City lies to Investors
Things have been looking ugly for investors lately, with it becoming increasingly difficult to successfully pay off mortgage debt.
According to the Miami Herald:
Harriet and Paul Fass, both 65 and hoping to soon retire, aren’t rich.
Even so, the Wilton Manors couple cobbled together $100,000 to invest in the financing of a private housing development in Florida City, in the midst of the region’s real estate boom.
It was a risky business venture, somewhat cushioned by a supposed security blanket of promised government intervention: A Florida City public official had guaranteed, in writing, to bail out the project if it stumbled.
”It sounded safer than the stock market,” Harriet Fass said of the real estate deal.
Now the Fasses, and some four dozen other investors, are facing the prospect of losing hundreds of thousands of dollars. Some families’ entire life savings could be wiped out.
Apparently the city has backed out leaving these would be investors with a large loss.
Government to payoff mortgage debt
The US government has maid a huge announcement through the Fed, indicating that they will be assuming two hundred billion dollars worth of bad mortgage debt, debt which will likely never be paid off. Mybudget360 reports:
Unless you’ve been living under a rock, you are probably aware of the JP Morgan/Fed orchestrated bailout. The amazing thing about this entire situation is how quickly Bear Stearns went under. In the matter of one year, the once fifth largest investment bank was bought out for a pittance of its once mighty price. Bear Stearns has a long and storied legacy going back to 1923. Bear has lived through numerous recessions and the Great Depression. The company has approximately 14,000 people and as of last November, was generating a net income of $233 million.
Bear even as recently as 2005 to 2007 was listed as “most admired” securities firm according to Forbes magazine. If anything, it seemed like the mighty Bear could do no wrong. That is until the credit crunch hit.In June of 2007 Bear had to come up with over $3 billion to bail out one of its funds that was dabbling in collateralized debt obligations (CDOs). Incredibly these funds were seized at the time by Merril Lynch for $850 million who was only able to get $100 million for them on the auction block. Talk about mark to market. This little hiccup turned out to be the tip of the iceberg as we entered August and the market pummeling credit crunch.
With the government agreeing to payoff mortgage debt, the US doubtlessly has a huge economic crisis close at hand. Bear Sterns was just the big domino that will topple over countless others.
Payoff Mortgage Early
Paying off one’s mortgage is easy with a proper budget in place. Obtaining such a budget can be difficult however. Those looking to payoff a mortgage early may find it necessary to look for some form of succor other than a Mortgage bailout.
‘Some approaches risk billions in taxpayers’ money, perhaps hundreds of billions, and any intervention in the marketplace is likely to favor one group over another, leading to cries of “foul.”‘
Which according to sources, could lead to no bailout at all, a negative solution for everyone.
Banks Learn Lesson The Hard Way: Lend Smart
As more and more borrowers default and fail to pay off mortgages, Banks are starting to show that they have learned a lesson. Reuters reports.
A Traiger & Hinckley LLP study of 2006 mortgage loan data suggests that the Community Reinvestment Act, a federal law that requires banks to help serve the credit needs of their local communities, including low- and moderate-income neighborhoods, deterred banks from engaging in the kinds of risky lending practices that are provoking the foreclosure crisis. Compared to other lenders in their communities, banks making loans in their CRA assessment areas (CRA Banks) were less likely to make a high cost loan, charged less for the high cost loans they did make, and were substantially more likely to eschew the secondary market and retain high cost and other loans in portfolio. Foreclosure rates were also lower in metropolitan areas with proportionately greater numbers of bank branches.
It’s nice to see that some banks have learned to modify their lending strategies, although many will argue it took far too long for them to ‘get’ it.
Pay off Mortgage Debt with SydneyFinancialGroup
Christmas debt can often add up, so finding a method to pay off and manage large amounts of debt can become a positive habit or a new year’s resolution. Those looking to pay off mortgage debt may be pleasantly surprised at the options offered them. Many free online calculators allow users to calculate mortgage debt on the fly and realize how adding a few dollars to a mortgage payment here and there can actually result in a paid down loan.
Slowing the accumulation of debt, whether over the holidays, or at any other period of time is one of the most important traits one can develop. Keep in mind that paying off your mortgage early can save you thousands. This can be particularly necessary if you find yourself with a high rate adjustable mortgage loan. In addition this can make retirement far more affordable due. Without a monthly house payment, one finds their life becomes quite a bit more affordable. Often, half of one’s monthly income ends up being spent on a mortgage.
Bush’s Subprime Bailout Groundless?
While announcing a bailout seems like a simple way to please the constituents, the actual practice of bailing out people who took bad loans from predatory lenders is a difficult and thorny one. How can the government fairly help those who by all fairness created the mess they are now in?
