CORAL GABLES, Fla. – July 16, 2008 – Any way BankUnited Financial Corp. President Ramiro A. Ortiz slices the numbers, they don’t add up to the punishment the Coral Gables thrift’s shares have been taking in the stock market.Regional and national bank stocks were hammered Tuesday by investors spooked by the failure of Pasadena-based IndyMac Bancorp; problems at Fannie Mae and Freddie Mac, which hold or guarantee almost half of the country’s mortgages; and the continuing gloom hanging over the housing and credit markets.BankUnited stock closed at 43 cents a share. A year ago, it traded at more than $20 – two years ago, it was above $30 a share. Fort Lauderdale-based BankAtlantic Bancorp’s stock also sank to just under $1, down from almost $9 last July and above $14 a share two years ago.“What’s critical is to stop the panic,” Ortiz said. “We are very well-capitalized. We don’t have subprime loans; we don’t have raw land exposure; 40 percent of our mortgages have mortgage insurance.”The year-old credit crunch and the government’s inability to halt the decline have eaten away at confidence in the financial sector. Adding to the pessimism: Many banks are releasing second-quarter earnings this week. The numbers in some cases aren’t expected to be good, raising fears of bank failures.While Federal Deposit Insurance Chairwoman Sheila Bair acknowledged some banks would fail, she said she didn’t expect the number to be large. “The banking system as a whole is absolutely safe,” Bair said in an interview on CBS.The FDIC was created in 1933 to prevent a repeat of the Depression by offering deposit insurance to ward off large-scale bank failures.On Monday, a list of troubled regional banks circulated on Wall Street that included a company that holds stock in BankAtlantic Bancorp. But BankAtlantic took issue with the report by Ladenburg Thalmann analyst Richard X. Bove, calling it “erroneous.”“Our losses in our $2 billion residential portfolio are minimal, and yet, because we have a large portfolio, people think the worst,” said BankAtlantic Bancorp Chairman Alan B. Levan.With $6 billion in assets, BankAtlantic is one of the largest financial institutions headquartered in Florida, while BankUnited’s $14.3 billion in assets makes it the largest banking institution based in the state. Sinking stocks at the two Florida banks mean losses for shareholders but do not directly affect the banks’ operations. Ortiz and Levan said there was little they could do but weather the storm.Regional banks aren’t the only ones under pressure. An Oppenheimer Co. analyst Tuesday downgraded Wachovia, one of the nation’s largest banks, calling the outlook for shareholders “bleak” because the bank’s mortgage portfolio will continue to lose value and strain the institution’s ability to generate earnings.Holding high levels of capital is key to bank health in bad times, and even the Ladenburg Thalmann report conceded that most regional banks have the capital to protect them against crushing losses. In addition, deposits up to $100,000 are all federally insured by the FDIC.In a move to stabilize the markets, the Securities and Exchange Commission issued a 30-day emergency order Tuesday, tightening the rules on the most speculative type of short sales – essentially negative bets on stock prices – when trading shares of Fannie Mae, Freddie Mac and big brokerage firms. Fannie Mae and Freddie Mac, both quasi-government institutions, have lost some 70 percent of their value this year.Meanwhile, police were dispatched Tuesday to quell IndyMac customers – waiting in line to withdraw their money at branches in suburban Encino and Northridge, northwest of downtown Los Angeles – after they became irate when others tried to cut in front of them on the second day of the failed institution’s federal takeover.Some analysts and bankers blamed the IndyMac failure on comments from Sen. Charles Schumer, D-N.Y., who publicly questioned the health of the thrift in June.“Confidence is such an important thing,” said Miami banking analyst Kenneth Thomas. “Problems can occur to a good bank if there is a liquidity run.”Peter Morici, a business professor at the University of Maryland, said there should have been better oversight.“If the banks had been better supervised, we wouldn’t have the credit crisis that we have,” he said.“It will take a long time to unwind this mess,” Morici said. “The regional banks, if they don’t have real estate loans and they don’t have bad mortgages, they should be OK.”Copyright © 2008 The Miami Herald; Jane Bussey. Distributed by McClatchy-Tribune Information Services. This report was supplemented with material from The Associated Press and Los Angeles Times.
Contact Eddie La Rosa at 305-968-8397 or via email at eddie@eddielarosa.com to discuss this topic. Eddie will be happy to talk to you! If you know of anyone who would be interested in this article, let them know about Eddie.
Find a Home Featured Homes Open Houses Dining Guide Gallery Guide Marketing Plan Testimonials
LOS ANGELES – July 16, 2008 – Doug Gylfe still can’t afford to buy a home in Torrance, Calif., despite a 23 percent drop in prices. And Congress isn’t helping.That’s the dilemma this week for the nation’s lawmakers and millions of Americans who are priced out of homeownership: any rescue policy to stem foreclosures could artificially prop up home prices and perpetuate the affordability crisis in many major cities coast to coast.“In spite of the downturn in the housing market ... affordability continues to be the No. 1 housing challenge,” said Rachel Drew, research analyst at Harvard University’s Joint Center for Housing Studies.In Torrance, the coastal city 16 miles south of Los Angeles where Gylfe lives, the median home price in his Zip code has fallen from a peak of $830,000 two years ago to $636,000. But that’s still twice what Gylfe can afford on his salary as a real estate appraiser.“I’ve lived here since I was about 10 years old, so I really like it,” said Gylfe, 53. “I would stay here in a heartbeat if I could afford something.”Lawmakers, however, appear more focused on the negative economic consequences of falling home prices than the benefits.Congress is, in a way, facing a real estate Hydra: declining home prices, rising foreclosures, tighter lending standards, higher interest rates, and industry layoffs. Yet while trying protect the economy and honest homeowners who were suckered into bad loans, Congress may cut off one of the serpent’s heads, only to see two grow back.“It’s very difficult, from a practical perspective, to implement policy prescriptions that are (metro) focused,” said Sam Chandan, chief economist for Reis Inc., a New York-based real estate research firm.And while most economists agree the imminent threat to the economy and financial system are great, Edward Leamer says, “The folks who sat on the sidelines, they should feel legitimately annoyed that the more speculative folks who bought homes they couldn’t afford are going to be bailed out or helped by the federal government.”Leamer, a senior economist at the University of California, added, “And these other folks (who) acted responsibly and didn’t get in over their heads and decided they didn’t want to buy the home, they’re not getting any benefit.”This week, the House and Senate are patching together a bill for President George Bush’s signature that would let the Federal Housing Administration insure up to $300 billion in new loans to help struggling homeowners avoid foreclosure, among other initiatives.Lawmakers also are considering earmarking $3.9 billion in funding to help buy and rehabilitate foreclosed properties, giving first-time buyers a tax credit up to $8,000, and propping up mortgage giants Fannie Mae and Freddie Mac.The initiatives could help thousand of homeowners refinance their mortgages and avoid foreclosure, and sop up some of the bank-owned properties that are driving down home prices in some neighborhoods.But by supporting home prices, the government is also short-circuiting a correction in home values that some say is necessary to bring prices closer in line with incomes for most working-class families.The median price of an existing home peaked two years ago at $230,100. As of May, it had fallen about 9 percent to $208,600, according to the National Association of Realtors.The lower prices have helped make many real estate markets more affordable, but experts say they’re not deep enough in many major metro areas to narrow the affordability gap for policemen, teachers, nurses, restaurant, retail workers, and many other vital service jobs.