Home Loan Focus

Archive for the ‘Solutions for Mortgage Crisis’ Category

Maybe you have heard of this bill with the cute catch phrase.  It sounds like just the thing most of us need to get a little protection from banks that are trying to get back to profitable with our fees and interest charges fueling their way. 

Well don’t hold your breathe on this one. Sure its going to pass, but its not going to do you a bit of good.

Want to know why?  Read the last ‘Right’ in the provision.

The Credit Cardholders’ Bill of Rights:

1. Protects cardholders against arbitrary interest rate increases
2. Prevents cardholders who pay on time from being unfairly penalized 
3. Protects cardholders from due date gimmicks
4. Shields cardholders from misleading terms 
5. Empowers cardholders to set limits on their credit
6. Requires card companies to fairly credit and allocate payments 
7. Prohibits card companies from imposing excessive fees on cardholders
8. Prevents card companies from giving subprime credit cards to people who can’t afford them
9. Requires Congress to provide better oversight of the credit card industry
10. Contains NO rate caps, fee setting, or price controls

Yep, that’s right.  Your Credit Cardholder bill of rights, if it passes will not prevent banks from continuing to raise your rates sky high!  Sure, they may not be able to nickel and dime you to death, they won’t have to.  They can kill you with a bazooka of an interest rate.

Plus, this law will not be retroactive to say the first of the year or something.  All the banks have been rapidly raising rates and doing all of the things that this bill would block already, so that the changes will be in place before the law is ever signed.  They won’t be able to do these things in the future, but they won’t need to.  The damage will already be done.

What options does this leave you?

The only right you really have left to protect yourself from the credit card companies is either to not use a credit card or if its too late and you can’t pay them all off tomorrow, take a look at bankruptcy.

Yeah, I know.  Congress is really doing you a big favor with this.  Its called pandering.

For more info on this you can visit House Rep Maloney I’m not saying she’s a bad person, but I am saying that this bill of rights is more bill and too few rights.

While the Obama team and Secretary of Treasury Timothy Geithner have been very short on detailed plans they have been very thorough in ‘promising’ detailed plan almost every month.

Geithner was one of President Obama’s first nominees to get pushed through the pipeline after Obama himself took office in January.  Geithner and Obama were both very quick to promise detailed plans to instill confidence in Americans, the economy and the world.  They then promptly started to demonstrate that they had no such detailed plan to share.

Communications 101 teaches students to

1. Tell the audience what you will tell them
2. Tell them
3. Tell them what you told them.

The Obama Administration which seemed almost super human at communications before the election seems to have been infected with the same communications virus that plagued George W Bush, and it shows in their approach of:

1. Tell the audience what you will tell them
2. Don’t Tell them; watch things get worse
3. Tell the audience that you will tell them in two weeks
4. Don’t Tell them; watch things get worse
5. Tell the audience that you will tell them in two weeks
6. . . . .  ??????  Who knows what they will tell us next?

It is pretty obvious why consumer sentiment, investor sentiment and job approval numbers for Obama and Geithner are all dropping.  (People still like Obama, but don’t think he is doing well, which is also very similar to the effect that Bush had on America at one time.)

So when we are told that Geithner will once again tell us in a couple weeks about a detailed plan, I’m skeptical.  In fact, I’d suggest that if he does not provide a ‘real’ detailed plan in two weeks that he should be removed from office.  We do not have time for ineffective people to pander to us.

U.S. officials have pledged to push forward with a revamping of the rules governing the financial system as a necessary complement to emergency efforts to prop up the financial sector and pull the economy out of a deep recession. Geithner said he planned to roll out "a set of relatively detailed concrete proposals" on regulatory reform prior to testifying on the issue before a House of Representatives panel on March 26.

Geithner: Rules revamp needed to shield economy | Special Coverage | Reuters

Below is a text version of the Homeowner Affordability & Stability Plan.  You can download the pdf version from treasury website.

 

Homeowner Affordability and Stability Plan Fact Sheet

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country. Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance to lower mortgage rates. Meanwhile, millions of workers have lost their jobs or had their hours cut, and are now struggling to stay current on their mortgage payments. As a result, as many as 6 million families are expected to face foreclosure in the next several years, with millions more struggling to stay current on their payments.

The present crisis is real, but temporary. As home prices fall, demand for housing will increase, and conditions will ultimately find a new balance. Yet in the absence of decisive action, we risk an intensifying spiral in which lenders foreclose, pushing home prices still lower, reducing the value of household savings, and making it harder for all families to refinance. In some studies, foreclosure on a home has been found to reduce the prices of nearby homes by as much as 9 percent – creating the potential that even borrowers who make every payment suffer from an increase in foreclosures in their community.

The Obama Administration’s Homeowner Affordability and Stability Plan will offer assistance to as many as 7 to 9 million homeowners making a good-faith effort to stay current on their mortgage payments, while attempting to prevent the destructive impact of foreclosures on families and communities. It will not provide money to speculators, and it will target support to the working homeowners who have made every possible effort to stay current on their mortgage payments. Just as the American Recovery and Reinvestment Act works to save or create several million new jobs and the Financial Stability Plan works to get credit flowing, the Homeowner Affordability and Stability Plan will support a recovery in the housing market and ensure that these workers can continue paying off their mortgages.

