?

  16. In the big scheme of things, that this bailout failed is a good thing for the United States of America.

    We will have a brutal day here tomorrow morning as our markets open – then again, that depends on whether you are long or short.

    Probably, after mid-noon, our markets will rally after the “perception of fear” has been fully absorbed.

  17. “Or is this just a political play?”

    Perhaps, they have built significant short positions 😉

    Its a win-win situation. No waste of taxpayer funds, and the short positions pay for themselves 🙂

  18. Jillayne:

    Re interest rates

    “It’s quiet here…. too quiet.”

    I cannot remember anytime the stock market moved this much without a corresponding movement in rates.

    The only theory I can offer is weak:

    They all knew it was coming.

    I’d be interested in a stronger theory.

  19. Roger – I agree with you. It is spooky. None of the lenders I work with have moved their rates one bit from this am. Usually we would have had at least one reprice by now.

    I did receive a ratesheet from Vertice (Wachovia) this am. So at least their wholesale arm didn’t get the ax.

  20. Kary:

    Funny, in a scary way.

    I found a more plausible theory, though less fun.

    Normally money would flow from stocks to bonds in a stock decline, for security. It flowed elsewhere.

    Cash, gold?

    Everyone is hawking gold. Banks are hoarding cash.

    MMG issued an alert to lock in the last half hour, which is usually followed quickly with new rate sheet, from trigger happy lenders.

    Largest single day drop (777) in the Dow, but not in percentages, as Fox spins it.

    It will be VERY interesting to see rates tomorrow.

  21. Check out Ron Paul’s testimony from this morning:


    “we excluded the economists for advice. Instead we looked to the people who created the problem.”

    “This has nothing to do with the failure of free markets and capitalism.”

    “This bailout bill is going to destroy the dollar. If you destroy the dollar you destroy a worldwide economy.”

    “If you continue with this, (the bill) it will make things a lot more serious than they are today.”

  22. Let the big banks fail! They made mistakes and are now trying to say that capitalist market can not go on without them.

    That’s simply not true! Plenty of small/medium sized financial companies were prudent and did not make mistakes and should not suffer under current credit crunch. Should the biggies fail, the smaller companies will be ready to take up the void and serve the market and make more money. If government must bail out, give the 700B to small/medium companies who did not make mistakes and let them grow and prosper.

    Capitalist market do not collapse and die, it collapse and rebuild (with new big player). The biggies made enough money and they made mistakes too. They can go away and die, DO NOT believe them that the market is tjeir hostage.

  23. Ardell – Where are you hearing that? The lenders I work with have been deathly still. Judging by the bond market, the rates should have moved down several times today . I think the banks are all holding their collective breath before they move their lending rates. But, it remain to be seen in they can hold their breath long enough before falling over.

  24. Ron Paul is right on about that. Shameful that they excluded the folks who clearly saw this coming, and publicly stuck their necks out to say so.

    Re rates, Ardell, that’s what I would expect in normal circumstances, and I would have expected it to happen already.

    Clearly, these are not normal circumstances, so I’m not ready to predict that outcome.

    Anybody have actual rate sheets reflecting that change?

  25. Roger,

    I don’t get rate sheets as an agent but I needed to pinpoint rate, which as of a little over an hour ago was at 5.75% and dropping. I’m on a need to know basis as I have two clients signed around in the last 12 hours…so we’re saying don’t lock and don’t choose lender yet.

  26. Ardell, I have not seen mortgage interest rates improve since this morning. Also, MANY lenders are offering “float down” options during this turbulent market. I recommend that borrowers check with their LO to see what they can offer in the event rates improve after locking.

  27. Curious.

    MMG is the Mortgage Market Guide, a service that I pay for. It’s primary utility to me is to alert me to changes in the mortage backed securities market, in advance of rate sheet re-pricing for the better or for the worse from lenders.

    On a normal day, they usually beat the trigger happy re-pricers (Provident, HSBC, Flagstar come to mind) by 5 to 30 minutes.

    While not suggesting MMG is infallible, in my experience they get it right by 9 times out of 10.

    Today, they got it surprisingly wrong, as they alerted to lock, pending re-prices for the worse.

    Tuesday, Wednesday, Thursday, who knows.

    So many were saying the bill was gonna pass, done deal. Now, who knows, and in what form?

    BT has probably caught the drift of the stock market correctly, and it will fall further, but will they move the money to bonds, or stuff it under the mattress?