“In many metropolitan markets, certainly in California, you can earn 120 percent of the median (income) and still not be able to find anything affordable or that’s in a reasonable commute distance,” said Barbara Lipman, research director of the Center for Housing Policy in Washington D.C. “There just isn’t a sufficient supply of housing for moderate-income people.”A report published by Homes for Working Families earlier this month forecast home prices could hit bottom in less than a year, ending up around 2004 levels.But “even after the market bottoms, you’re still not going to have quite the affordability that you had before the housing bubble took place,” said Andres Carbacho-Burgos, an economist with Moody’s Economy.com and co-author of the report.What makes a home affordable or not can vary quite a bit depending on the cost of financing, the size of down payment and other costs of living.The traditional benchmark is that housing costs shouldn’t exceed 28 percent of a household’s gross monthly income.Moody’s Economy.com study based its calculations on this threshold and assumed buyers would have a 30-year, fixed-rate mortgage for 85 percent of the home’s value.Strikingly, in nearly half of the 40 major metro areas studied, households earning 120 percent of the median income fell short of the affordability benchmark. San Francisco, Los Angeles, Miami and Stamford, Conn., were all in the top 10.Even for families earning well above the median income, affordability in some cities can still be a stretch.Courtney Lind and her husband have a combined income in the six figures. They’ve been biding their time to buy in Los Angeles for three years, but they want to buy before their second child is born in December.The Linds can afford up to a $500,000 home – above the median price for the county – but still short of what homes go for in the Los Angeles neighborhood where they rent.“We would love to stay here, but anything in our neighborhood is $600,000 or above,” said Lind, 33.In their price range, she said, they can get an 80-year-old fixer-upper, with about 1,000 square feet of space, and a very little yard on a busy street.Unless buyers like the Linds and Gylfe move to cheaper areas – usually with longer commutes – there’s little they can do but hope that market forces are stronger than Congressional intervention.Gylfe has set his sights on a suburb of Long Beach where home prices have plunged from the $500,000s to about $325,000 – just above his budget. He expects prices might slip into his range in a few months if they continue to decline.“It’s a nice area,” Gylfe said, but “it’s not nearly as nice as where I’ve always lived here in South Torrance.”Copyright 2008 The Associated Press, Alex Veiga (AP Business Writer). All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
WASHINGTON – July 16, 2008 – Key Republicans on Tuesday expressed skepticism about an emergency Treasury Department plan to bolster troubled mortgage giants Fannie Mae and Freddie Mac, defying President Bush and raising doubts on Wall Street about quick enactment.Fannie Mae and Freddie Mac shares took a bath in the markets Tuesday as some traders apparently concluded the cavalry – in the form of government help – might arrive too late to save their investments. Fannie Mae shares fell 27.3 percent to close at $7.07, while Freddie Mac was down 26 percent to close at $5.26.The shareholder-owned firms, which buy mortgages and resell them to investors as bonds, were created by Congress decades ago. Investors have been fleeing Fannie Mae and Freddie Mac as mortgage foreclosures rise and their positions weaken. The duo have holdings of about $5 trillion, and their regulator says they now have sufficient capital.Bush, in a news conference Tuesday, implored lawmakers to “move quickly” on a plan outlined Sunday night to back up the mortgage giants. The companies have indicated no immediate need, but the administration and the Federal Reserve seek authority to increase government credit to the companies and to invest.Democrats, who have been friendlier to the Bush plan, said they are on track to move it quickly. They may also be complicating passage by insisting on tying the proposal to a housing bill that has some provisions the White House opposes. Top House Republican leaders called for a hearing and debate on the proposals, which could take weeks.At a Senate Banking Committee hearing, Sen. Richard Shelby, R-Ala., said he was skittish about a plan that he said essentially gives the Treasury a “blank check.”Treasury Secretary Henry Paulson told the committee he has “no immediate plans” for lending or stock purchases and would intervene “only if necessary.”But Paulson doesn’t want Congress to set a specific dollar limit on potential Treasury actions. Vague, potentially large power is more potent for calming markets.“If you’ve got a squirt gun in your pocket, you probably will have to take it out,” Paulson said. “If you have a bazooka ... people know it, (so) you probably won’t have to.”Securities and Exchange Commission Chairman Chris Cox told the hearing he will use emergency power to limit short selling of Fannie Mae and Freddie Mac stock, which may be accelerating the share-price declines. Short selling, which involves trading borrowed stock, produces a profit when the price goes down.Copyright 2007 USA TODAY, a division of Gannett Co. Inc., Sue Kirchhoff
NEW YORK – July 16, 2008 – Mortgage insurers have been dramatically tightening their standards throughout the U.S., further squeezing potential home buyers.Stung by growing defaults, lenders are offering borrowers fewer ways to avoid purchasing private mortgage insurance. Mortgage insurance, required for buyers who are unable to make a full down payment or who have insufficient credit histories, reimburses lenders in the event of a borrower default. But over the past few months, mortgage insurers have been declaring more and more of the U.S. a “declining market,” raising the requirements and making such insurance harder to obtain. The result: another hurdle for home buyers, and yet another wrenching change for the struggling housing market.While it’s difficult to gauge the severity of the impact, industry executives concede insurers’ tighter standards are affecting the market. At ShoreBank Corp., a community-development bank with branches in Chicago, Cleveland and other cities, the insurers’ tighter standards are “wreaking havoc,” says Michelle Collins, director of mortgage lending. For a popular conventional loan package, “easily 70 percent of the previous set of borrowers will not be able to buy,” she adds.The spreading restrictions are a symptom not only of the housing and credit crisis but of the mortgage-insurance industry’s own huge losses. The insurers face massive borrower defaults on loans that were approved when securing a mortgage was far easier.Punished with continual downgrades by credit-rating agencies, mortgage insurers have been trying to shore up their stricken balance sheets. One large player, Triad Guaranty Inc., said last month that it would stop writing new insurance and gradually wind down its business. Radian Group Inc. announced management changes last week aimed at restoring investor confidence.Insurers add that they are pursuing the kind of more disciplined behavior that may have helped avert the housing crisis. “Clearly, the pendulum had swung a little too far in terms of flexibility in underwriting,” says Len Sweeney, chief risk officer for AIG United Guaranty, the mortgage-insurance unit of American International Group Inc. “Some of the movement we’ve made of late is back to a more prudent approach.”Michael Zimmerman, a spokesman for industry leader MGIC Investment Corp., says, “So far, we’re only losing the business that we no longer want to write. The long-term objective of anybody in the housing industry should not be just affordability but sustainability. I think for the last few years, the drive and the focus have been solely on affordability.”For a time, it seemed mortgage insurers were going the way of the dinosaur. During the housing boom, when lending standards loosened drastically, borrowers often avoided mortgage insurance by taking out two loans, one that covered 80 percent of the purchase price and a second, “piggyback” loan to cover the once-traditional down payment.But with piggyback loans all but vanished, prospective home buyers are facing more pressure to purchase mortgage insurance. The so-called “penetration rate,” which compares the balance of all loans covered by mortgage insurance with the balance of all mortgage loans underwritten during the same period, jumped from about 8.5 percent in early 2006 to about 20 percent in the fourth quarter of 2007, according to several insurers’ filings with the Securities and Exchange Commission. (The rate dropped to 13 percent in the first quarter as insurers increasingly focused on more credit-worthy borrowers.)This year, mortgage insurers have benefited from the growing number of loans being funded by Fannie Mae and Freddie Mac, the government-sponsored mortgage companies that require mortgage insurance on loans that don’t have a substantial down payment.But the crisis of confidence facing Fannie and Freddie raises major concerns about the pipeline of business flowing to mortgage insurers. “The U.S. housing market and the industry are very closely linked” with Fannie and Freddie, says AIG’s Mr. Sweeney. “The plan announced by the U.S. Treasury and the Federal Reserve should go a long way to reassure the credit markets and allow (Fannie and Freddie) to maintain their critical role in the nation’s economy.”If the insurers can’t keep up with the pace of failing loans they’ve promised to make whole, that would turn up the pressure on mortgage lenders, who could get stuck without insurance payments to offset their losses. “There were obviously a lot of products in the market that weren’t supportive of sustainable homeownership,” says Joanne Berkowitz, executive vice president of risk management and operations for mortgage insurer PMI Group Inc. The insurers say they will be able to pay the claims.To diminish their exposure, mortgage insurers have been defining an increasing number of markets as declining, based on housing starts, home sales and prices, unemployment and other factors. In areas where home prices are dropping, insurers bear greater risks, because a home now is more likely to bring too little at a foreclosure sale to pay off the loan.Nowadays, insurers are frequently requiring at least a 10 percent down payment, compared with previous standards that might have included a 3 percent to 5 percent down payment. Prices also are rising. Next month, for example, MGIC plans to charge an annualized premium of up to 0.75 percent of the loan balance for fixed-rate, 30-year mortgages with a 10 percent down payment, up from 0.67 percent this month. The company doesn’t plan to change course anytime soon. “Housing cycles don’t correct quickly,” says MGIC’s Mr. Zimmerman.Mortgage lenders and real-estate agents complain that insurers are painting the country with too broad a brush. For instance, the metropolitan area that includes Chicago, home to nearly eight million people, is designated a declining market by four of the top five insurers, even though home sales vary widely within the area.