Archive for January 21st, 2010
Treasury Weighs Fixes to Foreclosures Program
January 21st, 2010 | 
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When reading this, keep in mind the previous article posted below, the US Senate just voted to keep using YOUR taxpayer money to bail out these insolvent banks; the same banks that have just announced ‘record profits’ for the year, due to YOUR generosity. Yet, they are still allowed to extend and pretend that the mortgages they hold are worth 100% on the dollar. When will the laws regarding accounting fraud apply to these banks and lenders? They certainly apply to YOU!
Treasury Weighs Fixes to Foreclosures Program
The Obama administration plans next week to revamp its $75 billion program aimed at sparing homeowners from foreclosure, streamlining the documents required of borrowers seeking lowered payments, according to financial industry executives and others who have met in recent days with Treasury officials.
The latest effort to accelerate the Making Home Affordable program — now widely viewed as a disappointment — comes as the administration faces growing pressure to do less for banks and more for households struggling with double-digit unemployment.
The changes by the Treasury Department are expected to include greater assistance for homeowners no longer able to make mortgage payments because their paychecks have shrunk, said banking industry representatives privy to the department’s deliberations who spoke on condition of anonymity for fear of alienating government officials.
The Treasury was still debating the method, these banking representatives said, looking at either direct cash assistance or a grace period in which borrowers could postpone payments. That component may not be announced next week, but would follow soon after.
Housing experts said the anticipated changes would probably cause mortgage companies to move more quickly to lower payments for borrowers, though perhaps at the cost of prolonging the foreclosure crisis. Requiring less documentation of borrowers’ incomes carries a risk of lending to people who simply cannot afford their homes, increasing the likelihood of subsequent delinquency.
“They are turning this from a legitimate program to try to save people who have the ability to hang on their homes into one that says, forget the willingness and ability to pay, let’s just postpone foreclosures,” said Edward Pinto, a mortgage industry consultant who served as chief credit officer at Fannie Mae in the late 1980s.
While declining to provide details, the Treasury confirmed its plans to alter the program at a meeting next week with mortgage companies — servicers, in industry parlance.
“We expect to issue guidance to servicers next week to expedite conversions of current trial modifications and provide guidance on documentation,” the Treasury’s assistant secretary for financial institutions, Michael S. Barr, wrote in response to a reporter’s questions. “We are continually reviewing our housing plan to ensure that it promotes stability.”
The changes to be introduced next week are unlikely to address what has emerged as a potent factor propelling a wave of foreclosures: the roughly 15 million borrowers who are said to be underwater, meaning that they owe more than their homes are worth. But the Treasury is actively considering ways to attack this problem, financial industry representatives said.
Many economists and mortgage experts have concluded that banks must ultimately forgive loan balances to restore equity to underwater borrowers. Otherwise, growing numbers will walk away from their homes and accept foreclosure rather than make payments on properties in which they no longer own a stake.
The Treasury has resisted calls to push lenders to write off loan balances, concerned that such a course would either threaten the health of banks by forcing them to swallow billions of dollars in write-offs or cost taxpayers additional money.
The administration has instead focused on ramping up its existing program, which pays mortgage companies that lower mortgage payments. The vast majority of loan modifications to date have lowered payments by dropping interest rates while leaving balances untouched.
When President Obama outlined the program nearly a year ago, he said it would prevent three million to four million foreclosures by 2012. As of December, mortgage companies had modified 759,000 loans on a trial basis, typically lasting three to five months. But only about 31,000 homeowners had received so-called permanent loan modifications, which lower payments for five years.
“There’s a great degree of frustration about how this has been going,” said Alan M. White, a professor at Valparaiso University Law School.
The changes expected next week are intended to alleviate one roadblock: the voluminous paperwork mortgage companies must process to qualify borrowers for lower payments.
Homeowners complain that mortgage companies routinely lose their documents, forcing them to repeatedly resend files. Mortgage companies have acknowledged problems, while also blaming homeowners for failing to provide required documents.
The Treasury is likely to alter the program by making pay stubs an acceptable means of verifying income, rather than requiring tax documents, said the people close to the deliberations.
