Busted: Bankers and The Global Economy

June 25, 2008

Selling Short to Avoid Foreclosure

Filed under: banking, investment, money — Tags: , , , , , , , — digitaleconomy @ 12:02 pm

Increasingly, Americans are finding themselves in a no-win economic position while facing the possibility of foreclosure. The falling value of homes on the market is creating a substantial issue for lenders and borrowers alike. As record numbers of citizens lose their jobs and face other life situations, some are finding some solace in selling short.

Selling short requires the agreement of the banking institution that holds the mortgage and involves selling the house below the value of any held mortgage by the institution. Naturally, the banking institution would need to see a value to the bottom line over foreclosure in order to cooperate. In some cases, this action of selling short is exactly what is needed to get overstressed American pocketbooks out of a major cash crunch.

This action is not without effects to the borrower. Selling short is projected to show up on any credit report, thus impacting personal credit ratings. However, in an age “market housing walk-aways”, trying to do the “honorable thing” is exactly the choice of many homeowners for all kinds of variable reasons. Like banks, American citizens often have their own “bottom line.”


April 25, 2008

Seduction of Investor Profits Continues

The new Home Ownership and Equity Protection Act was recently discussed by Federal Reserve Governor Randall Krozsner. Naturally, he mentioned the Hope Now Alliance, what he calls a broad-based coalition of government-sponsored enterprises, industry trade associations, counseling agencies and mortgage servicers. This alliance is working to find ways to help borrowers through the lengthy loan modification process.

The alliance is working on ways to standardize the loan modification process for sub-prime and alt-a loans to provide the relief needed for distressed borrowers. Unfortunately, each modification is done in a slow case-by-case basis at this time. They have not figured out a way to automate the process. (more…)

April 21, 2008

British Unroll Banking Solution Similar to U.S.

The Bank of England has decided to swap the risky mortgage assets of UK banks for at least 50 billion pounds of government debt. The UK doesn’t want to see lingering negativity in their market and are looking for a way to shortcut the process.

Central banks everywhere have fought valiantly to bring confidence levels up in the marketplace. Despite eight months passing and billions spent, banks remain afraid to lend money because they don’t know the exposure of fellow bankers to sub-prime securitized U.S. home loans.

New UK Prime Minister Gordon Brown has faced popularity problems as the British economy (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

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