Many people may remember reading the novel 1984 in high school or college. The novel, written by George Orwell, is famous for its depiction of a future dystopia where all modes of expression such as the news, language and art are controlled by an authoritarian government. Admittedly, I haven’t read the novel in years but I have been hauntingly reminded of many elements in the novel as I have listened to some of the rhetoric coming from the executives of major, publicly traded corporations such as Fannie Mae and Freddie Mac. The parallel I find most striking between the language used by financial executives and the language used by the fascists in 1984 are what Orwell referred to as “Newspeak”.

Wikipedia describes Newspeak as the following: “The basic idea behind Newspeak is to remove all shades of meaning from language, leaving simple dichotomies (pleasure and pain, happiness and sadness, goodthink and crimethink) which reinforce the total dominance of the State. Similarly, Newspeak root words served as both nouns and verbs, which allowed further reduction in the total number of words; for example, “think” served as both noun and verb, so the word “thought” was not required and could be abolished. A staccato rhythm of short syllables was also a goal, further reducing the need for deep thinking about language. Successful Newspeak meant that there would be fewer and fewer words – dictionaries would get thinner and thinner.”

Orwell would have to invent a new word to describe the language from top executives at financial institutions now facing ruin essentially because they wrote, bought or held poorly underwritten loans. You will never hear anyone in authority at these institutions express their dire situations quite so succinctly. Instead you will hear what I would call, in homage to Orwell, Bankspeak. Let’s take a look at some examples of Bankspeak used in real life. Below is an email sent to employees by the former C.E.O. of Freddie Mac, Dick Syron, before his departure. These emails appeared unedited in the Wall Street Journal Online:

“To the Employees of Freddie Mac:

As you have probably heard, the Treasury Department announced today that it has placed Freddie Mac and Fannie Mae under the conservatorship of our regulator, the Federal Housing Finance Agency.”

Orwell would be proud of the Bankspeak word “conservartorship”. It subtly obscures the potential negative connotations of the more accurate “take over”.

Mr Syron continues: “We have been through a lot together. Earlier this year we completed a multi-year accounting restatement, a massive and complex project. More recently, we have had to manage significant increases in delinquencies, foreclosures and loan modifications as a result of the sharp decline in house prices.”

The Bankspeak in the above statement should be readily apparent. “A multi-year accounting restatement” is a beautifully obscure phrase of Bankspeak grandiloquence for the more exact “digging ourselves out of our cooked books problem”. Too bad for Mr. Syron, that the housing market behaved so badly and the “ multi-year restatement” efforts were hampered by significant increases in delinquencies, foreclosures and loan modifications as a result of the sharp decline in house price.” As a whole, the above statement, translated from Bankspeak, should read like this: “It really is a shame that our un-cooking of the corporate books was stopped by the whole housing mess that we helped to create.”

Thankfully for Mr. Syron, his mastery of  Bankspeak has served him well and his future looks brighter then ever. In the New York Times he is quoted bidding his final farewell, “I’ve had four other jobs as C.E.O. and I came out of them all pretty well,” Mr. Syron said. “What I’m working for right now is to save my reputation.” A perfect Bankspeak adieu.

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Tags: Dick Syron, fannie mae, Foreclosures, freddie mac, Real Estate Market

Now that the government controls the GSEs (Fannie Mae and Freddie Mac with their $6 Trillion dollar mortgage portfolios, they could freeze all foreclosure actions dead in their tracks. That is exactly what a group of Senators including Bob Casey, Charles Schemer, Robert Menendez, and Sherrod Brown asked the new GSE conservator, FHFA Chief, James Lockhart to do.

AP reports it this way,

“The senators — Sherrod Brown of Ohio, Bob Casey of Pennsylvania, Bob Menendez of New Jersey and Charles Schumer of New York — wrote that the companies should “take whatever actions are necessary” so more families “do not have to suffer the economic and personal disaster of foreclosure.”

Is Freezing Foreclosures a Good Idea?

Now that the government is on the hook for most of the bad loans, if freezing foreclosures could stabilize the real estate market allowing for banks and borrowers to have more confidence in real estate values, it would be a good thing. Loosening the mortgage credit availability would put more buyers out looking for homes they can mortgage. Increased foot traffic in new and existing homes for sale leading to more contracts and closing all sounds good.

For all these good reasons, you can bet the Feds will not freeze foreclosures!

Why Won’t They Freeze Foreclosures?

The real danger with this plan if implement is the destruction of Fannie and Freddie. This plan would effectively kill the GSEs. Modified loans don’t return to the investor the same return the investors who bought them expected. Investors get jipped and jipped investors don’t come back.

If Paulson wanted to kill the GSEs, he would not have bothered with a “conservatorship”…he would have just immediately nationalized them.

