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Federal Deposit Insurance Corp. Chairman Sheila Bair said banks involved in the U.S. Public-Private Investment Program won’t bid on their own assets to clean-up their balance sheets, which would effectively be an accounting dodge.

“There should be no confusion: Banks will not be able to bid on their own assets,” Bair said today at a Washington news conference.

The FDIC is helping the Treasury Department set up and run the PPIP, which will use $75 billion to $100 billion of Troubled Asset Relief Program funds to entice private investors to buy as much as $1 trillion in distressed mortgage-backed securities and other assets.

Banking groups and the Clearing House Association LLC, a group of 10 lenders including JPMorgan Chase & Co. and Bank of America Corp., are pressing the FDIC to let them use the program to buy their own troubled assets, the Wall Street Journal reported today.

Meanwhile, it seems that enthusiasm may be waning entirely for the proposed PPIP sales, which may be called-off altogether for lack of seller interest. Pressure for the banks to sell the assets has evaporated with changes in the mark-to-market accounting rules and the demonstrated ability of big banks lately to raise capital in the private markets.

It remains to be seen how much interest the fund managers who have applied to take part in the scheme actually bring to the program. While the government subsidies are attractive, fund managers may be leery of making too big a profit in a government program, or being involved at all.

“A significant and growing obstacle to private participation in government bailout plans is that many investors are wary of political backlash and the imposition of additional restrictive conditions post-investment,” wrote accounting firm PriceWaterhouseCoopers in an analysis published this week.

At a Congressional hearing last week, Columbia University economist Jeffrey Sachs urged the government to abandon PPIP. He contrasted the murky program with the much more desirable clarity of an FDIC seizure and resolution.

cringely Uncategorized bank bail-out, banks, FDIC, Obama Administration, PPIP, TARP

Jumbo mortgages, those in excess of $417,000 or $729,000 depending on the market, practically disappeared with the burst of the housing bubble, but now they are coming back with major lenders like Bank of America and ING putting some real effort into the segment. But that doesn’t mean people are actually buying homes that require jumbo mortgages, according to lenders. There is a jumbo REFI boom of sorts, but nobody seems to be buying big houses that aren’t short sales or foreclosures.

Jumbo mortgages have stringent requirements, including hefty down payments. Buyers are still waiting to see if the real estate market has bottomed out, and few people these days want to commit to a big down payment if it means selling securities that are already down..

Rates for 30-year fixed-rate jumbo mortgages have dropped from an average of 7.28 percent a year ago to 6.44 percent last week, the lowest since April 2007, according to HSH Associates, which tracks consumer loan information. Rates for smaller 30-year mortgages were averaging 4.97 percent last week.

Jumbo mortgages are those too large to be backed by the federal government through Fannie Mae and Freddie Mac. Mortgages that are under those limits — $417,000 or $729,000 depending n the market — are so-called “conforming” loans.

Jumbo rates are also higher because the secondary market — where mortgages are sold to generate new funds — has dried up. Now, lenders need to keep loans on their own books, assuming the risk themselves.

Keith Gumbinger of HSH, which is based in New Jersey, said the difference between conforming and jumbo mortgage rates used to run around one-fourth of a percentage point, or 25 basis points. “So if a conforming rate was 5 percent, a jumbo would be around 5¼. Right now, that gap is extraordinarily wide. Last week, it was exactly 150 basis points.”

The Federal Reserve’s influence to lower conforming mortgage rates has produced the larger gap, he said. “The gap remains extraordinarily wide, not because jumbos aren’t doing their part. They are. But because other prices have been artificially influenced lower.”

He advised anyone looking for a mortgage or to refinance to shop around more than ever. “Some lenders are in a better position to make you a competitive loan than others. You’ve got to go out and scour around your marketplace. Shop it effectively.”

Some large lenders, including Bank of America, are starting to promote jumbo rates below 6 percent.

