Ohio Dismissing Foreclosures
A judge dismissed 32 foreclosures for a lack of documentation. This action does not remove the debt from those being foreclosed upon, but it does delay the action of foreclosure for several months, buying the troubled homeowners time if nothing else.
LoanWorkout.org writes:
Judge O’Malley ruled, “A foreclosure plaintiff, therefore, especially one who is not identified on the original note and/or mortgage at issue must attach to its complaint documentation demonstrating that it is the owner and holder of the note and mortgage for which suit was filed. In other words, a foreclosure plaintiff must provide documentation (underlined by O’Malley) that it is the owner of the note and mortgage as of the date of the foreclosure action is filed.”
O’Malley then stated, “In this case the plaintiff is not identified on the note and mortgage as the original holder/owner, and has either (1) not timely filled out adequate documentation that it was the owner and holder at the time or (2) filed documentation that an assignment or execution of trust interest occurred, but occurred after the filing of the complaint.”
Hopefully more states will take strict action against lenders. This would do little to benefit homeowners struggling to get out of debt, but it would at least send a message to lenders that they cannot act illegally.
Industries Other Than Banking Start to Hurt
As expected, businesses other than banking are starting to suffer from the subprime meltdown. The fall of Swiss Re indicates the trouble which may soon affect many other industries.
CommonSenseForecaster is reporting:
Swiss Re has conducted a thorough review of other credit default swap exposures and was satisfied it has no similar exposures, according to a slide presentation before a conference call with analysts.
Unprecedented and severe ratings downgrades by credit ratings agencies and the lack of a liquid market for the securities “has resulted in a significant and material reduction of the value of the underlying assets,” Swiss Re said on Monday.
While lenders and providers of home equity line of credit loans are obviously vulnerable to market declines, the world economy is finding out that sub prime lending extends out towards many other industries as well.
Swiss reinsurance firm loses over $1 billion
Lossses continue to pile as the Swiss company, Swiss Reinsurance Co., the world’s largest reinsurer announces having lost $1.07 billion due to US subprime mortgage problems.
Swiss Re fell the most in more than 4 1/2 years in Zurich trading on the loss, which amounts to 981 million francs after tax. Losses occurred on two credit-default swaps Swiss Re sold to protect clients against declines in investments backed mostly by mortgages, the Zurich-based company said today.
“We clearly made some poor choices,” Roger Ferguson, the former U.S. Federal Reserve governor who runs Swiss Re’s financial-services division, told analysts on a conference call. The loss comes less than two weeks after the company, headed by Chief Executive Officer Jacques Aigrain, reported third-quarter profit that surpassed analysts’ estimates.
The 144-year-old Swiss Re earns almost two-thirds of its premium income from helping shoulder property-and-casualty risks for insurers such as Allianz SE. The company’s financial-services unit, which provides risk and capital management, structured investments and investment-banking services, had a 113 million- franc loss in the third quarter, it said Nov. 6.
For a 144 year old firm, it seems fairly ridiculous that such a mistake could have been made investing in subprime 1st and 2nd mortgage loans.
Major Blow to Impac
An article published in the Orange County Business Journal takes a look at the factors that led to a 20% drop in the shares of Impac Mortgage Holdings Inc. According to the article:
- The Irvine-based mortgage company said it was in default on loans worth more than $400 million.
- The company, which has a market value of $70 million, said in a Securities and Exchange Commission filing that as of Sept. 30 it was “in technical default” on a credit line and a pact to buy back loans sold as investments.
- Impac said it also had been in default with other lenders in September on financing worth a combined $609 million. It since has sold off mortgages and ended those financing agreements, the company said.
- In September, Impac shut down most of its mortgage lending operations amid the sector’s downturn. The company said on Tuesday it is delaying the filing of its third-quarter results with the SEC due to the changes.
- It’s also taking a $17 million write-off as a result of its decision to stop its lending operations.
This is just more bad news of another company’s detrimental losses associated with the current credit crisis. Right now is a very scary time for smaller mortgage lenders, as fellow companies take the hit one by one. That makes it harder to qualify for products such as a Utah home equity loan. In the end, it will be interesting to see which companies survive and what made them different from the rest.
An Overwhelming Risk of Systematic Shock
An article published on Bloomberg takes a look at the risk of systematic shock that second mortgage loan losses are posing. According to the article:
There’s a greater than 50 percent probability that the financial system “will come to a grinding halt” because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said.
The risk of systemic shock from the current subprime meltdown is quite large in the near term, Peters said. “It’s an overarching concern that we have,” he said.
Losses stemming from the subprime mortgages have caused a seizure of a lot of other markets, especially the securitization market, Peters said.
“While the near-term concern is the systemic shock of the subprime-related losses, the medium- and long-term concern is the impact on the average consumer,” Peters said. “The ultimate irony here is that the U.S. consumer now needs readily available capital more easily than ever, but they’re going to have the most difficult time getting it.”
The statistics are frightening; we are more likely to have a financial freeze-up than we are to get through this crisis without such a disaster. At this point, people need to stop ignoring the facts and prepare themselves for what may turn into the next economic disaster.
If the Buck Breaks
An editorial published on the Wall Street Examiner discusses the potential causes and consequences of breaking the buck. According to the article:
- The day may come to pass when the buck finally breaks on the first money market fund. If this happens, it will be an absolute disaster that shakes investor confidence to the core.
- People have been projecting that firms will use every ounce of equity to defend the dollar barrier of their money market mutual fund. What is absolutely frightening about Legg Mason is that their cash needs far outstripped their available equity, forcing them to borrow 2 times their equity injections.