By supporting low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac, providing up to 4 to 5 million homeowners with new access to refinancing and enacting a comprehensive stability initiative to offer reduced monthly payments for up to 3 to 4 million at-risk homeowners, this plan – which draws off the best ideas developed within the Administration, as well as from Congressional housing leaders and Federal Deposit Insurance Corporation Chair Sheila Bair – brings together the government, lenders and borrowers to share responsibility towards ensuring working Americans can afford to stay in their homes.

Homeowner Affordability and Stability Plan

1. Refinancing for Responsible Homeowners Suffering From Falling Home Prices

2. A Comprehensive $75 Billion Homeowner Stability Initiative

• A Loan Modification Plan To Reach 3 to 4 Million Homeowners
• Shared Effort with Lenders to Reduce Interest Payments
• Incentives to Servicers and Borrowers
• Clear and Consistent Guidelines for Loan Modifications
• Required Participation By Financial Stability Plan Participants
• Modifications of Home Mortgages During Bankruptcy
• Strengthen Hope for Homeowners and Other FHA Loan Programs
• Support Local Communities and Help Displaced Renters

3. Support Low Mortgage Rates by Strengthening Confidence in Fannie Mae and Freddie Mac

1. Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices:

• Provide the Opportunity for Up to 4 to 5 Million Responsible Homeowners Expected to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time securing refinancing. (For example, if a borrower’s home was worth $200,000, he or she would have limited refinancing options if he or she owed more than $160,000.) Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will provide the opportunity for 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Freddie Mac and Fannie Mae to refinance through the two institutions over time.
• Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year. For example, consider a family that took a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2. A $75 Billion Homeowner Stability Initiative to Prevent Foreclosures and Help Responsible Families Stay in Their Homes: The Treasury Department, working with the GSEs, FHA, the FDIC and other federal agencies, will undertake a comprehensive multi-part strategy to prevent millions of foreclosures and help families stay in their homes. This strategy includes the following five features:

• A Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
• Clear and Consistent Guidelines for Loan Modifications
• Requiring That Financial Stability Plan Recipients Use Guidance for Loan Modifications
• Allowing Judicial Modifications of Home Mortgages During Bankruptcy When A Borrower Has No Other Options
• Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
• Strengthening FHA Programs and Providing Support for Local Communities 2

A. A Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. In the current economy, in which 3.6 million jobs have been lost over the past 14 months, millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly if they received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative operates through a shared partnership to temporarily help those who commit to make reasonable monthly mortgage payments to stay in their homes, providing families with security and neighborhoods with stability. This plan will also help to stabilize home prices for homeowners in neighborhoods hardest hit by foreclosures. Based on estimates concerning the relationship between foreclosures and home prices, with the average house in the U.S. valued around $200,000, the average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the H
omeowner Stability Initiative.

Who the Program Reaches:

• Focusing on Homeowners At Risk: Anyone with high combined mortgage debt compared to income or who is “underwater” (with a combined mortgage balance higher than the current market value of his house) may be eligible for a loan modification. This initiative will also include borrowers who show other indications of being at risk of default. Eligibility for the program will sunset at the end of three years.
• Reaching Homeowners Who Have Not Missed Payments: Delinquency will not be a requirement for eligibility. Rather, because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
• Common Sense Restrictions: Only owner-occupied homes qualify; no home mortgages larger than the Freddie/Fannie conforming limits will be eligible. This initiative will go solely to supporting responsible homeowners willing to make payments to stay in their home – it will not aid speculators or house flippers.
• Special Provisions for Families with High Total Debt Levels: Borrowers with high total debt qualify, but only if they agree to enter HUD-certified consumer debt counseling. Specifically, homeowners with total “back end” debt (which includes not only housing debt, but other debt including car loans and credit card debt) equal to 55% or more of their income will be required to agree to enter a counseling program as a condition for a modification.

How the Program Works

• The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. This program will bring together lenders, servicers, borrowers, and the government, so that all stakeholders share inthe cost of ensuring that responsible homeowners can afford their monthly mortgage payments – helping to reach up to 3 to 4 million at-risk borrowers in all segments of the mortgage market, reducing foreclosures, and helping to avoid further downward pressures on overall home prices. The program has several key components:

i.Shared Effort to Reduce Monthly Payments: Treasury will partner with financial institutions to reduce homeowners’ monthly mortgage payments.

• The lender will have to first reduce interest rates on mortgages to a specified affordability level (specifically, bring down rates so that the borrower’s monthly mortgage payment is no greater than 38% of his or her income).
• Next, the initiative will match further reductions in interest payments dollar-for-dollar with the lender, down to a 31% debt-to-income ratio for the borrower.
• To ensure long-term affordability, lenders will keep the modified payments in place for five years. After that point, the interest rate can be gradually stepped-up to the conforming loan rate in place at the time of the modification. Note: Lenders can also bring down monthly payments to these affordability targets through reducing the amount of mortgage principal. The initiative will provide a partial share of the costs of this principal reduction, up to the amount the lender would have received for an interest rate reduction.

ii.“Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. Servicers will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.

iii.Responsible Modification Incentives: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include an incentive payment of $1,500 to mortgage holders and $500 for servicers for modifications made while a borrower at risk of imminent default is still current.

iv.Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time under the modified loan, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance on the mortgage loan. As long as the borrower stays current on his or her payments, he or she can get up to $1,000 each year for five years.

v.Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration — together with the FDIC — has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. This initiative provides lenders with the security to undertake more mortgage modifications by assuring that if home price declines are worse than expected, they have reserves to fall back on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index. These payments could be set aside as reserves, providing a partial guarantee in the event that home price declines – and therefore losses in cases of default – are higher than expected.

