It is actually getting hard keeping track of just how much money the government’s various bailout initiatives add up to. An Associated Press report says “total bailout commitments, loans and pledges of backing neared a staggering $7 trillion.”

Of course, much of this is “money” that may never get spent, or will be returned to the government when it sells shares of stocks it has received to bailout many banks or lending institutions. But a lot of that money, of course, will probably never be seen again by human eyes.

The latest is a massive program the purpose of which is to free up credit. That was tried before; but this time the government is sort of saying “we mean it.”

And, perhaps it does.

The part that relates directly to real estate is this: The Fed is going to spent $500 billion to buy mortgage-backed securities. But it is only going to buy the ones backed by Fannie Mae and Freddie Mac, which means not the subprime ones that seemingly ignited this financial fire more than a year and a half ago.

Another $100 billion goes to buy mortgages currently held by the mortgage giants, says the A.P.

Not everyone thinks all this is a good idea.

I’ve talked to a few investment experts the last couple of days and some say , though painful, it would actually be best to let home prices sink more rather than keeping them inflated with an infusion of taxpayers’ money. They argue that this will only set up a vicious cycle and we will find ourselves right back where we started from not too far down the road.

Of course, no one really knows what will happen next, least of all the federal government.

Barack Obama has assembled his financial team–he is seeking continuity. But is that such a good idea? Many of the people the President-elect has tapped were involved in the months long bailout effort, much of which has not worked outright or backfired and made matters worse.

Hardly an encouraging reference I’d say!!

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Tags: bailout, banks, barack obama, Economy, paulson, subprime

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.

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

Here are some mighty strong words: “The subprime lending debacle has caused the greatest loss of wealth to people of color in modern U.S. history.” That is the conclusion of the lead author of a new report by United for a Fair Economy, Amaad Rivera, as quoted in an excellent article in the Christian Science Monitor.

The report, says the paper, also concludes that “Black/African-American borrowers will lose between $71 billion and $92 billion in the current foreclosure crisis…” Add another loss for Latino borrowers of another $75 billion to $98 billion, says the paper.

Why?

The paper reports that a little more than half of African-Americans and 4 in 10 Hispanics back in 2006 got subprime mortgage loans. And, as we all know, defaults on subprime loans were the spark that ignited this entire economic mess that now is taking down the banking system along with the real estate one.

When viewed in this light, it is apparent who is getting hit the hardest–as a group–by this awful downturn.

Says the paper, “There’s broad support on Capitol Hill for shoring up government-sponsored home-mortgage giants Fannie Mae and Freddie Mac: They’re too big to fail, many say. But there’s much less consensus over what to do about people who are losing their homes,especially in poor, inner-city neighborhoods–or even over how to understand their plight.”

I interviewed earlier today an African-American woman who is an example of this very issue: She holds down one full time and two part time jobs, works seven days a week, is a widow, is supporting a live-in 17 year old niece, and, this week, will probably lose the home she long lived in with her husband in a “mixed” neighborhood, as she puts it, of Southern California.

To listen to her story, is to listen to all the stories out there of those suffering the worst housing downturn since the Great Depression: The value of her home dropped by nearly $100 thousand over a year and a half period, she says. She had to refinance several times to pay the bills. She tried in vain to get help from her lender. She started falling behind on her monthly mortgage payments. She has lost this battle!

Of course there are many white Americans who are in the very same place as this woman–also in dire need of a helping hand from the government…from somebody!

But she represents more…she represents a tidal wave of economic destruction that is tearing about entire neighborhoods in this country. Places where people who may have started on a lower rung of the ladder bought into the American dream only to get ripped off by greedy lenders who cared less about reinforcing the matrix of a community than about selling the loan to some other agency, some foreign bank perhaps, in the form of a repackaged security.

When the woman in question tried to extract an ounce of empathy from her lender — a lender now, itself, under government scrutiny for its home loan practices, she was told it no longer owned her mortgage…months later, she still hasn’t been able to find out exactly who does!

And so, this week, she will put pen to paper and leave behind for good a place she once came home to every night to eat dinner with her husband; a place she once watched her now fully grown son mature; a place she once took pride in; a place she once thought she’d live in till the day she retires; a place that, within days, will no longer belong to her.

She will visit it from time to time now that she has moved into a nearby rental unit. She will pass by it in her car but not turn into its driveway. She will keep on going because the American dream has now passed her by. Some dreams just don’t happen twice.

Tags: foreclosure, lender, loan, mortgage, sub-prime, subprime

In a clear sign the federal government is far more concerned about the financial health of mortgage finance giants Fannie Mae and Freddie Mac than its public comments indicated as late as Friday, the U.S. government Sunday night announced what some are calling a “massive aid” package to the two shareholder owned and run companies officially cementing a government relationship that till now was only implied but never admitted to.
According to a Reuters dispatch, the plan, which will require swift approval from Congress, is designed to “head off a potential meltdown in financial markets.”

Here’s what the government is offering Fannie and Freddie:

1. Access to its emergency cash–the so-called discount window
2. A huge “temporary” increase in the line of credit available
3. The U.S. Treasury will, for the first time ever, purchase equity in both companies should it be needed
4. Investigation by the Securities and Exchange Commission to stop the spread of “false information.”

Both Fannie and Freddie are vital to the housing market–they buy mortgages from banks and other lenders and either keep them or repackage them into securities that are sold to investors.

“Welcome to the socialist state”

Strong words from some critics are already greeting the government plan. Josh Rosner, the managing director at Graham Fisher in New York told Reuters, “It’s outrageous. It’s offensive. Welcome to the socialist state. In capitalism, winners are supposed to reap rewards and losers are supposed to take losses for bad risk management. These are private companies.”

But others are deeply concerned that should Fannie and Freddie fail–though they both say they are well capitalized–the shockwaves would cause a financial meltdown world-wide.

The most troubling part of the government plan,perhaps, is the possibility the Treasury might buy equity in Fannie and Freddie. Some critics charge this could end up costing taxpayers enormous sums of money.

It will be interesting to see whether Wall Street gives the plan a thumbs up or thumbs down during Monday’s trading.

Here are 2 more articles worth reading:

• Government as the Big Lender
• Treasury Acts to Save Mortgage Giants

Tags: bailout, bank, banking, fannie, fannie mac, fed, federal reserve, freddie, freddie mae, housing bailout, lenders, mortage, paulson, 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

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

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