But panel members lambasted the executives for taking undue risks to win bigger bonuses and for failing to take responsibility for a housing crisis that has ravaged the economy.

“Their irresponsible decisions are now costing taxpayers billions of dollars,” said committee Chairman Henry Waxman, D-Calif.

Fannie and Freddie own or guarantee half of outstanding home loans and became the largest buyers of subprime and Alt-A mortgages, both of which have had high rates of defaults. Alt-A, a category between subprime and prime, did not require documentation of income or assets. With the firms facing $12 billion in credit losses this year, the government took over both in September.

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Comptroller of the Currency John C. Dugan said today that new data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.

“After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today.

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Almost one in 10 S.C. homeowners was behind on mortgage payments or in foreclosure at the end of September.

And the state’s high unemployment rate indicates more people will have trouble making payments next year.

In South Carolina, 9.4 percent of homeowners were at least 30 days past due or in the process of foreclosure in the third quarter,according to data released Friday by the Mortgage Bankers Association. That is up from 8.1 percent in the same period last year.

Of the 666,729 mortgages serviced in the state, 7.4 percent were delinquent and 2 percent were in foreclosure, the MBA reported.

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Homeowners who want to refinance existing mortgages may be more likely to take advantage of the lower rates, but many people who bought during the real estate bubble won’t be able to qualify for a new loan because they have little equity or are “upside down” — owing more on their homes than they are worth.

“I anticipate it will increase refinance activity, but there will be nothing dramatic,” said Terrin Griffiths, an economist for the California Credit Union League, which represents credit unions in California and Nevada.
Jeff Lazerson, a Laguna Niguel mortgage broker, said all the customer calls he received Tuesday were from people seeking to refinance, not buy homes. Many are trying to get out of adjustable-rate mortgages scheduled to reset to higher rates next year, he said.

But most who called were rebuffed because they were upside down on their current mortgages or had credit scores too low to qualify.

“Out of all the people calling, about 30% at most can get help,” Lazerson said.

Read it all.

Everyone accused of a crime is entitled to a lawyer, whether they can afford one or not. But in civil cases, such as home foreclosures, there is no right to an attorney.

Legal aid attorneys say some people being kicked out of their homes might have been able to stay if they’d had legal help ”” help that isn’t there for everyone.

Sarah Bolling is an attorney with the Atlanta Legal Aid Society. Her 71-year-old client, Jenny McCaslin, bought a house more than 30 years ago. McCaslin raised her children there. Now it’s falling apart.

Read or listen to it all.

The Federal Reserve said Tuesday that it would buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis.

The Fed said it would purchase up to $100 billion in direct obligations from the mortgage finance giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

The $600 billion effort on mortgages came as the Fed also unveiled a program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans.

Read it all

By this year, the bleeding housing market had drained the equity from Judy Jones’ home in Murrieta, but her life still seemed secure. She had a government job, after all, and a 30-year fixed-rate mortgage at 5.875%, unlike the shaky, variable-rate loans of many of her Inland Empire neighbors.

Then her employer, the city of Corona, decided to deal with the economic slump by eliminating 112 positions, including Jones’ job as a code enforcer. Last month, at age 61, she joined a surge of once-solid borrowers who no longer could afford their mortgages.

“Every week at church, somebody else is out of work,” Jones said. “I’ve been a homeowner a long time — the last 10 years as a single mother — and I never missed a payment. Now look at me. And it could be you — any middle-class person who goes to work today could be walking out the door of a foreclosed house in a couple of months.”

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From 2003 to 2005, Citigroup more than tripled its issuing of CDO’s, to more than $20 billion from $6.28 billion, and Maheras, Barker and others on the CDO team helped transform Citigroup into one of the industry’s biggest players. Firms issuing the CDO’s generated fees of 0.4 percent to 2.5 percent of the amount sold — meaning Citigroup made up to $500 million in fees from the business in 2005 alone.

