Restructuring bails out Greece

Greece’s private sector creditors agreed to a historic restructuring of the government’s debt early Friday, setting the stage for the nation to secure more bailout money and skirt a messy default. Investors agreed to restructure €172 billion worth of Greek bonds, which represents 85.5% of the total €206 billion held by the private sector, said the Greek finance ministry. Another 69% of investors that own Greek bonds not issued under Greek law agreed to restructure roughly €20 billion. Greek Finance Minister Evangelos Venizelos welcomed the agreement, saying the restructuring will help Greece get out of debt and revive its ailing economy. Greece is widely expected to activate so-called collective action clauses, which the government retroactively added to its bond contracts a few weeks ago, to make the restructuring binding for all holders of Greek bonds issued under domestic law. The use of the clauses should bring the total participation rate in the restructuring to more than 90%, the threshold Greece needs to cross in order to meet all the conditions of its second €130 billion bailout from the European Union and International Monetary Fund. Euro area finance ministers are expected to discuss the restructuring during a conference call later Friday, when they could approve the final portion of the bailout.

Banks foreclosing on churches in record numbers

Banks are foreclosing on America’s churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data. The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance. Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group. In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before. The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Most of these institutions have ended up being purchased by other churches. The highest percentage have occurred in some of the states hardest hit by the home foreclosure crisis: California, Georgia, Florida and Michigan. “Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches,” said Scott Rolfs, managing director of Religious and Education finance at the investment bank Ziegler. Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately.

Unemployment holds in February

Hiring remained strong in February, but the overall job market is not out of the woods yet. Employers added 227,000 jobs in February, the Labor Department reported Friday, a pinch slower than in January, when the economy added 284,000 jobs. Meanwhile, the unemployment rate remained at 8.3%, in line with expectations. Private businesses were the main driver of job growth, and have been adding jobs consistently since March 2010.
In February, they added 233,000 jobs. But government job losses have been offsetting some the private sector gains, with most of the bleeding at the state and local level. Last month, 6,000 were lost. The American economy lost 8.8 million jobs in the financial crisis.

Freddie asks for $146M in aid

Government-controlled mortgage giant Freddie Mac has requested just $146 million in additional aid after posting a smaller loss in the fourth quarter. That’s far less than in the third quarter, when Freddie received $6 billion from the government. It received
$7.6 billion for all of 2011. Freddie Mac says it lost $1 billion, or 32 cents per share, in the October-December quarter.
That compares with a loss of $1.72 billion, or 53 cents a share, in the same quarter of 2010.

Freddie’s losses are decreasing because of a drop in the number of homeowners paying less interest as they refinance at lower mortgage rates. The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae in September 2008 after massive losses on risky mortgages threatened to topple them.

Economy faces years of reforms – Timothy Geithner At home and abroad, Treasury Secretary Timothy Geithner said the economy is on the mend but faces years of painstaking reforms. He pushed a new highway bill making its way through the Senate that would invest in infrastructure and streamline the approval process. Geithner called the bill “employment intensive.” One of the major headwinds, Europe, seems to be gaining progressive and positive momentum. A Greek debt-swap program made major progress Thursday, which would grant the sovereign access to a second bailout package. He praised foreign officials and the European Central Bank for setting aside politics in favor of “preventing the equivalent of lighting the continent on fire.” Averting disaster will cost years of reform. Geithner said there is a need to streamline regulatory changes in the U.S.

Short sales represented 9% of all US residential transactions in November, the most recent month for which data is available, up from 2% in January 2008, according to Corelogic. Bank-owned foreclosures and short sales sold at a discount of 34% to non-distressed properties in the third quarter, according to RealtyTrac. As lenders shift their focus to sales, they are finding that some borrowers would rather risk repossession while they wait for a loan modification, according to Guy Cecala, publisher of Inside Mortgage Finance, a trade journal. In a loan modification, the monthly payment, and sometimes principal, is reduced to help prevent seizure. Homeowners facing foreclosure may live rent-free for years before they are forced out.
“That’s why the banks have got to pay the big bucks,” Cecala said. “The real question is why is the bribe so big? Is that what it takes to get somebody out of their home?”

