What the Bail Out Looks Like When It Saves Homeowners.

Is this the way it’s supposed to work? 60

The following fiction is a conversation between a foreclosing homeowner, Mr. Smith, and an agent from the newly created Federal Mortgage Correction Agency, FMC, Agent Brown.

“Mr. Smith, I’m from the Federal Mortgage Correction. I understand that you’re considering foreclosure for your home here. Maybe, if we review your situation, we can offer you an attractive alternative. Let’s see. The property in question is this house, 423 Elm Street, right?” FMC field agent Brown asked.

“That’s right. Ellen and I bought this place in August of 2005. I’m pretty sure that our adjustable rate mortgage can almost be considered a sub-prime at this point.” replied the homeowner, Mr. Smith.

“That’s actually not too important, Mr. Smith. The FMC is totally directed at the future. What we are trying to do is to help you and your family keep this house.” the FMC man answered reassuringly.

“But, aren’t all the banks wrecked after the President’s bail out got shafted by Congress?” Mr. Smith responded, dejectedly.

“No, a good number of the shakier ones went down, but there are a lot of good banks that are still in business. Along with you and your house, part of our job is to get this thing working again. That includes the responsible banks that were able to go through the meltdown and stay open. We can help them, too.”

“In fact, Mr. Smith, if we can get your mortgage repaired here, just about everyone will benefit.” FMC Agent Brown answered.

“Even if the outfit that lent us the money is one of the ones than went belly up?” Mr. Smith asked.

“Let’s talk about your mortgage. You originally financed through Nationwide Mortgage Finance, here in River City, right?” Agent Brown began.

“That’s right, but they went out of business.” Mr. Smith continued.

“I know. But your mortgage wasn’t really in Nationwide, Mr. Smith. It had been ‘bundled’ and sold to a finance firm in Arlington. They packed it up and securitized it and a lot of other mortgages, then sold them to a company called Shelby and Barsh. S and B is out of business, but they weren’t holding your mortgage when they failed. Most of their assets, including your mortgage, were sold on ahead to an investment banking company called Mazzara which was held by a sovereign wealth trust in the UAE. That is where your mortgage is right now.” Agent Brown explained.

“They pretty much told me that when I spoke to the Mortgage Help Line, but they didn’t know the details. Our problem got started when we tried to refinance.” Mr. Smith complained. "We listed it for sale, but that went nowhere."

“Right, Mr. Smith. That is where we come in. I have our records of the history of that first mortgage here. Let’s go over the numbers and make sure that they are accurate.”

“You purchased the home at its appraised value in August of 2005 for $229,500. You made a $14,500 down payment. Your mortgage for the balance of $215,000 ran 48 months at 5.25% until it reset at 6.75% this year. Your mortgage payments at 5.25% were $1966 a month. You have a good record of making those payments until just recently.”

“When your rate reset, you were looking at $2430 a month, and you tried to refinance. The appraisal on your refinance dropped to $188,000 so the best loan you could get was going to short your mortgage payment around $500 a month. I assume that is when you decided to foreclose.” Agent Brown offered, checking his file.

“That’s right. We pretty much went from owning a $229,000 house at 5.25% to owning a $188,000 house with a 6.75% rate on a $215,000 mortgage. We made those payments for four months through the summer, but we just couldn’t keep up. It seems like everything else went up at the same time.” Mr. Smith explained.

“Is the Federal Mortgage Correction going to buy this house for us? I mean, how does that work? Ellen and I have thought about every possible way we could keep this house, but we came up with nothing.” Smith asked.

“Well, Mr. Smith, FMC isn’t going to buy your house for you. That isn’t exactly how the bailout works. What we can do is make it so you can stay in it with a mortgage payment you can afford. To accomplish that we can offer a two pronged solution.

“First, we can take some of the $700 billion, track down whoever holds your mortgage and make them an offer. Naturally, they would like to get all $215,000 that was financed in the first place. That is not going to happen. They are going to get to start talking to us at the current $188,000 appraisal, but from there, they will have to decide what it’s worth to them to not wind up owning your foreclosed house. I would estimate that this mortgage can be purchased from them for around $165,000 or so.”

“After we obtain the house, you and the FMC will have to arrive at a new mortgage agreement. That is the second prong. We never wanted to be in the mortgage business, so we’re already out of our comfort zone. The interest on your new mortgage is going to have to compensate us for our investment and our trouble. In our favor, we can make a little money. In your favor, you can have a solid thirty year mortgage at market rates -- a mortgage with a payment you can live with -- but you’re not going to get the money your mortgage holder lost getting out of your foreclosure. We’re the ones who did the heavy lifting on that account, and we will get that money. Your new mortgage will make it possible for you to pay for the house and settle with us.”

“Our purchasing muscle and the foreclosure threat knocked $23,000 off the appraised value you were trying to refinance. Your new mortgage with us will be for the appraised value of $188,000 and that figure will determine your mortgage payments. The outfit in UAE will have purchased a discounted copy of your $215,000 original mortgage and wound up with $165,000. Compared to worthless, toxic paper, which is what it was before we bought it, they will probably feel like they did the best they could have expected.”

