Vegas, Re-fi's, and Obama

warning: potentially NSFW language below...

Vegas Rex writes a blog about all things Las Vegas from the perspective of a Vegas local - and insider.   He's funny, irreverent, and most importantly, he knows what he's talking about when it comes to Vegas.  While I've been bearish on MGM's imminent City Center for some time, thinking that the additional supply it creates would crush the city, Rex has been a big City Center bull - until lately.  (The bull case for CityCenter is that it will result in a bump in tourism for the ailing city.  The bear case is that it's a zero sum game (mostly) and that City Center will just eat up demand from other existing properties.)

Rex writes about the soon to be opened City Center casino hotel: Aria:

"Allow me an analogy if you will.

When you see a very attractive female, be it in a movie, on TV, or in person, your first reaction is usually to fantasize about seeing her naked.  If she is exceptionally hot, you may even get to the point where there would be no greater joy in life than to see her sans-clothing.

“Wow, Juggs McSnatch is sooo smoking I would pay a million bucks just to be a fly on the wall in her dressing room”, or something of the sort.

Later, you hear that Juggs is posing for Playboy, and when it is released, you immediately run to 7-11 clutching a $20 bill sure that you are about to see the greatest nude female ever.

You get home, open the pages, and find … boobs, an ass, and a vagina.  The kind of boobs, ass, and vagina you have seen a thousand times before.  You may still be excited, but it’s usually at this point that you realize the anticipation and illusion of her nudity was far more interesting than her actual nudity.

Most fake boobs are pretty standard, the airbrushed ass looks almost indistinguishable from that on Miss December, and let’s face it … if you’ve seen one vagina, you’ve more or less seen them all.

I’m starting to worry that Aria will be a vagina."

It's been well documented in these pages that I'm not fan of Matt Taibbi's sensationalistic reporting, but his latest skewering, "Obama's Big Sellout,"  of the Administration's status quo coddling of Wall Street is worth a read.   I liked Taibbi's last paragraph best:

"What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different."

The final must read from this weekend is a NY Times piece titled "Rates Are Low, but Banks Balk at Refinancing."    From the Times article:

"Mark Belvedere bought a condominium in a San Francisco suburb in early 2004 and refinanced it in 2005. He now owes $235,000 on a property that would sell for barely half that today.

Mr. Belvedere said he would be willing to live with all that lost equity if he could refinance his loan from a variable rate, which could eventually go as high as 12 percent, into a 30-year fixed term.

His lender said no, citing the diminished value of the property. “It makes no sense and is so frustrating,” Mr. Belvedere said. “I’m ready and willing to pay the mortgage for the next 30 years, but they act like they’d rather have me walk away.”

Calculated risk does a nice job summing up the problems succinctly:

"Unfortunately  (NY Times author) David Streitfeld doesn't provide any further information on Belvedere's loan. If the loan was held by a bank, then it might make sense for the bank to refinance the loan (this lowers the bank's risk of default). However Belvedere's "lender" might be a servicing company and the loan may have been securitized. Then it is impossible to refinance because the current holders of the note would be paid off, and no new lender would make a loan greater than the value of the collateral.

As Streitfeld notes, the GSEs have a program called Home Affordable Refinance Program (HARP) that will allow lenders to refinance loans upto 125% of the property value. But this is only for loans the GSEs already holds or insures (and because refinancing lowers the risk of default). This wouldn't help Belvedere because he owes almost twice what his property is worth."

In case that doesn't make sense, let me try to re-simplify.   Many mortgages have been collateralized and sold off to investors - that's what allowed people to buy these homes in the first place:  insane appetite for paper (bonds) led to miscalculation of risk by the buyers of the bonds (aka, the real LENDERS) and loose lending standards.  The problem is that if the bank doesn't own your loan, it's impossible to get a new loan, because you don't have adequate collateral:  who in their right mind would lend you $235,000 on a property worth only $125k just because you promise to pay?  Well - don't answer that - it happened hundreds of thousands  (millions?) of times already in the last decade, but NOW lenders seem to have learned their lesson and, sensibly, will not make any more such loans.

However, if the bank DOES own your loan, it seems reasonable that they would allow you to refinance from a loan you will not be able to pay off (and will eventually default on) into one which, at current interest rates, you will be able to pay off.  Remember, the bank doesn't lock up that money lending it to you for 30 years at 5% - they sell the paper off to Fannie and Freddie and other mortgage buyers.  BUT, and this is a big BUT that's been written about extensively elsewhere, many banks are still unwilling to negotiate/refinance in these spots if you are still timely with your payments.  In a perverse paradigm, they generally require you to fall behind on your payments before they will work with you.

-KD