One reason that mortgage companies are having such difficulty processing paperwork, they acknowledge, is that they lack adequate experience. During the housing boom, major institutions like Countrywide (now part of Bank of America) and Washington Mutual (since folded into JPMorgan Chase) marketed themselves as easy lenders motivated to approve mortgages with little fuss. They specialized in mortgages that required little or no documentation, sometimes called liar loans, which led borrowers and mortgage brokers to exaggerate incomes and assets.
Some experts fear that the Obama administration is now so eager to slow foreclosures that it is willing to employ the same sorts of loose lending standards that delivered the crisis.
“It definitely does lead to the question, are they substituting liar loan modifications for liar loans?” Mr. Pinto said.
Consumer advocates welcomed the prospect of a new effort aimed at accelerating loan modifications, while questioning whether the proposed changes would be significant.
“The results are dismal so far,” said Julia R. Gordon, senior policy counsel for the Center for Responsible Lending in Washington. “We need a game changer.”
Throughout the financial system and within government, a sense is taking hold that the only effective way to stem foreclosures is to write off loan balances.
“We realized early on that if we don’t include principal treatment, you just don’t get the buy-in from the borrower to stay with it,” said Paul A. Koches, general counsel for Ocwen Financial, a major mortgage company that claims conspicuous success in converting trial loan modifications to permanent arrangements.
As of mid-December, Ocwen had turned about 40 percent of its trial modifications into permanent arrangements, according to the Treasury. By comparison, JPMorgan Chase had converted only 4 percent of its trial loan modifications into permanent status; the rate was less than 2 percent at Bank of America.
Servicers merely collect mortgage bills for a fee. Most loans are owned by investors. They are increasingly inclined to accept losses by writing down loan balances in exchange for greater assurance that borrowers will be able to make payments.
“Investors are willing to put real money on the table toward refinancing borrowers from bad mortgages into good mortgages,” said Micah S. Green, a partner based in Washington at the law firm Patton Boggs, who represents a consortium of institutional mortgage holders.
The Obama administration has begun to consider a new push to reduce loan balances, while debating the proper mechanism, according to banking officials.
“They are looking at equity forgiveness,” said a financial industry executive who speaks regularly with Treasury officials. “There have been a lot of meetings on that.”
But the details are messy, requiring a complex balancing of competing interests. Not least, the owners of first mortgages are unwilling to accept losses by writing down loan balances unless the pain is shared by the owners of second mortgages.
Many second mortgages, including home equity loans, are owned by the very banks that are in the middle of determining whether and how to modify first mortgages — servicers like Bank of America and Chase. For them, taking losses on second mortgages would entail stripping away billions of dollars in assets from their balance sheets.
“The banks are kind of in denial that second mortgages aren’t going to get paid in full,” said Professor White of Valparaiso. “Treasury has to find a way to compel the banks to take a hit.”
Posted in Banks, Corruption, Economic Crisis, Economy, Financial System, Mortgage Loans, Mortgages, US Treasury | 
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BREAKING: US Senate Votes Down Measure Seeking To End TARP
US Senate Votes Down Measure Seeking To End TARP
By Corey Boles, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The U.S. Senate narrowly voted to defeat a proposal to immediately end the Treasury’s financial market rescue plan as several moderate Democrats sided with the Republican minority in favor of the measure.
The proposal would have sought to wind down the Troubled Asset Relief Program, and require the Treasury to use any unspent funds to pay down the burgeoning federal government budget deficit.
The Senate vote was 53-45, a majority in favor of ending the TARP, but short of the 60 votes required to carry the vote.
Democratic leadership opposed the amendment because they felt it would have handcuffed Treasury Secretary Timothy Geithner in his efforts to ensure the stability of the financial markets.
The Obama administration last week said it would recoup any taxpayer losses incurred as a result of the Wall Street bailout. It proposed a tax on financial institutions that would raise around $90 billion over the next decade to cover the costs of the TARP.
Sen. Christopher Dodd (D., Ct.) argued against the amendment, saying the TARP funds instead should be used to make loans to small businesses struggling to tap the commercial credit markets.
