From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: http://www.cnnmoney.com/
Mortgage-market revival: Try, try again
The feds are trying to stimulate housing activity, but two earlier efforts show success won't come easy.
By Colin Barr, senior writer
Last Updated: November 25, 2008: 3:40 PM ET
NEW YORK (Fortune) -- The feds are trying once more to resuscitate the mortgage market. But history shows reviving this patient won't be easy.
The Federal Reserve said Tuesday morning it would spend $600 billion in coming quarters to buy the bonds and mortgage-backed securities issued or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). The move, the Fed said, aims "to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally."
The market reacted positively to the announcement, with the spreads between the yields on agency bonds and similar-duration Treasury securities narrowing. Lower spreads translate to lower mortgage rates, which bring down the cost of buying houses. That generally leads to more house sales - a top priority for officials who want to slow the decline in house prices that is soaking financial-sector balance sheets with losses.
The decision to buy agency debt and mortgage-backed securities shows policymakers are "looking to drive mortgage rates down," says Bill Larkin, a fixed-income portfolio manager at investment adviser Cabot Money Management in Salem, Mass. "They need to get them close to 5% if they want to get the housing markets going again."
That will take some doing, though. The rate on a 30-year fixed mortgage was around 6% Monday, before rates fell Tuesday on word of the Fed plan. The lowest rate on record since the St. Louis Fed started tracking conventional 30-year mortgage rates was the 5.23% reached in June 2003, in the midst of the housing bubble that inflated earlier this decade.
Larkin says the government will need to bring the rate down into that range to create demand for mortgage refinancing, and to get current homeowners who'd like more room or a better location to think about making a change. Larkin notes that homeowners who took advantage of the last refinancing opportunity in January, when rates on a 30-year fixed mortgage dropped briefly to around 5.5%, won't be tempted to refinance again - thereby incurring additional fees and in many cases having their houses assessed at lower values - till rates go substantially lower.
If at first you don't succeed...
Still, government officials clearly view reducing mortgage rates and bolstering house sales and refinancing activity as one of their few good options in the midst of financial sector meltdown. Treasury Secretary Henry Paulson has tried at least twice this year to bring down mortgage rates, by seeking to ease market fears about the health of the main conduits for U.S. mortgage financing, Fannie Mae and Freddie Mac.
In July, as mortgage rates soared, Paulson announced a plan for the government to provide backup financing for the companies, whose publicly traded shares had come under attack amid questions about the adequacy of their capital. That move initially brought mortgage rates down and narrowed the spread between agency bonds and Treasurys, but the 30-year mortgage rate remained stubbornly above 6%.
In September, Paulson put the companies into conservatorship, citing a need to clarify the companies' role in the economy and their relationship to the government. "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system," he said Sept. 7, "that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
That move - which was accompanied by the announcement of a federal plan to buy mortgage-backed securities similar to today's announcement - led to a deeper decline in mortgage rates than had July's move. The 30-year fixed rate tracked by the St. Louis Fed fell to 5.78% on Sept. 18 from 6.35% the week before the nationalization.
But the collapse of Lehman Brothers, the near implosion of AIG and the plunge of world stock markets this fall resulted in a new flight to the liquidity of Treasury bonds that widened agency spreads and pushed mortgage rates back up over 6%, where they have largely been since then.
That's partly because the government hasn't been able to devote much firepower to buying mortgages, what with the crisis-a-day schedule of recent months. And it's partly because the investors who once were avid buyers of agency bonds have fled for the greater safety and liquidity of Treasury bonds.
Brad Setser, an economist at the Council of Foreign Relations, says that in the third quarter, China bought $81 billion of Treasurys and sold $16 billion of agencies. Just a quarter earlier, China was buying more agencies than Treasurys, Setser writes at his blog. Larkin says questions about the liquidity in the markets for agency bonds continue to push investors toward Treasurys, which give holders the security of knowing they can sell without a hitch at any moment.
New mark of quality for bond market
One other question mark comes from this week's debut of the Federal Deposit Insurance Corp. corporate-bond loan-guarantee program. Goldman Sachs (GS, Fortune 500) issued $5 billion worth of bonds Tuesday under the plan. Larkin calls those bonds "interesting," and says he believes the FDIC label could emerge as the new mark of quality in the bond market, what with the ratings issued by agencies like S&P and Moody's largely discredited.
But if the FDIC plan works and issuers like Goldman and Morgan Stanley (MS, Fortune 500) come quickly to market with billions of dollars in new issues, it could draw some investor demand away from the agencies, counteracting some of the gains from federal purchases of Fannie and Freddie securities.