Obama returning money, better late than never… Two American brothers of a Mexican casino magnate who fled drug and fraud charges in the United States and has been seeking a pardon enabling him to return have emerged as major fund-raisers and donors for President Obama’s re-election campaign. The casino owner, Juan Jose Rojas Cardona, known as Pepe, jumped bail in Iowa in 1994 and disappeared, and has since been linked to violence and corruption in Mexico. A State Department cable in
2009 said he was suspected of orchestrating the assassination of a business rival and making illegal campaign donations to Mexican officials. As recently as January of last year, one of Cardona’s brothers in Chicago, Carlos Rojas Cardona, arranged for the former chairman of the Iowa Democratic Party to seek a pardon from the governor for Pepe Cardona, according to prosecutors in that state. Last fall, Carlos Cardona and another brother in Chicago, Alberto Rojas Cardona, began raising money for the Obama campaign and the Democratic National Committee. The Cardona brothers, who have no prior history of political giving, appeared seemingly out of nowhere in the world of Democratic fund-raising, Democratic activists said.

The money Alberto Cardona raised put him in the upper tiers of fund-raisers known as bundlers, according to a list released last month by the campaign. He and Carlos Cardona each gave the maximum $30,800 to the Democratic National Committee, and a lesser amount to a state victory fund. A sister, Leticia Rojas Cardona of Tennessee, donated $13,000 to the national committee, and another relative in Illinois gave $12,600, records show.
There is no record of Pepe Cardona making a donation. Although the two brothers live and work in Chicago, they maintain ties to Pepe Cardona in Mexico. Alberto Cardona operates an advertising agency in Mexico that has worked for political candidates backed by his brother, according to public records and Mexican news reports. Public records also show that the domain name for the Web site of a restaurant Pepe Cardona owns is registered to Alberto Cardona. When The New York Times asked the Obama campaign early yesterday about the Cardonas, officials said they were unaware of the brother in Mexico. Later in the day, the campaign said it was refunding the money raised by the family, which totaled more than $200,000.

Olick – 40 states sign on to robo-deal

“After more than a year of negotiations, attorneys general from more than 40 states signed on to a proposed settlement agreement with five of the nation’s largest mortgage servicers over ‘robo-signing’ foreclosure processing abuses, according to the lead negotiator, Iowa Attorney General Tom Miller. ‘This enables us to move forward into the very final stages of remaining work.
Federal and state officials, as well as representatives from the banks, continue to address matters that they must complete before finalizing any settlement,’ Miller said in a statement released late Monday. The deal with Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, and Ally Financial will reportedly total $25 billion. Some $17 billion of that would go toward writing down mortgage principal for an estimated 850,000 troubled borrowers, $3 billion could go toward restitution payments of $1,500 each to borrowers who lost their homes to foreclosure, and the rest could go to state funds for foreclosure relief, according to reports and estimates by Inside Mortgage Finance.
The total could be less, however, if California does not sign on.
As of late Monday, officials there said Attorney General Kamala Harris had not agreed to the proposal.

New York did not sign on to the deal either, according to sources in Attorney General Eric Schneiderman’s office. Schneiderman had said he would not sign, but reports earlier in the week suggested he was reconsidering, given his new roll as co-chair of a Justice Department task force to investigate mortgage-related abuses.
Attorneys general from Delaware and Nevada also have reportedly not agreed to the deal. Despite the Feb. 6 deadline, states can still sign on and the expectation is that more will. So-called robo-signing, where thousands of foreclosure documents are signed by one employee without proper verification, came to light in the fall of 2010. Miller formed the coalition of attorneys general to investigate major bank servicers in October 2010. Allegations of forgery and abuse in the documentation process ground foreclosures nearly to a halt for much of 2011, as servicers reviewed and changed the way they process foreclosure documents.
They are just now ramping up again in states where foreclosures are not required to go before a judge, or non-judicial states. In judicial states, foreclosures can now take up to three years.
Miller’s office would give no details as to the agreement, or the states that committed to it.”

