News Channel Mortgage

A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money matters and his adventures in self employment.

Even with bargain hunters starting to come out of the wood work and credit just barely starting to thaw out, things are still fairly bleak in the real estate market. Home prices saw a record decline in the third quarter, with foreclosures doing the most damage. Bailout money has been plentiful, from the $350 billion spent so far to help struggling financial institutions to Freddie Mac eating such huge losses that it had to tap taxpayer money already. What about struggling mortgage owners, though? The government has clearly stated that they aim to help out the homeowners too, but how will Uncle Sam decide who will get the helping hand? That answer may not come easy.

The Bush administration recently announced a new foreclosure prevention program that aims to help troubled borrowers and keep them in their homes. The plan, spearheaded by the Federal Housing Finance Agency, has worked with a coalition of lenders, servicers, investors and community groups called Hope Now to target the “most-at-risk” homeowners. Who does that mean specifically?

At present, Fannie and Freddie are looking to extend aid to homeowners that are more than three months past due on their loans so that the most troubled borrowers get the most immediate attention. You’ll have to jump through a few hoops, of course, including having to write a “hardship letter” to explain why you fell behind on your payments for a “good reason.” Good reasons could or could not include job loss, divorce, and medical bills. Borrowers will also have precious little equity in their homes, and if you exceed the mortgage balance by more than 10%, you’re too “well off” to get help. Other homeowners are so far deep underwater that there’s no way to pull them out. If you were already up to your eyeballs in debt and then lost your job for example, you’re out of luck there, too. Prepare for bankruptcy and giving up your home.

Lenders participating in the program will be sending out letters to those who qualify and requesting information like pay stubs and bills and the aforementioned hardship letters. If you’re busting your ass to keep your mortgage current, don’t expect anything but a hefty tax bill somewhere down the line.

Share This

A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money matters and his adventures in self employment.

Thus far, all indications seem to lead us to believe that the Federal Reserve can solve economic problems by throwing massive amounts of money at it. From lowering interest rates from 1 percent from 4.25 percent this year, to putting billions of dollars into the commercial paper markets in order to stimulating lending, to the $700 billion financial bailout that’s constantly shifted from a package aimed squarely at aiding struggling financial institutions to helping out consumer debt firms as well. With all of this money being tossed around and historic, unprecedented actions taken place, is there anything at all left that the Federal Reserve can do to stop us from going into a recession? According to Kansas City Federal Reserve President Thomas Hoenig, no, no there is not.

“The Fed has done about as much as it can do, we might put it out there, but banks are not able to, given their own capital constraints, able to lend as aggressively.” If Hoenig is right on the mark with that statement, and the recession continues to worsen, then there isn’t much more that the Fed can do to help us out of it. If and when it comes to it, we’re just going to have to suck it up and continue to tighten the belt.

Unfortunately that certainly isn’t the answer that automakers in the U.S. want to hear. Talks between congressional Democrats and the Bush administration seemed to be bottoming out recently. Democrats in the Senate insisted that they’ll try and allocate a portion of the bailout to pay for loans to the industry, but talks have been ground out to a stalemate, and they don’t have the votes to do so without that support. Republicans, for their part, believe that the $25 billion loan should actually come from a loan program previously approved to help them develop more fuel-efficient vehicles.

That could change when Obama takes office, however. The Bush administration recently told top lawmakers that half of the $700 billion bailout fund will not go anywhere before Obama takes office. Treasury Secretary Henry Paulson will leave $350 billion left over for when Obama takes office and his administration will be able to decide how the rest of it should be spent. You can be sure that this could change the state of negotiations to have that portion of the bailout.

With the second largest economy in the world heading into an official recession as well, it’s probably best to start preparing yourself now. If things continue to get worse, there won’t be much that the Fed, or anyone, will be able to do to stop it from running it’s course.

Share This

A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money matters and his adventures in self employment.

