KeNo's Housing and Economic Portal: Sunday June 6 Housing and Economic stories

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A Tough Time for Self-Employed Borrowers - (www.nytimes.com) MOST borrowers are facing a much tougher mortgage environment than a few years ago, but for those who are self-employed or own small businesses, maneuvering through a loan application can be even more arduous. Before 2008 these borrowers, many of whom have difficulty documenting their income, often used what are known as stated-income loans. Lenders focused on credit histories and earnings estimates, circumventing the need for pay stubs or W-2s. But during the mortgage crisis, stated-income loans became known as “liar’s loans,” because some borrowers falsely inflated their incomes, and qualified for more than they could afford. Today, stated-income loans have nearly disappeared. Those still available through regional lenders like Hudson City Savings Bank come at a cost: interest rates around a quarter of a percentage point higher than conventional loans and down payments of at least 30 percent. The self-employed borrower’s only choice, mortgage brokers say, is to submit two years’ tax returns and hope that they qualify for a conventional loan.

A Credit Union That Played With Fire - (www.nytimes.com) WHEN Wall Street is accused — as it has been so often these days — of selling risky products to unwitting customers, it usually argues that investors in such exotic stuff are sophisticated adults capable of assessing any hidden dangers. So it goes with collateralized debt obligations, or C.D.O.’s, which are bonds, loans and other assets that the Street pools together and sells as packages of securities. Purveyors of C.D.O.’s maintain that buyers who lost billions in these mortgage-related instruments were, of course, sophisticated. But as a recent report from the inspector general of the National Credit Union Administration shows, it is neither credible nor factual that only savvy investors bought C.D.O.’s. The report analyzes the April 2009 collapse of the Eastern Financial Florida Credit Union. Based in Miramar, Fla., this state-chartered institution was created in 1937 to serve the Miami employees of what later became Eastern Airlines. The institution added other Florida employee groups and was serving 208,000 members when it failed last year. Eastern Financial had $1.6 billion in assets at the end of 2008. The company was placed in conservatorship on April 24, 2009. It was taken over by the Space Coast Credit Union of Melbourne, Fla. The failure will cost the National Credit Union Share Insurance Fund, the federal agency that guarantees credit union deposits, an estimated $40 million.

S&P Cuts to Junk Mortgage Bonds It Rated AAA in 2009 - (www.bloomberg.com) Standard & Poor’s cut to junk the ratings on certain securities, backed by U.S. mortgage bonds, that it granted AAA grades when they were created last year by Credit Suisse Group, Jefferies Group Inc. and Royal Bank of Scotland Group Plc. The reductions were among downgrades to 308 classes of so- called re-remics, or re-securitizations, created from 2005 through 2009, the New York-based ratings company said today in a statement. About $150 million of the debt issued last year, as recently as July, with top rankings were lowered below investment grades, according to data compiled by Bloomberg. “The downgrades reflect our assessment of the significant deterioration in performance of the loans backing the underlying certificates,” S&P analysts Cesar Romero and Terry G. Osterweil said in the statement. Such re-securitizations, used by Wall Street after the credit crisis began to help create more valuable debt to sell or to restructure investors’ holdings, last year expanded from home-loan bonds to commercial-mortgage securities and collateralized loan obligations backed by company loans. S&P, a unit of McGraw-Hill Cos., was the only firm to assign grades to the 2009 securities initially ranked AAA and cut to junk, according to Bloomberg data. Ed Sweeney, a spokesman, declined to comment. Investors including public pension funds and policy makers such as a Senate investigative panel have blamed ratings companies including S&P and Moody’s Investors Service for helping cause the global financial crisis by assigning top grades to mortgage-linked securities that later blew up.

Schwarzenegger Compares California to Greece, Ireland and Spain - (www.businessinsider.com) Okay, so it's not just us. At his big press conference yesterday, where he announced "absolutely terrible" budget cuts in California, Arnold Schwarzenegger went there, comparing his state to the PIIGS of Europe. His exact quote, via Reuters: "You see what is happening in Greece, you see what is happening in Ireland, you see what is happening in Spain now... We are left with nothing but tough choices." You have to admire his candidness. He's right, after all. Among the "tough choices" include the eliminating of CalWORKS, state-funded child-care programs, In-Home Supportive Services, Health Families program and 5% pay cut for state workers. This is going to go down horribly.

Goldman joins effort to rescue Chicago bank - (finance.yahoo.com) Goldman Sachs Group Inc and a consortium of other top banks are part of an effort to save ShoreBank Corp, a Chicago bank with Washington ties, a community activist close to the institution said on Friday. Goldman, Citigroup, JPMorgan and Bank of America are helping raise the $125 million the troubled community development lender needs to avoid a government takeover, said the activist, Bill Brandt, chairman of the Illinois Finance Authority, a state economic development entity. ShoreBank is just one of hundreds of small U.S. banks dealing with distressed loan portfolios. But it has built strong political ties, largely because of the national recognition it has received over the years for its efforts to extend loans to low-income communities and environmental causes. The bank, whose website even boasts of a connection to PresidentBarack Obama, and its plight have become a positive publicity opportunity for Wall Street banks facing increased scrutiny over their role in the recent financial crisis. "My understanding is that Goldman Sachs has made a significant commitment and will act on this commitment today," Brandt said. "Whether this deal gets finally cooked is a Herculean task." Brandt said Goldman agreed to contribute more than $20 million to help rescue the bank. Goldman Sachs has been trying to burnish its image after confronting political pressures and populist anger over its quick turnaround and perceived lack of concern over the economic downturn.