Last week I opened my big mouth and said I’d present another solution to the foreclosure problem we are facing today. Before I do, I happened across this law:

“every insolvency of a bank shall be deemed fraudulent, and the president and directors shall be severally punished by imprisonment and labor in the penitentiary . . . provided that the defendant . . . may repel the presumption of fraud by showing that the affairs of the bank have been fairly and legally administered, and generally with the same care and diligence, that agents receiving a commission for their services are required and bound by law to observe. . . .”

as I was researching information on bills of credit. I thought a few of you might like to see that law on the books today. I know I would. I bet the CEOs of IndyMac Bank, Countrywide, Freddie Mac, Fannie Mae and a few others would have done business a bit differently if this law actually existed and was enforced.

By the way, it did exist as Section 28, Art. XX, of the Georgia Banking Act [State Banking Act of 1919 (Acts Ga.1919, p. 219)]. I say did in the past tense because as you might guess, it has been watered down over the years by the courts. Today defaults and insolvencies are blamed on the borrowers and especially the sub prime borrowers.

But that is a different tale and I’m not marching down that avenue today. I posted the above because I thought you would like to see what life used to be like for irresponsible banksters.

Here is what life is like now for irresponsible banksters. It is a snippet from an online AP story of July 14, 2008:

Brian Bethune, chief U.S. financial economist at Global Insight, called the troubles at Fannie and Freddie a “potentially dangerous turn of events” for the U.S. economy. He said they needed to be addressed quickly with an infusion from the government — read “taxpayers” — of as much as $20 billion in new capital for both institutions.

Notice who the goat is in the second paragraph. You and me, laughingly called the taxpayer. The jokesters running these two scams draw not only their paychecks but bonuses. Every year they go before Congress and weep and whine about how tough they have it and Congress keeps letting them run barefoot through the treasury.

My solution for today is to have the U.S. Marshals do to the banksters what they do to organized crime bosses. Haul them away in handcuffs. I’m not totally heartless. I’d give them $300 to put on their books in the joint. That way they can at least visit the commissary once a month.

I don’t believe it will ever happen because it appears all of the marshals, US attorneys and the like are really cloned Mike Nifongs. But, I can still hope it will happen.

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Tags: bankers, congress, default, foreclosure, Foreclosures, Mortgages, subprime

By all accounts it seems the banking lobby will get everything they’ve been ask for from Congress over the past decade and in do so may legislate mortgage brokers out of existence.

A little history lesson is in order to understand all the political and media spin designed to sway their and public opinion away from mortgage brokers the banking industry orchestrated for the last 10 plus years.

During the 70’s and early 80’s, banks dominated originations carving out a whopping 80% of the retail loan applications. Brokers quickly picked up the slack and by the early 90’s the numbers reversed. The market, especially real estate investors, liked the idea of a personal mortgage broker who understood their goals scouring the landscape for the best products and rates.

Banks have never been know for the best customer service or pricing and the public punished them by fleeing to the broker community. During this time brokers enjoyed about 75% of all originations leaving the crumbs for the banks.

They didn’t take that lying down. The quickly got their lobbyists working on legislation that passed in 1999 to poison the market against broker by demanding brokers show their “yield spread premium” income while the banks were allowed to hide their own. The thought was the public upon seeing this often times enormous “profit” that was heretofore hidden would put brokers in a bad light with consumers and they would come running back to the banks.

It didn’t happen.

As it turns out consumer either didn’t know or didn’t care. Some critics ( myself included) would say the brokers decided one “dirty trick” deserved another and devised ways of obfuscating the YSP. After all banks were getting away with setting up an un-level playing field in the first place so they could claim they were just “evening the score”.

Undaunted in their pursuit of the killing off their competition, many believe the banks decided upon a “scorched earth” plan to rid themselves of retail mortgage competition once and for all.