He said there is approximately $320 billion of unspent money in the TARP that could at least be partly used to stimulate job growth in the private sector.
Republicans have argued the crisis facing financial firms has passed and the administration is trying to use the TARP monies as a slush fund to dole out as it pleases.
Sen. John Thune (R., S.D.), the primary backer of the measure, has fought for a vote on ending the TARP for several months.
Congress authorized the Treasury to spend up to $700 billion to stabilize the markets at the height of the market crisis in the fall of 2008.
The measure was the first vote of several aimed at reining in federal government spending that are expected over the next several days as the Senate deliberates a $1.9 trillion increase in the government’s borrowing cap.
That hike would increase the total amount of debt the government can hold to $ 14.3 trillion, which Democrats believe would allow the government to borrow enough to pay its bills for the rest of the year. The current limit is $12.4 trillion.
The federal government recorded a budget deficit of $1.4 trillion in the last fiscal year, and is on track to post a higher deficit in the current fiscal year.
Republicans are also pushing for a freeze to discretionary spending for the next five years, and to cancel unspent money from last year’s $787 billion economic stimulus plan.
Some senators are also pushing for the creation of a commission made up primarily of lawmakers to come up with ways to tackle the long-term fiscal challenges the country faces.
Its recommendations would likely include cuts to Medicare, Medicaid and social security benefits as well as tax increases.
It seems almost certain that there aren’t sufficient votes for that plan. Instead, the Obama administration has proposed a commission created by the president’s executive authority. Senators have opposed that, arguing that such a panel would lack the requisite authority to force Congress to hold a vote on the commission’s findings.
Prior to the vote, Senate Republican aides had expressed hope that Tuesday’s upset victory by Scott Brown in the special election for the vacant Massachusetts Senate seat might have convinced some Democratic lawmakers to vote for the measure.
In the end, 13 Democrats voted for ending the TARP, most of them moderate members of the caucus.
-By Corey Boles, Dow Jones Newswires; 202-862-6601; corey.boles@dowjones.com
(END) Dow Jones Newswires 01-21-101620ET
Here is the list of Senators and how they voted. Let them know that if they continue to not listen to you, then they will be in the long unemployment line come election time!
YEAs —53
Alexander (R-TN)
Barrasso (R-WY)
Bayh (D-IN)
Begich (D-AK)
Bennet (D-CO)
Bennett (R-UT)
Bond (R-MO)
Brownback (R-KS)
Bunning (R-KY)
Burr (R-NC)
Chambliss (R-GA)
Coburn (R-OK)
Cochran (R-MS)
Collins (R-ME)
Corker (R-TN)
Cornyn (R-TX)
Crapo (R-ID)
DeMint (R-SC)
Ensign (R-NV)
Enzi (R-WY)
Feingold (D-WI)
Feinstein (D-CA)
Graham (R-SC)
Grassley (R-IA)
Gregg (R-NH)
Hatch (R-UT)
Hutchison (R-TX)
Inhofe (R-OK)
Isakson (R-GA)
Johanns (R-NE)
Kyl (R-AZ)
LeMieux (R-FL)
Lincoln (D-AR)
Lugar (R-IN)
McCain (R-AZ)
McConnell (R-KY)
Murkowski (R-AK)
Nelson (D-FL)
Nelson (D-NE)
Pryor (D-AR)
Risch (R-ID)
Roberts (R-KS)
Sessions (R-AL)
Shelby (R-AL)
Snowe (R-ME)
Tester (D-MT)
Thune (R-SD)
Udall (D-CO)
Vitter (R-LA)
Voinovich (R-OH)
Webb (D-VA)
Wicker (R-MS)
Wyden (D-OR)
NAYs —45
Akaka (D-HI)
Baucus (D-MT)
Bingaman (D-NM)
Boxer (D-CA)
Brown (D-OH)
Burris (D-IL)
Cantwell (D-WA)
Cardin (D-MD)
Carper (D-DE)
Casey (D-PA)
Conrad (D-ND)
Dodd (D-CT)
Dorgan (D-ND)
Durbin (D-IL)
Franken (D-MN)
Gillibrand (D-NY)
Harkin (D-IA)
Inouye (D-HI)
Johnson (D-SD)
Kaufman (D-DE)
Kerry (D-MA)
Kirk (D-MA)
Klobuchar (D-MN)
Kohl (D-WI)
Landrieu (D-LA)
Lautenberg (D-NJ)
Leahy (D-VT)
Levin (D-MI)
Lieberman (ID-CT)
McCaskill (D-MO)
Menendez (D-NJ)
Merkley (D-OR)
Mikulski (D-MD)
Murray (D-WA)
Reed (D-RI)
Reid (D-NV)
Rockefeller (D-WV)
Sanders (I-VT)
Schumer (D-NY)
Shaheen (D-NH)
Specter (D-PA)
Stabenow (D-MI)
Udall (D-NM)
Warner (D-VA)
Whitehouse (D-RI)
Not Voting – 2
Byrd (D-WV)
Hagan (D-NC)