How It Will Be Effective

• Protecting Taxpayers: To protect taxpayers, the Homeowner Stability Initiative will focus on sound modifications. If the total expected cost of a modification for a lender taking into account the government payments is expected to be higher than the direct costs of putting the homeowner through foreclosure, that borrower will not be eligible. For those borrowers unable to maintain homeownership, even under the affordable terms offered, the plan will provide incentives to encourage families and lenders to avoid the costly foreclosure process and minimize the damage that foreclosure imposes on lenders, borrowers and communities alike. Moreover, Treasury will not provide subsidies to reduce interest rates on modified loans to levels below 2%.
• Counseling and Outreach to Maximize Participation: Under the plan, the Department of Housing and Urban Development will also make available funding for non-profit counseling agencies to improve outreach and communications, especially to disadvantaged communities and those hardest-hit by foreclosures and vacancies.
• Creating Proper Oversight and Tracking Data to Ensure Program Success: Fannie Mae and Freddie Mac will be responsible – subject to Treasury’s oversight and the Federal Housing Finance Agency’s conservatorship – for monitoring compliance by servicers with the program. Every servicer participating in the program will be required to report standardized loan-level data on modifications, borrower and property characteristics, and outcomes. The data will be pooled so the government and private sector can measure success and make changes where needed. Treasury will meet quarterly with the FDIC, the Federal Reserve, the Department of Housing and Urban Development and the Federal Housing Finance Agency to ensure that the program is on track to meeting its goals.
• Limiting the Impact of Foreclosure When Modification Doesn’t Work: Lenders will receive incentives to take alternatives to foreclosures, like short sales or taking of deeds in lieu of foreclosure. Treasury will also work with the GSEs to provide data on foreclosed properties to streamline the process of selling or redeveloping them, thereby ensuring that they do not remain vacant and unsold.

B.Clear and Consistent Guidelines for Loan Modifications: A lack of common standards has limited loan modific
ations, even when they are likely to both reduce the chance of foreclosure and raise the value of the securities owned by investors. Mortgage servicers – who should have an interest in instituting common-sense loan modifications – often refrain from doing so because they fear lawsuits. Clear and consistent guidelines for modifications are a key component of foreclosure prevention.

• Developing Clear and Consistent Guidelines for Loan Modifications: Working with the FDIC, other federal banking and credit union regulators, the FHA and the Federal Housing Finance Agency, the Administration is in process of developing guidelines for sustainable mortgage modifications for all federal agencies and the private sector – bringing order and consistency to foreclosure mitigation. The guidelines will include detailed protocols for loss mitigation as well for identifying borrowers at risk of default; the Administration expects to announce these guidelines by Wednesday, March 4th
• Applying Guidelines Across Government and the Private Sector: Treasury will develop uniform guidance for loan modifications across the mortgage industry by working closely with the FDIC and other bank agencies and building on the FDIC’s pioneering role in developing a systematic loan modification process last year. The Guidelines – to be posted online – will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture. In addition, these guidelines will apply to loans owned or serviced by insured financial institutions supervised by the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve, the Federal Deposit Insurance Corporation and the National Credit Union Administration.

C.Requiring All Financial Stability Plan Recipients to Use Guidance for Loan Modifications: As announced last week, the Treasury Department will require all Financial Stability Plan recipients going forward to participate in foreclosure mitigation plans consistent with Treasury’s loan modification guidelines.

D.Allowing Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options: The Obama administration will seek careful changes to personal bankruptcy provisions so that bankruptcy judges can modify mortgages written in the past few years when families run out of other options.

• How Judicial Modification Works: When an individual enters personal bankruptcy proceedings, his mortgage loans in excess of the current value of his property will now be treated as unsecured. This will allow a bankruptcy judge to develop an affordable plan for the homeowner to continue making payments. To receive judicial modifications in bankruptcy, homeowners must first ask their servicers/lenders for a modification and certify that they have complied with reasonable requests from the servicer to provide essential information. This provision will apply only to existing mortgages under Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don’t clog the bankruptcy courts.
• Bolster FHA and VA Authority to Protect Investors and Ensure Loan Modifications Occur: Legislation will provide the FHA and VA with the authority they need to provide partial claims in the event of bankruptcy or voluntary modification so that holders of loans guaranteed by the FHA and VA are not disadvantaged.