The Plan was one they pulled from the S&L playbook a decade earlier. Give the mortgage brokers just enough rope to hang themselves just like the Savings and Loans did.

Remember the Savings and Loan crisis of the late 80’s?

Banks wanted the S&L’s out of the way back then too. When a few greedy large S&L’s decided they wanted “deregulation” so they could make commercial loans it was the banking lobby who helped them get it.

At the time it seemed like “strange bedfellows”, but it only took a few years to see the banking industry genius behind their “assistance. They knew the S&L’s were unprepared to thwart their own greed and would create a “banking and real estate crash” lawmakers and the public would rightfully lay at their doorstep.

All the banks had to do this time around was find an equally stupid idea, attach a lot of money to it, and let the brokers commit a little “banker-assisted” suicide.

Enter the subprime loan.

Bankers priced them, marketed them, and feed them to a stupid, greedy bunch who cobbled them down with out the knowledge they’d just been had.

It worked.

Lawmakers and the public are clearly laying the current real estate and banking debacle at the doorstep of mortgage brokers. Legislation will pass making mortgage brokers all but extinct.

It worked so well that the banks may have succeeded in taking down not only the brokers but the mechanism that put them in business in the first place…the GSEs…Fannie Mae and Freddie Mac.

On Friday there were cries to bailout the GSEs since they too got caught in the bankers web of greed. The infection of subprime losses it seems put both GSEs on tilt. With them out of the way, the broker have no hope of staging a comeback since it’s Fannie and Freddie’s pathway to the money markets that give brokers something to sell.

The banker planted subprime virus not only killed brokers and the GSEs, but will likely kill the real estate industry and economy for the next few years too.

But when the dust settles a few years from now, every one will go to a bank to get a mortgage because that is all that is left.

Mission Accomplished!

If investors thought getting a loan was hard before, just wait. You ain’t seen nothin’ yet.

Tags: Add new tag, bank loans, banks, default, foreclosure, investors, loans, mortgage, Mortgages, real estate investing, subprime

In a previous post I had mentioned I belonged to USAA. For anyone who doesn’t know, USAA is an insurance company founded by Air Force personnel back in the days when military members found it almost impossible to get insurance.

As it turns out, I had saved an article from their USAA MAGAZINE, Spring 2007, issue. It was about mortgages. Keep in mind the date of this particular issue.

By the way, USAA has a reputation of being one of the best carriers in the country with a very stable business model. The advice in their magazine usually follows suit.

Here is one sentence from that article that stands out like a sore thumb:

“Many borrowers may not fully understand the changing payment schedules, especially the sharp monthly payment increases common in these mortgages,” says Allen Fishbein of the Consumer Federation of America.

What followed that quote are these words:

And if you put very little down and real estate prices decline, you could face a loan balance that exceeds the present value of your home. That’s downright scary.

You don’t have to be a rocket physicist to know the mortgage type being referenced. And, you don’t even have to be a nuclear pharmacist to see this bit of advice was too late.

I want to believe they just missed the ball by publishing this article when they did. Maybe they didn’t want to believe the problem would grow to the magnitude it has grown. Maybe their mortgage lending division was making very few ARM loans. After all, they are a conservative bunch down there in San Antonio.

I wonder how many other supposedly conservative lenders were of this mindset during the Spring of 2007. It is hard to believe many existed as the problem certainly had its ugly head above water level.

I am not singling out USAA for criticism or accusing them of aggravating the problem. I am merely using their published words as a highlight as to the possible thinking that may have existed that late into the burgeoning crisis.

Wouldn’t it be a kick in the pants if some of that thinking is having a residual effect? It would go something like this, “As long as we warn the consumer about the possible dangers, it is OK to keep making loans they can neither qualify for nor afford.”

After all, there is a school of thought that says you can borrow your way to riches and it is being promoted even in today’s world. I guess pay back never visits some people’s door step.

