For some time the United States has known about the enlarging mortgage foreclosure crisis and little of practical value has been done to stem the tide of a financial disaster on the horizon. Finally, the mainstream media has picked up Federal Reserve Chairman Ben Bernanke Read the rest of this entry ?
The credit market has grown tight. Refinancing is more difficult. As a result of the scarcity, housing prices in the United Kingdom have began to fall. The numbers fell about 3% last month. Compared to the 10% - 20% fall in the U.S. housing market, the British situation appears small and is very early in the process.
British bankers are concerned. When buyers cannot get a mortgage, most buyers don’t buy a house. Then housing prices fall because the mortgage market deflates the housing market. Apparently, the confidence levels of UK bankers is questionable. They have been directly comparing their economy to the economy of the U.S. before the mortgage crisis. They are alarmed by the larger debt of British citizens compared to American citizens and the market is cooling dramatically.
The global banking economy has been shaken. National bankers are worried about having a repeat of the U.S. mortgage crisis. Expressed fear has a way of operating as a self-fulfilling prophecy.
Banks are being overwhelmed by the U.S. housing crisis. Recent federal law enacted by President Bush is supposed to prohibit bankers from making dramatic moves against home buying borrowers during the crisis. As a result, the predatory lending that bankers have engaged in has come full circle. As homeowners stop paying mortages, more banks are often looking the other way.
This new approach by bankers presents problems for being able to effectively measure the banking crisis as well as violating their own by-laws and internal economics. The poor real estate market presents a major adjustment problem for bankers as home value continue to drop. Bankers have began to rationalize that owning an empty house that vandals can destroy or having homeowners trash homes before they leave as a result of ill will is not desirable.
The reality is that bankers are dramatically behind on dealing with the crisis. As a result, a record number of borrowers are at least 90 days late Read the rest of this entry ?
Senate Democrats and Republicans start debating a bipartisan $15 billion housing relief package today that is expected to go to vote early next week. According to the Senate, the funding package has new measures to make loan by the FHA more accessible, funding to assist borrowers to refinance unaffordable loans and fund a business tax break for homebuilders. A new alteration in tax code will allow for a new tax credit and deduction for homeowners. The plan also includes some generic provision to boost neighborhoods with properties in foreclosure.
The Democrats pushed for a change in bankruptcy law that would allow judges to lower the value of residential mortgage debts which is expected to be added as an amendment to bankruptcy code.
Presidential candidate John McCain has just proposed an earthshaking idea that is likely to infuriate bankers, mortgage profiteers and securities investors alike. In a speech on March 25, McCain proposed that the mortgage industry is responsible to return the favor of government support to reboot the housing market by offering zero percent mortgages to responsible credit-worthy borrowers. Somehow, this news managed to miss most of the mainstream press in lieu of “more newsworthy” sound bites. Most news services portrayed his speech negatively with the concept that McCain was not going to support bailing out borrowers in the mortgage crisis in the traditional sense.
“We should also convene a meeting Read the rest of this entry ?
Up until the end of December, the Fed was loathe to publicly admit any flaws in the economy:
Now that the Fed is on the admission bandwagon, it paints the following picture:
What the Fed is doing publicly:
Banking your life on the morality and goodwill of bankers is a dangerous way to live. Yet, many people have become entirely dependent on the main asset that they hold: their home. With the creative lending in existence, it’s a wonder that that people can’t see that they are at the mercy of the bankers goodwill and profiteering in order to survive or bolster their lifestyles. Ranging from reverse-mortgages for the retired to regular home equity loans, the bankers offer to bankroll for any purpose that holds your house as collateral. The problem with this kind of thinking is that bankers are not thinking of the asset itself, only the perceived value. Even in a stable housing market, in the event of a default or major catastrophe, the bank is always left holding the bag. Admittedly, banks hate to hold real estate. Banks will often liquidate at fire sale prices to get real estate off of their books since real estate does not generate interest.
With the Countrywide mortgage debacle and the subprime mortgage bubble bust, banks find themselves in a world of hurt. Wells Fargo, Washington Mutual and JPMorgan Chase released statements Friday saying they have also started halting equity lines because of tumbling home values. Recent declines in property values have stripped many local homeowners of personal safety nets as lenders freeze lines of credit. Even borrowers that are current on payments are being cut off because of declining values.
The reality is that bankers don’t really want your home, real estate or your affection. They want your interest, a stake in your assets and security for your debt.
“Since late last summer, financial markets in the United States and in a number of other industrialized countries have been under considerable strain. Heightened investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates, triggered the financial turmoil. Notably, as the rising rate of delinquencies of subprime mortgages threatened to impose losses on holders of even highly rated securities, investors were led to question the reliability of the credit ratings for a range of financial products, including structured credit products and various special-purpose vehicles. As investors lost confidence in their ability to value complex financial products, they became increasingly unwilling to hold such instruments. As a result, flows of credit through these vehicles have contracted significantly.”
~ Fed Chairman Ben S. Bernanke on January 17, 2008
The Economic Outlook (Before the Committee on the Budget, U.S. House of Representatives)
Reaction of the Fed regarding predatory mortgage lending practices is very late. This press release does tend to validate the police role of the Fed and bring them above the fray. Meanwhile, the Bush Administration has been asleep at the wheel since the deregulation of the industry in the hope the industry would regulate itself. Now that is laissez-faire economics!
“The Federal Reserve Board on Tuesday proposed and asked for public comment on changes to Regulation Z (Truth in Lending) to protect consumers from unfair or deceptive home mortgage lending and advertising practices. The rule, which would be adopted under the Home Ownership and Equity Protection Act (HOEPA), would restrict certain practices and would also require certain mortgage disclosures to be provided earlier in the transaction.”
“Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy,” said Federal Reserve Chairman Ben S. Bernanke. “We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated.”
~ FRB Press Release: December 18, 2007
“The past several months have been an eventful period for the U.S. economy. In financial markets, sharpened concerns about credit quality induced a retrenchment by investors, leading in some cases to significant deterioration in market functioning. For some households and firms, credit became harder to obtain and, for those who could obtain it, more costly. Tightening credit conditions in turn threatened to intensify the ongoing correction in the housing market and to restrain economic growth.”
~ Fed Chairman Ben S. Bernanke, October 15, 2007
The Recent Financial Turmoil and its Economic and Policy Consequences
