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Friday, May 28, 2010

How to Find the Owner of Your Mortgage

How to Find the Owner of Your Mortgage

Concerns continue about parties filing foreclosures when they do not own the note. Florida recently enacted a rules requiring plaintiffs in foreclosure to verify ownership of the note. (Here's a brief article on the rules, with the original subheading "Bankers Don't Like It"). While these concerns may be interesting for those of us who understand civil procedure, standing, and the importance of the rule of law, the practical problem looms for homeowners who want to know who owns their note. Particularly, in non-judicial foreclosure states or for those families who are not in foreclosure, they do not have the option to ask the judge to order the plaintiff (foreclosing lender) to prove ownership.
To determine the ownership (rather than servicing), the best options that are:

1) Send a request to the servicer asking it to tell you (the borrower) who the actual holder of the mortgage is, and to provide the address and telephone number of the owner of the obligation. These requests are authorized by Truth in Lending section 1641(f)(2). Importantly, the Helping Families Save Their Homes act of 2009 amended the Truth in Lending Act to provide a remedy for non-compliance. Borrowers can recover actual damages, statutory damages, costs and fees.
2) Review the transfer of ownership notices that are required to be sent as of May 20, 2009 and thereafter under the Helping Families Save Their Homes Act. This one won't help for loans bought and sold long ago, but at least Congress heard the message that tracking down ownership is a problem.
3) Send a "qualified written request" under the Real Estate Servicing Procedures Act (RESPA). While this statute primarily is aimed at servicers, John Rao points out that because the servicer acts as an agent for the owner of the mortgage, the request is related to the servicing. The servicer has 60 business days to comply, which may be too long for families facing foreclosure. Actual damages, costs and attorneys fees are available for violation. HUD provides a little information on how to make a qualified written request on its website.
It's important to note what is NOT on this list: the old-fashioned method of searching the land records. John includes that method in his list of six ways, but cautions not to rely solely on the registry of deeds because many assignments are not recorded. I think in a world of MERS, and missing paper, the land record system needs a hard look. The point of that system is to provide a public record of security interests in land, but it's clearly no longer serving that function in the way it historically has. In what ways is the land record system failing? How should we fix it? Do we need penalties for not recording assignments? Or federal regulation of MERS? Or something else entirely?

Sunday, May 23, 2010

Ignoring the Elephant in the Bailout

Ignoring the Elephant in the Bailout


IF you blinked, you might have missed the ugly first-quarter report last week fromFreddie Mac, the mortgage finance giant that, along with its sister Fannie Mae, soldiers on as one of the financial world’s biggest wards of the state.
Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position.
The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request.
But taxpayers should examine Freddie’s first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie’s delinquent mortgages, the company’s sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market.
That picture isn’t pretty. Serious delinquencies in Freddie’s single-family conventional loan portfolio — those more than 90 days late — came in at 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in the company’s Alt-A book, one step up from subprime loans, totaled 12.84 percent, while delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on its small portfolio of option-adjustable rate loans totaled 19.8 percent.
The company’s inventory of foreclosed properties rose from 29,145 units at the end of March 2009 to almost 54,000 units this year. Perhaps most troubling, Freddie’s nonperforming assets almost doubled, rising to $115 billion from $62 billion.
When Freddie sells properties, either before or after foreclosure, it generates losses of 39 percent, on average.
There is a bright spot: new delinquencies were fewer in number than in the quarter ended Dec. 31.
Freddie Mac said the main reason for its disastrous quarter was an accounting change that required it to bring back onto its books $1.5 trillion in assets and liabilities that it had been keeping off of its balance sheet.
NONE of the grim numbers at Freddie are surprising, really, given that it and Fannie have pretty much been the only games in town of late for anyone interested in getting a mortgage. The problem for taxpayers, of course, is that the company’s future doesn’t look much different from its recent past.
Indeed, Freddie warned that its credit losses were likely to continue rising throughout 2010. Among the reasons for this dour outlook was the substantial number of borrowers in Freddie’s portfolio that currently owe more on their mortgages than their homes are worth.
Even as its business suffers through a sour real estate market, Freddie must pay hefty cash dividends on the preferred stock the government holds. After it receives the additional $10.6 billion it needs from taxpayers, dividends owed to Treasury will total $6.2 billion a year. This amount, the company said, “exceeds our annual historical earnings in most periods.”
In spite of these difficulties, Freddie and Fannie are nowhere to be seen in the various financial reform efforts under discussion on Capitol Hill. Timothy F. Geithner, the Treasury secretary, offered a vague comment to Congress last March, that after some unspecified reform effort someday in the future, the companies “will not exist in the same form as they did in the past.”
Fannie and Freddie, lest you’ve forgotten, have been longstanding kingpins in the housing market, buying mortgages from banks that issue them so the banks could turn around and lend even more. After both companies overindulged in the lucrative but riskier end of home loans, they nearly collapsed, prompting the federal rescue. Since then, the government has continued to use the firms as mortgage buyers of last resort, to help stabilize a housing market that is still deeply troubled.
To some, the current silence on what to do about Freddie and Fannie is deafening — as is the lack of chatter about Freddie’s disastrous report last week.
“I don’t understand why people are not talking about it,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, referring to Freddie’s losses. “It seems to me the most fundamental question is, have they on an ongoing basis been paying too much for loans even since they went into conservatorship?”
Michael L. Cosgrove, a Freddie spokesman, declined to discuss what the company pays for the mortgages it buys. “We are supporting the market by providing liquidity,” he said. “And we have longstanding relationships with all the major mortgage lenders across the country. We’re in the business of buying loans, and we are one of the few sources of liquidity available.”
But Mr. Baker’s question gets to the heart of the conflicting roles that Freddie and Fannie are being asked to play today. On the one hand, the companies are charged with supporting the mortgage market by buying loans from banks and other lenders. At the same time, they must work to minimize credit losses to make sure the billions that taxpayers have poured into the firms don’t disappear.
Freddie acknowledged these dueling goals in its quarterly report. “Certain changes to our business objectives and strategies are designed to provide support for the mortgage market in a manner that serves our public mission and other nonfinancial objectives, but may not contribute to profitability,” it noted. Freddie said that its regulator, the Federal Housing Finance Agency, has advised it that “minimizing our credit losses is our central goal and that we will be limited to continuing our existing core business activities and taking actions necessary to advance the goals of the conservatorship.”
Mr. Baker’s concern that Freddie may be racking up losses by overpaying for mortgages derives from his suspicion that the government might be encouraging it to do so as a way to bolster the operations of mortgage lenders.
That would make Fannie’s and Freddie’s mortgage-buying yet another backdoor bailout of the nation’s banks, Mr. Baker said, and could explain the government’s reluctance to include them in the reform efforts now being so hotly debated in Washington.
“If they are deliberately paying too much for mortgages to support the banks,” Mr. Baker said, “the government wants them to be in a position to keep doing that, and that would mean not doing anything about their status until further down the road.”
It’s no surprise that the government doesn’t want to acknowledge the soaring taxpayer costs associated with these mortgage zombies. The truth about Fannie and Freddie has always been hard to come by in Washington, and huge piles of money seem to circulate silently around both firms.
REMEMBER last Christmas Eve? That’s when the Treasury quietly decided to remove the $400 billion limit on federal borrowings available to Fannie and Freddie through 2012.
That stealth move didn’t engender much confidence in either the companies or their government guardian.
But because taxpayers own Freddie and Fannie, we should know more about their buying habits, as Mr. Baker points out. Unfortunately, if the government’s past actions are any indication of what we can expect, then don’t hold your breath waiting for the facts.

