Image courtesy Ricardo Carreon via flickr

The plan is to purchase $40 BILLION per month in Mortgage Backed Securities “until such time as unemployment reaches an acceptable level”. But Bernanke’s statement omitted any direct benchmark as to what an “acceptable” unemployment number would be. And, the big question that few in the main stream media have asked is “How in heck will purchasing MBS’s have a direct impact on unemployment?” But I suppose the answer is that as long as you protect the big banks from collapsing under the weight of mortgage assets that are worth less than one-half of their face value, you are essentially protecting the economy from further job losses. This post from John Wu helps explain what Bernanke is really doing.

Everyone at the Fed is well aware of how unpopular another trillion dollar banking bailout would be if the public actually KNEW that the taxpayers were about to pony up another 2 or 3 trillion dollars to help the banks out, not to mention politically unpopular in a big election year.

So, Bernanke is doing this for “the man on the street” to help grow more jobs and reduce unemployment. It’s the one angle that the public will tolerate, and besides most people have no idea what Mortgage Backed Securities are, and how buying them actually impacts the economy.

We’ve had QE1, QE2, and Operation Twist since November of 2008, growing the FED balance sheet by TRILLIONS of dollars. Yet unemployment is still above 8% “Officially”, while private analysts using real numbers (not government accounting gimmicks), placed the unemployment level for August 2012 at 22.8%.

Housing is still in the tank. Mortgage credit is still very difficult to obtain, and home sales have improved only marginally. At present mortgage rates are around their lowest level since 1956, yet this has failed to jump-start the housing market. It’s very difficult to see how buying trillions more in MBS’s will result in a different outcome than we’ve already seen.

No, the real strategy here is to cover up a second bailout of banks and the bad assets they are holding. When Bernanke says “prices are not rising”, or “Inflation remains low” he’s not referring to YOUR food prices or YOUR inflation rate, he’s referring to the value of bank owned mortgage’s or Mortgage Backed Securities. In his world, inflation is non-existent and deflation is the real problem. If you live atop the banking and finance pyramid, as Bernanke does, you see the problem in a totally different light.

Bernanke obviously believes that saving “main-street” means funneling money to the big banks for as long as necessary. And that’s exactly what an open-ended QE3 is really about. It’s a very dangerous position Bernanke is taking. The market fundamentals that are keeping home values low and delinquency rates high are like a tidal wave which Bernanke seems to believe he can hold back with a large bucket of sand.

In fact, Reggie Middleton, of BoomBustBlog.com has called Bernanke out on this and says that Bernanke is “lying through his teeth“. The general media just accepts it as if it were a normal occurrence. Middleton further points out that if Bernanke were interested in reducing unemployment, he could purchase SBA bonds and funnel the money directly into loans for small business, and hit the unemployment problem directly at the business level.

Instead Bernanke has chosen to force interest rates even lower, continue to prop up the banks, and buy MBS’s for as long as it’s needed. The direct beneficiary of this policy is the big banks who will be unloading their mortgages at what will likely be a much better price than they’d get if they were forced to sell them on the open market.

So the same game of hiding toxic assets, that began with the 2008 crisis is continuing today – pump up the banks and hope that the housing market and broader economy begins to recover before the dollar totally collapses.
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Donna S. Robinson is a real estate market analyst, investor, author and speaker in Atlanta, GA Follow her on twitter at donnaconsults and read her blog at her website: RealtyBizConsulting.com

Background on the Settlement

The settlement comes from a government probe of lenders’ foreclosure practices. The key milestone motivating the government to investigate was when Ally Financial, which used to be known as GMAC Mortgage, stopped foreclosing on properties in 23 different states in September of 2010 after an internal review uncovered issues with their foreclosure paperwork. Soon after Ally/GMAC did this, other major lenders including JP Morgan Chase (who bought Washington Mutual) and Bank of America (who bought Countrywide Mortgage) followed suit. By mid-October of 2010, every state attorney general in the country united with the Federal Government to create a nationwide investigation.

Their investigation found a number of shortcuts including “robo-signing” of documents, unclear chains of title, and forged documents. They also found that lenders were imposing illegal fees. As a result of the probe, the states, Feds, and lenders agreed on the $26 billion settlement package.

