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White House, lenders, lawyers and borrowers: Nobody can agree on mortgage relief

Tom Johansmeyer — Sun, 29 Nov 2009 15:10:00 EST

Filed under: JPMorgan Chase (JPM), Economic Data, Politics, Housing, Recession, Financial Crisis

If mortgage companies start to feel like they're losing elbow room, it's probably because they're starting to get nudged by the Obama administration. The folks in the White House are planning to kick off a campaign to squeeze mortgage companies to lower payments for even more borrowers who are in trouble. The $75 billion program, financed by taxpayers, to keep homeowners from falling into default appears to be in trouble.

Mortgage lenders have increased their efforts to modify borrowers' mortgages, but most of them are still in a trial stage, which will last up to five months. Only a handful have been made permanent, which isn't good enough for Washington. The Treasury Department's assistant secretary for financial institutions, Michael S. Barr, told the New York Times, "The banks are not doing a good enough job," continuing, "Some of the firms ought to be embarrassed, and they will be."

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White House, lenders, lawyers and borrowers: Nobody can agree on mortgage relief originally appeared on BloggingStocks on Sun, 29 Nov 2009 15:10:00 EST. Please see our terms for use of feeds.

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Will a new U.S. president lead to a new mortgage system?

Joseph Lazzaro — Wed, 30 Jul 2008 16:55:00 EST

Filed under: Forecasts, Economic Data, Politics, Housing, Recession

Most Americans realize that every new U.S. president, upon taking the oath of office, faces his/her share of economic problems, none of which originated on his watch.

President John F. Kennedy spoke to this when he said (and someone said it before him), "It's true. Life is not fair. Some men go to war, and others remain at home. Among those who go to war, some men are sent to the front lines, while others stay behind. It's true. Life is not fair."

Still, although each age has seen its share of formidable economic problems, the scope, seriousness, and systemic impact of economic problems facing the new president, be it Democrat Barack Obama or Republican John McCain, may represent the biggest economic decisions since those President Franklin D. Roosevelt confronted upon taking office in the depths of the Great Depression in 1933.

What's one issue likely to give the president more gray hair? The kinds of systemic reforms to lobby for, on the heels of the federal housing bailout of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) following the collapse of the housing market and rise in mortgage defaults, said economist David H. Wang. The housing bailout will further increase the U.S Government's annual budget deficit, which is expected to reach $490 billion in Fiscal 2009, Wang said.

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Will a new U.S. president lead to a new mortgage system? originally appeared on BloggingStocks on Wed, 30 Jul 2008 16:55:00 EST. Please see our terms for use of feeds.

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Fannie, Freddie bailout -- first step toward ending housing sector's slide

Joseph Lazzaro — Mon, 28 Jul 2008 13:40:00 EST

Filed under: Forecasts, Federal Natl Mtge (FNM), Politics, Housing, Recession

As Washington legislation goes, the housing bailout bill that the U.S. House and Senate passed last week and that President Bush is expected to sign this week, is omnibus in scope and, ultimately, in budget and economic impact.

Economist Glen Langan told BloggingStocks Monday the bill's two key components are the assistance to Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), and a new Federal Housing Administration program. The former, Langan says, "represents an implied guarantee" of Fannie and Freddie by the U.S. Government, which should restore confidence in each, and in the secondary mortgage market. Banks and other mortgage lenders, he said, "will now be more willing to write conforming loans, knowing that Fannie and Freddie will have the funds available to purchase and back these loans."

The latter, a Federal Housing Administration program that enables banks to sell to the U.S. Government mortgages unlikely to be repaid, "will help stem the tide of foreclosures that's plaguing the housing sector," as well as "relieve banks/lenders of less-than-stellar to non-performing assets," Langan said.

Beginning of the end of the housing slump?

Some House and Senate Republicans, and a few Democrats, among others, have chaffed at the bailout bill's cost and ultimate impact on the U.S. taxpayer. House Republican leader U.S. Rep. John Boehner, R-Ohio, told Bloomberg News the bill did not reform Fannie and Freddie enough, and will leave taxpayers with a bill for "billions and billions of dollars." Langan said Rep. Boehner's concern is legitimate.

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Martin Wolf: We need a mortgage system where banks, lenders have skin in the game

Joseph Lazzaro — Wed, 07 May 2008 17:44:00 EST

Filed under: Other Issues, Housing, Recession

The ever-incisive FT columnist Martin Wolf offers prudent and timely advice concerning the reforms needed to ease credit market doldrums and right the global financial state of things.