Friday, May 21, 2010

FDIC says number of 'problem' banks is growing

FDIC says number of 'problem' banks is growing


FINANCE

FDIC: Number of 'problem' banks increasing
The number of troubled banks kept growing last quarter even as the industry as a whole had its best quarter in two years. The Federal Deposit Insurance Corp. said Thursday that the number of banks on its confidential "problem" list grew to 775 in the January-March period from 702 in the previous quarter.
"The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility," FDIC Chairman Sheila Bair acknowledged. But she added: "The trends continue to move in the right direction." The largest banks showed the most improvement, though a majority of institutions posted gains in net income.
Banks overall posted net income of $18 billion, up from $5.6 billion in the same quarter a year earlier.
In another sign of health, the FDIC's deposit insurance fund, which fell into the red last fall, posted its first improvement in two years. Its deficit shrank by $145 million to $20.7 billion.

Thursday, May 20, 2010

U.S. Bank Failures Hit 68 in 2010

U.S. Bank Failures Hit 68 in 2010


The Federal Deposit Insurance Corp. said that state regulators closed banks in Florida, Minnesota, Arizona and California on Friday, bringing to 68 the number of banks that have failed so far this year, Dow Jones Daily Bankruptcy Review reported today. The four failures will cost the FDIC's deposit insurance fund an estimated $213.7 million. The four banks that failed were San Diego-based 1st Pacific Bank of California; Towne Bank of Mesa, Ariz.; Bonifay, Fla.-based Bank Of Bonifay; and Access Bank of Champlin, Minn. The deposits of all four banks were sold by the FDIC to other firms.

Wednesday, May 19, 2010

First Quarter Numbers of Filings for Bankruptcy Protection at Record Highs

First Quarter Numbers of Filings for Bankruptcy Protection at Record Highs

How Does Entering Bankruptcy Protection Affect the Economy?

The Ritz Camera and GM bankruptcy filings soured economy watchers on the fiscal state of the union. First quarter record filings for bankruptcy protection paint an equally bleak picture.

Numbers of Consumers and Businesses Filing to Enter Bankruptcy Protection at a Record High

The numbers provided by the American Bankruptcy Institute are bleak. In the first quarter of 2010(1), a record 373,541 non-business entities have asked for bankruptcy protection. This is comparable to the economic upheaval of the first quarter in 2002, when filings reached 369,237.

The numbers of businesses that asked to enter bankruptcy protection are equally bleak. The first quarter of 2010(2) saw 14,607 filings, which is the highest number of any first quarter business bankruptcies since 1994. While the numbers of non-business filings are arguably not a sign of the apocalypse, the fact that they are coupled with record numbers of business bankruptcy protection filings is upsetting.

The Goal of Bankruptcy

In addition to stopping creditor calls, consumers and businesses ask for bankruptcy protection to re-evaluate their fiscal positions and let go of assets that could be used to satisfy some debts. Thus, in theory, bankruptcy filings should help the economy simply because more assets are being put up for sale and more debts are being paid with the profits.

In reality, personal bankruptcies leave unsecured creditors - usually credit card companies and private debtors - holding the bag. Business filings are just as damaging to stockholders(3), whose losses are not considered until after secured and unsecured creditors' claims are paid.

This frequently leaves the latter with useless paper, as there are often no assets left to satisfy any claims. Bondholders are not much better off, even though they may receive a fraction of the face value listed on the bonds.

Connecting the Dots
The Ritz Camera bankruptcy filing affected 300 stores, while its affiliate Boaters World was set to closed up shop altogether. It stands to reason that skyrocketing business bankruptcies go hand in hand with personal filing.  Take for example the 12,798 fourth quarter requests for bankruptcy protection that businesses filed in 2005; it is matched with 654,633 non-business filings in the same period.

As it stands, only a strong commercial recovery that drastically lowers the number of businesses hoping to enter bankruptcy protection will also reduce the need for non-business filings. 

