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Banks in Georgia, North Carolina, Kansas Closed by Regulators - (www.bloomberg.com) Banks in North Carolina, Georgia and Kansas with combined assets of $1.5 billion were seized by regulators last week, costing the U.S. insurance fund $363 million and pushing this year’s tally of failures to 40. Southern Community Bank of Fayetteville, Georgia, and 111- year-old Cooperative Bank in Wilmington, North Carolina, were closed June 19 by state officials, and the Office of the Comptroller of the Currency shut First National Bank of Anthony, Kansas. The Federal Deposit Insurance Corp. was named receiver. Southern Community’s $307 million in deposits were bought by United Community Bank of Blairsville, Georgia, and most of Cooperative’s $774 million in deposits went to First Bank in Troy, North Carolina, the FDIC said. Bank of Kansas in South Hutchinson acquired First Bank’s $142.5 million in deposits. The acquiring banks are assuming a combined $1.47 billion in assets, mostly loans, and signed agreements with the FDIC to share more than 80 percent losses with the government. “The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said in each statement. “The agreement also is expected to minimize disruptions for loan customers.” Regulators this year have closed the most banks since 1993 as a loss of 6 million jobs since the recession began contributes to mounting home foreclosures and loan delinquencies. The U.S. economy contracted at a 5.7 percent annual pace in the first quarter. More than a quarter of all states have unemployment rates higher than 10 percent, the Labor Department said last week.
Too Big to Fail, or Too Big to Handle? - (www.nytimes.com) “No one should assume that the government will step in to bail them out if their firm fails.” That’s Timothy F. Geithner, theTreasury secretary, talking tough with lawmakers last week as he promoted the government’s remake of the financial regulatory framework. Talk is cheap, however. And the notion that the plan shows a new aversion to bailouts is not at all supported by its chapter and verse. In fact, there’s precious little in the 88-page document about how the government will eliminate systemic risks posed by financial firms that aren’t allowed to fail because they’re simply too big or to interconnected to other important economic players here and abroad. Rather than propose ways to shrink these companies and the risks they pose, the Geithner plan argues instead for enhanced regulatory oversight of the behemoths. This suggests the taxpayer safety net will be larger after our national financial train wreck, not smaller. More than two years after the crisis began, “too big to fail” remains “too problematic to address” with anything other than more souped-up regulation. Given that earlier efforts at policing these entities failed so miserably, why should anyone think that a new-and-improved regulatory approach will fare better? “The sudden failures of large U.S.-based investment banks and of American International Group were among the most destabilizing events of the financial crisis,” the Geithner proposal said. “These companies were large, highly leveraged, and had significant financial connections to the other major players in our financial system, yet they were ineffectively supervised and regulated.” All true, of course, with Citigroup — a bank that Mr. Geithner himself regulated — being Exhibit A. But the solution the document proposed is “a new, more robust supervisory regime for any firm whose combination of size, leverage, and interconnectedness could pose a threat to financial stability if it failed.” Hmmm. Sort of an enhanced status quo, just with a bigger safety net. That this taxpayer-supported net will be larger and more encompassing when this mess finally ends comes as no surprise to some people. Last August, Edward J. Kane, a finance professor at Boston College, wrote about just this likelihood in a paper titled “Ethical Failures in Regulating and Supervising the Pursuit of Safety-Net Subsidies.”
More Powerful Fed? Many in Congress Don't Like It - (www.cnbc.com) Don’t fight the Fed. The old Wall Street axiom isn't playing well in Washington as Congress takes its first shots at the Obama administration's package of sweeping reform proposals for the financial sector. Though various aspects of the plan released Wednesday have drawn criticism, the role of the Fed has seen some of the most strident opposition, from blatant skepticism to diplomatic doubting. Legislators from both parties have not only questioned the Fed’s past performance and challenged its future capabilities, but have also expressed concern that the central bank will be politicized more than it already is and turned into a bailout instrument of the executive branch. Sen. Richard Shelby, R-Ala., for instance, told Treasury Secretary Timothy Geithner during a Senate Banking Committee hearing Thursday that the White House proposals showed a "grossly inflated view of the Fed’s expertise." The administration proposals would make the central bank part of a systemic risk council as well as the front-line regulator of too-big-to-fail firms, whose potential failure could threaten the financial system. The Fed would also have the authority to determine if such a threat existed and recommend closing the firm. (The FDIC, however, would execute the so-called "unwinding" of the business.)