E.Strengthening FHA Programs and Providing Support for Local Communities

• Ease Restrictions in Federal Housing Administration Programs, Including Hope for Homeowners: The Hope for Homeowners program offers one avenue for struggling borrowers to refinance their mortgages. In order to ensure that more homeowners participate, the FHA will reduce fees paid by borrowers, increase flexibility for lenders to modify troubled loans, permit borrowers with higher debt loads to qualify, and allow payments to servicers of the existing loans.
• Strengthening Communities Hardest Hit by the Financial and Housing Crises: As part of the recovery plan signed by the President, the Department of Housing and Urban Development will award $2 billion in competitive Neighborhood Stabilization Program grants for innovative programs that reduce foreclosure. Additionally, the recovery plan includes an additional $1.5 billion to provide renter assistance, reducing homelessness and avoiding entry into shelters

3.Support Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

• Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
• Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
• Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
• Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
• Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
• Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
• No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.

The Obama administration has launched a new website to help people see how the recovery plan money is being spent.

You can find it at Recovery.gov.

Don’t get your hopes up though.  Currently there is no drill down option to actually see any details what so ever. 

Fortunately, even though the administration is unable to supply details (or plans) half as well as they can build new websites, they did provide a link to the actual pdf version of the final bill.

 

American Recovery & Reinvestment Act

 

FOR WORKERS, CONSUMERS AND RETIREES

• A "making work pay" refundable tax credit championed by President Barack Obama of up to $400 per individual and $800 for couples in 2009 and 2010. It is calculated at a rate of 6.2 percent of earned income and is phased out for individuals with adjusted incomes over $75,000 and couples with incomes over $150,000.
• A one-time payment of $250 to Social Security beneficiaries, railroad retirees and veterans receiving benefits from the Veterans Affairs department. State government retirees not eligible for Social Security would also get the $250 payment.
• Increases the earned income tax credit for low-income workers with three or more children.
• Increases eligibility for the refundable child tax credit to more low-income workers. The bill reduces the income floor to $3,000 in 2009 and 2010 from the current floor of $8,500.
• Provides a new $2,500 tax credit for college education expenses. The credit phases out for individuals earning more than $80,000 and couples with incomes over $160,000.
• Provides an $8,000 tax credit for first-time home buyers for homes purchased between Jan. 1 and Dec. 1, 2009. The tax credit phases out for individuals earning more than $75,000 and couples earning more than $150,000.
• Provides temporary relief from the alternative minimum tax for millions of middle-class taxpayers who otherwise would be ensnared by the tax originally meant for the very wealthy.

FOR BUSINESSES

• Allows small businesses with gross receipts of up to $15 million to write off 2008 losses against five previous tax years. Current laws allows a two-year carryback of losses.
• Businesses will also be allowed to immediately write off more of their investments in computers and other equipment.
• Businesses that repurchase debt at a lower amount than when it was issued will be able to defer taxes on it. Usually reduced or canceled debt is treated as income and taxed. The break applies to debt repurchased adjusted after Dec. 31, 2008, and before Jan. 1, 2011.
• Gives a tax break on capital gains from the sale of stock held in a small business for more than five years.
• The bill raises about $7 billion in revenues by repealing a Treasury Department decision last year to liberalize rules that were intended to prevent companies in a merger from taking huge tax breaks on losses of firms they were acquiring.

FOR STATE AND LOCAL GOVERNMENTS

• Creates a new category of tax-preferred bonds for investment in economic recovery zones for job training, education and economic development.
• Creates a new category of tax-preferred bonds for the construction, and repair of public schools and the purchase of land for schools.
• Creates a federal subsidy for state and local governments offering bonds that give investors credits against their federal taxes in place of interest payments.

FOR RENEWABLE ENERGY

• Extends tax breaks for wind facilities and other renewable energy facilities and provides other tax incentives to encourage development of renewable energy facilities.
• Authorizes an additional $1.6 billion of new clean renewable energy bonds as well as $2.4 billion of energy conservation bonds to finance state and local government projects to reduce greenhouse gas emissions.
• Extends tax credits for energy-efficient improvements to existing homes.
• Provides a tax credit for purchase of "plug-in" electric vehicles of at least $2,500. The credit is increased depending on the battery capacity of the car purchased.
• Provides a new 30 percent investment tax credit for facilities engaged in producing renewable energy technology and conservation. (Editing by Peter Cooney)

FACTBOX – Tax details of US stimulus plan released | Reuters

NASA was given $1 billion in the $789 billion stimulus bill approved by House and Senate conferees, including $400 million for its manned space program.

Compromise on stimulus bill gives NASA $1 billion | Front page | Chron.com – Houston Chronicle

Some of the Bad

Congressional negotiators on Wednesday cut from the $790 billion economic stimulus package provisions that would have enhanced protections for federal employees who report waste, fraud and abuse in government programs.

Senate strips protections for federal whistleblowers from stimulus bill (2/12/09) — www.GovernmentExecutive.com

Below is a text version of the Financial Stability Plan from Financial Stability.gov

FACT SHEET

FINANCIAL STABILITY PLAN

The Financial Stability Plan: Deploying our Full Arsenal to Attack the Credit Crisis on All Fronts. Today, our nation faces the most severe financial crisis since the Great Depression. It is a crisis of confidence, of capital, of credit, and of consumer and business demand. Rather than providing the credit that allows new ideas to flourish into new jobs, or families to afford homes and autos, we have seen banks and other sources of credit freeze up – contributing to and potentially accelerating what already threatens to be a serious recession. Restarting our economy and job creation requires both jumpstarting economic demand for goods and services through our American Recovery and Reinvestment Act and simultaneously ensuring through our new Financial Stability Plan that businesses with good ideas have the credit to grow and expand, and working families can get the affordable loans they need to meet their economic needs and power an economic recovery.