Tuesday, May 18, 2010

For Administration, an Ill-Timed Request for Aid

For Administration, an Ill-Timed Request for Aid


WASHINGTON — Fannie Mae’s request on Monday for another $8.4 billion in federal aid comes at a politically inconvenient time for the Obama administration, which is pressing to pass sweeping financial legislation without resolving the company’s future.
The government has already transfused $137.5 billion into Fannie Mae and its cousin,Freddie Mac, since seizing the two mortgage financing giants in August 2008. The money covers losses on mortgages that the companies bought or guaranteed during the housing boom, allowing them to continue buying new loans.
Democrats want to defer an overhaul of federal housing policy until next year, after the midterm elections. But Republicans have seized on the continuing losses to argue that a plan for the two companies should be a priority of the current legislation.
It is an argument that Democrats have struggled to deflect. “I think it’s a fair claim to make to say we haven’t done enough to address Fannie and Freddie,” Senator Mark Warner, Democrat of Virginia, said in an interview on CNBC Monday. “It is the big elephant in the room.”
Mr. Warner then reiterated his party’s position that that it would be better to return to the issue next year “in a more thoughtful way.”
Republicans, meanwhile, tied up debate on the financial bill last week with speeches in favor of an amendment proposed by Senator John McCain of Arizona requiring the government to sever ties with the companies within five years. Fannie and Freddie would then be left to fend for themselves as private companies.
“The time has come to end Fannie Mae and Freddie Mac’s taxpayer-backed slush fund and require them to operate on a level playing field,” Mr. McCain said.
Fannie Mae and Freddie Mac were created by Congress to reduce the cost of home ownership. The companies buy mortgage loans from banks and other lenders, freeing up money for another round of loans. By providing a guaranteed return, the companies also allow lenders to charge lower interest rates.
During the housing boom, the companies used their profits to build portfolios of investments in high-risk mortgage loans, which are now losing value.
Fannie Mae said Monday that it lost $11.5 billion in the first quarter compared with a loss of $23.2 billion a year ago.
The company essentially became the world’s largest investor in mortgage loans, and its losses reflect the vast numbers of Americans who continue to default.
One consequence is that Fannie Mae now owns real estate worth $11.4 billion. The company said it acquired 61,929 single-family homes in the first quarter alone.
Freddie Mac said last week that it lost $8 billion in the first quarter. It asked for another $10.6 billion in federal assistance.
For now, the quarterly requests are a formality. The Obama administration committed late last year to cover all losses by the two companies through 2012, replacing an earlier promise to cover losses up to $400 billion over that same period.
The total losses are not expected to cross that threshold, but the companies’ prospects remain grim. Both said in first-quarter filings that they could not foresee any reasonable prospect of a return to profitability.
At the same time, the companies have become more important to the health of the housing market as private sources of mortgage funding evaporated almost completely during the financial crisis. Those sources have yet to make a significant comeback.
The government directly or indirectly provided financing for 96.5 percent of mortgage loans in the first quarter, according to the trade publication Inside Mortgage Finance.
Representative Barney Frank, Democrat of Massachusetts, argued in a memo to other leading Democrats last week that it was important to distinguish between the companies’ past mistakes and their present contributions to the health of the housing market.
While the losses that they are experiencing on old loans are unavoidable, Mr. Frank said the companies already had tightened lending standards to reduce future defaults.
“This is an important point that has to be repeated — as Fannie and Freddie operate today, going forward, there is no loss,” Mr. Frank wrote. “The losses are the losses that occurred before we took the first step towards reforming them — we the Democrats — and nothing we could do today will diminish those losses.”
Peter J. Wallison, a fellow in financial policy at the American Enterprise Institute, said it was true that the government could do nothing to stem the losses in the short term, but that it was a mistake not to decide the companies’ future as soon as possible.
“Right now we have a consensus that something needs to be done,” Mr. Wallison said. “The sensible thing to do is to put Congress in a position where they have to act within a certain period of time.”
Pushing the debate into the future, he said, created the risk that Congress would pass the present bill, congratulate itself on addressing the financial crisis, and lose its appetite for the difficult question of what do about Fannie and Freddie.

Monday, May 17, 2010

Durbin Considers Cramdown-Related Amendment As Part Of Wall Street Reform

Durbin Considers Cramdown-Related Amendment As Part Of Wall Street Reform

Story updated -- see below:
Senate Majority Whip Dick Durbin (D-Ill.) is considering amending Wall Street reform legislation to allow something similar to judicial modification of mortgages, a process known informally as "cramdown."
"We are looking at variations on that theme that might achieve that same result [as cramdown would] and I haven't made a final decision on whether we'll offer it on this bill yet," Durbin said on a conference call with reporters Monday. "We are considering some variations on that but they haven't been solidified as of today. I just want to see if the support is there."
A Durbin staffer said Wednesday that if Durbin does in fact offer a cramdown amendment, it will be different from a previous version of cramdown that failed spectacularly last year in a Senate vote after passing the House.
It was after that vote that Durbin famously said of the Senate that banks "frankly own the place."
"And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill," Durbin said in April 2009. "And they frankly own the place."
Banks lobbied hard to defeat cramdown last year, but Bank of America has had achange of heart, joining Citigroup in giving qualified support. Judicial modification, as Democrats prefer to call it, would give bankruptcy judges unilateral authority to reduce principal amounts owed on mortgages. Homeowner advocates say that the mere threat of cramdown would do a lot to encourage banks to modify mortgages for homeowners who owe more than their homes are worth. Durbin agrees.
"The arguments that I have been making over the past several years about this looming foreclosure crisis unfortunately turned out to be accurate beyond even my description," he said. "We now have millions of homes facing foreclosure in this country and the trend is growing. Had we passed the bankruptcy reform which I asked for several years ago, we could have at least slowed this down in many, many communities and forced renegotiation of mortgages."
UPDATE 5/17/10: Asked by HuffPost's Ryan Grim on Monday if he would offer the cramdown-related amendment he mentioned two weeks ago, Durbin said, "No."

Sunday, May 16, 2010

IS BANKRUPTCY SCRIPTURAL?

IS BANKRUPTCY SCRIPTURAL?
What does the Bible say about debt?
Many Christians feel guilty about even thinking about filing for bankruptcy protection.  They feel guilty because they ran up large debts on their credit cards and now are unable to pay back the money to their creditors. Some Christians feel bad that their creditors will not be paid.  Others think that the Bible condemns bankruptcy.  It is important for us to define what  "bankruptcy" is before we can examine what the Bible tells us.

In the United States of America, our founding fathers recognized the importance of bankruptcy. In the U.S. Constitution, they provided our government with the right to make bankruptcy laws. The bankruptcy laws and procedures we have today, instituted by our federal government, provide relief for overburdened debtors.  Persons/entities who are over-their-head in debt can get a fresh start.  Normally, a bankruptcy will discharge the debtor's obligation to repay some or all debts.