One key practice Wolf would like to see addressed is bank / mortgage lender selling of mortgages they originate.

Designers of the practice had good intentions: It was designed to free-up capital so banks / mortgage lenders could have more money available for future homebuyers. A noble intention.

Unfortunately, as tradition reminds us, the road to perdition (and record housing sector slumps) is paved with good intentions. The problem, Wolf notes, is that the originate-and-distribute model encouraged banks / mortgage lenders to originate (in many cases for handsome fees) high-risk, very-poor-credit-quality mortgages with reckless abandon, because originators knew that the loan would be sold, and its status as a performing asset would be entirely someone else's problem. Save the best (mortgages), get rid of the rest.

It's not surprising, Wolf notes, that the originate-and-distribute model became laden with sloppy, irresponsible and even fraudulent loans. Wolf's reform: originators must be required to retain a portion of the equity of securitized loans. Hence, if / when they go bad, the originator loses money too.

Economic Analysis: Wolf's proposed financial / bond market reform is on the mark. If every party, including the originator, has a stake in a mortgage's repayment status, that will lead to higher-quality loans, while at the same time retaining the secondary market's benefit of freeing-up capital for new mortgages.

Martin Wolf: We need a mortgage system where banks, lenders have skin in the game originally appeared on BloggingStocks on Wed, 07 May 2008 17:44:00 EST. Please see our terms for use of feeds.

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March U.S. foreclosures jump 57% as more homeowners walk away

Joseph Lazzaro — Tue, 15 Apr 2008 12:35:00 EST

Filed under: Bad News, Housing, Recession

Home foreclosures in the United States rocketed 57% in March 2008 compared to a year ago, as more homeowners relinquished their homes to lenders, according to data compiled by RealtyTrac.

More than 234,000 properties were in some stage of foreclosure - - roughly 1 in 538 U.S. households, RealtyTrac announced Tuesday.

Nevada, California, and Florida had the highest foreclosure rates, while Vermont, North Dakota, and South Dakota had the lowest.

Handing back the keys

Economist Glen Langan said Tuesday he's not surprised that RealtyTrac indicated that the large foreclosure increase showed that many homeowners were simply walking away from homes worth substantially less than the mortgage and deeding the home back to the lender.

"If you can't refinance -- and in many cases today with more-rigorous mortgage requirements, you can't -- a home sale probably doesn't make much sense," Langan said. "If it's a $20,000 gap, a mortgage of $400,000 and a house value of $380,000, you probably sell, or search harder to find a lender who will refinance the note."

"But if you hold a mortgage for $400,000 and the house is now worth $200,000 or $175,000 or even less, it makes makes very little sense to sell, so you simply hand the deed and keys back to the lender, and say 'It's yours,' " Langan said. "And that's what a lot of homeowners are doing now."

However, Langan underscore that 'handing back the keys' is not without it downside. Doing so will still lower a borrower's credit rating, although Langan admits "that's probably at the bottom of concerns for many homeowners about to give up their homes." Also, the rising foreclosures will add large amounts of inventory to an already oversupplied housing market, depressing home prices for a longer period of time.

Continue reading March U.S. foreclosures jump 57% as more homeowners walk away

March U.S. foreclosures jump 57% as more homeowners walk away originally appeared on BloggingStocks on Tue, 15 Apr 2008 12:35:00 EST. Please see our terms for use of feeds.

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Martin Wolf: 'Heads I win, tails you lose' financial incentives must stop

Joseph Lazzaro — Thu, 27 Mar 2008 15:59:00 EST

Filed under: International Markets, Other Issues, Columns, Housing

Financial eras, like social periods, are often defined by moments or epiphanies when decision makers and/or citizens realized that a serious flaw/mistake/problem was occurring through time, and across space, and needed to be corrected.

The ever-incisive FT columnist and economist Martin Wolf describes one contemporary concern that's likely to be addressed: the failure to align the interests of managers with those of investors.

My BloggingStocks colleagues Peter Cohan and Zac Bissonnette have also written on the subject on several occasions in this space, and now the FT's Wolf has assembled additional data that may very well lead to public policy changes, both in Wolf's United Kingdom and in the United States.