Tags: ARM, default, foreclosure, liar loans, loan, mortgage, subprime, USAA

It’s beginning to look a lot like Christmas—in July–for distressed homeowners. IF–if–a rescue plan just voted on in the Senate by a vote of 83-9 can avoid a Bush veto and be restructured to please the White House, the Congress, the lenders and, oh yes, the homeowners! Experts making educated guesses think all that is not likely to happen till July.

So, what does the current measure offer?

What it comes down to is that borrowers whose homes are in danger of foreclosure would be eligible for provisions of the plan provided the holders of their mortgages are okay with taking a huge loss by allowing them to refinance at a lower amount.

Also, should the homeowner eventually sell the property, they would share some of any profits made with the folks in Washington.

So, is everyone happy?

Silly question. The answer is, no. Some Republicans say the measure is a sell out–this while members of the House of Representatives Black Caucus claim the plan has “glaring omissions.”

Clearly, something will and has to be done. What began as a subprime mortgage mess has spread so far and wide and deep within the American economy—world economy! And, this, of course, is a key election year with both Barack Obama and John McCain having to takes sides on how to dig the country out of the mortgage/credit debacle.

The problem is, in a haste to fashion some plan that might ease the fears of voters before November, Congress may come up with something that makes matters worse. Now I know what you are thinking. You’re thinking, “Congress. Make matters worse? Come on” But there you have it. It could, if it is bullied into a quick fix that shows its faults after the presidential election has come and, we can only hope, gone.

Unknown is how long any rescue plan might take before it really sinks in? Restructuring a mortgage, even in the best of times, is no fun task. Restructuring a mortgage in the middle of a crisis and using an untested Congressional rescue plan is bound to be a ton of laughs!

Tags: default, foreclosure, real estate news

Everybody knows a recession is when your neighbor loses his job. A depression is when you lose your job. Apparently more of us are coming closer to depression than we would like to believe.

The data you are about to read is from the June 2008 edition of Collections & CREDIT RISK magazine. This particular magazine touts itself as the consumer & commercial credit authority. I’ve been a subscriber for several years and agree with their self assessment.

Some of the people and sources quoted in the article, Late with Their Mortgage Payments, Consumers Lose Faith in the Economy, have been quoted before so you might recognize their names.

RealtyTrac CEO James J. Saccacio is one of the people offering an opinion. On the topic of federal, state and local governments and community groups offering a helping hand to consumers he, in part, says, “stopgap measures could be simply deferring another flood of foreclosures which would mean extending the length of time required for the market to recover.”

My question would be does it really make a difference if these entities attempt to help. By their own admission (in this article) the industry says loan workouts are far and few between. If the industry says it isn’t willing to work with the borrowers, what difference, in actuality, does it make if stopgap measures are utilized to halt the flood of foreclosures?

Another quoted source is TransUnion. I would think they know a thing or two about delinquencies and can paint a picture of the nation as a whole, at least credit wise. They say the mortgage borrower delinquency rate – people 60 or more days late with their mortgage payment - is expected to rise throughout 2008 to 4.0% up from 2.9%.

If their quoted figures of 15 million adults getting calls from collectors is true, I would believe this information has relevance. After all, 1.1% is a staggering rise in a short of period of time.

Experian Consumer Direct did a survey and found “the number of severely delinquent mortgage accounts grew 15% between February 2007 and February 2008.” They did not define severely but I have to believe it is people who are a minimum of 90 days late and are about to receive a Notice of Defualt.

Maybe the most telling remark made in this article is by Theodore Iacobuzio, managing director and practice leader for TowerGroup. He said, “No one doubts the seriousness of the current credit crisis, but it’s noteworthy that the largest financial institutions are more likely than others to characterize its impact as severe or worse.”

Compare that quoted remark with what we’ve been hearing from some of TV’s talking heads and the White House. Maybe, just maybe, the most relevant information sits with those inside the industry who have the capacity to look at the macro credit picture.