Bankruptcy contemplates the "forgiveness" of debt. The Bible, likewise, contains debt forgiveness laws. Under U.S. law, a debtor may only receive a discharge of debts in a Chapter 7 bankruptcy once every eight (8) years.   Under Biblical law, the release of debts came at the end of seven (7) years.
 "At the end of every seven years you shall grant a release of debts.  And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the LORD's release" (Deuteronomy 15:1-2).
The Bible refers to debt as a type of bondage: "...the borrower is a slave to the lender" (Proverbs 22:7).  Thus, the debtor is a slave to the creditor.  Interestingly, the Bible declares, at the end of the sixth year:
 "...in the seventh year you shall let [your Hebrew slave] go free from you.  And when you send him away free from you, you shall not let him go away empty-handed; but you shall supply him liberally from your flock..." (Deuteronomy 15:12-14).
Modern bankruptcy laws, like the Biblical provision above, allow debtors to keep certain property when they file bankruptcy.  This gives debtors a fresh start and discourages debtors from going into debt-bondage again, after the bankruptcy is over, in order to survive.
Jesus taught us that sin is a type of spiritual debt.  Jesus also taught us to ask God to"forgive us our debts [sins] as we forgive our debtors [those who sin against us]" (Matthew 6:12, Luke 11:4).  Sin creates a spiritual debt.  Borrowing produces a financial debt.  Regarding our spiritual debt, the law of justice declares: "the wages of sin is death [separation from God]" (Romans 6:23a).  However, the law of grace and mercy states that "the gift of God is eternal life in Jesus Christ our Lord" (Romans 6:23b).  Jesus paid for our debt of sin on the cross, a debt too big for us to pay.

Likewise, economically, the law of justice states that if you agree to borrow money and repay the debt, you must pay back such debt.  The law of mercy, on the other hand, states that if you cannot pay the debt back, you may, through bankruptcy, obtain forgiveness for your obligation.
As with any act of mercy, someone must bear the cost or the burden, just as Jesus did in dying for our sins.  With bankruptcy, the creditor and ultimately the consumers must, in mercy, bear the burden of the unpaid debt, but God said He will bless us for such acts of forgiveness and mercy(Deuteronomy 15:5,10,18).
Jesus, in two (2) parables, used the illustration of forgiveness of a financial debt to teach about God's forgiveness and the requirement that mankind forgive (see Matthew 18:21-35 and Luke 7:36-50).  "And when they had nothing with which to repay, he freely forgave them both" (Luke 7:42).  On a spiritual level, by the grace and mercy of God, Jesus gave us a "fresh start" by canceling all our "sin" debts through His suffering and death on the cross.  On an economic level, our nation will graciously help overburdened debtors, if necessary, by giving them a fresh start economically.
A guiding principle of U.S. bankruptcy law requires persons who file for bankruptcy to have "clean hands."  Accordingly, a debtor may not be freed from debts involving fraud, drunk driving, and deliberate wrongdoing.  Moreover, bankruptcy law does not allow the discharge of child support and alimony debts.  Further, most student loans, taxes (Romans 13:1,4,7) and secured loans are not forgiven in bankruptcy.  Through these restrictions, bankruptcy laws seek to balance justice and equity (Proverbs 1:3).
As with most biblical principles, there is a balance.  If you can repay your debts, you must.  If you cannot, then you should determine how God would have you freed from the bondage of debt.  Our modern bankruptcy laws were derived from the Bible(Deuteronomy 15:1-2).  Further, the Bible describes financial miracles (2 Kings 4:1-7).  Ultimately, you must seek wisdom and guidance from God as to the direction He would have you choose.  God promises to give such wisdom to those who ask with a trusting heart (James 1:5-7; Proverbs 3:5-6).  Further, the Bible admonishes us to seek Godly counsel (Psalms 1:1; Proverbs 12:15, 11:14, 15:22).
If you have mismanaged your finances, confess your failings to God now.   You can receive, by faith, His forgiveness and cleansing (1 John 1:9).  Remember, there is no condemnation or guilt to those who are in Christ Jesus (Romans 8:1). Jesus, by His love and mercy, gave us a fresh start, a new birth.  Bankruptcy, based on the law of mercy with divine origins, if necessary, may provide you with a fresh start - a new and brighter economic outlook.

