Recession Foreclosures

The Wall Street Examiner’s Lee Adler, Russ Winter of Winter Watch, and Aaron Krowne of the Mortgage Lender Implode-o-meter covered a lot of ground this week giving insight on issues that either were not being covered at all, or not correctly, in the mainstream financial media. Here’s what we covered in Part 1, free to all visitors (28 minutes): Finally A Prosecution for Financial Crimes! Housing from Bad to Worse New rules for mortgage reserves Consumer and State and Local Props are Going Away Increasing Pressure On State and Local Governments Covered in Part 2, for Radio Free Wall Street subscribers only (click through above to get to subscription link): Corporate Profits Collapse and Margin Squeeze Copper Gaming in China More Supply Chain Problems Return of the Yen Carry Trade Signs of a Housing Bottom For Real? Japan Returns to Treasury Auctions Fed Reverse Repo Shows It Means Business- NOT Fed, Treasury, Primary Dealers, Foreign Central Banks, and Banks- What’s Ahead for Markets

“One of Warren Buffett’s favored lieutenants, who was seen as his leading heir apparent, resigned after buying shares in a company he later recommended that Buffett acquire. David Sokol’s resignation from his roles as chairman of Berkshire Hathaway units MidAmerican Energy and NetJets raised questions about the transparency of his dealings with Buffett — namely whether he concealed the size of share purchases in Lubrizol Corp. The resignation could be a reputational blow for Buffett, the 80-year-old “Oracle of Omaha,” who recently sealed a $9 billion deal for Lubrizol Corp at Sokol’s urging… Buffett said on Wednesday that he did not feel Sokol’s purchases were unlawful.”

“More Americans expect their salaries to be cut soon, reversing a steady decline in the number of workers who fear pay cuts, according to a March survey. Adding insult to injury, those same consumers expect to take a bigger hit on expenses because of rising inflation. The percentage of Americans who expect a decrease in their income over the next six months ticked back higher to 15.3 percent in March, up from 13 percent in February.”

“Many of the MSAs appear to be experiencing the double-dip in housing prices that has been predicted for some time. Eleven of the cities posted new lows in relationship to their 2006-2007 peak levels. All of these cities, Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland (OR), Seattle, and Tampa, had posted new lows in December as well. The nation as a whole has slipped back to the price levels that existed in 2003.”

“The Dodd-Frank financial reform bill already identified loans guaranteed or originated through FHA, VA, and USDA as qualified for exemption but left other products, including loans written by Fannie Mae and Freddie Mac, up to federal regulators to determine. Under the proposed definition released today, Fannie Mae and Freddie Mac will indeed be exempt from risk retention regs at least while the GSEs are under government control. When/If Fannie and Freddie are released from conservatorship their exemption status will be revisited. ”

Consumers who are concerned with erasing their credit card debt through either budgeting strategies or even debt management plans often face problems when they carry debt and, as a result, these difficulties associated with debt could lead to higher costs in other areas of their financial life or the inability to save for their future and meet certain financial goals. Typically, credit card debt is one of the more common areas of trouble that consumers face, but there are methods that have been used to erase various credit card debt obligations no matter what position a consumer may find themselves in.

Yet, carrying debt will always lead to a situation where a consumer is never truly able to save for various financial needs be it an emergency or retirement. No matter if a consumer set money aside each month, when they have a great deal of credit card debt or other debt obligations, saving is hindered and this can be problematic in the life of a consumer were an emergency to arise. As an example, and article on Bankrate.com stated that, “Forty-three percent of Americans who reported having a great deal of difficulty in saving money would need to use credit to pay for a $1000 car repair bill.” Obviously, budgeting and saving will be more difficult in relation to the severity of debt that a consumer has in their life, but even small debt obligations here and there can cause funds to be drained away from savings when interest rates begin to increase the overall costs that a consumer may pay.

However, consumers are being prompted to explore basic budgeting habits primarily when they are attempting to erase credit card debt. While there are credit counseling agencies that can be helpful in this area, consumers must make sure that if they feel counseling is necessary they select a reputable organization that will deal with their particular debt situation in a one-on-one manner, rather than offering generic debt repayment advice or programs that may not specifically deal with issues in the life of a particular consumer.

While simple budgeting can be helpful in many cases, there are still consumers that may have issues and require that they enter into some form of debt management plan, which essentially is an agreement between a consumer and creditors where the consumer will pay a debt management program, or credit counselor, to make payments to various creditors at an agreed-upon rate so that missed payments can be avoided but the totality of a consumer’s debt will be repaid.

Obviously, the sooner the consumer addresses credit card debt relief necessity and implements plans to begin combating various debt obligations, the higher likelihood they may be able to erase their debts faster and at lower overall costs. While credit counseling is usually optimal and options like debt management or debt settlement need to come after counseling or budgeting practices are implementing, consumers who are simply looking for ways to get themselves in a better financial position and set future goals will need to begin the process of addressing various debt sources, like credit cards, so that they may begin either simply saving money for an emergency or investing money into a retirement account which would be a better use of funds for a consumer.