“To put this blanket overlay on my marketplace and say it’s all a declining market, it’s not true,” says David Hanna, managing partner of Prudential SourceOne Realty in Chicago. City neighborhoods such as Lincoln Park and Hyde Park, as well as affluent suburbs such as Hinsdale, still are seeing home prices appreciate, he says.Mr. Hanna points out that the declining-market tag has hit such unlikely transactions as a $1.1 million sale of a home in Wilmette, a well-to-do suburb. The buyer had to come up with an extra 5 percent down payment.In another case, a two-unit building in Chicago was ready to be sold to an investor for $449,000, when the required down payment again was boosted. The buyer still is trying to come up with the funds. It turned out that a different investor in that neighborhood had defaulted on seven properties, driving down comparable prices.Mr. Hanna says such circumstances should be taken into account. “Maybe one project, because of past history, you have issues, but you’re impacting literally thousands of other people,” he says.Mortgage insurers say the data they receive on home sales aren’t conclusive enough to be more precise in designating declining markets.Some mortgage brokers are turning instead to the Federal Housing Administration, whose more-lenient loan program requires only a 3 percent down payment. The government agency’s share of the mortgage market has grown to about 10 percent to 12 percent recently, compared with about 3 percent when private-sector loans were easiest to obtain.Yamila Ayad, president of Mission Home Loans in San Marcos, Calif., says business is growing for FHA loans on properties below $350,000. But some prospective buyers need bigger loans than the FHA offers or fail to qualify. “It’s either an FHA loan or a conventional buyer with 20 percent down,” she says. “There’s no in-between.”Meanwhile, government officials are growing concerned about the FHA taking on many loans that the private sector would refuse. On July 1, the FHA began charging higher premiums for riskier borrowers for the first time in its 74-year history.Copyright 2008 The Associated Press, Amy Merrick (The Wall Street Journal). All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Real estate professionals in some parts of the nation report increased interest in sale-leaseback deals, in which homeowners sell their properties to family members or investors and then rent them back from the new owners. The arrangement allows sellers to avoid foreclosure without moving, and it allows investors to wait for the market to rebound. However, all parties need to consider the tax consequences of a leaseback agreement; and relatives need to consider how their relationships will be affected if the lease payments are not made. Additionally, some experts note that cash-strapped homeowners might not even be able to afford the rent on these properties; and others point out that the homes often are no longer worth what the sellers originally paid for them.Source: Wall Street Journal (07/16/08) P. D3; Mincer, Jilian© Copyright 2008 INFORMATION, INC.
WASHINGTON – July 15, 2008 – For Roxanna Evans, the Fed’s new rules to crack down on abusive lending practices, approved Monday, came too late.Evans is facing foreclosure on a home she bought in Ohio several years ago but moved out after finding it was in a neighborhood where drugs and prostitution were rampant.In retrospect she contends that her mortgage lender, appraiser and real-estate agent were all working together to inflate the value of the home at her expense. “They all let me down,” she said.The Fed’s new plan will curb shady lending practices that have figured prominently in the housing crisis and propelled foreclosures like Evans’ to record highs.Lax lending standards during the heady days of the housing boom ended up burning the riskiest “subprime” borrowers – people with tarnished credit or low incomes – because they got loans they couldn’t afford or didn’t understand.“Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy,” said Fed Chairman Ben Bernanke.“Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower,” Bernanke added.For risky borrowers, the new rules will bar lenders from making loans without proof of a borrower’s income. The rules will require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.Lenders will also be restricted from penalizing risky borrowers who pay loans off early. Such “prepayment” penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can’t be imposed in the first two years of the mortgage.And, lenders would be barred from making a loan without considering a borrower’s ability to repay a home loan from sources other than the home’s value. The borrower need not have to prove that the lender engaged in a “pattern or practice” for this to be deemed a violation. That marks a change – sought by consumer advocates – from the Fed’s initial proposal and should make it easier for borrowers to lodge a complaint.Critics – including some Democrats on Capitol Hill, consumer groups and others – contend that the Fed’s failure to curb such lending practices years ago contributed to the mortgage meltdown.“It was a race to the bottom in lending standards,” said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business. Still, she believed the rules should protect people down the road – when the housing market gets back to health. “Memories are short,” she warned.For the more immediate term, the new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets.Also, some of the shady practices – along with some lenders – have not survived, felled by the mortgage meltdown. “The subprime market doesn’t really exist right now,” said Donald Kohn, the Fed’s vice chairman.Pava Leyrer, president of Heritage National Mortgage in Grand Rapids, Mich., said lenders already have tightened their standards. “I have people in my office every day. Their situation a year ago may have been completely different than it is now. I can’t find loans for them and they’re good borrowers.”The rules take effect on Oct. 1 – except for the escrow provisions, which take hold in April 2010.“A lot of people probably already thought these rules were in place but they weren’t,” said Jim Gaines, a research economist at Texas A&M University’s real-estate center.For all mortgages, the plan would require advertising to contain additional information about rates, monthly payments and other loan features, and it would curtail certain deceptive or misleading advertising practices.For instance, lenders are barred from advertising “fixed” rates or payments without making clear that the “fixed” rates last for only a limited period of time – not the life of the loan.Other practices also would be clamped down on. Companies servicing mortgages, for instance, have to credit a mortgage payment to the homeowner’s account on the day it is received. Consumer advocates said that’s important because they contend that some companies were holding on to payments so they became late and then people were hit with late fees.And, brokers and others are forbidden from “coercing or encouraging” an appraiser to misrepresent the value of a home.For now, the Fed decided not to ban incentive payments given to mortgage brokers – known as yield-spread-premiums. Critics say these payments give mortgage brokers the incentive to charge higher fees with no benefit to the consumer, while supporters say it’s a legitimate way for borrowers to spread out mortgage broker fees over the life of a loan.Lenders worry the rules could limit mortgage options for people and make it harder for some to obtain financing.Kieran Quinn, chairman of the Mortgage Bankers Association, called the rules a “thoughtful effort to tackle difficult concerns” and said they would be carefully reviewed. “MBA strongly believes that it is essential for credit not to be unduly restricted,” he said.Much will hinge on effective enforcement.The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions.Copyright 2008 The Associated Press, Jeannine Aversa (AP Economics Writer). All rights reserved. This material may not be published, broadcast, rewritten or redistributed. AP Business Writer Alan Zibel, Adrian Sainz and Ellen Simon contributed to this report.