Participants in the Settlement

The five largest lenders in the country, Wells Fargo Mortgage, Bank of America, JP Morgan Chase, Ally Financial and Citigroup are the primary defendants in the settlement. These banks who together represent 55% of the home mortgage refinance and new home mortgage loans made in the United States are liable for the entire $26 billion settlement, although nine other, smaller banks can join by contributing around $7 billion more. As of February 15, these lenders and loan servicers remain unnamed.

The Federal Government and 49 states have all participated in the settlement. Although Oklahoma is not a part of this settlement, they negotiated a separate agreement for $18.6 million with the five lenders.

Details of the Settlement

While many people think that this means that the banks are paying $26 billion for their abuses, this is far from the truth. The five banks will pay $5 billion in cash to be split between the Feds and the 49 states, and Bank of America Mortgage will pay an additional $500 million to settle outstanding fraud claims against its Countrywide subsidiary with an additional $500 million to be paid over three years if it does not meet targets for offering selected clients forgiveness of their loans.

The $20 billion remainder of the settlement will come from “soft” money. $3 billion will be earmarked to providing home mortgage refinance loans for people with current loans. The remaining $17 billion will be earmarked to help borrowers who are both in some form of default and upside down on their loans. While the $17 billion appears to be earmarked for principal reduction, it can, in fact, be used for other purposes as well. Interestingly enough, the $17 billion will not all come from banks. Much of it will come in the form of investors receiving reduced returns on the mortgage backed securities that they bought from the banks.

Winners and Losers

At first glance, it may appear that the banks are the big winners in this settlement, given the fact that their total cash expenditure is only a little bit more than Wells Fargo’s third quarter 2011 profit of $4.06 billion. However, the settlement contains very little legal protection for banks. Many individual state lawsuits will continue proceeding, individual homeowners can still sue them, and the Federal Government can still come after them.

Consumers are not winners in this settlement, either. The $5 billion in funds for people who were improperly foreclosed upon works out to a settlement amount of around $2,000. Some pundits feel that this sets a precedent, allowing banks to subvert foreclosure law in the future knowing that they will be subject to, at worst, a $2,000 penalty. The remaining funds for loan refinances and principal reductions will be recouped by reducing the returns that investors receive. Unfortunately, those investors are, in many cases, the same customers who indirectly own pieces of the loans through their pensions, 401Ks, and insurance policies.

Given the $700 billion in negative equity outstanding in today’s mortgage market, this settlement is unlikely to make a meaningful difference in the economy as a whole. As such, it is really a victory for no one, other than the government who can claim to have done something to alleviate the problem.

Author’s Bio: Jonah Trenton, of Refinance Mortgage Rates, offers his expert analysis and views on financial and other key industry sectors. Refinance Mortgage Rates is an organization focused on creating and presenting original and accurate content and data in the mortgage, refinance and real estate markets. We strive to help, inform and educate consumers within a wide range of financial situations in a troubled economic climate.

Image courtesy of © iQoncept – Fotolia.com

The Scottish Property Federation reports scarecely more than £1.9 billion in transactions having occurred during all of 2011, that number down some 25.5 per cent on a 9.5 per cent drop in transactions overall compared to 2010. On a whole financial news from Scotland has been dismal of late. The Guardian reported on the North of England having been hit hardest overall in this recession, telling of rising unemployment and discontent with budget cuts. All Scotland is cast now into a scenario not unlike Greece, Ireland, Spain, and other EU countries.

Lending on real estate has been tumbling for more than two years now according to numbers from the Bank of England. And on the residential side of the real estate market in Scotland, things are not looking any brighter. Falling prices by the end of 2011 signal harder times for an overall real estate market stricken like all else in the North by the biggest economic downturn since the Great Depression, maybe ever.

To  make matters worse politically and banking wise, the Daily Record reports state owner Royal Bank of Scotland raking in over £530million pre-tax profits for 2011. With all of Scotland still reeling to dig out of a money disaster, RBS is being raked over the coals for sacking 21,000 employees then forking over huge bonuses to their top decision makers. RBS is not stranger to upheaval and ill fated decisions, the bank reported the largest ever single loss for any UK bank of £24billion after the takeover of Dutch bank ABN Amro.