Homeowners who have attempted to avoid foreclosure through the federal home loan modification program have seen varying results as there are homeowners seeing modification efforts that have been able to offer them more affordable monthly mortgage payments, but there are also some individuals who have had a great deal of difficulty when it comes to navigating the waters of the modification program. Due to the fact that the original number of homeowners who were stated to be assisted through the Home Affordable Modification Program have not been reached, there has been a proposal to end the federal modification initiative, however, there have been some opponents of this idea who feel this could be detrimental to the housing market and for homeowners in general, despite the fact that there are problems within the modification plan.

An article reposted on the Department of Treasury website outlined the potential problems that could arise if legislation is passed in Congress that would terminate the Home Affordable Modification Program, but there are officials who feel that these efforts to end the modification plan will ultimately fail due to the fact that the Senate or the President will stop these actions. However, many feel this vote is symbolic of the fact that the modification program has not helped enough homeowners avoid foreclosure, despite the fact that there have been over 600,000 homeowners who have seen modification assistance from this initiative.

While there are some opponents who feel the modification effort has been a waste of money and resources, there have been homeowners who were aided by this program and, in the coming months, there could be more who find assistance directly from either the federal modification plan or servicers, and new reports that have arisen show that there may be changes in not only foreclosure prevention efforts but in practices by major banks when it comes to dealing with negative equity.

A recent report from the Wall Street Journal stated that five of the nation’s largest banks have given a proposal to government officials that could implement certain changes in not only servicing practices by numerous financial institutions, but there are proposals by these officials for banks to offer more principal reductions as a way to “repay” homeowners for any damage that may have been done due to questionable foreclosure practices that were brought to light last year.

The major banks who are being called to discuss this issue are Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup, and Ally Financial’s GMAC Mortgage, and it is hoped that options for mortgage principal write-downs may become more available despite the fact that there are disagreements as to whether principal reductions are helpful for homeowners and generally good practice for the housing market.

While this may not be a option implemented or available for all homeowners who are in a negative equity situation, it’s hoped that these changes will benefit those individuals who may be able to find a more long-term sustainability in terms of their monthly mortgage payment if a principal reduction is used as part of a home loan modification program, but of course, there are financial institutions who have been hesitant to offer these principal write-downs and feel that doing so on a large scale could cause problems for the economy overall.

As reports state access to credit cards has become more available for a variety of consumers, from either those in an excellent credit position to subprime borrowers, there are numerous opportunities for acquiring credit that consumers may use, but many have begun taking advantage of low interest credit cards that offer balance transfers as a way to consolidate multiple debts. One of the reasons that consumers will typically consolidate debt through either a personal loan or with these new options for credit cards that offer balance transfers is that they can find either more affordability in their overall payments or as a way to simply lower their monthly payment obligation and avoid becoming delinquent on certain credit card or personal debt obligations.

Typically, consumers who will qualify for low interest credit cards that offer a balance transfer option will need to have a great credit score, despite the fact that there are opportunities for balance transfers with a variety of cardholders who may have anywhere from excellent to bad credit. Yet, when it comes to consumers using low interest credit cards for balance transfer consolidation, there is caution that should be taken even by these borrowers as, according to a CNNMoney.com article, “…card offers usually play up the terms for someone with near-perfect credit,” and these instances could lead some consumers to enter into a credit card agreement that may bring about an interest rate increase over time.

While the CARD Act prevents consumers from falling prey to credit card lenders who will suddenly increase their rate, when it comes to balance transfer credit cards, there is usually a low rate offered, but this opportunity will only remain for an introductory period. Obviously, consumers may be able to take advantage of a balance transfer credit card that will offer a low interest rate throughout an introductory period, and then switch to a higher rate that still may be more affordable, but cardholders across the board must make sure that they look at what potential rate may follow a low introductory period that can offer the option for a balance transfer consolidation.

While Bankrate.com, among other financial sites that track various interest rates, currently reports average rates for low interest cards to be around 10.80% and balance transfer cards to be around 16.10%, these offers are not set in stone and can change after a promotional period has ended or may be higher for some cardholders. Considering these increases is something that must be factored into a cardholder’s decision, but when a borrower who may be able to take advantage of a low interest credit card feels that using a balance transfer option may be one way to consolidate and erase debts as well, there are more aspects of choosing a card that must be considered in this situation.