And Edward Gainor, a lawyer at McKee Nelson in Washington, notes that the Fed approach to the mortgage-backed securities market neglects the most troubled part of that market - the one for bonds not backed by Fannie and Freddie, some of which continue to weigh on financial institutions' balance sheets.
"The non-agency MBS market is not functioning," he says, "and no program has yet been announced that will stimulate that market."
Wednesday, November 26, 2008
Tuesday, November 25, 2008
FED to Jumpstart Lending
Fed bets $800 billion on consumers
Central bank and Treasury announce a massive plan to jumpstart lending.
NEW YORK (CNNMoney.com) -- The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.
The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.
One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.
The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.
In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.
Together, the programs from the Federal Reserve and the New York Fed are more than Congress approved in October for a bailout of the nation's banks and Wall Street firms. The Fed said the money will come from an increase in its reserves -- in essence, it is creating new money.
The idea is that by making money available for investors who are interested in buying loans bundled together into securities, it will be easier and more profitable for banks to loan money to consumers and small businesses.
Before the current credit crisis, lenders got the money they needed to extend credit by selling the loans they had already made. But the Treasury Department said the issuance of those securities essentially came to a halt in October.
"This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy," said Treasury Secretary Henry Paulson at a press conference.
Still, previous efforts to pump money directly into financial institutions have done relatively little to expand credit available for consumers, and some economists said it was not immediately clear if this money would flow through to households as planned.
"It's certainly not directly going to go through to the consumers. I don't know if anyone can say how much will get through," said Keith Hembre, chief economist at First American Funds. "It certainly shouldn't hurt. We'll have to see how much it does help."
To that end, government officials said that they would not set up the $200 billion consumer lending program until February. So officials couldn't say if the mere announcement of the program would cause lenders to make more credit available to consumers in time for the holiday shopping season.
Paulson described the $200 billion consumer lending program as a first step, one that could be expanded later to include different kinds of debt, including assets backed by commercial real estate mortgages and business debt.
He said the fact that the Fed and Treasury had to work together to get an additional $800 billion into the system is not a sign that the $700 billion bailout of banks and Wall Street firms passed by Congress last month has been a failure. He said that, without that program, it is likely that the financial markets would be in even worse shape than they are today.
"I wish, and I know everybody wishes, that one piece of legislation, and then magically the credit markets would unfreeze," he said. "That's not the type of situation we're dealing with."
The fact that the New York Fed is taking the lead on the consumer lending program means that the man nominated by President-elect Obama to succeed Paulson, New York Fed President Timothy Geithner, played a central role in this new effort.
But Paulson said this is not a sign that the Bush administration is letting the new administration call the shots on further efforts to revive the economy.
How it may affect mortgages
The larger part of the new program is geared toward ending the mortgage crisis, which was the original intent of the bank bailout plan proposed in September and signed into law in October.
That plan, known as the Troubled Asset Relief Program, or TARP, was quickly dropped for one in which Treasury instead made direct capital investments in banks in return for the government receiving preferred shares in the institutions getting funds.
This new program is much closer to the planned bailout. But government officials stressed that this new plan is different from TARP in that only mortgage securities backed by Fannie, Freddie and Ginnie Mae will be in the new program.
The loans being backed by the new program, for the most part, are of better quality than many of the troubled assets that would have been purchased under the original TARP plan.
"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the Fed said in a statement.
There is also limited additional risk for the federal government from the Fed buying that $600 billion in debt from the three firms, since the government is already on the hook for losses those firms suffer on the loans they back.
Despite that implicit government guarantee behind Fannie and Freddie's debt, there gap between rates for U.S. Treasurys and the rates for mortgage assets continues to widen.
But with the Fed buying such a large amount of mortgage assets directly, the hope is that this will narrow that gap and drive down mortgage rates.
The Treasury, which oversees the $700 billion in the TARP program, has been reluctant to expand the use of those funds beyond direct capital investments in banks, despite request to use the funds to help out insurance companies and even the nation's automakers.
The moves came as the Commerce Department announced that gross domestic product, the broadest measure of economic activity, fell at an annual rate of 0.5% in the third quarter.
That was the biggest drop in seven years and economists believe that the economy will decline further in the current quarter and into early next year.
Central bank and Treasury announce a massive plan to jumpstart lending.
NEW YORK (CNNMoney.com) -- The Federal Reserve and Treasury Department on Tuesday unveiled a plan to pump $800 billion into the struggling U.S. economy in an attempt to jumpstart lending by banks to consumers and small businesses.