Taken on the whole, the news of Scotland’s continued woes has to weigh heavily on the UK and the world in general. RBS boss Stephen Hester’s huge bonuses, Swiss ski chalets, public outcry, RBS and the entire Scotland banking sector would seem suspect for many. In 2010 Hester alone took home in excess of £6.5m in bonuses and pension payments. The UK Government owns upwards of 80% of RBS.

We will update this news as the story develops. We leave you with Hester reporting on 2011 results for RBS.

Banks are finally lending more money again, but only for the rich... © Sielan - Fotolia.com

According to the New York Times, banks have once again increased the flow of the borrowing tap, and loan growth, despite the fact it is still at a rather modest level, cannot be disputed, although it is mostly just strong corporate and consumer borrowers who are benefiting, the paper notes.

Due to more stringent qualifying criteria for loans being introduced over the last couple of years, many people have found it increasingly difficult to be able to actually qualify for a loan these days.

But, according to Timothy Sloan of Wells Fargo, the belief that banks aren’t doling out money anymore is wrong. “Lending is strong right now,” he said. “And it will continue to grow, based on what we are seeing right now.”

One fine example is Citigroup, which recently announced third quarter loan growth in almost all of its businesses.

Experts say that the growth in the number of loans being granted is likely due to two factors – borrowers cashing in on their credit lines, and interest rates which are at a record low.

Home loans however, have not risen, and perhaps this more than anything else is a telling sign of how much harder it is for the average person to get credit. Borrowing for mortgages and home equity loans have seen a 6.2% decline since their 2007 peak, according to data provided by the Federal Reserve.

And there’s still a long way to go before we see any real improvements, says Bernard Baumohl of the Economic Outlook Group. He said that although borrowing may have increased, the situation right now is not even close to where it needs to be for the economy to start growing properly once again, and for more jobs to be created.

Peggy Tanous' website landing page

She claims that an agreement was in place with the banks to pay interest only for 10 years. Unfortunately the banks don’t seem to have recognized this as they issued a foreclosure notice in November 2010. Tanous and her Internet entrepreneur husband, Micah have also fallen behind with their property taxes but say an agreement had already been worked out to pay back the money owed.

The couple bought their home in 2006 for $1,379,000, and made payments for two years before experiencing financial trouble. Court records show they have two mortgages, one for $312,540 and one for $1 million, and that the total amount owed is $1,318,253. Unfortunately the property was assessed at just $875,000 in 2009, and median home values in Irvine are currently $517,000 having fallen by 17% year-on-year. Their court case is part of a new foreclosure relief settlement program unique to California and designed to try and stem the flood of foreclosures.

Peggy Tanous, her husband Micah, and their little girls

Viewers will be relieved to know the court case hasn’t dampened Tanous’ enthusiasm for the luxury lifestyle, and a recent video tour of her home on OC Register showed how she escapes reality in her very own home movie theater, complete with “butt shakers.” You can check out some of Peggy’s “online real estate” via this link to her Facebook pages, and her Twitter profile here.

Losses due to foreclosures and their associated costs have affected the banks’ profits for several quarters, and were responsible for a 39% loss of income during the first quarter of this year. Figures show that residential and commercial customers with $24 billion worth of loans were late by 90 days or more, and the bank already owns $2 billion of foreclosed properties.

Brian Moynihan Bank of America CEO

Moynihan tried his best to reassure shareholders with a tale of two banks; one consisting of the mortgage business and the other being made up of other business concerns. It doesn’t exactly make a reassuring story as the bank is amongst the worst performers of the S&P 500 index this year, and was the only large bank out of the big four to fail the Federal Reserve stress test.

Bank of America Stadium may turn into the Rome Colloseum for Execs

One shareholder, Michael Garland, who was there representing the New York City Comptroller’s Office, as well as several large public pension funds had written to the bank requesting an independent review of foreclosures and mortgages, to ensure that all conform to current laws. He didn’t receive a reply until five days before the meeting. The New York Comptroller’s Office had also proposed that the bank conduct an independent review at the shareholders meeting, but failed to get enough votes to force the bank to comply.

