Monday March 16 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Second Liens Forgiven: Are You Kidding Me? - (www.cnbc.com) Amid the dozens of pages of details of the Obama mortgage modification plan, one new element will likely not make it into the headlines because it’s something of an afterthought.
It has to do with second liens, that is piggy back loans or home equity lines of credit. Deep deep in the pages of the plan, is paragraph vi. Second Liens: While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien. So in an effort to help borrowers stay current on their newly modified loan, which is at a nice new 31% debt to income ratio, the government is also going to pay cash money to get servicers to totally wipe out second liens. When I heard this I thought there might have been something funky in my morning muffin. It’s not that I don’t get the reasoning. Sure, do all you can to help people pay their mortgage, like get rid of other debt. By why stop there? What about car loans? Student loans?? The second liens, in general, were used by borrowers to either buy more home than they could really afford or to use their homes as ATM machines. Yes, some people use home equity lines of credit to pay college tuition.

Senators Ask Who Got Money From A.I.G. - (www.nytimes.com) Trying to draw a line in the sand, a Senate panel told the vice chairman of the Federal Reserve to identify all the parties made whole by the bailout of the American International Group or forget about coming back to ask Congress for more rescue money. “You will get the biggest no you ever got,” Senator Jim Bunning, Republican of Kentucky, warned Donald L. Kohn, vice chairman of the Fed board of governors, in a hearing on Thursday. “I will hold up the bill.” The hearing, led by Senator Christopher Dodd, Democrat of Connecticut and chairman of the Senate Banking Committee, was called to examine the regulatory patchwork that had allowed huge risks to build up at A.I.G. Since the insurance conglomerate’s near collapse in September, the federal government has committed $160 billion to keep it afloat. Tens of billions of those dollars have merely passed through A.I.G. to its derivatives trading partners, shielding them from losses. The Fed has refused to provide the names of those financial institutions, and senator after senator, Democrat and Republican, said that was an outrage. “We need to know who benefited, and we’re going to find out,” said Senator Richard C. Shelby, Republican of Alabama and the ranking member of the committee. “The Fed can be secretive for a while but not forever.” Mr. Kohn said the Fed believed that the only hope of recovering the taxpayers’ money was to get A.I.G. back on its feet, doing business as usual — and that meant respecting its customers’ privacy. “I would be very concerned that if we gave out the names, people wouldn’t want to do business with A.I.G.,” he said. But at Senator Dodd’s urging, he agreed to go back to the Fed and ask the other governors to reconsider. “We’re in a new world, and new types of transparency are required,” he said.

Undisclosed Losses at Merrill Lynch Lead to a Trading Inquiry - (www.nytimes.com) In the final, frantic months of 2008, Merrill traders apparently lost hundreds of millions on gambles that came to light only after its merger with Bank of America. One Merrill Lynch trader apparently gambled away more than $120 million in the currency markets. Others seemingly lost hundreds of millions on tricky credit derivatives. But somehow all this red ink did not spill into plain view until after Merrill earmarked billions for bonuses and staggered into the arms of Bank of America. Inside Bank of America headquarters here, executives are asking why. The bank is investigating how Merrill accounted for wayward trades in the final, frantic months of 2008 — and why at least one big loss was slow to appear on Merrill’s books. Of particular concern are the activities of a Merrill currency trader in London, Alexis Stenfors, whose trading has come under scrutiny by British regulators, according to people briefed on the investigation. The loss Mr. Stenfors is believed to have incurred so alarmed Bank of America that this week the bank examined the books of other traders who were on vacation. Bank of America’s embattled chief executive, Kenneth D. Lewis, is trying to bridle Merrill’s traders, whose rush into risky investments nearly brought down the brokerage firm. But questions over the Merrill losses — in particular, who knew about them, and when — keep swirling. Merrill hemorrhaged $13.8 billion during the final three months of 2008 alone.

Frank Monstrosities - (Mish at globaleconomicanalysis.blogspot.com) Barney Frank is in the news. As is typically the case with "Frank News", Barney is throwing stones in the wrong direction. Please consider Frank Seeks to Curb ‘Phenomenon of Securitization’. The “phenomenon of securitization” must be curtailed by lawmakers to prohibit banks and mortgage lenders from shifting all the risk on loans they originate and sell to investors, U.S. House Financial Services Committee Chairman Barney Frank said. “I will be pushing for legislation that will make it illegal for anybody to securitize 100 percent of anything,” Frank, a Massachusetts Democrat, told reporters at a briefing in Washington today. Securitization is a “large part” of the problem in the housing market, he said. “It’s 100 percent securitization that allows bad originations because people make loans and don’t have to worry about being paid back,” Frank said. “Nobody should be taking more risk than he or she can afford to pay off.” Frank also said he plans to hold committee votes this month on a separate bill to curb so-called predatory lending, as well as legislation to curtail credit-card companies from practices “harmful” to consumers. The mortgage bill will be designed to “rein in the abusive practices that significantly contributed to the current mortgage crisis,” Frank said. Barney Frank Is A Hypocrite: Dear Barney "You are a first order magnitude hypocrite. I am talking about your support of HR 600, the down payment assistance program that allows for 0% skin in the game via seller financed down payments." FHA loans are blowing up 3 times as fast under programs sponsored by Frank. Inquiring minds who have not yet done so should read Stop The Seller Funded Down Payment Assistance (SFDPA) Scam then send hypocrite Frank an appropriate message. Is Securitization The Problem? Some might think that Barney Frank's legislation is appropriate. I don't. The problem is not securitization, but rather policies that foster reckless lending. In other words the the problem is the Fed, fractional reserve lending, and Congress. Amazingly banks are acting responsibly for the first time in a decade, and guess who has a problem with that. Why it's none other than Barney Frank who wants to force banks to lend. Please give Barney Frank a call at (202) 225-5931 and tell him how you feel about HR 600, his ideas about forcing banks to lend, and other "Frank Monstrosities".

