Is MS’ QE2 refi for all on the way or is Ben blowing sunshine up our axxes?

So is QE2, (the quantitative easing not the ship), on the way or is Ben blowing sunshine and/or smoke up our axxes again?

CaculatedRisk:

From Fed Chairman Ben Bernanke: Challenges for the Economy and State Governments

On the economy:

While the support to economic activity from stimulative fiscal policies and firms’ restocking of their inventories will diminish over time, rising demand from households and businesses should help sustain growth. In particular, in the household sector, growth in real consumer spending seems likely to pick up in coming quarters from its recent modest pace, supported by gains in income and improving credit conditions. In the business sector, investment in equipment and software has been increasing rapidly, in part as a result of the deferral of capital outlays during the downturn and the need of many businesses to replace aging equipment….

UHHH come again? Exsqueeze me? Increased consumer INCOME???? consumer spending?? Have you SEEN the savings rate and the PCE?

Memo to Ben: Wishin’ and hopin’ and thinkin’ and prayin’ is NOT an economic strategy! Give us Growth or tell the SOOPERGENIUSES in the WH to get the hell out of the way!

Ben continues~(…) To be sure, notable restraints on the recovery persist. The housing market has remained weak, with the overhang of vacant or foreclosed houses weighing on home prices and new construction. Similarly, poor economic fundamentals and tight credit are holding back investment in nonresidential structures, such as office buildings, hotels, and shopping malls.

Importantly, the slow recovery in the labor market and the attendant uncertainty about job prospects are weighing on household confidence and spending. After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, an improvement but still a pace insufficient to reduce the unemployment rate materially. In all likelihood, significant time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months….

Why  yes!!!, that pesky LACK OF FRAKKIN JOBS is holding us back, just a WEE bit, mighty white of Ben to notice, pardon the pun, my days in the Bronx…

Let’s hope QE2 the MS way is coming (see excerpts and linky below), BTW guess who suggested this 1 pg refi for all??? JOHN MCCAIN IN 2008. yep.

The ONLY WAY IN HELL Ben’s forecast for ‘increased consumer spending and income!!!’ will materialize is if plans are in the works or about to be to launch the MS QE2 plan in which all Americans paying on time get an ‘instant 1 pg refi’ drop in their mortgages to market rates (which, following another buying binge by Fed would be 2.99% let’s say) in CONJUNCTION with cutting principle on the defaultees (this way the foreclosures will stop and the prices will stop dropping in housing) with the new rates for all! the larger group who pay on time wont be so pixxed since they get theirs too…

From the MS PDF-If it were possible to inject a significant amount of stimulus into the US household sector, and this stimulus had zero impact on the budget deficit, did not require an exit strategy, did not distort the markets, and took effect almost immediately, wouldn’t it seem like a slam dunk?
Such an option actually exists in the form of a change to
mortgage refinancing requirements. The Fed and
market forces have pushed mortgage rates to historic
lows, yet many homeowners are unable to take
advantage because they are blocked from refinancing.
This problem could be addressed if the Government
merely recognized its existing guarantee on the principal
value of a large part of the mortgage market – the
mortgages that are backed by Fannie, Freddie and
Ginnie – and acted to streamline the refi process.
There are 37 million mortgages outstanding whose
principal value is backed by the Federal government.
When these homeowners apply for a refinancing, the
application is subject to a standard underwriting process
that involves an LTV test (requiring a property appraisal),
an analysis of the borrower’s FICO score, and income
verification.
We estimate a potential average rate reduction of 125 bp on 50% of the outstanding volume of agency-backed mortgages. In the aggregate, the savings amounts to $46 billion per year. That’s more than the cost of the latest extension of unemployment benefits and more than taxpayers saved under the Make Work Pay tax
credits in the 2009 fiscal stimulus legislation.
The bottom line is that market conditions have created a
potential costless windfall that is not being used. There
is no need for a case-by-case analysis of a borrower’s
credit quality when the principal value of the mortgage is
already backed by the government.

…How Many Borrowers Could Be Impacted?
As seen in Exhibit 3, roughly half of all US households have a
mortgage. Of these 55 million households, 37 million have
mortgages whose principal value is already guaranteed by the
Federal government. Yet, when these homeowners apply for a
refinancing, the application is subject to a standard
underwriting process that involves an LTV test (requiring a
property appraisal), an analysis of the borrower’s FICO score,
and income verification. Obviously, the drop in home prices

during the past few years means that many borrowers will notmeet the LTV requirement – especially since there has been a significant tightening in the appraisal process according to press reports. Indeed, our housing analyst Oliver Chang estimates that more than one-third of all agency-backed mortgages outstanding now have an LTV above 80% (see Exhibit 2). Looking at the principal value of these mortgages, the proportion is even greater (a little above 40% of the total) because an outsized share are located in California, where property values are higher than the national average. There are probably an additional 10% or so of borrowers who don’t qualify for refinancing because of job loss or a low FICO score.
Thus, we believe that perhaps 50% of the outstanding principal value of agency mortgages may not be refi-able at present. As seen in Exhibit 4, this estimate is broadly consistent with actual versus predicted prepay9(ment speeds that currently prevail in the mortgage market. (go read the entire paper and how they propose this be addressed, seems a win/win to me)

but if they do not plan to do this then he is either totally disconnected or full of shxt and lying to us, neither is good…

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August 2, 2010. Tags: , , , , , , , , , , , , , , . Economy, Finance, Foreclosures, Housing, Politics, Popular Culture, TARP, Taxes, Unemployment Statistics, Wall St.

2 Comments

  1. Del replied:

    Am I understanding this right?

    How is this going to work when many people won’t qualify for a ReFi? Are you suggesting that everyone would qualify since the government already backs the note?

  2. ginaswo replied:

    Morgan Stanley is suggesting that yes. FHA already has this process, the Streamline Refi. The taxpayers are already on the hook guaranteeing these loans MS’ analyst suggests, and I personally agree, that allowing those current mortgagors to refi to market rates without the FICO, LTV ratio being an issue, would boost consumer spending- a stimulus with NO OUTLAY.

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