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Obama’s Mortgage Refinancing Aid, Who Really Benefits

Andrew — Thu, 16 Jul 2009 19:20:17 +0000

Obama’s Mortgage Refinancing Aid, Who Really Benefits?

Obama’s administration latest efforts to protect and aid family’s that cannot pay their mortgages and are in serious risk to foreclose aims to help 9 million home owners and further measures intend to provide information and advice to home owners on mortgage refinancing and on mortgage options to home buyers.

What are the effects of these measures and who really benefits from them?

Obama’s refinance and modification program could help as we said up to 9 million homeowners to reduce their monthly payments to an affordable level. The program does not stop there, aiming to provide 5 million homeowners with aid through government owned Fannie Mae and Freddie Mac as well as earmarking $75 billion to prevent foreclosures.

What has happened up to now? Up to date it seems (reliable stats are still to be produced due to the lack of a tracking system) around 200,000 borrowers have received the option for trial modifications according to the U.S Department of Housing and Urban Development, HUD.

This is great news for the 200,000 that benefited but still a far cry from a real solution. It is early days to bury the program but the predictions of the Mortgage Bankers Association are not promising. The MBA says that the government’s expectations are unrealistic and that lenders will only make $2.03 trillion from mortgages this year, not even close to the associations forecast for this year which was $750 billion more than the estimated amount.

Why is this the case when the U.S government is investing hand over fist in mortgage backed securities and printing money like it’s going out of fashion to invest in banks. The banks will say that the increase in interest rate is negating the government’s efforts while others blame the fact that banks have little incentive to speed up the financial aid procedures and that there is not enough control from the government. It does seem like banks are getting a pretty good deal being provided with cash to invest in government backed mortgages, a win-win situation for the lender.

On the other hand the borrowers that need the aid to continue living in their home are facing long procedures that stretch for months and months with no guarantee of a clear answer after the ordeal.

Another glitch in the mortgage refinance aid is that it seems to ignore those that are worse off with upside down mortgages. Although the latest aid packages have included mortgages that are up to 125% of the current value of the house this only applies to Fannie and Freddie backed mortgages that do not have a very large presence in the worst hit areas like California and Las Vegas to mention two.

Obama’s Mortgage Refinancing Aid, Who Really Benefits

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How Cities & States are coping with foreclosure

Jay Hammond — Fri, 10 Jul 2009 18:24:25 +0000

The July 17 deadline for cities and nonprofits to apply for their share of nearly $2 billion in Neighborhood Stabilization Program funding. A new report from PolicyLink, a national research and action institute advancing economic and social equity, detailing how some states and cities are dealing with foreclosure may provide some inspiration for those who have still not applied and hope for communities suffering from blight or plummeting property values.

“As foreclosed properties fester, communities are reeling from blight, crime, and property value decline,” said Kalima Rose, co-author of the report and Director of the PolicyLink Center for Infrastructure Equity. “Thankfully, some proven strategies are showing communities how to reclaim their housing stock and get their cities back on track.”

The report, “Reclaiming Foreclosed Properties for Community Benefit,” features several of the most promising practices and stories from communities around the nation including:

Creating Community Land Trusts

Land trusts have been very successful at securing vacant properties and ensuring they remain affordable for years to come. For instance, in Providence, RI, city and state leaders acquird foreclosed properties in two of the hardest-hit areas and put covenants on their sale to ensure they remain affordable for decades.

Marketing Foreclosed Homes and Offering Tax Incentives to Buyers

Some cities whose housing markets are still functioning have been able to attract new buyers to foreclosed properties. Boston offer potential buyers a trolley ride tour of foreclosed properties while Los Angeles has hired marketers to tour the benefits of buying foreclosed homes. Other cities offer low-interest loans or tax incentives to attract buyers.

Increasing the Cost for Owning Vacant Foreclosed Properties

Owners of foreclosed properties are often large investors waiting for the market to revive. Meanwhile, their properties fall into disrepair. By imposing taxes or fines on properties remaining vacant for more than a year, some cities and towns can change the incentive structure making it easier to sell the property to someone willing to fix it up and live in it.