The government hopes that these initiatives will enable more money to flow to consumers in the form of loans than has occurred so far in previous bailout plans.
One program will make $200 billion available from the Federal Reserve Bank of New York to holders of securities backed by consumer debt, such as credit cards, car loans and student loans.
The Treasury Department will allocate $20 billion to back that lending in order to cover any losses that the New York Fed might suffer.
In addition, the Federal Reserve, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.
Together, the programs from the Federal Reserve and the New York Fed are more than Congress approved in October for a bailout of the nation's banks and Wall Street firms. The Fed said the money will come from an increase in its reserves -- in essence, it is creating new money.
The idea is that by making money available for investors who are interested in buying loans bundled together into securities, it will be easier and more profitable for banks to loan money to consumers and small businesses.
Before the current credit crisis, lenders got the money they needed to extend credit by selling the loans they had already made. But the Treasury Department said the issuance of those securities essentially came to a halt in October.
"This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy," said Treasury Secretary Henry Paulson at a press conference.
Still, previous efforts to pump money directly into financial institutions have done relatively little to expand credit available for consumers, and some economists said it was not immediately clear if this money would flow through to households as planned.
"It's certainly not directly going to go through to the consumers. I don't know if anyone can say how much will get through," said Keith Hembre, chief economist at First American Funds. "It certainly shouldn't hurt. We'll have to see how much it does help."
To that end, government officials said that they would not set up the $200 billion consumer lending program until February. So officials couldn't say if the mere announcement of the program would cause lenders to make more credit available to consumers in time for the holiday shopping season.
Paulson described the $200 billion consumer lending program as a first step, one that could be expanded later to include different kinds of debt, including assets backed by commercial real estate mortgages and business debt.
He said the fact that the Fed and Treasury had to work together to get an additional $800 billion into the system is not a sign that the $700 billion bailout of banks and Wall Street firms passed by Congress last month has been a failure. He said that, without that program, it is likely that the financial markets would be in even worse shape than they are today.
"I wish, and I know everybody wishes, that one piece of legislation, and then magically the credit markets would unfreeze," he said. "That's not the type of situation we're dealing with."
The fact that the New York Fed is taking the lead on the consumer lending program means that the man nominated by President-elect Obama to succeed Paulson, New York Fed President Timothy Geithner, played a central role in this new effort.
But Paulson said this is not a sign that the Bush administration is letting the new administration call the shots on further efforts to revive the economy.
How it may affect mortgages
The larger part of the new program is geared toward ending the mortgage crisis, which was the original intent of the bank bailout plan proposed in September and signed into law in October.
That plan, known as the Troubled Asset Relief Program, or TARP, was quickly dropped for one in which Treasury instead made direct capital investments in banks in return for the government receiving preferred shares in the institutions getting funds.
This new program is much closer to the planned bailout. But government officials stressed that this new plan is different from TARP in that only mortgage securities backed by Fannie, Freddie and Ginnie Mae will be in the new program.
The loans being backed by the new program, for the most part, are of better quality than many of the troubled assets that would have been purchased under the original TARP plan.
"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the Fed said in a statement.
There is also limited additional risk for the federal government from the Fed buying that $600 billion in debt from the three firms, since the government is already on the hook for losses those firms suffer on the loans they back.
Despite that implicit government guarantee behind Fannie and Freddie's debt, there gap between rates for U.S. Treasurys and the rates for mortgage assets continues to widen.
But with the Fed buying such a large amount of mortgage assets directly, the hope is that this will narrow that gap and drive down mortgage rates.
The Treasury, which oversees the $700 billion in the TARP program, has been reluctant to expand the use of those funds beyond direct capital investments in banks, despite request to use the funds to help out insurance companies and even the nation's automakers.
The moves came as the Commerce Department announced that gross domestic product, the broadest measure of economic activity, fell at an annual rate of 0.5% in the third quarter.
That was the biggest drop in seven years and economists believe that the economy will decline further in the current quarter and into early next year.
Friday, November 21, 2008
Fannie/Freddie Freeze
From the desk of:
Rich Storey
Mortgage Specialist
615.260.8028
Credited to: www.WashingtonPost.com
Fannie, Freddie Halt Foreclosures for Holidays
Fannie Mae and Freddie Mac will stop foreclosures and evictions on delinquent loans from Nov. 26 to Jan. 9. (By Justin Sullivan -- Getty Images)
The companies said they are taking the step so they can include more people in a newly announced program to change the terms of troubled mortgages to make them more affordable.