In time the combination of falling home prices and lower mortgage rates will improve the affordability of higher-end properties and sales will start to rise. The concern about waiting for the bottom is the only way you know you’ve hit bottom is when it is on the way up.

cringely Lender Updates, News Bank of America, banks, housing prices, jumbo mortgages, LendersME, mortgage crisis, refinance

When Barack Obama was running for President one of his favorite sound bites was that any financial bailout should not just involve Wall Street, but Main Street, too – that the government’s responsibility was to help both bankers and homeowners. But now that the election is won and Obama is in office, the two streets are still being treated very differently, with Main Street getting a lot less help from Washington.

This is a HOUSING crisis, not a BANKING crisis, yet $700+ billion has gone to help bankers and only $75 billion to “help” homeowners. The banker’s money has mainly been spent and the homeowner money has hardly been touched. If this is a HOUSING crisis, why aren’t more resources being devoted to housing?

It comes down to an issue of morality, believe it or not, with homeowners expected to be moral and bankers not. Everybody blew it, but the homeowners are being disproportionately punished for their actions.

There is no morality issue in the bank bailout. Banks are having their capital boosted based not on whether they are well run or in some way “deserving,” but purely on the basis of whether they are viewed as being in three groups: 1) doomed; 2) capable of being saved through injecting government funds, or; 3) too big to be allowed to fail no matter how poorly run. This means the least-deserving banks tend to get the most help.

But the Obama Administration’s attempt to help mortgage holders is different. If you hope for government help in restructuring your mortgage you’d better not be behind in your payments. If you missed a mortgage payment months into this crisis, you are out of luck. If your mortgage isn’t guaranteed by Fannie Mae or Freddie Mac, you are out of luck. If your mortgage is jumbo you are out of luck. And if you owe more than 105 percent of the value of your home you are out of luck.

That’s a lot of homeowners out of luck. No wonder the Obama Administration thinks it needs only $75 billion to do the job, it is excluding so many people.

Let’s try applying the homeowner rules to the banks. If both played by the same rules, then banks with mortgage portfolios that have dropped by more than about 15 percent (are five percent or more underwater) would be ineligible for government assistance. Banks that MADE jumbo loans would be ineligible for assistance. Banks that made loans with private insurance or no insurance would be ineligible for assistance. Banks that had shown themselves unable to meet capital requirements (had effectively missed a payment) would be ineligible for assistance. In each case, these criteria define EVERY bank that has received assistance. They ALL have mortgage portfolios down in value by 15 percent or more, ALL made jumbo loans, ALL made uninsured loans, and ALL are under capitalized.

So if we apply to banks the same rules that are being applied to homeowners, then no banks deserve support and there should be no bank bailout. Well that can’t be, can it? So screw the rules, screw the idea of there being a moral issue with bankers, just start handing out cash without even requiring that they use any of it to make or restructure loans.

So that’s what the Treasury and the Fed have done – bailed out the bankers without regard to their past OR FUTURE behavior. And $700+ billion later do we really truly feel better as a result?

Hell no we don’t, because we still can’t pay our mortgages!

This bailout is broken, it is unfair, and it is incredibly inefficient as a result. The bank bailout is based entirely on providing INCENTIVES to the banks – bribing them to THINK ABOUT doing the right thing. The government won’t MAKE the banks do anything. They just ENCOURAGE the banks by giving money.

Where are the incentives in the much smaller housing bailout? There are incentives. THEY ARE ALL BEING GIVEN TO THE BANKS. It is very difficult to find in the new Federal mortgage modification rules much of anything that truly helps homeowners. Banks aren’t REQUIRED to do anything; they can reject any mortgage holder for any financial reason. The banks are PAID to restructure the mortgages and the way those mortgages are being restructured (primarily through increasing term and adding balloon payments) not only costs the banks nothing, it tends to make them MORE money over the life of the loan.

