Comments »The Treasury Department is set to release guidelines Wednesday for an ambitious but complex foreclosure-prevention program that could end up helping fewer homeowners than originally advertised because of tough eligibility restrictions, likely delays in execution and possible legal challenges.
President Obama announced the framework of the plan on Feb. 18, saying it could help up to seven million to nine million homeowners facing foreclosure.
One part of the plan would provide subsidies and incentive fees to struggling homeowners, mortgage servicers and investors with $75 billion in funding from the Troubled Asset Relief Program, or TARP. The second part of the plan would allow certain homeowners to refinance loans at lower interest rates through mortgage giants Fannie Mae (FNM: 0.4, 0.01, 2.56%) and Freddie Mac (FRE: 0.4, 0.001, 0.25%), which own or insure about half of the nation’s $12 trillion in mortgages. Pension funds, hedge funds, insurance companies and other private investors hold the other half of that $12 trillion, mainly through mortgage-backed securities.
A financial industry source familiar with the administration plan said the guidelines are expected to focus on delinquent borrowers who could qualify for a streamlined modification process and on homeowners facing “imminent default.” The plan could require some applicants to provide “proof of hardship,” such as evidence of illness or job loss, to show why they cannot afford their home loan now — a current mortgage-industry standard for seeking relief, the source said.
The provision is designed to prevent financially stronger homeowners from stopping their mortgage payments to try to qualify for government aid, but also might unintentionally lock out some truly needy families, sources said.
The outlook for Treasury’s plan was complicated Tuesday night, as critical pieces of the foreclosure prevention puzzle hung in legislative limbo.
A bill in the House would give bankruptcy judges more power to lower mortgage payments in court. But Democratic leaders rescheduled a vote on the measure from Tuesday to Thursday as members struggled with competing interests and provisions: Financial firms say the bill would raise the cost of borrowing for consumers and would trigger more writedowns of troubled assets at banks at a difficult time, but housing advocates say mortgage lenders and investors won’t get serious about reworking unaffordable mortgages — through the administration’s new plan or any other — without the threat of bankruptcy judges changing terms if investors and lenders won’t consider modifying loans voluntarily.
The House bill would also provide a legal “safe harbor” to loan servicers who try to restructure mortgages without explicit permission from investors. Servicers process monthly payments under so-called “pooling and servicing” agreements. While some agreements give servicers some authority to renegotiate lower payments for homeowners, servicers fear some contracts are legally vague and would subject them to investor lawsuits, when a modification could generate less money than a foreclosure.
Financial-industry sources said the Treasury guidelines will likely include safe-harbor provisions for servicers, but servicing companies are lobbying Congress to pass the House bill, to give them more protection against investor lawsuits. Without federal legislation, they may not participate in the Administration’s plan, sources said.
“The servicers really have limited power to make adjustments” to mortgages, said Joseph Suh, a mortgage securities lawyer in New York with Schulte Roth & Zabel LLP. “The investors could suffer…You can’t take private property without due process.”
At least one hedge fund manager, William Frey, founder of Greenwich Financial Services in Greenwich, Conn., agrees. Frey plans to rally private mortgage investors to sue the federal government if they believe a mortgage modification plan with safe harbor provisions for servicers violates their rights and costs them money.
“The question is, is it constitutional?” Frey told FOX Business. “Believe me, we have [lawyers] researching it.”
Frey believes safe harbor standards for servicers — through legislation in Congress or Treasury regulation — would violate the “takings” clause of the Constitution’s Fifth Amendment, which says private property cannot be “taken for public use” by the federal government “without just compensation.”In November, Frey sued Bank of America (BAC: 3.73, 0.09, 2.47%) in New York state court over an $8.4 billion settlement by Countrywide Financial, which BofA acquired in July, to modify up to 400,000 mortgages, most of which the bank services for private investors. The class-action lawsuit charges that BofA seeks “to pass most or all” of the costs of the settlement to investors through modifications.
“I create the template and that is good for everybody,” Frey said of his suit. Frey’s alternative to a government modification plan and any new federal legislation is modifications through class action suits and settlements, or mortgage purchases by the government, which can modify loans it acquires.
The trade association for private mortgage investors like Frey, the American Securitization Forum, declined to comment on the prospects for lawsuits, which could slow and limit government foreclosure prevention efforts.