To address the financial crisis, the Financial Stability Plan is designed to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem. To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.

To protect taxpayers and ensure that every dollar is directed toward lending and economic revitalization, the Financial Stability Plan will institute a new era of accountability, transparency and conditions on the financial institutions receiving funds. To ensure that we are responding to this crisis as one government, Secretary Timothy Geithner — working in collaboration and joined by Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Bair, Office of Thrift Supervision Director John Reich and Comptroller of the Currency John Dugan – is bringing the full force and full range of financial tools available to cleaning up lingering problems in our banking system, opening up credit and beginning the process of financial recovery.

Financial Stability Plan 1. Financial Stability Trust A Comprehensive Stress Test for Major Banks Increased Balance Sheet Transparency and Disclosure Capital Assistance Program 2. Public-Private Investment Fund ($500 Billion – $1 Trillion) 3. Consumer and Business Lending Initiative (Up to $1 trillion) 4. Transparency and Accountability Agenda – Including Dividend Limitation 5. Affordable Housing Support and Foreclosure Prevention Plan 6. A Small Business and Community Lending Initiative

FINANCIAL STABILITY PLAN

1. Financial Stability Trust: A key aspect of the Financial Stability Plan is an effort to strengthen our financial institutions so that they have the ability to support recovery. This Financial Stability Trust includes:

a. A Comprehensive Stress Test: A Forward Looking Assessment of What Banks Need to Keep Lending Even Through a Severe Economic Downturn: Today, uncertainty about the real value of distressed assets and the ability of borrowers to repay loans as well as uncertainty as to whether some financial institutions have the capital required to weather a continued decline in the economy have caused both a dramatic slowdown in lending and a decline in the confidence required for the private sector to make much needed equity investments in our major financial institutions. The Financial Stability Plan will seek to respond to these challenges with:

• Increased Transparency and Disclosure: Increased transparency will facilitate a more effective use of market discipline in financial markets. The Treasury Department will work with bank supervisors and the Securities and Exchange Commission and accounting standard setters in their efforts to improve public disclosure by banks. This effort will include measures to improve the disclosure of the exposures on bank balance sheets. In conducting these exercises, supervisors recognize the need not to adopt an overly conservative posture or take steps that could inappropriately constrain lending.
• Coordinated, Accurate, and Realistic Assessment: All relevant financial regulators — the Federal Reserve, FDIC, OCC, and OTS — will work together in a coordinated way to bring more consistent, realistic and forward looking assessment of exposures on the balance sheet of financial institutions..
• Forward Looking Assessment – Stress Test: A key component of the Capital Assistance Program is a forward looking comprehensive “stress test” that requires an assessment of whether major financial institutions have the capital necessary to continue lending and to absorb the potential losses that could result from a more severe decline in the economy than projected.
• Requirement for $100 Billion-Plus Banks: All banking institutions with assets in excess of $100 billion will be required to participate in the coordinated supervisory review process and comprehensive stress test.

b. Capital Assistance Program: While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive “stress test” will have access to a Treasury provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private capital. While most banks have strong capital positions, the Financial Stability Trust will provide a capital buffer that will: Operate as a form of “contingent equity” to ensure firms the capital strength to preserve or increase lending in a worse than expected economic downturn. Firms will receive a preferred security investment from Treasury in convertible securities that they can convert into common equity if needed to preserve lending in a worse-than-expected economic environment. This convertible preferred security will carry a dividend to be specified later and a conversion price set at a modest discount from the prevailing level of the institution’s stock price as of February 9, 2009. Banking institutions with consolidated assets below $100 billion will also be eligible to obtain capital from the CAP after a supervisory review.

c. Financial Stability Trust: Any capital investments made by Treasury under the CAP will be placed in a separate entity – the Financial Stability Trust – set up to manage the government’s investments in US financial institutions.

2. Public-Private Investment Fund: One aspect of a full arsenal approach is the need to provide greater means for financial institutions to cleanse their balance sheets of what are often referred to as “legacy” assets. Many proposals designed to achieve this are complicated both by thei
r sole reliance on public purchasing and the difficulties in pricing assets. Working together in partnership with the FDIC and the Federal Reserve, the Treasury Department will initiate a Public-Private Investment Fund that takes a new approach.