After pipeline rebuke, Canada turns to Asia

Speaking ahead of Canada’s most high-powered trade mission to Beijing for almost 15 years, Prime Minister Stephen Harper said that Canada must focus on markets that are growing, regardless of the fate of the Keystone XL pipeline, which is proposed to carry crude from the Alberta oil sands to Texas refineries. The US State Department blocked Keystone last month, saying they didn’t have time for a thorough environmental review. Harper told Reuters in an interview: “I think we need to be clear. As much as I want to see that Keystone project proceed, I think this incident … underscore(s) the fact that it is in this country’s national interest to be able to sell products beyond the United States. And I don’t think a reversal of an American decision can change that fundamental reality. So I think it is absolutely essential that we find ways of being able to sell our products to the biggest growing markets in the world, and those are in Asia.”

Canada — the largest supplier of energy to the United States — was profoundly disappointed by Washington’s decision to veto TransCanada’s Keystone project. The United States — which is by far Canada’s largest trading partner — is unlikely to look at it again until after the election. At 170 billion barrels, Canada’s oil sands are the third-largest crude deposit in the world, and Canadian exports to bigger markets will be a focal point of Harper’s meetings in China, where he will be accompanied by five cabinet ministers and the heads of major corporations seeking business. China has already made clear it would like to import Canadian oil to help power its rapidly expanding economy.
It’s not clear to most people why the Obama government would rather import oil from the Middle East than from its own backyard.

MBA – Q4 2011 commercial/multifamily up 13% from 2010, but….

Commercial/multifamily originations during the fourth quarter of
2011 were up 13% over the fourth quarter of 2010, but fell 7% from the third quarter of 2011, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. “MBA’s Commercial/Multifamily Mortgage Bankers Origination Index hit record levels for life insurance companies in the second and third quarters of 2011,”
said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “In the fourth quarter, multifamily originations for Fannie Mae and Freddie Mac hit a new all-time high. While the CMBS market continued to be held back by broader capital markets uncertainty during the past year, others – like the GSEs, life companies and many bank portfolios – increased their appetite for commercial and multifamily loans.” The 13% overall increase in commercial/multifamily lending activity over the fourth quarter of 2010 was driven by increases in originations for industrial and multifamily property types. The increase included a 43% increase in loans for industrial properties, a 31% increase in loans for multifamily properties, an 8% decrease in loans for retail properties, a 24% decrease in loans for health care properties, a 29% decrease in office property loans and a 44% decrease in hotel property loans.

Among investor types, loans for commercial bank portfolios increased by 122% compared to last year’s fourth quarter. There was also a 17% increase in loans for Government Sponsored Enterprises (or GSEs – Fannie Mae and Freddie Mac), a 13% decrease in loans for life insurance companies and a 50% decrease in loans for conduits for CMBS. Fourth quarter 2011 commercial and multifamily mortgage originations were 7% lower than originations in the third quarter of 2011. Compared to the third quarter, fourth quarter originations for hotel properties saw a 52% decrease. There was a 39% decrease for office properties, a 24% decrease for retail properties, a 29% increase for multifamily properties, a 51% increase for industrial properties, and a 153% increase for health care properties. Among investor types, between the third and fourth quarters of 2011, loans for conduits for CMBS saw a decrease in loan volume of 26%, loans for life insurance companies saw a decrease in loan volume of 23%, originations for commercial bank portfolios decreased 16% and loans for GSEs increased by 34%.

Greek problems escalate

Greek party leaders face crunch talks on Tuesday to secure a new international bailout and avoid a chaotic debt default, caught between European Union (EU) demands that they accept painful reforms now and a national strike against more austerity. Prime Minister Lucas Papademos negotiated through most of the night with Greece’s European Union and IMF lenders, ending at 4 a.m.
(0200 GMT) when the 24-hour strike was about to begin, closing ports and tourist sites and disrupting public transport.
Papademos, a technocrat parachuted in to lead the Greek government late last year, must persuade leaders of the three parties in his coalition government to accept the EU/IMF conditions for the 130-billion-euro ($170-billion) rescue. An official said the government was preparing a text to put to the leaders for their approval, suggesting some movement in the process.