The threat of legal action further complicates the Treasury plan because private investors control the bulk of nontraditional mortgages causing problems for many homeowners — so called subprime, “Alt-A” and “Option ARM” loans that mortgage lenders offered with low down payments, low introductory “teaser” rates and sometimes little documentation of home buyer income, employment or assets.
Treasury officials held separate meetings last week with investment management companies, loan servicing companies and lenders to collect feedback on the administration’s plans, financial industry sources said.
A Treasury spokesperson did not respond to requests for comment on the meetings. But Treasury Secretary Timothy Geithner, testifying on the administration’s budget proposals on Tuesday, said, “You have to use a mix of incentive and persuasion” to get investors and lenders to modify mortgages for homeowners. “And, as a condition for government assistance in our new [TARP] capital programs, banks are going to have to commit to adopt foreclosure modifications strategies that meet a set of standards we lay out. That will help with persuasion,” Geithner said. “But you also have to do things that are going to help make it economically, economically compelling for them to do that.”
Despite the potential legal questions, some analysts are optimistic the plan will help many struggling homeowners. They believe that incentives in the Treasury plan, combined with continued falling housing prices, will push some private mortgage investors to participate in the plan to cut their losses.
Frey said he awaited details of the Treasury plan and would consider its provisions and incentives, but added, “Should the government be putting a bounty on people to abrogate their contracts? No.”
He also said the complicated legal provisions of mortgage-backed securities would make the plan difficult to execute among investors in common securities and investment pools. “The Treasury plan, I think, is much ado about nothing,” Frey said. But Congress “clearly can change the bankruptcy code.”
One Treasury meeting participant said the lack of consensus among stakeholders likely means a slower, more limited modification process that reworks mortgages “loan by loan” rather than in bulk, as many housing advocates favor to quickly attack the rapidly rising number of foreclosures caused by growing unemployment and falling home prices.
“There’s not one problem with one mortgage, so there is not one solution,” the participant said. “There is not a silver bullet.”
A government source also said the administration plan would take time to get up and running, leaving some current homeowners struggling now with little choice but to lose their homes in foreclosure or some other repossession option. “It’s not going to become instantaneously operational,” the source said.
Joined Feb 3, 2009
1,759 Blog Posts
Criminals Start a New Firm to Buy Up Products Pushed
Comments »CALABASAS, Calif. — Fairly or not, Countrywide Financial and its top executives would be on most lists of those who share blame for the nation’s economic crisis. After all, the banking behemoth made risky loans to tens of thousands of Americans, helping set off a chain of events that has the economy staggering.
So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.
Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.
“It has been very successful — very strong,” John Lawrence, the company’s head of loan servicing, told Mr. Kurland one recent morning in a glass-walled boardroom here at PennyMac’s spacious headquarters, opened last year in the same Los Angeles suburb where Countrywide once flourished.
“In fact, it’s off-the-charts good,” he told Mr. Kurland, who was leaning back comfortably in his leather boardroom chair, even as the financial markets in New York were plunging.
As hundreds of billions of dollars flow from Washington to jump-start the nation’s staggering banks, automakers and other industries, a new economy is emerging of businesses that hope to make money from the various government programs that make up the largest economic rescue in history.
They include big investors who are buying up failed banks taken over by the federal government and lobbyists. And there is PennyMac, led by Mr. Kurland, 56, once the soft-spoken No. 2 to Angelo R. Mozilo, the perpetually tanned former chief executive of Countrywide and its public face.
Mr. Kurland has raised hundreds of millions of dollars from big players like BlackRock, the investment manager, to finance his start-up. Having sold off close to $200 million in stock before leaving Countrywide, he has also put up some of his own cash.
While some critics are distressed that Mr. Kurland and his team are back in business, the executives say that PennyMac’s operations serve as a model for how the government, working with banks, can help stabilize the housing market and lead the nation out of the recession. “It is very important to the entire team here to be part of a solution,” Mr. Kurland said, standing in his office, which has views of the Santa Monica Mountains.
It is quite evident that their efforts are, in fact, helping many distressed homeowners.
“Literally, their assistance saved my family’s home,” said Robert Robinson, of Felton, Pa., whose interest rate was cut by more than half, making his mortgage affordable again.
But to some, it is disturbing to see former Countrywide executives in the industry again. “It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it,” said Margot Saunders, a lawyer with the National Consumer Law Center, which for years has sought to place limits on what it calls abusive lending practices by Countrywide and other companies.