Will FHA Loans Bring About Housing Bust Part II? - (www.housingdoom.com) Thank heavens they’ve put a stop to those risky, "no-skin-in-the-game" loans, or have they? [Thanks L!] Think we’re beyond the days of people putting little-to-nothing down for home purchases only to later walk away? Think again … and the government is sponsoring it. For those not familiar with FHA loans, they are loans issued by major banks like Bank of America and Wells Fargo as well as smaller mortgage brokers and the origination arms of builders like Ryland and KB Home. Those loans are then insured against default by the Federal Housing Authority. The rub is that FHA loans allow borrowers to buy a home with as little as 3.5% down. And with the ability in some cases to use the government’s $8,000 tax credit toward down payment, some folks can grab a house for 0% down. Isn’t it loans like that that got us into this mess in the first place? Now technically the law that would allow you to use that tax credit in advance didn’t pass, but the net effect of a down payment less than $8K would be zero down. [Perhaps more if the credit is raised to $15K as has been proposed.] Yes home values have less room to fall and these loans don’t have a nasty interest raise rise built into them, but how committed are buyers likely to be if values drop further? Housing Bust Part II might not be as spectacular as Part I, but is it not likely to delay housing’s recovery?
Plenty of Would-Be Infernos Still Smoldering - (www.financialarmageddon.com) - One reason why the financial crisis has been so devastatingly far-reaching stems from the sheer number of eruptions that helped bring it about. Hence, while the focus has been on putting out nearby fires, other would-be infernos continue to smolder, poised to burst into flames with little or no warning. To give one example, while the bulk of policymakers' efforts are now centered on bringing the charred remains of the U.S. banking system back to life, other equally serious problems continue to fester, as Larry Doyle reminds us in a post for his Sense on Cents blog entitled "Uncle Sam’s Dirty Little Secret": If a tree falls in the forest and nobody is there to hear it, does it make any noise? If an agency is sitting on billions in losses but nobody asks about it, can we forget about it? If an entire group of banks is sitting on hundreds of billions more in losses, and the media is not even aware of this banking system, can we pretend they don’t exist? Oh, if only we could, perhaps our economic life would be so much simpler. While Uncle Sam and the media can choose to overlook these institutions, the losses are real and will serve as a drag on our economy and nation for the foreseeable future. Yet, they receive very little attention. Fortunately, Bloomberg shed a hint of light on part of this problem today in writing, Fannie Mae, Freddie Mac in Limbo as Geithner Seeks More Time: Fannie Mae and Freddie Mac will remain in limbo as the U.S. Treasury secretary said the government doesn’t have time now to deal with the future of the two mortgage-finance companies it seized in September. “We did not believe that we could at this time — in this time frame — lay out a sensible set of reforms to guide, to determine what their future role should be,” Treasury Secretary Timothy Geithner told the Senate Banking Committee in Washington today. “We’re going to begin a process of looking at broader options for what their future should be.” Doesn’t have time or doesn’t want to admit that these agencies represent an ongoing and enormous drag on our economy? How so? Fannie and Freddie hold 50% of the mortgages in our country. These entities are most likely sitting on hundreds of billions in embedded losses currently with limited prospects to generate real revenue. They have no viable business model at this point in time. As a result, rather than entering into an unpleasant and economically harmful dialogue, Geithner chooses to sweep this under the rug. How can Tim do this? Because Uncle Sam has allocated, if not necessarily set aside, funds for these agencies to offset future losses. AsBloomberg highlights: The remainder of Fannie Mae and Freddie Mac’s $400 billion U.S. Treasury lifeline should still be “sufficient” until the government decides how to restructure the companies, Federal Housing Finance Agency Director James Lockhart said in June 3 testimony to a House subcommittee. Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac have already requested $84.9 billion in taxpayer aid through the Treasury’s program to buy the companies’ preferred stock to keep them solvent.