The mortgage finance giants, seized by the government in early September, have been under pressure by lawmakers and housing advocates to take bolder steps to fight foreclosures. As the owners or backers of trillions of dollars of mortgages, the companies have an unrivaled ability to shape the home loan market and help people with distressed mortgages.
Last week, the companies said they would enact a program to restructure mortgages for borrowers who are falling behind in their payments. That effort would seek to help homeowners who haven't paid their loans for three months but whose homes had not been foreclosed upon yet. In a foreclosure, Fannie Mae or Freddie Mac seizes control of a home and, usually, tries to sell it.
The foreclosure freeze announced yesterday will extend the mortgage modification program to those who have been declared in default and are at immediate risk of being forced from their homes. The companies said as many as 16,000 borrowers could benefit.
"With this suspension, seriously delinquent borrowers may have an opportunity to avoid foreclosure and work out terms to stay in their homes," said Federal Housing Finance Agency director James B. Lockhart III, the regulator in charge of Fannie Mae and Freddie Mac.
Under the mortgage modifications program unveiled last week, Fannie and Freddie will seek to modify loan terms to ensure borrowers aren't paying more than 38 percent of their monthly pretax salary on their mortgage. The companies will do this by extending the total term of loans to up to 40 years, reducing the interest rate, and, in some cases, delaying payment on part of the loan.
The program will begin Dec. 15. Attorneys working for Fannie Mae and Freddie Mac will contact borrowers facing foreclosure.
"Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes," Fannie Mae chief executive Herbert M. Allison said in a statement.
Freddie Mac chief executive David M. Moffett said his company is on track to help three out of five troubled borrowers with Freddie Mac-owned loans avoid foreclosure. "Today's announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays," he said in a statement.
The foreclosure freeze will apply to single-family homes that continue to be occupied. Freddie Mac's program also applies to buildings with two to four apartments.
Fannie and Freddie have launched other programs as well. A Fannie Mae program requires employees to take a second look at delinquent loans to ensure the borrower has been contacted and other options have been considered. Freddie Mac gives authority to mortgage lenders to renegotiate loans and offers them financial incentives to do so.
"We must and will do more," Allison said.
Rich Storey
Mortgage Specialist
615.260.8028
Credited to: www.WashingtonPost.com
Fannie, Freddie Halt Foreclosures for Holidays
Fannie Mae and Freddie Mac will stop foreclosures and evictions on delinquent loans from Nov. 26 to Jan. 9. (By Justin Sullivan -- Getty Images)
The companies said they are taking the step so they can include more people in a newly announced program to change the terms of troubled mortgages to make them more affordable.
The mortgage finance giants, seized by the government in early September, have been under pressure by lawmakers and housing advocates to take bolder steps to fight foreclosures. As the owners or backers of trillions of dollars of mortgages, the companies have an unrivaled ability to shape the home loan market and help people with distressed mortgages.
Last week, the companies said they would enact a program to restructure mortgages for borrowers who are falling behind in their payments. That effort would seek to help homeowners who haven't paid their loans for three months but whose homes had not been foreclosed upon yet. In a foreclosure, Fannie Mae or Freddie Mac seizes control of a home and, usually, tries to sell it.
The foreclosure freeze announced yesterday will extend the mortgage modification program to those who have been declared in default and are at immediate risk of being forced from their homes. The companies said as many as 16,000 borrowers could benefit.
"With this suspension, seriously delinquent borrowers may have an opportunity to avoid foreclosure and work out terms to stay in their homes," said Federal Housing Finance Agency director James B. Lockhart III, the regulator in charge of Fannie Mae and Freddie Mac.
Under the mortgage modifications program unveiled last week, Fannie and Freddie will seek to modify loan terms to ensure borrowers aren't paying more than 38 percent of their monthly pretax salary on their mortgage. The companies will do this by extending the total term of loans to up to 40 years, reducing the interest rate, and, in some cases, delaying payment on part of the loan.
The program will begin Dec. 15. Attorneys working for Fannie Mae and Freddie Mac will contact borrowers facing foreclosure.
"Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes," Fannie Mae chief executive Herbert M. Allison said in a statement.
Freddie Mac chief executive David M. Moffett said his company is on track to help three out of five troubled borrowers with Freddie Mac-owned loans avoid foreclosure. "Today's announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays," he said in a statement.
The foreclosure freeze will apply to single-family homes that continue to be occupied. Freddie Mac's program also applies to buildings with two to four apartments.
Fannie and Freddie have launched other programs as well. A Fannie Mae program requires employees to take a second look at delinquent loans to ensure the borrower has been contacted and other options have been considered. Freddie Mac gives authority to mortgage lenders to renegotiate loans and offers them financial incentives to do so.
