Changes Coming from Fannie Mae and Freddy Mac

The Obama Administration to outline changes for Fannie and Freddie. There will be a hearing on this tomorrow but the Obama Administration will only "outline broad principles".

In a hearing Tuesday the Obama Administration for an exit strategy for Fannie Mae and Freddie Mac. "Its clear that Fannie and Freddie, as they currently exist, should be put out of existence, which means the important question is what kind of entities public and private will replace them.," says Rep Barney Frank (D-Mass), chairman of the House Financial Services Committee. He has called Timothy Geithner to testify at the hearing before his committee on how to do that.

The Administration will outline broad principles for the future of the mortgage market at the hearing, including stronger consumer protections and explicit guarantees for any government backstop of mortgages.

"The housing finance system cannot continue to operate as it has in the past," Mr. Geithner said in prepared testimony. The administration won't issue a detailed overhaul proposal until later in the year.

In 2008 the government siezed both Freddie and Fannie and currently has 5 Trillion dollars of mortgages that they own or guarantee.

Lehman Top Executives to Face Criminal Charges

Anton Valukas, the examiner appointed by the Bankruptcy Court to audit Lehman Brothers books, released yesterday his report of Lehman's Road to Bankruptcy. This detailed report cites many deliberate material misstatements the firm made in securities filings and public statements about its financial condition that former CEO Richard Fuld and former CFO Erin Callan will almost certainly face criminal charges, and former CFOs Chris O'Meara and Ian Lowett could face charges as well.

After Valukas detailed and footnoted these instances in the millions of pages he reviewed and the 100+ interviews he conducted. Based on this it is hard to see how the top executives can avoid being convicted.

Richard Fuld has claimed he knew little about the "repo 105 transactions" which are at the core of the fraud. These transactions clearly lied about the financial status of Lehman Brothers and were used for over 2 years to hide troubles at Lehman. Sorry Richard but I don't buy your excuse and it appears that the Justice Department doesn't buy it as well.

Ernst and Young, the accounting firm charged with verifying the financial books of Lehman could also face a malpractice lawsuit by creditors for failure to audit these fraudulent transactions, although they will escape any criminal charges.

In all the top executives are all likely to be indicted and possibly convicted of Federal Securities Fraud. I can only hope no plea bargain deal comes out, as I for one would like to see these crooks thrown in jail! Let's hope more firms are audited and more executives are jailed as well. Wall Street is a greedy place whose greed has brought so much grief to main street American that they all deserve to go to prison. Well that's my opinion anyway.

Government Short Sale Program

Both the New York Times and the Wall Street Journal ran stories recently about the Treasury HAFA program, part of the HAMP program (Reported on this blog on 2/17/1010) and some of the key points of the program.

One of the main concerns are those properties with 2nd liens or subordinate liens on the property. Typically foreclosures net the 2nd lien holders only a small amount or no amount at all, so what happens to most of the troubled properties that have a 2nd on them. Here are excerpts from the Treasury HAFA Guidelines. This program begins on April 5th, 2010.

"Subordinate Liens - We will allow up to 3% of the unpaid balance of each subordinate lien in order of priority, not to exceed a total of $3000, to be deducted from the gross sale proceeds to pay subordinate lien holders to release their liens. We require each subordinate lien holder to release you from personal liability for the loans in order for the sale to qualify for this program, but we do not take any responsibility for ensuring that the lien holders do not seek to enforce personal liability against you. Therefore we recommend that you take steps to satisfy yourself that the subordinate lien holders release you from personal liability."

Here is how this works. A property has a $100,000 2nd on it and under the HAFA the lien holder would be paid 3%, which is the maximum amount and is $3000, sign off on deal and release the borrower from personal liability. The 1st lien would be reimbursed 1/3 of that amount or a maximum of $1000. In this case the 1st would have lost an additional $2000, in order to get the 2nd to release its lien. Not bad for the 1st lien, not so good for the 2nd.

"Investor Reimbursement for Subordinate Lien Releases - The investor will be paid a maximum of $1000 for allowing up to $3000 in short sale proceeds to be distributed to subordinate lien holders, or for allowing payment up to $3000 to subordinate lien holders. This reimbursement will be earned on a one-for-three matching basis. For each 3 dollars an investor pays to secure a release of a subordinate lien, the investor will be entitled to one dollar of reimbursement. To receive an incentive, subordinate lien holders must release their liens and waive all the future claims against the borrower."

So the deck is stacked for 1st liens and not to good for the 2nd liens. Such a small amount of money, 3%, to release the lien, meaning you just loss 97% on this loan, with no recourse against the borrower to recoup this loss. Hmmm, I'm sure this will help some but I suspect that most of these 2nds are going to push for the foreclosure and seek to recoup losses later. Just a guess on my part.

Unemployment Rises in 30 states in January

Unemployment numbers increased in 30 states in January, with 30 states reporting an increase, 9 had a rate decrease and 11 were unchanged. Michigan reported the highest unemployment with 14/3%, Nevada with 13%, Rhode Island at 12.7%, South Carolina at 12.6% and California at 12.5%. The rate in California has set a new high as reported by the bureau of Labor.

North Dakota, South Dakota and Nebraska reported the lowest unemployment figures. Over 15 States reported double digit unemployment with 2 others extremely close. Most of these states are heavily populated whereas the states with the lowest unemployment have low populations.

Five states have hit record highs, California, Rhode Island, South Carolina, Florida, Georgia and North Carolina. Nevada and Rhode Island tied their previous highs.

All these figure just show how far we must go to bring back the economy, something not soon to happen unfortunately.

FHFA Extends Refinance Program

FHFA (Federal Housing Finance Agency) acting director Ed Demarco stated yesterday the extension of the Home Affordable Refinance Program, a refinancing program administered by Freddie Mac and Fannie Mae, to June 30, 2011. The HARP program expands access to refinancing for qualified individuals and families whose homes have lost value. The program was set to expire on June 30th of this year.

"FHFA has reviewed the current market situation and the state of the mortgage insurance availability and has determined that the market conditions that necessitated the actions taken last year have not materially changed." said De Marco. "Accordingly, to support and promote market stability, and to encourage lenders and other mortgage market participants to fully adopt the HARP program, including the implementation of the October 2009 expansion of loan to value ratios to 125%, FHFA is authorizing the extension of HARP until June 30th 2011."

I don't know how many folks this will help, but most who could have refinanced have already done so and how many homes will qualify. Unfortunately the people this program is supposed to help are more than 25% below market. For these borrowers there property values have dropped so much they no longer can qualify. Nice to see the effort but I think it could be too little too late.

Foreclosures and Unemployment

The BLS released the average states unemployment report today. One thing is for sure, there is a direct relationship between unemployment rates and foreclosures. Florida had the highest foreclosure rates, and Arizona and Nevada have higher foreclosure rates. This can be attributed to investors and overbuilding.

Arizona has an unemployment rate of 9.1% and a foreclosure rate of 18/3%, Nevada has an unemployment rate of 11.8% and a foreclosure rate of 24.7% and California has an unemployment rate of 11.4% and a foreclosure rate of 16.9%. Almost every state has a higher foreclosure percentage than the unemployment percentage, except for Oregon and Alaska.

In the vast majority of populated states there were significantly higher foreclosure percentages, with quite a few states having the number of foreclosures double the unemployment numbers.

This trend is more proof that as long as unemployment numbers are high this problem is going to be around for a long time. It is no longer a regional issue but a much more common problem through out the Country. Proof that unemployment levels definitely have a direct correlation to foreclosure rates.