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Posts Tagged ‘FDIC’

New Scalable FDIC Web Site Built For Easy Expansion Of Bank Failures

July 21, 2008 | 2:23 pm | |

In an effort to be proactive, the FDIC has created a web site that simply allows a depositor to “select a bank” from a popup list. It seems to be built for maximum scalability.

Expect increased usage over the next few years. Hopefully FDIC won’t actually issue subprime loans in any of lenders:

It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.

The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank’s subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.


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[In The Media] 4Realz Roundtable Government Solutions To The Housing Situation

July 17, 2008 | 11:58 pm | | Public |

Dustin Luther scores a coup, getting the Lawrence Yun, controversial NAR Chief Economist, to be the guest on his 4Realz podcast conference call along with moi, Rhonda Porter and Jillayne Schlicke .

What’s just as interesting as the guest speakers is the chat room dialog during the discussions. It prompts Dustin’s questions and allows “murmuring” during each answer.

I got the feeling that everyone wanted to pounce on Larry but never did. Do I call him Larry? Dr. Yun? Mr. Yun? Larry was unfettered.

4realz Roundtable: Effect of FDIC/Treasury Actions on Home Buyers and Real Estate Industry

Of course I was a few minutes late to the call as is my tradition (sorry Dustin!).

Check out the discussion

Thanks again Dustin – see you in San Fran!


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[Subprime Truth In Lending] From A To Regulation Z

July 16, 2008 | 12:01 am | |

The Federal Reserve finished crafting their subprime mortgage rules regarding Truth in Lending called Regulation Z. I am doubtful that this rule would have been updated if we weren’t experiencing the current mortgage market turmoil.

Because this is such an important issue, it will take effect on October 1, 2009 (more than a year from now.)

“The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership,” said Federal Reserve Chairman Ben S. Bernanke. “Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers,” the Chairman said.

Ask anyone whether they thought these types of rules would already be on the books (for high priced mortgages – 1.5% above the “average prime offer rate”) – here are some excerpts:

  • Prohibit a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value.
  • Require creditors to verify the income and assets they rely upon to determine repayment ability.
  • Ban any prepayment penalty if the payment can change in the initial four years.
  • Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.

And here are rules for all loans, not just high priced:

  • Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value.
  • Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees.
  • Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.

Is it just me or do these rules seem crazy obvious? Why aren’t they on the books already? Why on earth do these rules only apply to subprime mortgages? Not Alt-A or Prime?

Speaking of scapegoating subprime, and something about the squeaky wheel getting the grease, lets talk oil and the evils of the dreaded speculation.

And the tale of two economies…

Highlights of Regulation Z [Federal Reserve]


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[Other Shoe Drops Department] IndyMac Needed Appraisals Done Before Judgement Day

July 15, 2008 | 12:01 am | |

Sometimes it’s the little things that give you a sign that something is amiss.

Our firm had been approached recently by IndyMac to perform appraisals for their growing mortgage presence in our market.

Over the weekend, IndyMac was seized by regulators.

As many as 150 banks may fail in the next 12-18 months. IndyMac was the second largest failure in history.

We were wary of IndyMac because of a previous experiences 5-7 years ago when we found them to be mainly focused on paying below market appraisal fees, much like an appraisal management companies did and still does. There were some good people at IndyMac who had moved from other banks who recommended us for work back then, but the low fee mentality prevailed.

From IndyMac’s perspective, its pretty obvious that the cost of doing business in Manhattan is EXACTLY the same as Bismark, ND, no? Appraisal fees should be the same across the country, no? [tone: sarcastic]

Last summer, after American Home Mortgage imploded, IndyMac hired most of AHMs sales force. I repeat: IndyMac hired the sales force of a lender that went out of business.

This go ’round we could charge our standard fees and turn appraisals around in our normal times for IndyMac. But eventually (in May) they began to want our turn times to be 48 hours – I am paraphrasing:

“We’ll give you a lot of work if you can turn the reports around in 2 days.”