Even as Citigroup’s CDO stake was expanding, its top executives wanted more profits from that business. Yet they were not running a bank that was up to all the challenges it faced, including properly overseeing billions of dollars’ worth of exotic products, according to Citigroup insiders and regulators who later criticized the bank.

When Prince was put in charge in 2003, he presided over a mess of warring business units and operational holes, particularly in critical areas like risk-management and controls.

“He inherited a gobbledygook of companies that were never integrated, and it was never a priority of the company to invest,” said Meredith Whitney, a banking analyst who was one of the company’s early critics. “The businesses didn’t communicate with each other. There were dozens of technology systems and dozens of financial ledgers.”

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Federal regulators were considering a new rescue for Citigroup on Sunday, a step that could mark a third leg of the government’s broader efforts to bolster the nation’s financial industry, according to people briefed on the plan.

Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to these people, who spoke on the condition that they not be identified because the plan was still under discussion.

If the government should have to take on the bigger losses, it would receive a stake in Citigroup. The banking giant has been brought to its knees by gaping losses on mortgage-related investments.

Read it all.

Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said.

Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“There is no question that Citi is in the category of ”˜too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

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Clergy and congregants from more than 40 states gathered in front of the Department of Treasury on Tuesday to pray for Secretary Henry Paulson and members of Congress to put an end to the home foreclosure crisis.

PICO, a network of faith-based community organizations that helps provide affordable housing, is demanding that the Treasury require all banks receiving a chunk of the federal bailout package to adopt systematic loan modifications that could keep 2 million people from losing their homes, they said.

“We want them to look at the bigger picture. Don’t just look at Wall Street, look at Main Street. Look at the man next door who is working hard and really paying taxes,” said Marvin Webb, the assistant pastor of Peniel Full Gospel Baptist Church in El Sobrante, Calif. “We are asking the secretary and Congress to keep people in their homes.”

Read it all.

You put this much leverage together with this much global integration with this much complexity and start the crisis in America and you have a very explosive situation.

If you are going to fight a global financial panic like this, you have to go at it with overwhelming force ”” an overwhelming stimulus that gets people shopping again and an overwhelming recapitalization of the banking system that gets it lending again. I just hope the U.S. Treasury has enough money to do it. When you look at the way A.I.G. and Fannie Mae and Freddie Mac are eating money, you start to wonder.

And that brings me back to Obama. We need a leader who can look the country in the eye and say clearly: “We have not seen this before. There are only two choices now, folks: doing everything we can to shore up banks and homeowners or risk a systemic meltdown.”

Yes, that may mean rescuing some bankers who don’t deserve rescuing, while also helping prudent bankers who were doing the right things. And, yes, that may mean rescuing reckless home buyers who never should have taken out mortgages and now can’t pay them back, while not aiding people who saved prudently and are still meeting their mortgage payments.

Read the whole thing.

[Henry] Paulson says the department plans to expand its efforts to ease the credit crunch, but his strategy for the remaining $400 billion or so in TARP may not do the trick either. In particular, we’re skeptical of Paulson’s plans to invest in credit-supplying institutions that aren’t banks — for example, giant insurance company American International Group received a $40-billion investment from TARP — and to address problems in more types of debt markets, including credit card and student-loan debt. As the Center for American Progress points out, the biggest issuers of credit card debt are bank holding companies that have already dined at the TARP trough. And the U.S. Department of Education has already agreed to provide a secondary market for student loans.

The most welcome change that Paulson promised was to use a portion of TARP to avert foreclosures in some unspecified way. That effort may prove to be as weak as the administration’s other initiatives to help homeowners, but at least it’s aimed at the root of the credit crisis.

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Finally, the outlines of a coherent debate on the federal bailout. This comes as welcome relief from a campaign season that gave us the House Republicans’ know-nothing rejectionism, John McCain’s mindless railing against “greed and corruption,” and Barack Obama’s detached enunciation of vacuous bailout “principles” that allowed him to be all things to all people.

Now clarity is emerging. The fault line is the auto industry bailout. The Democrats are pushing hard for it. The White House is resisting.