Continue reading Martin Wolf: 'Heads I win, tails you lose' financial incentives must stop

Martin Wolf: 'Heads I win, tails you lose' financial incentives must stop originally appeared on BloggingStocks on Thu, 27 Mar 2008 15:59:00 EST. Please see our terms for use of feeds.

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Annaly Mortgage recalibrates to re-ignite profits

Joseph Lazzaro — Fri, 11 Jan 2008 18:39:00 EST

Filed under: Stocks to Buy, Housing

A mortgage lender stock? In this market?

Yes, if you can tolerate high risk, and Annaly Capital Management, Inc. (NYSE: NLY) is the company to consider.
Analysts believe Annaly Mortgage has taken the steps needed to position itself in the challenging and risky residential mortgage-backed securities market, with most analysts expecting earnings growth to accelerate in 2008. The Reuters FY 2007/FY 2008 EPS consensus estimates for NLY are $1.27 to $1.96

That's not to say that mortgage sector conditions will improve universally, but the point here is that NLY is in a decent position well before attitudes toward the industry are likely to change. In that sense, NLY is a 'get ahead of the pack' play, but it's only for high-risk investors.

For the most part, Annaly has realigned its portfolio to remove credit risk and has a business model that concentrates on managing interest rate and prepayment risk.

The First Call mean rating for NLY is: Buy [12 firms]. Mean 2008 target: $18.90 [high: $20, low: $18].

Stock Analysis: Annaly Mortgage is a high-risk investment not suitable for low-risk or moderate-risk investors. Sell/Stop Loss if you to purchase shares in this company: $9.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Annaly Mortgage recalibrates to re-ignite profits originally appeared on BloggingStocks on Fri, 11 Jan 2008 18:39:00 EST. Please see our terms for use of feeds.

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Who's afraid of coordinated central banks?

Joseph Lazzaro — Fri, 14 Dec 2007 18:08:00 EST

Filed under: International Markets, Other Issues, Economic Data, Housing, Federal Reserve

Once again, the ever-incisive Financial Times columnist Martin Wolf, an economist, identifies with laser-accuracy what ills the current market. The problem, Wolf argues, is not a lack of solvency but a lack of liquidity (i.e. 'panic').

Wolf does not deny that there have been bad loans (there have been) or that no companies will go out of business (some will). But the circumstance that froze credit markets, that caused quality corporate bonds to fail to price, and that leads to 100-point spreads between the LIBOR rate (what banks charge each other) and the ECB's benchmark interest rate, is rooted more in a lack of confidence, than a lack of sound economic fundamentals or a lack of resources.

A lack of liquidity

And a lack of liquidity or 'panic' is something that central bankers can address. With the above in mind, the U.S. Federal Reserve's plan, in consultation with the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Canada, to inject $40 billion via auctions into the financial system is appropriate and prudent. (Further, in addition to reciprocal currency arrangements, the companion central banks will take related actions, including the Bank of England's decision to accept a wider range of collateral on 3-month loans).

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Who's afraid of coordinated central banks? originally appeared on BloggingStocks on Fri, 14 Dec 2007 18:08:00 EST. Please see our terms for use of feeds.

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U.S. November job gains seen easing pressure on Fed

Joseph Lazzaro — Fri, 07 Dec 2007 12:55:00 EST

Filed under: Other Issues, Employees, Economic Data, Housing, Federal Reserve

November's 94,000 added jobs statistic is likely to tip the scales in favor of a quarter-point cut in short-term interest rates instead of a half-point cut, economists and analysts say.

"The November job creation number, while not outstanding, is more than enough to quell the half-point hawks," economist Steve Affinito told BloggingStocks Friday. "The Fed will cut interest rates by one-quarter point next week."

Affinito said the November 2007 jobs report was "the sole bright spot" after a string of negative economic data recently reported for the U.S. economy. That data points to a slow-growing U.S. economy (or possibly worse) through Q1 2008, many economists agree.

"If we can register 2% GDP growth in the first quarter of next year, that would be acceptable at this point, and I would take it," Affinito said, adding that Q1 could conceivably show a contraction. For Q4 2007 Affinito estimates that the economy will have slowed to 2.3-2.6% growth.

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U.S. November job gains seen easing pressure on Fed originally appeared on BloggingStocks on Fri, 07 Dec 2007 12:55:00 EST. Please see our terms for use of feeds.