I guess it’s not all that surprising given the increasing number of foreclosures across the nation over the past few months, but the FDIC officially came out with detailed plans as to how the government will come to the rescue of delinquent borrowers. The announcement was made earlier today by FDIC Chairwoman Shella Bair, and caught a number of experts off guard.

Apparently, the proposal is built upon 2 crucial points. The first is that housing payments on delinquent borrowers two months or more late would be reduced to 31% of gross monthly income. How do they intend to do that? By setting mortgage rates lower for awhile…possibly as low as 3% for five years. Loan terms are also likely to be extended to as long as 40 years (so you’ll be dead before you actually own your home…?). In addition, the FDIC will “encourage” servicers to participate as well, as the government would share 50% of the losses if the borrower they help still doesn’t pay up and ends up defaulting anyhow.. is this really what it’s come to? The FDIC will also start paying servicers who process mortgages $1,000 for reworking loan terms to keep homeowners in their homes and to prevent additional foreclosures. The cost? An estimated $24.4 billion, which will come from the $700 billion bailout program that Congress approved in the previous month. The FDIC also released a statement Friday stressing the importance of reducing foreclosures: “It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures.”

So..if delinquent homeowners are getting a piece of the bailout, what about everyone who happens to pay their mortgage on time and live within their means? Will they get a check in the mail to say hey thanks for doing a good job with your finances..sorry you have to eat trillions of dollars in debt over the coming years? The bailout’s focus has been constantly expanding, and there’s been no shortage of people and organizations lining up for their “share.” The mayors of Philadelphia, Phoenix, and San Jose among others have already requested that cities be added to the bailout list as well.

So that means for the bailout candidates list we have banks, delinquent home owners, credit car companies, failing U.S. Automakers, insurance companies, and cities (I’m sure I missed some).

Everyone except the average taxpayer.

Share This

Hedge funds are continuing to lose big bucks, suspending redemptions and, in a number of cases, liquidating. They all cite difficult market conditions. Which markets, though? Derivatives have been under the radar lately, yet there have been many events that would force mark-to-market accounting. Recent changes in SEC rules allow banks to defer mark-to-market and keep off balance sheet certain assets. Hedge funds too?

From the Nobel Prize-winning asset managers who brought us Long Term Capital Management, Bloomberg today reports that Platinum Grove Asset Management LP has suspended investor withdrawals from its largest fund after a 29% loss in the first half of October. That’s right, 29% in 15 days. The year to date is higher.

“The decline left Platinum Grove Contingent Master fund with a 38% loss this year through Oct. 15. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year to date,” according to Hedge Fund Research. “Hedge funds are reeling from the worst financial crisis since the Great Depression, losing an average of 20 percent this year. A surge of investor redemptions forced firms such as Blue Mountain Capital Management LLC and Deephaven Capital Management LLC to freeze funds to stem the tide of withdrawals.”

Hedge funds are getting it in both directions. Investors want their money back and prime brokers are demanding higher margin requirements. Platinum is only one more of dozens of funds that have suspended withdrawals rather than sell assets at fire-sale prices, the reason given by the hedge funds themselves. Hedge funds are down 20% this year on average, as measured by the HFRX Global Index.

I thought hedge funds were supposed to make money regardless of how the market did. As Mish points out, “to collectively be down 20%, they had to have been making one-sided bullish bets on something. Where’s the hedge?” Twenty percent or more down is a lot of value lost. On the surface, there are plenty of stocks down big for the year. However, derivatives seem to be under the radar again. We know that hedge funds are big players in derivatives, which, as we also know, are worthless hard to price. Wonder how that’s going to be dealt with for year-end bonus calculations.

Anecdotal reports of 401k participants not being able to switch out of stock and bond funds—especially PIMCO— into money-market funds are increasing. Sounds like a lot of losses going into year end.

Share This

Another guest post from MG who went from Wharton to Wall St. to real estate to Blown Mortgage.