Obviously, the opportunity for consumers to pay off various debts on a credit card that may have little or no interest rate for an introductory period could lead to a great deal of savings, but no matter what credit position a cardholder is in, consumers must be sure they can erase this debt during the introductory period where their rate will be low and offer affordable balance transfer opportunities. While looking at balance transfer fees, credit card interest rates, and the time it will take to pay off these debts, consumers must also look at their personal situation as well due to the fact that not everyone may qualify for low interest credit card opportunities and, even if balance transfers are available on other card offers, looking at the good and bad aspects of multiple credit card options will be necessary so consumers can find a balance transfer credit card that is right for their situation and will be beneficial if they feel this type of opportunity will be helpful when it comes to erasing debts from their life.

Consumers who had been attempting to either repair their credit score or maintain a positive credit history are usually able to accomplish this feat by keeping their balances low, spending within their financial means, and properly using credit cards in a manner that allows them to make charges each month but promptly pay off the debts so as to avoid costs related to interest, which could be problematic for certain consumers if these interest rate charges get out of hand. Understandably, consumers who are trying to repair their credit score or maintain a positive credit history and rating, have had some problems though when it comes to lenders lowering credit limits.

An article on Bankrate.com made mention of this problem, which is being referred to as “chasing down the balance,” and essentially is a practice where credit card lenders are lowering a consumer’s credit limit to either their current balance or just above their balance, and this has been creating problems for both consumers attempting to repair a poor credit score or even individuals and a decent credit position who may want to maintain and improve their score further.

One of the reasons that this has been problematic for consumers is that it will lower a credit utilization ratio, which can be a step back for consumers attempting to repair their credit or maintain a positive credit history due to the fact that their credit rating will reflect that the available amount of credit they have is now smaller in relation to the amount of debt they carry. Consumers who may have access to a high line of credit but a low amount of debt is present in their life will obviously have a more positive FICO score, but when banks are seemingly reducing a consumer’s credit limit for little or no reason, this can be problematic particularly for consumers attempting to repair a bad credit score and are in the process of paying off various debts.

Consumers who want to increase a low credit score or simply improve on their current credit score will have to find a way to get out of debt so that they can begin the practice of buying on credit and promptly repaying these obligations, but when a consumer’s credit limit is lowered to the amount of debt they may carry on a card, this looks as if they have maxed out their credit limit for a particular line of credit, when they may have previously only had a small percentage of debt on a credit card in relation to the overall line of credit.

Yet, there seems to be little that consumers may be able to do if their lender implements this practice, but there are indications that it is not affecting a wide number of cardholders. However, this is obviously very frustrating for cardholders and for individuals who may be attempting to rebuild or maintain a positive score, but one of the ways to combat the negative effects that this decrease in their credit limit may have is to simply keep low balances on their credit cards. While decreases on multiple cards would still show at consumer may have less credit available, if credit card debts are not excessive, it could be less harmful to a credit score than if they had a high amount of debt was present coupled with a drop in their credit limit.

California homeowners may be able to take advantage of principal reductions from Bank of America thanks to a new initiative in conjunction with the Hardest Hit Fund and the California Housing Finance Agency, as new efforts to offer principal forgiveness for underwater borrowers are underway in one of the nation’s hardest hit states, in terms of underwater home loans. Numerous financial institutions have been offering home loan modifications as a way to bring about more affordability when it comes to paying a monthly mortgage payment, but certain states, like California, have seen a particularly distressful situation as property values have plummeted and levels of unemployment have remained quite problematic.

Yet, Housingwire.com reported that Bank of America is one of the major lenders that will launch a new program in the coming weeks that could bring principal write-downs to California, as many states who are using funds from the Hardest Hit Program to offer solutions from their state housing agencies are looking for ways to address underwater mortgages, among other things. Many programs from the HHF which have been implemented in these particular states where unemployment and negative equity have been troubling are in a position to help homeowners find either unemployment assistance, underwater home loan aid, and there are even some states that may bring homeowners current when they are behind on their mortgage, but mortgage servicers usually have to sign on before homeowners can take advantage of these programs.

While principal reductions have been a debated issue and in the coming days major financial institutions are set to speak with government officials about offering more write-downs on a larger scale, typically in association with modifications, there are some commentators who feel that principle reductions could be problematic. Obviously, there are apparent reasons for some financial institutions opposing principle right down, but there are also complaints that some homeowners may receive principal forgiveness while other homeowners, who may also have negative equity but not as severe, may not qualify for a principal reduction, and many have seen this as a moral hazard.

Understandably, not all homeowners will be able to receive principal forgiveness even when negative equity is in place, but it’s hoped that solutions through either programs like the Hardest Hit Fund or initiatives directly from servicers will be able to offer some form of mortgage principal assistance if they write-down in a homeowner’s principal, coupled with a modification, prevent foreclosure and offer long-term solutions. Some homeowners may have received principal forgiveness, yet found themselves in a situation where they lost their home to foreclosure anyway, and it’s hoped that instances where this particular predicament arises can be avoided, but homeowners in a negative equity situation may be helped in the coming weeks as more banks and officials are beginning to address negative equity and principal write-downs.