Debt Aid Package for Europe Took Nudge From Washington

Debt Aid Package for Europe Took Nudge From Washington


PARIS — President Obama had just flown into Hampton, Va., Sunday morning to deliver a commencement address. But before he donned his silky academic robes, he was on the phone with Chancellor Angela Merkel of Germany, offering urgent advice — and some not so subtle prodding — that Europe needed to try something big.
Weeks of hesitant half-steps to address Greece’s debt problems had only worsened market worries about the euro, and were threatening the still-fragile economic recoveries in the United States and Asia. Now, Mr. Obama told Mrs. Merkel that the Europeans needed an overwhelming financial rescue to end speculation that the euro — and European unity — could crumble.
“He was trying to convey that he knew these were politically difficult steps that the leaders there had to take, that he had gone through them as well,” said one senior administration official familiar with the conversation. “And that, from his experience, trying to get out ahead as much as possible was the right way to go.”
That call was part of what a senior Treasury Department official called “one long conversation” with European leaders, who over an extraordinary weekend of late nights and early mornings overcame German resistance and agreed to a wholesale expansion of the bloc’s political and financial mission. Bending the rules, they backed the stability of all 16 countries that use the euro with loan guarantees adding up to nearly $1 trillion.
In the process, the European Union, under crisis conditions, moved fitfully toward more centralization, toward a French vision of an economic government for the region. It is a role not totally unlike the one that the federal government in the United States played during the early stages of the financial crisis in 2008.
But to get there involved intense bargaining among leaders, especially the French president, Nicolas Sarkozy, and Mrs. Merkel but also the Italian prime minister,Silvio Berlusconi; Group of 7 finance ministers; the Japanese; and the Americans, according to interviews with numerous participants in the talks in Europe and the United States.
The deal also required a contentious telephone vote by the members of the board of the European Central Bank, who agreed, though not unanimously, to do what the bank said last week it had not even considered — buying up the sovereign debt of the weakest members of the euro zone, those nations using the euro currency, effectively guaranteeing their debt to protect them from anxious investors.
After the 16 leaders of the euro zone met Friday evening into early Saturday to confirm their previous deal for Greece, which the markets had considered inadequate, they agreed they had to do more. Their finance ministers gathered Sunday in Brussels, under a deadline to act before financial markets opened in Asia on Monday morning, to hammer out the details.
It was another of the all-night sessions that have come to epitomize the challenge of making decisions in Brussels, where 27 sovereign states with more than 450 million people sometimes painfully decide to share their sovereignty. The crisis most directly touches the 16 nations that use the euro. But it may also affect the fate of the single currency — a main symbol of the new European unity — and thus touches the entire European Union.
But the states that share the euro, which is controlled by the independent European Central Bank, do not share a single treasury, tax system or budgetary authority. The euro’s lack of coordinated financial backing had become excruciatingly evident after Greece admitted that its level of debt was much higher than previously reported, due to bad management and prevarication.
A sovereign debt crisis — compounded by a recession that had cut tax receipts and prompted extra government stimulus spending all over Europe — began to gnaw at those countries most exposed and least competitive: Greece, Portugal and Spain.
American officials became worried about the European response as early as February, a senior administration official in Washington said on Monday, when European leaders repeatedly stated that the Greece problem was well contained. They believed that mere expressions of support would be enough to calm the markets — and that they did not need to put in real commitments of emergency funds.
The Americans were less persuaded, telling their counterparts that they had to eradicate “the risk of default.” The Europeans debated this internally and, in the mind of one senior American official, who would not speak on the record, the Europeans “waited too long.”
“Had they acted sooner,” he said, “They might have gotten away with less.”
The United States officials began talking to their counterparts about an American concept: overwhelming force. “It’s all about psychology,” said the senior official. “You have to convince people that the government will get its act together.”
But it was not until Sunday, one official noted, that the meltdown spreading across Europe was regarded as “an existential threat.”
Aware that the “wolf pack” markets, as the Swedish finance minister called them, had dismissed their every move so far as too little, too late, some of Europe’s leaders knew they had to act in a big way — to “shock and awe” the markets. To encourage them, Mr. Obama made his calls, first to Mrs. Merkel, who was losing a key state election in North Rhine-Westphalia, and, three hours later, to Mr. Sarkozy.
Washington was also ready to help, in a limited but crucial way. The Federal Reserve offered to swap euros for dollars, easing pressure on European central banks, which were bleeding dollars.
European finance ministers arrived in Brussels on Sunday with broad agreement on the need for a fiscal contribution from the European Union budget and some kind of fund to stabilize the most troubled markets. By several accounts in Europe, a 500 billion-euro figure first emerged Sunday afternoon, when Mr. Sarkozy called Mrs. Merkel after each had spoken with Mr. Obama.
But how was that huge sum to be raised with the agreement of the politicians who wanted to keep control of their hastily devised rescue?
Germany was insisting on a solution that involved bilateral loans from European member states, similar to the much smaller Greek bailout agreed to a week earlier. But countries like Italy and Spain feared that they would be unable to raise the amounts required and lobbied for loan guarantees on funds raised by the European Commission.
As the evening unfolded, Germany, Britain and the Netherlands all opposed the commission’s proposal to raise money on capital markets guaranteed by member states. The British and Dutch said the proposal was tantamount to giving a “blank check” to the European Union’s governing commission, according to a European diplomat who spoke on condition of anonymity.
Near midnight Sunday night, the talks appeared deadlocked, these participants said. “The deal is exploding,” read the text message of one French official to Paris, where Mr. Sarkozy was demanding regular updates and was pushing for a bigger agreement.
Then came the deal-making idea — put together, according to different officials from different countries, by the French, the Italians, the Dutch and a crucial German banker.
Axel Weber, the president of the conservative Bundesbank, who is favored to succeedJean-Claude Trichet as the next president of the European Central Bank, suggested a mechanism for Europewide loan guarantees that finally won support from a reluctant German government during a midnight call, participants said.
The idea was for a new mechanism euphemistically called “a special purpose vehicle” — essentially eurobonds created by intergovernmental agreement among euro zone countries. That vehicle, supposedly to last only three years, would raise up to 440 billion euros on the markets with loans and loan guarantees, depending on the need.
The Germans, together with other northern Europeans like the Dutch, British and Austrians, insisted that the European Commission not control the vehicle but only manage it — in conjunction, as with the Greek deal, with the International Monetary Fund. The fund would provide discipline, as well as roughly one euro for every two from Europe.
The “special purpose vehicle” finally broke the French-German deadlock. José Manuel Barroso, the president of the European Commission, said Monday that agreement came at 2:15 a.m.
“Now Europe is finally getting noticed,” noted one French official late Monday. “I just wish it was under different circumstances.”

