Busted: Bankers and The Global Economy

April 3, 2008

Senate Works to Assist Homebuyers

mortgage-foreclosure.jpgSenate 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.

March 26, 2008

McCain: A Radical New Mortgage Idea

mccain-mortgage-crisis-speech.jpgPresidential 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 (more…)

February 29, 2008

Fed Admits Truth after the Fact

Up until the end of December, the Fed was loathe to publicly admit any flaws in the economy:

The economic situation has become “distinctly less favorable” since July.
Strains in financial markets became evident late last summer.
Pressures on bank capital and the continued poor functioning of markets led to tighter credit conditions for many households and businesses.

Now that the Fed is on the admission bandwagon, it paints the following picture:

The growth of real gross domestic product (GDP) has since slowed sharply since the third quarter of last year.
Labor market conditions have similarly softened, but moved up somewhat.
Continuing contraction of the U.S. housing market
Increasingly lax lending standards, particularly in the sub-prime market, raised the effective demand for housing, pushing up prices and stimulating construction activity
As the housing market began to turn down, the slump in sub-prime mortgage originations, and general tightening of credit conditions has served to increase the severity of the downturn.
Weaker house prices in turn have contributed to the deterioration in the performance of mortgage-related securities and reduced the availability of mortgage credit

What the Fed is doing publicly:

Work with financial institutions, public officials, and community groups around the country to help homeowners avoid foreclosures
To pursue prudent loan workouts and support the development of streamlined, systematic approaches to expedite the loan modification process
Work toward finalizing new rules under the Truth in Lending Act
Reviewing potentially unfair and deceptive practices by issuers of credit cards and new rules
Using the Board’s authority under the Federal Trade Commission Act, to issue proposed rules for credit card issuers

February 7, 2008

Home Equity Lines Dry Up

Filed under: banking, credit, money — Tags: , , , , , , , , — digitaleconomy @ 12:02 am

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.

FDIC Speech on Loan Modifications

January 21, 2008

Fed Dims Outlook for January 2008

Filed under: banking, federal reserve, government, money — Tags: , , , , , , , , — digitaleconomy @ 8:01 am

“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)

December 18, 2007

Fed Requests Action on Mortgage Policies

Filed under: banking, federal reserve, government, money, politics — Tags: , , , , , , — digitaleconomy @ 3:37 pm

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


October 15, 2007

Fed says Housing Correction Underway

Filed under: banking, federal reserve, government, money — Tags: , , , , , , — digitaleconomy @ 2:45 pm

“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

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