Industry Calls For Resources to Support FHA Growth - (www.housingwire.com) - Industry groups and even a government watchdog on the US Department of Housing and Urban Development (HUD) appeared Thursday before a House Financial Services Subcommittee on Oversight and Investigations, calling for more resources to prop up a HUD program’s growing presence in the residential mortgage market. HUD’s written testimony acknowledged theFederal Housing Administration’s expanding share of the single-family mortgage market, from 3% to 30% in just a few years. The FHA lending program, which insures servicers against default-related loss on FHA-guaranteed mortgages, needs at least another $37m in funds for HUD to combat mortgage fraud and predatory practices throughout the expanding program, according to the department’s statement. “HUD recognizes that the current market environment increases the potential for mortgage fraud and predatory practices on multiple fronts,” HUD officials said in the prepared testimony. “On one level, the significant expansion in the volume of FHA insured loans exposes the insurance funds to increased risk of abuses within the program… At the same time, new forms of predatory practices are on the rise.” And HUD isn’t just sitting by while fraud occurs; its current preventative initiatives span consumer outreach and education programs, increased oversight of FHA lenders, tightening of the lender approval process and expansion of its risk-based monitoring systems. So far for the fiscal year 2009 (which began in fall of 2008), as of May 31 HUD referred 543 cases of suspected fraud to the Office of the Inspector General (OIG), according to the department’s written testimony. But it isn’t enough. The inspector general for HUD, Kenneth Donohue, also appeared before the House subcommittee calling for more resources. To illustrate the explosion of FHA’s presence in the market since the development of the near-third statistic often exchanged by industry players and media outlets, Donohue said data show the FHA’s endorsements (or guarantees of mortgages) rose from 24% of the single-family market in the first quarter of 2008, to 63% of the market in Q109, including home sales and refinance.
OTHER STORIES:
Appeal assessment if you think it's too high - (www.sfgate.com) Most people don't like to boast about how much the value of their home has gone down - unless it's to their county assessor. Starting...
Financial collapse of luxury-resort owners - (www.sfgate.com) Nine days after declaring personal bankruptcy - again - a barefoot Edra Blixseth pads excitedly around Porcupine Creek, her 30...
Bicycle rack yields design for modular home - (www.sfgate.com) Prefabricated houses have long intrigued Modernist architects and, in the wake of Hurricane Katrina when some homes simply floated...
Family loses Chrysler franchise after 81 years - (www.sfgate.com) At the end of the 81-year marriage, the Isaksons said goodbye by turning off the lights. The partnership was over. The Chrysler sign...
California unemployment rises to record 11.5% in May - (www.latimes.com) Men lose jobs more than women. Only four states have higher unemployment rates...
Treasury’s Got Bill Gross on Speed Dial - (www.nytimes.com)
China Should Have ‘Moderately Loose’ Monetary Policy - (www.bloomberg.com)
Apple Chief Steve Jobs Had Liver Transplant - (www.cnbc.com)
Drug Industry Agrees to $80 Billion Medicare Deal - (www.cnbc.com)
Europe's Central Bank Chief Says No More Stimulus - (www.cnbc.com)
Drugmakers May Help Elderly Pay ‘Donut Hole’ Cost for Medicines - (www.bloomberg.com)
The Coming Oil Crisis - (www.newsweek.com)
Soft Market for Cashmere Takes Toll in China - (www.nytimes.com)
In Recession, Strategy Shifts for Big Chains - (www.nytimes.com)
Protestors Clash With Police in Iran - (www.cnbc.com)
Bill Proposes a $15,000 Tax Credit for All Homebuyers - (www.cnbc.com)
Joblessness Continues to Rise in Nearly Every State - (www.cnbc.com)
PMI Group Sees Refis Driving Market Recovery - (www.ml-implode.com) - " Total mortgage originations may top $2.59trn this year, largely due to refinance volume, which will account for some 72% of th...
Making home affordable program may help more underwater homeowners - (www.thetruthaboutmortgage.com) - " The Making Home Affordable program may be further expanded to help more underwater homeowners refinance their mortgages."
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