Rehabbing or Demolishing Vacant Properties

In Cleveland, OH, community leaders have started a pilot program to identify properties in six neighborhoods that can be rehabbed and demolish ones that cannot. Getting new homeowners into salvageable properties and saving the upkeep and repair money on non-salvageable properties reduces the burden for local government. Other cities having excess housing stock and low demand are following suit.

In addition to the new report, PolicyLink’s “Equitable Development Toolkit” is a key resource for community leaders, advocates and residents advocating for more equitable communities.

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Fed study: Obama mortgage plan should give money to borrowers, not banks

Constantine von Hoffman — Tue, 07 Jul 2009 15:21:32 +0000

A study by the Boston Fed has found that the administration’s mortgage rescue plan has failed to provide that all important profit incentive. According to today’s Boston Globe:

Mortgage lenders don’t try to rework most home loans held by borrowers facing foreclosure because it would probably mean losing money.

The Boston Fed’s findings suggest the Obama administration’s major effort to solve the foreclosure crisis by giving the lending industry $75 billion to rewrite delinquent loans to more affordable levels is not likely to work.

One of the study’s coauthors, Boston Fed senior economist Paul S. Willen, said the government would be better off giving the money directly to struggling borrowers to help them with their payments, rather than to lenders that are averse to working out the troubled loans.

“Loan modification is not profitable for lenders,” Willen said. “If it were profitable, they would go out and hire staff.”

Hard to argue with that logic.

Writing at the WSJ, Stan Liebowitz makes a strong case for the idea that now is exactly not the time for the government to be stepping in and fiddling with the markets.

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

The difference in policy implications is enormous: A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising.

(Hat tip to the HousingDoom blog)

Leibowitz is hardly a laissez faire type. He just thinks that the economy would be best served by having government do what it should have been doing all along: Requiring, monitoring and enforcing strong underwriter standards.

We are at a crossroads where we can undo the damage to the housing market by strengthening underwriting standards in a reasonable way. But to do so political leaders must face up to the actual causes of the mortgage crisis, not fictitious causes that fit political agendas and election strategies.

Yeah, I’m not holding my breath on that one.

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

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Is Trust Returning to the Mortgage Industry?

Jay Hammond — Wed, 01 Jul 2009 16:12:57 +0000

“The economy is based on trust,” said Dean Johnson, associate professor of finance at Michigan Technological University in Houghton, Michigan.

In situations like the recent housing bubble, or even the stock market collapse of 1929, where markets were driven by debt and fueled by the false expectation that values can only increase, trust can be a very fragile thing.

“One little blip and everything started to unwind,” Johnson said. “The particulars are different, but the basics are familiar.”

Trust, however, seems to be coming back, according to Johnson. If people are cautious and not spending money, the government and financial industry must take action to encourage capital liquidity. During the first half of 2009, this is exactly what they have been doing. And if the effects have not been as immediate as some would like and others needed, at least their efforts are beginning to take effect.

Why does Johnson believe trust is returning? He points to the Volatility Index, or VIX, which measures investors’ expectations of how volatile the stock markets will be. The VIX reached all-time highs in 2008.

“People think of it as the fear gauge,” Johson explained. “it’s encouraging that the VIX, though still high be historical standards, is down about 60 percent from what it was at its peak in November.”

Other, more recent, signs that trust is being rebuilt in the American housing/real estate markets and the financial industry include:

USA Today reports that while the construction market remains weak the housing market may be improving slightly. Residential construction reportedly dropped to the lowest level since December 1995. Pending homes sales increased slightly in May, according to the National Association of Realtors (NAR).
Proposed legislation to create a Consumer Financial Protection Agency is making progress at the federal level, according to the Washington Post. The Post reports that the Treasury Department’s proposal for a new federal agency to consolidate the plethora of state and federal regulators responsible for overseeing the lending industry arrived on Capitol Hill on Tuesday.
At the end of June, Fannie Mae, which is still under the conservatorship of the federal government, reported its mortgage portfolio grew at a compound annual rate of more than 35 percent in May. A report from Dow Jones appearing in the Wall Street Journal indicates a large jump in the issuing of mortgage-backed securities offset continued rises in single-family and multi-family mortgage delinquencies.