For this reason, I doubt if we see Hank Paulson and James Lockhart bend to the Senators’ request to freeze foreclosures or in the business of wholesale loan modifications. They eventually want to return Fannie and Freddie back to the business of creating and managing the secondary market for mortgage loans albeit with a little more regulation or fully privatized. And let’s not forget, the mortgage servicing companies didn’t get taken-over, they can still lobby Congress, and they hate this plan.

So, as expected, no help for home owners with a foreclosure freeze.

At least Chuck Schumer got his name in the paper again standing up for the little guy!

Yea, right…

Tags: fannie mae, foreclosure, freddie mac, GSE, lending, mortgage

This is an election year. That may seem like a tremendous grasp of the obvious but I wish to ask you to look behind that statement so you can see what is happening right in front of your eyes.

What I am really interested in is the Freddie/Fannie bailout. My God, the impact is almost too much to grasp. However, the part I grasped is summed up by a fellow named Jim Rogers in these quotes:

The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is “more communist than China right now” but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday (9-08-08).

“This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this,” Rogers told “Squawk Box Europe.”

I submit Rogers is dead wrong when he says the U.S. is “more communist than China right now” because I believe the U.S. has been communist for over 50 years and there is no such thing as “more” communist. Communist is communist in my eyes.

Tell me who wrote the following statements:

1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all right of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.
6. Centralization of the means of communication and transport in the hands of the State.
7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal liability of all to labour. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equable distribution of the population over the country.
10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, etc.

The author really doesn’t make much difference, right? Right, espeically since those 10 statements accurately reflect our life structure in 2008.

Should you need help in understanding some of the above statements, I suggest you read the Patriot Act while taking a close look at the government agencies in charge of labor, transportation, communication, agriculture, pharmaceuticals, education, taxes, banking and welfare.

Unless I’m full of beans, all 10 planks have been entrenched in our system for at least 50 years. We have even, at times, lobbied the “government” to make them laws. Naturally they complied. It is easy to pen the sheep when the sheep want to be penned.

What Mr. Rogers failed to expound upon, other than a mention of nationalization, was the extent of the federalization of the housing market. It is happening before our eyes and with our approval. The only thing we complain about is the CEOs of Frannie/Freddie absconding with extra large severance packages.

We are missing the action happening behind the scenes in this election year. I submit that is by design.

I happen to like investing in housing and using my knowledge to not only make a few bucks but help those who actually want help. The money is wonderful but so is the feeling of seeing someone keep their home and not be put on the streets.

As the feds continue to steam roll through this arena, homeless camps will become as common as stop signs and red lights. For the non-believers, read the 10 planks one more time.

[As a side note, I mentioned my son in one of my previous posts. His girl friend is from Warsaw. On one of his visits to her home, he met her grandfather. Grandpa spent 5 years in a Communist slave labor camp. All of his properties and belongings were confiscated by the authorities prior to his incarceration. Re-read plank 4 and 12 USC 95(a) and then tell me it can't happen here.]

The time table has been accelerated as evidenced by the gargantuan leap in the federal debt as a result of the Freddie/Fannie takeover. A debt burdened populace becomes powerless to mount any meaningful resistance. Ask the last Roman standing in the final days of “the” empire.

I don’t know about you but the election facade doesn’t leave me with a warm fuzzy feeling.

Tags: election, fannie, fannie mae, freddie, freddie mac, housing, mccain, obama

The imminent failure of both Freddie Mac and Fannie Mae has already begun to have a detrimental impact on the larger US economy and the ability of home buyers to finance the purchase of a new home.

This is an unfortunate circumstance for many young families who may not be able to qualify for a mortgage to purchase their new home because of tighter bank underwriting guidelines. While this is a negative situation for young families looking for their own homes it could be a potential wind fall for the owners and operators of apartment building complexes across the United States. All of the people displaced by the housing bubble along with new populations of young people looking for housing will have to turn to rental properties for housing. The fact that more and more residential, single family homes are entering into foreclosure should also further diminish the available supply of rental units on the market.

When a home is in foreclosure or bank owned it can’t be rented and it sits as an empty, unavailable property. For example, on the residential street where I live in Fort Lauderdale there are 3 or 4 houses on one block that appear to be completely abandoned and in some stage of foreclosure or bank ownership. No one can rent these homes because they are bank owned and waiting for a buyer. Meanwhile the prices of homes in the neighborhood are still priced well above the ability for most working families to afford, especially considering the difficulty many are experiencing when searching for an affordable mortgage.

The obvious choice for many young families and those displaced from their homes because of foreclosure is to find a rental property to live in while saving money for the future purchase of a single family home. With the expected decline in available rental homes available on the market due to bank ownership many families and young people will be looking to apartment buildings for housing. This increase in the number of potential renters comes just at a time when the construction of multi-family buildings has begun to decline.