- It just doesn’t take much thought to see the potential risks ahead. If the buck breaks, you can bet that banks will not lend to mutual fund companies moving forward. This will force mutual funds to rely entirely on their own equity base. Heck, you may even see the SEC blessing the suspension of money market redemptions to stabilize the market. But what would that do to confidence?
- I cannot begin to state how disastrous this would be. I suspect a lot of cash investors will re-route their funds to normal banks who pay nothing in interest simply because there is FDIC insurance.
The current credit crisis could end in so many different ways. But it all depends on what people do, and how they respond to what is going on. I think the most frightening thing of all at this time is the uncertainty of things to come. It will be interesting indeed to see how this crisis plays out. Hopefully consumers will manage to payoff mortgage debt.
Buffett Offers Hope to Struggling Bond Insurers
An article published in The Australian takes a look at Berkshire Hathaway chairman Warren Buffett’s position to benefit from the credit crisis by offering financial support to bond insurers. According to the article:
With more than $US45 billion in cash on its books, a triple-A credit rating and decades of experience insuring other insurers against catastrophic losses, Berkshire Hathaway is in a strong position to provide relief to some of these companies and could get into the bond insurance business itself, observers say.
In recent weeks, every major bond insurer has reached out to Berkshire - In the process of pleading their cases with Berkshire, these companies enable Buffett to size up their businesses.
This is a bad time to raise capital through the stock or debt markets, in which most investors are trying to steer clear of any exposure to sub-prime risk.
That’s where Buffett comes in. Berkshire, as the only triple-A-rated reinsurer in the world, has long been willing to write insurance policies on risks that nobody else will touch.
“Using reinsurance is clearly a way the industry can help improve their capital positions,” Thomas Abruzzo, managing director at Fitch Ratings, says of bond insurers. Buying reinsurance could be enough to save the ratings of bond insurers that have only minimal shortfalls in capital.
This is good news to lenders and all the people who have been fearing a recession because of the subprime crisis. If bond insurers can get the temporary, but necessary financial help that they need, we just may be able to pull through the current crisis with our financial system still very much intact (which may make it easier for those with ARMs to pay off mortgage debt). If it doesn’t work out, however, then the future of the U.S. economy looks depressingly bleak.
Is Recession the Next Phase of the Crisis?
An editorial published by Money and Markets takes a look at the building evidence of a recession. Here is an excerpt with several interesting points:
- The housing crisis is gutting the home equity of millions of households, abruptly ending their ability to use it as a personal ATM machine.
- Big retail chains are expecting a holiday shopping season that one leading analyst calls “a train wreck under the Christmas tree.”
- Even technology companies — thought to be a place for investors to hide from the fall-out of the housing crisis — are getting smacked, as evidenced by the rout in their shares last week.
- And most important …
- The credit crunch has spread to the nation’s banks with the force of an F5 tornado. It’s tearing into the banks’ portfolios. And it’s triggering their most intense tightening of lending standards in nearly two decades.
- Meanwhile, word leaked out on Friday that three major banks — Citigroup, JPMorgan Chase and Bank of America — may be near a deal to create a $75 billion superfund to help stabilize credit markets.
- But it won’t end the crisis. Even Treasury Secretary Henry Paulson said on Thursday that the fund would not rescue troubled institutions; it would only lead to a longer and more orderly demise.
With the rising evidence, it’s no wonder that analysts fear a recession. Companies have been trying to restore consumer confidence with funding proposals left and right. But will it only delay the inevitable? At this point, we can only wait and see.
A recession will likely result in increased rates for loans such as a home equity line of credit.
$3 Billion Write-Down in Bank of America’s Future
An article published by Reuters gives details of the losses felt by Bank of America as they struggle to get out of debt. According to the article:
- Bank of America joined Citigroup Inc, Morgan Stanley, Wachovia Corp and other banks in projecting large fourth-quarter write-downs for exposure to mortgages and other debt that investors are no longer willing to buy.
- Bank of America Corp, the second-largest U.S. bank, said on Tuesday it expects to write down $3 billion of debt in the fourth quarter as fallout from the nation’s housing slump deepens.
- “The losses are not only manageable for the bank, but were long ago discounted by investors,” said Marshall Front, who oversees $800 million at Front Barnet Associates LLC in Chicago, including Bank of America shares. “Unless something enormous and unforeseen happens, major, diversified well-capitalized banks can handle these losses.”
Banks seem to be more confident that they can handle the losses that are currently plaguing them. This is good news to all those who were worried about a total financial collapse. It will be interesting to see how consumer confidence correlates with that of the mortgage lenders.
The Expanding Market of Reverse Mortgages
An article published by the Wall Street Journal takes a look at a part of the 2nd mortgage market that has previously received a lot less attention: reverse mortgages. The article gives more details on reverse mortgages, saying:
- With a reverse mortgage, instead of the borrower making payments to the lender, the lender makes a payment or payments to the borrower. The borrower keeps control of the house and doesn’t have to pay back the money as long as he or she lives there. When the homeowner dies or moves out, the loan is typically paid off by selling the house, and any money left over goes to the homeowner or the homeowner’s estate.
- The product is evolving from meeting basic needs to fulfilling the desires of a new generation of retirees, from funding a vacation getaway or a recreational vehicle to renting a Paris pied-a-terre. The new options, though, mean more potential for confusion among consumers — and a bigger chance that they could miss out on getting the best loan for their situation.
This may seem like a great idea, but people considering this still need to be careful and read the fine print. If people fail to do this, it could mean more trouble when unexpected fees and interest rates lead to more financial difficulties.