"We must and will do more," Allison said.
Monday, November 17, 2008
Hey Obama!!!
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Message to Obama: Send loans fast
What can Washington do to help small business owners save jobs and keep spending? Exactly what the president-elect promised during the campaign.
(CNNMoney.com) -- What could jump-start the economy? Affordable loans for small business.
With bank lending almost frozen and consumer spending down sharply, entrepreneurs foresee a Main Street wipeout if Washington doesn't take action soon to shore up the nation's small businesses.
"It's killing us right now. We can't expand, we can't buy inventory; we've had to do everything on credit cards because the banks won't even look at us," said Amy Rhodes, owner of A-2-Z Scuba in Puyallup, Wash. "Every single dime of our $40,000 in profit last year we sunk right back into the business. Now sales are down, and we're making ends meet out of our own money - which makes it more difficult to pay our mortgage."
In a mid-October campaign appearance, then-candidate Barack Obama proposed a "small business rescue plan" to address entrepreneurs' need for working capital. "A credit crunch has dried up capital and put these jobs at risk," Obama said at the time. "If we don't act, we'll be looking at scaled-back operations, shuttered shops, and laid-off workers."
The situation has since grown grimmer. The Federal Reserve's recent Senior Loan Officer Opinion Survey found that 75% of the banks surveyed had tightened their lending standards for small-business loans. For the first time in six years, payroll giant ADP reported a net loss of jobs among small companies; its monthly index estimated 25,000 positions were shed in October. And a survey conducted by American Express Open last month found that 18% of small business owners polled say they could be out of business in six months -- twice the August prediction.
So what should the government do? Exactly what Obama pledged, small business owners say: Persuade banks to start lending, or start cutting loan checks directly from the government.
In October, Obama proposed temporarily suspending the fees the Small Business
Administration changes for participation in its flagship loan-guarantee programs, which insure banks against losses on a portion of the money they lend to qualifying small businesses. But he also suggested making direct loans available through the SBA's Disaster Loan Program, which traditionally assists natural-disaster victims.
"I would prefer direct lending from the government, if they could pull that off," said Rob McNaughton, owner of online fashion retailer Rob Diamond in Denver. "I feel like the banks don't like to do SBA loans. It's a lot of paperwork.
The SBA's 7(a) loan-guarantee program backed 30% fewer loans in 2008 than it did in 2007, and fewer banks are making those loans. SBA watchers attribute the decline to the growing expense of complying with SBA requirements and subtle changes to the program's mission.
"The root of the problem is that the SBA has raised its credit standards over the past decade," said Joel Pruis, director of advisory services for Baker Hill, a financial-services consultancy. "The differential between what's acceptable without the SBA guarantee and what's acceptable with it has narrowed significantly. We've got very few loans now that fit in that gap. Then, the operating costs related to the program are burdensome - small banks often have to hire a full-time employee that knows the SBA. It's not a program you can dabble in; you either have to get all-in or not do it at all."
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Message to Obama: Send loans fast
What can Washington do to help small business owners save jobs and keep spending? Exactly what the president-elect promised during the campaign.
(CNNMoney.com) -- What could jump-start the economy? Affordable loans for small business.
With bank lending almost frozen and consumer spending down sharply, entrepreneurs foresee a Main Street wipeout if Washington doesn't take action soon to shore up the nation's small businesses.
"It's killing us right now. We can't expand, we can't buy inventory; we've had to do everything on credit cards because the banks won't even look at us," said Amy Rhodes, owner of A-2-Z Scuba in Puyallup, Wash. "Every single dime of our $40,000 in profit last year we sunk right back into the business. Now sales are down, and we're making ends meet out of our own money - which makes it more difficult to pay our mortgage."
In a mid-October campaign appearance, then-candidate Barack Obama proposed a "small business rescue plan" to address entrepreneurs' need for working capital. "A credit crunch has dried up capital and put these jobs at risk," Obama said at the time. "If we don't act, we'll be looking at scaled-back operations, shuttered shops, and laid-off workers."
The situation has since grown grimmer. The Federal Reserve's recent Senior Loan Officer Opinion Survey found that 75% of the banks surveyed had tightened their lending standards for small-business loans. For the first time in six years, payroll giant ADP reported a net loss of jobs among small companies; its monthly index estimated 25,000 positions were shed in October. And a survey conducted by American Express Open last month found that 18% of small business owners polled say they could be out of business in six months -- twice the August prediction.
