Washington Post: "Obama administration pushes banks to make home loans to people with weaker credit"

Obama has apparently learned nothing from the recent economic collapse.  I have pointed to evidence on this previously and of course Obama has some complicity in creating that collapse (on this last point see the first chapter in my book Debacle).  But now here is a story from the Washington Post.

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession. . . .

So how quickly does the stock market react to new information?

According to this news note in this case "almost instantly."

Close to midday on Thursday, Google’s financial printing partner, RR Donnelly, published the search giant’s earnings release draft hours before it was supposed to. The result: Shares of Google dropped sharply and almost instantly by nearly 75 points, with the unexpected gaffe only compounding the fact that Google missed its quarterly expectations. . . .

The first product of Obama's working group on the 2008 financial crash is an unjustifiable lawsuit. What do you expect from lawyers?

Well, what did you expect from a bunch of lawyers?  JP Morgan buys Bear Stearns at the request of the  government and now the government repays that effort by suing them.  So much for the claim that Fed was absorbing the risk on Bear Stearns balance sheet.

The New York Attorney General has sued JP Morgan Chase for allegedly defrauding investors who lost more than $20bn (£12bn) on mortgage-backed securities sold by Bear Stearns. 

JP Morgan bought the investment bank Bear Stearns in March 2008. 

It said that it would contest the allegations. 

This is the first action to come out of a working group created by US President Barack Obama looking into the causes of the 2008 financial crash. 

JP Morgan said: "The NYAG civil action relates to Bear Stearns, which we acquired over the course of a weekend at the behest of the US government. This complaint is entirely about historic conduct by that entity." . . . .

Obama used landmark lawsuit to force banks to make subprime loans to those who couldn't afford them

With all the false claims about so-called predatory lending, we may have found the person initially responsible for the problem.  From the Daily Caller:

President Barack Obama was a pioneering contributor to the national subprime real estate bubble, and roughly half of the 186 African-American clients in his landmark 1995 mortgage discrimination lawsuit against Citibank have since gone bankrupt or received foreclosure notices. 

As few as 19 of those 186 clients still own homes with clean credit ratings, following a decade in which Obama and other progressives pushed banks to provide mortgages to poor African Americans. 

The startling failure rate among Obama’s private sector clients was discovered during The Daily Caller’s review of previously unpublished court information from the lawsuit that a young Obama helmed as the lead plaintiff’s attorney. [RELATED: Learn about the 186 class action plaintiffs] 

Since the mortgage bubble burst, some of his former clients are calling for a policy reversal. 

“If you see some people don’t make enough money to afford the mortgage, why would you give them a loan?” asked Obama client John Buchanan. “There should be some type of regulation against giving people loans they can’t afford.” . . .

Will history be kind to TARP?: No, if the accounting is done accurately.

WSJ: Bank CEO: History Will be Kind to TARP

“TARP successfully stabilized not only the banking industry but a number of other industries as well. The general view I would have is that history will be fairly kind to TARP,” Sterling Financial Corp. Chief Executive Greg Seibly said in an interview.
The Treasury Department this week announced that it expects to earn about $113.3 million in a public offering of the shares it holds in the Spokane, Wash.-based bank. Treasury also has received about $6.7 million in dividends from Sterling, and will get yet a little more back when it sells warrants it continues to own.
Still, it’s a steep discount and a clear net loss on the original investment of $303 million.
Overall, Treasury estimates that TARP will cost taxpayers $47.75 billion, largely due to expenses related to the auto bailout and housing programs.
TARP’s bank programs turned a profit, though Treasury is now selling off holdings in smaller banks at a discount. Sterling is the latest example. . . .

Is this really serious?   The GM loss is dramatically underestimated by the TARP accounting methods.  I suspect that bank losses are also underestimated for a similar reason.  Total subsidies should be measured, not just TARP subsidies.  In GM's case, tens of billions of dollars given to the company raises the value of the stock and also gave it the money to pay off the loans that it had received.  Those higher stock prices didn't come free.  In the case of banks, I suspect that all the subsidies given to the banks through the Fed were nontrivial and should also be counted.