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Early holiday present: Subprime package seen likely

Joseph Lazzaro — Fri, 30 Nov 2007 14:22:00 EST

Filed under: Good news, Citigroup Inc. (C), Washington Mutual (WM), Wells Fargo (WFC), Housing, Federal Reserve

U.S. Treasury Secretary Henry Paulson is negotiating an agreement with banks and other lenders to limit the surge in foreclosures by fixing interest rates on loans to subprime borrowers, people familiar with the Thursday meeting said, Bloomberg News reported.

"We've all agreed that there should be some sort of standardized approach to reaching more homeowners faster," U.S. Treasury Department spokeswoman Jennifer Zuccarelli told The Associated Press.

Subprime mortgages worth about $362 billion are expected to reset to higher interest rates in 2008, according to BusinessWeek magazine.

Market chatter Friday speculated on the plan's form, with no consensus readily emerging so far. Some Wall Street analysts expect Paulson's plan to focus on middle-income loans, excluding higher-income borrowers on the belief that they will able to obtain better terms themselves, and excluding lower-income borrowers who would not be able to afford their mortgage, even after a refinancing. Other analysts suggested that the plan may be more encompassing -- "capping" or limiting interest resets to predetermined rates.

Continue reading Early holiday present: Subprime package seen likely

Early holiday present: Subprime package seen likely originally appeared on BloggingStocks on Fri, 30 Nov 2007 14:22:00 EST. Please see our terms for use of feeds.

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Will subprime meltdown cost $4 trillion, $400 billion, or $104 billion?

Peter Cohan — Fri, 26 Oct 2007 13:25:00 EST

Filed under: Bad News, Industry, Economic Data

It looks like people in power are getting beyond the point of denying that subprime is a problem. And now they're onto the next stage of trying to decide just how big a problem it is. I have seen estimates ranging from as high as $4 trillion to as little as $104 billion. (This is one area where the son will beat the father. Bush I's Savings & Loan crisis cost $240 billion but Bush II's looks likely to be far more costly.)

While each estimate covers different aspects of the cost, the big questions that need to be answered are:

What caused the problem?
What can and should be done to minimize the damage? and
What changes can be made to keep it from happening again?

I don't have real answers to these questions but I think a look at the different estimates of the subprime mortgage meltdown's damage can shed some light on the problem. Here's my take on the three estimates:

Continue reading Will subprime meltdown cost $4 trillion, $400 billion, or $104 billion?

Will subprime meltdown cost $4 trillion, $400 billion, or $104 billion? originally appeared on BloggingStocks on Fri, 26 Oct 2007 13:25:00 EST. Please see our terms for use of feeds.

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Countrywide Financial loses $1.2 billion

Jonathan Berr — Fri, 26 Oct 2007 08:51:00 EST

Filed under: Major Movement, Earnings Reports, Countrywide Financial (CFC), Housing, Federal Reserve

Here's a shock: Countrywide Financial Corp. (NYSE: CFC) is deep in the red. The beleaguered mortgage company lost a whopping $1.2 billion, or $2.85 per share, in the quarter compared with earnings of $647.6 million, or $1.03 per share. It was its first quarterly loss in 25 years.

But wait, the news isn't all bad, according to the company.

"We view the third quarter of 2007 as an earnings trough, and anticipate that the Company will be profitable in the fourth quarter and in 2008," President and Chief Operating Officer David Sambol said in the earnings release. "Over the longer term, we believe that prospects for the U.S. housing and mortgage markets, as well as for Countrywide, remain very attractive."

Chief Executive Angelo Mozilo goes even further, saying, "...during the period we also laid the foundation for a return to profitability in the fourth quarter..... We believe the steps which we have taken position the Company with the necessary capital and liquidity for our operating and growth needs, and will allow us to benefit from opportunities that result from industry consolidation."

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Countrywide Financial loses $1.2 billion originally appeared on BloggingStocks on Fri, 26 Oct 2007 08:51:00 EST. Please see our terms for use of feeds.

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US buyout firms eye UK mortgage company Northern Rock

Douglas McIntyre — Sun, 30 Sep 2007 14:10:00 EST

Filed under: Deals, Industry, Housing

Perhaps there are not enough good opportunities to "cherry pick" assets among U.S. mortgage lenders, so U.S. buyout firms Cerberus and JC Flowers have gotten approval to deal with the board of Northern Rock (LSE: NRK), the large and troubled U.K. mortgage bank.