The decline in the construction of new apartment buildings is due to the fact that many banks and real estate financiers are cutting back on new construction projects nationwide. They are unwilling to take the risk of funding new construction during a time when residential real estate prices are dropping rapidly. According to the Associated Press, the “Standard & Poor’s/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.”

It remains to be seen what impact the decline in availability of rental properties will have on the rental rates for major metropolitan areas.

Tags: apartment building vacancies, apartment investing, Economy, fannie, Fannie & Freddie Mac Loans, freddie, freddie mac, rental vacancy

INDYMAC IS OFFICALLY CLOSED!!!

In the past minutes newswires around the country and world are now reporting that the Federal Government has shut down IndyMac Bank and has handed it to the FDIC (Federal Deposit Insurance Corp.) as conservator.

Couple the shut down with the Fannie Mae/Freddie Mac troubles, and we’re in for some really rocky waters next week. I’m willing to bet a lot of money that the announcement was held back from being made prior to the close of the stock market because of fears of a massive crash. Well . . . I think we’ll be seeing that happen this coming Monday!

Fasten your seat belts, people . . . we’re in for a ROCKY RIDE!

IndyMac Bank’s assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

Yahoo Finance

In the biggest bank failure of the housing downturn to date, federal banking regulators today closed IndyMac Bank FSB, naming the Federal Deposit Insurance Corp. as conservator.

The FDIC said it will transfer insured deposits and “substantially all the assets” of IndyMac Bank, to a newly created successor, IndyMac Federal Bank, which will be operated by the FDIC.

Insured depositors and borrowers will automatically become customers of IndyMac Federal, FSB and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards and writing checks. Depositors of IndyMac Federal Bank FSB will have no access to online and phone banking services this weekend, but will regain access to them on Monday.

Inman News

IndyMac Bancorp Inc. became the second-biggest federally insured financial company to fail today after a run by depositors left the California mortgage lender short on cash.

The Pasadena, California-based bank specialized in so-called Alt-A mortgages, which didn’t require borrowers to provide documentation on their incomes. Its home state has been among the hardest hit by foreclosures.

Bloomberg

What’s next? Anyone?

Tags: bank, bank collapse, bank default, fannie, fannie mae, freddie, freddie mac, IndyMac, subprime

Fannie Mae and Freddie Mac, combined, own or back up some $5 trillion dollars of debt. That is about half of ALL the mortgages in the U.S. They have already lost some $11 BILLION since the current mortgage/credit crisis began, so it is easy to see why there is profound concern about their fiscal health–or lack there of.

Concern turned to horror today after the New York Times reported that the U.S. government is thinking about a takeover of the mortgage giants–placing them in a conservatorship.

Should that happen, the shares of both could be worth almost nothing and taxpayers, you and me, would have to pick up the tab, says the Times, for “any losses on mortgages they own or guarantee–which could be staggering…”

This news brought about what the AFP news agency referred to in a headline as a “meltdown” of the share prices of both Fannie and Freddie.

According to Reuters, “Fannie shares closed at $10.25, down some 22 percent but well above the session low of $6.68. Freddie closed at $7.75, down 3 percent, after touching a low of $3.89 earlier in the session.”

And, here is the most amazing part of the story. Freddie and Fannie have lost almost 90 percent of their enture value just since August, says Reuters.

Doubts about bailout

As the day drew to a hectic close, Treasury Secretary Henry Paulson sent out signals that it is not likely there will be any federal bailout–However, Sen. Christopher Dodd of Connecticut, who is chairman of the Senate Banking Committee, said he spoke with both Paulson and Fed Chairman Ben Bernanke and that they are looking at options that would include “opening access to the discount window,” Reuters reports. The discount window allows the Fed to act as an emergency lender for the banking system.

Meantime, both Fannie Mae and Freddie Mac insisted they have enough capital to keep going and Sen. Dodd said both are “fundamentally sound and strong.”

Although both were originally formed by the federal government, they now function as private corporations, though there has always been an assumption that the government would never let either go under for fear of what might happen to the entire financial system in this country and, indeed, around the world.

How they got into trouble
To understand how they got into trouble, you must first understand what it is they do. Both buy up literally hundreds of billions of dollars in mortgages–then repackage them as securities.

In some cases, they hold on to these new securities, but they also sell them to investors.

That is why when the subprime mortgage crisis hit,Fannie and Freddie were hit hard. And, says the New York Times, “analysts expect the companies to announce a new round of write-downs and possibly be forced to raise capital by issuing additional shares.”

Stocks tumble then regain

At first, the fears of a Fannie/Freddie implosion plunged the Dow Jones Industrial Average down more than 200 points…but, by the end of the trading day, it closed down “just” 128.48 points.

Tags: bernanke, depression, fannie, fannie mae, freddie, freddie mac, lending, loand, loans, mortgage, Mortgages, paulson, recession