Where is the last place on earth you’d expect to need a bailout . . . due to a real–estate bubble bursting . . . and banks failing . . . and stock markets crashing . . . that has derivatives counterparty losses? Its the Gulf countries (GCC) in the Middle East and, in particular Kuwait. **ya coulda knocked me over with a feather**

Bloomberg reports that Abdullah Hajeri led a march on the Emir’s palace in Kuwait last week, demanding that the oil-rich nation’s ruler stop stocks from plunging. Adnan Mohammed Saleh said he wants more government protection from the global financial crisis.  Every day the market is crashing,” said Saleh, a 42-year- old trader, staring dumbfounded at the Dubai Stock Exchange’s ticker. **the government is responsible for stock market prices . . . where did we hear that one before?**

Things a little better at the pump lately? Well, one man’s gain is another man’s cliff dive. The region’s rulers are under pressure as crude prices have fallen 50% from a record $147.27 in July. Stock indexes in Dubai and Saudi Arabia have fallen a similar amount. **you mean they didn’t save those windfall profits for a rainy day? Oh, that’s right, it doesn’t rain there**

Bernanke-Style Bailout

Last week Kuwait became the third Gulf state to prop up its banks. Its central bank created a $19 billion facility to help banks make loans. Saudi Arabia, the world’s largest oil exporter, put $2.7 billion into a government-run bank in Riyadh to provide no-fee loans to low-income citizens.

And a Bank Run

The bank bailout came after losses on currency derivatives at Gulf Bank KSC, Kuwait’s second-largest lender by assets. This resulted in a surge in customer withdrawals from the bank. In response, the UAE announced a FDIC-style guarantee of deposits of all local lenders and large foreign banks. **moral hazard anyone?**

More Derivatives Losses

Citibank’s Middle East economist Mushtaq Khan explains that Gulf Bank took a bet that the euro would continue to strengthen against the dollar. When the dollar unexpectedly and rapidly rose against the euro, the bank faced a problem with its counterparty commitments that ultimately required central bank intervention. ** this is the sort of thing should be swept under the rug; that’s what we do**

More Evidence that Decoupling is a Myth

All capital markets in the Gulf Cooperation Council (GCC), which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, have declined and interest rates have increased since Lehman Brothers bankruptcy on Sept. 15.

Of the Gulf States, Dubai likely will be hardest hit by a global economic slowdown. Dubai has borrowed heavily to finance its transformation from a Persian Gulf trading post to a financial and tourist hub. Foreign investors are gone and there has been a sharp decline in tourism, both of which this land-of-the-most-expensive-hotel-rooms-in-the-world relies on.

According to Moody’s, government-controlled companies owe at least $47 billion, more than Dubai’s GNP. They will continue to accumulate debt faster than the economy grows.  **as the economy grows? . . . what if it doesn’t grow?**

Real Estate Bust?

Dubai property prices will likely remain unchanged through 2010 after quadrupling in the past five years”, Colliers CRE Plc said. According to Nouriel Roubini, “There is a liquidity and credit crunch and now oil prices have fallen to $70 from $140. I see the risk of a real-estate bust throughout the Gulf, but specifically in Dubai. There’s a huge amount of excess capacity being built.”

The Middle East’s biggest publicly-traded real-estate developer Dubai-based Emaar Properties PJSC is down more than 26% just since Sept. 15. Investors have lost confidence in Emaar’s ability to finance projects by borrowing through local and international banks.

Will Dubai turn into an Inland Empire-style ghost town? We’ll see.

Share This

A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money matters and his adventures in self employment.

Government assistance and intervention when it comes to housing and mortgages is always a thorny issue. First, it’s important to note that when the government does anything monetarily speaking, it’s paying for those activities with our tax dollars. As such, we tend to get sensitive when we think about where our tax dollars or going and whether we feel like that’s the correct allocation for money that could’ve gone to our pockets. In the case of housing and the government’s plans to rescue the housing market, we’re caught between our morals and our wallets. I don’t like watching people chain themselves to their house, either, but who’s fault is it really? Is it the government’s job to make sure you keep your home? There aren’t any easy answers here.

