The deal cut between the Fannie Mae and Bank of America has come under attack by Public Citizen as too little retribution for the trillions of dollars bilked from mortgage holders. Meanwhile, new federal rules implemented to prevent such sleaze are criticized by banks as being too restrictive.
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Why the Housing Recovery is Nearly Homeowner-Less
By Darwin Bond Graham Truthout January 14, 2013
The financial crisis of 2008 was terrible for homeowners saddled with heavy mortgage payments, especially the millions of low-income, first-time buyers who were tempted to buy in with deceptive loans during the height of the housing bubble. About 4 million foreclosures have been completed since the financial crisis of 2008, according to CoreLogic, a data provider to the real estate industry. Since 2006, when subprime loans first began to default in large numbers, there have been 9.4 million foreclosures initiated, according to the Federal Reserve Bank of New York (US Fed). To a select group of hedge fund and investment bankers the financial crisis that pivoted on these foreclosures was the opportunity of a lifetime. They made billions from the crash by wagering against the stability of the US housing market.
Now some of the same elite investors are tacking backward and betting on a recovery of the housing market. It’s a strange recovery though, propelled not so much by families seeking their own piece of the American dream, but instead by the US Fed’s monetary policies. Low-interest rates fostered by the Fed are causing big-money investors to purchase foreclosed single-family homes in blocks of hundreds, even thousands. Expected gains in home prices are also leading hedge funds and investment bank traders to gamble on housing derivatives.
Bank of America settlement questioned by watchdog group, N.J. Sen. Menendez
By Andrew Dunn Charlotte Observer January 12, 2013
Watchdog group Public Citizen and a U.S. senator are calling for an investigation into Bank of America’s settlement with mortgage giant Fannie Mae in a dispute involving $1.4 trillion in loans.
The bank and Fannie Mae announced Monday that they had reached an accord that would have Bank of America pay $3.6 billion in cash and buy back $6.75 billion in loans from the mortgage giant. The two had been battling over a large pool of loans sold to Fannie by Countrywide Financial Corp. between 2000 and 2008. Bank of America purchased the subprime lender in 2008.
Once the loans started to go bad, Fannie sought to force Bank of America to buy them back, claiming Countrywide had misrepresented their quality.
The agreement released Bank of America from future claims on the loan pool, which carried an original principal amount of $1.4 trillion but had an unpaid balance of about $300 billion. The Federal Housing Finance Agency, which regulates Fannie Mae, said the deal was in the best interest of taxpayers. The government took Fannie and Freddie Mac under conservatorship during the financial crisis and has used federal money to cover losses.
Public Citizen says the price Bank of America paid was too cheap for the volume of loans involved, according to a letter the organization sent to the Office of Inspector General in the Federal Housing Finance Agency.
“Terms of this deal demand careful scrutiny,” the letter says. It asks the office to look into how the Federal Housing Finance Agency determined the agreement was best for the public.
“We are in receipt and are reviewing it now,” Federal Housing Finance Agency spokeswoman Kristine Belisle said. The office was unable to comment further.
U.S. Sen. Robert Menendez, a Democrat from New Jersey, also weighed in Thursday with the same concerns. His office said he would encourage an investigation into whether the agency looked into the decision rigorously enough.
Bank of America declined to comment.
New Mortgage Rules Would Limit Risky Lending
By Yuki Noguchi NPR January 10, 2013
The Consumer Financial Protection Bureau is releasing Thursday much anticipated new mortgage rules, which will restrict the kind of subprime lending practices that caused both the financial and housing sectors to crash five years ago.
The new rules come at a time when regulators and banks are trying to find a middle ground between overly lax and overly tight lending standards.
About a decade ago, mortgage lenders started broadening their base of customers by offering an array of exotic loan products with esoteric names: subprime, Alt-A, or low-doc loans that required little to no documentation of income. Teaser rates and option ARMs that offered low initial monthly payments that later ballooned.
Those loans got millions of borrowers into loans they ultimately couldn’t afford, and it resulted in one of the worst crashes in modern history.
New federal rule to prevent mortgage crisis: how it affects you
The Consumer Financial Protection Bureau announced it’s new ‘ability to repay’ rule that sets guidelines for new mortgages, including limits on debt payments as a portion of income.
By Mark Trumbull Christian Science Monitor January 11, 2013
A new federal rule issued Thursday aims to make the nation safe from mortgage meltdowns like the one that ravaged the economy in 2008.
It’s called the “ability to repay” rule, setting guidelines to make sure mortgage borrowers generally will be able to afford the monthly payments when they buy a home.
At the rule’s core is this: A borrower’s monthly debt payments shouldn’t exceed 43 percent of monthly income.
The measure is being announced at a time when high-risk home loans are no longer the economy’s big problem. The housing market is still struggling to recover from the massive boom and bust cycle that ended with the recession and financial crisis. Credit conditions today are relatively tight.
Nearly one-third of U.S. homeowners have no mortgage
Those who own homes outright include retirees and a surprisingly high percentage of young adults, real estate website Zillow finds.
By Alejandro Lazo Los Angeles Times January 10, 2013
What mortgage meltdown?
While millions of Americans have suffered the angst of lost homes, equity and pride, nearly a third of the nation’s homeowners have no mortgage at all, according to an estimate released Thursday by real estate website Zillow.
The free-and-clear class includes, predictably, retirees who have chipped away at their debts for decades, but also a surprisingly high percentage of young people and those who live in relatively affordable regions. In Los Angeles and Orange counties, only 20.7% of homeowners owned their properties outright, reflecting the region’s pricey real estate.
Diagnosis: Battered but Vibrant
By Benedict Carey New York Times January 8, 2013
CHICAGO — The neighborhood’s best-known restaurants were failing, its crime rate was on the rise, and for the first time that anyone could remember there were foreclosures, with once tidy bungalows sitting empty and dark.
For all that, the social scientists studying Chicago neighborhoods in 2010 were betting that the middle-class enclave of Chatham, on the city’s South Side, would remain stable through the recession. It had done so for decades, while surrounded by impoverished areas. It had somehow absorbed a wave of newcomers from recently demolished housing projects. And the researchers’ data suggested that its strong identity and scores of active block groups had helped protect residents from larger economic threats and offered clues about how to preserve threatened urban communities all over the country.
Chatham should hold, barring some unforeseen cataclysm.