• Public-Private Capital: This new program will be designed with a public-private financing component, which could involve putting public or private capital side-by-side and using public financing to leverage private capital on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion.
• Private Sector Pricing of Assets: Because the new program is designed to bring private sector equity contributions to make large-scale asset purchases, it not only minimizes public capital and maximizes private capital: it allows private sector buyers to determine the price for current troubled and previously illiquid assets

3. Consumer & Business Lending Initiative – Up to $1 Trillion: Addressing our credit crisis on all fronts means going beyond simply dealing with banks. While the intricacies of secondary markets and securitization – the bundling together and selling of loans – may be complex, they account for almost half of the credit going to Main Street as well as Wall Street. When banks making loans for small businesses, commercial real estate or autos are able to bundle and sell those loans into a vibrant and liquid secondary market, it instantly recycles money back to financial institutions to make additional loans to other worthy borrowers. When those markets freeze up, the impact on lending for consumers and businesses – small and large – can be devastating. Unable to sell loans into secondary markets, lenders freeze up, leading those seeking credit like car loans to face exorbitant rates. Between 2006 and 2008, there was a net $1.2 trillion decline in securitized lending (outside of the GSEs) in these markets. That is why a core component of the Financial Stability Plan is:

• A Bold Expansion Up to $1 Trillion: This joint initiative with the Federal Reserve builds off, broadens and expands the resources of the previously announced but not yet implemented Term Asset-Backed Securities Loan Facility (TALF). The Consumer & Business Lending

4  Initiative will support the purchase of loans by providing the financing to private investors to help unfreeze and lower interest rates for auto, small business, credit card and other consumer and business credit. Previously, Treasury was to use $20 billion to leverage $200 billion of lending from the Federal Reserve. The Financial Stability Plan will dramatically increase the size by using $100 billion to leverage up to $1 trillion and kick start lending by focusing on new loans.

• Protecting Taxpayer Resources by Limiting Purchases to Newly Packaged AAA Loans: Because these are the highest quality portion of any security — the first ones to be paid — we will be able to best protect against taxpayer losses and efficiently leverage taxpayer money to support a large flow of credit to these sectors.
• Expand Reach – Including Commercial Real Estate: The Consumer & Business Lending Initiative will expand the initial reach of the Term Asset-Backed Securities Loan Facility to now include commercial mortgage-backed securities (CMBS). In addition, the Treasury will continue to consult with the Federal Reserve regarding possible further expansion of the TALF program to include other asset classes, such as non-Agency residential mortgage-backed securities (RMBS) and assets collateralized by corporate debt.

4. New Era of Transparency, Accountability, Monitoring and Conditions: A major and legitimate source of public frustration and even anger with the initial deployment of the first $350 billion of EESA funds was a lack of accountability or transparency as to whether assistance was being provided solely for the public interest and a stronger economy, rather than the private gain of shareholders, bondholders or executives. Going forward, the Financial Stability Plan will call for greater transparency, accountability and conditionality with tougher standards for firms receiving exceptional assistance. These will be the new standards going forward and are not retroactive. These stronger monitoring conditions were informed by recommendations made by formal oversight groups – the Congressional Oversight Panel, the Special Inspector General, and the Government Accountability Office — as well as Congressional committees charged with oversight of the banking system.

a. Requiring Firms to Show How Assistance from Financial Stability Plan Will Expand Lending: The core of the new monitoring requirement is to require recipients of exceptional assistance or capital buffer assistance to show how every dollar of capital they receive is enabling them to preserve or generate new lending compared to what would have been possible without government capital assistance.

• Intended Use of Government Funds: All recipients of assistance must submit a plan for how they intend to use that capital to preserve and strengthen their lending capacity. This plan will be submitted during the application process, and the Treasury Department will make these reports public upon completion of the capital investment in the firm.
• The Impact on Lending Requirement: Firms must detail in monthly reports submitted to the Treasury Department their lending broken out by category, showing how many new loans they provided to businesses and consumers and how many asset-backed and mortgage-backed securities they purchased, accompanied by a description of the lending environment in the communities and markets they serve. This report will also include a comparison to their most rigorous estimate of what their lending would have been in the absence of government support. For public companies, similar reports will be filed on an 8K simultaneous with the filing of their 10-Q or 10-K reports. Additionally, the Treasury Department will – in collaboration with banking agencies – publish and regularly update key metrics showing the impact of the Financial Stability Plan on credit markets. These reports will be put on the Treasury FinancialStability.gov website so that they can be subject to scrutiny by outside and independent experts.
• Taxpayers’ Right to Know: All information disclosed or reported to Treasury by recipients of capital assistance will be posted on FinancialStability.gov because taxpayers have the right to know whether these programs are succeeding in creating and preserving lending and financial stability.

b. Committing Recipients to Mortgage Foreclosure Mitigation: All recipients of capital investments under the new initiatives announced today will be required to commit to participate in mortgage foreclosure mitigation programs consistent with guidelines Treasury will release on industry standard best practices.

c. Restricting Dividends, Stock Repurchases and Acquisitions: Limiting common dividends, stock repurchases and acquisitions provides assurance to taxpayers that all of the capital invested by the government under the Financial Stability Trust will go to improving banks’ capital bases and promoting lending. All banks that receive new capital assistance will be:

• Restricted from Paying Quarterly Common Dividend Payments in Excess Of $0.01 Until the Government Investment Is Repaid: Banks that receive exceptional assistance can only pay $0.01 quarterly. That presumption will be the same for firms that receive generally available capital unless the Treasury Department and their primary regulator approve more based on their assessment that it is consistent with reaching their capital planning objectives.
• Restricted from Repurchasing Shares: All banks that receive funding from the new Capital Assistance Program are restricted from repurchasing any privately-held shares, subject to approval by the Treasury Department and their primary regulator, until the government’s investment is repaid.
• Restricted from Pursuing Acquisitions: All banks that receive capital assistance are restricted from pursuing cash acquisitions of healthy firms until the government investment is repaid. Exceptions will be made for explicit supervisor-approved restructuring plans.