So what should the government do? Exactly what Obama pledged, small business owners say: Persuade banks to start lending, or start cutting loan checks directly from the government.
In October, Obama proposed temporarily suspending the fees the Small Business
Administration changes for participation in its flagship loan-guarantee programs, which insure banks against losses on a portion of the money they lend to qualifying small businesses. But he also suggested making direct loans available through the SBA's Disaster Loan Program, which traditionally assists natural-disaster victims.
"I would prefer direct lending from the government, if they could pull that off," said Rob McNaughton, owner of online fashion retailer Rob Diamond in Denver. "I feel like the banks don't like to do SBA loans. It's a lot of paperwork.
The SBA's 7(a) loan-guarantee program backed 30% fewer loans in 2008 than it did in 2007, and fewer banks are making those loans. SBA watchers attribute the decline to the growing expense of complying with SBA requirements and subtle changes to the program's mission.
"The root of the problem is that the SBA has raised its credit standards over the past decade," said Joel Pruis, director of advisory services for Baker Hill, a financial-services consultancy. "The differential between what's acceptable without the SBA guarantee and what's acceptable with it has narrowed significantly. We've got very few loans now that fit in that gap. Then, the operating costs related to the program are burdensome - small banks often have to hire a full-time employee that knows the SBA. It's not a program you can dabble in; you either have to get all-in or not do it at all."
Thursday, November 13, 2008
Senator calls for BANKS TO START LENDING!!!!
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Senator: Banks must start lending
Congressional committee questions bankers over $700 billion bailout. Dodd: 'We want to see more progress.'
NEW YORK(CNNMoney.com) -- The head of the Senate Banking Committee Thursday said banks receiving money as part of the $700 billion federal bailout must step up their lending to consumers and businesses.
Banks are failing to use public funds to make credit more available and to help troubled homeowners, said Sen. Christopher Dodd, D-Conn. Congress did not pass the bailout plan so banks could hoard the money or use it to scoop up faltering rivals, he said.
"We want to see more progress from our friends in the financial sector -- more progress in foreclosure mitigation, in affordable lending, and in curbing excessive compensation," Dodd said. "And if that progress is not forthcoming, we are prepared to legislate."
Lawmakers on both sides of the aisle have been critical of the Treasury Department's implementation of the bailout of the financial sector.
Democrats are concerned that banks are not increasing their lending, despite getting capital infusions from the government. They also want to move faster to help the homeowner. Republicans, meanwhile, want more disclosure on how the Treasury Department is carrying out the plan.
Treasury Secretary Henry Paulson said Wednesday that the government would broaden the reach of the plan to support non-bank financial institutions that provide consumer credit, such as credit cards and auto loans.
In this second stage of the bailout, officials also hope to attract private capital, possibly through matching investments, to give the government's injections more heft.
Paulson also said the government is no longer planning to buy troubled mortgage assets, the original goal of the plan. Therefore, it must come up with new ways to help homeowners and slow the tide of foreclosures, which it had hoped to do once it owned the troubled loans.
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Senator: Banks must start lending
Congressional committee questions bankers over $700 billion bailout. Dodd: 'We want to see more progress.'
NEW YORK(CNNMoney.com) -- The head of the Senate Banking Committee Thursday said banks receiving money as part of the $700 billion federal bailout must step up their lending to consumers and businesses.
Banks are failing to use public funds to make credit more available and to help troubled homeowners, said Sen. Christopher Dodd, D-Conn. Congress did not pass the bailout plan so banks could hoard the money or use it to scoop up faltering rivals, he said.
"We want to see more progress from our friends in the financial sector -- more progress in foreclosure mitigation, in affordable lending, and in curbing excessive compensation," Dodd said. "And if that progress is not forthcoming, we are prepared to legislate."
Lawmakers on both sides of the aisle have been critical of the Treasury Department's implementation of the bailout of the financial sector.
Democrats are concerned that banks are not increasing their lending, despite getting capital infusions from the government. They also want to move faster to help the homeowner. Republicans, meanwhile, want more disclosure on how the Treasury Department is carrying out the plan.
Treasury Secretary Henry Paulson said Wednesday that the government would broaden the reach of the plan to support non-bank financial institutions that provide consumer credit, such as credit cards and auto loans.
In this second stage of the bailout, officials also hope to attract private capital, possibly through matching investments, to give the government's injections more heft.
Paulson also said the government is no longer planning to buy troubled mortgage assets, the original goal of the plan. Therefore, it must come up with new ways to help homeowners and slow the tide of foreclosures, which it had hoped to do once it owned the troubled loans.