More than any other major lending institution, Countrywide has become synonymous with the excesses that led to the housing bubble. The firm’s reputation has been so tarnished that Bank of America, which bought it last year at a bargain price, announced that the name and logo of Countrywide, once the biggest mortgage lender in the nation, would soon disappear.
Mr. Kurland acknowledges pushing Countrywide into the type of higher-risk loans that have since, in large numbers, gone into default. But he said that he always insisted that the loans go only to borrowers who could afford to repay them. He also said that Countrywide’s riskiest lending took place after he left the company, in late 2006, after what he said was an internal conflict with Mr. Mozilo and other executives, whom he blames for loosening loan standards.
In retrospect, Mr. Kurland said, he regrets what happened at Countrywide and in the mortgage industry nationwide, but does not believe he deserves blame. “It is horrible what transpired in the industry,” said Mr. Kurland, who has never been subject to any regulatory actions.
But lawsuits against Countrywide raise questions about Mr. Kurland’s portrayal of his role. They accuse him of being at the center of a culture shift at Countrywide that started in 2003, as the company popularized a type of loan that often came with low “teaser” interest rates and that, for some, became unaffordable when the low rate expired.
The lawsuits, including one filed by New York State’s comptroller, say Mr. Kurland was well aware of the risks, and even misled Countrywide’s investors about the precariousness of the company’s portfolio, which grew to $463 billion in loans, from $62 billion, three times faster than the market nationwide, during the final six years of his tenure.
“Kurland is seeking to capitalize on a situation that was a product of his own creation,” said Blair A. Nicholas, a lawyer representing retired Arkansas teachers who are also suing Mr. Kurland and other former Countrywide executives. “It is tragic and ironic. But then again, greed is a growth industry.”
David K. Willingham, a lawyer representing Mr. Kurland in several of these suits, said the allegations related to Mr. Kurland were without merit, and motions had been filed to seek their dismissal.
Federal banking officials — without mentioning Mr. Kurland by name — added that just because an executive worked at an institution like Countrywide did not mean he was to blame for questionable lending practices. They said that it was important to do business with experienced mortgage operators like Mr. Kurland, who know how to creatively renegotiate delinquent loans.
PennyMac, whose full legal name is the Private National Mortgage Acceptance Company, also received backing from BlackRock and Highfields Capital, a hedge fund based in Boston. It makes its money by buying loans from struggling or failed financial institutions at such a huge discount that it stands to profit enormously even if it offers to slash interest rates or make other loan modifications to entice borrowers into resuming payments.
Its biggest deal has been with the Federal Deposit Insurance Corporation, which it paid $43.2 million for $560 million worth of mostly delinquent residential loans left over after the failure last year of the First National Bank of Nevada. Many of these loans resemble the kind that Countrywide once offered, with interest rates that can suddenly balloon. PennyMac’s payment was the equivalent of 38 cents on the dollar, according to the full terms of the agreement.
Under the initial terms of the F.D.I.C. deal, PennyMac is entitled to keep 20 cents on every dollar it can collect, with the government receiving the rest. Eventually that will rise to 40 cents.
Phone operators for PennyMac — working in shifts — spend 15 hours a day trying to reach borrowers whose loans the company now controls. In dozens of cases, after it has control of loans, it moves to initiate foreclosure proceedings, or to urge the owners to sell the house if they do not respond to calls, are not willing to start paying or cannot afford the house. In many other cases, operators offer drastic cuts in the interest rate or other deals, which PennyMac can afford, given that it paid so little for the loans.
PennyMac hopes to achieve a profit of at least 20 percent annually, and it is actively courting other investors to build its portfolio, which now consists of $800 million in loans, to as much as $15 billion in the next 18 months, executives said. For the borrowers whose loans have ended up with PennyMac, it can translate into an extraordinary deal.
The Laverdes, of Porter Ranch, Calif., had fallen three months behind on their mortgage after sales at a furniture store owned by the family dipped in the economic crisis. Margarita Laverde and her husband were fearful that they might need to move their four children, three dogs and giant saltwater aquarium into a cramped apartment, leaving behind their dream home — a five-bedroom ranch on a suburban street overlooking the San Fernando Valley.
But a PennyMac representative instead offered to cut the interest rate on their $590,000 loan to 3 percent, from 7.25 percent, cutting their monthly payments nearly in half, Ms. Laverde said.