Underlying the policy differences is a philosophical divide. The Bush administration sees the $700 billion rescue as an emergency measure to save the financial sector on the grounds that finance is a utility. No government would let the electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.

Treasury Secretary Henry Paulson is willing to stretch the meaning of “bank” by extending protection to such entities as American Express. But fundamentally, he sees government as saving institutions that deal in money, not other stuff.

Democrats have a larger canvas, with government intervening in other sectors of the economy to prevent the cascade effect of mass unemployment leading to more mortgage defaults and business failures (as consumer spending plummets), in turn dragging down more businesses and financial institutions, producing more unemployment, etc. — the death spiral of the 1930s.

Read it all.

From here:

….the new “Hope for Homeowners” program launched at the beginning of October was expected to help hundreds of thousands of households refinance their loans. But fewer than 100 borrowers ”“ in the entire nation ”“ applied for help from the program all last month.

The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. [Steve] Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. “We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says….

There was only one thing that bothered Eisman, and it continued to trouble him as late as May 2007. “The thing we couldn’t figure out is: It’s so obvious. Why hasn’t everyone else figured out that the machine is done?” Eisman had long subscribed to Grant’s Interest Rate Observer, a newsletter famous in Wall Street circles and obscure outside them. Jim Grant, its editor, had been prophesying doom ever since the great debt cycle began, in the mid-1980s. In late 2006, he decided to investigate these things called C.D.O.’s. Or rather, he had asked his young assistant, Dan Gertner, a chemical engineer with an M.B.A., to see if he could understand them. Gertner went off with the documents that purported to explain C.D.O.’s to potential investors and for several days sweated and groaned and heaved and suffered. “Then he came back,” says Grant, “and said, ”˜I can’t figure this thing out.’ And I said, ”˜I think we have our story.’”‰”

Eisman read Grant’s piece as independent confirmation of what he knew in his bones about the C.D.O.’s he had shorted. “When I read it, I thought, Oh my God. This is like owning a gold mine….

Quite a piece from the author of Liar’s Poker. Read it carefully and read it all.

“We make decent money, but it takes a tremendous amount to pay the mortgage,” [Jerry] Martinez, 33, said.

First American CoreLogic, a real estate data company, has calculated that 7.6 million properties in the country were underwater as of Sept. 30, while another 2.1 million were in striking distance. That is nearly a quarter of all homes with mortgages. The 20 hardest-hit ZIP codes are all in four states: California, Florida, Nevada and Arizona.

“Most people pay very little attention to what their equity stake is if they can make the mortgage,” said First American’s chief economist, Mark Fleming. “They think it’s a bummer if the value has gone down, but they are rooted in their house.”

And yet the magnitude of the current declines has little precedent. “When my house is valued at 50 percent less than it was, does this begin to challenge the way I’m going to behave?” he said.

Read it all.

Mr. Obama and his advisers acknowledge that their focus has to shift, but the change is still likely to be challenging, and a bit disappointing. “Unfortunately, the next president’s No. 1 priority is going to be preventing the biggest financial crisis in possibly the last century from turning into the next Great Depression,” says Austan Goolsbee, an Obama adviser. “That has to be No. 1. Nobody ever wanted that to be the priority. But that’s clearly where we are.”

Throughout the campaign, whenever Mr. Obama was asked about the financial crisis, he liked to turn the conversation back to his long-term plans, by saying that they were meant to solve the very problems that had caused the crisis in the first place. Back in January, he predicted to me that the financial troubles would probably get significantly worse in 2008. They had their roots in middle-class income stagnation, which helped cause an explosion in debt, and the mortgage meltdown was likely to be just the beginning, he said then.

His prognosis was right ”” and the pundits now demanding that he give up major parts of his economic agenda in response to the financial crisis are, for the most part, wrong. When you discover that a patient is in even worse shape than you thought, you don’t become less aggressive about treatment. But you do have to deal with the most acute problems first.