Sigh.

Since we were unable to comply, we had to give up on what had been a steady client.

Think of a 3-5 day appraisal turn time differential to a lender in the context of a 30 year mortgage.

Today it’s a reasonable argument to suggest that IndyMac was not reasonable in their appraisal turn time expectations. One year ago that would have been described as progressive thinking on their part.

I am hopeful that the small amount we have in arrears ($1,800 – happily we received payment today for a bunch of other outstanding invoices). Hopefully FDIC will pay their bills.

Monday morning quarterbacking (literally)
My first instinct was to get down on IndyMac for their old school, rush the appraiser approach.

Then it dawned on me – the employees we were dealing with in May/June could have known that the bank was going under very soon and that is why we were being rushed. Admittedly I am reaching here but it makes sense.

I would bet mortgage processors and loan officers were pretty confident that IndyMac was headed for trouble and needed to get the deals in faster in order to make their commission.

I am so glad we got that bad vibe in May and opted not to continue the relationship. I guess those decision makers are out of the picture now. Still, their depositors are worried.

FDIC is trying to help homeowners out a bit.

How about paying back the little ‘ol appraisers?

Note: I must have been half asleep when I posted last night (correction: I was). So many typos, bad links and grammar errors (ok, I know this is not far from my usual delivery) that even I was mortified. I revised keeping the same message, but easier to follow.

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[Premature Lecture] Agencies Go Full Court Press On Self-reflection

May 20, 2008 | 11:05 am | |


It seems a bit early to start reflecting on the lessons learned from the housing/mortgage problems we face, since, well, we still face them.

Don’t get me wrong.

It is always good to look back over your efforts and evaluate whether anything different could have been done to yield a different result. It is just that this infers closure and it is too early to summarize.

OFHEO – James Lockhart, the director spoke last week at the 44th Annual Conference on Bank Structure and Competition in Chicago (think Auto show, only less metallic paint) on the “Lessons Learned from the Mortgage Market Turmoil.”

He arrived on the scene after the party already begun and despite the criticisms levied towards both him and his agency, I actually think he did well with what powers he has to employ.

Plus, he likes charts “To set my remarks in context, I often like to start with a chart that gives some perspective…” Start with a chart and I am on your side.

Key lessons learned

  • what goes up too far goes down too far. In other words, bubbles burst.
  • mortgage securities are risky and that there is a long list of financial firms that have had problems with those securities, including problems related to model, market, credit, and operational risks. A key lesson from the savings and loan crisis that was ignored was not to lend long and borrow short, as structured investment vehicles (SIVs) did.
  • Another lesson ignored is that in bull markets investors and financial institutions tend to misprice risk, which can result in inadequate capital when markets turn.
  • A new lesson that should be learned is that putting subprime mortgages, which almost by definition need to be worked, into a “brain dead” trust makes no sense.
  • Another lesson is that overreliance on sophisticated, quantitative models promotes a hubris that has frequently caused serious problems at many financial institutions

Lessons learned specific to the GSEs

  • The first is about pro-cyclical behavior during the credit cycle. An important issue for supervisory agencies is how to create incentives for institutions to behave in a less pro-cyclical manner without interfering with their ability to earn reasonable returns on capital.
  • A second lesson from recent experience is the importance of capital. Capital at individual institutions not only reduces their risk of experiencing solvency and funding problems and of contributing to financial market illiquidity, but also helps them avoid the need to retrench in bad times and miss what may be very attractive opportunities in weak markets.
  • Those two lessons provide compelling arguments for a third: legislation needs to be enacted soon that would reform supervision of Fannie Mae and Freddie Mac and, specifically, give a new agency authority to set capital requirements comparable to the authority the bank regulatory agencies possess.

