Tag: Subprime Mortgages

The Crisis Of Working Families

There is broad consensus among labor unions and progressive organizations, economists and politicians that we need a bottom-up solution to the economic crisis. That is, the priority should be fixing Main Street, not Wall Street. The main proposals include:

1) A moratorium on home foreclosures, and giving bankruptcy courts the power to renegotiate mortgages.
2) Extend unemployment benefits and increase funding for food stamps, heating assistance, and other survival programs.
3) Aid to state and local governments so they can avoid layoffs and reductions in vital services.
4) Rebuilding the infrastructure of America: clean energy, roads, bridges, water systems, schools, and housing, providing good-paying jobs.

There is broad consensus among labor unions and progressive organizations, economists and politicians that we need a bottom-up solution to the economic crisis. That is, the priority should be fixing Main Street, not Wall Street. The main proposals include:

1) A moratorium on home foreclosures, and giving bankruptcy courts the power to renegotiate mortgages.
2) Extend unemployment benefits and increase funding for food stamps, heating assistance, and other survival programs.
3) Aid to state and local governments so they can avoid layoffs and reductions in vital services.
4) Rebuilding the infrastructure of America: clean energy, roads, bridges, water systems, schools, and housing, providing good-paying jobs.

The immediate cause of the financial crisis on Wall Street is this mountain of debt smothering people on Main Street. In simplified form, here is what happens.
● Hard-pressed families fall behind on their mortgage and credit card payments.
● When homeowners can’t make payments, the banks foreclose, but the home frequently stands empty and the bank is unable to recover much of the outstanding loan..
● The bank, with less money coming in, has trouble paying other banks and investors that it borrowed money from.
● Those other banks and investors have trouble paying banks and investors they borrowed from.
● Banks, investors, and ordinary businesses are afraid to lend money to other banks, investors and ordinary businesses.

Families owe more on their mortgages and their credit cards than they can ever pay back. And their effort to save their homes and meet creditors’ demands is undermining their families, their neighborhoods and the local economy, as family members work multiple jobs and cut back on health care, local purchases, local taxes, utilities, and home maintenance.

The bailout package just approved by Congress doesn’t address this problem at all. Homeowners and consumers still have the same debt, still face the same monthly payments. The only change is that the U.S. government has become a collection agent for the banks and investors.

The solution is to reduce the amount that working people owe. Reduce homeowners’ and consumers’ debt to the level it would be at if reasonable lending standards had been applied in the first place. Conservative practice is that families should pay no more than 25 percent of their income for housing. So a people’s bailout plan would mandate that mortgages be reduced so that monthly payments will be 25 percent of household income. But in no case should the debt be for more than the real value of the house, as determined by historical price levels adjusted for inflation. Credit card debt, second mortgages, and home improvement loans, college loans, and medical debt could also be adjusted by similar calculations, to a maximum of 10 percent of household income.

This would not cost the government a penny — it would force banks and investors to recognize the losses resulting from their own bad judgment and fraudulent practices. Millions of people would still be in their homes, and neighborhoods and local tax bases would be stabilized. And the financial system would be more stable because the banks could now be confident of receiving a steady stream of payments, even though these payments would be less than what they originally expected.

Come on guys, time to get angry and time to demand that the PEOPLE come first!  Please get off your ass.

My Fav Couple: Fannie & Freddie

I recently asked in one of my post, just what the bailout was doing for Main Street.  Well here is my answer.

Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, will accelerate anti- foreclosure efforts by streamlining loan modifications to lower monthly payments for more struggling homeowners.

Fannie and Freddie, operating under a government conservatorship, will target loans in which borrowers are at least 90 days delinquent and have high loan-to-income ratios, officials from the Treasury and the Federal Housing Finance Agency said today at a press conference in Washington. The companies may offer homeowners reduced interest rates and longer terms of as much as 40 years to trim monthly payments.

“This new protocol will be a standard for the industry to quickly move homeowners into long-term sustainable mortgages,” Neel Kashkari, the Treasury’s interim assistant secretary, said in a prepared statement.

The initiative expands efforts by the Hope Now Alliance, a group of investors, advocacy groups and mortgage lenders and servicers such as Citigroup Inc. and Wells Fargo & Co. that Treasury Secretary Henry Paulson helped create last year. The success rate in the past for “curing” delinquent loans with modifications similar to what the government proposes was about 50 percent for both prime and subprime borrowers with damaged credit, according to data from the Mortgage Bankers Association

The effort to stem foreclosures and the depressed house prices they perpetuate entered a new phase on Tuesday as Fannie Mae and Freddie Mac announced a fast-track program meant to make hundreds of thousands of mortgages affordable to people who can’t currently meet their monthly payments. The roll-out follows on the heels of new loan modification programs at JP Morgan Chase and Citigroup, but the move at Fannie and Freddie, which together hold or guarantee some 58% of single-family home loans, has the potential to reach much farther since the mortgage industry often takes its cue from the two entities.