Notes of caution, however, are also being heard. Yale University economist and co-founder of the S&P/Case-Schiller home-price index, Robert Schiller told Bloomberg: “At this point, people are thinking the fall is over. The market is predicting the declines are over.” At the same time he is “not optimistic that we’re going to see any sharp rebound.”

Johnson agrees with Schiller.

“It’s still a risky market,” Johnson stresses. “This is the first time in history that you’ve been better off if you’d put your money under a mattress 10 years ago. But hopefully, this indicates that the financial markets are returning to normal.”

Of course this doesn’t mean the housing market or the financial industry will be returning to the halcyon days of pre-mortgage crisis days anytime soon. It doesn’t matter how badly investors, bankers, consumers, lenders, the government or the world at large want it.

“There’s no easy fix,” Johnson concluded. “We have to take our medicine. It took 20 years to create the over-leverage and it will take time to undo that.”

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Why is Citigroup still in business?

Constantine von Hoffman — Fri, 26 Jun 2009 18:14:47 +0000

It’s been quite a week for Citi.

Tuesday it walked into a feces storm of its own making by announcing it would raise salaries by 50% to offset cuts in bonuses.

To be fair to Citi, they are taking (well-deserved) crap for the entire industry on the salary issue. BofA, Morgan Stanley, UBS and others are also trying to dodge the bad PR when huge bonuses are awarded following huge losses. So now instead of bonuses for bad performance execs will just get a huge salary for bad performance. It’s all about retention – or so Citi would like us to believe. Quote from the NYT: “Citigroup executives are so eager to keep employees from fleeing, that in some cases, they are offering them guaranteed pay contracts.” Well, given that those contracts are being paid for with $45 billion of US taxpayer debt who can blame them. Citi is once again free to play with someone else’s money and are being just as responsible as they were the last time. BTW, the idea that these raises are going to the rank-and-file is absolute hogwash. As Alphaville notes, “the biggest increases will go to investment bankers and traders.”

Also on Tuesday, Citi temporarily stopped buying new loans after “discovering” it was missing property appraisals and documents showing borrowers’ incomes.

The discovery came in Citi’s correspondent division, which buys loans from banks and independent mortgage firms, and was responsible for about half of the bank’s $115 billion in mortgages last year. Two great quotes about this:

“There remain key areas that fall short of our quality- control process. We ask you to review your processes and join us in this effort to collectively address these areas of concern.” — Brad Brunts, a managing director at the bank’s CitiMortgage division.

And this from an analyst

“It is better to pull people off the line, and have a thorough re-education of what goes into a loan, so they can come back and do this the right way.”

Not a good sign when you have to re-train people processing mortgages on the most basic elements of how to do their jobs. Are these some of the folks being offered those guaranteed contracts?

Finally, today Japan ordered Citi to halt the marketing of all financial products to retail customers for a month because of bank “failed to implement sufficient measures aimed at preventing suspicious transactions, including money laundering.”

This really takes the idea of not verifying income to a new level.

RealityFrame’s comment about the raises could really be applied to pretty much everything the bank touches: Anybody want to dispute that those banksters aren’t indeed the "best and the brightest"?

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

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Roubini: No confidence in government exit strategy

Morgan — Wed, 24 Jun 2009 22:34:58 +0000

In this Bloomberg segment Dr. Nouriel Roubini shares his thoughts on why pundits proclaiming the stabilization of the housing market are wrong and why the current policy path is unsustainable and likely to have a messy exit. My favorite part? The idea of our debt ballooning from 40% GDP to 80%. Lovely. Can you say bust?