WASHINGTON (AP) – July 15, 2008 – A foreclosure aid plan that was facing a sluggish trip through Congress has a powerful new engine behind it: the Bush administration’s urgent request to rescue mortgage giants Fannie Mae and Freddie Mac.Lawmakers have little choice but to give the government power to send a lifeboat to the two companies to prevent an election-year economy from drowning in mortgage defaults. The quicker they do it, the sooner 400,000 strapped homeowners could get new, cheaper loans instead of losing their homes.“The silver lining on this cloud is that it dissipates any question about how this bill is going to get passed,” Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, said of a broader housing package.The House approved its version in May and the Senate followed suit on Friday, but a veto threat from President Bush and lawmakers’ disputes over key details were threatening to sap its momentum.Now it’s clear the package – which also includes modernizing the Federal Housing Administration and creating a new regulator and tighter controls for Fannie Mae and Freddie Mac – has to move quickly. Frank said the House would act by Friday to resolve lingering differences and add authority for the government to prop up the mortgage giants if needed, in hopes that the Senate would agree and clear the measure for Bush next week.“I’m confident we’re going to get this done,” said Sen. Christopher J. Dodd, D-Conn., the Banking Committee chairman. “Unfortunately, these events over the last few days have probably increased the importance of this in the minds of some.”The administration, which has criticized key elements of the broad housing package, now has a powerful incentive to work out differences with Democratic leaders, who relish the prospect of claiming credit for a homeowner rescue plan just months before voters go to the polls.And holdout Republicans, including Minority Leader John A. Boehner of Ohio and Whip Roy Blunt of Missouri, will find it more difficult to bash a plan that includes measures their own president calls crucial.Shortly after Treasury Secretary Henry M. Paulson announced his plan to offer help to Fannie and Freddie, the two issued a statement saying they “stand ready” to work with him and congressional Democrats “to take appropriate steps to ensure the soundness of our mortgage markets.”“I think people understand the urgency of needing to get this (housing) bill done. And it’s fortunate that we have this vehicle to be able to tack this on,” said Dana Perino, a White House spokeswoman.Still, GOP conservatives concerned about the government sending aid to the private companies will likely try to slow the legislation. In a letter to Frank and House Speaker Nancy Pelosi, D-Calif., Rep. Jeb Hensarling, R-Texas, called for hearings.“We appreciate that our housing finance and capital markets are at a critical juncture due to scarce liquidity and waning investor confidence. However, given that a decision of this magnitude will affect the lives of each and every American for years, even decades, to come, it is essential that Congress fully consider these proposals and all the alternatives,” Hensarling wrote in a letter circulated Monday.Republicans have consistently bristled against the idea of allowing what they call a government bailout of irresponsible homeowners who borrowed more than they could afford and unscrupulous lenders who preyed on unwitting or reckless buyers.That’s how many of them describe the mortgage rescue plan, which allows the FHA to back an additional $300 billion in new mortgages so homeowners who can’t afford their payments and would normally be considered too financially risky to qualify could refinance into more affordable, fixed-rate loans. The program would guarantee some payoff for lenders who took substantial losses on the distressed loans, in many cases letting them recover more than they could in a costly foreclosure.Critics have struggled to explain their opposition to the plan in light of the government’s actions earlier this year to rescue failing investment bank Bear Stearns. Now, with the Federal Reserve and Treasury making it clear they would swoop in to offer similar help to Fannie and Freddie, the homeowner aid program appears to have gained more legitimacy.Frank argued Congress isn’t just handing out credit; it’s also moving to prevent a future market meltdown like the one officials are hoping to head off with the newly announced plan.“We are not simply making the credit available, we are simultaneously making sure it won’t happen again,” through stricter regulations on Fannie and Freddie and allowing more homeowners to borrow safely through the FHA rather than with shady subprime mortgages.Proponents of the housing package said the problems for the mortgage giants – whose stocks plummeted on investor fears about their financial health in light of their outsized role in the home loan market – shouldn’t interfere with their ability to pay for any losses from the homeowner rescue, as required by the bill.“There has been fear,” Dodd said. “But fear is not a fact, and the fact is Fannie and Freddie are in sound shape.”Lawmakers still must cut deals on key details, chief among them the limits governing the loans the companies may buy and the FHA may insure. The House places the cap around $730,000 while the Senate’s is at $625,000.The House will likely drop $3.9 billion from the Senate-passed bill for buying and rehabilitating foreclosed properties – the White House’s biggest gripe with the bill – which Democrats hope to tack on instead to a must-pass spending bill.Copyright © 2008 The Associated Press, Julie Hirschfeld Davis. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
PORT FOURCHON, La. – July, 15, 2008 – From his perch at the southern tip of Louisiana, port director Ted Falgout sees green: the color of money that comes from the nation’s busiest haven of offshore drilling.“It’s OK to have an ugly spot in your backyard,” Falgout says, “if that spot has oil coming out of it.”From her vantage point in Santa Barbara, Calif., a city known for beautiful beaches and wealthy residents, Mayor Marty Blum recalls black: the color of more than 3 million gallons of oil that flowed from a drilling rig blowout in 1969 and covered 35 miles of coastline with a thick layer of goo.“The people of Santa Barbara don’t want any more oil drilling. That’s just pretty plain,” she says. “But everybody’s got a price, and at a certain price per gallon, we’re all going to want more drilling.”Environmental hazard or energy bonanza: Oil and natural gas trapped beneath the USA’s ocean floor mean different things to different people. As gasoline soars beyond $4 a gallon, President Bush and his would-be Republican successor, John McCain, see a viable source of domestic production. Democrat Barack Obama and the nation’s environmentalists see a threat to pristine waters and beaches – and little help at the pump from offshore drilling.It’s a debate with a rising decibel level, thanks to an energy crisis fueled by rising demand halfway around the world.The United States consumes nearly one-fourth of the world’s oil but produces only about 10 percent. Its 1.76 billion-acre Outer Continental Shelf, which extends from about 3 to 200 miles offshore, is prime hunting ground.In 2006, a consortium led by Chevron proved that oil could be produced from a geological area about 175 miles from Louisiana that’s estimated to hold 3 billion to 15 billion barrels of oil.Since Congress imposed a moratorium on new drilling in 1981, most of the nation’s coastline has been off-limits – a type of ban that does not exist in countries such as Brazil and Norway, which have found large oil deposits offshore. As prices rise, polls show two-thirds of Americans favor new drilling for oil and gas.