These are important points because the GSEs dwarf other debt and the GSEs have been losing money as of late. Here’s a few charts that may be of interest from his speech:


FDIC – Sheila Bair, FDIC CHairman was speaking in Washington, DC at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another http://www.fdic.gov/news/news/speeches/chairman/spmay1608.html on the same day Lockhart was speaking in Chicago. A full court press of self-reflection. Like Lockhart, Bair has been very outspoken and I believe lucid in her depiction of the problems at hand. To her credit, she has clearly articulated the problem with the mortgage system.

Her salient points are:

  • …things may get worse before they get better. As regulators, we continue to see a lot of distress out there.
  • Data show there could be a second wave of the more traditional credit stress you see in an economic slowdown.
  • Delinquencies are rising for other types of credit, most notably for construction and development lending, but also for commercial loans and consumer debt.
  • The slowdown we’ve seen in the U.S. economy since late last year appears to be directly linked to the housing crisis and the self-reinforcing cycle of defaults and foreclosures, putting more downward pressure on the housing market and leading to yet more defaults and foreclosures.
  • Reform is not happening fast enough
  • She explains HOP loans are NOT a bailout
  • The housing crisis is now a national problem that requires a national solution. It’s no longer confined to states that once had go-go real estate markets.
  • The FDIC has dealt with this kind of crisis before.

Take away

Both OFHEO and FDIC seem to be saying we need to take action now and they were powerless to do anything before this situation evolved into its current form?

It makes me wonder whether any regulatory proposals will do much good. Regulators did not take action or propose safeguards while the problem was building. How can they suddenly have wisdom now? While these recommendations and insight seem prudent but isn’t it kind of late for that?

Speaking of monoliths, here’s Steve Ballmer getting egged in Hungary.


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[Capital Reflection] GSE/NY AG Comment Period Over, Political Maneuvering Remains

May 6, 2008 | 12:01 am | |

Did a lot of painting inside my house this weekend so I apologize if some of the paint ended up on this post.

The comment period has ended but the debate rages on within the appraisal profession: the new mortgage process that does not allow appraisals to be ordered by mortgage brokers will have the effect of enabling appraisal management companies and end up with an unreliable appraisal product. Two different paths taken to the same end: crummy collateral asset quality.

I am guessing the OCC is going to get busy, gaining back the limelight on the mortgage lending process from the NY AG’s office.

James Hagarty wrote a nice piece in the Wall Street Journal called Who Should Profit From Home Appraisals? about the political storm that has only just begun. What I find disappointing is how self-serving the players have become. Nothing wrong with advocating for your constituents, that is their job. The part that rubs me wrong is that it has become so predictable. The trade groups seem to be saying the old system worked just fine. Of course that is a complete disconnect from reality.

How does one explain how we got here? And are we going in the right direction?

  • Appraisal Management Companies (Title/Appraisal Vendor Management Association) – banks pay them about the same fee as the appraiser would get but they keep 30% to 60% of the fee and work hard to find appraiser (form-fillers) who will work at fees that don”t allow them to do research in the appraisal process. It’s laughable that the trade group contends they pay market rate to appraisers. Market rate for AMCs, I think is what he means. The AMC model doesn’t work paying market rates. It has been my experience that most appraisals I have seen done for AMCs are usually not worth the paper they are written on. The lower caliber appraisers they are forced to use experienced a flood of business during the housing boom. It is going to be interesting to see how that caliber of appraiser fares in a tighter underwriting environment.

The AMCs keep a big share of the fees consumers pay, typically at least 30% and sometimes more than half, appraisers and AMC executives say. The AMCs say they provide a valuable service by maintaining networks of local appraisers and controlling quality. “The AMCs pay market rate” to local appraisers, says Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, a trade group.