Definitely worth watching:

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Don’t bet on the consumer

Morgan — Wed, 17 Jun 2009 15:40:02 +0000

All this green shoot talk and pronouncements that the worst is over fails to take into account the sorry state of the US consumer. Sure indicators may be turning (are they really?) but the fact remains that the US consumer, the same people responsible for 70% of our nation’s GDP are still in a world of hurt. Below are an amazing set of graphs that show how much of the consumer-class wealth was eliminated over the last year and a half (22%) and how much debt the consumer is carrying (128% debt-to-income ratio).

These factors don’t portend a speedy or vibrant recovery. When 70% of the economy is still fundamentally hurting, the rest of the economy can’t do much in terms of coming around.

And there isn’t really any clear path out of this. Wages are dropping, total employee compensation is dropping, the average consumer isn’t earning enough to keep up with their debt load.

Until the consumer issues of debt are resolved we will have no recovery.

See more incredible graphs from the Huffington Post (all graphs from HuffPo):

When economist David Rosenberg left Merrill Lynch to head back to his native Canada, he gave a nod to Bob Farrell’s Ten Rules To Remember by penning his own. They are both keepers. Among the most important of the rules Rosie laid down, in my opinion, is #12: Get the US consumer right and everything else will take care of itself. The reason is fairly simple: The U.S. consumer has the biggest balance sheet on the planet. The U.S. consumer represents 70 percent of our GDP and about 18 percent of global GDP.

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California Foreclosure Prevention Act goes into effect tomorrow

Morgan — Mon, 15 Jun 2009 05:36:31 +0000

The state of California is imposing a 90-day moratorium on all foreclosures as part of the new California Foreclosure Prevention Act that goes into effect tomorrow. The law requires that lenders prove they tried to modify a borrower’s loan before initiating foreclosure proceedings.

From the San Jose Mercury News:

The law is expected to make lenders try harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.

But supporters acknowledge the California Foreclosure Prevention Act won’t stop thousands of foreclosures from eventually happening. There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled.

The highlights of the law are (from California Assembly Member Ted Lieu’s site):

1. Imposes a 90 day foreclosure moratorium to allow distressed homeowners time to work out loan modifications with their lenders.

2. Allows lenders to avoid the moratorium if they have a comprehensive loan modification program based, in part, on criteria set forth by the Federal Deposit Insurance Corporation. Loans may be modified several ways, including interest rate reductions, extension of the loan term, or principal reduction.

3. Provides oversight and accountability by requiring regular reports to the legislature on loan modifications and foreclosure reductions, and coordination with appropriate state regulators.

We have some real rocket scientists up in our state legislature. At least I’m not the only one who thinks this is completely idiotic. From Mish:

This bill is no more likely to work than a bill declaring poverty to be illegal or the sky to be green.

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Abracadabra Obama

Morgan — Fri, 12 Jun 2009 16:46:59 +0000

I remember going through a phase where I wanted to learn how to do card tricks to impress my friends and members of the fairer sex. I read several books on the subject and the number one thing to learn is to get the observer’s eyes off the deck of cards. Create a distraction. In fact, it’s in all good illusion handbooks. Misdirection, getting the audience to look in one place so they don’t notice what is going on in another is the key to being a good magician.

As the Obama administration announces its turn to its key campaign issue of healthcare, I cannot help but think back to those books and the key tenent of illusion – creating a distraction so that no one notices what’s really going on. Now, granted, pulling it on a national level in front of an unwitting audience of hundreds of millions is far more difficult than getting your three snot-nosed friends off the scent; but the fact remains that this public move to healthcare by Obama seems nothing less than a ruse to get us off the scent of the bailout. To get us to stop scrutinizing the complete lack of enforcement, investigation, reform or action (other than handing them hundreds of billions of dollars) against the malfeasance, greed, ineptness of those that engineered this meltdown.

As bills like HR 1728 wind through Congress shifting ever-more power in the real estate market to the remaining big banks, and accounts of the Fed buying more mortgage backed securities and running secret repo accounts to keep the markets moving, and the dog-and-pony Congressional hearing of Ken Lewis and the complete lack of enforcement activity by the Federal government and…no wonder the administration is playing slight of hand.

