Any sighs of relief following the announcement of a contingency government rescue plan for Fannie Mae and Freddie Mac were premature. After easing initially, market pressures on the government services enterprises (GSEs), cornerstones of the secondary mortgage market, have intensified again, fueling speculation that Treasury Secretary Henry Paulson may have to provide the direct government assistance he proposed in the hope that offering the aid would ensure that it would not be needed.
Federal programs promising to help hundreds of thousands of struggling homeowners avoid foreclosure are falling painfully short of their goals. Policy makers, as a result, are tweaking existing initiatives and considering new ones as pressure builds for more aggressive – and more effective – strategies to forestall a foreclosure tide that threatens to further damage an already battered economy.
Remember the Treasury Department’s plan to purchase toxic assets from financial institutions as a means of thawing frozen credit markets? Well, that was then and this is now. And now, Treasury has decided that buying toxic underwater assets, as envisioned by TARP (Troubled Asset Relief Program) – the legislation authorizing the plan – wasn’t such a good idea after all.
The Department of Housing and Urban Development (HUD) has published details of the new “HOPE for Homeowners” program enacted by Congress several months (and a couple of massive financial industry bail-outs) ago. The program authorizes the Federal Housing Administration (FHA) to refinance up to $300 billion in under-water mortgages held by borrowers at risk of losing their homes through foreclosure.
If you needed more proof that the financial problems dominating the news are serious – as if the dizzying stock market declines we’ve been seeing aren’t sufficient to make that point – consider the number of analysts from all corners of the political spectrum who are saying that the $700 billion bail-out plan Congress has approved is just a “first step.” A $700 billion first step?
Glum and glummer pretty much summarizes the continuing steady flow of dismal economic reports, capped last week by unemployment data that had economists straining for words to describe just how bad the situation has become.
Battered, berated, bloodied and not entirely unbowed, the massive financial rescue bill aimed at stabilizing the economy and the financial markets finally won Congressional approval last week, and was signed immediately into law by President Bush. But if ever there was an illustration of the similarities between making sausage and laws, and of the chaotic mix created when partisan brinkmanship and presidential politics collide with a potential crisis, this was it.
Staggering, unprecedented, dramatic, transforming – analysts and headline writers have struggled for adjectives to characterize the $700 billion Wall Street bail-out plan Treasury Secretary Henry Paulson has unveiled in an effort to shore up the nation’s faltering financial markets.
The federal government’s takeover of Fannie Mae and Freddie Mac dominated the financial news this month. The action was unprecedented, to be sure, and, depending upon whose analysis you accept, either unavoidable or unnecessary. The impacts are still being assessed.
The Bankruptcy Reform law enacted in 2005 made it more difficult and more expensive to seek bankruptcy protection, but it has not offset the effects of job losses, declining incomes, rising living costs, and an erosion in home equity that has eliminated a financial cushion on which many consumers had come to rely.
HUD officials will proceed with plans to implement the agency’ revised RESPA rules, despite mounting pressure from industry trade groups and legislators to redraft the proposal, which HUD has withdrawn and redrafted twice before.
The implicit federal guarantee for Fannie Mae and Freddie Mac, long assumed by investors but often denied by government officials, became explicit last week, as the Treasury Department and the Federal Reserve announced separate but coordinated plans to provide financial backing for the two giant government services enterprises (GSEs).
The law of gravity dictates that what goes up eventually comes down. The same principle applies generally to economics, but economic ups and downs tend to be both more extreme and less symmetrical than Newton’s encounter with his apple might suggest.
After a seemingly endless cascade of dismal economic reports, there is only one shoe left to drop on the battered housing market. Unfortunately, it’s “a pretty heavy shoe,” according to Nicholas Retinas, director of Harvard’s Joint Center for Housing Studies.
In a recent speech, Federal Reserve Chairman Ben Bernanke said the financial markets are “stabilizing” but remain “far from normal.” That assessment might also apply generally to the economy, which is hardly “normal,” if your definition of normal includes even moderate growth and a housing market that isn’t on life-support. Whether the economy is stabilizing remains an open question, however, as economists continue to debate whether we are heading into a recession, have already stumbled into one, or still have some hope of avoiding a serious downturn entirely.
Combining two combustible issues is not usually the recommended strategy for shepherding legislation through Congress. But by adding regulatory reform for the Government Services Enterprises) to a bill providing assistance to homeowners facing foreclosure, Sen. Christopher Dodd (D-CT), chairman of the Senate Banking Committee, has managed to secure strong bipartisan support for both.
The subprime induced financial crisis seems likely to achieve what political pressure, an accounting scandal and withering criticism could not – stronger regulatory oversight of the giant government services enterprises (GSEs), Fannie Mae and Freddie Mac.
All those supposedly irresponsible consumers who “recklessly” borrowed too much money to buy homes they couldn’t afford are bad enough. But now, we’re told, people who can afford to make their mortgage payments are walking away, simply because they now owe more than their homes, located in depressed real estate markets, are worth.
Stop the presses! We’ve found some good news peeping through the economic headlines in recent weeks. The grim reaper news still dominates, to be sure, but more upbeat – or at least, less downbeat – comments and statistics are altering the tone, if not the substance, of the economic discussion.
You don’t have to be a geologist to find the fault lines reflected in the comment letters responding to the Federal Reserve Board’s proposed expansion of the rules protecting mortgage borrowers from abusive lending practices.
Treasury Secretary Henry Paulson hasn’t managed to end the subprime lending crisis, but he did succeed in driving it briefly from the front pages last week, by unveiling a sweeping plan for reconfiguring the regulatory framework for the nation’s financial system. Paulson’s proposal certainly attracted the attention of credit union executives, who were stunned – and not in a good way – by the plan to consolidate regulatory oversight and establish a single federal bank charter, effectively eliminating separate charters for savings and loan institutions and credit unions.
“Wherever you look, things look bleak.” We could begin and end this month’s update with economist Robert Shiller’s grim but accurate description of the housing landscape. Current statistics certainly don’t provide any reason to dispute his assessment or to predict that conditions will improve any time soon.
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