Source: Senate.gov
Posted in Banks, Corruption, Economic Crisis, Economy, Federal Reserve, Financial System, TARP, Too Big To Fail |
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The Doctrine of Preemptive Bailouts and the Biggest Bailout you haven’t Heard About: The U.S. Treasury Plan C and the $3.5 Trillion You will be Paying.
Posted by mybudget360
Last week a story which gained very little traction hit the financial newswires. The U.S. Treasury is working on an internal project informally called “Plan C” which seeks to deal with further problems in the economy before they occur. The anonymous report came out stating the administration is reluctant to commit any additional money especially to the level mentioned in the report. However this is a disturbing new development in our bailout nation since this is one of the first times that the U.S. Treasury will try to preemptively deal with a financial problem.
The issues with this Plan C is that it is setup to be a buffer on further deterioration in various loan categories but the big one is commercial real estate. The commercial real estate market is gigantic and many of those loans are still active:
Some $3.5 trillion in commercial real estate loans are out in the market. The problem is complicated because commercial real estate holders simply rollover their debt into new loans. That of course has changed since the economy and credit markets have shutdown and many of these properties are now severely underwater. Take a look at how many loans will be turning over:
*Source: ZeroHedge
The amount of maturing loans in commercial real estate will double in 2010 and will continue upward into 2010. The chart is very clear and this is only for debt in CMBS and not held by regional banks which is over $2 trillion. This is the next multi-trillion dollar bailout you have yet to hear about. In fact, while many are discussing a second half recovery higher up officials are already planning a bailout for the commercial real estate industry. The challenge with this bailout is you are asking a public with 26,000,000 unemployed and underemployed Americans to shoulder the debt of largely speculative plays. To many it is palatable to bailout the residential real estate market because the public can understand that (even if it may be wrong) or bailing out the 2 large U.S. automakers. Yet bailing out the commercial real estate market is going to be a political nightmare.
Of course the U.S. Treasury would like you to believe this is merely a precaution but most of the last precautions we have heard about have turned out to be trillions and trillions in full on commitments shouldered by the American public:
“(WaPo) We are continually examining different scenarios going forward; that’s just prudent planning,” Treasury spokesman Andrew Williams said.
The officials in charge of Plan C — named to allude to a last line of defense — face a particular challenge in addressing the breakdown of commercial real estate lending.
Banks and other firms that provided such loans in the past have sharply curtailed lending.
That has left many developers and construction companies out in the cold. Over the next few years, these groups face a tidal wave of commercial real estate debt — some estimates peg the total at more than $3 trillion — that they will need to refinance. These loans were issued during this decade’s construction boom with the mistaken expectation that they would be refinanced on the same generous terms after a few years.
The credit crisis changed all of that. Now few developers can find anyone to refinance their debt, endangering healthy and distressed properties.”
The end of the road has been reached for commercial real estate. Many regional banks jumped into the commercial real estate market since they had little chance of competing with big subprime and Alt-A mortgage factories like WaMu or Countrywide. Many regional banks saw this as a way to stay competitive in local regions across the country. This is a much more diverse problem and the tentacles of the commercial real estate bust will be felt in every state.
