by Calculated Risk on 7/10/2009 12:21:00 AM

From the WaPo: White House Prods Banks

In a two-page letter [to the country's largest banks], Treasury Secretary Timothy F. Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development, acknowledge that the government program, known as Making Home Affordable, has yet to gain traction since being launched in March.

"We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share," the letter said.
...
The banks were also told to designate a senior liaison for the program and to prepare for a July 28 meeting with senior Treasury and HUD officials ...

"We are asking that all servicers expand servicing capacity and improve the execution quality of loan modifications in order to help the sizable number of homeowners at risk of foreclosure and eligible for the program," the letter said.

The administration will begin issuing monthly reports by Aug. 4 detailing lenders' performance ...

The results have been disappointing so far, with few modifications and a high re-default rate. Also most of the modifications so far have been the "extend and pretend" type, with a capitalization of missed payments and fees, lower interest rates, and longer terms - leaving many borrowers with significant negative equity and high likelihood of a future default.

by Calculated Risk on 7/09/2009 09:43:00 PM

This article quotes a couple of mortgage brokers who somehow think the loss of stated income loans is a bad thing - and one who thinks they will "re-emerge over the next six months" ...

From James Temple at the San Francisco Chronicle: Undocumented income makes it hard to get a loan

With more than $300,000 in combined annual income, tens of thousands of dollars in the bank and credit scores that top 800, Jennifer France and her partner would seem like ideal candidates for a mortgage refinance.

But when they applied to swap an interest-only loan on their nearly $1 million San Carlos home for a 30-year fixed that locked in today's low rates, they were summarily denied. The reason: effectively, because both operate their own businesses.
...
A few years ago, theirs would have been the ideal scenario for a stated-income or no-documentation loan, which allowed individuals with ample but unconventional sources of income to secure home loans. But after untold numbers of borrowers lied about their financial wherewithal to buy homes they couldn't afford, often with a wink and nod from mortgage brokers, nearly all lenders stopped offering what became known derisively as "liar loans." Now even the well-qualified borrowers for whom the products were first intended can't get them.

This misses the point. It wasn't that stated income loans were "liar loans", although that is a fun name. The problem is: Stated income loans were borrower underwritten loans, not lender unwritten loans.

The borrowers above weren't denied because they "operate their own business". They were denied because they didn't meet the underwriting standards of the lender.

And a couple of posts from Tanta on the subject in 2007:

Just Say No To Stated Income. Excerpt:

Every lender can make an exception to the two-year average rule-of-thumb for determining "qualifying income." If you just stopped being Nurse Sue and became Assistant Professor of Nursing Sue, and you spent the last two years renting while you were building up your credentials for that career move, waiting to buy until it made more financial sense for you, and you can give me the W-2s, rental history, and employment agreement with Nursing U to prove it, I won't just make you a loan, I'll cut your cake and give you a big warm hug because you're my kind of borrower.

If you've been behind the counter at Taco Bell for the last two years, but just recently got put on the payroll at your brother-in-law's new vitamin supplement marketing startup company, and now you'd like to do a cash-out refi to make a little investment with? You will be "qualified" on your average Taco Bell income for the last two years. I'm the underwriter. I make the rules. You do not get to "underwrite yourself" by deciding that my rule on qualifying income is "unfair" to you and therefore you can get around them by "going stated."

And What's Really Wrong With Stated Income .

And from the article:

Chris George, president of CMG Mortgage in San Ramon, predicts that no-doc loans and other nontraditional mortgages will begin to re-emerge over the next six months, as creditors gain confidence.

Geesh - I hope not. Paging all regulators: Read Tanta's posts. Borrower underwritten loans should be permanently banned. Enough said.

by Calculated Risk on 7/09/2009 07:42:00 PM

From Bloomberg: FDIC Said to be Unwilling to Back CIT Debt on Risk (ht Bob_in_MA)

The [FDIC] is unwilling to give CIT Group Inc. access to its Temporary Liquidity Guarantee Program because the commercial lender’s credit quality is deteriorating [unidentified sources say] ... The FDIC, which has backed $274 billion in bond sales under the TLGP since Nov. 25, is concerned that guaranteeing CIT debt would put taxpayer money at risk ...

CIT ... became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury. ... Without access to TLGP, CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.

The federal agency is in discussions with CIT about how the lender can strengthen its financial position to get approval, such as by raising capital, said one of the people. ...

CIT has about $75 billion in assets.

by Calculated Risk on 7/09/2009 04:25:00 PM

This might be the start of a number of condo / homeowner associations filing bankruptcy because of the housing bust ...

From the Daily Business Review: Bankruptcy: $1 million debt sends condo association into Chapter 11 (ht Soylent Green is People)

Facing almost $1 million in claims by unsecured creditors, a troublesome recreational lease, and at least 100 unit owners delinquent on payments of their fees, the association filed a Chapter 11 petition last month in U.S. Bankruptcy Court in Miami.

As one of the first condo association bankruptcies of the current economic crisis ... With residential foreclosures and personal bankruptcies soaring in South Florida, Maison Grande’s decision is expected to become more commonplace, said attorney Aleida Martinez Molina of Becker & Poliakoff in Coral Gables.
...
The significant drop in property values is a key factor pushing associations toward bankruptcy filings, said attorney Robert Kaye of Kaye & Bender in Fort Lauderdale. ... “In prior times, there was enough equity in all the properties [in an association] so that assets would likely exceed liabilities,” he said. “Now, since a large percentage of associations are upside down, that’s changing their view about bankruptcy. Their debts have overtaken their assets.”

by Calculated Risk on 7/09/2009 03:06:00 PM

From the WaPo: Treasury Works on 'Plan C' To Fend Off Lingering Threats

... the Treasury Department has assembled a team to examine what could yet bring it down and has identified several trouble spots ... Informally known as Plan C, the internal project is focused on vexing problems such as the distressed commercial real estate markets, the high rate of delinquencies among homeowners, and the struggles of community and regional banks, said government sources familiar with the effort.
...
The team is also responsible for considering potential government responses, but top officials within the Obama administration are wary of rolling out initiatives that would commit massive amounts of federal resources ...

The officials in charge of Plan C -- named to allude to a last line of defense -- face a particular challenge in addressing the breakdown of commercial real estate lending. ... these groups face a tidal wave of commercial real estate debt -- some estimates peg the total at more than $3 trillion -- that they will need to refinance. ...

Thousands of these institutions wrote billions of dollars in mortgages on strip malls, doctors offices and drive-through restaurants. These commercial loans required a lot of scrutiny and a leap of faith, and, for much of the decade, the smaller banks that leapt were rewarded with outsize profits.

In doing so, many took on bigger and bigger risks. By the beginning of the recession in December 2007, the median midsize bank held commercial real estate loans worth 3.55 times its capital cushion -- its reserve against unexpected losses -- according to the Federal Deposit Insurance Corp.

... Another issue identified by the Plan C team is homeowner delinquencies, which continue to rise as large numbers of people lose their jobs and miss monthly payments.

"A lot of scrutiny and a leap of faith"? More of the later, not enough of the former. It didn't take much "scrutiny" to understand there was substantial overbuilding in CRE, especially for retail space and for hotels. And yet banks kept making loans in 2006, 2007 and even in 2008 ...