Saturday, May 15, 2010

Fannie Offers Spur to Avoid Foreclosure

Fannie Offers Spur to Avoid Foreclosure

Fannie Mae will make it easier for some struggling homeowners to buy houses in the future if they avoid foreclosure in the present.
Under rules released this month that will take effect in July, some troubled borrowers who give up their homes by voluntarily transferring ownership through a "deed in lieu of foreclosure" or by completing a short sale, where a home is sold for less than the amount owed, will be eligible in two years to apply for a new mortgage backed by Fannie.
Currently, borrowers who complete a deed-in-lieu of foreclosure must wait four years before they can take out a loan that Fannie is willing to purchase.
[FANNIE]Bloomberg News
Foreclosed home in Las Vegas.
The new policies from Fannie, a government-backed mortgage-finance company that together with Freddie Mac backs about half of the U.S. mortgage market, don't relax waiting periods for borrowers who go through foreclosure.
In 2008, Fannie lengthened that waiting period to five years from four.
To quality for the reduced waiting period, most borrowers will need to make a down payment of at least 20%, although borrowers with extenuating circumstances, such as a job loss, will be required to put down just 10%.
Even if waiting periods are shortened, many borrowers may be unlikely to repair their credit that quickly in order to get a loan in the first place. Foreclosures and short sales generally have the same effect on a borrower's credit score and can stay on a credit report for up to seven years.
The new rules are designed to make foreclosure alternatives more attractive to borrowers at a time when the Obama administration is ramping up its effort to encourage banks to consider alternatives such as short sales. That program sets pre-approved terms for short sales and offers financial incentives to borrowers and lenders to complete such sales.
Freddie Mac requires borrowers to wait five years after a foreclosure and four years after a short sale or deed-in-lieu.
Those periods can fall to three years for a foreclosure or two years for a short sale when borrowers show extenuating circumstances.
Officials at the Federal Housing Administration, the government mortgage insurer, say they are considering changes to their rules, which require borrowers with a foreclosure to wait at least three years before becoming eligible for an FHA-backed loan.
"We are beginning to think about post-recession, how you address borrowers who became unemployed through no fault of their own ... and now deserve the right to re-enter the housing-finance system," said FHA Commissioner David Stevens.
But some worry that policies enabling defaulted borrowers to more quickly resume homeownership could encourage more people to default.
"We don't want to say that there's a 'get out of jail' card during recessions to walk away from your house," Mr. Stevens said.
In December, the FHA unveiled rules for borrowers who completed a short sale.
Those who have missed payments prior to completing a short sale or who didn't face a hardship and simply took advantage of declining market conditions to buy a new home must wait three years.

Friday, May 14, 2010

Over 50 Homeowners Have Sued in the Last Year, Alleging a Communication Breakdown Led to Foreclosure


Over 50 Homeowners Have Sued in the Last Year, Alleging a Communication Breakdown Led to Foreclosure
In one of those suits, David Peterson of Grain Valley, Mo., says Chase Home Finance assured him in December of 2008 that he qualified for a loan modification and would soon receive the papers in the mail. The offer was not under the government program, which didn’t launch until April 2009.
When the papers had still not arrived a month later, he says, he called to ask whether he should send in a payment. He was told to wait, the suit says, and was assured he would not be foreclosed on.
Nevertheless, Chase sold his home. More than three weeks later, Peterson says he received the modification papers in the mail. They were dated one day after the foreclosure had occurred.
Chase refused to reverse the sale, according to the suit, which was filed last month. Chase declined to comment on pending litigation.

12 Celebrities Staring Down Huge Debts

12 Celebrities Staring Down Huge Debts


Celebrities have never been known for fiscal prudence. But, whether it's caused by the financial crisis, those seemingly ubiquitous unscrupulous financial advisers or your run-of-the-mill celeb excess, the list of indebted celebs seems to be growing.
Just last month came news that Mike Tyson, Lindsay Lohan and even an original member of the cast of "Charlie's Angels" (the TV show, not the movie) are confronting the financial abyss. Which celebrity has the biggest bill to pay? Which will be able to pull themselves back into financial well-being? Check out our list below.

Thursday, May 13, 2010

No rest for Making Home Affordable head as foreclosure-prevention effort evolves

No rest for Making Home Affordable head as foreclosure-prevention effort evolves

Tuesday, May 11, 2010


By the time Phyllis Caldwell signed up to lead the Treasury Department team overseeing the government's massive foreclosure-prevention effort six months ago, the federal program had reached a precarious point.
Although 650,000 homeowners had enrolled, most had been waiting for months to learn whether they would be able to keep the federal aid that slashed their mortgage payments.
As chief of the Treasury's Office of Homeownership Preservation, Caldwell immediately began to push mortgage lenders to convert the homeowners' aid into permanent loan modifications.
So began Caldwell's crash course into the largest government effort to stabilize the housing sector in a generation.
"I think the first month was a very steep learning curve on the program," she said.
Caldwell, 50, joined the Treasury team after two years as leader of the Washington Area Women's Foundation, which provides grants to groups aiding low-income and women-headed families. But most of her career has been in the financial services industry. After graduating from the University of Maryland at College Park, where she also received a master's degree in business, Caldwell worked at several banks. In addition to holding positions at Citigroup and First Chicago, now part of J.P. Morgan Chase, she spent 11 years at Bank of America, where she was president of community development banking.
Now she manages a staff of 30 that oversees the government's response to the housing crisis, known as Making Home Affordable. The office's initiatives include a program to allow underwater borrowers to refinance and one that offers grants to states testing their methods of stopping foreclosures. Its best-known program, however, is a $75 billion mortgage-relief effort that pays lenders to lower the payments of distressed borrowers. Caldwell's job also includes supervising about 470 employees and contractors at Fannie Mae, which acts as the program's administrator.
Three interim leaders held the position before Caldwell was hired in November.
"I think she inherited a mess, a challenge I wouldn't envy," said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing advocacy group. "But I do know that because of her background, she knows what the solutions need to be."
One of the chief challenges, Caldwell said, has been building the operational structure, including technology to track lenders' performance, as well as developing government and industry guidelines on how it should work.
The program has faced fierce criticism from some lawmakers and housing analysts for not doing more and doing it faster. Six months after Caldwell helped launch the drive to get more program enrollees into permanent loan modifications, more than 200,000 borrowers have finished the process. That is a small piece of the up to 4 million borrowers the Treasury has said it wants to help avoid foreclosure.
Last month, government officials outlined several program changes. For the first time, lenders will be eligible for incentive payments if they cut the mortgage balance for an underwater homeowner, or someone who owes more than his or her home is worth. Caldwell said she also pressed for lenders to stop sending borrowers foreclosure notices once they had entered the mortgage relief program, even if they had yet to receive a permanent loan modification. Housing advocates have complained that borrowers were often left confused and distressed by the notices. But all of the changes are not expected to be in place until September or October. In the meantime, the program remains under fire.
Last week, Treasury Secretary Timothy F. Geithner told a Senate subcommittee that lenders that do not fulfill their obligations under the program risk losing their taxpayer-funded program payments.
In many cases, Caldwell holds those thorny talks.
"I certainly had to have a number of difficult conversations with [mortgage] servicers who may not understand why they need to do everything they need to do for this program," she said. "If servicers are going to get taxpayer dollars for modifying these loans, they have to modify them the right way."
The foreclosure prevention program will probably continue to evolve, she said. A large population of seriously delinquent borrowers will not be eligible for federal mortgage relief, Caldwell said. Many of those homeowners eventually will face the loss of their house. To avoid foreclosure, they will have to consider other options such as a short sale, or when a borrower sells their home for less than they owe -- with their lender's permission.
The number of short sales approved by lenders has started to increase. The deals completed, however, largely reflect borrowers who already wanted to sell their home, perhaps because they needed to move for a new job, Caldwell said. "Psychologically, those are homeowners who have made the decision not to stay in their house," she said.
"I think there is a very different mental process for the homeowner who wants to stay in that house" but does not qualify for a loan modification, Caldwell said.
"That process of shifting from [loan] modification as foreclosure alternative, to foreclosure alternatives that involve transition from the home to another living situation, I think that is going to be very challenging," she said. "It's a correction that is needed in the market, but it's going to be a very painful part of the industry."