    Will the lenders lower rates in the face of so much uncertainty?

    I don’t know. I recommended locking a deal near completion on Friday, as so much craziness was in the works this weekend. So far, right choice.

    As a side note, in my experience it is better for the borrower to lock, than to float.

    In the event of a big drop in rates, many wholesale lenders will allow some re-negotiation of rates, so long as it does NOT inure to the benefit of the broker. The resulting rate is usually a bit higher than the current market rate, but lower than the starting lock.

    BTW, this isn’t a case of me right, you wrong, I just wanted to share my experiences for the benefit of worried borrowers.

  28. Ardell said: “…so we’re saying don’t lock and don’t choose lender yet.”

    Shouldn’t you leave that kind of advice to your client’s loan officer/broker? At the risk of sounding like Kary K, it’s pretty hard to predict interest rates under normal circumstances, and these are not normal circumstances.

  29. Re #51, that’s what I assumed.

    BTW, with the uncertainty out there, there is about an equal chance of rates being higher or lower tomorrow.

    So to be clear, I’m not saying either way.

    What is truly unusual is that they did NOT quickly change on news on huge importance.

    That’s the elephant in the room. Small room, maybe not the most important room in the house, but it’s where they let me sleep.

    They call it the “cloak room”. Cozy.

  30. laxtosnoco, I took Ardell’s comment to mean, “don’t commit to a loan orignator right now so you can try to get them to promise you the lowest rate on Wednesday”… at least three major lenders that I work with will allow float-downs. And there is more to selecting a mortgage originator than getting that lowest rate…but I can say this until I’m blue in the face. Until someone has been burned by believing they have obtained the lowest rate, they don’t know the value of working with a mortgage professional. Especially during this climate. It’s really no different than shopping for a real estate agent by who will sell you a home for the least commission.

  31. Roger, many LO’s have been grumbling about MMG’s advice. It’s challenging in this market to “get it right”. Many of the factors that used to make it seem easy to predict rates or trends are no longer panning out. Typically when the stock market tanks, mortgage rates improve…you would have thought we would have terrific mortgage rates today…but no improvements yet.

    Will tomorrow morning or Wednesday offer us better rates? We won’t know for certain until then.

  32. 5.875% priced at 1 point (6.029%) for a 30 day closing with 720-739 credit score and a loan amount of $400k/sales price $500k.

    That’s just a quick quote…I’d have to check out all the lenders I work with to see if I could find better…but no real improvement yet.

  33. I recommend borrowers get preapproved with the lender they want to lock with (confirm they can float down rates should rates improve enough).

    Locking in rates takes more information (such as a complete application) in order to do it right. A wrong rate lock/quote could mean that the borrower is not getting the rate they were quoted.

  34. Ardell:

    There are so many “that depends” responses to that statement.

    I never said I was seeing 6%. What I said was, I received no notices AT ALL of mid-day re-pricing following the stock market surprise, and that choosing to lock Friday still looked like the right choice.

    Rates, costs and programs are all over the place.

    There are wholesale lenders with lower rates than others, but you cannot take the majority of borrowers there and get approved.

    I think Rhonda’s posted rates are a tad conservative, but they appear honest.

    There are restrictions regarding advertising interest rates, that have been discussed at RCG, and I would opine that hers are always competitive and safely legal.

    Can they be beat?

    Sure, anyone can claim to beat them, and given the right set of circumstances, I’m sure they could. She could probably beat her own posted rates with the right set of circumstances.

    Anybody’s rate can be beaten, and for that matter, any borrower who is intent on cheating an originator out of making a living will usually get beaten by the pro at the table.

    If I ernd up in a negotiation like that, I usually lay my cards down and move on. I’m not willing to play that kind of bait and switch game to stay in business. I have enough without.

    Other’s choose to stay and play.

    On the rare time that I comment here on a specific rate or loan program, people seem to get the wrong idea, that I am trying to solicit business, so I try to avoid it now.

    For clarity and intention’s sake, I really don’t visit and comment here to troll for business. Oh, I had naively hoped it would result in such an outcome, but it has not.

    I do it for the intelligent conversation on topics of great interest to me, with people who’s opinions I respect (even though I may strongly disagree), and I benefit from the way such give and and take in a public forum clarifies my own thinking and intentions.

    Can’t wait for the first rate sheet of the morning!