The NY Post attacks the President’s plan for the simple reason that it’s not a plan at all. It’s a plan to help with no concrete details, and thus little more than a vague promise. They Write:
Neither President Bush nor his Wall Street guru Hank Paulson provided the elusive details of how their proposed mortgage rescue will actually play out in banks across the country.
Even so, they won applause for boosting Bush’s image as a savior of Americans facing home foreclosures, while at the same time casting bankers as Scrooges.
The White House’s rescue blueprint to ease the worst foreclosure crisis in 20 years, did, however, raise a curtain on a huge, backstage power struggle that is at the center of the crisis - the mechanics of how to redistribute the cash flows driven by the mortgages.
I’d like to help every American pay off mortgage loans, but sadly doing so just isn’t feasible. Unfortunately, it seems no one informed the President of this fact.
What’s Left of the Dollar?
An editorial appearing in the political newsletter, Counter Punch, takes a jab at the declining dollar and takes a look at the trouble that its decline will bring. Here is an excerpt from that editorial:
- More than two-thirds of all sovereign foreign exchange holdings are denominated in dollars. When those dollars are converted back into foreign currencies and start recycling into the US; we’re in deep trouble. Inflation will soar. Surely, the Fed must have known this day would come when they were pumping trillions of dollars into subprime mortgages and complex debt-instruments which served no earthly purpose except to fatten the bottom line for rapacious bankers and hedge-fund managers. The Fed also knew that the nation’s wealth was not being “efficiently deployed” for capital improvements on factories, technology or industry. Instead, the money was shoveled into the bottomless sinkhole of stucco homes with composition roofing and toxic credit default swaps.
- Traders see an 82% chance that Bernanke will cut the Fed Fund’s rate by another quarter point to 4.25%. All that is likely to do is put the dollar into free fall and send food, oil and gold prices to the moon. It won’t pay off the overdue mortgage payments and it won’t remove the billions of dollars of debt from the banks’ balance sheets. The US is headed for a “hard landing” and its dragging the rest of the world along with it.
Perhaps this editorial is harsher than it needs to be. The blame can’t all be put on the Federal Reserve and the government, they aren’t the one struggling to pay off mortgage debt. Despite the cynicism and pessimism, there are many good points in this article. The U.S. economy really is in trouble unless we can keep the dollar from falling any further. It’s time we all face the facts and try to find a solution for the financial mess we are now in.
OTS Considers Loan Modifications
An article published on the website, The Truth About Mortgage, takes a look at what the Office of Thrift Supervision (OTS) will do after an incredibly low third quarter. According to the article:
- “Despite the difficult environment, I am encouraged that the managers of OTS-regulated institutions are taking the appropriate steps to provide a cushion for the future,” Reich said.
- “Strong capital and higher loan loss allowances will serve thrifts well if housing markets weaken further.”
- The OTS plans to release their own loan modification strategy within days, which will compensate servicers with $500 per modified loan, and assist borrowers who are current but facing unaffordable resets.
- Reich has criticized FDIC Chairman Sheila Bair’s “one-size-fits-all” approach, which he believes would spook investors.
- “I think investors will never return to the market again if they know that at some given point in time the agreement they thought they entered into when they bought those securitizations can be modified by fiat,” he said.
- The OTS loan mod proposal would call for a case-by-case determination made by servicers, giving qualified borrowers a 36-month interest rate freeze on their initial teaser rates.
It will undoubtedly be difficult to try to cope with the credit crisis while still keeping in mind the borrowers. But it’s a relief to see that someone is willing to try when all the other lenders just seem concerned about keeping their heads above water, even if it means pushing other people under. Borrowers can certainly use the help, given the hurdles that currently exist for those looking to pay off their mortgages.
Subrime Mess Continues to Worsen
An article published by Reuters talks about the increasing problems associated with the subprime crisis, including the trouble borrowers have to payoff mortgage loans. According to the article:
Blackstone Group president and chief operating officer Hamilton James said on Monday that the subprime mess that hit Wall Street banks appears to be getting worse.
“The subprime black hole is appearing deeper, darker and scarier than they thought,” James said, referring to investment banks. James spoke on a conference call with media after its results on Monday. Blackstone posted a quarterly loss.
James also said investment bankers expect the Federal Reserve to cut interest rates again, as Wall Street has seen the credit market crisis clog balance sheets with hundreds of billions of dollars in leveraged buyout debt.
That backlog will take around six months to play out, James said, with banks having worked through what Blackstone estimates is around 40 percent of the leveraged loan backlog.
Nobody expected the current crisis to get better anytime soon. But at the same time, nobody wants to hear that it’s getting worse. Just as the subprime mess was a long time in the making, the market won’t fix itself overnight. However, it is good to see that the government and involved companies are trying their best to come up with solutions that may stabilize the precarious financial system.
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.