“The big discoveries are happening offshore,” says Robert Bryce, managing editor of Energy Tribune. “This is where the action is.”By most estimates, at least 18billion barrels of oil can be produced from areas that are off-limits, on top of 68 billion barrels in areas where drilling is allowed. The 18 billion barrels would be enough to fuel the country for 2 1/2 years.Randall Luthi, director of the Minerals Management Service, says the estimate is “extremely conservative, because it’s been 20 or 30 years since we’ve had the opportunity to look and see what’s there.”A tale of two coastsNo two places illustrate the two sides of the debate better than Louisiana and California, where much oil has been produced but much more lies below:• Louisiana has had offshore drilling since 1947. About 172 active rigs dot the Gulf of Mexico waters off the coast, producing about 79 percent of the oil and 72 percent of the natural gas that comes from drilling off the nation’s coastlines.The state gets about $1.5 billion annually in oil and gas revenue, a figure that will grow when it starts receiving part of oil companies’ royalty payments in 2017 under federal law.“It’s absolutely worth it,” says Garret Graves, head of the Governor’s Office of Coastal Activities.The biggest environmental impact has been the estimated 10,000 miles of canals dug by the oil and gas companies to transport oil and lay pipelines.The canals crisscross the coastal wetlands of Louisiana and have contributed to coastal erosion, says Mark Davis of Tulane University.Environmentalists say the canals and lack of marshland removed an important natural buffer against storms and amplified Hurricane Katrina’s damage.Offshore drilling also draws bustling ports, pipelines, petrochemical plants and other infrastructure that can disrupt natural coastal ecosystems.“Where you have oil and gas, you have petrochemical plants,” says Cynthia Sarthou of the Gulf Restoration Network. “I haven’t seen one come without the other.”• California was home to the first U.S. offshore oil production in 1896, from a wooden pier in Summerland. Today, it’s easy to spot oil rigs from coastal highways and the pricey seaside real estate that dots Santa Barbara County’s hillsides.There are 26 oil and gas drilling platforms off the Southern California coast and 1,500 active wells. Those in federal waters have produced more than 1 billion barrels of oil and 1.5 trillion cubic feet of natural gas since the 1960s, says John Romero of the Minerals Management Service.Since the 1969 spill, he says, they’ve spilled only 852 barrels of oil, the result of better technology and regulatory vigilance.Federal geologists, Romero says, estimate an additional 10 billion barrels of oil and 16 trillion cubic feet of natural gas are under the sea floor in areas where drilling is banned. But producers are mindful that, since 1969, public opinion has not been on their side.“Our industry has gotten a pretty clear message from the California public that, at least up until recently, there was not much interest in seeing new drilling off California,” says Joe Sparano, president of the Western States Petroleum Association.‘Oil and water don’t mix’Environmentalists see two basic problems from offshore drilling: pollution from everyday operations and oil spills from platforms, pipelines and tankers.On both fronts, they acknowledge, the industry has improved through the years.“Today’s technology is much better at routine drilling, at avoiding the kinds of seepages that were common a generation ago,” says Tyson Slocum of Public Citizen.Even so, there are still risks.When oil is brought up from beneath the ocean floor, other things are, too. Chemicals and toxic substances such as mercury and lead can be discharged back into the ocean.The water pumped up along with the oil may contain benzene, arsenic and other pollutants. Even the exploration that precedes drilling, which depends on seismic air guns, can harm sea mammals.“Basically, oil and water don’t mix,” says Melanie Duchin of the environmental group Greenpeace, who lives in Alaska and still sees pollution from the 11million-gallon Exxon Valdez spill of 1989, which supplanted Santa Barbara’s as the nation’s worst. “Oil smothers wildlife.”Government officials and industry specialists say improved technology and government oversight have made routine drilling safe.State and federal laws regulate how much of each chemical can be discharged into the water; most are at insignificant levels, according to the Minerals Management Service. The mercury that’s generated cannot be absorbed by fish tissue, officials say, avoiding the food chain.“The best fishing in the Gulf is where the rigs are,” says Rep. John Peterson, R-Pa., a leading proponent of offshore drilling.Spills from platforms have become far less frequent over recent decades, federal data show.A report by the National Research Council found that offshore oil and gas drilling was responsible for just 2 percent of the petroleum in North America’s oceans, compared with 63 percent from natural seepage and 22 percent from municipal and industrial waste. Coast Guard reports show that the amount of oil spilled in U.S. waters dropped from 3.6 million barrels in the 1970s to less than 500,000 in the 1990s.During Hurricanes Katrina and Rita in 2005, 115 oil platforms were toppled, but only insignificant amounts of oil spilled, says Roland Guidry, Louisiana’s oil spill coordinator.There was significant pollution – 8 million to 10 million gallons of oil spilled, mostly from tanks and pipelines on land and from tankers striking submerged drilling platforms – but less than 10 percent of that came from federal offshore operations.Today’s technology, such as automatic shutoff valves on the seabed floor and mechanical devices that can prevent blowouts caused by uncontrolled buildups of pressure, has greatly reduced the risk of oil spills.“Offshore drilling is the safest way to go,” Guidry says. “Those guys don’t spill oil.”Environmentalist Richard Charter of the Defenders of Wildlife Action Fund says smaller spills are still too common.“This is a dirty, polluting industry,” he says. “I’ve seen it with my own eyes, stepped in it with my own feet.”The biggest pollution risk involved in offshore drilling is in transporting the oil back to shore – by pipeline, barge or tanker.The 2002 National Research Council report found that marine transportation was responsible for one-third of worldwide petroleum spillage, about eight times the amount caused by drilling platforms and pipelines.Still, the Minerals Management Service projects about one oil spill per year of at least 1,000 barrels in the Gulf of Mexico over the next 40 years. Every three to four years, it says, a spill of at least 10,000 barrels can be expected.“If that hit a beach in western Florida once every four years, I think people would care,” says Michael Gravitz of Environment America. “Those communities live and die by having clean beaches.”Looking beyond the GulfBeyond environmental concerns, the central debate focuses on where to drill for more oil.Democrats in Congress, led by House Speaker Nancy Pelosi of California, say areas where drilling already is permitted should remain the bull’s eye. Only about 8 million of 43 million leased acres were producing oil in 2006. Nearly 80 percent of the oil estimated to be producible is within limits.Willard Green, past president of the American Association of Petroleum Geologists, says Democrats “are suggesting that there’s a great big lake of oil under that acreage, and all the companies have to do is dig a hole down and produce it.”Much of it, he says, lacks enough oil to make drilling economical. About 70 percent of the oil found in the Gulf last year was in deep water, where it’s more expensive to drill.The central and western Gulf “is an area that we’ve picked over a lot,” says Richard Ranger, senior policy adviser at the American Petroleum Institute.Some critics of offshore drilling say companies want to stockpile leases before Bush, a former oil company executive, leaves office. “They want to put inventory on the shelf,” Gravitz says.The nation’s coastal shelf runs from Maine to Texas and from California to Alaska, but geologists are most interested in untapped waters west of Florida and Southern California. Proponents of drilling also have hopes for the northern Atlantic.Even the Department of Energy says oil from those areas won’t arrive anytime soon.It projected last year that with the ban in place until 2012, new drilling would produce only 7 percent more oil in 2030, and the impact on oil prices would be “insignificant.”Proponents counter that most testing for oil beneath the ocean floor was done a generation ago.“Until we can go out there and look,” says Paul Hillegeist of Quest Offshore Resources, a consulting firm, “no one knows what’s going on.”Copyright © 2008 USA TODAY, a division of Gannett Co. Inc., Rick Jervis, William M. Welch and Richard Wolf