  • Mortgage Brokers (National Association of Mortgage Brokers) – they want the appraisal industry to self-police and get rid of appraisers who turned in falsified work. Yes that has worked so well already (sarcastic emphasis). While we are at it, let’s tell mortgage brokers not to press appraisers for a higher value than they know is right or withhold payment from an appraiser for not making the number. Unbelievable. This mortgage brokerage group should be ashamed of themselves for taking the scare tactic approach that consumers will be forced to pay much higher fees. How much has the current mess already cost consumers?

  • Appraisers (Appraisal Institute) – Appraisers have flip-flopped on this issue. Initially they applauded the Cuomo agreement but were disconnected from what the industry wanted. The industry has been roiling for the past month over the empowerment of AMCs. I think this trade group, which is inherently commercial appraiser centric rather than focused on the plight of residential appraisers, is so worried about AMCs that they are willing to accept the lesser evil of allowing mortgage brokers to control the appraisal (bingo!). Loss of competent appraisers versus standing up to intense pressure to play ball. Not much of a choice.

  • OFHEO (HUD) – They seem to be detached from this whole situation yet they are the oversight agency for the GSEs. Amazing.

  • FDIC – No comments submitted (yet they insure lenders and provide bank oversight).

  • Federal Reserve – No comments submitted (yet they manage the health of the banking system).

  • Congress – proposing lots of ideas but most of them of no real help or will provide a benefit after it is too late. Hard to parse out grandstanding from heartfelt concern. I’d like to think they are really trying to fix it.

  • OCC (Treasury Department) – No comments submitted and boy are they pissed off. Their turf has been stepped on. Actually, it has been stomped on. I’d expect a lot more statements from the OCC in the near future.

Bottom line: If we want the lending system to have the collateral value estimate free from corruption and influence, then appraisal management companies, bank loan officers and mortgage brokers have no business whatsoever, ordering appraisals directly because they have a vested in their outcome. I believe it is called commingling interests.

Comments or no comments, I find it hard to believe that OCC will allow this to happen without making their own agreement. Otherwise, they will become as non-existent as OFHEO was during the housing boom.

Also check out: The Housing Crisis & The Plague of Potomac Fever


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[Bail Out] Worried About Future, Banks Spread Out

April 27, 2008 | 4:57 pm | |

Bank earnings are down.
Way down.
Real concerns about future losses from non-performing mortgages, other credit instruments like credit cards and the need to recapitalize.

Fed policy has been pretty generous to the economy, no?

No.

Current hopeful scenario: Lower the federal funds rates a lot so that banks can lower mortgage rates to enable consumers to refi their way out of trouble for the time being or purchase a new home.

Looked good on paper…

But mortgage rates have been rising, whether it’s a jumbo or conforming, fixed or adjustable.

Banks need to recapitalize because they have been forced to lend and hold the mortgages they issue in their own portfolio.

Borrow at a low rate,
lend at a high rate.
Enjoy the spread.

Banks can lend at a higher rate because fewer banks are lending so there is less competition. In addition, the banks that are still lending have much tighter underwriting requirements compared to the past 3-4 years.

Why? Banks now have to be more accountable for risk in their mortgage lending decisions rather than offloading risk to investors, who would in turn offload the risk to other investors and so on.

It’s all about the credit markets. Until they begin to function again, banks will not be incentivized to offer lower the rates on mortgages they issue.

This is another form of “bailout.” The Fed is keeping the banking sector from imploding (opposite of spreading – very lame, sorry).


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Modifying The Way We Look At Our Existing Mortgages

March 14, 2008 | 8:17 am | |

Just ask.

Last fall, we refinanced our house. Our 5/1 mortgage product was tied to 1 year LIBOR and I was more or less happy with my rate so I didn’t think much about it after we closed. In February, I noticed LIBOR had fallen sharply, about 0.75%, and called my bank. I had no early withdrawal penalty and I asked for a loan modification, having never requested one before. I figured it would be easier and cheaper than a refinance.

A mortgage modification contains the exact same terms as the original refinance, but with a different (lower) mortgage rate and of course, different (lower) mortgage payments than agreed to at the original closing.