So that $75 billion allocated to modifying mortgages and keeping people in their homes, how much of that $75 billion will actually go to homeowners? About 25 percent, or $18 billion almost entirely in first-time buyer tax credits. This means the bank bailout isn’t $700+ billion, it is $758+ billion or FORTY-TWO TIMES the size of the housing bailout.

And why only first-time buyers? What makes them more deserving of help? The theory is that these are new homeowners so they’ll be buying-up excess inventory and helping to firm prices. They aren’t people selling one house to buy another. In another view they are virginal and uncorrupted by the housing bubble. It wasn’t their fault, so they are being rewarded. More morality, inequitably applied.

Main Street isn’t doing very well under this policy. Main Street is being cheated.

This is a bad plan, unfair and poorly executed. It places a moral burden on individuals and not on banks, yet there is no good explanation for why it has to be so.

What is it about banks that make them deserving of 42 times as much support as your Mom?

Nothing.

Like the Bush Administration before it, the Obama Administration has a bias for helping Wall Street. They couch this as a claimed inability to come up with any better ideas. Yet better ideas – ideas NOT couched in moral argument (or more appropriately couched in EQUAL moral justification) were presented right in this spot in the post titled The Not So Bad Bank. That’s a plan that helps banks and homeowners equally, doesn’t require incentives to work, acts faster, and costs a tenth as much.

What’s wrong with doing the job better, faster, and cheaper?

cringely Blog bank bail-out, banks, financial crisis, foreclosure, mortgage modification, mortgages, Obama Administration

When is a hedge not a hedge? When it is hedging an Alt-A or Sub-prime mortgage, according to Democrats who are proposing that lenders not be allowed to substantially shift repayment risk from such exotic loans.

The legislation proposed this week in the U.S. House of Representatives would prohibit lenders from “directly or indirectly” hedging or transferring a minimum retained credit risk on most nontraditional mortgages, including some loans that have adjustable interest rates or require little documentation of a borrower’s income. The bill, introduced yesterday, is being sponsored by Representatives Barney Frank of Massachusetts, and Melvin Watt and Brad Miller of North Carolina.

The bill is designed to curb “predatory” lending and encourage the use of traditional 30-year, fixed-rate loans. “The growth of exotic, non-traditional mortgages was a major factor in the current housing and foreclosure crisis,” Frank, Watt and Miller said in a statement.

Alt-A loans were primarily sold to borrowers who wanted atypical terms such as proof-of-income waivers, investment- property collateral or delayed principal repayment, without enough positive compensating attributes. Subprime loans were made to people with poor or limited credit histories.

About 20 percent of Alt-A mortgages securitized with bonds not backed by Fannie Mae, Freddie Mac or the federal government are at least 60 days past due, in foreclosure or already seized. The Alt-A market expanded to $400 billion in 2006 from $55 billion in 2001, according to newsletter Inside Mortgage Finance.
The legislation would make permanent rules that prohibit lending to borrowers who don’t have a “reasonable ability” to repay. It also restricts so-called yield spread premiums, which are upfront commissions paid to mortgage brokers when a loan is closed. The legislation builds on a measure Frank said lacked political support last year to pass.

“We don’t know whether this would work for individual mortgage lenders” that rely on warehouse lines of credit — a form of interim financing — to fund the loans they originate, said Francis Creighton, the chief lobbyist for the Mortgage Bankers Association in Washington. For smaller independent mortgage firms, it may be difficult to repay those credit lines if they cannot sell off 100 percent of the loan, Creighton said.

“The political climate has changed,” Miller said in the statement. “The foreclosure crisis has wreaked havoc on middle- class families and our economy as a whole.”

cringely Government News, News banks, legislation, mortgage crisis, mortgages, News

Yes.

Now what should be done about it?

Blogger, MIT professor, and former International Monetary Fund chief economist Simon Johnson says the big banks should be broken apart.  It’s a pretty compelling argument.

Watch it here:

And here:

cringely Blog anti-trust, banks, Bill Moyers, Blog, financial crisis, Obama, oligarchy, Simon Johnson