Banks pressured to buy sovereign debt: When will government realize the problems from forcing banks to make risky loans?

Government forces banks to lend money to risky borrowers.  Now they force banks to lend money to governments.  When will the government learn that forcing banks to take on more risk than they want causes problems?  From CNBC:

US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.
Regulators are allowing banks to escape counting their country's debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.
While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.
"Captive bank demand can buy time and can help keep domestic yields low," Lorenzen wrote in an analysis for clients. "However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn't used very prudently." . . .

Charlie Cook goes after Intrade

Here is a suggestion: if Cook really believes that he is a lot better at guessing political outcomes than Intrade, he has a chance of making a lot of money. From the National Journal:

. . . On that Monday, the Intraders saw Republicans as having a 74.9 percent chance of keeping their House majority. Democrats had a 29.8 percent chance of regaining the chamber. These predictions strain credibility a bit, as the odds add up to more to than 100 percent, but that’s another matter. On this one wager, the numbers are not too far off The Cook Political Report’s prediction that Republicans have a 75 percent chance of holding the House (and, yes, Democrats have a 25 percent chance of taking it). In the Senate, Intrade says that Republicans have a 56 percent chance of taking control (its phrase, not mine). Democrats have a 27.9 percent chance. My hunch is that the odds of neither side controlling the Senate are 100 percent. At The Cook Political Report, we see the Senate as purely a 50-50 proposition. But it’s the 58.8 percent chance of Obama winning that interests me today, because that prediction stands in stark contrast to what most pollsters, Democrats and Republicans alike, whom I talked with privately, believe. The number crunchers who conduct and analyze polls, and others who study these things closely, see a lot of metrics pointing to a very close contest that could go either way. They don’t see an election in which either Obama, or Mitt Romney, is likely to have an almost six-in-10 chance of winning. . . .

Regulation is out of control in the US

From The Economist magazine:

A Florida law requires vending-machine labels to urge the public to file a report if the label is not there. The Federal Railroad Administration insists that all trains must be painted with an “F” at the front, so you can tell which end is which. Bureaucratic busybodies in Bethesda, Maryland, have shut down children’s lemonade stands because the enterprising young moppets did not have trading licences. The list goes hilariously on. . . .

Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end “too big to fail” by authorising regulators to seize any big, tottering financial firm and wind it down. This newspaper supported these goals at the time, and we still do. But Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions. . . . .

of the 400 rules it mandates, only 93 have been finalized. . . .

Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000. There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis. . . . .

"Dems push Fannie, Freddie regulator on mortgage write-downs"

Do Democrats have any idea what these types of policies will have on new loans being made? If you can have a loan you make marked down dramatically after you make it, why would you ever make that type of loan? From The Hill newspaper:

Congressional Democrats are expected to continue pushing a federal housing regulator to write down mortgage principal for government-backed loans if a settlement with banks doesn't help out enough homeowners.

The federal government is "very close" to an agreement with mortgage servicers that could help about a million homeowners, Housing and Urban Development Secretary Shaun Donovan said this week.

The deal, which also includes states' attorneys general, would require the nation's five largest banks — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial — to spend upward of $25 billion to help borrowers caught up in so-called robo-signing practices where servicers signed-off on foreclosure paperwork without properly reviewing documents. . . .

It turns out that governments might not be that great a giving out mortgages

So is the government really able to do a good job lending out taxpayer money? Does a default rate three times higher than other financial institutions in the area look good? Of course, DC has lots of extra money that they don't mind throwing away. From the Washington Post:

D.C. housing officials have routinely subsidized home purchases that low-income buyers could not afford, paving the way for foreclosures, liens and financial hardships.

Nearly one in five buyers participating in the city’s 35-year-old loan program for first-time homeowners is behind on mortgage payments, city officials said — a default rate that’s at least three times higher than the overall rate in the region. Nearly 50 buyers have received notices of foreclosure in recent years, while more than 50 others have struggled with homeowner association or utility liens, The Washington Post has found.

