KeNo's Housing and Economic Portal: Friday March 25 Housing and Economic stories

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AARP Sues US Over Effects of Reverse Mortgages - (www.nytimes.com) Reverse mortgages, which pay older homeowners a regular sum against the equity in their house, are supposed to shield borrowers from economic upheaval. But the popular loans have become tangled up in the real estate collapse. AARP, the seniors’ organization, filed suit Tuesday against the Department of Housing and Urban Development, which regulates reverse mortgages. The suit asserts that policy changes by HUD are pushing older homeowners into foreclosure. The case was filed in Federal District Court for the District of Columbia by the AARP Foundation, the organization’s charitable arm, and the law firm of Mehri & Skalet on behalf of the surviving spouses of three homeowners who had bought reverse mortgages. All three are facing eviction, the suit says. “HUD has illegally and without notice changed the rules in the middle of the game at the expense of vulnerable older people,” said Jean Constantine-Davis, a senior lawyer at the AARP Foundation. The lawsuit focuses on reverse mortgages where only one spouse signed the loan document. It argues that HUD shifted course in late 2008, making changes in its procedures so that surviving spouses who are not named on the mortgage must pay the full loan balance to keep the home, even if the property is worth less.

BofA Segregates Almost Half its Mortgages Into Bad Bank - (www.bloomberg.com) Bank of America Corp. (BAC), the biggest U.S. lender by assets, is segregating almost half its 13.9 million mortgages into a “bad” bank comprised of its riskiest and worst-performing “legacy” loans, said Terry Laughlin, who is running the new unit. “We are creating a classic good bank, bad bank structure,” Laughlin told investors at a meeting in New York today. He was promoted last month to manage the costs of resolving disputes stemming from the company’s 2008 purchase of Countrywide Financial Corp. “We’re going to get after this, we’re going to do it the right way and we’re going to put it to bed in the next 36 months,” he said. The legacy portfolio will hold 6.7 million loans with outstanding principal balance of about $1 trillion, according to a presentation to investors today. The split leaves home loan President Barbara Desoer with about half her previous portfolio, as well as new lending going forward.

Student loan debt inches up to $900 billion - (www.mybudget360.com) Student loan debt inches to $900 billion when only in 2000 it was at $200 billion – Most expensive colleges in country charging nearly $60,000 per year in tuition. College education is a dream for many Americans. What the current recession is showing us is that having a college degree is a substantial benefit in getting ahead as long as you don’t put yourself into the abyss of student loan debt. This has been magnified by the fact that low skilled work and blue collar jobs are either outsourced or simply do not pay a competitive wage to keep up with the current cost of living. Average Americans do not have a 4-year college degree because if we look at the data 1 out of 4 adults in the United States has a bachelor’s degree or higher. Given that many of the sectors with future job growth including engineering and healthcare require advanced degrees it is crucial to have the foundational background to be competitive in these sectors. However like most anything in life, not all college degrees are created equal and chiseled from the same stone and with student loans people are able to do irreparable damage by chasing a degree that has little return on investment.

One fourth of Chicago house borrowers under water - (www.chicagorealestatedaily.com) A quarter of Chicago-area homeowners with mortgages owe more on the loan than their property is worth, as local home prices continue to fall. At the end of the fourth quarter, 385,780, or 25.4%, of the area’s 1.5 million homeowners with mortgages had negative equity, according to a report released Tuesday by CoreLogic, a Santa Ana, Calif.-based housing-data firm. An additional 80,048, or 5.3%, had less than 5% equity, or what’s known as “near negative equity,” the report said. The number of local negative and near negative equity homeowners increased compared to the third quarter, when 342,741, or 22.2%, of the area’s mortgages had negative equity and 77,414, or 5%, had near negative equity.

Shutting Down Fannie and Freddie: Locking the Barn Door - (www.thenewamerican.com) It appears that there is at least one thing the Obama administration and the GOP can agree on, and that is that Fannie Mae and Freddie Mac have got to go. Given the immense role these two government-sponsored enterprises (GSEs) had in the Great Meltdown, they remain an embarrassment for every politician even remotely related to them. As noted cryptically in his latest book, Rollback, Professor Thomas Woods said, In the decade leading up to Fannie and Freddie’s collapse in 2008, the two mortgage giants spent millions of dollars lobbying congressmen. With “affordable housing” charities dotting the landscape in congressional districts across the country, and with comfortable sinecures thereby available to the relatives of important politicians, the result was an American political class that was all too happy to do Fannie and Freddie’s bidding. And when Fannie Mae executives were caught cooking their books to justify larger bonuses for themselves, no one went to jail, as would have happened in the case of a genuinely private firm.