WASHINGTON – July 15, 2008 – Now that the federal government has thrown a lifeline to mortgage giants Fannie Mae and Freddie Mac, taxpayers could be on the hook for billions more if the crisis of confidence spreads.There were encouraging signs Monday for the rescue plan, but also signs of concern – notably on Wall Street, where shares of the two companies slumped further – that the plan won’t be enough.Other banks are already teetering: National City Corp. shares fell nearly 15 percent on rumors of financial trouble, even though it said it was experiencing no unusual depositor or creditor activity. And Washington Mutual Inc.’s shares fell 35 percent, to a paltry $3.23 amid worries about whether it had enough cash to handle the mortgage market downturn. WaMu said that it did.And worried customers lined up Monday to pull cash out of their accounts at IndyMac Bank, seized on Friday by the federal government.Some critics said they fear the Fannie-Freddie rescue effort will make more bailouts inevitable by sending a message that some institutions are too big to fail and thus encouraging risky behavior.“It sends the wrong message to the world,” said Joshua Rosner, managing director of research firm Graham, Fisher & Co. in New York.Sung Won Sohn, an economics professor at The Smith School of Business at Cal State Channel Islands, cited soaring oil costs, a weakening economy and an unstable housing market that he said will only get worse.“I don’t think these steps are enough to arrest the deterioration,” he said.As long as more homeowners default on mortgages, losses to financial institutions will mount. Those losses already exceed $400 billion, and some analysts believe they will top $1 trillion before the housing carnage is over.By comparison, Congress has authorized $650 billion so far to fight the Iraq war.The Bush administration and the Federal Reserve announced an emergency rescue plan Sunday to bolster Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages – almost half of the nation’s total.The plan would temporarily increase a long-standing Treasury line of credit that could be provided to either company. Treasury also said it would, if necessary, buy stock in the companies to make sure they have enough money to operate.The Fed also announced it would allow Fannie and Freddie to get loans directly from the Fed – a privilege previously granted only to commercial banks until this March, when the Fed extended the borrowing to investment banks to deal with the collapse of Bear Stearns.House Financial Services Chairman Barney Frank, D-Mass., predicted Congress would grant approval for the extended line of credit as part of a broader housing measure that he predicted President Bush could sign by the end of next week.Monday began with a good sign for Freddie Mac: It attracted more bidders than it had all year for one of its regular debt auctions, which raised $3 billion in short-term securities.Fannie and Freddie stock rose early in the day but gave up the gains. Fannie closed down about 5 percent, at $9.73, and Freddie closed down about 8 percent, at $7.11.Meanwhile, hundreds of worried customers lined up Monday to pull their money out of IndyMac bank, seized by the government Friday in the second biggest bank failure in U.S. history.The Federal Deposit Insurance Corp. estimated the IndyMac failure, the largest since the collapse of Continental Illinois in 1984, would cost between $4 billion and $8 billion out of the agency’s $53 billion insurance fund.Analysts do not expect the volume of bank failures that happened from 1990 to 1992, when 834 of them folded. But the FDIC does plan to review whether to raise the fees it charges banks to beef up its insurance fund.Brian Bethune, chief U.S. financial economist at Global Insight, called the troubles at Fannie and Freddie a “potentially dangerous turn of events” for the U.S. economy.He said they needed to be addressed quickly with an infusion from the government – read “taxpayers” – of as much as $20 billion in new capital for both institutions.Right now, the Treasury can extend up to $2.25 billion in loans each to Fannie and Freddie. Officials refused to discuss what the new limit might be but dismissed one report of a $300 billion limit as too high.Treasury officials also said directly buying Fannie and Freddie stock would be a last resort.Substantial sums are involved in any event. Analysts say the economic risks of doing nothing are just too great.“If the government hadn’t moved and Fannie and Freddie failed, the cost to taxpayers and the overall economy would be enormous,” said Mark Zandi, chief economist at Moody’s Economy.com.In Fannie and Freddie were unable to play their huge roles in financing new mortgages, the housing market would only suffer more, he said – not to mention the turmoil for the financial institutions around the world that invest in Fannie and Freddie’s debt securities.Critics have warned for years that Fannie and Freddie had grown too large, with not enough of a financial cushion.“They have been allowed to grow out of control to the point where they must be backed by the U.S. government,” said Peter Wallison, a senior fellow at the American Enterprise Institute and a longtime critic. “We have just ... allowed ourselves to become hostage to these two institutions.”Fannie and Freddie’s financial reports remain difficult to understand, even after accounting scandals that came to light five years ago forced the companies to restate several years of earnings and oust top executives.Wall Street analysts were spooked in May when one measurement of Freddie Mac’s total assets fell to negative $5.2 billion at the end of the first quarter, a huge swing from positive $12.6 billion at the end of last year.The company downplayed the figure, saying it reflected a frozen market for mortgage investments, and said those assets would eventually rebound in value.The next few weeks – in which Fannie and Freddie post their second-quarter results and may attempt to raise a bigger capital cushion – are key, Zandi said. He said in the best possible outcome is if the rescue plan helps the two companies stabilize their finances on their own without any loss of government loans.“At the end of the day, with a little bit of luck, it won’t cost taxpayers a dime,” Zandi said.Copyright © 2008 The Associated Press, Martin Crutsinger and Alan Zibel (AP Business Writers). All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
WASHINGTON – July 14, 2008 – The federal government unveiled a broad program yesterday evening to bolster troubled mortgage giants Fannie Mae and Freddie Mac, extending unprecedented support to the companies and proposing new authority to lend them money and even buy their stock.Scrambling to announce the initiative before the trading week began, federal officials said they would allow the firms for the first time to borrow money from the Federal Reserve. Officials are also seeking permission from Congress to temporarily increase the amount the companies can borrow from the Treasury and enable the government to invest directly in the firms if conditions worsen.The two firms, which dominate the market for U.S. mortgages, have been reeling amid investor concern that the companies might not have enough capital to handle their losses due to the rising number of bad home loans. Both firms’ stocks plummeted by almost half last week.Treasury officials said last night that they were confident Congress will be able to pass the new laws they seek by the end of the week as part of a broad housing bill under consideration on Capitol Hill.The Federal Reserve announced that it would allow Fannie Mae and Freddie Mac to borrow money on an emergency basis. The firms, should they experience a cash crunch, will be able to exchange certain assets for cash at the Fed’s discount window, a privilege long enjoyed by commercial banks and extended in March to struggling investment banks.If Fannie Mae or Freddie Mac collapsed, it could cripple the U.S. housing market, dealing a staggering blow to the wider economy, and would saddle the federal government with massive debts if it chose to seize control of either firm.“Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies,” Treasury Secretary Henry M. Paulson Jr. said in a statement he read before television cameras last night. The strength of their debt “is important to maintaining confidence and stability in our financial system and our financial markets,” he said.A failure of either company would also rattle global financial markets because their shares and debt are widely held by pension funds, mutual funds and foreign governments.Both companies said they were financially sound but were grateful for the confidence-building efforts. The proposals, taken together, make more explicit than ever that the federal government backs the two federally chartered companies, even though they are investor-owned.The changes that Treasury plans would expand the amount that Fannie and Freddie could borrow from the government in the event of cash flow problems. Currently, they can each withdraw $2.25 billion. The Treasury secretary could increase that amount at his discretion.The Treasury secretary would also have the authority to invest government money in the firms by buying their stock, a step that would only be taken if the firms don’t have enough capital and are unable to raise it on private markets.“Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer,” Paulson said.The new measures would give Paulson the authority to provide federal money to the firms after negotiating the conditions with them. Treasury officials stressed that this would allow the government to get the most favorable terms possible for taxpayers, potentially putting existing shareholders in a less favorable position.“This is a very sweeping proposal,” said Bert Ely, a banking expert and longtime critic of Fannie Mae and Freddie Mac. “This plan goes further than I thought they would go and suggests a deeper level of concern about the companies.”The initiative comes after a harried weekend of calls among officials at Treasury, the Federal Reserve and other agencies, and between Washington and Wall Street. Paulson led the creation of the plans, in sessions that went late into Friday and Saturday nights. He and Timothy F. Geithner, president of the Federal Reserve Bank of New York, held extensive conversations with Wall Street executives in preparing the initiative.The plan aimed in part at heading off further losses of confidence in Fannie Mae and Freddie Mac on global markets and was unveiled shortly before Monday trading opened on stock markets in Asia. The announcement also came on the eve of a crucial sale of $3 billion in securities by Freddie Mac. Federal officials also worked through the weekend to ensure that the sale, a test of investor confidence, would succeed.Government leaders opted not to inject new money into the firms directly and stopped far short of nationalizing them. Officials continue to state that the companies are financially sound and should be able to continue funding Americans’ home mortgages.A senior Treasury official said that both of his department’s proposals – the expanded credit line and the authority to make equity investments – are envisioned as temporary, expiring after 18 months.The official said there were extensive discussions with congressional leaders of both parties over the weekend and that “nothing suggests we will not be able to accomplish this.” Key members of Congress last night endorsed the Treasury and Fed efforts, though one suggested the measures may not be adopted as quickly as the administration hopes.Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said in an interview that he expects the thrust of what Paulson requested will be approved by the House this week and accepted by the Senate next week, allowing President Bush to sign the measure by the end of next week. He added that the plans did not amount to a “bailout.” Instead they conveyed that “we don’t think there’s a terrible problem, but we want to reassure you if there is one, we can deal with it.”Sen. Charles E. Schumer (D-N.Y.), who chairs the Joint Economic Committee, also welcomed the plan. “It will be reassuring to investors, bondholders and mortgage-holders that the federal government will be behind these agencies should it be needed,” he said in a statement. “The Treasury’s plan is surgical and carefully thought out and will maximize confidence in Fannie and Freddie while minimizing potential costs to U.S. taxpayers.”Another component of the plan is to give the Federal Reserve a “consultative” role in setting the firms’ capital requirements. That would enable the Fed, which works to ensure the stability of the financial system, to help set requirements on Fannie’s and Freddie’s finances that might lessen the risks they pose to the broader economy.The actions mark the most extensive government intervention into the financial world since the Fed rescued Wall Street investment bank Bear Stearns from bankruptcy in March. They are also designed to allow the companies to continue their roles making funding available for Americans to buy homes.The firms funded about 70 percent of the home mortgages issued in the first three months of the year, but investors fear that the companies do not have enough capital to weather the eventual losses on bad loans on their balance sheets. Freddie Mac’s shares have tumbled 88 percent since their high in 2006, and Fannie Mae’s stock is off 85 percent since its most recent peak last year.Separately, the Securities and Exchange Commission announced yesterday that it and other regulators will immediately begin to examine whether securities prices have been manipulated by the intentional spread of false information. This action was timed in part to coincide with the government’s announcement about its aid to Fannie Mae and Freddie Mac.Also yesterday, the Federal Deposit Insurance Corp. issued a statement indicating that IndyMac, the failed California-based bank it took over Friday, will reopen today with all its functions operating normally.Copyright 2008 washingtonpost.com. Staff writer David S. Hilzenrath contributed to this report.
ORLANDO, Fla. – July 14, 2008 – Paradise has gone missing again.Says who? Time, that’s who.Nearly three decades after the magazine’s Paradise Lost? cover story on South Florida’s ills gave the peninsula an inferiority complex, Time is once again warning of impending disaster in the state.Back then it was refugees, riots and crime. Now, it is . . . well, let Time tell it:“Greetings from Florida, where the winters are great!” begins the six-page spread, titled Is Florida the Sunset State? “Otherwise, there’s trouble in paradise. We’re facing our worst real estate meltdown since the Depression. We’ve got a water crisis, insurance crisis, environmental crisis and budget crisis to go with our housing crisis.”That’s a lot of crises. Has the state that likes to boast of having a world-class-this and a world-class-that become a world-class whipping boy? To the contrary, those quoted in the article did not quibble with the assertion that times are tough.“We have some flashing red lights,” Bob Graham, the former governor and senator, told The Miami Herald on Sunday.Elaborating on what he told the magazine, Graham cited two key indicators of trouble in Florida: a decline in demographic growth and a decline in per capita income in the state compared to the rest of the country.Time’s 1981 dissection of South Florida’s problems (the latest article deals with the whole state) was mentioned often over the years as the area’s fortunes rose and fell. During the go-go days of the condo boom, the article seemed quaint and outdated, which it was.And then, Paradise got lost again. But is it gone for good?Others quoted by Time agreed with the overall gloomy theme – but noted in interviews with The Miami Herald that Florida has a bust/boom history and always bounces back.“Yes, Florida is in a mess,” University of South Florida historian Gary Mormino said. “I bet Florida will roar back. And it will be a very different Florida.”J. Allison DeFoor, a lobbyist, lawyer and historian quoted by the magazine, agreed.“This is not a shocking revelatory trend. This is just Florida,” DeFoor said. “It’s still going to be paradise, but it’s not going to be a cheap paradise.”Copyright © 2008 The Miami Herald, Laura Isensee and Rebecca Dellagloria. Distributed by McClatchy-Tribune Information Services.