Read more »

When both Citigroup and Merrill Lynch both came out with staggering losses recently, I don’t think many people were all that surprised. With the credit crisis in full swing across just about every part of the economy, the financial sector has been the hardest hit. Even after the fall of giants like Bear Stearns and Lehman Brothers, the rest of the guys left standing are still bleeding.

The difference now, of course, is that investors and analysts alike have come to expect these types of losses for the near future. But while Citigroup managed a smaller quarterly loss than was expected, Merrill missed the mark and delivered a wider loss than most analysts anticipated. The question that remains in the mind of many investors, is why?

Citigroup has had an undoubtedly dangerous year. Faced with increasing losses from collateralized debt obligations and mortgage backed securities, they brought in former hedge fund manager Vikram Pandit to help turn the company around. His job was to cut down Citigroup’s bloated operations, trim the fat, get rid of poisoned assets that were threatening to choke off the firm’s capacity to operate once and for all. Many investors and analysts weren’t convinced that Citigroup would survive at all, and the numbers showed it. In the past four quarters alone, the company has lost more than $20 billion. This most recent quarterly loss of $2.8 billion was also fueled by credit and mortgage related write downs, and was also caused by a deteriorating domestic economy.

Consumers are increasingly unable to pay their mortgage obligations, with credit card l loans in default rising 45% in the third quarter from where they were just a year ago. This forced Citi’s consumer banking and credit card businesses to swing to a steep loss this quarter as it was forced to bulk up it’s credit loss reserves. Losses related to this area are expected to increase well into 2009, according to Gary Crittenden, Citi’s chief financial officer. Definitely not good news for investors.

Read more »

Another guest post from MG who went from Wharton to Wall St. to real estate to Blown Mortgage.

If you believe in the United States of America then you will believe in: JPMorgan Chase (which includes Bear Stearns and Washington Mutual); Bank of America (which includes Merrill Lynch); Wells Fargo (which includes Wachovia); Citigroup; Bank of New York Mellon; and the two brand-new banks, Goldman Sachs and Morgan Stanley. Each will be receiving multi-billion-dollar injections of cash from the Treasury. And, to help retain deposits, there’s the FDIC’s new deposit guarantee limit, which was raised to $250,000 per depositor from $100,000, at these and other fine banking institutions.

An early and harsh critic in this crisis and of just about everything else to do with the US, Ambrose Evans-Pritchard of the UK Telegraph said yesterday, “If the history of financial crises is any guide, the violent credit shock of 2007-2008 has largely run its course. The sovereign states of the US, Britain, France, Germany, Italy, Spain, and Holland have broad enough shoulders to carry their load of fresh liabilities – even if Iceland does not.”

Read more »

Another guest post from MG who went from Wharton to Wall St. to real estate to Blown Mortgage.

Not all that much seems to have come from the G7+ meeting this past weekend. We somehow expected more than: “The Federal Reserve led an unprecedented push by central banks to flood the financial system with dollars, backing up government efforts to restore confidence and helping to drive down money-market rates.

In its statement the Fed said:

“In order to provide broad access to liquidity and funding to financial institutions, the Bank of England, the European Central Bank, the Federal Reserve, the Bank of Japan, and the Swiss National Bank are jointly announcing further measures to improve liquidity in short-term U.S. dollar funding markets.

To assist in the expansion of these operations, the Federal Open Market Committee has authorized increases in the sizes of its temporary swap facilities with the BoE, the ECB, and the SNB, so that these central banks can provide U.S. dollar funding in quantities sufficient to meet demand.”

And just in the nick of time, we observe, this being options expiration week.

Read more »

I chuckled when I saw this. Jack Daniels ad prominently featured on the day the DOW dropped 800 points and fell below 10,000 for the first time in 4 years. (Click the image for the full size.)

Share This

« Previous entries