Tuesday, May 11, 2010

Fed taking steps to unload assets without triggering meltdown

Fed taking steps to unload assets without triggering meltdown

Sunday, May 9, 2010


Having waged a battle against financial mayhem for the past two years, the Federal Reserve is tentatively declaring victory. As it guaranteed debt and swapped cash for all sorts of assets, the Fed's balance sheet grew -- from about $850 billion in assets before the crisis to about $2.3 trillion this spring. The binge included the purchase of $1.25 trillion of mortgage-backed securities issued by Fannie Mae and Freddie Mac.
In testimony to Congress in March, Federal Reserve Chairman Ben Bernanke said that the purchases were coming to a close and that the Fed was seeking to lessen its burden. The Fed is discussing how to sell off these new assets. The prospect of the Fed dumping hundreds of billions of dollars of bonds and mortgage-backed securities onto the market has unsettled some market watchers. But they shouldn't worry -- too much.
Each week, the Fed's H.4.1. publication gives a snapshot of the Fed's balance sheet. Table 10 provides the headline number: $2.334 trillion on April 28, down $7.1 billion from the week before.
The Fed, for example, has $90 billion tied up in investments related to the stricken insurer American International Group -- loans to the company, preferred stock in two AIG subsidiaries, and Maiden Lane II and Maiden Lane III, the vehicles created to remove toxic assets from AIG's balance sheet. But as I documented in a recent column, that's all on a glide path to going away. The sales of Alico and AIA will return $50 billion to the Fed, and the Maiden Lane vehicles are generating sufficient income to pay down the debt extended to them -- and then some.
Meanwhile, many of the market and asset guarantees that the Fed put into place in 2008 are expiring. At its peak, the commercial paper funding facility, which guaranteed short-term corporate debt, held more than $300 billion. Now its down to zero.
The Term Asset-Backed Securities Loan Facility, or TALF, which was started in late 2008 to revive the market for loans backed by assets such as car loans and credit card receivables, is closing to new business in June. TALF's balance stands at $45.3 billion, down from more than $48 billion in March. Why? Some of the three- and five-year loans guaranteed by TALF have already been paid off. This balance should shrink to zero by 2013.
The Fed's balance sheet will also diminish as bonds that it has acquired mature and pay off. The Fed, in the past year, bought some $169 billion in corporate debt issued by Fannie Mae and Freddie Mac. (This is debt backed by the company's credit, not by its mortgages.) About $44 billion of those bonds, or 25 percent of the total, mature in the next year.
The largest single item on the Fed's balance sheet is the $1.1 trillion in mortgage-backed securities it has acquired since the meltdown began. These are bonds issued by Fannie Mae and Freddie Mac and guaranteed by the U.S. government. The Fed has signaled that its buying campaign is over. And although the mortgages backing these bonds don't mature for 15 to 30 years, many of them will be disappearing from the Fed's balance sheet in the near future as people pay down, prepay, refinance and sell homes. An informed analyst might presume that about $200 billion of that portfolio will mature or be paid down by the end of 2011. And as those bonds disappear, the Fed is not replacing them with new ones.
The last large item is $776 billion in U.S. Treasury securities, which have traditionally been the core holding of the Fed. (Before Bear Stearns went under, the Fed had about $713 billion in such securities.) As was the practice before the crisis started, the Fed rolls over maturing government debt into new government debt.
The bottom line? The Fed wants to get the junk off its balance sheet and return to a situation in which it has about $1 trillion in assets, largely in the form of government bonds. To do so, it will need to rid itself of about $1.3 trillion in assets. That's a lot. But when you add up the components of the balance sheet that are shrinking, the task doesn't seem quite as daunting.
By the end of 2011, by my rough calculations, at least $300 billion of the Fed's current assets will be gone, with a substantial additional amount on the way out -- all without the Fed having to stage a huge sale of assets. The Fed will be left with a large portfolio of government-guaranteed mortgage-backed securities and the difficult chore of weaning the economy off its diet of rock-bottom interest rates. Bernanke and his colleagues have a long way to go. But if the broader economy and markets cooperate for another few quarters, a few miles may be shaved off the Fed's debt-reducing marathon.

Monday, May 10, 2010

Housing Bubble Was Whose Fault? Not the Fed's, Says New Study

Housing Bubble Was Whose Fault? Not the Fed's, Says New Study

 May 7th 2010 @ 8:00AM

Don't blame the Federal Reserve for the country's housing troubles. At least that's what a controversial new study claims. Economic researchers from Harvard's Kennedy School and the Wharton School of the University of Pennsylvania believe they've proved that reduced interest rates and lax regulations were not the primary cause of the housing bubble.

The authors of the study instead point to the currently allowable mortgage interest tax deduction as the main culprit.

But before you get too panicky about losing your mortgage tax deduction or other government benefits for homeowners, let's take a closer look at their conclusions. Also note that Federal Reserve Chairman Ben Bernanke disagrees with them. In fact, he thinks
lax regulations sent the housing market into a downward spiral.

So who's right?