ADP Reports February Nonfarm Private Employment Decreased 697,000 - (http://globaleconomicanalysis.blogspot.com) Nonfarm Private Employment Decreased 697,000 according to the February ADP National Employment Report®. Nonfarm private employment decreased 697,000 from January 2009 to February 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from December 2008 to January 2009 was revised down by 92,000, from a decline of 522,000 to a decline of 614,000….. Look for another grim employment report on Friday, perhaps in the range of 600,000 to 800,000 jobs lost. This will be the 14th consecutive months of jobs lost, and the numbers appear to be accelerating to the downside with no end in sight.

North Dakota's Bank Makes State Uniquely Prosperous - (www.globalresearch.ca) On February 19, 2009, California narrowly escaped bankruptcy, when Governor Arnold Schwarzenneger put on his Terminator hat and held the state senate in lockdown mode until they signed a very controversial budget.1 If the vote had failed, the state was going to be reduced to paying its employees in I.O.U.s. California avoided bankruptcy for the time being, but 46 of 50 states are insolvent and could be filing Chapter 9 bankruptcy proceedings in the next two years.2 One of the four states that is not insolvent is an unlikely candidate for the distinction – North Dakota. As Michigan management consultant Charles Fleetham observed last month in an article distributed to his local media: “North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie – Fargo. Yet, for some reason it defies the real estate cliché of location, location, location. Since 2000, the state’s GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!” What does the State of North Dakota have that other states don’t? The answer seems to be: its own bank. In fact, North Dakota has the only state-owned bank in the nation. The state legislature established the Bank of North Dakota in 1919. Fleetham writes that the bank was set up to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. Three elected officials oversee the bank: the governor, the attorney general, and the commissioner of agriculture. The bank’s stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota. The bank operates as a bankers’ bank, partnering with private banks to loan money to farmers, real estate developers, schools and small businesses. It loans money to students (over 184,000 outstanding loans), and it purchases municipal bonds from public institutions. Still, you may ask, how does that solve the solvency problem? Isn’t the state still limited to spending only the money it has? The answer is no. Certified, card-carrying bankers are allowed to do something nobody else can do: they can create “credit” with accounting entries on their books.

At Federal Reserve, nothing succeeds quite like failure - (www.taipeitimes.com) “Wall Street may be more comforted by an approach that gives banks bailouts with no strings and that holds nobody accountable for their reckless decisions, but such an approach won’t solve the problem,” US President Barack Obama said on Feb. 24. It’s not much fun to be a banker these days. One leading European banker says a poll showed that the only groups now held in lower regard are prostitutes and convicted felons. There are plenty of people who would be quite happy to see a few bankers join the latter group. The opprobrium is well earned. The banks invented toxic securities and thought they were making lots of money from them, but the bosses seem to have been too busy flying around on their private jets to understand the risks they were taking. Now their banks are in business only because the government has poured hundreds of billions of dollars into them. But it was not all their fault. These were regulated institutions, and the regulators failed. Remarkably, the institution that had the most direct responsibility to prevent the debacle — the Federal Reserve — has taken little heat for its own failures. There has been no congressional hearing where Fed officials were treated to anything like the grilling that the division chiefs of the Securities and Exchange Commission (SEC) received three weeks ago. Instead, Congress appears ready to increase the Fed’s powers. Sometimes nothing succeeds like failure. In his speech to Congress, the president asked legislators to quickly reform financial regulation. It appears Congress may act quickly, but not on an overall reform plan. Representative Barney Frank, the chairman of the House Financial Services Committee, told me after the speech that he expected to pass a bill this year to make the Fed into a “systemic regulator,” able to take jurisdiction over any financial institution if it threatens the financial system. When I asked about other regulatory reform ideas, like giving the SEC powers similar to those of the Food and Drug Administration, so that a new financial product could not be sold widely without approval, Frank said those would be for a later round of legislation.