DeAngelo McDonald, a Metro bus driver and father of six who earns $61,000 a year, financed a $338,000 house in 2008, in part with a loan from the city, paying double what city loan officials had estimated he could afford. His three-bedroom home in Southeast is now in foreclosure.

“I was a first-time home buyer thinking that everything was on the up and up,” said McDonald, 48, who declared bankruptcy in 2009. “At any minute, we could be out on the street. It’s heartbreaking. It’s scary. I don’t know what could happen, especially with my kids.”

For more than three decades, the District has helped buyers offset the cost of housing with loans for as much as $77,000. . . .

Now the state legislature in Washington State is talking about setting up a state bank.

The idea of a state bank - a favorite of the Occupy movement that sees it as an alternative to Wall Street - has strong support among the Democrats who control the state House. Speaker Frank Chopp called it a top priority last week in a speech opening this year's session of the Legislature.

"I think people see this as a form of empowerment, that we're going to try to do something in our state to regain control over the safety of our finances," said David Spring, a community-college instructor from North Bend who has spoken at Occupy rallies.Skeptics wonder where the money would come from to accomplish the bank's goals, such as making low-interest loans to college students and to local governments for public works.

Republican lawmakers and the Democratic state treasurer, Jim McIntire, say government programs already exist to serve those functions. The Public Works Trust Fund loans out hundreds of millions of dollars a year to Washington's local governments for infrastructure, and an alphabet soup of agencies have similar goals, including the Community Economic Revitalization Board, the Drinking Water State Revolving Fund, and the Transportation State Infrastructure Bank. . . .

"Why set up a whole new bureaucracy?" asked Rep. Barbara Bailey, R-Oak Harbor. "And one step leads to another step and next thing you know we have a full-blown financial institution that is in direct competition with our financial industry - which by the way is very good in this state." . . .

The proposed Washington state bank is modeled on the 93-year-old, state-run Bank of North Dakota. . . .

Person who lost MF Global's $1.2 billion is the financial adviser for the Environmental Protection Agency

From the Fox News:

During two days of recent congressional hearings into how as much as $1.2 billion disappeared from MF Global customer accounts, the chief operating officer of the imploding investment firm responded again and again that he did not know.

Yet as the House and Senate interrogated Bradley I. Abelow and other top executives at MF Global Holdings Ltd., lawmakers did not mention Mr. Abelow’s role as a financial adviser for the Environmental Protection Agency, which as of Tuesday listed him as the chairman of its financial advisory board.

Even as he finds himself the public face of a bankruptcy and admitted to lawmakers that he had no idea how client funds disappeared, Congress and the administration have voiced no public concern about Mr. Abelow’s role advising the $8.6 billion government agency on its finances.

“EPA relying on Wall Street for financial guidance is like the blind leading the blind,” said Jeff Ruch, president of Public Employees for Environmental Responsibility, a nonprofit environmental advocacy group based in Washington. . . .

The Obama administration learned nothing from the financial crisis

Remember how the pressure to give loans to individuals who couldn't afford them lead to the financial crisis (see here and here)? Failure to count welfare or unemployment payments as income is viewed as evidence of discrimination. Now the Obama administration forces Bank of America to pay record $335 million penalty for supposedly discriminating against minorities:

Bank of America Corp. will pay $335 million to settle allegations that its Countrywide Financial Corp. unit discriminated against black and Hispanic borrowers, in the largest residential fair-lending settlement in history.

The agreement, announced on Wednesday, involves more than 210,000 minority borrowers who were charged higher fees or who could have qualified for a prime mortgage, one offered to borrowers with the best credit histories, but instead were steered into a more costly subprime loan.

The case is the first by the Justice Department that accuses a lender of steering borrowers to more costly mortgages. The agreement also ends a separate discriminatory lending lawsuit filed by Illinois Attorney General Lisa Madigan in state court in June 2010.

Bank of America neither admitted nor denied the allegations in the settlement. The bank said it settled to resolve issues tied to Countrywide's practices before Bank of America's July 2008 purchase of the lender. The bank said it is "committed to fair and equal treatment of all our customers." . . .