Hopefully you’re as pissed as I am. Your pissed that the government decides that 3-card monte is the way to reduce the public ire and let the status quo remain. That the same folks who caused the mess and are now benefiting from it are also being given the wink-wink, nudge-nudge from the government. An unspoken offer of amenesty to anyone who goes along with their ill-advised plans.

There is a great piece in the Huffington Post about the same thing, and is well worth the read.

This makes me nervous for two reasons. First, it portends a long drawn out legislative battle on health care reform with more time for industry lobbyists and the Congresspersons and Senate persons on their payrolls to compromise away or wreck the change we so deeply need.

Second, it confirms that the lobbyists for financial institutions — the people responsible for the collapse of our economy—have been scheming and wrangling to gut the reforms that could stop anther economic breakdown. Reviving this industry without restructuring and re-regulating it just guarantees another disaster down the line.

…

Shamus Cooke writes on Global Research: “History will likely show that these bailouts involved the largest transfer of wealth ever – from the working class to that small group of billionaires who own the corporations. This fact is recognized by most people now and is such common knowledge that even the mainstream media feels comfortable discussing it . . . matter-of-factly.

These corporations have also exerted tremendous influence in other realms of politics, working towards destroying Obama’s campaign promises of health care, job creation, civil liberties, the Employee Free Choice Act, peace, etc.

In each case, the promised reform was gutted of its essence, and ‘compromise’ versions of the bills are now being discussed: instead of universal health care, we will likely be universally mandated to purchase health insurance; instead of ‘job creation’ we are told that the stimulus has ’saved jobs’ (contrary to the evidence); while troops are ‘drawing down’ from Iraq, the war in Afghanistan/Pakistan is being escalated; instead of allowing workers to organize unions easier, a compromise version — Employee Free Choice Act, minus card check – seems more politically ‘pragmatic,’ etc.”

What do you think? How angry are you that while employment tanks we’re being fed a line of crap about healthcare to take our minds off the fact that nothing, NOTHING, has changed.

Hocus Pocus.

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Where’s Wells Fargo in the TARP repayments?

Morgan — Wed, 10 Jun 2009 05:31:04 +0000

We reported earlier that 19 banks were OK’d by the Treasury to pay back the TARP funds that were injected in to them during the first round of the bailout. According to the naked capitalism here are the banks that passed stress tests and will get to pay their TARP funds back:

The institutions are the following:

Passed the stress tests: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.
Failed the stress tests: Morgan Stanley
Was not subject to stress tests: Northern Trust

Bank of America and Citi have been told to bolster their reserves after failing to meet the Treasury’s standard. That leaves Wells Fargo, who was nowhere to be found on this list. So what to make of the absence of Wells? Bloomberg reports that Wells never applied, while others believe that Wells was denied by Geithner and the Treasury because of a still-shaky balance sheet.

From The Business Insider:

This is an important question. There is already speculation that Wells Fargo may have asked to get out of the TARP and been rejected. After all, Wells Fargo has been very vocal about wanting out. In fact, it’s been widely reported that Wells never wanted to take TARP funds at all.

I believe that Wells was told not to even apply. The problem with Wells is that they still have massive exposure in the Western bubble states where the biggest devaluations are occuring. This makes millions of dollars of second mortgages and home equity loans worth ZERO. Imagine writing off to zero your entire portfolio of second mortgages and HELOCs. Now that’s some serious pressure on your balance sheet and capital reserves.

Whether Wells wanted the TARP funds, I believe it’s a smart move that they’re not allowed to pay them back yet. With California still yet to experience the crushing reset problems of the Option ARM loans that will start rolling in at the end of this year, the real estate market is anything but clear. Those assets could fall further – which could result in Wells Fargo needing MORE TARP funds, not less.

From last April right here on Blown Mortgage:

In Moody’s affirmation of Wells Fargo’s Aaa credit rating the rating agency pointed to the health of Wells Fargo’s $83.68 billion home equity portfolio as a key driver in the company’s rating. If this portfolio should see degradation then the bank’s rating could suffer, said Moody’s in a press release.

What do you think? Why wasn’t Wells Fargo anywhere to be seen in the repayment news?

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