Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.
Guidance for dealing with Fannie Mae and Freddie Macis not included in the recently passed Dodd-Frank Act, and Edward DeMarco, acting director of the Federal Housing Finance Agency, which oversees the government-sponsored entities (GSEs) says there is no “silver bullet” for adequately winding down these firms.
Speaking at SourceMedia’s Best Practices in Loss Mitigation Conference in Dallas, Texas, DeMarco said two factors are necessary to establish before this can happen.
The first is that the “hybrid structure of private gain and public risk” needs to be expunged from the operations of the GSEs. The second is that any reform will need a period of transition in order to create the appropriate infrastructure to complete these tasks.
He said that streamlined and transparent loss mitigation is “critical” to saving the GSEs. In the Q&A, DeMarco told an attendee that the FHFA believes the area of principal forgiveness remains “fraught with difficulty,” and in cases “where there is no borrower,” even if homeowners are avoiding contact, then the bank should foreclose.
“If you have an abandoned property or a borrower not willing to discuss or work with anything, then get going,” he advised.
DeMarco added that the government remains committed to providing adequate liquidity and credit guarantees to the US mortgage finance market, saying that the actions of the FHFA will not change that aspect.
Hat tip to shadash for sending this along, a story about the Mark condo overlooking Petco Park:
Developer Norman Radow expected some thanks in April when he offered to repay a $35 million defaulted loan on a 32-story San Diego condominium project he had taken over, originally financed by failed Corus Bank.
Instead, his new lender urged him to keep the money.
Even more striking to Radow was that the lender was a company majority-owned by the Federal Deposit Insurance Corp., an arm of the government swamped with bad debts, whose partners were private investors led by Starwood Capital Group LLC.
“They said they wanted to keep the principal outstanding longer because they had a zero-percent loan from the government, and it was worth more for them to keep our loan out,” said Radow, 52, chief executive officer of Radco Companies, an Atlanta-based distressed-property firm that has sold 85 percent of the 244 units in the Mark, overlooking San Diego’s Petco Park stadium. “The sooner you repay us, the worse it is for us.”
While Radow repaid the loan anyway, his experience shows how a new FDIC strategy for managing assets seized from failed banks has turned the agency into a long-term investor, making a multibillion-dollar bet on the recovery of some of the most distressed condominium markets in the country, from Miami to Las Vegas. Instead of selling the assets to maximize cash in hand, the agency is offering its private-sector partners zero-percent financing, management fees and new loans to complete construction of projects it can hold until markets recover.
While the strategy entails greater risk if real estate prices fall or don’t rise as much as hoped, agency officials say it offers a better chance to replenish their deposit insurance fund — which was overdrawn by almost $21 billion as of the end of the first quarter — than sales for cash. More than 260 banks have failed since 2007.
“While using LLCs to sell loans is not risk-free by any means, it is a calculated risk well worth taking,” said David Barr, a spokesman for the FDIC. “Alternatives would be either to hold the loans and work them out ourselves or sell them outright for cash, both of which have their own risks associated with them, as well.”
An LLC is a limited liability company. In the case of the Corus loans — $4.5 billion in financing for 102 real estate developments across the U.S., including 79 condominium buildings — the FDIC transferred the assets to an LLC in which it retained a 60 percent stake. It sold the remaining 40 percent to the Starwood-led group of private investors, offering it an interest-free loan for half of the purchase price.
U.S. senators or Senate employees received 30 loans—far more than had previously been known—under a controversial lending program at Countrywide Financial Corp. that provided cut-rate terms to favored borrowers.
The information is contained in a letter sent to the Senate Select Committee on Ethics by Rep. Darrell Issa (R., Calif.), who has been spearheading the House Oversight and Government Reform Committee’s investigation into Countrywide’s so-called VIP mortgage program.
No specific loan recipients were named in the letter. But Mr. Issa’s letter said borrowers on a dozen loans listed their place of employment as the office of “Senator Robert Bennett.” Available public records don’t indicate that Sen. Bennett, a Utah Republican and member of the Senate Banking Committee, received a Countrywide home loan.