Under the new program, homeowners with mortgages held by Fannie and Freddie who are at least 90 days delinquent will be eligible to have their monthly payment reduced to 38% of gross income, as long as they’re not in bankruptcy and can illustrate a hardship or change in financial circumstances. This model, based heavily on a streamlined loan modification program the FDIC is implementing at the failed lender IndyMac, is a strong endorsement of the idea that doing a lengthy analysis of homeowners’ finances is taking too long to make a dent in the nation’s housing woes.

But the details of how, exactly, monthly payments will be lowered has raised concern in certain quarters. In a news conference explaining the program, James Lockhart, who runs the agency that oversees Fannie and Freddie, highlighted three tacks: reducing interest rates, extending the length of loans and, in some cases, deferring payment on part of the principal. There is a big difference, though, between permanently reducing an interest rate and doing it temporarily. And the new program doesn’t forgive principal, only defers it, which may not go very far at a time when some 18% of mortgage holders owe more to the bank than their house is worth. “If all they’re doing is lengthening the loan maturity, it may reduce the economic stress a little bit, but it doesn’t deal with the main problem, which is you have an underwater loan,” says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California.

Sorry to say thast this is just anotrher band-aid for a gunshot wound.  Fan and Fred hold only a small percentage of the mortgages and this will only help a small percentage of trouble homeowners.  Sorry, my question is still valid, what and when can Main Street expect help or is Wall Street the only concern?

Sen. Dodd Should Not Throw Stones

The two leading Democrats on the Banking Committee, Chairman Christopher Dodd of Connecticut and Charles Schumer of New York, are among the most favored recipients of campaign cash from big Wall Street interests.

Senator Schumer raised $12,928,000 in the 2003-2008 election cycle, according to the CPR. His top five industries for campaign cash were securities and investment, lawyers and law firms, real estate, miscellaneous finance and commercial banks, from which he netted a total of $3,937,000. His top five contributing firms were Citigroup, UBS, Paul Weiss et al, Kasowitz, Benson et al and Metlife, which funneled a total of $271,000 to his campaigns.

In the course of his political career, Senator Dodd has raised $43,344,000. In the 2003-2008 election cycle his top five industries for campaign funds were securities and investment ($4,268,000), lawyers and law firms, insurance, real estate and commercial banks, for a total of $9,826,000. His top five contributing firms were Citigroup, SAC Capital Partners, United Technologies, Royal Bank of Scotland and the insurance giant (taken over by the government earlier this month) American International Group. His total take from these firms was $1,315,000.

Dodd, who presents himself as the champion of homeowners victimized by the subprime mortgage racket, proposed a housing bill in June of this year that would assist subprime lenders such as Countrywide Financial, the biggest purveyor of such home loans. Countrywide, on the brink of collapse, was bought out by Bank of America earlier this year.

None of these guys have clean hands in this crisis.  They all are part of the problem.

Subprime: And The Walls Came Tumbling Down

If you have been hiding under a rock then you may not be aware of the problems facing the financial markets. The foreclosures, the sub-prime collapse or any of the accompanying tragedies. Goldman-Sachs, Countrywide, Merril Lynch, Bear Stearns and Lehman Bros all are indicators of the collapse of the financial markets.

One subprime industry analyst wrote in 1997: “Due to wide economic swings, massive layoffs and regional recession, as well as increases in the divorce rate and the high number of business failures over the past 10 years, the subprime market has mushroomed.” Furthermore, the analyst continues, approximately 45 percent of second-lien subprime mortgages were used for debt consolidation.

As cited above, and surely many more that the interested reader will find on the Internet, provide empirical evidence that most of the criticisms of subprime mortgages made by politicians and the press today, looking for at least partial answers to the current financial catastrophe, have been around since the 1980s and 1990s. Furthermore, the origins of subprime mortgages are linked to a rise in poverty, unemployment and a decrease in the quality of life for working-class families. Something that NO politician wants to admit. These reports reveal how subprime mortgages were designed to exploit the most vulnerable sectors of the population.

To summarize: The subprime mortgage originated as an instrument devised by finance capital to replace bad debt with new loans to people who had lost their jobs or had suffered wage cuts and needed cash to continue feeding their families. In exchange, bankers got a security—i.e., guarantee—on the borrowers’ homes. In other words, banks “traded” risky, unsecured debt for a new loan backed by the guarantee that if a borrower failed to pay the mortgage, the bank had the legal means to repossess the family home. Once again, I will say what no one wants to say, it was about the accumulation of wealth at the expense of the middle class. It is all about—GREED!

Now is there a solution? Yes there is, bu there is no silver bullet that can fix it in a short term program. This will take time and effort to repair the damage that greed has done to the economy. The really bad news is that it is gonna hurt.