KeNo's Housing and Economic Portal: Tuesday September 7 Housing and Economic stories

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Congress got loans from Countrywide in exchange for corrupt lawmaking - (www.washingtonpost.com) Federal regulators say former Countrywide CEO Angelo Mozilo personally approved mortgages for favored borrowers that violated the company's policies and lending standards. The Securities and Exchange Commission had previously accused Mozilo of civil fraud and illegal insider trading. Now, the agency says Mozilo played a direct role in a program for preferential borrowers that has been the focus of congressional ethics inquiries. Mozilo criticized Countrywide's chief risk officer for trying to block one of the loans, telling the officer that the company could well afford to approve the special mortgages, the SEC said in a filing last Wednesday in a Los Angeles federal court. California-based Countrywide Financial Corp. was a major player in the market for high-risk subprime mortgages, the collapse of which touched off the financial crisis. The company became the biggest U.S. mortgage lender overall before the meltdown. It was bought by Bank of America Corp. in July 2008.... Last year the Senate's ethics panel determined that Democratic Sens. Christopher Dodd of Connecticut and Kent Conrad of North Dakota did not break rules when they received mortgages from Countrywide. However, the panel scolded them for not being more careful to avoid the appearance of sweetheart deals.

Fannie Mae Eases Credit To Aid Mortgage Lending - (From 1999 - www.nytimes.com) In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring. Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans. ''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Hard-nosed Fed sends global markets reeling - (www.telegraph.co.uk) The global bond markets and the twin havens of the yen and Swiss franc have been flashing warning signs for weeks, tracking leading indicators as they topple like dominoes. They always sniff trouble first. Wall Street and Western bourses have until now brushed aside worries that recovery in the US, Japan and southern Europe may be stalling – as have commodity markets – betting the lords of finance will come to the rescue with more liquidity if needed. Equity investors learned this week that they had misjudged the risk of a relapse as fiscal stimulus wears off, and misread the willingness of the US Federal Reserve to respond. Wrongly viewing Ben Bernanke's Fed as a soft touch, they took a fresh blast of quantitative easing for granted before it was agreed. What has emerged since the acrimonious Fed meeting on August 10 is that Bernanke was unable to marshal a consensus behind fresh QE. Seven members argued that Fed should not take such a drastic step until the economy was in serious trouble, according to Wall Street Journal Fed-watcher Jon Hilsenrath. They settled on a compromise that the Fed should roll over holdings of bonds as they reach maturity to avoid passive tightening. But there was no deal on further action. Philadelphia's Charles Plosser grumbled that the Fed had sent "a garbled message". More ominously, some Fed officials fear the central bank is already "pushing on a string" and does not have the means to revive the economy. Whether or not they are right, this comes as a psychological shock for investors schooled by the "Greenspan Put' into thinking that there is a deus ex machina in the wings.

Has Wall Street Come Out the Big Wiiner, Yet Again? - (www.newsweek.com) Barack Obama was “incredulous” at what he was hearing, said one of his top economic advisers. The president had spent his first year in office overseeing the biggest government bailout of the financial industry in American history. Together with Federal Reserve chairman Ben Bernanke, he had kept Wall Street afloat on a trillion-dollar tide of taxpayer money. But the banks were barely lending, and the economy was still mired in high unemployment. And now, in December 2009, the holiday news had started to filter out of the canyons of lower Manhattan: Wall Street’s year-end bonuses would actually be larger in 2009 than they had been in 2007, the year prior to the catastrophe. “Wait, let me get this straight,” Obama said at a White House meeting that December. “These guys are reserving record bonuses because they’re profitable, and they’re profitable only because we rescued them.” It was as if nothing had changed. Even after a Depression-size crash, the banks were not altering their behavior. The president was being perceived, more and more, as a man on the wrong side of an incendiary issue..... Obama’s cautious, late embrace of Volcker was all too typical. He had arrived in office perceived by some as the second coming of Franklin Delano Roosevelt. Yet Obama hadn’t acted much like FDR in the ensuing months. Instead he had faithfully channeled Summers and Geithner and their conservative approach to stimulus and reform. Early on, Obama’s two key economic officials had argued down Christina Romer, the new chairwoman of the Council of Economic Advisers, when she suggested a massive $1.2 trillion stimulus to make up for the collapse of private demand. They opted for slightly less than $800 billion. “We believe that this is a properly sized approach to move the economy forward,” said Summers, who didn’t want to expand the federal deficit or worry the bond market. With the recession still darkening their outlook, Summers and Geithner also didn’t want to tamper too much with what they still saw as the economy’s engine room: Wall Street. Partly on their advice, the president “explicitly decided not to break up all big financial institutions,” said another top economic adviser, Austan Goolsbee.

Policy Options Dwindle as Economic Fears Grow - (www.nytimes.com) THE American economy is once again tilting toward danger. Despite an aggressive regimen of treatments from the conventional to the exotic — more than $800 billion in federal spending, and trillions of dollars worth of credit from the Federal Reserve — fears of a second recession are growing, along with worries that the country may face several more years of lean prospects. On Friday, Ben Bernanke, chairman of the Fed, speaking in the measured tones of a man whose word choices can cause billions of dollars to move, acknowledged that the economy was weaker than hoped, while promising to consider new policies to invigorate it, should conditions worsen. Yet even as vital signs weaken — plunging home sales, a bleak job market and, on Friday, confirmation that the quarterly rate of economic growth had slowed, to 1.6 percent — a sense has taken hold that government policy makers cannot deliver meaningful intervention. That is because nearly any proposed curative could risk adding to the national debt — a political nonstarter. The situation has left American fortunes pinned to an uncertain remedy: hoping that things somehow get better.