With Greece’s future in the euro zone in question, German Chancellor Angela Merkel said time was of the essence and there are growing signs that euro zone officials have lost patience.
They say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before February 15. This is to allow time for complex legal procedures involved in a bond swap deal – under which the value of private investors’ holdings of Greek debt will be cut radically in value – so Athens can get rescue funds before March 20 when it has to meet heavy debt repayments or suffer a chaotic default.

Better inventory levels, fragile prices

Home prices and sales remained fragile in January even as housing inventory levels and foreclosure starts improved during the same month, the Obama administration said in its latest Housing Scorecard Report. Inventories of existing homes for sale declined from 3.2 million in the second quarter of 2011 to 2.4 million in the fourth quarter, according to data from the US Department of Housing and Urban Development and the Treasury.
Overall, housing results were a mixed bag, the scorecard said.
Inventory levels improved in the last two quarters while the number of housing units held off market fell from 3.9 million in the first quarter to 3.6 million in 4Q, the scorecard said.
Foreclosure starts also fell in December, suggesting some signs of improvement.

Still, home prices are weak and foreclosure completions edged higher. Home prices hit $138,500 on average for November 2011, compared to $140,300 in October 2011, according to Case-Shiller data cited in the report. New home sales hit 25,600 in December 2011, down from 27,600 a year ago. Meanwhile, the number of existing home sales hit 384,200 in December 2011, up from 370,800 in the year-ago period. First-time homebuyer numbers grew to 204,900 in December 2011, up from 196,000 in November 2011, according to the scorecard. Foreclosure starts fell to 58,300 in December 2011, from 71,700 in November 2011. Foreclosure completions declined during the same period hit 61,800 in December 2011, up from 56,100 in the month before that. While mortgage originations for the purchase of new homes declined to 431,500 from 498,000 in the year-ago period, but refinance originations rose to 1.3 million in 4Q from 950,000 during 3Q.
Mortgage delinquency rates were mostly falling, dropping to 4.4% in December from 4.7% in the year-ago period.

Bailing out on your home loan and opting to rent may make economic sense in some circumstances, particularly if you are saddled with a big mortgage payment on a home that has dropped steeply in value. But there are serious consequences — financial, legal, emotional and ethical — attached to the decision.
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“There is no angle that you can look at that situation and think it is a great idea,” said Bruce McClary, a spokesman for ClearPoint Credit Counseling Solutions. “It should be saved as the very last option that you have available, and you should look at every possible alternative.”

Turning your back on your home and your mortgage can ruin your credit score even if it is already tarnished by a default on your house note. That could complicate other future financial transactions, including renting a new place and buying a car.

Nevertheless, some say such drastic action should be reserved as an option of last resort, particularly with the number of Americans still “underwater,” or owing more on their mortgage than the home is worth. About 21% of U.S. households in single-family residences found themselves in this situation, Zillow.com reported this month.

Glenn Kelman, chief executive of the online real estate brokerage, contends that giving up should be an option.

“I think there are a lot of people who don’t walk away from their house for moral reasons that are economically irrational,” he said. “The problem is that we live in a reputation-based society, and people will track you down and never trust you again.”

So be ready for that. And also be aware that your credit is not the only thing at risk.

J. Scott Bovitz, a Los Angeles bankruptcy attorney, said a distressed borrower should be prepared for a host of potential legal and tax consequences.

Banks in California can pursue two routes of foreclosure, judicial and nonjudicial, he said.

In a nonjudicial proceeding, which is the most common for someone who owns a home as the primary place of residence, the lender can’t come after you for the money you still owe. A judicial foreclosure, though less common, can result in a debtor still owing the bank money even after the home is taken back.

Even if you escape your lender, Uncle Sam may still come after you. The Internal Revenue Code considers foreclosure a forgiveness of debt and therefore taxable income. If you are insolvent — your debts are more than your income — then you could be forgiven that debt, Bovitz said, but some folks might still face taxes after foreclosure. And that can come as a surprise.

Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, said those homeowners who think they might face a financial shock, such as losing a job, need to seek housing counseling early on. The counselors shouldn’t charge a fee for their services and should be approved by the U.S. Department of Housing and Urban Development.

“The sooner the better, because the longer you wait, the deeper and more complex the problem becomes,” she said.
November 29, 2009|By Alejandro Lazo

Friday, January 27th, 2012, 10:53 am

The new federal task force led by New York Attorney General Eric Schneiderman sent subpoenas to the 11 largest financial institutions in the past few days as part of its investigation into possible residential mortgage-backed securities fraud.

President Obama formed the task group and announced it during his State of the Union address Tuesday. Federal officials did not disclose which 11 banks have come under investigation.

Schneiderman said in a press conference Friday that he will be joined by Delaware AG Beau Biden, Massachusetts AG Martha Coakley, Nevada AG Catherine Cortez Masto, California AG Kamala Harris and Illinois AG Lisa Madigan.

U.S. Attorney General Eric Holder said 15 lawyers and investigators are working with the group. The FBI will add 10 agents, and another 30 lawyers and staff will join the group.

The Securities and Exchange Commission will also participate. SEC Director of Enforcement Robert Khuzami said there “would be no stone unturned, no dark corner unexposed to the light.”

“We have jurisdiction to go after every aspect of the mortgage bubble and the crash of the financial market,” Schneiderman said. “We have jurisdiction over every MBS issued over the last decade with Delaware and New York joining the group.”

Holder said if there is evidence of it, civil and criminal charges will be brought.

Department of Housing and Urban Development Secretary Shaun Donovan guaranteed any crackdown from the group’s investigation would include compensation to the homeowners affected by the financial crisis as well as investors.

“It became clear very quickly that Eric and I shared a vision that it would be a grave injustice to hold these institutions accountable and potentially have hundreds of billions be paid to private investors and pension funds but not make sure homeowners who hold those loans who depend on being able to get those loans fixed to be able stay in those homes,” Donovan said.

He also made clear the investigation and ongoing settlement negotiation between other state AGs and mortgage servicers over foreclosure problems would be separate and any charges would not release the banks from liability in the robo-signing scandal.

Iowa AG Tom Miller, heading up the mortgage servicer investigation, has said the resulting settlement would not release the banks from securitization or lending liabilities.

Schneiderman said there are some limitations to what documents the different participants could share. He clarified that the different charges brought against the banks may not have all of the AGs or DOJ listed as a prosecuting party but could be brought separately.

“I am confident you will see action in the weeks and days ahead that show this will be a very aggressive action,” Schneiderman said.
by JON PRIOR

In light of the new regulations and guidance formulas, Brown says that the OCC needs to “force stronger standards to help keep homeowners in their homes and prevent unneeded evictions in already distressed neighborhoods”[2]. This makes some sense, since these properties are more likely than most to be found “not worth saving” by lenders since they are in areas that already are dealing with plummeting property values. Ohio foreclosure rates slowed dramatically last year as a result of the robo-signer fiasco, but most analysts believe that foreclosures will speed up again in 2012 as lenders attain clarity on what they need to do to successfully foreclose and try to clear the foreclosure pipeline[3]. If this is the case, Ohio could be hit hard this year both by foreclosures and with abandoned property problems.

Foreclosure Deals released new research that depicts the stark price differences between renting a home rather than owning the same property. The data compare values recorded in 2008 to the current state of the housing market.

Because of the housing downfall that has led to approximately 2.1 million foreclosed homes nationwide, Foreclosure Deals revealed that in the past three years, the cost of rental properties has increased 60% while the prices of homes have decreased 46% across the country.

Analysts currently predict that by the end of 2011, that figure will rise another 4.5% and by at least another 3% in 2012.

“Foreclosures have had a huge impact on home values,” said John Miller, a real estate analyst with Foreclosure Deals. “In almost every market, prices are well below their 2008 values, simply because there are so many homes available.”

According to Miller, homeowners are currently going to pay less on a monthly mortgage payment if they buy their property as opposed to renting it every month.