Obama Mortgage Plan Lacks Safe Harbor Against Investor Suits - (money.cnn.com) The success of the Obama administration's plan to cut mortgage payments for millions of at-risk homeowners hinges on congressional action to shield mortgage servicers against lawsuits from investors, a top mortgage industry official said. The plan, which the administration kicked off Wednesday, is heavy on incentives for mortgage servicers and borrowers, but provides no protection for servicers against lawsuits from mortgage investors who might become angry about the modifications. Roughly 60% of seriously delinquent U.S. mortgage loans are concentrated in " private label" mortgage-backed securities, or MBS, which are not issued by Fannie Mae (FNM) and Freddie Mac (FRE). Such mortgages "probably won't be modified until there's a safe harbor," David G. Kittle, the chairman of the Mortgage Bankers Association, said. "The incentives are not enough to protect anyone from a lawsuit." Under the program, the government would pay mortgage servicers a $1,000 one- time fee to reduce borrowers' mortgage payments to 38% of their income for five years. The government would then match the cost of further interest rate reductions or other measures intended to bring mortgage payments down to 31% of borrowers' income.
The government would make generous annual payments to servicers and borrowers if the loan stays current. The only incentive for mortgage investors is a $1,500 payment for modifying loans that are not yet delinquent. The program does nothing to address what has been one of the biggest impediments to loan modifications during the housing crisis - the misalignment of the interests of mortgage servicers and mortgage investors in private-label securities.

Commercial Renters Have a New Worry: A Landlord’s Default - (www.nytimes.com) Office landlords have always scrutinized the financial stability of prospective tenants, but now they are finding themselves under the lens. Prospective tenants are asking for financial statements from landlords, hoping to avoid companies that might default on their mortgages and leave tenants at risk of losing the space. Tenants are also more wary of subleasing space, and are tending to flock to buildings with stable owners. “We have to be more attentive to the finances of our landlords than we’ve ever been to get a sense of their financial stability and ability to service their debt,” said David N. Feldman, a managing partner at the law firm Feldman Weinstein & Smith, a 12,500-square-foot office tenant at 420 Lexington Avenue near Grand Central Terminal that, with a lease expiring in 2011, will soon start looking for office space. During the recent era of cheap money that led to the real estate boom, many investors bought their office buildings at high prices with extensive debt, hoping to flip the building quickly. Some landlords calculated their cash flow too optimistically, intending to lease poorly performing office buildings at high rents to maximize their profit, and are having trouble paying their debt, in some cases falling behind on payments.


OTHER STORIES:

Lennar CEO Miller Got $1.1M in 2008 Compensation - (www.ml-implode.com)
Top Secret Musings And Other Economic Insanity - (www.ml-implode.com)

Frank Seeks to Curb ‘Phenomenon of Securitization’ - (www.bloomberg.com)
Mortgage Delinquencies Rise to Record on Job Losses - (www.bloomberg.com)
U.S. Sets Big Incentives to Head Off Foreclosures - (www.nytimes.com)
Darth Wall Street Thwarting Debtors With Credit Swaps - (www.bloomberg.com)
12 pct. are behind on mortgage or in foreclosure - (finance.yahoo.com)
Freddie Mac Says U.S. Fixed Mortgage Rate Rose to 5.15 Percent - (www.bloomberg.com)
Citigroup Debt Risk Jumps to Record, Credit-Default Swaps Show - (www.bloomberg.com)
ECB cuts key rate to record low - (www.marketwatch.com)
Bank of England Cuts Rates, Starts Asset Purchases - (www.bloomberg.com)
Bank of England embarks on quantitative easing - (www.marketwatch.com)
Property prices fall across Europe - (www.ft.com)
U.K. February House Prices Decline Annual 17.7%, Halifax Says - (www.bloomberg.com)
China Exporters Blame Yuan in ‘Life and Death’ Crisis - (www.bloomberg.com)
U.S. Jobless Claims Exceed 600,000 for a Fifth Week - (www.bloomberg.com)
Recession Deepening Across Regions, Industries, Fed Says - (www.washingtonpost.com)
Fed Refuses to Release Bank Lending Data, Insists on Secrecy - (www.bloomberg.com)
GM auditors raise doubts on automaker's viability - (finance.yahoo.com)
GE Treated Like a ‘Leper’ as Investors Punish Shares - (www.bloomberg.com)
The Black Hole in America’s GDP – (www.project-syndicate.org)

One in five U.S. mortgage borrowers are underwater - (news.yahoo.com)
58.2% of Las Vegas houses have negative equity - (www.lasvegassun.com)
Projects grind to halt, house sites turn to wasteland - (www.latimes.com)
U.S. private sector bleeds jobs - (news.yahoo.com)
Foreclosure Prevention Plan Launches, Ignoring Renters - (www.washingtonpost.com)
Just How Invisible are Renters? - (reallyf— www.kedhomeowner.com)
Government's adjustable teaser loan plan - (sound familiar?) - (themessthatgreenspanmade.blogspot.com)
Obama's Housing Plan Will Just Create Another Housing Crash - (www.nuwireinvestor.com)

Investors buy at discount, reliquefy bad loans into good loans - (www.bloomberg.com)
Obama's ball and chain: the banks - (www.iht.com)
Bair Says FDIC Could Be Insolvent This Year Without Bank Fees - (www.bloomberg.com)