We’ve already expressed our initial thoughts about the Housing Affordability and Stability Plan announced last week. We also weren’t shy in expressing our unfavorable reaction in the HSH Market Trends newsletter:

We also don’t see anything to like in either of the “incentive” provisions. Paying servicers $1000 per year for up to three years because the borrower made payments on time is ludicrous. Servicers exist to service loans. What additional services will they perform to warrant a bonus?

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The term “nationalization” has been mentioned quite a bit over the past couple weeks as a possible solution to the banking crisis. What is it exactly? How would it affect your account? The Wall Street Journal breaks down nationalization:

What does “bank nationalization” mean?

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“It’s beyond hypothetical. I think all of the agencies are committed to coming up with a program for troubled asset relief,” said FDIC Chairman Sheila Bair in a recent interview with the Wall Street Journal. Bair was responding to a question regarding the status of recent talks between several federal agencies regarding the need to get troubled assets off the books of financial institutions via an “aggregator bank.”

How would such a bank work? Read the rest of this entry »

Fresh statistics today revealed more bad news for foreclosure assistance. According to the Comptroller of the Currency (OCC), more than 50% of loans modified in the first quarter of 2008 defaulted 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,” said John Dugan, Director of the Comptroller in remarks at the Office of Thrift Supervision’s National Housing Forum today. “The data is similar for mortgages modified in the second quarter: the re-default rate after three months was 39 percent, and after six months, 51 percent.”

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Beginning at the end of last month, reports began to surface about the Federal Deposit Insurance Corporation’s plan to modify approximately two million delinquent mortgages. In the meantime, while other government and private foreclosure initiatives were announced, the FDIC’s plan had seemingly been delayed behind the White House’s opposition to the plan.

Today the FDIC released the details of the plan on their website. How will the effectiveness of this plan differ from the other recently announced initiatives? According to the FDIC there’s a problem: loan modification is a slow process — one that yields too few results. Their solution to speed the process is to guarantee to cover up to 50% of the loss sustained from “redefaults of modified mortgages.” The FDIC’s plan offers lenders an incentive of $1,000 for every modified loan, as opposed to the FHFA’s proposed $800, and will restructure the loan down to 31% of the borrower’s “mortgage debt-to-income ratio,” as opposed to the FHFA’s “industry standard” of 38%. Yet, these modifications are going to be made for non-GSE loans only, meaning jumbos and other non-conforming loans.

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As is its custom, the Federal Deposit Insurance Corp. (FDIC) waited until late Friday to announce additional bank takeovers. Franklin Bank (Texas) will merge into Prosperity Bank of El Campo, Texas, and its branches will reopen under the new name on Monday. Under a similar arrangement, Security Pacific Bank (Los Angeles California) will sport the name of its merger partner, Pacific Western Bank, also based in L.A. The two takeovers are the 18th and 19th bank failures this year.

Franklin Bank’s takeover was noteworthy for one ironic reason:

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For the purposes of a follow up to a story we published on October 30, be sure to read this post from Calculated Risk and the accompanying Wall Street Journal article “Homeowners Wait as Relief Plan Drags.”

The FDIC’s plan to stem foreclosures is designed to convince lenders to rework certain mortgages with the guarantee that the government will cover part or most of any loss sustained from the restructured loan. The plan is expected to benefit between two and three million homeowners. Between $40-$50 billion would be utilized from the Treasury’s $700 billion rescue plan.

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A few sources have begun to leak information regarding the FDIC’s negotiations with the Treasury Department to rework as many as three million mortgages. The initiative comes as Congress has grown increasingly frustrated with the $700 billion allotted for a financial rescue being mostly dedicated to financial institutions rather than homeowners.

The program which is estimated to cost between $40-$50 billion, is designed to get lenders to agree to reduce a borrower’s monthly payments by either reducing their interest rate or the principal on the loan. The appeal for lenders resides in the governments guarantee to repay the lender a portion of their losses if the homeowner defaults on the newly restructured loan.

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Today’s issue of HSH’s Market Trends Newsletter focuses on the larger-than-expected rise in mortgage rates, discusses last week’s decision by the US to invest billions the nation’s largest banks, as well as documenting the latest economic reports and their effect on consumers:

The Federal Reserve, the Treasury, and the FDIC called nine of the nation’s most important bankers to a special meeting over last weekend, where they were asked to sign an agreement to sell the government preferred equity positions in each of the firms to help more fully capitalize them, and in turn, hopefully loosen frozen lending markets. At the same time, and in order to not spook investors, they offered to guarantee bank debt obligations for the next three years. An initial $125 billion was spent at the meeting, with another $125B available for any other banks which might voluntarily wish to participate.

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In a 74-25 vote, the US Senate approved their version of the $700 billion plan. New key components of the Senate’s plan include an increase to the FDIC’s insurance limits, a change to fair-value accounting rules, and a 10 year, $150.50 billion package of “unrelated and personal tax cuts:”

The 10-year, $150.5 billion package of tax proposals includes a measure to ease the bite of the alternative minimum tax, as well as research-and-development tax credits coveted by high-tech companies and drug makers. Its addition is designed to secure the support of Republicans, who were overwhelmingly opposed in the House. But it could irk conservative House Democrats because the measure will add to the deficit.

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