“Rents are up and they’re going to stay up,” Miller said. “Even though it’s the best market for homebuyers we’ve seen in over a decade, the recession made a lot of people reconsider spending at the time, so they rented. This drove up demand, and prices, for rental properties.”

Analysts said the main reason why rental costs are so high today is because they are in greater demand. According to the analysts, buyers don’t want to invest in purchasing a home that might go down in value over time in which they won’t sell their asset for anywhere near what they paid for it.

Another incentive about buying a property is that an investor could always decide to rent the property to a prospective homeowner for a higher monthly value than what they purchased the home, apartment, condominium or commercial property for.

Foreclosure Deals said the best commodities currently available on the market are foreclosure homes because they sell for 10%, 25% and often 50% off their actual market value. The Miami-based real estate provider added that since the market is currently flooded with foreclosure properties, investors are seeing even greater deals at auctions throughout the country.

Despite the sluggish economy, Miller said this is still the perfect market for real estate investors to buy their own property rather than renting because mortgage interest rates are at historic lows ranging from 3.5% to 4%.

“Not only do you have rock bottom prices, you’ve got a terrific market to rent out your property while you wait for prices to rise,” Miller added. “Home values will come back, but the days of low mortgages aren’t going to be around forever. Once home values rise, those interest rates will rise, too.”

By yearend RealtyTrac reported that foreclosure activity decreased by 3% compared to the previous month, and by 14% compared to November of 2010, but that a nine-month high in scheduled foreclosure auctions suggested that a “new set of incoming foreclosure waves” may be coming. I’m not so sure I agree.

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Process delays related to “robo-signing” and other problems began to slow down foreclosure activity in mid-October, 2010.

Last November was the first month where these delays really affected the numbers in the RealtyTrac report – the 262,339 foreclosure actions reported were the lowest number since November of 2008, and down 14 percent from November of 2010.

If this month’s report was to be an indication that the delays were over and foreclosure activity was going to re-start in earnest, we should have seen an increased level of default activity; instead, default notices were actually down by 9% compared to last year.

REO activity was off by 17%. And what about that nine-month high in scheduled auctions? Even those were off by 17% from last year’s numbers.

None of this suggests a coming wave of foreclosure activity to me. In fact, the numbers indicate that activity continues to slow down, even compared to last year’s artificially low numbers.

Whether this continued decline is due to ongoing process delays, legislative or regulatory issues, seasonal slowdowns or industry bandwidth is something we can cover in a subsequent post. But activity levels continue to be lower than what market conditions suggest that they should be.

Don’t get me wrong: with several million seriously delinquent loans waiting to enter the foreclosure process, it’s almost inevitable that we’re still going to see an awful lot of foreclosure activity for several more years. But I think it’s more likely that we’ll see these foreclosures continue to happen at a steady drip rather than a new, massive wave.

By Gary Thomas, 2012 President-Elect, National Association of REALTORS®

In 2011, all of you heard quite a bit about a devastating provision in the Dodd-Frank financial reform law called the Qualified Residential Mortgage or QRM.

There was quite a bit of activity before the August 1st deadline for a letter to be submitted to federal regulators.

After that, things have been kind of quiet. But don’t mistake that for inactivity. The regulators have been reading excellent comments about how this rule would devastate the housing market.

To keep the pressure up, we gathered the Coalition for Sensible Housing to plan strategy for the year ahead. The broad-based Coalition, forged by NAR along with 47 other organizations, focuses on the proposed Qualified Residential Mortgage (QRM) rule. Published on April 29, 2011, the proposed QRM regulation is a complicated issue that could hurt our businesses

It was a great meeting of minds. A lot of smart ideas were bounced around about how to keep the issue in front of elected officials, the media and the regulators.

Last week, there was a meeting of the Coalition for Sensible Housing to plan strategy for the year ahead.

The Coalition has made an impact. We have gathered support from 53 U.S. senators, who wrote and submitted a letter by the August 1st deadline. The letter expressed their intent on QRM and opposition to the larger down payment. In addition, 310 House members signed a similar letter. Regulators have received many comments and are currently digesting that feedback.