Maybe, just maybe, we should be hearing more from them and less from the bleached blond bauble heads masquerading as “news” reporters. Then, maybe not…

Tags: consumers, Credit, default, Economy, Foreclosures, housing, inflation, loans, realtytrac

Watch out. The home mortgage crisis may be about to belt you in the face and you may not even be aware the blow is coming.

A truly frightening article in the New York Times about the “shrinking lines of credit” and what it may mean for homeowners–and we are not talking about homeowners facing foreclosure,either.

What we are talking about are home equity lines of credit, often used to finance a whole range of things from vacations, to medical care, to new furnishings.

Simply put, such lines of credit are being abruptly taken away or greatly reduced, says the article.

Washington Mutual and others drop the ax

The troubled Washington Mutual, according to the article, has reduced or suspended “about $6 billion of available credit under existing home equity lines.” Other lenders are doing the same.

A main reason for having your credit line reduced or even suspended is a decrease in the value of your home.

“We will increase, decrease or suspend lines based on a number of factors, including a customer’s entire relationship with WaMu, their payment status and history, changes to their creditworthiness, and changes in the value of their property…We believe this is part of being a responsible lender,” says WaMu spokeswoman Sara Gaugl, as quoted by the Times.

A big problem is that most lending institutions apparently do not make public the guidlines they use to make their cutting decisions, so it may not be so easy to find out if you are about to have your own credit line severed.

The 20 percent solution?

According to the Times, as long as borrowers have in excess of 20 percent equity in their homes, they should qualify for credit. That benchmark sort of went away when real estate prices were skyrocketing, but now it is back in a big way!

And, there is one more thing to worry about—sorry.

According to the article, if you had, say, a $25,000 credit line, and you have already used $10,000 of it—-if the lender reduces your credit limit, credit reporting agencies are likely to lower your all important credit score making the argument that now you are over-stretched.

Heads you loose; tails you loose.

credit repair leads

Tags: Credit, default, heloc, lender, lines of credit, mortgage

Okay…so what’s wrong with this picture? In communities all across America the value of homes has dropped faster than the New Year’s Eve ball in Times Square. Lower prices should mean bargin prices. Bargin prices should mean people jumping back into the housing market.
People jumping back into the housing market should help inflate the value of homes…..

But things aren’t working out that way and it is all because of the credit markets.

Most “experts”–and I do use that word with great caution when talking about the real estate mess–seem to agree that lenders are sitting on the fence because they still are not sure just when this mortgage crisis will hit rock bottom.

The banks and other financial institutions worry, and not without good cause, that if they do start freeing up credit and people buy up those cheaper homes, the homes will still continue to loose value leaving the lenders holding the bag.

What will turn this around?

For one thing, if the lending institutions get convinced that the U.S. government is as serious when it comes to helping out home owners as it was in helping out Bear Stearns, they may feel a bit more relaxed about freeing up some credit.

But it is hard to feel that way when Congress is still trying to come up with legislation that the president will not veto–though it appears more and more likely each day that Bush will not stand in the way of anything Congress will offer for fear of further damaging Republican party candidates in the fall.

Lending institutions must also take stock of their own practices and either self police or face regulatory action under a new administration, especially if it is a Democratic one. That means
putting a stop once and for all to those misleading radio ads that still pop up telling people who have credit scores that suck that they can still get a nice, big, fat mortgage with hardly any financial pain on their part. Yeah, right.

But buyers can also contribute to the solution to this problem by realizing that homes are places to live and raise a family and not either an ATM card with a front lawn or an investment to dump back on the market in a short amount of time hoping to strike it rich.

When all of the above things are in place, it is my best guess that lending institutions will free up credit, which will grease the way for more realistic mortgages, which will allow people to finally start taking advantage of all those bargin homes flooding the market.

Tags: Credit, credit market, default, home value, house values, loans, Mortgages, Real Estate Market