These loans were made on strip malls, doctor’s offices, and drive-through restaurants for communities that are hurting from the recession. This is an enormous amount of debt that is out there that will surely default since there is no way to refinance this debt since many of these projects are literally underwater. Take a look at the composition of over 8,000 banks and thrifts across the country:
Factoring in construction and commercial loans you arrive at a stunning 26 percent of all loans in FDIC banks and thrifts. This is a staggering figure and the U.S. Treasury is well aware of this. The question isn’t whether there will be major defaults here but who will shoulder the cost? So far, each consecutive bailout has largely been taken up by the U.S. taxpayer. The problem of course is the cost of all these bailouts will eventually catch up through a tanking dollar and possibly the long-term viability of our economy. Plan C is a preemptive bailout on an entire industry. The reason the government is devising a plan is that these loans will start going bad in large amounts and they are gearing up on a process of dumping this large mess on the American people. Yet it is going to be a politically hard sell for many to bailout a strip-mall from some large developer.
And make no mistake, the market for commercial loans is all but closed:
You are reading the above graph correctly. In the 1st quarter commercial loans fell by a stunning 50 percent on a quarterly basis. And the amount of bad loans is only growing:
If you haven’t heard of Plan C you soon will. The commercial real estate bailout is the next ploy from Wall Street and the U.S. Treasury.
Posted in Debt, Economic Crisis, Economy, Financial System, Government, US Treasury, bailouts |
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Goldman Sachs Scoffs At Obama’s Proposed Rule Changes
Goldman Sachs Calls Idea of Dropping Bank Status ‘Unrealistic’
By Christine Harper
Jan. 21 (Bloomberg) — Goldman Sachs Group Inc. Chief Financial Officer David Viniar said it’s “unrealistic” to imagine the firm won’t be a federally supervised bank, even as new regulatory proposals cast doubt on that status.
Ending Federal Reserve oversight of Goldman Sachs “has virtually no chance of ever happening, it’s just not something we spend time on,” Viniar, 54, said in a conference call with journalists today. “We’re now regulated by the Fed and I expect we will be on a continuing basis.”
U.S. President Barack Obama, adopting proposals advocated for more than a year by former Federal Reserve Chairman Paul Volcker, said today that he’ll seek to prevent banks that have special access to low-cost Fed funding from operating or investing in hedge funds, private equity funds, or trading purely for their own benefit in a way that’s unrelated to serving customers.
Goldman Sachs and Morgan Stanley, both based in New York, were the two largest securities firms before converting to banks in September 2008 during the global financial crisis to gain access to Federal Reserve lending facilities. Today’s proposals raised questions about whether they would opt to revert to securities firms so they could avoid the new rules.
Separating Goldman Sachs’s private equity funds and its proprietary trading from client activities wouldn’t be easy to do, Viniar said.
“Our private equity business is an important business for Goldman Sachs, it’s very integrated,” he told analysts on another call today. “There are a lot of our very important clients invested in our business, we invest alongside other clients of the firm and we invest in clients to help them grow.”
Proprietary Trading
About 10 percent of Goldman Sachs’s firm-wide revenue, give or take a few percentage points, comes from trading that’s purely for the firm’s own profit and unrelated to clients, Viniar said. Still, he noted that it’s a “very, very hard line to draw” to determine how much of their client-related trading ends up becoming proprietary risk.
“The great majority of what we do, we do for and on behalf of our clients, because our clients want to do something,” Viniar said, in explaining the rest of the firm’s trading. “All of that risk, which is principal risk, ends up on our balance sheet.”
In 2009, 76 percent of Goldman Sachs’s revenue came from trading and principal investments, compared with 41 percent in 2008 and 68 percent in 2007, company filings show.
Viniar said restricting trading won’t necessarily help prevent another financial crisis.
“If people are focused on things that caused, or were real contributors to the crisis, it wasn’t trading,” he said. “Most trading results were actually pretty good, not just at Goldman Sachs but at most firms and that’s not really where the problems were.”