And Mr. Obama has a big incentive to do so. The hangover from a recession typically lasts more than a year, and this recession isn’t over yet. So he will be at risk of the same kind of midterm drubbing in 2010 that Ronald Reagan received in 1982 and Bill Clinton did in 1994. In the days leading up to this year’s election, as they confidently reviewed the polls, some Obama aides took to joking darkly that 2010 was already looking bad.

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Here’s a shocker: almost half of Nevada homeowners with a mortgage owe more to the bank than their homes are worth.

Here’s another: If you add in the homeowners like them in California, Arizona, Florida, Georgia and Michigan, together they account for nearly 60 percent of all homeowners who are “underwater” on their mortgages.

Nationwide, almost one out of every five homeowners with a mortgage owes more to their lender than their properties are worth. But if you subtract those states, the rate drops to about one in 10, according to a report released Friday by First American CoreLogic.

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As the Treasury Department prepares a $40 billion program to help delinquent homeowners avoid foreclosure, it confronts a difficult challenge: not making the plan too tempting to people like Todd Lawrence.

An airline pilot who lives outside Norwich, Conn., Mr. Lawrence has a traditional 30-year mortgage that he has no trouble paying every month. But, thanks to the plunging real estate market, he owes more on his house than it is worth, like millions of other people.

If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break.

“Why am I being punished for having bought a house I could afford?” he asked. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”

Read it all.

The initiative could be the most sweeping government effort directed at mortgage borrowers since the financial crisis began last year. Under the plan, the government would agree to shoulder half of the losses on home loans if mortgage companies agreed to lower borrowers’ monthly payments for at least five years, according to the people briefed on the plan who asked not to be named because details were still being negotiated.

Officials from the Treasury Department and the Federal Deposit Insurance Corporation are working on the proposal and an announcement may come soon. Sheila C. Bair, the chairwoman of the F.D.I.C., has been the leading proponent of the plan and first discussed the idea publicly a week ago.

The plan could cost $40 billion to $50 billion and would be part of the $700 billion financial bailout package that Congress approved earlier this month. The money would go toward covering future losses on loans that are modified according to standards established by the government.

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Debbie Kidd of the nonprofit Family Services Inc. in North Charleston, which offers free foreclosure counseling, said the growing volume of delinquent mortgages is no longer just a problem within the real estate industry. It is now a symptom of broader mounting financial hardships, she said.

Many families Kidd sees are one major unplanned expense or other economic disruption away from losing their homes. It could be a broken-down car, a medical emergency or the loss of a second job.

“It takes very little to push a family over the edge these days because they’re living paycheck to paycheck,” she said.

Read it all.

LISA LING: Even though he’s done this now for several years, [John] Plocher says he’s still surprised by the personal things people leave behind.

People always say that the first thing they take if there was some kind of a disaster is photographs, but…

JOHN PLOCHER: No, we find pink slips to automobiles. We find birth certificates. Now, those types of things we keep and we attempt to mail those…

LISA LING: Computers, computer printers.

JOHN PLOCHER: Yes, there’s a computer. It’s all intact.

LISA LING: Two computers in here.

JOHN PLOCHER: Yes, two computers in there, a table.

LISA LING: Incredible. Incredible.

JOHN PLOCHER: We’ve found dozens of things, but one of the things we found just recently was an urn that somebody’s remains they had been cremated in, and they left their urn at the house. And we called the bank and said, “What do we do with that?” And they said, “Do not trash that.”

Read it all or better yet watch the whole video report.

The idea of helping Main Street has an undeniable appeal. Housing is at the root of the financial crisis, and preventing foreclosures could bring a double-barreled benefit. It would allow families to remain in their homes and could also help keep the housing market from spiraling out of control. The more foreclosed homes that are dumped on the market, the more home prices will fall.

But before any of the various rescue plans reaches the point of inevitability ”” and these days, ideas can go from unlikely to inevitable in about 48 hours ”” I think it’s important to stop for a moment and consider how complicated any such plan would be. Every one of them, in fact, faces an inherent conflict: coming up with a large-scale homeowner bailout without also helping millions of people who don’t need help is almost impossible.