  35. Way back there at #25, Roger Ingalls wrote

    So, the House Republicans oppose what is widely seen to be a giveaway to Wall Street, but the Democrats supported it.

    Has anybody checked to see if the Earth’s magnetic field has also reversed?

    Or is this just a political play?

    According to the story in the Times, the voting wasn’t clearly along party lines–possibly along the line of who is facing a tough race this election season, regardless of party.
    This is a very unpopular bill among the general public. Quoting from the article:

    In the House, “no” votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.

    Thirteen of the 19 most vulnerable Republicans and Democrats in an Associated Press analysis voted against the bill despite the pleas from Bush and their party leaders to pass it.

    In all, 65 Republicans joined 140 Democrats in voting “yes,” while 133 Republicans and 95 Democrats voted “no.”

  36. Roger, thanks for comment 59. I do feel I need to be conservative with what I quote for rates…I list as many factors as possible but, as you know there are so many variables to consider for a rate.

    Like you, I don’t play the “rate shop” game. I’m sure our rates are very competitive and I don’t blame consumers for chasing after the lowest rate they think they can find. However, I can spot this person: “[the] borrower who is intent on cheating an originator out of making a living”, and I’m not willing to participate in that game either.

    They are time consuming–often using mortgage professionals to obtain as much information and strategy as possible only to wind up with whoever is willing to do “a deal” for the cheapest. It’s their right to do so, but Mortgage Professionals do not have to participate.

    I’m happy to help people as much as possible however, I have a limit of what I’m willing to do for consumers who are still shopping for their lender. I hope to work with them–but I’m not going to assist in jacking down someone elses estimate.

    For me, I draw the line at preapproval. I’ll write a strong prequal letter for them…but if they want to be preapproved, we have a understanding or commitment. If they’re not sure of my services or commitment to them, then we shouldn’t work together. A true preapproval (my standards) means that my processor and underwriter are now involved with reviewing the borrowers information…I’m certainly not going to use their time for those who are undecided (or chosing to “play the game”).

    There is only so much time in the day. We have to prioritize how we spend it and with whom. Those who are commited to working with me, trusting that in addition to a very competitive rate, they will also have someone looking out for them throughout the transaction, navigating the mortgage process…those folks get my time first. They deserve my attention.

    Over the years, I can tell which agents also “play games”. I only have one right now and I’ve worked with her for YEARS. Her clients are scripted where I’m providing a GFE to keep her in-house LO “honest”. It’s transparent to me (although she and I have never talked about it). If I’m not busy, it’s no problem…I know what it is AND if I was a “gamer” I could low ball–but it’s just not my style. I’d rather have a GFE/closing costs and/or rate higher in the beginning (quoting) and lower at closing. But…if I’m busy, her clients wanting my GFE will wait behind my bona fide clients.

    There are fewer loan originators around these days too. Should the rates pop down, LO’s may be busy with their past clients and new ones who aren’t playing games like “let’s jack down the LO”.

    I’m looking forward to rates tomorrow too. 🙂

  37. Angi:

    I thought about that too as the day progressed. Anyone in a vulnerable race risked a lot voting for the bill. The best way to know is to get a roll call vote from each of their opponents in their disctrict back home (at the same time, to be fair).

    I’ll bet that number would be pretty high against the bill.

    At the end of the day, a politician’s priorities are simple: Get re-elected.

    The Dems did a better job of lashing their members to support the leadership than the Reps did, unless the Rep’s leadership wasn’t really “whipping” the vote.

    We may know in a few days what the “bill” for the “no bill” is.

    Hard to say at the moment.

  38. For those that live in the First District (N. Kitsap, Bainbridge, Kirkland, Edmonds, Snohomish), we can be proud that our Rep didn’t sell us out to the bankers today.

    That was a tough vote for him, but when the chips were in the middle of the table, he came through. He is going to get a lot of blowback from the leadership in the House, so if you don’t mind, please call his office and let him know that he did the right thing. 202-225-6311.

    I’m not trying to be political here. I’m a very conservative Republican singing the praises of a very liberal Democrat. When you are a stand-up guy, you make friends. Jay stood up today.

  39. Eleua, NBC is claiming a prefect correlation in both parties between politicians that have been in a close race in the past 6 years and how they voted. While I’m skeptical of NBC’s claim (in part due to the undefined term “close election”), it’s certainly true for Reichert and McDermott (sp?). I’m not sure how Inslee’s elections have gone.