“All the details of this agreement will have to wait until you get through the mortgage application process, but they will probably wind up looking about like what we have discussed. Can we make this deal?” the Federal Mortgage Correction agent asked, smiling.

What in the world could be better than bailing out bankers?

Melt-Down?

The Non-Economic Analysis of What Just Happened.

The endless story of the primary and secondary models? 59

If you are George Bush, you have presented the primary model which argues that the national economy is going to meltdown any moment. You have also produced a secondary model which should propel the primary model to your desired results. The secondary model was the first dismal failure. Its increasing odor has now drawn the primary model into the swamp with it.

I have watched this unfold with the other politics wonks on my favorite web site. Comments and posts which had previously only infrequently amounted to more than a few paragraphs now present multipage quotations about who did what, when they did it and what the results were. The least interesting but probably the most educational are accounts of past legislation, particularly Senator McCain’s endless penchant for deregulation following his rehabilitation to the neo-cons after the Keating Five problem.

Rest easy, dear visitor. This post is all about models not history. Those energized web posters mentioned above can either establish a compelling argument for the culprit in this mess, or at least, wall paper the entire affair with their too-easily-copied-and-pasted quotations. (If you still have an appetite for more of that stuff, visit my favorite after you finish here.

http://www.thomhartmann.com

and on to the forums “Domestic Politics” and “Economics.” It’s all there waiting there for you.)

Now to the models. A quick description might be in order. The primary model of any communication defines the essence of it, the question, the answer etc. The secondary model defines the mechanism of its transmission. In a sense, the primary model is the message; the secondary model is the massage.

Primary models have the foundational quality of being about something. Secondary models, on the other hand, deal entirely with the business of communicating the primary model. Both are critically important aspects of communication’s effectivity as one of the pillars of human affairs.

Concerning the proposition of Mr. Bush’s inflammatory warning about the economy, no one I’ve encountered can confidently say whether or not the threat he describes is real. That state of affairs, for example, decries his track record of secondary models in rather harsh terms. Yes, we know what his initial proposition contains, however, the secondary model he employed to manipulate us into action is, frankly, insulting. As such, it is nothing new.

So, what exactly is this secondary model we are looking at here? That is, of course, the secondary model as we see it, not the “lipstick” version rolling around the House Committee Hearings.

It’s suspiciously intriguing that, like the last one, this one began on 9/11.

The Secondary Model:

The President approaches the nation breathlessly communicating an immense threat. No one has any particular way of knowing any more about the threat than they did the last time he did this Once more, we only seem to know what he and his cabinet appointees are telling us about it. Now come the questions.

Do we trust this man? Has he told us the truth before? Has he always acted sincerely in our interests? Does it turn out that our idea about his judgment could bear the facts that came out later? Like last time?

Did he tell us the truth about the threat? Did he know about it earlier than when he told us about it? Is he telling us everything he knows now? Is he telling us enough so we can make a reasonably good decision about what to do? Or, is it like last time?

The “when” became a rather “pregnant” issue with the last threat he told us about. Did this new threat of his just “pop up out of the blue” without warning? Like last time?

The President has told us that we must act fast, and by “act” he means that we should do what he suggests we do, fast. Like the Patriot Act. Like the Military Force Authorization. Like the pharmaceutical bill. Right away, please! We have to do everything right away or face the dire consequences? Of course. It’s urgent. If we are foolish enough to wait, to think about it, all will be lost!

We can think about it later. This is a lot of our money. We’ll have time to think about it while we are paying it back.

Do we trust this man with even more of our money? Has he done a good job with the money we have given over to him in the past? Has he told us what he bought with it? Who got it? Where it is now?

Then, of course, there are the experts. They are the ones who know all abut this. Why it is urgent. Why it is worth so much. What happens if they don’t get it. Have we had good results with his experts in the past? With Donald Rumsfeld? With Carl Rove? With House Speaker DeLay? Does this President show us his good judgment in picking his experts? Do we think that, somehow, he has started to do better? Did we trust those people? Should we have trusted them? Like last time?

The expert here is Treasury Secretary Paulson. The company that is getting discussed as the next corporate fatality of this mess is called Goldman Sachs. Treasury Secretary Paulson used to be the CEO of Goldman Sachs. He apparently has $630 million dollars worth of Goldman Sachs stock in his personal fortune.

Should we trust him? Has he always done a “good job” in the past? Was he as surprised as the President when this just suddenly happened? Would he have come up with the same plan if Goldman Sachs weren’t tanking with the other investment banks?

All of this is the secondary model. These unfortunate men have started this sales effort with utterly derelict credibility. The taxpayers they are trying to convince are already exhausted, injured and, deservedly, suspicious. They are afraid. The first issue of this secondary model was to frighten them further. Like last time?

Does anybody else worry that this might not be what it is presented to be? I guess we are pretty much done with George Bush’s judgment. That leaves us stranded in an unpleasant place where we have been before, stranded with only our judgment -- our intuition. Since we have no facts, we can only try to do better than we did last time.