The SEC sues Ex-Freddie, Fannie CEOs over Fraud

Now even the SEC is accusing Fannie and Freddie of committing fraud.

The lawsuits filed today in Manhattan federal court were followed by an SEC statement that it had entered into “non- prosecution agreements” with each company. Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, and Freddie Mac, the McLean, Virginia-based mortgage-finance company, had “agreed to accept responsibility” for their conduct, the SEC said.
In the lawsuits, the SEC said Syron, Mudd and other executives understated exposure to subprime mortgage loans. From 2007 to 2008, Freddie Mac executives said the company’s exposure was from $2 billion to $6 billion when it was actually as high as $244 billion, according to one SEC complaint.
From 2006 to 2008, Washington-based Fannie Mae executives said the firm’s exposure to subprime mortgage and reduced- documentation loans was about $4.8 billion when it was almost 10 times greater, according to the regulator.
‘Told the World’
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Robert Khuzami, director of the SEC’s enforcement division, said today in a statement. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books.” . . .

The Federal Reserve's massive wealth transfer

The article neglects to mention that many banks were forced to take loans against their will. But it sure was a way to increase bank profits. From Bloomberg:

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue. . . .

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.” . . .

Is housing heading down again?

From CNN:

The besieged housing market has even further to fall before home prices really hit rock bottom.
According to Fiserv (FISV), a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.
Several factors will be working against the housing market in the upcoming months, including an increase in foreclosure activity and sustained high unemployment, explained David Stiff, Fiserv's chief economist.
Should home values meet Fiserv's expectations, it would make it the third (and lowest) trough for home prices since the housing bubble burst. . . .

Real Clear Politics: Obama uses "Occupy Wall Street" Language in Weekly Address

Real Clear Politics frames it this way: "Obama Uses Occupy Lingo In Weekly Address To Nation"

Home sales fall to 13 year low in 2010, foreclosures are expected to rise this year

It is hard to believe that things could get worse in the housing market.

The number of people who bought previously owned homes last year fell to the lowest level in 13 years, and economists say it will be years before the housing market fully recovers. . . .
The National Association of Realtors reported Thursday that sales dropped 4.8 percent to 4.91 million units in 2010. That was slightly fewer than in 2008, which had been the weakest year since 1997.
The poor year for sales did end on a stronger note. Buyers snapped up homes at a seasonally adjusted annual rate of 5.28 million units in December, the best sales pace since May and the 12.8 percent rise from November was the biggest one-month surge in 11 years. . . .
Last year, a record 1 million homes were lost to foreclosures, and foreclosure tracker RealtyTrac Inc. predicts 1.2 million more will be lost this year. . . .

Bank Regulators Are Doing Real Damage

Bank regulators stopped banks from making loans.

Guess what Metro Area has seen the biggest home price increases over the last year

Hopefully you guessed Washington, DC..


The indices have a base value of 100 in January 2000.

So how does the housing market look?

My own guess is that with the tax changes that are being discussed in Washington housing is not going to be a very good investment for years to come. From the Financial Times:

. . . Sales of existing homes grew by 5.6 per cent in November to a seasonally adjusted 4.68m properties, but that is 28 per cent below year-ago levels.

Although house prices rose 0.7 per cent in October, the index compiled by the Federal Housing Finance Agency has fallen 3.4 per cent over the preceding 12 months.

“We thought housing would bottom in 2010, but it looks like it will take another year,” said David Wyss, the chief economist at Standard & Poor’s.

Rising interest rates are also acting as a headwind by making it more expensive to refinance an existing mortgage or get a new loan. Purchase applications fell 2.5 per cent in the most recent week, while refinancing activity was down 25 per cent to its lowest level since April, according to the Mortgage Bankers Association.

If the cost of a 30-year fixed rate mortgage increases much beyond current levels of 5.07 per cent, half the borrowers will be outside the “refinancing threshold” and the rest will be locked out due to damaged credit or falling home prices, the MBA said. . . .