“I kept on asking, ‘Are you sure this is correct? Are you sure?’ ” Ms. Laverde said. Even with this reduction, PennyMac stands to make a profit of at least 50 percent, a company official said.
Ms. Laverde could not care less that executives at PennyMac used to work at Countrywide.
“What matters,” she said, “is that we know our house is secure and our credit is safe.”
No Recovery Yet, But China’s Manufacturing Edges Higher
China breathes a sigh of relief
Comments »HONG KONG: A closely watched index of manufacturing activity in China edged up in February, in an early sign that the economy is at least no longer worsening – though any full-fledged recovery remains a long way off.
The official purchasing managers’ index released by the Chinese authorities Wednesday rose to 49 in February, from 45.3 the previous month and continuing its improvement from a low of 38.8 in November.
A reading below 50 indicates contraction, so the February outcome does not yet represent recovery.
But the reading – and a similar tentative improvement in an index compiled and released by the brokerage CLSA on Monday – underline the relative resilience of the Chinese economy, where the authorities were quick last year to announce a massive stimulus package.
Millions of jobs have been lost in China as producers catering to the export market have been hit by evaporating demand from overseas. And the economy, which powered ahead at double-digit growth rates for half a decade before the U.S. financial crisis escalated into an economic slump, has slowed sharply: many economists believe China may see growth of only 5 or 6 percent this year. This would be markedly below the 8 percent the government is projecting.
Today in Business with Reuters
Fed chairman backs call for higher spending
EU says ‘solution’ is ready for any euro-zone country in trouble
Former Countrywide leaders start firm to buy bad loansBut on the upside, the Chinese authorities, unlike those in many other leading economies, retain tremendous firepower to prop up growth.
Last November, Beijing announced a 4 trillion Chinese yuan, or $584.7 billion, stimulus package, much of it earmarked for infrastructure projects like railways, airports and electricity grids. The authorities have also lowered interest rates sharply and encouraged banks to step up lending.
Analysts widely expect Beijing to announce added stimulus measures as the extent of the global downturn, and the effect on China’s exporters in particular, has become apparent.
Jobs growth, in particular, is a major priority for the authorities, who are concerned about the potential for social unrest as some 20 million migrant workers are estimated to be without employment.
The National People’s Congress will meet for just over a week starting on Thursday, when Premier Wen Jiabao will deliver his economic, social and foreign policy goals for 2009.
On Wednesday, a senior planning official said China would increase spending over and above the 4 trillion yuan by an unspecified amount, Reuters reported.
The official also said China would spend more on welfare to strengthen the country’s social safety net. This is something that analysts believe is key to ultimately getting ordinary Chinese to spend more, thus strengthening the domestic market and lowering China’s reliance on exports.
China’s stock markets reacted positively on Wednesday: in Shanghai, the benchmark index rose 2.7 percent, while the Hang Seng in Hong Kong rose 0.6 percent.
Elsewhere in the region, the Nikkei 225 in Tokyo nudged up 0.3 percent by lunch time and the Kospi in South Korea rose 1.8 percent.
By contrast, the market in Australia sagged 1.6 percent on unexpected news that the economy shrank a seasonally adjusted 0.5 percent from the previous quarter, the first contraction in eight years.
China Unicom Is Expected to Sell APPL iPhones
iPhones expected to be sold soon in China
By Joanne Chiu and Langi Chiang
Comments »BEIJING, March 4 (Reuters) – China Unicom (Hong Kong) Ltd (0762.HK) chairman Chang Xiaobing said on Wednesday the company was in talks with Apple Inc (AAPL.O) to introduce the iPhone to China.
“We are in talks with many handset suppliers, including Apple,” the chairman told reporters.
Rival China Mobile (0941.HK) was negotiating with Apple to sell the iPhone in China, but has so far not announced any agreement.
China Mobile chairman Wang Jianzhou also said on Wednesday his company would continue to talk to Apple and he would not comment on the discussions between China Unicom and Apple.
“3G users will account for 20 percent of all mobile phone users in China in the next three years,” Chang said on the sidelines of a meeting of the parliament’s advisory body.
Analysts said the possible Apple deal may not necessarily be an earnings catalyst for China Unicom given that the Apple brand is not particularly strong in China and there are various local copies of the product available in the market.
“iPhone copies (i.e. the Hi-Phone) are available without (users) having to sign long-term contracts,” JP Morgan analysts Jimmy Cheong and Tim Storey said in the note.