Tuesday, November 11, 2008
Citi Home Owner Assistance Program
From the desk of:
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Citi to modify $20 billion in home loans
A new program aimed at homeowners who haven't defaulted yet could help 130,000 mortgage borrowers stay in their homes.
NEW YORK (CNNMoney.com) -- Citigroup says it will expand its foreclosure prevention efforts and try to keep 130,000 troubled borrowers with $20 billion in mortgages in their homes.
The news follows similar initiatives announced earlier this year by IndyMac Bank, which was seized by the Federal Deposit Insurance Corp. last summer, as well as Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) each of which heralded enhanced housing rescue efforts.
Banks are undoubtedly feeling pressured to be more aggressive in aiding home owners, given how many billions of taxpayer dollars have poured into the industry to stem the credit crisis.
The Citi (C, Fortune 500) effort, dubbed the Citi Homeownership Assistance Program, targets 500,000 Citi borrowers. CitiMortgages CEO Sanjiv Das said he expects that more than a quarter of these people, with mortgages worth about $20 billion, will take advantage of the program over the next six months.
"We're reaching out to borrowers in areas of steeper-than-usual falling prices and higher-than-average unemployment," said Das, including California, Michigan, Florida, Nevada, Ohio and Arizona. "These areas are where the concentration of at-risk mortgages are the highest."
The new initiative differs from Citi's existing mortgage mitigation efforts in that it's a much more proactive plan, said Eric Eve, Senior Vice President, Global Community Relations for Citi.
The company will determine where the need for mortgage modification is greatest, based on economic conditions, and send out letters to its borrowers in these areas to tell them that help is available should they need it.
Borrowers on the brink
This new initiative is open only to borrowers who are still current on their loans but are at risk of defaulting - particularly those borrowers who owe more on their mortgages than their homes are currently worth. Additionally, their loans must be owned by the bank, rather than sold off to investors.
Citi already has a program in place to work with borrowers who are delinquent, reducing interest rates to as low as 1% for as long as two years for borrowers who are judged capable of keeping up with lower payments. The bank says that its ongoing mortgage mitigation efforts have produced about 370,000 work outs since the beginning of 2007.
For borrowers who have yet to default, Citi will now aim to reduce their monthly mortgage payment, including property taxes and insurance, to 40% or less of their income. To do that, it will freeze or reduce interest rates, extend the lifetime of the loan or even reduce the loan principal.
Das said the new plan will be implemented immediately and the workouts will be handled in a very fast, streamlined fashion to aid as many homeowners as quickly as possible.
Each of these new foreclosure prevention efforts, from Citi, IndyMac, Bank of America and JPMorgan, represent a significant step forward in resolving the housing crisis, according to Jared Bernstein, senior economist with the Economic Policy Institute. But, he adds, the problem remains overwhelming.
"These programs are helping but the help is marginal - in the hundreds of thousands of homeowners," he said. "But help is needed by millions."
Even after taking these new bank programs into account, Mark Zandi, chief economist for Moody's Economy.com, estimates that 1.6 million Americans will lose their homes this year either in a foreclosure or distressed sale. Some 1.9 million are projected to lose their homes in 2009.
It's certainly doubtful that the banks' housing relief programs will be as successful as they hope.
For example, IndyMac's program was launched in late August, and slated to help as many as 40,000 borrowers. But in late October, FDIC chief Sheila Bair told a congressional committee that the bank had only completed 3,500 work outs.
So Bank of America's claim that it will help 400,000 homeowners, and JPMorgan Chase's goal of rescuing another 400,000 borrowers should probably be taken with a grain of salt.
Bigger plans
Still, Bernstein welcomes every effort. "Let a thousand flowers bloom," he said. "It's like an experiment and, if we're smart, we'll see what plans work and what doesn't." Then, the best aspects of the various plans could be applied to as many at-risk mortgages as possible.
But the bottom line is that the bank programs won't be nearly as effective as any massive foreclosure prevention effort that may yet be implemented by the U.S. government, according to Bernstein.
And there is a possibility that such a program may yet emerge. Congress already enacted its Hope for Homeowners initiative, which will allow borrowers to refinance their mortgages into loans backed by the Federal Housing Authority. Now there is talk of a new $50 billion plan that could bail out as many as 3 million homeowners.
"We can keep the number below a million [homes lost] next year with an effective government effort," said Zandi. "It would be very doable but also very costly."
The single best thing about the bank programs, according to Bernstein, is that they don't cost the taxpayers anything.
"You have to be happy about that," he said.