Apparently I was the first person to request a modification from the bank on this product. A week of getting their legals ducks in a row and we were ready to do the paperwork. The rate fell another .25% and as a courtesy, they locked me in the day before they increased rate. We end up with a mortgage a full 1% below what we had before. Our only cost was a $500 fee and an agreement not to modify that same mortgage again.

Sheila Bair, one of the most articulate and outspoken FDIC chairs in recent memory makes the case for mortgage loan modifications. I am guessing that many consumers would not think of this option, nor would it be advertised by mortgage lenders because it reduces the spread (profit) on the mortgage.

One of the reasons stated for the slow pace of loan modifications is that some servicers remain concerned about the potential for legal liability based on those modifications. Given the flexibility provided in most PSAs, it seems unlikely that a servicer engaging in loan modifications to avoid greater losses through foreclosure will be legally liable to investors. In addition, loan modifications that avoid greater foreclosure losses are consistent with industry standards embodied in the principles and guidance provided to servicers by ASF, which should provide an additional degree of protection from legal liability. In fact, servicers who take no action to address upcoming unaffordable resets in their loan portfolios and choose to rely on the traditional loan-by-loan process leading to foreclosure probably run a greater risk of legal liability to investors for their failure to take steps to limit losses to the loan pool as a whole.


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No Silver Bullet: Lending Lip Service To Mortgage Service

December 7, 2007 | 10:55 am | |

I’ve been a AWOL for a few days so pardon the long post…I had a lot to get out of my system.

There was great anticipation for President Bush’s mortgage plan, which was unveiled at a press conference at 1:40 PM EST yesterday, which was largely fleshed out in the media already. Treasury Secretary Paulson has been able to arrange a deal with the mortgage industry to provide relief to some sub-prime homeowners. I was interviewed for this page 1 story but didn’t make the cut ;-(

the industry would voluntarily help as many as 1.2 million homeowners who are heading for trouble paying their subprime mortgages but aren’t yet lost causes. In some cases, loan-servicing companies will agree to freeze mortgages at their low introductory rates. In others, credit counselors or loan servicers will walk mortgage holders through refinancing processes.

Here’s a useful Q&A.

Treasury Secretary Henry M. Paulson Jr. said

“The approach announced today is not a silver bullet,” said Treasury Secretary Henry M. Paulson Jr., who hammered out the agreement. “We face a difficult problem for which there is no perfect solution.”

The 1.2M number that will be quoted repeatedly today is likely overstated 5x indicating this proposal will help a limited group of people, let along address the credit problem. I am also worried about litigation by investors since they are not getting the returns they thought they were paying for. In other words, the pricing didn’t reflect the risk. But then again, this may end up affecting very few borrowers relative to the 1.2M suggested.

One of the financial industry’s lead negotiators estimated that at most 20 percent of subprime borrowers whose payments will increase sharply over the next 18 months — 360,000 out of 1.8 million people — would qualify for rapid consideration of a special five-year freeze on interest rates.

Does this send the right message to mortgage investors that are already on the sidelines because they are jittery about what’s in the mortgage pools? This action seems to open a whole new area of concern. An investor buys a package of loans and forecasts how much the rate will rise in a certain period of time. Thats the basis of the price paid. What if the interest rate you thought you were going to get from your investment was frozen at a much lower rate. As an investor, would you buy more paper until you felt comfortable that this sort of thing wouldn’t happen again?

Limited availability of mortgages =

higher mortgage rates =

higher default rates =

more personal hardship

Here’s a contrarian viewpoint on the Bush plan called “The Mother of all Bad Ideas.”

Although there are mountains of uncertainty as to how the plan will be structured and implemented, there is no question that as lenders factor in the added risk of having their contracts re-written or of being held liable for defaulting borrowers, lending standards for new loans will become increasingly severe (higher down payments, mortgage rates, and required Fico scores, lower loan to income ratios, and perhaps the death of adjustable rate loans altogether). The result will be additional downward pressure on home prices, despite the fact that in the short term fewer homes will be sold in foreclosure than what might have been without the rescue plan.