Sens. Christopher Dodd (D., Conn.) and Kent Conrad (D., N.D.), have previously been identified among the high-profile individuals who received such loans. Both senators have denied wrongdoing. Until the Issa letter, no other senators or their staff members had been linked to the VIP loan program.
The VIP program operated during the housing boom earlier this decade, often writing mortgages with terms more favorable than those available to the general public. An estimated 28,000 loans were made, mostly to private parties such as Countrywide employees or their friends and relatives.
The House Oversight panel, where Mr. Issa is the ranking Republican member, is probing whether such loans were issued to public officials in an attempt to influence them. Last year, the committee subpoenaed VIP loan records from Bank of America.
In his letter dated July 13, Mr. Issa wrote that on seven loans not tied to Mr. Bennett’s office, the borrowers listed their place of employment as “U.S. Senator.” Another 11 listed the “U.S. Senate.” In response to questions, a spokesman for Mr. Issa said the House committee didn’t receive the names of the borrowers from Bank of America.
More than one loan could have gone to the same person, such as a mortgage and a separate home-equity line of credit. Mr. Conrad received four Countrywide loans, a spokesman for the senator said. Mr. Dodd reportedly received at least two. Their loans were presumably included in the 30.
Mr. Issa’s efforts to investigate the VIP loan program were stymied for a time by the unwillingness of the House oversight panel’s chairman, New York Democrat Edolphus Towns, to issue a subpoena to Bank of America for the VIP program records.
The Securities and Exchange Commission has a pending civil fraud suit against three former top company executives, including longtime Chief Executive Angelo Mozilo. The three have denied wrongdoing, and a trial is scheduled for October in a Los Angeles federal court.
Hat tip to Blue Streak for sending this along, though the MSM should figure out that the banks aren’t “choked”. There are plenty of homes ready to be foreclosed that are deliberately being postponed for months and years. Is anyone surprised that the national average is 449 days of free-rent!
For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg.
According to the Congressional Budget Office, the losses could balloon to $400 billion. If housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion.
Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul.
“Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale Universityeconomics professor and co-creator of the S&P/Case-Shiller Home Price Indices.
Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”
At the crux of the financial crisis, the government took over Fannie and Freddie to avert possible massive losses for banks, money-market funds and, perhaps, most importantly, foreign institutions that purchased billions of Fannie and Freddie debt because of its implied government guarantee. The Chinese, for example, had invested heavily, and the US decided it didn’t want them to take a loss on their investment.
One possible scenario for the entities is to turn them into utilities, said Sean Dobson, CEO and chair of Amherst Securities, whose company trades as much as $50 billion in mortgages annually.
“Freddie and Fannie could be used to standardize the mortgage product,” Dobson said, “to completely describe what the risks are and then act as a conduit for the capital markets to take the risk.”
SACRAMENTO, June 23, 2010 – The California Housing Finance Agency (CalHFA) announced today that the U.S. Treasury Department has approved the Agency’s plan to use nearly $700 million in federal funding to help California families struggling to pay their mortgages. The plan is focused on assisting moderate income families, as well as military personnel, stay in their homes when possible and leveraging additional contributions from lenders and mortgage servicers.
“California’s twin problems of unemployment and declining real estate values have created a homeownership crisis for many of today’s California families,” said Steven Spears, Executive Director of CalHFA. “We will use these funds to help as many families as possible remain in their homes and, in so doing, stabilize neighborhoods that have been severely impacted by foreclosures.
Mr. Spears said that the plan includes three mortgage assistance programs as well as a separate program that will provide transition assistance to borrowers who simply cannot afford to stay in their homes after exhausting all other options.
The following programs have a goal of dollar-for-dollar contributions from participating lenders:
Mortgage assistance for unemployed homeowners who are in imminent danger of defaulting on their home loans.
Funds to help borrowers become current on their delinquent mortgages, with lenders matching any federal assistance.
Principal reductions for eligible borrowers with negative equity to prevent avoidable foreclosures and promote sustainable homeownership.