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.
Posted in Corruption, Economic Crisis, Economy, Federal Reserve, Financial System, Goldman Sachs |
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BAIR MUST RESIGN: Conflict Of Interest
BAIR MUST RESIGN: Conflict Of Interest
Posted by Karl Denninger
Sheila Bair, one of the chief regulators overseeing Bank of America’s federal rescue, took out two mortgages worth more than $1 million from the banking giant last summer during ongoing negotiations about the bank’s bailout and its repayment.
It gets better…
Mortgage documents for that 14-room home include a provision, known as a second-home rider, stating that Bair and her husband must keep the house for their “exclusive use and enjoyment” and may not use it as a rental or timeshare.
Yet the couple has been renting out part of the house since they left for Washington, with Bair listing income from the “rental property” in Amherst as between $15,000 and $50,000 a year on her most recent financial disclosure form as head of the FDIC.
Oh yeah, there’s no conflict of interest here cough-friends-of-angelo-cough!
Of course the FDIC retroactively gave her a waiver from its conflict of interest rules – AFTER The Huffington Post started snooping around.
And of course the FDIC’s ethics officer says there was nothing wrong with what went on – even though it appears that Bair’s use for the property did not qualify for the loan she got, and that the programs that would qualify would and did carry a higher rate.
If, as the FDIC claims, this was an “innocent mistake” then Bair should immediately demand (and accept) a re-price on that paper to conform with her intended and actual use, retroactive to the issue of the loan, and immediately pay all accrued arrears.
We know that won’t happen though, right?
Posted in Corruption, Economic Crisis, FDIC, Federal Deposit Insurance Corporation, Financial System, Sheila Bair |
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To President Obama: FOLLOW THROUGH NOW!
To President Obama: FOLLOW THROUGH NOW!
Posted by Karl Denninger
So Bwarney “I never met a banker I wouldn’t blow” Frank said:
Oh, so Bwarney doesn’t like the bank reform eh?
He got suitably “informed” (are they down to rank bribes with $100 bills – out of sequence – in envelopes yet?) I’m sure by the banksters lobby about 30 seconds after President Obama showed up on TV this morning.
Well I have an answer for that problem if Bwarney doesn’t want to play ball.
See, President Obama doesn’t need him to.
He can fire Turbo “I cheated on my taxes” Timmy – after all, the recently-announced rules should prohibit him from receiving his paycheck anyway – and replace him with Paul Volcker.
Mr. Volcker can then do what Congress won’t through the back door.
You want to be a Primary Dealer and bid on Treasury Auctions? Cool – divest first, then come talk with us. Until then we’ll run our auctions directly and you won’t make the FICC revenues off your arbitrage (which is a huge, captive, and virtually guaranteed “free money” source.)
If the banks still don’t like the rules that President Obama wants then how about if our new Central Banker is PAUL VOLCKER of Treasury who then issues non-debt-based currency directly?
And don’t tell me he can’t. He most certainly CAN without passing one new law:
United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts. (31 USC Sub IV Ch 51 Sub 1 Sec 5103)
Unfortunately for The Fed they screwed up when they passed The Federal Reserve Act and failed to void the ability of Treasury to issue its own non-debt-bearing currency which is also legal tender. It requires only an executive order to implement this and there is nothing Bwarney Frank can do about it.
Doing that would effectively emasculate both The Federal Reserve and the big banks that have all sorts of credit outstanding through The Fed, as it would destroy the backstop that The Fed enjoys. Suddenly The Fed would be “just another bank” with a metric crapload of used dogfood on its balance sheet in the form of Freddie and Fannie MBS that also don’t have a full faith and credit guarantee!
IF President Obama is serious about fixing these problems, this is how he addresses it. Either play ball – right here and now – “OR ELSE.”
Oh, and start using the words “indictment”, “prosecution” and “prison” too – or just perp-walk a few of those banking executives on Wall Street.
THAT will convince me that our President is serious.
Posted in Banks, Corruption, Economic Crisis, Economy, Federal Reserve, Financial System |
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