    That means two things. 1. Politicians in both parties who don’t need to worry about being re-elected (due to gerrymandering) apparently think it’s a good thing. 2. If it gets through the house it’s going to breeze through the Senate because only 1/3rd of them are up for re-election.

    Don’t you just love having your fate determined by these people? 😉

  40. Inslee won his last election by a 2:1 margin. His margins of victory have been getting wider as the years pass.

    He either has a principled stance against this (my hope), or he saw something about his district that made him concerned. Remember, he was thrown out of office in ’94 for voting against the people in a very highly charged issue (gun control). He is one of the few members of the House that knows what it is like to lose an election.

    Nationwide, if the anti-incumbency movement picks up 10 points, the bulk of the House changes.

    The leadership of both parties tend to come from “safe” districts. They don’t want another Tom Foley (the only Speaker ever to lose reelection). The big money flows to the leaders, so that explains why they see the banks as their masters rather than the people.

    I was disgusted with Boehner today, which is something new for me.

    Today was the day that the American people got off their knees, stood on their feet, looked their masters (bankers) in the eye and said, “You do not own me.” Today was a great day to be an American, as we demonstrated that we would rather die on our feet than live on our knees.

  41. Kary, with our local House Reps, I found that those who voted “no” were elected with an average 58.81% of the vote — if you remove Jay Inslee, who won by the largest percentage, the figure is reduced to 55.8%.

    House Reps in favor of this bailout were elected by an average of 68.5% of the vote.

  42. Eleua wrote-

    “Today was the day that the American people got off their knees, stood on their feet, looked their masters (bankers) in the eye and said, “You do not own me.

  43. Looking at 2 different lenders, I’d say that rates worsened this morning by .125%.

    One of those re-priced early AM, after the dead-cat bounce of the market. More will likely follow with a reprice to the worse.

  44. Alan Greenspan had a good idea. Lets redo this bailout but make it so that it is profitable for the tax payer. Lets have no one in these failing companies making more then the highest paid government employee, the president (400k). We should also pay them next to nothing when we buy them. They aren’t worth much when they have gone bankrupt. What is wrong with these financial institutions anyway? Why are they so reckless with their money and then expecting us to pick up the pieces and pay them more when they go under?

  45. I watched an interview yesterday (before the vote) on the Today Show with a spokesperson for NAR.

    She said that the proposed bill does nothing to help the current problem of home owner confidence in investing in housing, bt which I inferred she meant supporting existing housing prices.

    She then switched to discussing HR3221.


    She made it sound like it was just going into effect. In particular, she mentioned the part of the bill that allows lenders to modify the current mortgage by writing a new one at 90% of CURRENT appraised value, and have the bank share in any future equity increase for the amount that was “set aside

  46. On the ABC news tonight, they were going through businesses having a hard time due to the credit crunch. They mentioned Century 21 and Coldwell Banker being two companies that borrow heavily. Apparently the now defunct law firm Heller Erhman (sp?) was such an entity too.

    I’m not familiar with the business models of those two real estate firms. Why would they need to borrow heavily?

  47. from CR:

    “It now looks like the National Debt will be over $10 Trillion tomorrow.

    As of Sept 29th, the debt was $9,945,578,231,981.59

    The surge in the National Debt over the last two weeks has been because of the Supplementary Financing Program (SFP) with the Treasury raising cash for the Fed’s liquidity initiatives (announced a couple of weeks ago).

    Today the Treasury sold $45 billion in 15 day Cash Management Bills that are all for the Fed. Tomorrow the Treasury will sell $50 billion in 42 day bills also for the Fed. And that Wednesday auction should put the National Debt over the $10 Trillion mark (we will know on Thursday).

    For good measure, the Treasury is also selling another $45 billion for the Fed on Thursday.

    The good news is the borrowing rates are pretty low!

    Even though this rapid increase in the debt is being driven by the Fed’s liquidity initiatives (and should be paid back), crossing $10 trillion will still be quite a milestone …”


  48. Ardell, it’s Wednesday morning and your rate source is wrong (so far…things could change). 5.5% would cost about 2.5% in total points (apr 5.792%) this morning based on 720-739 low mid-credit scores, 80% LTV purchase and 400k loan amt.

    Rates should be improved…but so far, they’re not. They are not reacting predictable.

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