That’s a big reason that the various efforts to stem foreclosures so far, both from the Bush administration and Congressional Democrats, have been so modest. You just can’t solve the foreclosure problem without causing a lot of collateral damage ”” in the form of lavishing money on homeowners who can stay in their homes without assistance.

Read it all.

Following years of big profits for bankers and home builders in this state, one-fifth of all outstanding U.S. mortgages by dollar value — and a higher percentage of risky loans — are written on homes here. Of the 25 metropolitan areas with the largest home-price declines in the past 12 months, 16 are in the state, according to Zillow.com, a real-estate research Web site.

Those woes weigh on the financial system. Though California represents about 12% of the nation’s population, its homes account for 34% of the loans in a typical mortgage-backed security, according to Fitch Ratings. “California doesn’t have a Wall Street problem. Wall Street has a California problem,” says Christopher Thornberg, principal at Los-Angeles based Beacon Economics and member of the California Controller’s Council of Economic Advisors.

This is a really important article from the front page of yesterday’s Wall Street Journal–read it all.

While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”

They were lured by “unscrupulous participants ”” bankers, brokers, secondary market people,” he says. “The country is paying for that, and families are hurt because we as a society did not draw a line.”

The causes of the housing implosion are many: lax regulation, financial innovation gone awry, excessive debt, raw greed. The players are also varied: bankers, borrowers, developers, politicians and bureaucrats.

Mr. Cisneros, 61, had a foot in a number of those worlds. Despite his qualms, he encouraged the unprepared to buy homes ”” part of a broad national trend with dire economic consequences.

He reflects often on his role in the debacle, he says, which has changed homeownership from something that secured a place in the middle class to something that is ejecting people from it. “I’ve been waiting for someone to put all the blame at my doorstep,” he says lightly, but with a bit of worry, too.

Read it all.

Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash.

At current trends, 2m households will enter negative equity by 2010, outstripping the 1.8m affected at the bottom of the last housing slump.

New research from Standard & Poor’s, the ratings agency, coincides with evidence that banks are aggressively seizing homes whose owners have slipped just a few hundred pounds behind on their mortgage payments.

Read it all.

But recently a proposal came across my desk that I believe is so smart, and so sensible, that I hope our nation’s policy makers will give it a serious look. It comes from Daniel Alpert, a founding partner of Westwood Capital, a small investment bank. I have quoted Mr. Alpert frequently in recent columns, because he has been both thoughtful and prescient on the subject of the financial crisis.

Here’s his idea: Pass a law that encourages homeowners with impaired mortgages to forfeit the deed to their lenders but allows them to stay in the homes for five years, paying prevailing market rent. Under the law Mr. Alpert envisions, the lender would be forced to accept the deed, and the rent. After five years, the homeowner-turned-renter would have the right to buy the home back, at fair market value, from the lender.

There are so many things I like about this idea that I hardly know where to begin. Let’s start with the fact that it doesn’t require a large infusion of taxpayers’ money. Indeed, it doesn’t require any government money at all. It also doesn’t let either homeowners or lenders off the hook, as many other plans would. The homeowner loses the deed to his home, which will be painful. The lending institution, in accepting prevailing market rent, will get maybe 60 or 70 percent of what it would have gotten from a healthy mortgage-payer. (Rents are considerably lower than mortgage payments right now.) That will be painful too. Moral hazard will not be an issue.

As Mr. Alpert told me the other day, his proposal “admits the truth: the homeowner doesn’t have equity, and the lender has taken a loss. They should exchange interest, but not in a way that throws the homeowner out in the street.”

Read it all.

The American housing market, where the global economic crisis began, is far from hitting bottom.

Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession.

In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.

Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates ”” all of which will reduce the already diminished pool of would-be buyers.

Read it all.

David M. Abromowitz faults the Bush administration’s dismantling of federal regulation. Daniel J. Mitchell says both Republicans and Democrats over several decades contributed to the crisis.

Read it all. It isn’t a bad discussion but it is not as good as the earlier list posted from the Independent , and, once again the SEC doesn’t get mentioned–KSH.