The issues surrounding QRM arose from the financial reform legislation. Congress sought to improve the quality of mortgage lending and restore private capital to the housing market. To discourage excessive risk taking, they passed the Dodd-Frank Act requiring that lenders securitize mortgage loans to retain 5 percent of the credit risk, unless the mortgage is a Qualified Residential Mortgage (QRM) or is otherwise exempt.

Unfortunately, the rule defining how the law should be enacted has been too narrowly written. Particularly troublesome are provisions mandating higher down payments—as high as 20 percent—with even higher levels of minimum equity required for refinancing.

Even if we succeed in eliminating the down payment rule, we still need to focus on the debt-to-income ratios and credit standards.

As proposed, the rule would disproportionally impact first-time and minority borrowers. In addition, the higher rates will slow home sales, lower home prices and likely slow the housing industry during what is a fragile stage of its recovery.

We’ve been working on the issue for some time now, and I wanted to let you know that it is still very much a priority for NAR. We don’t know when the final rule will come out, but we are continuing to push back—now and in 2012.
Gary Thomas, Mortgages, by NAR
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The problem with that is, banks really aren’t subject to free market forces that would naturally eliminate insolvent and inefficient institutions. The result is more bad banking.

If we ever want to free ourselves from the yoke of czarist money-changers and free up capital to flow into and throughout the economy, we must subject all banks, and all financial institutions, to free market forces so the weak ones fail and the strong survive.

How do we that?

It’s easy. We remove the rocks under which banks hide by making all banks’ (including the U.S. Federal Reserve) books and records transparent with a one-month lag. While we’re at it, why not legislate the same rule for all regulatory bodies? They are supposed to be protecting us, after all, so what’s there to hide?

(Speaking of transparency, it wouldn’t be a bad idea to stop members of Congress from trading stocks that are directly affected by pending legislation. More on that here.)

And, if that’s not a palatable option for bankers used to being sheltered, we should give them the ultimate protection they demand and simply turn them into utilities, along with the transparency that comes with it.

Let me make this simple.

If banks get into trouble and have to borrow huge amounts from each other, or have to borrow from the Federal Reserve – either from its discount window, through swap lines, or through any of the other central bank liquidity provision programs currently available – we should know about it. I suggest a one-month lag before that information is released because that’s all the time they should be given to fix themselves.

If the banks are so important to the economy that they have to be given massive liquidity and regulatory cover to right themselves when they are in danger of sinking, then the financial system is nothing more than the clever rhetoric of an ensconced oligopoly manifesting its power.

If we had “one-month transparency,” and faltering institutions were clearly identifiable, their stockholders would jump ship, their debt holders would man lifeboats, and unless the institution could be saved from free market destruction by the free market intervention of risk-takers willing to saddle themselves with personal exposure, they would fail.

Look through the bankers’ rhetoric that they need protection and cover from public scrutiny, and what do you see? You see inefficient institutions that leverage themselves for profit, get bailed out, merged, and recapitalized by an unsuspecting public that’s been duped into believing bank CEOs, regulators, and the Fed that everything is fine — or will be with time.

Who cares if banks fail before they get too big to have to be bailed out, or too big to be systemically threatening? We all should care. They should be allowed to fail.

And the sooner the better.

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If that’s not a palatable solution for the industry, then why don’t we treat banking like we do utilities? After all, that’s what banks are. They are utilities – although their profits are not capped, nor is their leverage, nor is the disaster they can wreak on all of us.

Fixing America, and the world for that matter, isn’t complex. It’s just hard because banks control us, not the other way around.

The only way to get around the global banking cabal is to dismantle all the too-big-to-fail banks everywhere and let the world see what’s on every bank’s books. Let the world see how leveraged they are, how much they have to borrow to cover holes in their balance sheets and their capital reserves, and make all regulators findings, admonishments and help known to the public fairly immediately.

Transparency is next to godliness, even if you don’t believe in God

By Shah Gilani, Capital Waves Strategist, Money Morning