“iPhone is likely to be highly subsidised and China Unicom may give away large revenue share so earnings upside is possibly limited, in our view. We think this is a reason why China Mobile has refused to sign with Apple to date.”
Moreover, many people in China already use actual iPhones that have been brought in through private channels even though they have not been formally introduced in the country. (Additional reporting by Nerilyn Tenorio; Editing by Kirby Chien and Ken Wills)
Australia’s Economy Shrinks For the First Time in 8 Years and the Ausie Currency Tanks
Australia enters recession for the first time in two decades
Comments »March 4 (Bloomberg) — Australia’s economy unexpectedly shrank in the fourth quarter for the first time in eight years as exports and housing slumped, increasing pressure on the central bank to resume cutting interest rates.
Gross domestic product fell 0.5 percent from the third quarter, when it increased 0.1 percent, the Bureau of Statistics said in Sydney today. The median estimate of 23 economists surveyed by Bloomberg News was for 0.2 percent growth.
The nation’s currency dropped on concern Australia is now in its first recession in two decades. Central bank Assistant Governor Malcolm Edey, part of a board that slashed the benchmark interest rate by a record four percentage points to a 45-year low of 3.25 percent before pausing this week, said today the economy faces more “short-term weakness.”
“The downturn has arrived,” said David de Garis, a senior economist at National Australia Bank Ltd. in Sydney. “The global recession will bear down on Australia’s economy in 2009. There will be more Reserve Bank rate cuts later in the year.”
The Australian dollar dropped to 63.32 U.S. cents at 1:40 p.m. in Sydney from 63.78 cents before today’s report, taking the currency’s decline in the past 12 months to 32 percent. The benchmark S&P/ASX 200 stock index slid 1.4 percent, and is now down 15 percent this year after slumping 41 percent in 2008.
The Australian economy grew 0.3 percent in the fourth quarter from a year earlier to complete 17 years of expansion, today’s report showed. Economists tipped 1.2 percent growth.
Housing, Exports
Housing investment fell 1.2 percent, detracting 0.1 percentage points from growth in the quarter. Exports dropped 0.8 percent, cutting 0.2 percentage points from GDP. A rundown in inventories detracted 1.4 percentage points. Consumer spending made no contribution to growth, today’s report showed.
“There are no quick fixes to the global recession, and many of its effects are yet to be fully felt,” Treasurer Wayne Swan said in Canberra today.
To stoke household spending, the government distributed A$8.9 billion ($5.6 billion) in cash handouts in December, helping fuel a 3.8 percent surge in retail sales in that month. Prime Minister Kevin Rudd said last month he will spend another A$42 billion on infrastructure and bonuses to families.
The U.S. economy shrank at a 6.2 percent annual pace in the fourth quarter, the biggest contraction since 1982. Japan’s economy contracted at the fastest pace since the 1974 oil shock. Exports from China, Australia’s biggest trading partner, slumped 17.5 percent in January, the most in almost 13 years.
Economies in the U.K., Germany, France, Italy and Canada also contracted during the December quarter.
Most Asian Stocks Open Down, But Turn on Another Stimulus Package
Two advancing to one decliner occurs on new hopes of stimulus
Comments »March 4 (Bloomberg) — Most Asian stocks rose as optimism governments will widen efforts to bolster growth offset plunging U.S. auto sales and a contraction in Australia’s economy.
Aluminum Corp. of China Ltd. rose 4.4 percent in Shanghai as a former statistics chief said Premier Wen Jiabao will announce a new stimulus package tomorrow. Toyota Motor Corp., the world’s biggest carmaker, lost 2.6 percent in Tokyo after U.S. sales sank by a record last month. Commonwealth Bank of Australia slumped 2.8 percent in Sydney as the country’s economy shrank in the fourth quarter for the first time in eight years.
“We’re seeing some bright spots in China,” Pauline Dan, chief investment officer at Samsung Investment Trust Management Co. in Hong Kong, which oversees $61 billion. “Domestic consumption seems to be doing better given the government’s pump priming efforts.”
More than two stocks gained for each one that fell on the MSCI Asia Pacific Index, which added 0.1 percent to 71.92 at 12:47 p.m. Tokyo time. The gauge slumped 20 percent in 2009, extending last year’s record 43 percent tumble, as recessions in the world’s largest economies hurt earnings at exporters such as Toyota and Honda Motor Co.
