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Fed to push for QE2 and economists guess the price tag to be an astonishingly large sum, 3 Trillion Dollars. These "Quantative Easing" purchases are to continue to prop up the financial center and the majority of the Fed Board will probably vote for it.

The FHFA also has been busy of late adding another 148 Billion for preferred stock purchase agreements of Freddie and Fannie. All this with my guess that home prices will continue to decline for another 5-10% over the next 2 quarters.

B of A has announced this week it is going to continue forward with foreclosures this week since they could find no wrong doing in their internal investigation. What a surprise?

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.

FDIC to Test Principal Reduction

The Federal Deposit Insurance Corporation is developing a program to test whether cutting the mortgage balances of distressed borrowers who owe significantly more than their homes are worth is an effective method for saving homeowners from Foreclosure.

Under the FDIC program, borrowers would be eligible for a reduction in their mortgage balances if they keep up their payments on the mortgage over a long period of time. Their thought is "an earned principal forgiveness", says Shelia Bair FDIC Chair, "this would only be for homes that are significantly underwater".

This program would only be for Banks that are taken over by the FDIC and amounts to less than 1% of all mortgages.

Lenders have been reluctant to cut the principal balance of borrowers fearing that it would encourage current borrowers to become delinquent even if they can afford the payments.

This is just a limited PR stunt to me, Almost no one will qualify, and the Banks believe it or not have more of an incentive to let borrowers default, since there are shared loss agreements with the Treasury for most of the Big Banks. Again it is all about Wall Street's profits and not main streets needs.

The belief that if this were to become mainstream, millions of homeowners would default immediately. The only thing these programs, the Treasury programs, and the Obama Administration HAMP programs are going to do is delay what is going to happen anyway.

24% of all Mortgages Nationwide are Underwater

First American Core Logic released its 4th quarter negative equity report today and the results were worse than expected.

According to First American Core Logic, "More than 11.3 million homes or 24% of homes with a mortgage had negative equity at the end of 2009, up from 10.7 million and 23% at the end of the third quarter of 2009. An additional 2.3 million were approaching negative equity by the end of the year, meaning they had less than 5% equity. Together the negative equity and near negative equity mortgages accounted for 29% of all residential properties with a mortgage nationwide."

California was among the 5 highest states with negative equity, with 35% of all loans statewide upside down. Although California, Nevada, Florida, Michigan and Arizona made up 70% of all the negative equity, 2o additional states had growing negative equity problems. This means that the problem is widespread throughout the country.

"The dollar value of negative equity was $801 Billion up from $764 at the end of the quarter 3 2009. The average negative equity for an underwater borrower was $70,700 up from $69,700 at the end of the 3rd quarter 2009. The segment of borrowers that are 25% or more in negative equity account for over $660 Billion in negative equity."

Not all borrowers underwater will default, and for now their numbers, which aren't good, are still at a point where the banks can absorb the losses. But if the numbers keep on rising and more borrowers exceed the 25% negative equity mark, which is likely to happen, we definitely will be seeing more foreclosures and more banking troubles. Hold on, by the time the Government figures out what to do, if anything, we will be in the middle of yet another housing crisis.

Flood Coming of Foreclosures?

I have written about this over and over again. The flood of foreclosures is coming, but when? Is this all just gloom and doom or is this real? It is real and today Standard and Poors reports why.

Standard and Poors, the credit reporting agency, tells investors what mortgage backed securities are really worth, and also reports that the increase in values was just an illusion. It predicts the nation is about to see a deluge of new foreclosures that will drive real estate values back down.

"Blame the shadow inventory" - the nearly 2 million homes that were foreclosed upon but for whatever reason have not been brought to market yet.

Many homeowners have fallen behind on their mortgages or stopped paying, but foreclosure has not yet arrived. Mortgage servicers, the folks who send you the bills and file for foreclosure when you can't pay them, are overwhelmed. Courts are backed up as well with all the filings. Mortgage modifications and foreclosure moratoriums have put off the day of reckoning for borrowers but not forever. And unemployment is sabotaging more and more homeowners every day.

Out of the more than $1,600,000,000,000 (Trillion) in existing mortgages that were packaged into mortgage backed securities or MBS, by Wall Street, some $425 Billion worth are extremely late on their payments and therefore likely to go into foreclosure. Only a small fraction of borrowers who fall seriously behind are able to catch up, with the help of loan modifications. Even if they catch up with loan modifications, the majority of borrowers fall behind again. The amount of bad mortgage debt has been spiking up every month, slowing only for a moment by government intervention, but still continuing to rise.

"Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market".

The current shadow inventory of homes is estimated to be at the same level as all homes available for same in America today. And that is not counting what is in the pipeline or what is expected to be coming down the road.

Banks are going to have to release these inventories soon whether by choice or force, and when that inevitably happens home prices will drop again.

Treasury Worried About Next Wave of Foreclosures.

Treasury Officials stated yesterday they are still concerned about a coming wave of foreclosures, many from pay option arms and many from the prime jumbo basket, hit particularly hard by unemployment. The Treasury Home Affordable Modification Program or HAMP is also reporting that 1/3 of all loan modifications are delinquent.

Loan Servers seem to have exhausted the supply of plausible candidates for loan modifications, and will find many loans beyond saving.

HAMP is also gearing up for the April 5th launch of the Home Affordable Foreclosure Alternatives program, or HAFA, and is specific to 2 segments of the distressed markets. Deed in Lieu and Short Sales are the main focus here and the requirements are clearly spelled out for lenders and borrowers. The bulk of these programs are designed for Fannie Mac and Freddie Mac liquidation, but many other lenders are also included. For some borrowers this will be a good thing, for others they may not qualify.

Obviously the Treasury sees the tsunami of problems still ahead, but I doubt their actions will fix the housing market in the near future. I believe they have underestimated the numbers, they have not addressed the commercial defaults, and finally until unemployment shrinks, all these programs, are too little too late. Incedently the banks benefit from these programs far more than the consumers do, so what else is new from our wonderful government.