The two funds would probably take different approaches. Flowers is interested in having Northern Rock continue to operate, but perhaps with many fewer employees. Cerberus is interest in the bank's assets, which it believes it can get at a discount and then sell off to other institutions.

According to The Telegraph, British authorities "have said Northern Rock is solvent, but sources close to the restructuring warn that it is living on borrowed time."

A buyout of Northern Rock could be a trial for whether similar deals could work in the U.S. There is little hope that the U.S. mortgage market will be better this year and may even stay depressed into 2008. Banks like Accredited Home Lenders (NASDAQ: LEND) are still not out of the woods. And, private equity and hedge fund interests may be the only buyers left for some of these companies.

Douglas A. McIntyre is a partner at 24/7 Wall St.

US buyout firms eye UK mortgage company Northern Rock originally appeared on BloggingStocks on Sun, 30 Sep 2007 14:10:00 EST. Please see our terms for use of feeds.

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The big six U.S. banks: Is it time to buy?

Georges Yared — Sat, 14 Jul 2007 09:40:00 EST

Filed under: Forecasts, Industry, Citigroup Inc. (C), JPMorgan Chase (JPM), Bank of America (BAC), Wachovia Corp (WB), Washington Mutual (WM), Wells Fargo (WFC)

The Dow Jones is up over 11% for the year so far and the euphoria on Wall Street has certainly hit Main Street. The one sector that has not participated in this rally is major U.S., large-cap banks. The stock performance of the major six banks has been as low as down 10% to flat -- in other words lousy. The six major banks are Citigroup (NYSE: C), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Wachovia (NYSE: WB) and Washington Mutual (NYSE: WM) and JP Morgan Chase (NYSE: JPM). So is time to start nibbling away at these stocks?

The central issue is the state of the subprime mortgage market. All of these banks are major mortgage players in the United States, from coast to coast. As the earnings season was approaching with first quarter results, many thought the answers would be evident and that the issue would be a memory. All six reported very good, solid first quarter results, and reserve requirements were raised for the year to absorb defaulted mortgages. Washington Mutual explained that they were aggressively working with the subprime customers to refinance their loans before the problems got worse. Wells Fargo, Bank of America, and Wachovia followed suit.

The earnings were strong for the first quarter and guidance for the calender year 2007 stayed the same, no lowering of forward expectations. Dividends are absolutely solid in terms of earnings/dividend coverage, and the yields are mouth-watering. The yields on the big six range from 3.2% to 5.2%.

The stocks have been flat to down as the mortgage issue is not yet totally resolved. The housing market is still a troubling aspect of the economy, with no real relief in sight until at least 2008. That factor has kept these stocks depressed. But remember, you want to buy when no one else is.

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The big six U.S. banks: Is it time to buy? originally appeared on BloggingStocks on Sat, 14 Jul 2007 09:40:00 EST. Please see our terms for use of feeds.

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Democrats blast Fed over subprime crisis

Jonathan Berr — Thu, 22 Mar 2007 18:33:00 EST

Filed under: Other Issues, Law, Scandals, Columns, Countrywide Financial (CFC), Economic Data, New Century Fin'l (NEW), Politics

The Federal Reserve today admitted that it could have done more to avert the meltdown among subprime lenders. I guess 20-20 hindsight is everything.

Senate Banking Chairman Chris Dodd, D-CT, pressed the Fed to take a harder line at a hearing in Washington today, according to Bloomberg News.

"Regulators were supposed to be the cops on the beat, protecting hard-working Americans from unscrupulous financial actors," said Dodd, a candidate for president. "Yet they were spectators for far too long.''

An executive from Countrywide Financial Corp. (NYSE:CFC) urged Congress to "be careful about an overcorrection" that would cut access to credit for people with bad credit histories, Bloomberg said.

Fat chance of that happening.

Life is going to get much harder for subprime lenders. They have managed to unite the Democrats and Republicans against them, no small feat in the current political climate.

Interestingly, New Century Financial Inc. (NYSE:NEW) was a no-show at Dodd's hearing.

Delinquency rates on subprime mortgages are their highest levels since September 2002 and foreclosure rates are their highest levels since 2004,

Guess what? Subprime loans are not the only shaky loans out there.

You don't want to be around when that other shoe drops.

Democrats blast Fed over subprime crisis originally appeared on BloggingStocks on Thu, 22 Mar 2007 18:33:00 EST. Please see our terms for use of feeds.

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