d. Limiting Executive Compensation: Firms will be required to comply with the senior executive compensation restrictions announced February 4th, including those pertaining to a $500,000 in total annual compensation cap plus restricted stock payable when the government is getting paid back, “say on pay” shareholder votes, and new disclosure and accountability requirements applicable to luxury purchases.

e. Prohibiting Political Interference in Investment Decisions: The Treasury Department has announced measures to ensure that lobbyists do not influence applications for, or disbursements of, Financial Stability Plan funds, and will certify that each investment decision is based only on investment criteria and the facts of the case.

f. Posting Contracts and Investment Information on the Web: The Treasury Department will post all contracts under the Financial Stability Plan on FinancialStability.gov within five to 10 business days of their completion. Whenever Treasury makes a capital investment under these new initiatives, it will make public the value of the investment, the quantity and strike price of warrants received, the schedule of required payments to the government and when government is being paid back. The terms of pricing of these investments will be compared to terms and pricing of recent market transactions during the period the investment was made, if available.

5. Housing Support and Foreclosure Prevention: There is bipartisan agreement today that stemming foreclosures and restructuring troubled mortgages will help slow the downward spiral harming financial institutions and the real American economy. Many Congressional leaders, housing advocates, and ordinary citizens have been disappointed that the Troubled Asset Relief Program was not aimed at ending the foreclosure crisis. We will soon be announcing a comprehensive plan that builds on the work of Congressional leaders and the FDIC. Among other things, our plan will:

• Drive Down Overall Mortgage Rates: The Treasury Department and the Federal Reserve remain committed to expand as necessary the current effort by the Federal Reserve to help drive down mortgage rates – freeing up funds for working families – through continuation of its efforts to spend as much as $600 billion for purchasing of GSE mortgage-backed securities and GSE debt.
• Commit $50 Billion to Prevent Avoidable Foreclosures of owner-occupied middle class homes by helping to reduce monthly payments in line with prudent underwriting and long-term loan performance.
• Help Bring Order and Consistency to the various efforts to address the foreclosure crisis by establishing loan modification guidelines and standards for government and private programs.
• Require All Financial Stability Plan Recipients to Participate in Foreclosure Mitigation Plans consistent with Treasury guidance.
• Build Flexibility into Hope for Homeowners and the FHA to enable loan modifications for a greater number of distressed borrowers.

6. Small Business and Community Lending Initiative: Few aspects of our current financial crisis have created more justifiable resentment than the specter of hard-working entrepreneurs and small business owners seeing their companies hurt and even bankrupt because of a squeeze on credit they played no role in creating. Currently, the increased capital constraints of banks, the inability to sell

SBA loans on the secondary market and a weakening economy have combined to dramatically reduce SBA lending at the very time our economy cannot afford to deny credit to any entrepreneur with the potential to create jobs and expand markets. Further adding to this frustration is the sense that community banks – which still engage in relationship lending that serves their local communities — have been overlooked not just during this crisis, but over the last several years.
Over the next several days, President Obama, the Treasury Department and the SBA will announce the launch of a Small Business and Community Bank Lending Initiative: This effort will seek to arrest the precipitous decline in SBA lending – down 57 percent last quarter from the same quarter a year earlier for the flagship 7(a) loans through:

• Use of the Consumer &Business Lending Initiative to finance the purchase of AAA-rated SBA loans to unfreeze secondary markets for small business loans.
• Increasing the Guarantee for SBA Loans to 90%: The Administration is seeking to pass in the American Recovery and Reinvestment Act an increase in the guarantee of SBA loans from as low as 75% to as high as 90%.
• Reducing Fees for SBA 7(a) and 504 Lending and Provide Funds for Both Oversight and Speedier and Less Burdensome Processing of Loan Applications.

I just listened to Treasury Secretary Geithner give the much anticipated ‘Comprehensive Plan’ for the bailout (2.0) of the mortgage and financial sector.

Below is an outline of the high points taken live during the speech.  They can be analyzed and corrected as text copies come out, but I wanted to share this right away.

At a high level the plan will cost $1 trillion (this is on top of the previous $800 billion spent and the current bailout bill of $800 billion, so we are talking $2.6 trillion mentioned, even though the costs of the first bailout actually tallied up closer to $2 trillion all by itself.  If we consider the interest on that spend and apply that to this one, within 3 months the combined two plans will have cost us $6 trillion and growing rapidly!)

NO PLAN FOR MORTGAGES AND REAL ESTATE

So the most important aspect of this plan is that it actually is NOT COMPREHENSIVE.  To show you how obviously it misses the point, it has no housing and foreclosure relief plan yet. 

He plans to make that plan for housing and foreclosure.  My question, is why in the world did he not build this plan already.

Wall Street is down 305 points for the day and 215 points since the speech started because there are NO details in the plan.