The FDIC chair’s statement on the loan modification plan, basically said that they haven’t had time to read it but thinks its probably good. Suggestion: delay comment until you’ve read it.

As I have said many times, I continue to be amazed at the disconnect between the impact of the housing market on the economy.

According to the Mortgage Bankers Association, the total number of loans that are delinquent (5.59%), in foreclosure (1.69%), or going into foreclosure (0.78%) are the highest since 1986.

In other words, consumers are uncomfortable.

Washington Post-ABC News Consumer Comfort Index Survey

This is a humanistic gesture by President Bush and a monumental effort by Treasury Secretary Paulson that only few people on the planet could have made happen. This action will make many feel good and give the impression that the problem will go away or is being resolved. However, by neglecting to address the larger issue of subprime mortgages popping up in nearly every type of mortgage pool, effectively scarring away investment, the credit situation will continue to erode and life will be more difficult for millions of homeowners with a gun to their head.

Odds & Ends

We should all remember that foreclosures also hurt their neighbors.

Why Paulson Needn’t Worry About Litigation Risk in His Mortgage Plan

UPDATE
Here’s the Bush Administration Plan as a flowchart.

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[Federal Reserve] Real Estate Not The Only One Getting A Beige Eye

November 28, 2007 | 11:49 pm | |

The Federal Reserve released their Beige Book today, an anecdotal take on the US economy by each of its 12 member banks. Its a good “ground level” overview of the economy performed by their in-house economists. Its a must read because it clearly parses out the different sectors of the economy (not because they interview me).

The Fed Governors have been busy speaking this week, hoping to influence the markets and public sentiment. The Beige Book and Vice Chairman Kohn gave some hope today for those who feel there needs to be a rate cut. (hint: Wall Street)

In a speech in New York, Fed Vice Chairman Donald L. Kohn said the central bank would remain “flexible” and would “act as needed” to prevent the housing crisis and credit crunch from damaging the economy.

The DJIA jumped 2.6% today, the largest increase since 2003.

I have not yet been able to get my arms around the disconnect with understanding the economy without considering the impact of the deteriorating housing market. Some say the Fed is behind the curve.

Retail was spending was down on Black Friday even though Cyber Monday spending was up. The holiday seasons is expected to be off from last year.

American shoppers, lured by longer opening hours and deep discounts, turned out in greater numbers over the post-Thanksgiving weekend than they did last year — but the average amount they spent decreased, according to the National Retail Federation’s 2007 Black Friday Weekend Survey. The number of shoppers went up 4.8% to more than 147 million over the long weekend, but they spent an average $347.44, a 3.5% drop from 2006. Consumer spending is being affected by high food and energy costs as well as the housing slump.

Banking is already taking a big hit, primarily due to mortgages. According the FDIC’s release today:

Industry performance was hurt by asset-quality problems and volatility in financial markets during the third quarter. Almost half of all insured institutions reported year-over-year declines in earnings. Residential mortgage loans were the focal point of asset-quality problems. But delinquency and loss rates were up across all major loan categories,” said FDIC Chairman Sheila Bair. “Because insured financial institutions entered this period of uncertainty with strong earnings and capital, they are in a better position both to absorb the current stresses and to provide much needed credit as other sources withdraw. Going forward, the outlook for the industry depends on the severity of the housing downturn and the extent to which it spills over into the broader economy.

According to the Fed’s Beige Book, housing is spilling.

