KeNo's Housing and Economic Portal: Saturday August 14 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

House lawmaker calls for probe of Fannie Mae allegations - (www.reuters.com) The top Republican on the House Financial Services Committee called on Friday for an investigation into charges that mortgage finance giant Fannie Mae pushed borrowers into a mortgage aid program so it could receive incentive payments from the U.S. government. Spencer Bachus, the top Republican on the House Financial Services Committee, asked panel chairman Barney Frank to hold a hearing to investigate allegations made in a lawsuit filed in June by former Fannie Mae consultant Caroline Herron. The Center for Public Integrity, a government watchdog group, disclosed the lawsuit on Friday. In it, Herron said she was fired in January after she raised questions about delays and missteps in President Barack Obama's $50 billion Home Affordable Modification Program (HAMP). The HAMP program, which is administered by Fannie Mae, helps subsidize new terms for borrowers struggling to keep up with their mortgage payments. "If true, it would help explain why HAMP has been such a failure," said Bachus. "It would mean that thanks to Fannie Mae's executives' misfeasance, particularly a preoccupation with short-term financial gain, HAMP was only able to permanently modify about 230,000 mortgages, instead of the 3 million modifications that the Obama Administration promised," he said.

Fannie Mae, Freddie Mac losing political support as U.S. reshapes housing finance system - (www.washingtonpost.com) For several decades, whenever a question of housing policy came up in Washington, two companies dominated. Fannie Mae and Freddie Mac marshaled armies of lobbyists, deep political connections and millions of dollars in contributions to get their way. But now Fannie Mae and Freddie Mac, titans of the mortgage finance industry, are wards of the state, bailed out by Washington to the tune of $160 billion and banned from political activity. As the Obama administration and Congress prepare to take up overhauling the $12 trillion U.S. mortgage market, new interests are shaping the debate like never before. Among those influencing many Democrats are affordable housing advocates and liberal think tanks that want the government to do less to foster homeownership and more to support rental housing for low-income people. Those influencing Republicans favor sharply reducing all federal support for housing. In the past, Fannie and Freddie found backers on both sides of the political aisle. Key Democrats in Congress and in the Clinton administration were their most ardent supporters. President George W. Bush touted an "ownership society," relying on Fannie and Freddie to help low-income people buy homes.

Housing Policy’s Third Rail - (www.nytimes.com) WHILE Congress toiled on the financial overhaul last spring, precious little was said about Fannie Mae and Freddie Mac, the mortgage finance companies that collapsed spectacularly two years ago. Indeed, these wards of the state got just two mentions in the 1,500-page law known as Dodd-Frank: first, when it ordered the Treasury to produce a study on ending the taxpayer-owned status of the companies and, second, in a “sense of the Congress” passage stating that efforts to improve the nation’s mortgage credit system “would be incomplete without enactment of meaningful structural reforms” of Fannie and Freddie. No kidding. With midterm elections near, though, there will be talk aplenty about dealing with the companies precisely because Dodd-Frank didn’t address them. Unfortunately, if past is prologue, this talk is likely to be more political than practical. Fannie and Freddie amplified the housing boom by buying mortgages from lenders, allowing them to originate even more loans. They grew into behemoths because they lobbied aggressively and played the Washington political game to a T. But after both companies bought boatloads of risky mortgages, they required a federal rescue.

Illinois Bank Ravenswood Shut as Failures This Year Reach 109 - (www.bloomberg.com) Ravenswood Bank, a Chicago-based lender with $265 million in assets, was shut by regulators as the number of U.S. failures this year reached 109. Northbrook Bank & Trust Co. acquired Ravenswood’s $270 million in deposits and two branches, according to a statement posted today on the Federal Deposit Insurance Corp. website. The failure cost the FDIC’s deposit-insurance fund $68.1 million. Regulators may close the most banks this year since 1992 as borrowers struggle to keep up with payments amid weak hiring and bad residential and commercial loans impair capital levels. Failures in 2010 will surpass last year’s total of 140, FDIC Chairman Sheila Bair said last month in a Bloomberg Television interview. “If the economy remains weak and we don’t see material workouts of these problematic commercial loans, we would expect to see a material number of failures spilling into 2011,” Frederic Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said today in a phone interview.

Battle Looms Over Huge Costs of Public Pensions - (www.cnbc.com) There’s a class war coming to the world of government pensions. The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide. The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks. At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying. The figure comes from a study by the Pew Center on the States that came out in February. Pew estimated a $1 trillion gap as of fiscal 2008 between what states had promised workers in the way of retiree pension, health care and other benefits and the money they currently had to pay for it all. And some economists say that Pew is too conservative and the problem is two or three times as large. So a question of extraordinary financial, political, legal and moral complexity emerges, something that every one of us will be taking into town meetings and voting booths for years to come: Given how wrong past pension projections were, who should pay to fill the 13-figure financing gap?