• Treasury, FDIC, Federal Reserve will work together and sit down together to figure out and model the problems at the banks
• Prepared to commit up to $1 trillion dollars – $500 billion out of the gate
• New framework of oversight
• Americans will see where tax dollars are going
• returns on investment
• how it is spent at banks that receive investments
• financialstability.gov
• 3 New Programs to strengthen Banks
• require banking institutions to go through stress tests
• get cleaner & stronger balance sheets
• bring together all agencies over banks
• assess their potential to suceed
• Establish a Public-Private Investment fund
• provide financing that private markets cannot provide
• private capital and private financial managers will price this out
• THEY  ARE STILL DESIGNING THIS PROGRAM
• WILL START WITH $500 BILLION
• Trying to kick start consumer lending
• Built on Federal Reserve’s Asset Backed Loan Program from last fall
• student loans
• consumer loans
• auto finance
• make it easier for small businesses easier to get loans
• Comprehensive Home Owner Plan
• “our government should have moved more forcefully to contain damage”
• Details to be announced in the next few weeks
• Goal
• bring down mortgage interest rates
• bring down payments

In case you failed to pick up on the news this weekend, the Treasury Department is bailing out Freddie Mac and Fannie Mae.  This is not something that the Treasury Department really wanted to do at all. Sec. Paulson had hoped that simply telling investors that the federal government was willing to back these organizations would be enough for people to remain content that they are safe institutions.

Unfortunately the federal government learned this week that the accounting within these companies had some errors. Accounting errors are not something that breed any type of ease or content in an investor. In fact it’s something that can lead to the rapid evacuation of investors from any company, let alone one that’s already lost billions due to bad underwriting and investments. Throwing some shoddy bookkeeping into the mix is only going to add fuel to the fire and this helps to explain why the federal government had to step in and bail out these two institutions.

That said, I am currently not convinced that a bailout of these two institutions was necessary. It’s true that stockholders of these two companies will receive very very little for their investments if they receive anything at all. However it would appear that the federal government of the United States caved to foreign pressure to bail out these companies as several large foreign investors held significant exposure to these companies. One of those large foreign investors was the country of China. I do not fully understand the ramifications of what would’ve taken place if these two companies have not been bailed out by the federal government. However, I do know that when you enable an investor to invest in a company without having to worry about the repercussions, you are not fostering a healthy market. By enabling China to invest in Freddie Mac and Fannie Mae without any risk of loss, we are not creating a situation whereby a free economy can benefit. We’ve essentially given a risk free investment to China at a cost to taxpayers of hundreds of billions of dollars, and that can’t be too good for the economy either.

You can always find great deals and even one or two situations where you will find the best buy on electronics item at buy.com, but purchasing those products made in China at a good discount is a great deal different than enabling the entire country of China to gamble in the markets and give them their money back even when they lose substantially. I do understand that the people of the United States are not without some blame in this situation, however we do not enter into this situation by ourselves, and the banks and investors including the country of China are partly to blame. So when the United States government representing the people of the United States decides to foot the bill for a mistake made by the country of China, something smells a little fishy to me.

HSBC Finance is increasing the length of time that it gives homeowners with HSBC mortgages to get reorganized and get their debts back in balance.  That is in part because like many home owners, HSBC Finance can’t sell homes (even after foreclosure at foreclosure prices!) much better than your average home owners.

HSBC Finance, which typically holds its mortgages on its books, ended 2007 with 9,627 foreclosed properties, up from 8,809 at the end of the third quarter, company records show. While the average number of days to sell a foreclosed property has dipped from 186 to 183

Developments : HSBC’s Mortgage Modification Methods

People are staying in their existing home or more often opting for rental possibilities.  Many people still have the ability to pay monthly rates, and if the banks won’t given them credit, they would just as soon rent a place and get back to their jobs and life in general.  Why waist time trying to convince a mortgage broker that your credit can make the grade when your credit situation and income haven’t changed, but the metric for good credit and bad credit has changed.  Renters can resume their lives and spend all that extra time and money picking up good flight deals and traveling a bit while the mortgage industry sorts out its self made problems.

Freddie Mac is working to buy up mortgages totaling about the same amount as were foreclosed in California last year, $15 billion.

Freddie Mac is lending a jumbo hand to a group of major U.S. banks, offering to buy as much as $15 billion in mortgages that used to be too big for its program.

On Thursday, Freddie Mac (nyse: FRE – news - people ) said it would purchase home loans of up to $729,000 from lenders including Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual.
Freddie Mac Super-Sizes Its Program

This has been expected for a couple months now since the government cleared the way for Freddie Mac to take on these jumbo sized loans a process that mirrors a plan also allowing VA loan amounts to go higher as well.

In the past, a borrower that wanted to borrow more than $417,000 would have to get a primary mortgage for the first part of the mortgage up to that old max and then another for the amount over that paying a substantially higher interest rate.  Potentially, now Freddie Mac can make it easier for people to take out a loan or more importantly refinance with a federally backed loan as Freddie Mac now starts to purchase loans off the books of banks, enabling them theoretically to re-extend new credit to new borrowers.  That said, don’t run the printers out of ink yet, the big ‘if’ in this equation is the concept of re-extending the credit once the banks are bailed out by Freddie Mac.  It could be possible that Freddie Mac and the US government are just taking on bad loans from banks that could write good loans in the first place.