Still at least the shareholders were sitting comfortably on plush red velvet seats, as the meeting was held in the brand new auditorium in recently opened 32-storey Bank of America Tower.

This is the governments latest jab at mortgage lenders designed to bring about retribution for their past sins, but like the others, it is by no means a knockout punch.  The joint report issued by the Federal Reserve, Office of the Comptroller of the Currency, and Office of Thrift Supervision, indicated that the three regulators would review the foreclosure audits and would levy fines in the future.

The lenders have 45 days to hire an auditor and reimburse the borrowers for any errors or other missteps during the foreclosure process.  The report did not specify a minimum or maximum amount to be reimbursed.

As with many of the other perceived wrist slaps on financial institutions, House Democrats were not at all impressed with the “lenient” order, and they would prefer lenders be forced to go through more steps before they can even start the foreclosure process.  Their new legislation will address that concern.

Since 2007, lenders have foreclosed on approximately 5 million homes, and lenders like Ally Financial (formerly GMAC) said they did not find any customers going through foreclosure who were not in “serious default” of their loans.  To that end, this latest order may be little more than a small bandage on a very large wound in the housing market.

Last year the European Central Bank and International Monetary Fund poured $14.8 billion into the Irish banks, and if the bulk of the total debt is to be paid, it will approach $140 billion (EUR 99 billion), a price that is far to high for Irish banks to hope to pay.

Irish Life and Permanent was the only bank in Ireland to not receive a bailout from the government, but that may soon change, as the stress test is expected to reveal that IL&P will need $2.83 to 4.43 billion to pay its own debt amassed from unrecoverable mortgage losses.  If the results are deemed to be sound, IL&P will be the sixth and final major lender in the country to become partially or fully owned by the government.

The entire country of Ireland has a gross domestic product of only $241 billion. With this insurmountable debt and government interest rates expected to rise to 13 percent by 2012, bondholders will likely have to shoulder some of the debt to save the country’s economy.

The settlement would cover only those homeowners who were so underwater that foreclosure would be inevitable.  This way, the homeowners can avoid foreclosure, and the banks can begin to recover from the backlog of delinquent loans.

“Short sales just command a better premium than foreclosures,” said Glenn Kelman, chief executive for online brokerage Redfin. “It’s like day-old bagels. They never sell for the same price. If they sit there for a while, nobody wants them because houses just break down when they are left alone.”

This news comes just days after the Census Bureau estimated that possibly as high as 13 percent of homes in the U.S. are “day-old bagels”.  But even if the number is closer to 9 percent, that is still bad news for a struggling real estate industry, and banks that felt pressure from all of the default loans apparently went on autopilot, signing off on foreclosures without anyone actually reading the documents.

The settlement will involve executives from the top five mortgage lenders, Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and Ally Financial Inc.  The five will meet with federal officials to iron out the settlement, which could range from $5 billion to $25 billion.

Feature image, courtesy: Svilen Milev.

Haitian Children

Created after the horrific 2010 earthquake in Haiti, the Internet Haiti Recovery Commission (IHRC) approved the project and has been gathering funds from donors, non-governmental organizations (NGOs), and private contributors.  The seed funding will help Haitian banks, lenders, and micro-finance lenders provide loans to Haitians for home repairs and purchases.

Similar programs have been successfully implemented in other parts of the world, particularly in developing countries.  Representatives from the Clinton Bush Haiti Fund hope the effort will provide some economic stability and sustainability for Haiti’s future.

After the devastating earthquake in Haiti in January of 2010, U.S. President Barack Obama called on former presidents Bill Clinton and George W. Bush to raise money to help the people of Haiti rebuild.  The joint venture was named the Clinton Bush Haiti Fund , and it has since provided millions to bring relief to the people of Haiti.

Bush, Clinton, and Obama

For more information about the Clinton Bush Haiti Fund or to make a donation, visit ClintonBushHaitiFund.org or text “QUAKE” to 20222 to donate $10 via mobile phone.

“Haitian Children” Image Courtesy: B Pete.