WASHINGTON – July 14, 2008 – Faced with record-high foreclosure rates, the Bush administration has been scrambling to keep people from losing their homes, but many are beyond help, Treasury Secretary Henry Paulson said Tuesday.Lax lending standards that accompanied the once high-flying housing market allowed people to buy homes they could not afford, Paulson said.“Many of today’s unusually high number of foreclosures are not preventable,” he said in prepared remarks to a mortgage-lending forum meeting in Arlington, Va. “There is little public policymakers can, or should, do to compensate for untenable financial decisions.”Paulson said that there were 1.5 million home foreclosures started in 2007. He said some economists estimate there will be about 2.5 million foreclosures started this year.Since last summer, the Bush administration has been focused on cutting down on the number of what Paulson called preventable foreclosures, where struggling homeowners want to keep their homes and have the financial wherewithal to do so.The administration has been working with the Hope Now alliance, an industry group trying to coordinate a response to the mortgage crisis, to encourage lenders to work out loan modifications or refinancings for people who can afford the new terms and can keep making payments.“While there have been bumps in the road and there is still work to do, the industry, through Hope Now, has made an enormous effort and great progress toward meeting these challenges,” Paulson said.Since last July, the industry has helped 1.7 million homeowners with loan workouts that allowed them to stay in their homes, Paulson said.Slumping home values are blamed for the bulk of the increasing foreclosures. Troubled borrowers left owing more to the bank than their homes are worth are walking away. Dumping more empty houses on the market adds to the pile of unsold homes, and that drives home prices down further.Other homeowners were clobbered when initially low mortgage rates reset to much higher levels, ballooning their monthly payments.Congress is working on legislation that would permit the Federal Housing Administration to provide new, cheaper mortgages to distressed homeowners who otherwise would have difficulty refinancing into more secure government-insured loans. Lenders would have to be willing to take a substantial loss by reducing the amount owed on the loan.Differences have to be worked out between the Senate package and a similar House-passed proposal, and with the White House, too. The White House has threatened a veto but is working behind the scenes with congressional leaders to find common ground.Paulson said he was pleased that Fannie Mae and Freddie Mac, major providers of mortgage financing, are raising more capital to bolster their balance sheets.Shares of Fannie and Freddie tumbled on Monday after a Lehman Brothers report said that an accounting change could force the companies to raise billions of capital.As part of a broad housing rescue package that includes leeway for the FHA, lawmakers also would revamp oversight of Fannie and Freddie, something the Bush administration has been championing.Paulson also said Treasury is working with the Federal Reserve and other financial agencies to explore the potential of “covered bonds” as a way of increasing the availability and lowering the costs of mortgage financing.These bonds provide funding to an issuer, such as a bank, and are backed by mortgages or cash flows from other debt. If the bond issuer goes into bankruptcy, investors who bought the bonds can lay claim to the underlying assets. Such bonds have been widely used in Europe to finance residential and commercial real estate, student loans and credit card debt, he said.Copyright © 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
BRADENTON, Fla. – July 14, 2008 – Homeowners struggling to save their homes from foreclosure might have an easier time getting a helping hand from the Federal Housing Administration starting Monday.Plans to relax FHASecure guidelines would expand eligibility standards to include borrowers with adjustable rate mortgages who were late on two monthly mortgage payments in the past 12 months, even if they were consecutive. Those who were late on three mortgage payments in 12 months are also eligible for help but they must meet loan-to-value ratios different from those who only missed two payments.A loan-to-value ratio is the percentage comparison between the unpaid principal balance of the mortgage and the appraised value of the property.Local lenders hope the changes will help them get more homeowners the refinancing they need in order to keep their homes.On Tuesday, the Federal Reserve also announced it will issue new rules next week aimed at protecting future homebuyers from dubious lending practices, hoping to prevent a recurrence of the foreclosure crisis.Fed Chairman Ben Bernanke said rules will be adopted cracking down on a range of lending practices that burned many risky subprime borrowers and helped fuel the housing and credit debacle.“I’m hoping we see big changes,” said Rob Stettler, branch manager of Wells Fargo Home Mortgage in Bradenton, of FHASecure rules.Wells Fargo has seen fewer clients looking to refinance, which could mean things are looking up or simply that not enough people know there are plans available to help them.“Hopefully, things are moving in the right direction,” Stettler said.During a news conference Tuesday, Department of Housing and Urban Development Secretary Steve Preston estimated the new guidelines will help 100,000 families refinance into “more affordable FHA-insured loans” by the end of the year. Since August 2007, HUD estimates that more than 260,000 homeowners nationwide have refinanced with FHA.“FHASecure will begin to provide additional assistance to subprime borrowers with adjustable rate mortgages and help to restore liquidity and stability to the markets,” Preston said.Many lenders have found it is not just those with subprime or adjustable rate mortgages that need help in a faltering economy.“I think it’s across the board. The exotic mortgages get a lot of publicity, but there are other people who are in trouble whose loans were rather vanilla,” said David Freed, president of Aim Mortgage of Bradenton.Much like in its previous incarnation, FHASecure is focusing specifically on assisting people in danger of losing their homes to foreclosure, not investors.“For investors, foreclosures are going to be something that hurts them financially and hurts their credit, but it’s not going to put them out on the street,” Freed said.Freed, like many mortgage brokers and lenders, is cautiously optimistic that the new plan will provide the relief needed but had difficulties with it before and are waiting to pass judgment on the new plan.The original incarnation of FHASecure required homeowners to jump through so many hoops, many no longer qualified or were in pre-foreclosure before the paperwork could be completed.“I can tell you FHASecure was a total disaster,” Freed said.Stettler has seen an improvement in the length of time it takes to get the loans processed even though the changes have yet to take place.“It’s not taking too long to get them through,” Stettler said.On average, it takes about 30 days to get an FHASecure loan through right now, so Stettler just hopes the new guidelines will allow him and his staff to help more people keep their homes.“Hopefully things are moving in the right direction. We’re aggressively trying to do every loan we can do to get them into better loans,” Stettler said.Copyright © 2008 The Bradenton Herald, Fla. Herald wire services contributed. Distributed by McClatchy-Tribune Information Services.
TALLAHASSEE, Fla. – July 14, 2008 – As the largest insurer of homes, condos and apartments in the state, Citizens Property Insurance has nearly 9,000 agents writing policies for the company.For the agents, Citizens is one of the few companies willing to write homeowners policies, because many private carriers remain skittish about offering coverage in hurricane-prone Florida.But many agents say the workload isn’t commensurate with the commission rate Citizens pays. In South Florida, agents earn an effective rate that is as much as 50 percent less than what they would receive from private carriers.The net commission rate on Citizens policies is about 5.5 percent – no commissions are paid on assessments tacked on policies nowadays. Private carriers’ commission rates average about 10 percent. Smaller Florida-based carriers tend to match Citizens’ commission rates.When it comes to workload, agents point to an upcoming change.Starting next February, Citizens will introduce new forms for its windstorm policies. For homeowners, the change should be minor. But agents will have to rewrite policies, adding extra information including more specifics on the type of roof, its age and replacement costs.“You have to birth a watermelon to make it take place,” says Jeff Grady, president of the Florida Association of Independent Agents, referring to the policy change.The change – three years in the making, says Christine Turner, Citizens’ director of government relations – will create a specific policy for each type of risk Citizens covers and will put all the policies on one computer system.Notices will begin going out in August to homeowners with windstorm policy renewals beginning Feb. 1.Citizens has been busy streamlining its day-to-day administration and its underwriting of policies. It is also making an effort to better train its agents.Copyright © 2008 The Miami Herald, Beatrice E. Garcia. Distributed by McClatchy-Tribune Information Services.
Q: What are Fannie Mae and Freddie Mac?A: Fannie Mae and Freddie Mac are the largest purchasers and insurers of mortgages in the country.Q: What do they do?A: They buy and guarantee mortgages from banks. Some of the mortgage debt bought by Fannie and Freddie is pooled and sold to investors. In this case, Fannie and Freddie essentially act as middlemen between banks and investors. Fannie and Freddie hold or back more than $5 trillion in mortgages, about half the outstanding mortgage debt in the United States.Q: Why were they created?A: To provide low- and middle-income Americans the opportunity to purchase houses with a reasonable interest rate by adding to the available cash banks can loan people. The money they provide is also supposed to help stabilize the mortgage market in times of stress. Fannie Mae was created in 1938 by the government, while Freddie Mac was established in 1970.Q: So they are owned by the government?A: No. Both Fannie and Freddie are now publicly owned and their stock traded on the open market.Q: What problems do they currently face?A: Over the past year, mortgages have defaulted at a faster rate, and companies have had to take billions of dollars in losses. Fannie and Freddie are required by their government regulator to have a financial cushion - cash or securities to fall back on. With losses rising, that cushion has been dwindling. That has forced them to raise new money during a time where it has been expensive and difficult to do so.Most of the mortgages Fannie and Freddie insure or own are traditional, prime mortgages that are among the safest in the market. The pair backed very few of the exotic subprime mortgages that have caused the most problems over the past year.Q: What happens in a government bailout?A: In a bailout scenario, called a conservatorship, Fannie and Freddie’s regulator – the Office of Federal Housing Enterprise Oversight – would take control of the companies and oversee their operations. Treasury Secretary Henry Paulson says the government wants to keep the companies operating in their current form without a government takeover.Q: What has the Federal Reserve done to help Fannie and Freddie?A: Sen. Christopher Dodd, D-Conn., said the Federal Reserve was considering opening up its discount borrowing window to Fannie or Freddie. He cited conversations with Fed Chairman Ben Bernanke and Paulson. But a Fed spokeswoman said the central bank had not talked with Fannie and Freddie about the emergency lending progra