Rich Storey
Mortgage Advisor
615.260.8028
Credited to: www.CNNMoney.com
Citi to modify $20 billion in home loans
A new program aimed at homeowners who haven't defaulted yet could help 130,000 mortgage borrowers stay in their homes.
NEW YORK (CNNMoney.com) -- Citigroup says it will expand its foreclosure prevention efforts and try to keep 130,000 troubled borrowers with $20 billion in mortgages in their homes.
The news follows similar initiatives announced earlier this year by IndyMac Bank, which was seized by the Federal Deposit Insurance Corp. last summer, as well as Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) each of which heralded enhanced housing rescue efforts.
Banks are undoubtedly feeling pressured to be more aggressive in aiding home owners, given how many billions of taxpayer dollars have poured into the industry to stem the credit crisis.
The Citi (C, Fortune 500) effort, dubbed the Citi Homeownership Assistance Program, targets 500,000 Citi borrowers. CitiMortgages CEO Sanjiv Das said he expects that more than a quarter of these people, with mortgages worth about $20 billion, will take advantage of the program over the next six months.
"We're reaching out to borrowers in areas of steeper-than-usual falling prices and higher-than-average unemployment," said Das, including California, Michigan, Florida, Nevada, Ohio and Arizona. "These areas are where the concentration of at-risk mortgages are the highest."
The new initiative differs from Citi's existing mortgage mitigation efforts in that it's a much more proactive plan, said Eric Eve, Senior Vice President, Global Community Relations for Citi.
The company will determine where the need for mortgage modification is greatest, based on economic conditions, and send out letters to its borrowers in these areas to tell them that help is available should they need it.
Borrowers on the brink
This new initiative is open only to borrowers who are still current on their loans but are at risk of defaulting - particularly those borrowers who owe more on their mortgages than their homes are currently worth. Additionally, their loans must be owned by the bank, rather than sold off to investors.
Citi already has a program in place to work with borrowers who are delinquent, reducing interest rates to as low as 1% for as long as two years for borrowers who are judged capable of keeping up with lower payments. The bank says that its ongoing mortgage mitigation efforts have produced about 370,000 work outs since the beginning of 2007.
For borrowers who have yet to default, Citi will now aim to reduce their monthly mortgage payment, including property taxes and insurance, to 40% or less of their income. To do that, it will freeze or reduce interest rates, extend the lifetime of the loan or even reduce the loan principal.
Das said the new plan will be implemented immediately and the workouts will be handled in a very fast, streamlined fashion to aid as many homeowners as quickly as possible.
Each of these new foreclosure prevention efforts, from Citi, IndyMac, Bank of America and JPMorgan, represent a significant step forward in resolving the housing crisis, according to Jared Bernstein, senior economist with the Economic Policy Institute. But, he adds, the problem remains overwhelming.
"These programs are helping but the help is marginal - in the hundreds of thousands of homeowners," he said. "But help is needed by millions."
Even after taking these new bank programs into account, Mark Zandi, chief economist for Moody's Economy.com, estimates that 1.6 million Americans will lose their homes this year either in a foreclosure or distressed sale. Some 1.9 million are projected to lose their homes in 2009.
It's certainly doubtful that the banks' housing relief programs will be as successful as they hope.
For example, IndyMac's program was launched in late August, and slated to help as many as 40,000 borrowers. But in late October, FDIC chief Sheila Bair told a congressional committee that the bank had only completed 3,500 work outs.
So Bank of America's claim that it will help 400,000 homeowners, and JPMorgan Chase's goal of rescuing another 400,000 borrowers should probably be taken with a grain of salt.
Bigger plans
Still, Bernstein welcomes every effort. "Let a thousand flowers bloom," he said. "It's like an experiment and, if we're smart, we'll see what plans work and what doesn't." Then, the best aspects of the various plans could be applied to as many at-risk mortgages as possible.
But the bottom line is that the bank programs won't be nearly as effective as any massive foreclosure prevention effort that may yet be implemented by the U.S. government, according to Bernstein.
And there is a possibility that such a program may yet emerge. Congress already enacted its Hope for Homeowners initiative, which will allow borrowers to refinance their mortgages into loans backed by the Federal Housing Authority. Now there is talk of a new $50 billion plan that could bail out as many as 3 million homeowners.
"We can keep the number below a million [homes lost] next year with an effective government effort," said Zandi. "It would be very doable but also very costly."
The single best thing about the bank programs, according to Bernstein, is that they don't cost the taxpayers anything.
"You have to be happy about that," he said.
Monday, November 10, 2008
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