Edward Glaeser and Joshua Gottlieb of Harvard University and Joseph Gyourko of the Wharton Business School presented their study (titled "Did Credit Market Policies Cause the Housing Bubble?") at the Federal Reserve of Boston on Wednesday. In it, they call for a reduction from the upper limit of $1 million worth of debt to just $300,000 and say that "the distortions and the regressive nature of the deduction would be reduced in ways that would not dramatically affect most households."

They conclude that "rethinking those Federal housing policies that act primarily by lowering the cost of credit to home buyers, most notably the 
Home Mortgage Interest Deduction" would reduce the risk of future bubbles.

Ben Bernanke, on the other hand, has cited the following as the probable causes of the bubble:

  • Alternative types of variable-rate mortgages. These include interest-only ARMs, long-amortization ARMs, negative-amortization ARMs (in which the initial payment does not cover even the interest costs) and pay-option ARMs (in which borrowers determine the payment amount in the early years of the mortgage). Such exotic loans came on the market in 2000, but rapidly increased in usage during 2005 and 2006.
  • A protracted deterioration of mortgage underwriting standards. This includes practices such as no-documentation loans, also known as "liar loans," because borrowers needed to provide no evidence of income.
  • Inflated home value expectations. Both lenders and borrowers became convinced that house prices would only go up. Borrowers chose -- and were extended -- mortgages they could not make payments on over the long term.Instead, they expected homes to keep appreciating so they could refinance into a more sustainable mortgage in the future. The expectation that prices would only go up provided the air that sustained the bubble.

In contrast, Glaeser, Gottlieb and Gyourko found that real interest rates fell about 1.3 percentage points and that a 1 percent swing in real rates was only associated with an 8 percent change in prices. They say their theoretical and empirical work suggests even a smaller connection.

Yet between 2000 and 2006, the Case Shiller Housing Price Index "increased by 74 percent in real terms." So an 8 percent increase would account for just a small portion of this swing.

Other housing markets jumped much more. For example, Los Angeles home prices increased by 130 percent between 2000 and 2006.

The researchers also found that by 2006, "one quarter of all home purchasers were borrowing 99 percent of the purchase price and in nearly two-thirds of the nation's metropolitan areas, one quarter of all purchasers were taking out loans at least equal to the full value of their homes." Yet the study's authors did not think this had a major impact on house prices.

Do you believe that one?

In fact, in 1998 their sample of 75 metropolitan areas found that median loan-to-value ratio was 84 percent. By 2006, it was only 4 percent higher, at 88 percent.

At least they agree there was significant differentiation in regions.

When people put so little skin in the game and quickly flip a home for a quick profit, that's a perfect formula for inflating a bubble. Investors were selling to other investors and jacking-up prices. The buyers who were purchasing a home for the long term got caught in the crossfire.

I'm sticking with Bernanke on this one: Lax regulations that allowed so many to buy with so little money were the primary culprit. Making loans easy to come by with lax regulations, such as no-documentation loans, interest-only ARMs, negative amortization ARMs and other types of exotic mortgage packages, made fueling the fire very easy.

The economists seem to have an agenda against the mortgage interest tax deduction, and their paper simply manipulates the numbers to support that belief. In my opinion, their conclusion is as full of as much air as the bubble itself.
Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to the Federal Reserve" and "Reading Financial Reports for Dummies.

Sunday, May 9, 2010

Will Right-to-Rent Act Rescue Foreclosed Owners?

Will Right-to-Rent Act Rescue Foreclosed Owners?

May 3rd 2010

If your lender forecloses on your mortgage but lets you stay in your house as a tenant, is your real-estate saga more likely to have a happy ending? A new law making its way through the House of Representatives may give you the chance to find out.

The riddle for most cities plagued by foreclosure involves solving two problems at once: helping banks recover unpaid mortgage bills while helping people stay in their homes.

If the banks write off bad loans, they have no money to lend to other borrowers; if the banks foreclose and evict on every owner who can't make a payment, cities empty out. What to do? 
Raul Grijalva (D-AZ), an ally of House Speaker Nancy Pelosi, has proposed a solution for defaulting owners of "moderate-value homes."

Grijalva's "Right to Rent Act of 2010," introduced on Tax Day, would basically keep the homeowner from having to look for a new house. It works as follows.

An owner-occupant, within a week of getting a foreclosure letter, can agree to pay "fair market rent," as determined by an appraiser under the oversight of a judge. As long as the owner--er, tenant--keeps paying rent (subject to adjustments to reflect market comparables), the lender or new owner cannot carry out an eviction "at will."

In theory, this aligns with a lot of enlightened thinking about housing after the subprime meltdown. Thinkers like economist Robert Shiller and the developer-funded sharpies at the Urban Land Institute have concluded that the American obsession with home-ownership distorted the mortgage market, bloated Fannie Mae and Freddie Mac, and tied up too much wealth in collateralized hoo-hah. Not everyone, the reasoning goes, needs to be a homeowner.

But in practice, it's hard to see how this law -- which is just in its first stages -- would financially protect people who owe more than their houses are worth. Are many of these people, caught in the economic updraft, now earning enough to pay a market-compatible rent? Are many of them in housing markets that are so depressed after the mortgage meltdown that rents are cheap across the board? And if the latter is true, how will turning troubled borrowers into troubled renters help cities regain economic strength?

Only the data knows for sure- and while it's encouraging, it isn't quite telling. "Homeowners who are simply underwater would likely be able to afford market rents," says Ingrid Gould Ellen, an economist at New York University who helped current Housing and Urban Development secretary Shaun Donovanprepare for his job. "Of course, the answer is different for unemployed borrowers who are defaulting because they have lost their source of earnings. It's really hard to figure out what to do for these borrowers."

Ellen points out that if the bubble has burst in your town, mortgage payments should be about the same as fair market rents, since nobody should be jacking up home prices on unrealistic expectations of getting rich. Which reminds me: shouldn't a right-to-rent law give lenders some claim on the real value of the house as it appreciates?

Normally, I'm all for anything that will make any neighborhood more densely populated, and I'm certainly going to follow this bill with interest. So far, though, it seems less vital than legislation that would reattach mortgages to the banks that made them.

Letting owner-occupants rent is intriguing, but it wouldn't equal the folly of letting bad-mortgage-bundlers walk.