Demand for residential real estate remained quite depressed, with only a few tentative and scattered signs of stabilization amidst the ongoing slowdown. Most Districts pointed to further increases in the inventory of available homes, with the earlier tightening of credit conditions for mortgage lending continuing to create barriers for some buyers. Consequently, prices on new and existing homes sold were reported to be down on a short-term or year-earlier basis in most Districts. The pace of homebuilding remained very low in general, and builders continued to shelve projects and lay off workers in many areas; contacts generally do not expect a significant pickup in homebuilding until well into next year at the earliest. Among scattered positive signs, however, co-op and condo sales in New York City picked up during the survey period, Richmond reported favorable readings on home sales in a few areas, and Kansas City reported that home inventories fell a bit in the Denver metro area. Weak home demand had mixed effects on conditions in rental markets: Chicago reported that builders’ conversions of new homes to rental property put downward pressure on rents, while Dallas noted that demand for apartments picked up, in part because some potential homebuyers are unable to qualify for mortgages.

I worry that the Fed won’t take action quick enough though. A 25 basis point cut won’t cut it.

I have been worried about a recession for more than a year now. Since its been six years and many may have forgotten what a recession actually is. There is some argument that we are already in one but don’t yet know it.

UPDATE: As Lenders Tighten Flow of Credit, Growth at Risk [NYT]


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FDIC As Tipster: Negotiating A Good Mortgage

November 20, 2007 | 12:02 am | |

When I came across this download mp3information by the FDIC, it brought to mind something I thought of while reading the review of Steve Martin’s new book “Born Standing Up” I saw in Time Out New York Magazine yesterday.

I remember one of my favorite Martin routines went something like:

>Q: How to have a million dollars and never pay taxes…

>A: First, get a millions dollars…then…

In other words, their advice is probably too late for many, although the FDIC probably means well with their publication.

The FDIC Issues Tips on Shopping for and Negotiating a Good Mortgage in the New, Tougher Climate for Loans :

  • Try to raise your credit score in the months before you apply for a mortgage, such as by paying off much or all of what you owe on credit cards.
  • Contact several lenders, let them know you are comparison shopping, and then try to negotiate the best deal.
  • Compare fixed-rate and adjustable-rate mortgages (ARMs), even if the latter carries a lower initial interest rate, because a fixed-rate loan may be cheaper in the long run.
  • Be wary of a loan with payments that can increase substantially, such as mortgages with low monthly payments in the early years in exchange for the deferred repayment of principal and/or interest.
  • And, watch out for unfair and deceptive sales practices that lure people into costly or inappropriate loans.

Definitely wild and crazy advice.

Of course, it might make more sense to seek a loan modification.

Sheila Bair, chair of the FDIC has a constructive solution for borrowers in trouble:

>She’s proposing that the banks automatically modify every subprime loan if the borrower lives in the house and has been paying on time. Payments would continue at the starter rate, without a step-up. That could prevent foreclosure on about 1 million loans, Bair says, freeing overtaxed bank staffs to focus on the borrower’s default.

Loan modifications could be a good halfway point for many to avoid foreclosures. Lenders learned that it was often cheaper to renegotiate than to bear the expenses associated with foreclosure.


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Pictures Can Say A Thousand Loans

August 16, 2007 | 12:28 am | |

One of the common refrains of borrowers about to be swallowed by an adjustable mortgage is

I have heard of mortgage resets but I had no idea this would happen. I need some help.

…but if I had a picture of what would happen, perhaps I would not gotten into this predicament… I am skeptical that if this were in place before the mortgage boom it would have made much of a difference but still, I think its a good idea to help clarify things.

You have to remember, the urge to purchase was overriding logic. For example, 50 year mortgages were introduced to keep the payments low.

In order to reduce this “deer in the headlights” problem for borrowers, the FDIC is specifically targeting subprime borrowers with this announcement:

Federal Financial Regulators Propose Illustrations of Consumer Information to Support Their Statement on Subprime Mortgage Lending

Hey, its not going to prevent fraud and financial tragedy, its a start in the right direction. Of course, it sets back the movement towards reducing the regulatory paperwork.

Here is the announcment with the illustrations attached.


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