A fourth program offers transition assistance for families who decide that they are unable to financially afford a home and need assistance transitioning to other housing. This program would be used in conjunction with a short sale or deed-in-lieu of foreclosure.
NEW YORK (CNNMoney.com) — More than 1,200 prison inmates, including 241 serving life sentences, defrauded the government of $9.1 million in tax credits reserved for first-time homebuyers, according to a Treasury Department report released Wednesday.
Treasury’s inspector general also found that thousands of people filed multiple claims or made claims outside the allotted time period. In all, more than $28 million was improperly doled out. The Internal Revenue Service program at issue is meant to stimulate the housing market by giving tax credits of as much as $8,000 to qualifying first-time home buyers.
“Additional controls are necessary to address erroneous claims for the credit,” the report stated. “Further, fraudulent and questionable claims processed prior to implementation of controls will need follow-up action by the IRS.”
According to the report, 4,608 state and federal inmates filed for these tax credits, and that fraudulent refunds were doled out to 1,295 of them. The inspector general’s report said the most “egregious” fraudsters were 715 prison lifers, including 174 who filed with the help of paid preparers. From this group, 241 lifers were awarded $1.7 million. The problem was particularly bad in Florida: 61% of the lifers who got credits were incarcerated in the Sunshine State.
The homebuyer tax credit program was very specific about the time period in which homebuyers were allowed to participate, though this rule seems to be the most widely violated. The credit was for home purchases that happened after April 8, 2008, with a cut-off date that was eventually extended to May 1, 2010.
The report found that the IRS awarded $17.6 million to 2,555 filers who had bought their homes before the credit program kicked in.
The inspector general also identified 206 filers who claimed the credit for multiple addresses; these fraudulent filers were awarded a total of $1.4 million.
The report also found that improper filers included 34 employees of the IRS. This is in addition to 53 IRS employees that the inspector general identified last year as improper filers.
Hat tip to SM for sending this along, from the AP:
WASHINGTON (AP) — The Obama administration has approved five state-designed plans to help homeowners as part of a $1.5 billion effort to assist areas slammed by the housing bust.
Treasury Department officials, who spoke on condition of anonymity because the decisions had not yet been made public, said plans for Arizona, California, Florida, Michigan and Nevada had received approval.
The state plans are projected to help at least 93,000 homeowners. That’s a small part of the administration’s main existing $75 billion mortgage assistance program, which is widely viewed as a disappointment.
President Barack Obama unveiled the state assistance effort in February. Since then, state agencies have designed their own approaches, largely focused on borrowers who owe more on their properties than their homes are worth or those who have lost their jobs.
Officials say the state efforts could be used to make changes to the administration’s broader mortgage assistance plan. The state agencies are planning to work with local housing groups to put the plans in place.
The largest recipient of the funding is California, which will get nearly $700 million to assist about 38,000 borrowers. Florida is getting the second-largest pot of money, $418 million. That will help about 30,000 borrowers.
Michigan will receive about $155 million to assist 16,000 borrowers, while Arizona will receive $125 million for 4,000 borrowers. Nevada will receive $103 million for about 5,000 homeowners.
Besides these states, the Obama administration is providing an additional $600 million in financial support to help homeowners in states with high rates of unemployment.
Those states — Ohio, North Carolina, South Carolina, Oregon and Rhode Island — have submitted plans to the Treasury Department. They are being reviewed now, with approvals expected in August.
The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis, which have met with limited success.
More than a third of the 1.2 million borrowers who have enrolled in the Obama administration’s main mortgage modification program have dropped out, officials said this week. About 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time.
This bill preserves a borrowers protection from a deficiency judgment when loans are refinanced, but only to the extent that the refinance is used to pay debt incurred to purchase the real property. The provisions of this bill become operative on June 1, 2011.
Yes, there was an amendment slipped in last week that eliminated the cash-out refinances, even those used for home improvement. The current bill is only applies to those who refinanced the mortgage used to purchase the home.
Will there be borrowers who will wait until June 1, 2011 to default on their rate-and term refinance, just so there’s no recourse? It sounds more like the tax credits, it’ll be extra cheese for those who happen to default beginning in 3Q11.
